<PAGE>
As filed with the Securities and Exchange Commission on July 22, 1999
Registration No. 333-[ ]
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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NETCENTIVES INC.
(Exact Name of Registrant as Specified in Its Charter)
---------------
<TABLE>
<S> <C> <C>
Delaware 7389 93-1213291
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
690 Fifth Street
San Francisco, CA 94107
(415) 538-1888
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
---------------
West Shell, III
Chairman and Chief Executive Officer
Netcentives Inc.
690 Fifth Street
San Francisco, CA 94107
(415) 538-1888
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
---------------
Copies to:
<TABLE>
<S> <C>
Craig W. Johnson Mark A. Bertelsen
Elias J. Blawie Jose F. Macias
Sanjay K. Khare Betsey Sue
Matthew Oshinsky Melissa V. Hollatz
VENTURE LAW GROUP WILSON SONSINI GOODRICH & ROSATI
A Professional Corporation Professional Corporation
2800 Sand Hill Road 650 Page Mill Road
Menlo Park, CA 94025 Palo Alto, CA 94304
(650) 854-4488 (650) 493-9300
</TABLE>
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
---------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
Proposed
Title Of Each Class Of Securities To Be Maximum Aggregate Amount Of
Registered Offering Price (1) Registration Fee
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<S> <C> <C>
Common Stock, par value $0.001........... $69,000,000 $19,182
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</TABLE>
(1) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(o) under the Securities Act.
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>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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 it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JULY 22, 1999
Shares
Common Stock
---------
Prior to this offering, there has been no public market for our common stock.
The initial public offering price of the common stock is expected to be between
$ and $ per share. We will apply to list the common stock on The
Nasdaq Stock Market's National Market under the symbol "NCNT."
The underwriters have an option to purchase a maximum of additional
shares to cover over-allotments of shares.
Investing in the common stock involves risks. See "Risk Factors" on page 4.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions Netcentives
-------------- -------------- --------------
<S> <C> <C> <C>
Per Share.................................. $ $ $
Total...................................... $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about , 1999.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
Credit Suisse First Boston
Hambrecht & Quist
Thomas Weisel Partners LLC
The date of this prospectus is , 1999
<PAGE>
[INSIDE FRONT COVER]
[Netcentives Symbol with stylized
logo containing descriptions of the
four major Netcentives products]
[Netcentives name and logo w/ the Netcentives logo enlarged in the middle of
the page with stylized text around the logo in the shape of the logo]
Text: ClickRewards is an Internet-based rewards transaction system and
promotional network that enables Internet marketers to increase sales and win
customer loyalty. ClickRewards is a secure, scalable processing system that
lets a company reward ClickMiles (i.e., frequent flyer miles) into a
customer's account in real time. ClickRewards is the exclusive points-based
Internet network program that rewards consumers with frequent flyer miles on
eight major airlines as well as other valuable merchandise. Online customers
can earn ClickMiles when they make purchases and other qualifying transactions
at ClickRewards Merchant Partner sites. Consequently, ClickRewards is
effective at driving Web traffic and building lasting relationships.
Text: Netcentives is able to extend its own proprietary technology through
Enterprise Incentive Solutions. Using ClickMiles, the program can be used to
achieve a wide set of on-the-job goals- from encouraging recruitment drives to
completing sales objectives or for any performance goal a company chooses. A
company can motivate an entire workforce, individual departments, even its
business partners. Deployed to the workplace via the Internet, an intranet, or
an extranet, Netcentives' Enterprise Incentive Solutions are automated online,
where employees can check their ClickMiles balance on a statement designed
with the look and feel of the Company.
Text: A team of experts is ready to help online and off-line companies develop
cost-effective e-commerce and other electronic business applications.
Netcentives Professional Services (NPS) offers a full range of IT services,
including e-commerce systems design, Web assessment and development, and
database management. NPS specializes in the integration of online technologies
with key infrastructure systems, helping transform e-commerce into mainstream
commerce for our client's businesses. Key NPS benefits include security,
scalability, and reliability. In summary, NPS is a client's e-commerce
partner. Centered around client relationships, dedicated to success, trusted
by customers, and focused on delivering a project into production.
Text: Any large organization with ample transaction volume and customer
earning opportunities can create their own branded rewards network using a
Custom Loyalty Network from Netcentives. Using Netcentives' proven scalable
technology, patented processes, and trusted expertise, a business can work to
increase their Return on Loyalty (not just ROI) in the e-commerce marketplace.
Netcentives evaluates a company's needs and economics, designs a customized
program with the proper rewards program and functionality, then provides the
software, planning, online and off-line advertising - plus Web site design and
network support - to launch and maintain an ongoing, successful customer
loyalty program.
<PAGE>
[GATEFOLD ONE]
GATE FOLD DESCRIPTION
[ClickRewards Name and Logo]
Text: The ClickRewards Network is a powerful online promotion and loyalty
program that allows e-commerce sites to reward consumers with ClickMiles, a
digital promotion currency. Top e-commerce companies, including
BarnesandNoble.com, E*Trade, Mags.com, OfficeMax.com and Preview Travel, use
ClickMiles as an incentive to convert browsers to buyers and reward loyalty.
The program is free for consumers to join, and it's easy for them to earn
ClickMiles for doing things like purchasing products, downloading software, or
filling out surveys. Currently, over 1,400,000 members have joined.
Text: ClickMiles, the promotion currency of the ClickRewards Network, can be
redeemed one-for-one for frequent flyer miles or for valuable goods and
services. ClickRewards is the only points-based Internet promotions network to
have exclusive agreement with eight major airlines.
Text: JOIN. Membership is free and easy. Members can sign up at the
ClickRewards Web site or simply take advantage of a qualifying offer at one of
the merchants in the ClickRewards Network.
Text: SHOP. Members shop at a variety of online merchants in the ClickRewards
Network. Each merchant can customize the number of ClickMiles awarded for
purchases made at their Web site.
Text: EARN: Members can earn ClickMiles for doing things like purchasing
products, downloading software or filling out surveys.
Text: TRACK. Members can easily access their password-protected account
statement by visiting the ClickRewards Web site.
Text: REDEEM. Members can redeem their ClickMiles by submitting a redemption
request at the ClickRewards Web site. ClickMiles are redeemable one-for-one
for frequent flyer miles on eight major airlines, as well as for other
valuable rewards. ClickMiles can be combined with the member's already
existing frequent flyer miles in order to earn award travel faster on the
airline of their choice.
Text: ClickRewards is a flexible promotional tool that is designed to enable
merchants to convert browsers to buyers, increase average purchase size, drive
repeat purchases and build consumer loyalty.
[Screen Shot of the ClickRewards.com Internet home page]
CLICKREWARDS MERCHANT NETWORK:
[Logos: barnesandnoble.com, macy's.com, theknot.com, Preview Travel, CDNOW,
enutrition, msn Shopping, OfficeMax.com, REDHERRING, First Auction, eBags,
E*TRADE, brain Play.com, garden.com, www.WEBFLYER.com, Sports Superstore
Online, 1-800-flowers, xoom.com, Cooking.com.]
Text: ClickRewards members can redeem their ClickMiles for valuable rewards
including the frequent flyer miles of major airlines. REDEEM MILES AT PARTNER
COMPANIES SUCH AS: Logos: AAdvantage, EXECUTIVE CLUB British Airways,
Continental Airlines One Pass, Delta Air Lines, NORTHWEST AIRLINES WORLD
PERKS, Marriott, USAIRWAYS DIVIDEND MILES, AVIATORS TWA, MILEAGE PLUS United
Airlines.
<PAGE>
[GATEFOLD TWO]
<PAGE>
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
Prospectus Summary....................................................... 2
Risk Factors............................................................. 4
Special Note Regarding Forward-Looking Statements........................ 15
Use of Proceeds.......................................................... 16
Dividend Policy.......................................................... 16
Capitalization........................................................... 17
Dilution................................................................. 18
Selected Consolidated Financial Data..................................... 19
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 20
Business................................................................. 30
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Management................................................................. 45
Related Party Transactions................................................. 56
Principal Stockholders..................................................... 58
Description of Capital Stock............................................... 60
Shares Eligible for Future Sale............................................ 62
Underwriting............................................................... 64
Notice to Canadian Residents............................................... 67
Legal Matters.............................................................. 68
Experts.................................................................... 68
Where You Can Find More Information........................................ 68
Index to Consolidated Financial Statements................................. F-1
</TABLE>
------------
You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is legal
to sell these securities. The information in this document may only be accurate
on the date of this document.
------------
All information in this prospectus assumes:
. no exercise of the underwriters' over-allotment option;
. our reincorporation in Delaware prior to completion of this offering;
. the exercise of outstanding warrants to purchase 46,891 shares of stock
which expire upon the closing of this offering;
. the conversion of all outstanding shares of our convertible preferred
stock into an aggregate of 20,522,235 shares of common stock upon
completion of this offering; and
. the filing of our Amended and Restated Certificate of Incorporation,
authorizing a class of 5,000,000 shares of undesignated preferred stock
upon completion of this offering.
------------
Netcentives, ClickRewards, ClickMiles, Custom Loyalty Networks, Enterprise
Incentive Solutions, RewardBroker, Secure Value Transfer Protocol,
SecureRewards Architecture, the Netcentives logo and the ClickRewards logo are
trademarks of Netcentives. This prospectus also contains brand names,
trademarks, or service marks of companies other than Netcentives, which are the
property of their respective holders.
------------
Dealer Prospectus Delivery Obligation
Until , 1999 (25 days after the commencement of the offering), 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 dealer's obligation to deliver a prospectus when acting
as an underwriter and with respect to unsold allotments or subscriptions.
1
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and does not contain all the information you
should consider before buying shares in this offering. You should read the
entire prospectus carefully.
Netcentives Inc.
Netcentives is a leading provider of Internet loyalty, direct marketing and
promotion products and services used by top Web sites to drive consumer
behavior. Netcentives' flagship program, the ClickRewards Network, is a
powerful online promotion and loyalty program that allows e-commerce sites to
reward consumers with ClickMiles, a digital promotion currency, for making
online purchases. Launched in March 1998, the ClickRewards Network, as of July
21, 1999, included over 1.4 million members who have earned, in the aggregate,
over 250 million ClickMiles. Top e-commerce companies, including
barnesandnoble.com, E*TRADE, macys.com, OfficeMax.com, PlanetRx and Preview
Travel, purchase ClickMiles from us and award them to consumers in order to
convert browsers to buyers, increase average purchase size, drive repeat
purchases and build loyalty to their site. Our robust, secure, scalable
transaction processing technology allows consumers to earn rewards currency at
the point of purchase on sites throughout the Web and to track and manage them
in their own personal account at a central Web site.
Utilizing the technology platform we have developed for the ClickRewards
Network and our expertise with promotional products and services, we have
expanded our product offerings to provide Custom Loyalty Networks to portals,
companies with major brands and other Web sites with substantial membership. We
enable these sites to launch self-branded loyalty programs featuring their own
promotion currency. We launched our first Custom Loyalty Network for Looksmart
in July 1999 and are developing additional Custom Loyalty Networks, including
one for the GO Network that we expect to launch in the fourth quarter of 1999.
We have also launched Enterprise Incentive Solutions programs, such as
ClickRewards@Work, that enable corporations to utilize the power of the
ClickMile currency to motivate and reward employees, partners and stakeholders
across their intranets and extranets. We also offer a broad array of
complementary services to our ClickRewards merchants and Custom Loyalty and
Enterprise Incentive customers, including technical consulting and development,
marketing consulting, on-line advertising and sponsorship, partnership
marketing programs and sponsored e-mail offers.
We have exclusive agreements with eight major airlines for the use of their
frequent flyer miles in points-based Internet promotions networks. These
relationships allow consumers to redeem ClickMiles one-for-one for frequent
flyer miles from American Airlines, British Airways (USA), Continental
Airlines, Delta Air Lines, Northwest Airlines, TWA, United Airlines and US
Airways. These exclusive agreements give our ClickRewards merchants the ability
to attract and retain online shoppers using a compelling, relevant, and
differentiated rewards currency. They also give our merchants access to
frequent flyer program members, a set of consumers that we believe has a
demographic profile closely aligned with that of online shoppers. In addition
to frequent flyer miles, ClickRewards and our other programs offer redemption
options such as merchandise and other travel awards.
In order to drive purchases at the merchant Web sites participating in the
ClickRewards Network and to make our products more valuable to them, we
actively recruit a consumer membership base for ClickRewards. Consumers
participating in the ClickRewards and our Custom Loyalty Networks can learn
about offers and track and redeem their loyalty currencies at a centralized Web
site for each network. In addition, for ClickRewards merchants and our Custom
Loyalty Network customers we offer a variety of direct marketing services.
These services include building a rich database of consumer profiles based on
transaction behavior across each network, offering targeted e-mail marketing
using this information and providing promotion management services.
2
<PAGE>
This Offering
<TABLE>
<C> <S>
Common Stock offered........................ shares
Common Stock to be outstanding after this
offering................................... shares
Use of proceeds............................. For general corporate purposes,
including working capital
Proposed Nasdaq National Market symbol...... NCNT
</TABLE>
The information in the above table excludes:
. 4,845,736 shares issuable upon exercise of outstanding options at a
weighted average exercise price of $1.93 per share as of June 30, 1999;
. 615,448 shares issuable upon exercise of outstanding warrants at a
weighted average exercise price of $1.13 per share as of June 30, 1999;
and
. an aggregate of 2,261,888 shares available for future issuance under our
employee benefit plans as of June 30, 1999.
Summary Consolidated Financial Data
(in thousands, except per share data)
<TABLE>
<CAPTION>
Inception Years Ended Three Months
(June 21, 1996) December 31, Ended March 31,
to December 31, ----------------- ----------------
1996 1997 1998 1998 1999
--------------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Consolidated Statements of
Operations Data:
Total revenues.......... -- $ 9 $ 647 $ 15 $ 1,656
Loss from operations.... $ (273) (4,265) (14,408) (2,133) (8,311)
Net loss................ (266) (4,180) (14,111) (2,080) (8,208)
Basic and diluted net
loss per share......... $(0.97) $ (5.70) $ (8.58) $ (1.63) $ (2.73)
Shares used to compute
basic and diluted
net loss per share..... 273 734 1,644 1,276 3,004
</TABLE>
<TABLE>
<CAPTION>
March 31, 1999
-------------------
Actual As Adjusted
------- -----------
<S> <C> <C>
Consolidated Balance Sheets Data:
Cash and equivalents...................................... $31,994
Working capital........................................... 25,277
Deferred revenues--product and services................... 2,857 2,857
Long-term obligations..................................... 887 887
Total stockholders' equity................................ 30,296
</TABLE>
See Note 8 to our Consolidated Financial Statements for an explanation of the
method used to determine the number of shares used to compute the loss per
share amounts.
The as adjusted information in the above table is adjusted to reflect the
sale of shares of common stock offered by Netcentives at an assumed
public offering price of $ per share after deduction of the estimated
underwriting discounts and commissions and estimated offering expenses.
Netcentives was incorporated in California in June 1996, and we expect to
reincorporate into Delaware prior to completing this offering. Our principal
executive offices are located at 690 Fifth Street, San Francisco, California
94107, and our telephone number is (415) 538-1888. Our corporate Web site
address is www.netcentives.com. The ClickRewards consumer web site is found at
www.clickrewards.com. Information contained on our Web sites shall not be
deemed to be a part of this prospectus.
3
<PAGE>
RISK FACTORS
You should carefully consider the following risks before making an
investment decision. The risks described below are not the only ones that we
face. Additional risks not presently known to us or that we currently deem
immaterial also may impair our business operations. Our business, operating
results or financial condition could be harmed by any of these risks or other
risks. In addition, the trading price of our common stock could decline due to
any of these risks, and you may lose all or part of your investment. You
should also refer to the other information set forth in this prospectus,
including the discussion set forth in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business," as well as our
consolidated financial statements and the related notes.
Business Risks
Because we have a limited operating history, it is difficult to evaluate our
business and prospects.
We were incorporated in June 1996 and launched our first product in March
1998. Therefore, we have a limited operating history on which you can base an
investment decision. Furthermore, the Internet promotion and direct marketing
industry is a new industry. As such, our business is subject to certain
challenges that a more mature company or a company operating in a more mature
industry may not face, such as:
. we have an unproven business model;
. members may redeem ClickMiles or our custom loyalty currencies in
unexpected patterns, which may exceed our available cash resources and
cause fluctuations in our operating results;
. we are dependent upon the expansion of the Internet and the growth of e-
commerce;
. we expect competition to intensify as new competitors emerge and existing
competitors offer new products and services;
. we may be unsuccessful in establishing or maintaining our brand;
. we depend on the promotional efforts of our merchants and other third
parties; and
. our sales cycles are unpredictable and may result in quarterly
fluctuations in our operating results which could lower our stock price.
If the market for e-commerce fails to grow, our revenues will not grow.
Our success will depend in large part on the continued growth in the use of
the Internet for commerce. We do not have direct control over the expansion of
e-commerce, and to the extent that the market for e-commerce does not
increase, our customer base and revenues will not grow.
In addition, critical and unresolved issues concerning the commercial use of
the Internet may affect the development of the market for our products and
services, including:
. the ability of consumers, sellers and other intermediaries to conduct e-
commerce on a secure basis;
. the reliability of the Internet for e-commerce, including the regular
availability of e-commerce sites;
. the availability of low-cost access to the Internet for consumers; and
. availability of sufficient telecommunications bandwidth to consumers to
enhance their ability to interact in the e-commerce shopping process.
If our supplier relationships become non-exclusive or are terminated, our
competitive position will be harmed.
We believe that our relationships with major airlines and their frequent
flyer programs are a source of competitive advantage, particularly to the
extent that they remain exclusive in the area of points-based Internet
promotions networks. While we believe that we have established a broad scope
of exclusivity within our agreements with airlines, our competitors could
circumvent the terms of these agreements. Furthermore, in
4
<PAGE>
some cases, airlines may terminate the exclusivity contained in these
agreements following specified notice periods. If the ClickRewards Network
ceases to be the sole points-based Internet promotions network provider of
frequent flyer miles for multiple airlines, our business would be harmed.
Additionally, while most of our agreements for the purchase of frequent
flyer miles and other rewards have extended terms, each of these agreements
may, in some cases, following certain notice periods, be terminated. To the
extent that the ClickRewards program can no longer offer frequent flyer miles
from one or more of our current airline partners or other valuable rewards,
our business would be harmed.
If our merchants terminate their relationships with us, our competitive
position and financial results may suffer.
Our merchants may generally terminate their relationships with us on not
longer than 90 days prior notice. These terminations could occur as a result
of changes in our product or service offerings, competitive developments,
changes affecting the particular merchant's business or otherwise. Any
termination of merchant relationships could harm our business and financial
results either directly through the loss of revenues we generate through these
merchants or more generally through a perception of decreased value by our
members or other merchants participating in the ClickRewards Network.
We are subject to intense competition, and we expect to face increased
competition in the future.
As a provider of loyalty, direct marketing and promotion products and
services, we generally compete with advertising and other promotional programs
for a portion of a customer's total marketing budget. In addition, within the
promotions market, we compete with a variety of businesses in connection with
each of our three programs. For the ClickRewards Network our primary
competition can be categorized as follows:
. loyalty programs operated by and/or for portals and other large e-
commerce sites, such as AOL Rewards;
. Custom Loyalty Networks we operate on behalf of third parties; and
. standalone loyalty programs and promotional tools developed by and/or for
e-commerce sites, such as Autobytel.com Mobalist Rewards, CDnow Fast
Forward Rewards, CBS SportsLine Rewards, Cybergold and MyPoints.
We believe that we face substantial obstacles competing against internally
developed products created by our existing and potential customers. Our
Enterprise Incentive Solutions products and services compete with existing,
offline incentive products provided by parties such as Maritz Marketing
Research, Carlson Marketing Group, Loyalty Group, a division of Alliance Data
Systems and BI Performance Services. Our Custom Loyalty Network and Enterprise
Incentive Solution products and services also compete with products offered by
third parties, such as MyPoints.com.
For each of our programs, we expect competition to intensify as more
competitors enter our market. We believe that such future competition could
come from newly formed companies and, more importantly, from traditional
offline promotions and loyalty companies such as Carlson Marketing Group,
Brierley & Partners and Signature Group, a division of GE Capital. While we
currently operate as a partner with many rewards suppliers, such as airline
frequent flyer programs, any of these suppliers could themselves enter into
our markets and provide us with substantial competition.
Many of our competitors have greater resources than we do, which may impair
our ability to compete.
Many of our current and potential competitors, and in particular offline
promotions companies and offline rewards programs, have longer operating
histories, stronger brand names and significantly greater financial,
technical, marketing and other resources than we do. In addition, these
companies may have existing relationships with our potential customers and may
be able to respond to changes in market dynamics and technology faster than we
can. We cannot assure you that we will be able to compete successfully against
our current or future competitors. If we are unable to compete successfully
against current or future competitors, our business would suffer.
5
<PAGE>
Because our business model is unproven, we cannot assure you that our
revenue will grow or that we will become profitable.
Our business model depends upon our ability to leverage and to expand our
network of ClickRewards Network merchants, Custom Loyalty Network customers,
Enterprise Incentive Solutions customers, rewards partners and members to
generate multiple revenue streams. The potential profitability of this
business model is unproven, and to be successful we must, among other things,
develop and market additional products and services to existing customers
effectively. Finally, we may be forced by competitive pressures, industry
consolidation or otherwise, to change our business model for certain or all of
our customers, in which case our financial results could be harmed. Our
business model may not be successful and we may not sustain revenue growth or
achieve or sustain profitability.
Recent changes to our ClickMiles terms and conditions may cause revenues to
decline.
We recently changed the terms and conditions on which our merchants can
purchase ClickMiles. We cannot provide any assurances that our current
participating customers will accept these policies and remain in our programs
or that we will be able to attract new customers to our programs. Moreover, we
cannot provide any assurances that we will not have to change our pricing
policies again in the future to retain and attract new customers.
If consumers redeem loyalty currencies in unexpected patterns, our
available cash resources could be depleted and our operating results could
fluctuate.
A significant element of our business model is based on the effective
management of the potential financial liabilities associated with our points-
based loyalty products. For example, over time, if the number of ClickMiles or
custom currency points in circulation increases, we will have increasing
liabilities for the potential eventual redemption of these points, and
consequently we will need to maintain adequate cash balances for any such
future redemptions. Because we have very limited historical data with respect
to our members' redemption behavior, we cannot assure you that members will
not redeem their points in unexpected patterns. If redemption requests are
inconsistent with our expectations or exceed our available cash resources, our
financial condition could be harmed. In addition, because we recognize a
portion of our revenues upon redemption by the consumer, unexpected
redemptions could cause fluctuations in our operating results and cause our
stock price to fluctuate.
If the market for Internet-based promotion and direct marketing products
and services does not evolve as we anticipate, our business will be harmed.
The market for Internet-based promotion and direct marketing products and
services has only recently developed and is rapidly changing. As is typical
for a new and rapidly evolving industry, demand and market acceptance is
uncertain and few proven offerings exist. Moreover, since the market for our
promotion products and services is new and evolving, it is difficult to
predict the size of this market or its future growth rate, if any. We cannot
assure you that a sufficient volume of merchants will accept online loyalty
programs and promotions as a consumer attraction and retention device. If the
market for Internet-based promotion and direct marketing fails to develop,
develops more slowly than expected, or becomes saturated with competitors, or
if our products fail to achieve market acceptance, our business would be
harmed.
If ClickMiles or frequent flyer miles become less valuable, we may lose
merchants and members.
We have based the ClickRewards Network, in part, on the assumption that
frequent flyer miles of major airlines and similar rewards from other partners
have a high perceived value for e-commerce shoppers. Furthermore, we have
established ClickMiles as being redeemable one-for-one for the frequent flyer
miles of several major airlines. To the extent that the airlines who provide
us with frequent flyer miles reduce the value of such miles by increasing the
number of miles required to achieve free travel, or by reducing the number of
seats available for free travel, the perceived value of ClickMiles to
consumers and consequently merchants would be correspondingly reduced, which
could harm our business. In addition, while we believe that e-commerce Web
sites and shoppers currently have a high perceived value for frequent flyer
miles and the other
6
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awards that we offer, if our belief is false, or if the perceptions of
consumers shift over time, our business could be adversely affected. Finally,
to the extent that we change the terms on which we offer or redeem ClickMiles,
this may result in dissatisfaction with the ClickRewards Network or in
lawsuits, either of which would harm our business or result in management
distraction. For example, we have recently added an expiration provision to
our ClickMiles rewards currency, such that consumers must redeem ClickMiles
within 24 to 36 months of their award. We cannot assure you that this or other
changes to our ClickRewards policies will not result in member or merchant
dissatisfaction with, or reduced acceptance of, our products and services.
We depend on the ClickRewards Network and Netcentives Professional Services
for most of our revenue; if there are any unexpected changes in these
revenues, our financial results will be harmed.
Substantially all of our revenues to date have come from the ClickRewards
Network and Netcentives Professional Services. Until we are able to develop
diversified sources of revenue, any reduction in revenues from ClickRewards or
any material unanticipated change in professional service-related revenues
would harm our results of operations.
If we do not successfully introduce new products and services, we may not
be able to increase revenues or become profitable.
Our future success depends in part on our ability to offer new products and
services in a timely and cost-effective manner. While we hope that our Custom
Loyalty Networks and Enterprise Incentive Solutions programs will account for
a significant portion of our future revenues, we have had only limited
experience with these programs. Therefore, we cannot assure you that we will
be successful in establishing these products as sources of revenue or
profitability, or that these are the appropriate programs on which we should
be focusing our efforts. The process of developing and launching new products
and services is inherently risky and costly. Moreover, we cannot assure you
that once launched, our products and services will be accepted by our
customers or potential members. If we are unable to develop additional
products and services, or if the products and services that we do develop are
not accepted by our customers or their consumers or are otherwise
unsuccessful, we may not be able to increase revenues or become profitable.
If we do not successfully establish or maintain our brands, our results of
operations will suffer.
We believe that establishing and maintaining the Netcentives and
ClickRewards brands are critical aspects of our efforts to attract, retain and
expand our merchant and member base and traffic, and to increase ClickMiles
sales. We also believe that the importance of brand recognition will increase
as the number of Internet marketing and promotions companies increases. In
order to attract and retain merchants and members, we continue to increase our
financial commitment to creating and maintaining brand loyalty. We are doing
this using Internet-specific means, as well as more traditional means, such as
media advertising campaigns in print, radio, billboards and television. If we
do not generate a corresponding increase in revenues as a result of our
branding efforts or otherwise fail to promote our brand successfully, or if we
incur excessive expenses in an attempt to promote and maintain our brand, our
results of operations would suffer.
If our merchants fail to effectively promote the ClickRewards Network, our
revenues could suffer.
Our business model is substantially dependent upon the promotional efforts
of our merchants. For example, if our merchants do not prominently display
ClickRewards offers or do not work with Netcentives to create promotional
offers that are attractive and understandable to consumers, their ClickRewards
promotions may not be successful, and as a result, we may not be successful.
We cannot assure you that our merchants will continue to allocate sufficient
technical resources and promotional budgets and efforts to make their
ClickRewards promotions successful. If our merchants' promotional programs are
not successful, our revenues could suffer.
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If we are not able to respond to market changes successfully, our financial
and competitive position would be harmed.
The Internet and e-commerce are characterized by rapid changes in standards,
technology and customer preferences and requirements. Furthermore, new
promotional and incentives programs emerge frequently that could render our
programs outdated or non-competitive. Our financial and business performance
will depend in part on our ability to respond to these technological and
market changes rapidly and cost-effectively. In addition, our performance will
depend on our ability to update our software to interoperate with the most
current and widely adopted standards and technologies. If we are unable to
respond as required by the market, our financial condition and competitive
position would be harmed.
Financial Risks
We have a history of losses and expect increasing future losses.
We incurred losses of $266,000 in 1996, $4.2 million in 1997, $14.1 million
in 1998 and $8.2 million in the first quarter of 1999. As of March 31, 1999 we
had an accumulated deficit of $26.8 million. We currently expect that we will
continue to incur losses for the foreseeable future and that the magnitude of
these losses will increase substantially. We cannot assure you of when or if
we will become profitable. We believe that our ability to become profitable
will be based on a number of factors, including:
. the continued expansion of e-commerce;
. the development of the market for Internet-based promotions and direct
marketing;
. our ability to sell ClickMiles in sufficient volumes to offset the fixed
costs of operating the ClickRewards Network;
. our ability to manage the financial liabilities associated with the
ClickRewards Network and Custom Loyalty Networks;
. our ability to attract sufficient numbers of members to the ClickRewards
Network;
. our ability to drive sufficient transactional volume and attract and
retain merchants;
. our ability to operate and enter into additional Custom Loyalty Network
relationships on positive financial terms;
. our ability to purchase frequent flyer miles and other awards merchandise
on competitive terms and conditions, and consistent with our estimated
costs; and
. our ability to market additional products and services to existing
customers effectively.
To the extent that we do not meet any of the above conditions, we may not
become profitable on a timely basis, if at all.
Any delays in our normally lengthy sales cycles could result in significant
fluctuations in our operating results.
The typical cycle to attract a new merchant to the ClickRewards Network is
between three to six months and the cycle for attracting Custom Loyalty
Network customers extends up to one year. Our sales are also unpredictable and
involve significant strategic marketing decisions by prospective customers.
Our sales process also often requires us to educate potential customers about
the uses and benefits of our products and services and promotion tools more
generally. In particular, our Custom Loyalty Networks require customers to
reconsider their business in fundamental ways and often involve large
financial commitments. Finally, our prospective customers typically do not
have personnel dedicated to the implementation of promotion products such as
ours either at a technical or operational level. As a result, our customers
typically spend substantial time before purchasing our programs in performing
internal reviews and obtaining corporate approvals. We cannot be certain that
this cycle will not lengthen in the future. Any delay in sales of our programs
could cause our operating results to be significantly impaired.
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Our future revenues are unpredictable, and our quarterly financial results
may fluctuate significantly.
We expect that our revenues will vary substantially from quarter to quarter
as a result of a variety of factors, not all of which are under our control.
For example, because the majority of our products and services are related to
e-commerce, we expect that ClickRewards merchants and Custom Loyalty Network
customers will award more ClickMiles and custom loyalty currencies during the
holiday shopping season. Similarly, at any given time, a limited number of
customers conducting particularly large issuance or redemption promotions may
account for a large fraction of our revenues. We will recognize the associated
product and service revenues from these transactions over a period of up to 36
months. To the extent a large promotion ends or begins, or to the extent we
begin or end recognizing revenue associated with the holiday season in a given
quarter, our results for that quarter could be disproportionately affected. In
addition we expect other factors to affect our quarterly results, such as:
. competitive developments;
. fluctuations in the growth rate of e-commerce;
. changes in the effective prices of frequent flyer miles and other
rewards;
. currency redemption and expiration patterns; and
. the concentration of our Custom Loyalty and Enterprise Incentive products
and services among a limited number of customers.
A substantial portion of our costs, such as salaries, wages, and facilities-
related expenses are fixed in the short term, and another portion of our
expenses, such as advertising and promotion, are made in advance of the
associated expected revenues. As a result, fluctuations in revenues may have a
disproportionate effect on our quarterly results of operations and consequently
our stock price.
If we are unable to raise additional capital, our business and financial
condition may suffer.
Since our inception, we have experienced negative cash flow from operations
and we expect to continue to experience significant negative cash flow from
operations for the foreseeable future. We believe that our current capital
resources, including the amount we raise in this offering, will be sufficient
to meet our anticipated cash requirements for at least the next twelve months.
After that time, we may be required to raise additional capital, and there can
be no assurance that we will be able to raise these funds on reasonable terms,
or at all. If we are unable to raise additional capital on reasonable terms,
our current stockholders could suffer substantial dilution. In addition, we may
be unable to pursue our current strategy, respond to competitive pressures or
otherwise conduct our business in the manner in which we would like. Any of
these events would harm our business and financial condition.
Our stock will likely be subject to substantial price and volume
fluctuations due to a number of factors, many of which are beyond our
control.
Prior to this offering, there has been no public market for our common stock.
If you purchase shares of common stock in this offering, you will pay a price
that was not established in a competitive market. Rather, you will pay the
price that we will negotiate with the representatives of the underwriters. The
price of the common stock that will prevail in the market after this offering
may be higher or lower than the price you pay.
Many factors could cause the market price of our common stock to rise or
fall. Some of these factors are:
.variations in our quarterly results;
.introduction of new products or services or new pricing policies by us or
our competitors;
.acquisitions or strategic alliances by us, our competitors, or our current
or potential customers;
.hiring or departure of key personnel;
.the gain or loss of significant customers or promotions;
.changes in the estimate of our performance or changes in recommendations
by securities analysts; and
.market conditions in the industry and the economy as a whole.
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In addition, the stock market in general, and the stocks of Internet-related
companies in particular, have experienced extreme price and volume fluctuations
that have been unrelated to these companies' operating performance. These broad
market fluctuations could adversely affect the market price of our common
stock.
In the past, securities class action litigation has often been brought
against a company following a period of volatility in the market price of its
securities. We may be the target of similar litigation in the future.
Securities litigation could result in substantial costs and divert our
management's attention and resources, which could harm our business, operating
results and financial condition.
Future sales of common stock may depress our stock price.
After this offering, we will have outstanding shares of
common stock. Sales of a substantial number of shares of common stock in the
public market following this offering could materially adversely affect the
market price of our common stock. All the shares sold in this offering will be
freely tradeable. Pursuant to certain lock-up arrangements between our
stockholders and Netcentives or the underwriters, 19,499,026 shares of common
stock that were outstanding at June 30, 1999 will be available for sale in the
public market 180 days following the effective date of this offering. Of these
shares, 16,298,641 shares will be subject to volume limitations under federal
securities laws. An additional 6,291,256 shares that were outstanding at June
30, 1999 will become eligible for sale at various times after that date upon
the expiration of applicable required holding and vesting periods. In addition,
180 days following the effective date of this offering, 1,992,091 shares
subject to options and warrants outstanding as of June 30, 1999 will be
exercisable and may be resold.
If our stockholders sell substantial amounts of common stock in the public
market, including shares issued upon the exercise of outstanding options and
warrants, the market price of our common stock could fall.
You will experience immediate and substantial dilution.
If you purchase shares of common stock in this offering, you will experience
immediate and substantial dilution in that the price you pay will be
substantially greater than the net tangible book value per share of the shares
you acquire. This dilution is largely because our earlier investors paid
substantially less than the public offering price when they purchased their
shares of common stock. You will experience additional dilution upon the
exercise of outstanding stock options or warrants to purchase common stock.
We do not intend to pay dividends.
We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain any future earnings for funding growth and therefore
do not expect to pay any cash dividends in the foreseeable future.
Technical Risks
Our network infrastructure may be compromised or damaged, which could harm
our business and financial condition.
We utilize the services of Exodus Communications to host our production
servers and provide us with telecommunications links. The successful delivery
of our services is substantially dependent on our ability and the ability of
Exodus to protect our server and network infrastructure against damage from:
. human error;
. fire;
. flood;
. power loss;
. telecommunications failure;
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. on-line or physical sabotage; and
. intentional acts of vandalism.
In addition, our server and network infrastructure is located in Northern
California, an area susceptible to earthquakes, which could cause system
outages or failures if one should occur. Despite precautions taken by Exodus
and us, the occurrence of other natural disasters or other unanticipated
problems at our respective facilities could result in interruption in the
services we provide or significant damage to our server and network
infrastructure. Even though we have implemented network security measures, our
servers are vulnerable to computer viruses, break-ins and similar disruptions
from unauthorized tampering. If any of these events occur, interruptions,
delays, or the loss or corruption of critical data or cessations in service may
result, which could harm our business and financial condition. In addition, our
reputation and the Netcentives and ClickRewards brands could suffer.
The failure of our computing systems could result in financial losses or
impair our reputation.
The performance of our hardware and software is critical to our business,
reputation and ability to attract members, merchants and rewards suppliers to
the ClickRewards Network and our Custom Loyalty Networks. Although we have
designed our system to be fault tolerant, system failures that cause an
interruption in service or a decrease in responsiveness of our transaction
processing or data storage capabilities could impair our reputation and the
attractiveness of our brands. We rely on Exodus for a significant portion of
our Internet connectivity as well as monitoring and managing of power and
operating environment for our server and networking equipment. Any interruption
in the service that Exodus receives from other providers, or any failure of
Exodus to handle higher volumes of Internet users to the Netcentives sites
could result in financial losses or impair our reputation.
Delays in integrating our services with customer systems could result in
fluctuations in financial results or the loss of potential customers.
In order for ClickRewards merchants or Enterprise Incentive Solutions
customers to participate in the ClickRewards Network, they usually must install
our software on their computer systems and implement promotions on their Web
sites. For customers implementing Custom Loyalty Networks, substantially more
systems integration may be required. Our software is not designed for every
available platform and system. Many of our potential customers have legacy
computer systems and manual processes that were not designed with promotion
products in mind. Therefore, the integration process may become so complex as
to delay a customer's implementation of a program and potentially prevent the
sale of a promotion product altogether. In addition, many of our potential
customers have limited technical resources and promotion budgets. They may not
have the capacity to install and maintain our software in order to use our
products effectively or implement them at all. To the extent that the software
component of our products cannot be integrated with the computer platforms and
software currently used by our potential customers, or these customers do not
have the technical or financial resources to implement our software
effectively, our potential customer base and revenues would be reduced.
System capacity constraints may result in a loss of revenues.
An increase in the use of our products could strain the capacity of our
systems, which could lead to slower response time or system failures. System
failures or slowdowns adversely affect the speed and responsiveness of our
rewards transaction processing. These would diminish the experience for our
members and reduce the number of transactions, and, thus, could reduce our
revenue. The ability of our systems to manage substantially larger numbers of
transactions at higher transmission speed is as yet unknown, and, as a result,
we face risks related to our ability to scale up to our expected transaction
levels while maintaining satisfactory performance. If our usage of
telecommunications bandwidth increases, we will need to purchase additional
servers and networking equipment and rely more heavily on Exodus and its
services to maintain adequate data transmission speeds. The availability of
these products or services may be limited or their cost may be significant.
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Software defects or errors could damage our reputation or result in a loss
of revenues.
The software that we have developed to run the ClickRewards Network, Custom
Loyalty Networks and Enterprise Incentive Solutions is complex and may contain
undetected errors or defects, especially when newer versions are released. Any
errors or defects that are discovered after commercial release or that delay a
commercial release could result in lost revenues, errors in member account
information, delays in the introduction of new products or services, delays in
implementation of promotions, customer or member dissatisfaction and damage to
our reputation.
We face Year 2000 risks that could harm our business and financial
condition.
Many computer systems currently in use are not capable of distinguishing
twenty-first century dates from twentieth century dates. As a result,
beginning on January 1, 2000, computer systems and software used by many
companies and organizations in a wide variety of industries, including e-
commerce, will produce erroneous results or fail unless they have been
modified or upgraded to process date information correctly. Although we
believe that the current versions of our software are Year 2000 compliant, we
may face claims based on Year 2000 issues arising from the integration of our
software into the systems of third parties. In addition, we may experience
reduced sales of our products and services as a result of the unavailability
of technical and other personnel required to implement our products who are
otherwise focused on Year 2000 issues. Use of our software can be dependent on
the successful operation of the systems of our existing merchants and rewards
suppliers. Our customers or rewards suppliers could experience Year 2000
issues that cause their systems, and consequently our services, to fail. Any
such claims, or reduction in sales, could harm our business and financial
condition.
Legal Risks
We could become involved in disputes regarding the validity of our patent
which would result in unexpected expenses and management distraction.
The Internet, and specifically the market for e-commerce and online
advertising, direct marketing and promotions, is characterized by a rapidly
evolving legal landscape. A variety of patents relating to this market have
been issued in the past several months, including our own patent. We believe
that several additional, related patents are currently pending. We believe
that there will continue to be substantial activity in this area and that
litigation may arise due to our attempts or a third party's efforts to enforce
patent rights.
We may incur substantial expenses and management attention may be diverted
if litigation occurs. In addition, whether or not any claims against us are
meritorious, we may be required to enter into license agreements or be subject
to injunctive or other equitable relief, any of which would result in
unexpected expenses and management distraction.
We may be subject to claims as a result of our database marketing efforts
which could result in a loss of members and revenues.
A component of our strategy is leveraging our database marketing
technologies. We have designed our technology infrastructure and services to
allow us to aggregate data regarding specific member behavior throughout the
network. We have a strict privacy policy that governs how we use information
about our members, and all of our communications are sent to members who have
previously agreed to be contacted. However, we cannot assure you that certain
persons who receive promotional materials from us will not be dissatisfied
with being contacted. In addition, while we strictly protect the identity of
individual members on our networks, we do provide merchants and rewards
suppliers with aggregate information regarding network participation, and we
cannot ensure that such aggregated information will not be the cause of
dissatisfaction among our members. There has been substantial publicity
regarding privacy issues surrounding the Internet, and to the extent that our
database marketing efforts conflict with any privacy protection initiatives,
or if any
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private information is inadvertently made public, we may be subject to legal
claims. If members of our networks become dissatisfied as a result of our
database marketing efforts, or if we become the subject of legal proceedings
in this regard, our business and results of operations would suffer.
Federal, state and local governments may further regulate e-commerce and
travel awards which could reduce our ability to become profitable.
The frequent flyer miles and other travel awards that we currently award are
the subject of substantial government regulation, including excise taxes. In
addition, our rewards are frequently used as a prize in sweepstakes operated
by our customers, which are subject to substantial regulation. Finally, as a
result of the increasing popularity of the Internet and e-commerce, a number
of legislative and regulatory proposals that affect e-commerce are under
consideration by federal, state, local and foreign governmental organizations.
Thus it is possible that a number of laws or regulations may be adopted with
respect to the Internet, e-commerce and online database marketing. In the
event that our rewards, the promotions operated by our merchants or e-commerce
generally becomes the subject of further regulation or taxation, including the
taxation of frequent flyer miles received by consumers, this regulation or
taxation could have a negative effect on our financial results or our ability
to sell our products.
If we are unable to protect our proprietary rights adequately, our
competitive position would suffer.
We currently rely on a mixture of patents, copyrights, trademarks, trade
secrets, agreements with third parties and employees, and clickwrap license
agreements to protect our proprietary rights. Despite our efforts to protect
our proprietary rights, unauthorized parties may use aspects of our business
model and products and obtain and use information we regard as proprietary. In
addition, other parties may breach confidentiality agreements or other
protective contracts with us, and we may not be able to enforce our rights in
the event of such breaches. Our competitors may independently develop
technologies or business models that are substantially equivalent or superior
to ours. Furthermore, if we expand internationally, many countries do not
protect intellectual property rights to the same extent as the laws of the
United States. In the event that we are unable to protect our proprietary
rights, our business, financial condition and results of operations could be
materially adversely affected.
Several existing stockholders own a large percentage of our voting stock
and will be able to control matters requiring stockholder approval.
After this offering, our executive officers and directors and their
respective affiliates will beneficially own approximately % of our
outstanding common stock in the aggregate. As a result, these stockholders
will be able to exercise control over all matters requiring stockholder
approval, including the election of directors and approval of significant
corporate transactions. This concentration of ownership may delay, deter or
prevent transactions that would result in the change of control of
Netcentives, which in turn could reduce the market price of our common stock.
Our Certificate of Incorporation and Bylaws and Delaware law contain
provisions that could discourage a takeover.
Certain provisions of our Certificate of Incorporation and Bylaws and
Delaware law may delay, deter or prevent a merger or acquisition that a
stockholder may consider favorable. These provisions include:
. authorizing the board to issue additional preferred stock;
. prohibiting cumulative voting in the election of directors;
. limiting the persons who may call special meetings of stockholders;
. establishing a staggered board of directors;
. prohibiting stockholder action by written consent; and
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. establishing advance notice requirements for nominations for election of
the board of directors or for proposing matters that can be acted on by
stockholders at stockholder meetings.
Management Risks
Our inability to manage our future growth would adversely affect our
business.
We have experienced a period of rapid growth during the past two years. We
have grown from approximately 45 full-time employees at the end of the first
quarter of 1998 to 149 full-time employees at the end of the second quarter of
1999. This growth has placed a significant strain on our management systems and
resources and we expect any future growth to have a similar effect. To manage
the anticipated growth of our operations, we will be required to:
. improve existing and implement new operational, financial and management
information controls, reporting systems and procedures;
. locate and transition to adequate facilities;
. retain key existing employees;
. hire, train and manage additional qualified personnel; and
. manage our relationships with our customers, suppliers and distributors.
We may not be able to install management information and control systems in
an efficient and timely manner, and our current or planned personnel,
facilities, systems, procedures and controls may not be adequate to support our
future operations.
We may not be able to recruit and retain the personnel we need to succeed.
Given our early stage of development, we are dependent on our ability to
attract, retain and motivate high caliber personnel. Competition for qualified
personnel in our industry and geographic region is intense, and we may not be
successful in attracting and retaining personnel. There are only a limited
number of people with the skills that we require, and the area in which we
compete is characterized by rapidly increasing salaries and equity incentives.
These factors may increase our operating expenses and equity dilution or hinder
our ability to recruit and retain qualified personnel. To the extent we are not
able to attract, retain and motivate additional personnel effectively, our
business would suffer. In addition, our business is substantially dependent on
the efforts of certain key executives, including West Shell, III, our Chairman
and Chief Executive Officer, the loss of whom we believe could delay our
ability to achieve major corporate milestones. In addition, we believe that as
a result of the complexity of our financial model, the loss of members of our
financial management team could adversely affect us. We currently do not
maintain key person life insurance on any of our employees.
We may not be successful in integrating any businesses or technologies we
have acquired in the past or may acquire in the future, which could harm
our financial position or result in management distraction.
We may acquire or make investments in complementary businesses, products,
services or technologies. From time to time we have had discussions with
companies regarding acquiring or investing in their businesses, products,
services or technologies. We cannot assure you that we will be able to identify
suitable acquisition or investment candidates. Even if we do identify suitable
candidates, we cannot assure you that we will be able to make acquisitions or
investments on commercially acceptable terms.
We acquired the Panttaja Consulting Group in December 1998. While a portion
of Panttaja's existing business was strategically consistent with our business
prior to the acquisition, the majority of their revenues were from engagements
unrelated to our core business. We may have difficulty in converting the
Panttaja consulting business into one that is consistent with our strategic
goals, or assimilating the products, services or technologies of other
companies we may acquire into our operations. These difficulties could disrupt
our ongoing business, distract our management and employees, increase our
expenses and harm our results of
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operations due to accounting requirements such as goodwill. Furthermore, we may
incur debt or issue equity securities to pay for any future acquisitions. The
issuance of equity securities could be dilutive to our existing stockholders.
Expanding internationally will create management and financial difficulties.
We intend to enter new international markets. This expansion will require
significant management attention and financial resources. International
operations are subject to a number of risks and uncertainties, including:
. the difficulties and costs of staffing and managing international
operations;
. our ability to establish relationships with distribution partners and the
performance of these partners in selling our products and services;
. the difficulties and costs of localizing products for international
markets;
. unexpected changes in regulatory requirements;
. legal uncertainties regarding liability, Internet commerce restrictions,
tariffs, the offering of purchase incentives and trade barriers;
. inadequate protection of intellectual property in some countries;
. increased difficulty in collecting delinquent or unpaid accounts;
. fluctuations in the value of the U.S. dollar relative to other
currencies;
. potentially adverse tax consequences; and
. political and economic instability.
Any of these factors could impair our ability to expand into international
markets. Similarly, we cannot accurately predict the impact that future
fluctuations in foreign currency exchange rates may have on our business,
operating results or financial condition.
We have broad discretion to use the proceeds of this offering.
We have not designated any specific use for the net proceeds of this
offering. We expect to use the proceeds primarily for working capital and
general corporate purposes. We may also use a portion of the net proceeds to
acquire or make investments in additional businesses, products and technologies
or to establish joint ventures that we believe will complement our current or
future business. However, we have no specific agreements or commitments to do
so. As a result, our management and board of directors will have broad
discretion in spending the proceeds of this offering.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements under Prospectus Summary, Risk Factors, Management's
Discussion and Analysis of Financial Condition and Results of Operations,
Business and elsewhere in this prospectus are forward-looking statements. In
some cases, you can identify forward-looking statements by terminology such as
"may," "will," "should," "could," "expects," "plans," "anticipates,"
"believes," "estimates," "predicts," "potential," or "continue" or the negative
of such terms. These statements involve known and unknown risks, uncertainties
and other factors that may cause our or our industry's actual results, levels
of activity, performance or achievements to be materially different from any
future results, levels of activity, performance, or achievements expressed or
implied by such forward-looking statements. Such factors include, among other
things, those listed under Risk Factors and elsewhere in this prospectus.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance, or achievements. Moreover, neither we nor any other
person assumes responsibility for the accuracy and completeness of these
statements. We are under no duty to update any of the forward-looking
statements after the date of this prospectus to conform these statements to
actual results.
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USE OF PROCEEDS
We estimate that we will receive approximately $ million in net proceeds
from the sale of the shares of common stock in this offering. We base
this estimate on an assumed initial public offering price of $ per share
and after the deduction of estimated underwriting discounts and commissions and
estimated offering expenses totaling approximately $ million if the
underwriters' over-allotment option is exercised in full.
We intend to use the net proceeds of this offering primarily for additional
working capital and other general corporate purposes. These include increased
marketing and sales expenditures, increased research and development
expenditures and capital expenditures made in the ordinary course of business.
We may also use a portion of the net proceeds to acquire or make investments in
additional businesses, products or technologies or to establish joint ventures
that we believe will complement our current or future business. The amounts
that we actually spend for working capital purposes will vary significantly
depending on a number of factors, including future revenue growth, if any, and
the amount of cash we use in our operations. As a result, we will retain broad
discretion in allocating the net proceeds of this offering. Pending the use of
the net proceeds, we will invest them in short-term, interest-bearing,
investment-grade securities.
DIVIDEND POLICY
We have never paid cash dividends on our common stock. We currently intend to
retain any future earnings to fund the development and growth of our business.
Therefore, we do not currently anticipate paying any cash dividends in the
foreseeable future.
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CAPITALIZATION
The table below sets forth the following information:
. our capitalization as of March 31, 1999 on an actual basis;
. our pro forma capitalization which gives effect to the sale of 1,759,530
shares of Series E preferred stock for net proceeds of $12.0 million on
April 26, 1999, April 28, 1999 and June 4, 1999, the exercise of warrants
to purchase 46,891 shares of Series B preferred stock which will expire
if unexercised prior to the offering, and the conversion of
20,569,126 shares of preferred stock into shares of common stock; and
. our pro forma as adjusted capitalization which gives effect to the sale
by us of the shares of common stock being offered at an assumed
offering price of $ per share less the estimated underwriting
discounts and commissions and estimated offering expenses.
<TABLE>
<CAPTION>
March 31, 1999
--------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(in thousands except share
data)
<S> <C> <C> <C>
Long-term obligations.......................... $ 887 $ 887 $ 887
-------- -------- --------
Stockholders' equity:
Convertible preferred stock, $.001 par value;
shares authorized: 19,569,221 actual; and
5,000,000 pro forma and pro forma as adjusted;
shares outstanding: 18,762,705 actual, none
pro forma and
pro forma as adjusted......................... 19 --
Common Stock, $.001 par value; 35,000,000
shares authorized; shares outstanding:
5,180,765 actual; 25,749,891 pro forma and
pro forma as adjusted................... 5 26
Paid-in capital................................ 64,925 76,970
Deferred stock compensation.................... (7,438) (7,438) (7,438)
Receivables from sales of stock................ (450) (450) (450)
Accumulated deficit............................ (26,765) (26,765) (26,765)
-------- -------- --------
Total stockholders' equity................... 30,296 42,343
-------- -------- --------
Total capitalization......................... $ 31,183 $ 43,230
======== ======== ========
</TABLE>
The information in the above table excludes:
. 4,845,736 shares issuable upon exercise of outstanding options at a
weighted average exercise price of $1.93 per share as of June 30, 1999;
. 615,448 shares issuable upon exercise of outstanding warrants at a
weighted average exercise price of $1.13 per share as of June 30, 1999;
and
. an aggregate of 2,261,888 shares available for future issuance under our
employee benefit plans as of June 30, 1999.
17
<PAGE>
DILUTION
As of March 31, 1999, our pro forma net tangible book value was approximately
$42.3 million, or $1.64 per share of common stock. Pro forma net tangible book
value represents the total amount of our pro forma stockholders' equity divided
by the pro forma number of shares of common stock outstanding. If we do not
take into account any changes in pro forma net tangible book value after March
31, 1999, except our receipt of the estimated net proceeds from this offering
based upon an assumed initial public offering price of $ per share
after deducting estimated underwriting discounts and commissions and estimated
offering expenses, our pro forma as adjusted net tangible book value at March
31, 1999 would have been approximately $ , or $ per share. This
represents an immediate increase in net tangible book value of $ per share
to existing stockholders and an immediate dilution of $ per share to new
investors purchasing shares in this offering. The following table illustrates
this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................... $
Pro forma net tangible book value per share as of March 31,
1999........................................................... $1.64
Increase per share attributable to new investors................
-----
Pro forma, as adjusted, net tangible book value per share after
this offering....................................................
-----
Dilution per share to new investors............................... $
=====
</TABLE>
The following table summarizes, as of March 31, 1999, the pro forma number of
shares of common stock purchased from us, the total consideration paid to us
and the average price per share paid by existing stockholders and new
investors:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------ ------------------- Price
Number Percent Amount Percent Per Share
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders.......... 25,749,891 % $65,375,000 % $2.54
New investors..................
---------- ----- ----------- -----
Total........................ 100.0% $ 100.0%
========== ===== =========== =====
</TABLE>
The information in the above tables excludes:
. 4,845,736 shares issuable upon exercise of outstanding options at a
weighted average exercise price of $1.93 per share as of June 30, 1999;
. 615,448 shares issuable upon exercise of outstanding warrants at a
weighted average exercise price of $1.13 per share as of June 30, 1999;
. an aggregate of 2,261,888 shares available for future issuance under our
employee benefit plans as of June 30, 1999; and
. the estimated underwriting discounts and commissions and estimated
offering expenses.
18
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
This section presents historical and pro forma financial data of Netcentives
Inc. You should read the following selected consolidated financial data in
conjunction with our Consolidated Financial Statements and the related Notes
and with Management's Discussion and Analysis of Financial Condition and
Results of Operations included elsewhere in this prospectus. The selected data
in this section is not intended to replace the financial statements.
The consolidated statements of operations data for the period from June 21,
1996 (inception) to December 31, 1996 and for the years ended December 31, 1997
and 1998 and consolidated balance sheet data as of December 31, 1997 and 1998
are derived from our Consolidated Financial Statements included elsewhere in
this prospectus, which have been audited by Deloitte & Touche LLP. The pro
forma consolidated statement of operations data for the year ended December 31,
1998 are derived from unaudited pro forma consolidated statements of operations
that give effect to our acquisition of the Panttaja Consulting Group, Inc. in
December 1998 and are included elsewhere in this prospectus. The consolidated
statements of operations data for the three months ended March 31, 1998 and
1999 and the consolidated balance sheet data as of March 31, 1999 are derived
from our unaudited consolidated financial statements which, in the opinion of
management, have been prepared on the same basis as the audited consolidated
financial statements and reflect all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of our results of
operations and financial position. The historical results presented below are
not necessarily indicative of the results to be expected for any future fiscal
year.
<TABLE>
<CAPTION>
Three Months
Inception Ended
(June 21, 1996) Years Ended December 31, March 31,
to December 31, ------------------------------ ----------------
1996 1997 1998 1998 1998 1999
--------------- ------- -------- ----------- ------- -------
(pro forma)
Consolidated Statements of
Operations Data: (in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Product.................. $ -- $ -- $ 64 $ 64 $ 2 $ 103
Program-related
services................ -- 9 583 583 13 117
Technical consulting
services................ -- -- -- 3,432 -- 1,436
------ ------- -------- -------- ------- -------
Total revenues.......... -- 9 647 4,079 15 1,656
------ ------- -------- -------- ------- -------
Costs and expenses:
Cost of product
revenues................ -- -- 59 59 2 92
Program-related services,
marketing and support
costs................... 102 1,496 7,293 7,293 684 4,519
Cost of technical
consulting services
revenues................ -- -- -- 2,153 -- 817
Research and
development............. 63 1,505 3,383 3,135 685 1,032
Selling, general and
administrative.......... 108 1,210 3,134 4,758 704 1,992
Amortization of deferred
stock compensation,
supplier stock awards
and intangibles......... -- 63 1,186 3,151 73 1,515
------ ------- -------- -------- ------- -------
Total costs and
expenses............... 273 4,274 15,055 20,549 2,148 9,967
------ ------- -------- -------- ------- -------
Loss from operations...... (273) (4,265) (14,408) (16,470) (2,133) (8,311)
Interest income, net...... 7 85 297 252 53 103
------ ------- -------- -------- ------- -------
Net loss.................. $ (266) $(4,180) $(14,111) $(16,218) $(2,080) $(8,208)
====== ======= ======== ======== ======= =======
Net loss per share--basic
and diluted.............. $(0.97) $ (5.70) $ (8.58) $ (7.12) $ (1.63) $ (2.73)
====== ======= ======== ======== ======= =======
Shares used in computing
per share amounts--basic
and diluted.............. 273 734 1,644 2,278 1,276 3,004
====== ======= ======== ======== ======= =======
Pro forma net loss per
share--basic and
diluted(1)............... $ (1.05) $ (0.44)
======== =======
Shares used in computing
pro forma per share
amounts(1)............... 13,422 18,746
======== =======
</TABLE>
<TABLE>
<CAPTION>
As of December 31, As of
--------------------- March 31,
1996 1997 1998 1999
------ ------ ------- ---------
Consolidated Balance Sheets Data: (in thousands)
<S> <C> <C> <C> <C>
Cash and equivalents........................... $1,118 $6,608 $13,651 $31,994
Working capital................................ 1,027 6,348 9,923 25,277
Total assets................................... 1,255 8,549 21,935 40,606
Deferred revenues--product and services........ -- 59 1,906 2,857
Long-term obligations.......................... -- 196 1,233 887
Total stockholders' equity..................... 1,146 7,128 14,334 30,296
</TABLE>
- --------
(1) Gives retroactive effect to the conversion of all outstanding shares of
preferred stock into common stock which will occur upon completion of this
offering.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This prospectus section includes forward-looking statements that reflect our
current views with respect to future events and financial performance. In some
cases, you can identify forward-looking statements by terminology like "may,"
"will," "should," "could," "expects," "plans," "anticipates," "believes,"
"estimates," "predicts," "potential," or "continue" or the negative of such
terms or other comparable terminology. You should not place undue reliance on
these forward-looking statements, which apply only as of the date of this
prospectus. These forward-looking statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from
historical results or our predictions. For a description of these risks, see
"Risk Factors."
Overview
Netcentives is a leading provider of Internet loyalty, direct marketing and
promotion products and services used by top Web sites to drive consumer
behavior. We have developed loyalty currency products and related services,
which we sell to Internet merchants, portals, community sites and other
business customers who typically use these products to attract and retain
consumers and members. As part of delivering these programs, we offer various
marketing and account management services to both our merchants and members. We
also offer technical consulting services to e-commerce merchants and other
businesses.
We were incorporated in June 1996. From inception until March 1998, our
operations consisted primarily of various start-up activities, such as research
and development, personnel recruiting, capital raising and trial sales of our
products with initial customers. We launched the ClickRewards program in March
1998 and began recognizing revenue from non-trial program sales in April 1998.
In December 1998, we acquired the Panttaja Consulting Group, Inc., a provider
of technical consulting services to e-commerce merchants and other businesses.
We launched our first Enterprise Incentive Solution program in January 1999 and
our first Custom Loyalty Network in July 1999.
How our Programs Work
We sell rewards currencies to electronic retailers and other Internet sites.
Our first reward currency is ClickMiles, which we sell to merchants who become
part of the ClickRewards Network. These merchants, in turn, award these
ClickMiles to consumers as purchase, loyalty and other incentives. ClickMiles
are redeemable for, among other things, frequent flyer miles on major airlines
at a ratio of one frequent flyer mile for each ClickMile. We have also
developed and continue to develop additional loyalty and rewards currencies for
large Internet merchants, portals, community sites and other business
customers. We sell these custom currencies to our customers, who then
distribute them under their own brands. The custom loyalty currencies are
redeemable for items specific to the customer for whom the currency has been
developed as well as, in certain cases, exchangeable for ClickMiles.
Merchants who participate in the ClickRewards Network receive the benefit of
our promotion of the ClickRewards brand and network, which includes direct
links to the merchants' sites from our ClickRewards web page. We also provide
merchants who participate in the ClickRewards Network with a variety of related
marketing and promotional services. These services include promotional
consulting, direct marketing services to our member base and integration and
maintenance of our enabling software. Depending on the specific relationship we
have with the merchant, we may either include some of these services in our
ClickMiles pricing or we may price them separately. We also offer similar
marketing services to our Custom Loyalty and Enterprise Incentive customers on
both a bundled and separately priced basis.
We provide services to members, such as allowing them to manage and track
balances as they earn currencies in their personal, online accounts at the
designated Web site for that program and redeem the currency for merchandise
and other awards. We purchase the relevant awards and either have the
merchandise delivered to the consumer through a third-party fulfillment house,
or in the case of frequent flyer miles,
20
<PAGE>
electronically credit their chosen frequent flyer account. We also provide our
members with ongoing support to assist them in managing and redeeming their
currency.
How We Recognize Revenues
Currency related revenues: product and program-related services
The revenues we receive from the sale of currencies are made up of two
components: product revenues and program-related services revenues. Product
revenues reflect the value of the reward our members will ultimately receive
upon redemption of the promotion currency. Program-related services revenues
reflect the value of services that we perform for our merchants and members. As
a result, our revenues related to sale of currencies are recognized at various
times.
A merchant typically purchases currencies from us before awarding them to
consumers. Upon the sale of our loyalty currencies, we allocate these revenues
between the product component, and the program-related services components. The
product component of revenues is deferred until the member redeems the currency
for his or her selected reward. At the time of redemption, we recognize the
product component of revenues and the associated cost of revenue based on the
actual cost of the redemption reward. The revenue related to the services
component of the currency sale is deferred until the sale of the currency
becomes non-refundable, which historically has been upon award of the currency
to a consumer by the merchant. Services revenues relating to separately-priced
services are recognized when these services are delivered. The remaining
portion of services revenues is recognized ratably over the period during which
these services are provided. For all ClickMiles sold through March 31, 1999,
this service period has been initially calculated for the maximum life of the
ClickMile based on its expiration date. To the extent ClickMiles are redeemed
prior to expiration, the remaining unamortized amount of deferred services
revenues is recognized at the time of redemption.
If loyalty currency points expire or are forfeited, we recognize the
remaining amount of deferred product and program-related services revenues at
the time of expiration or forfeiture. Since we do not know when currency points
will be redeemed or forfeited, we cannot predict in which periods we will
recognize these revenues.
Currently, ClickRewards merchants buy ClickMiles in advance based on their
anticipated needs, which allows them to participate in the ClickRewards Network
as long as they have a balance of unawarded ClickMiles. Beginning in the third
quarter of 1999, new merchants will be required to purchase a minimum amount of
ClickMiles on a non-refundable basis. These ClickMiles will expire if not
awarded by the merchant within a six-month period. To remain in the
ClickRewards Network at the end of the six months, the merchant will be
required to have purchased additional ClickMiles. The merchant services portion
of revenues of any ClickMiles sold under these arrangements will be amortized
over the maximum period during which the merchant may use the ClickMiles,
resulting in a shorter amortization period than has historically been used. The
member services component of revenues will continue to be amortized over the
expected life of the ClickMile.
We typically sell our loyalty currency products and related services to
merchants or custom loyalty program customers for cash. However, from time to
time, in connection with promoting the ClickRewards Network, we also sell
ClickMiles to our merchants for non-cash consideration, such as advertising and
merchandise. The revenue from the sale of these ClickMiles is accounted for on
the same basis as cash sales and the value of the advertising or merchandise is
recorded as an expense or a prepaid asset as appropriate.
We also derive program-related service revenues from advertising and other
direct marketing services provided to third parties.
Technical consulting services revenues
We provide systems integration and technical consulting services to a variety
of clients, including ClickRewards merchants and Custom Loyalty and Enterprise
Incentive customers, to help them deploy our programs. These revenues are
recognized as the services are provided.
21
<PAGE>
Results of Operations
Years Ended December 31, 1996, 1997 and 1998
Revenues
We had no revenues during 1996. We began test marketing the ClickRewards
Network during December 1997. Total revenues increased from $9,000 in 1997 to
$647,000 in 1998. Total 1998 revenues were composed of $64,000 of product
revenues, and $583,000 of program-related service revenues. Our 1998 revenues
increased principally because of our commercial launch of the ClickRewards
Network at the end of March 1998 and the associated purchase and issuance of
ClickMiles by merchants in the ClickRewards Network. Product revenues reflect
the exchange of ClickMiles for awards during the year. Program-related service
revenues in 1998 included $296,000 relating to the expiration of ClickMiles
owned by a merchant which were not distributed to consumers as well as $84,000
of consulting services revenues attributable to one consulting contract. Pro
forma 1998 revenues include the technical consulting service revenues of
Panttaja Consulting Group, which was acquired in late December 1998.
Cost of Product Revenues
Cost of product revenues represents the actual cost of awards selected by
members in exchange for ClickMiles. There were no redemptions during 1996 and
1997 and therefore no cost of product revenues during those years. Cost of
product revenues were $59,000 for 1998, which represented 92% of product
revenues.
Program-Related Services, Marketing and Support Costs
Program-related services, marketing and support costs represents the cost of
marketing services provided for the ClickRewards Network, as well as costs
incurred to support merchants and members in the Network. These costs consist
primarily of compensation and related costs for marketing and sales personnel,
advertising and marketing for the ClickRewards program, merchant account and
rewards supplier management, product management activities and ClickMiles
issued to acquire new members for the ClickRewards program. Program-related
marketing and support costs increased from $102,000 in 1996 to $1.5 million in
1997 and $7.3 million in 1998. The increase from period to period was primarily
the result of increased marketing personnel, member acquisition costs, and
advertising and promotions expenses associated with the launch of the
ClickRewards Network. We expect to increase substantially our marketing
expenditures, particularly those related to acquiring members for the
ClickRewards Network, advertising and promoting our brands and products,
recruiting additional marketing personnel and managing programs for our Custom
Loyalty Networks and Enterprise Incentive Solutions customers.
Cost of Technical Consulting Services Revenues
Cost of technical consulting services consists of the personnel and overhead
costs incurred in connection with providing technical consulting services.
There were no technical consulting services provided in 1996, 1997 and 1998 and
therefore no cost of technical consulting services revenues during those years.
The pro forma cost of technical consulting services consists of the personnel
and overhead costs incurred by the Panttaja Consulting Group.
Research and Development
Research and development expenses consist primarily of compensation and
related costs for research and development personnel, including independent
contractors and consultants, software licensing expenses and allocated
operating expenses such as site hosting, Web site production, facilities
expenses, and equipment costs. Research and development expenses increased from
$63,000 in 1996 to $1.5 million in 1997 and $3.4 million
22
<PAGE>
in 1998. These increases from period to period were principally the result of
an increase in these expenses in preparation for the launch of and enhancements
to the ClickRewards Network, as well as initial development efforts relating to
our Custom Loyalty Networks. We expect to continue to increase substantially
research and development spending in absolute dollars as we develop new
products and expand our resources to maintain existing products.
The American Institute of Certified Public Accountants issued Statement of
Position 98-1, Accounting for the Costs of Software Developed for Internal Use,
which will be effective for Netcentives beginning in 1999. The effects will be
to capitalize certain development costs that were previously expensed. The
amortization of these costs will be charged to research and development
expense.
Selling, General and Administrative
Selling, general and administrative expenses consist primarily of salaries
and related expenses, sales commissions, treasury expenses, accounting and
administrative expenses, professional fees, and other selling and corporate
expenses. Selling, general and administrative expenses increased from $108,000
in 1996 to $1.2 million in 1997 and $3.1 million in 1998. The increase from
period to period was primarily the result of increased sales efforts to enroll
merchants into the ClickRewards Network, increased business development efforts
for our Custom Loyalty Networks and increased general and administrative
personnel. We expect selling, general and administrative expenses to increase
in absolute dollars as we add personnel and incur additional costs related to
the anticipated growth of our ClickRewards and Custom Loyalty Networks, our
expansion into international markets and our operation as a public company.
Amortization of Deferred Stock Compensation, Supplier Stock Awards and
Intangibles
Amortization of deferred stock compensation represents the difference between
the purchase or exercise price of certain restricted stock and stock option
grants, and the deemed fair market value of our common stock at the time of
these grants. This difference is amortized over the vesting period for such
grants, which is typically four years. Amortization of deferred stock
compensation was $296,000 for 1998 and is estimated to be a total of
$2.1 million in 1999, $2.1 million in 2000, $2.0 million in 2001 and $1.7
million in 2002 as a result of certain stock option grants and stock awards
during 1998.
Amortization of supplier stock awards represents the cost of warrants granted
to certain airlines and other partners in return for exclusivity. Expenses
related to contingent stock warrants granted to certain airlines and other
partners was $63,000 in 1997 and $811,000 in 1998. Because the vesting of these
awards is subject to maintaining the exclusivity of the arrangement with these
partners, the valuation of the warrants is not finalized until the vesting
date. Accordingly, the amount of the expense recognized for these warrants
increased as the value of our stock increased. A substantial number of these
warrants had not yet vested as of December 31, 1998. As a result, we expect
that the charge relating to supplier stock awards to increase in 1999.
In December 1998, we acquired Panttaja Consulting Group in a transaction that
was accounted for as a purchase. The resulting intangibles of $3.5 million
recorded in the acquisition will be amortized over two years.
Interest Income, Net
Interest income, net was $7,000 in 1996, $85,000 in 1997 and $297,000 in
1998. The year over year increases reflected primarily increases in interest
income from $7,000 in 1996 to $121,000 in 1997, and $441,000 in 1998, offset in
part by an increase in interest expense from $36,000 in 1997 to $144,000 in
1998, relating to capital leases and other financing arrangements.
23
<PAGE>
Income Taxes
We have incurred losses since inception, and anticipate losses for the
foreseeable future. We have therefore recorded no provision for income taxes in
1996, 1997 or 1998. We have provided a full valuation allowance against our net
operating loss tax carryforwards and deferred income tax assets at December 31,
1998. As of December 31, 1998, our federal and state net operating loss tax
carryforwards were $14.2 million and $14.1 million, respectively.
Three Months Ended March 31, 1999 and 1998
Revenues
Revenues increased from $15,000 in the three months ended March 31, 1998 to
$1.7 million for the three months ended March 31, 1999. The increase in
revenues was primarily a result of the acquisition of Panttaja Consulting Group
in December 1998 and the growth of our ClickRewards Network launched in March
1998. During the three months ended March 31, 1999, we began providing
technical consulting services through our Netcentives Professional Services
subsidiary.
Cost of Product Revenues
Cost of product revenues increased from $2,000 in the three months ended
March 31, 1998 to $92,000 for the three months ended March 31, 1999 primarily
as a result of the increased redemption of ClickMiles by members.
Program-Related Services, Marketing and Support Costs
Program-related services, marketing and support costs increased from $684,000
in the three months ended March 31, 1998 to $4.5 million for the three months
ended March 31, 1999. The increase from period to period was primarily the
result of increased marketing personnel, member acquisition costs, and
advertising and promotions expenses associated with the launch of the
ClickRewards Network.
Cost of Technical Consulting Services Revenues
Costs of technical consulting services revenues totaling $817,000 were
incurred in the three months ended March 31, 1999 from the associated revenues
recognized during the same period, as a result of the acquisition of Panttaja
Consulting Group in December 1998.
Research and Development
Research and development expenses increased from $685,000 in the three months
ended March 31, 1998 to $1.0 million for the three months ended March 31, 1999.
The increase was primarily the result of an increase in these expenses for
enhancements to the ClickRewards Network, as well as initial development
efforts relating to our Custom Loyalty Networks.
Selling General and Administrative
Selling, general and administrative expenses increased from $704,000 in the
three months ended March 31, 1998 to $2.0 million for the three months ended
March 31, 1999. The increase from period to period was primarily the result of
increased sales efforts to enroll merchants into the ClickRewards Network,
increased business development efforts for our Custom Loyalty Networks and
increased general and administrative personnel.
24
<PAGE>
Amortization of Deferred Stock Compensation, Supplier Stock Awards and
Intangibles
Amortization of deferred stock compensation, supplier stock awards and
intangibles increased from $73,000 in the three months ended March 31, 1998 to
$1.5 million for the three months ended March 31, 1999. The increase in
amortization resulted from amortization of deferred stock compensation related
to stock options and common stock granted in 1998, the cost of warrants granted
to certain airlines and other partners and intangibles recorded at the time of
the acquisition of Panttaja Consulting Group in December 1998.
Interest Income, Net
Interest income, net increased from $53,000 for the three months ended March
31, 1998 to $103,000 for the three months ended March 31, 1999. The increase
was a result of increased interest income from $74,000 for the three months
ended March 31, 1998 to $146,000 for the three months ended March 31, 1999,
offset in part by an increase in interest expense from $21,000 to $43,000 for
the comparable periods.
Income Taxes
We have recorded losses since inception, and anticipate losses for the
foreseeable future. We have therefore recorded no provision for income taxes
for the three months ended March 31, 1998 and 1999.
25
<PAGE>
Quarterly Results of Operations
The following table sets forth certain unaudited consolidated statements of
operations data for the five quarters ended March 31, 1999. This data has been
derived from unaudited consolidated financial statements that, in the opinion
of our management, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of such information when read in
conjunction with our annual audited consolidated financial statements and notes
to those statements. Our operating results for any quarter are not necessarily
indicative of results for any future period.
<TABLE>
<CAPTION>
Quarters Ended
-------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31,
1998 1998 1998 1998 1999
-------- -------- --------- -------- --------
Consolidated Statements of
Operations Data: (in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Product................. $ 2 $ 8 $ 15 $ 39 $ 103
Program-related
services............... 13 104 349 117 117
Technical consulting
services............... -- -- -- -- 1,436
-------- -------- -------- -------- --------
Total revenues........ 15 112 364 156 1,656
-------- -------- -------- -------- --------
Costs and expenses:
Costs of product
revenues............... 2 7 14 36 92
Program-related
services, marketing and
support costs.......... 684 1,755 1,640 3,214 4,519
Cost of technical
consulting services
revenues............... -- -- -- -- 817
Research and
development............ 685 716 804 1,178 1,032
Selling, general and
administrative......... 704 615 715 1,100 1,992
Amortization of deferred
stock compensation,
supplier stock awards,
and intangibles........ 73 91 290 732 1,515
-------- -------- -------- -------- --------
Total costs and
expenses............. 2,148 3,184 3,463 6,260 9,967
-------- -------- -------- -------- --------
Loss from operations...... (2,133) (3,072) (3,099) (6,104) (8,311)
Interest income, net...... 53 21 82 141 103
-------- -------- -------- -------- --------
Net loss.................. $ (2,080) $ (3,051) $ (3,017) $ (5,963) $ (8,208)
======== ======== ======== ======== ========
Net loss per share--basic
and diluted.............. $ (1.63) $ (2.01) $ (1.71) $ (2.85) $ (2.73)
======== ======== ======== ======== ========
Shares used in computing
per share amounts--basic
and diluted.............. 1,276 1,516 1,760 2,095 3,004
======== ======== ======== ======== ========
</TABLE>
Total revenues increased during the first three quarters of 1998. In the
third quarter, $296,000 of ClickMiles owned by a customer expired without being
distributed to consumers, and the associated deferred revenue was recognized as
revenue. While total revenues for the fourth quarter declined relative to the
third quarter, fourth quarter total revenues would have been higher than third
quarter total revenues if revenue recognized as a result of the expiration of
ClickMiles was excluded. Total revenues increased substantially in the first
quarter of 1999 as a result of the acquisition of Panttaja Consulting Group in
December 1998.
The program-related services, marketing and support costs increased from
$684,000 to $4.5 million from the first quarter of 1998 to the first quarter of
1999. The increases over the five quarters were primarily the result of
increased marketing personnel, member acquisition costs and advertising and
promotions expenses associated with the launch of the ClickRewards Network.
These costs were particularly high in the second quarter of 1998 as a result of
increased advertising and promotions costs in the periods immediately preceding
and following the commercial launch of the ClickRewards Network.
26
<PAGE>
Cost of technical consulting services revenues totaling $817,000 were
incurred in the first quarter of 1999 as a result of the associated revenues
recognized during the same quarter following the acquisition of Panttaja
Consulting Group in December 1998.
Research and development, marketing and sales and general and administrative
costs have generally increased on a quarterly basis as we have expanded our
operations in connection with the introduction and expansion of the
ClickRewards Network. We expect this trend to continue.
Amortization of deferred stock compensation, supplier stock awards, and
intangibles has increased on a quarterly basis. This reflects the impact of
additional stock option grants made during the year, which will continue to be
amortized over the vesting life of the options, typically four years, as well
as the accounting for our contingent stock warrants with certain suppliers,
whose value and related expense must be adjusted each period as our stock value
changes prior to their vesting.
Shares used in computing per share amounts increased significantly in the
first quarter of 1999 relative to the preceding quarters of 1998 as a result of
the shares issued in connection with the acquisition of Panttaja Consulting
Group in December 1998.
We intend to increase our marketing, sales, research, development and
administrative activities and to increase other operating expenses as required
to expand our operations and launch Custom Loyalty Networks. We have
experienced significant losses to date and we anticipate that our expenses will
continue to exceed significantly the revenues generated by this increased
spending such that we will continue to incur losses for the foreseeable future.
In addition, we expect the magnitude of these losses to increase substantially
from current levels. If we do not experience significantly increased revenues
from these efforts, our results of operations would be impaired. In addition,
our operating expense levels are based in part on our expectations concerning
future revenues, and are relatively fixed in the short term. Consequently, if
our revenues are below expectations in any period, we may not be able to adjust
our spending levels in a timely manner.
Liquidity and Capital Resources
We have funded our operations since inception primarily through the private
placement of preferred equity securities, through which we had raised net
proceeds of $52.7 million through March 31, 1999. In addition, we sold $12.0
million of additional Series E preferred stock to private investors during the
quarter ended June 30, 1999. We have also financed our operations through
equipment lease financing and bank borrowings. As of March 31, 1999, we had
outstanding equipment lease financing and bank borrowings totaling $1.2
million.
Cash used in operations was $170,000 in 1996, $4.1 million in 1997, $9.5
million in 1998 and $4.0 million for the three months ended March 31, 1999. The
cash used in 1996 and 1997 was primarily the result of our operating losses in
those years. Subsequent to 1997, cash used in operations primarily reflects
cash received from customers of $1.3 million in 1998 and $2.3 million in the
three months ended March 31, 1999, offset by cash paid to suppliers and
employees of $11.2 million and $6.4 million in the same periods.
We initially defer recording revenue at the time we sell our loyalty
currencies, even though we have received cash from our customers for these
sales. A significant portion of revenue is not recognized until the currency is
redeemed by the consumer. The remaining revenue is recognized on a ratable
basis over the periods in which marketing and support services are provided to
merchants and members. As a result of this accounting method, the cash received
from customers is substantially greater than the amount of revenues reported
for these periods. The difference in these amounts is reflected primarily as an
increase in the amount of deferred revenues for products and services shown on
our consolidated balance sheet. Total deferred revenues increased on a net
basis from cash transactions by $848,000 during 1998 and $601,000 during the
three months ended March 31, 1999. The growth in deferred revenues in 1998 was
offset in part by an increase in accounts receivable of $201,000.
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Cash paid to suppliers and employees was significantly less than costs and
expenses reported for these same periods. This resulted from non-cash charges
relating to depreciation, the amortization of deferred stock compensation,
supplier stock awards and intangible assets arising from the Panttaja
Consulting Group acquisition, and the use of ClickMiles in lieu of cash to pay
for certain expenses. Non-cash amortization charges totaled $1.8 million in
1998 and $2.3 million in the three months ended March 31, 1999. The use of
ClickMiles in lieu of cash to pay for certain expenses resulted in the deferral
of cash payments of $1.5 million during 1998 and $1.5 million during the three
months ended March 31, 1999.
Investments in property and equipment were $124,000 in 1996, $1.0 million in
1997, $1.2 million in 1998 and $1.5 million in the three months ended March 31,
1999.
Cash provided from financing activities was $1.4 million in 1996, $10.5
million in 1997, $17.9 million in 1998 and $23.8 million in the three months
ended March 31, 1999. Cash was provided primarily from sales of preferred stock
of $1.4 million in 1996, $10.1 million in 1997, $17.2 million in 1998 and $24.1
million in the three months ended March 31, 1999.
At March 31, 1999, we had cash and equivalents totaling $32.0 million. In
addition, we raised $12.0 million through the sale of additional Series E
preferred stock during the quarter ended June 30, 1999. We anticipate that the
proceeds of this offering, together with our available cash resources, will be
sufficient to meet our presently anticipated working capital and capital
expenditure needs for at least the next twelve months.
Our future liquidity and capital requirements will depend on numerous
factors. For example, our pace of expansion will affect our future capital
requirements, as may our decision to acquire or invest in complementary
businesses and technologies. Therefore, we may be required to raise additional
funds in the future through the issuance of debt or equity securities. If
additional funds are raised through the issuance of equity securities, our
existing stockholders may experience significant dilution. Furthermore,
additional financing may not be available when needed or, if available, such
financing may not be on terms favorable to us or our stockholders. If financing
is not available when required or is not available on acceptable terms, we may
be unable to develop or enhance our programs or other services. In addition, we
may be unable to take advantage of business opportunities or to respond to
competitive pressures. Any of these events could harm our business and
financial condition.
Year 2000 Compliance
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. As a result, software
that records only the last two digits of the calendar year may not be able to
distinguish whether "00" means 1900 or 2000. This may result in software
failures or the creation of erroneous results.
We have defined Year 2000 Compliant as the ability to:
. handle correctly date information needed for the December 31, 1999 to
January 1, 2000 date change;
. function according to the product documentation provided for this date
change, without changes in operation resulting from the advent of a new
century, assuming correct configuration;
. respond to two-digit date input where appropriate in a way that resolves
the ambiguity as to century in a disclosed, defined, and predetermined
manner;
. store and provide output of date information if the date elements in
interfaces and data storage specify the century in ways that are
unambiguous as to century; and
. recognize Year 2000 as a leap year.
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All software developed by Netcentives utilizes the JavaSoft implementation of
date object and calendar classes for expression and manipulation of dates. When
dates are saved in persistent storage, the values are either serialized objects
or date fields in a relational database; in both cases, the full 4-digit year
is maintained. Our products do not perform any kind of truncation of century
values or any string operations that jeopardize the integrity of the date
values. We have also tested all of the third-party software incorporated in our
products to ensure their proper processing of twenty-first century dates. As a
result, we believe that all versions of our products including the production
systems that manage our promotional networks, are Year 2000 Compliant, provided
that the underlying operating system of the host machine and any other software
use with or on the host machine or our products are also Year 2000 Compliant.
We have evaluated the data feeds from each of our rewards suppliers to
determine if they are Year 2000 Compliant. Certain of our rewards suppliers'
systems currently would not accurately process twenty-first century dates and
we have informed these suppliers of the deficiencies we have identified. These
suppliers have assured us that any such problems will be corrected prior to
October 1999. We do not have any information regarding the Year 2000 Compliance
of rewards suppliers systems with which we do not directly interface. To the
extent that our rewards suppliers are unable to transmit data to or receive
data from Netcentives as a result of their failure to be Year 2000 Compliant,
or they inaccurately maintain balances of frequent flyer miles for member
accounts, general member dissatisfaction with frequent flyer programs may
result and have an adverse effect on our business.
We do not currently have any information concerning the Year 2000 Compliance
status of our merchant customers. We plan to notify merchants to remind them of
the Year 2000 problem and its potential effects on their systems. However, to
the extent that our merchants are no longer able to process e-commerce
transactions, process them incorrectly, or transmit incorrect data to our
systems, our business could be adversely affected. If our current or future
merchants fail to achieve Year 2000 compliance or if they divert technology
expenditures, especially technology expenditures that were reserved for
promotional products, to address Year 2000 compliance problems, our business,
results of operations, or financial condition could be materially adversely
affected.
We have initiated an assessment of our material internal information
technology systems and our non-information technology systems. We expect to
complete testing of our information technology systems in September 1999. To
the extent that we are not able to test the technology provided by third-party
vendors, we are seeking assurances from vendors that their systems are Year
2000 Compliant. We are not currently aware of any material operational issues
or costs associated with preparing our internal systems for the Year 2000.
However, we may experience material unanticipated problems and costs caused by
undetected errors or defects in the technology used in our internal systems.
We have funded our Year 2000 plan from available cash and have not separately
accounted for these costs in the past. To date, these costs have not been
material. We will incur additional costs related to the Year 2000 plan for
administrative personnel to manage the project, outside contractor assistance,
technical support for our products, product engineering and customer and member
satisfaction. In addition, we may experience material problems and costs with
Year 2000 compliance that could adversely affect our business, results of
operations, and financial condition.
We have not yet fully developed a contingency plan to address situations that
may result if our products are not Year 2000 Compliant, or if our suppliers or
customers suffer major Year 2000 related problems or our internal systems fail
as a result of Year 2000 issues. We expect to develop such a plan, along with
an analysis of the worst-case scenario that might result from Year 2000 issues,
by the fourth quarter of 1999. Finally, we are also subject to external forces
that might generally affect e-commerce, such as retailing and distribution
company Year 2000 compliance failures and related service interruptions.
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BUSINESS
Overview
Netcentives is a leading provider of Internet loyalty, direct marketing and
promotion products and services used by top Web sites to drive consumer
behavior. Netcentives' flagship program, ClickRewards Network, is a powerful
online promotion and loyalty program that allows e-commerce sites to reward
consumers with ClickMiles, a digital promotion currency, for making online
purchases. Launched in March 1998, ClickRewards Network, as of July 21, 1999,
included over 1.4 million members who have earned, in the aggregate, over 250
million ClickMiles. Top e-commerce companies, including barnesandnoble.com,
E*TRADE, macys.com, OfficeMax.com, PlanetRx and Preview Travel, purchase
ClickMiles from us and award them to consumers in order to convert browsers to
buyers, increase average purchase size, drive repeat purchases, and build
loyalty to their site. We also offer online advertising and sponsorship,
partnership marketing programs sponsored e-mail offers, and technical and
marketing consulting services. Our robust, secure, scalable transaction
processing technology allows consumers to earn rewards currency at the point of
purchase on sites throughout the Web and to track and manage them in their own
personal account at a central Web site.
Utilizing the technology platform we have developed for the ClickRewards
Network and our expertise with promotional products and services, we have
expanded our product offering to provide Custom Loyalty Networks to portals,
companies with major brands and other Web sites with substantial membership. We
enable these sites to launch their own branded loyalty programs featuring their
own promotion currency. We launched our first Custom Loyalty Network for
Looksmart in July 1999 and are developing additional Custom Loyalty Networks,
including one for the GO Network that we expect to launch in the fourth quarter
of 1999. We have also launched Enterprise Incentive Solutions programs, such as
ClickRewards@Work, that enable corporations to utilize the power of the
ClickMile currency to motivate and reward employees, partners and stakeholders
across their intranets and extranets. We also offer a broad array of
complementary services to our ClickRewards merchants and Custom Loyalty and
Enterprise Incentive customers, including technical consulting and development,
marketing consulting, on-line advertising and sponsorship, partnership
marketing programs and sponsored e-mail offers.
We have exclusive agreements with eight major airlines for the use of their
frequent flyer miles in points-based Internet promotions networks. These
relationships allow consumers, for example, to exchange ClickMiles one-for-one
for frequent flyer miles from American Airlines, British Airways (USA),
Continental Airlines, Delta Air Lines, Northwest Airlines, TWA, United Airlines
and US Airways. These exclusive agreements give our ClickRewards merchants the
ability to attract and retain online shoppers using a compelling, relevant, and
differentiated rewards currency. They also give our merchants access to
frequent flyer program members, a set of consumers that we believe has a
demographic profile closely aligned with that of online shoppers. In addition
to frequent flyer miles, ClickRewards and our other programs offer redemption
options such as merchandise and other travel awards.
In order to drive purchases at the merchant Web sites participating in the
ClickRewards Network and to make our products more valuable to them, we
actively recruit a consumer membership base for ClickRewards. Consumers
participating in the ClickRewards and our Custom Loyalty Networks can learn
about offers and track and redeem their loyalty currencies at a centralized Web
site for each network. In addition, for ClickRewards merchants and our Custom
Loyalty Network customers we offer a variety of direct marketing services.
These services include building a rich database of consumer profiles based on
transaction behavior across each network, offering targeted e-mail marketing
using this information and providing promotion management services.
Industry Background
Growth of the Internet and Online Advertising
The Internet has emerged as a unique global communications medium, enabling
millions of people to interact and conduct business electronically.
International Data Corporation, or IDC, estimates that there were
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approximately 97 million Internet users at the end of 1998, and that this
number will grow to 320 million by the end of 2002. IDC further estimates that
the total value of commerce over the Internet will increase from approximately
$32 billion in 1998 to $425 billion in 2002. Similarly, Forrester Research
estimates that U.S. business e-commerce revenue will grow from $109 billion in
1999 to $1.3 trillion in 2003. Internet commerce transactions are often faster,
less expensive and more convenient for both buyers and sellers, and the
opportunity to take advantage of these business efficiencies has attracted a
broad group of participants.
During the early stages of development of e-commerce, merchants were focused
on building general brand awareness and acquiring customers. Consequently, the
rapidly growing market for Internet marketing was heavily dominated by banner
advertising. However, the low barriers to entry for new competitors, the
emergence of below-cost online retailers and the ease with which consumers can
switch between Internet retailers have intensified online commerce competition.
As a result, Internet retailers seeking to differentiate themselves from
competitors and build a substantial, loyal consumer base are finding that
banner advertising alone is either insufficient or ineffective.
The Market for Loyalty, Direct Marketing and Promotion Products
According to the Direct Marketing Association, offline expenditures on direct
marketing, including promotions, reached $163 billion in 1998. Jupiter
Communications estimates that online spending for Internet-based advertising
alone will total $7.7 billion in the U.S. by 2002. As e-commerce Web sites
increasingly focus on customer retention and loyalty, we believe that spending
for online marketing will shift toward promotions and direct marketing. For
example, Forrester Research predicts that by 2003, 50 to 70% of all Internet
marketing budgets will be spent on promotional marketing as opposed to
advertising, with the largest growth coming from membership, rewards and
loyalty programs. As part of this trend, we believe consumers are interested in
maximizing the effectiveness of their Internet spending by participating in
Internet-based promotion programs. We further believe that offline rewards
providers, such as frequent flyer program operators, are increasingly looking
to extend their promotional activities to the Internet.
As Internet retailers, portals and offline rewards providers increase their
online promotional activities, we believe they face a number of challenges that
require additional capabilities and skills outside of their traditional
competencies. Specifically, any of the following operational requirements could
pose problems for these entities:
. integration of point of purchase promotional capabilities;
. attraction and retention of consumers with an attractive demographic
profile, such as frequent flyer program members;
. establishment of a network of earning and award opportunities that is
significant enough to make promotions appealing to consumers;
. creation of a robust transaction processing system designed for use on
the Internet;
. development of Web site enhancements necessary to track consumer
participation in and satisfaction with online promotional programs;
. investment necessary to develop online promotions capabilities;
. possession of the expertise required to develop and administer promotion
programs and the associated financial liabilities; and
. integration of new online promotions with existing offline promotion
programs.
We believe that Internet retailers, portals and offline rewards providers
recognize the benefits of deploying online promotion programs, but have not
been able to justify the resources required to build and maintain their own
programs independently.
The Netcentives Solution
Netcentives is a leading provider of powerful Internet loyalty, direct
marketing and promotion products and services used by top Web sites to drive
consumer behavior. Leveraging our advanced technology
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infrastructure, experience and knowledge of promotions, we have developed three
products to serve the online promotions market: the ClickRewards Network,
Custom Loyalty Networks and Enterprise Incentive Solutions.
ClickRewards Network. The ClickRewards Network is a loyalty program that
gives online merchants the capability to reward consumers for making purchases
at their Web sites. Top Web merchants that are a part of the network include
barnesandnoble.com, E*TRADE, macys.com, OfficeMax.com, PlanetRx and Preview
Travel. By shopping at participating Web sites, consumers can earn ClickMiles,
a digital currency that is exchangeable one-for-one for frequent flyer miles on
eight major airlines and for other valuable rewards. Our customers reward
consumers with ClickMiles as an incentive to convert browsers to buyers, drive
repeat purchases, increase transaction size and build loyalty within their
online communities.
ClickRewards addresses the needs of the three major constituencies in
promotional programs: e-commerce merchants, rewards suppliers and members.
Merchants that participate in the ClickRewards Network benefit by:
. attracting and retaining a targeted and loyal customer base including
frequent flyer program members and online shoppers;
. participating in a growing network of high-quality merchants with
well known brands, the value of which increases with each additional
merchant;
. increasing the attractiveness of their online community with a
loyalty program;
. increasing the effectiveness of their marketing expenditures through
e-mails to a targeted member base, Web site placements and cross-
promotions;
. enhancing customer loyalty and retention with ClickMiles, which are
redeemable one-for-one for the frequent flyer miles of eight major
airlines and a wide range of valuable merchandise rewards, which may
include a merchant's own products; and
. having the ability to create and maintain ClickRewards promotions on
the merchant's Web site.
Rewards suppliers that provide us with frequent flyer miles and merchandise
benefit by:
. selling additional products through a growing online channel;
. broadening their online presence to reach more consumers with an
attractive demographic profile; and
. increasing the value of frequent flyer miles by expanding the markets
in which they are available.
Our members benefit by:
. increasing the value of their online purchases, by receiving a
valuable currency with their purchases;
. aggregating currency across a large network of high quality, well
known merchants to realize meaningful value more quickly;
. centralizing their earning and tracking of this currency in an online
personal account; and
. accumulating and holding a valuable currency that can be converted
into frequent flyer miles or other rewards at a later date.
Launched in March 1998, the ClickRewards Network has attracted 56 merchants
from many of the top e-commerce categories. We have also entered into exclusive
relationships to provide frequent flyer miles in points-based Internet
promotion networks with American Airlines, British Airways (USA),
Continental Airlines, Delta Air Lines, Northwest Airlines, TWA, United Airlines
and US Airways. Based on our strong reward supplier relationships and network
of merchants, as of July 21, 1999, membership in the ClickRewards Network has
grown to over 1.4 million members who have earned, in the aggregate, over 250
million ClickMiles.
Custom Loyalty Networks. Our Custom Loyalty Network products enable portals,
companies with major brands and other Web sites with substantial membership and
scale to launch branded loyalty programs. We
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launched our first Custom Loyalty Network for Looksmart in July 1999 and are
developing additional Custom Loyalty Networks, including one for the GO Network
that we expect to launch in the fourth quarter of 1999. Using their own branded
promotional currency, our clients are able to deploy programs that are designed
to build community and drive customer acquisition and retention. Custom Loyalty
Network clients receive all the benefits of operating a loyalty program like
ClickRewards, such as increasing purchases, acquiring consumers and members and
establishing a direct marketing channel. In addition, these clients are able to
utilize our expertise and the power of our technology platform to outsource
functions such as consumer account management, reward catalog development,
transaction processing, reward exchange, customer service, database marketing
and financial management of currency and liabilities.
Enterprise Incentive Solutions. We sell Enterprise Incentive Solutions
programs to corporations who use them to motivate and reward employees,
partners and stakeholders across their intranets and extranets. Corporations
can benefit from using our Enterprise Incentive Solutions by reducing the cost
of implementing and administering employee incentive programs and increasing
the effectiveness of these programs. Additionally, through the
ClickRewards@Work program, companies can launch an effective incentive program
that is linked to the broader consumer network of the ClickRewards Network. We
launched our first Enterprise Incentive Solutions program in late 1998 and have
operated programs for four companies including Cisco Systems and Microsoft.
Netcentives Professional Services. All of our products are complemented by
Netcentives Professional Services, our team of consulting professionals who
offer significant expertise in relationship marketing, developing e-commerce
applications and implementing our promotion solutions. Since our acquisition of
Panttaja Consulting Group in December 1998, we have provided professional
services to 16 clients in a variety of areas, including those related to e-
commerce.
The Netcentives Strategy
Our objective is to be the leading provider of Internet loyalty, direct
marketing and promotion products used by top Web sites to drive consumer
behavior. We intend to achieve this objective by establishing ClickRewards as
the leading Internet loyalty program and utilizing our technology and marketing
expertise to provide products and services to retailers, portals and employers
who are establishing their own loyalty networks. The key elements of our
strategy are to:
Expand the ClickRewards Network of Merchants, Rewards Suppliers and Members
The ClickRewards Network has grown rapidly and includes 56 merchants, 1.4
million members, and 13 awards suppliers. We plan to continue to provide value-
added products and services to our merchants in order to drive acceptance and
growth of our incentive and rewards products. We use our capabilities to
provide targeted offers from merchants to our member base. We use e-mails to
our member base and inserts in frequent flyer newsletters and statements to
increase the value of the ClickRewards currency to our members and to drive
revenue to our merchants. Furthermore, we believe that we can increase the
value of the ClickRewards Network to participating merchants by increasing the
number of consumers who are members. As the ClickRewards Network grows, we
believe that it will create the opportunity for additional revenue streams from
existing merchants, including enhanced direct marketing and other professional
services.
Establish ClickRewards as the Primary Loyalty Program for Leading Online
Merchants
We believe that our customers will increasingly use the ClickRewards Network
to address their particular business objectives, such as revenue growth and
consumer loyalty. The key features that allow us to address the needs of our
merchants include:
. enabling them to create and maintain their own ClickRewards promotions;
. featuring their own products in the ClickRewards rewards catalog;
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. promoting their brand on the ClickRewards Web site;
. integrating ClickRewards functionality on their e-commerce Web site;
. launching co-branded marketing programs; and
. customizing ClickRewards e-mail communications for their consumers.
Maximize Lifetime Value of ClickRewards Members
We seek to maximize the frequency, size and number of purchases made by
ClickRewards members throughout the network. Capitalizing on the attractive
demographics and purchase behavior of our membership base, we intend to enhance
the lifetime value of our members to our merchants through database marketing,
a tiered loyalty program for top purchasers, additional site functionality and
other community features.
Extend Network Loyalty Platform to Support Additional Products
We have developed a scalable technology infrastructure and a set of products,
services and management expertise that effectively support Internet-based
promotion and loyalty networks. We intend to use this platform to drive revenue
opportunities beyond ClickRewards, including:
. Custom Loyalty Networks. As portals, companies with major brands and
other web sites transition from a media or advertising revenue model to
an e-commerce revenue model, they are starting to seek ways of
influencing consumers to shop at their site or network of sites. We are
leveraging our experience in building and operating the ClickRewards
Network to offer these major online companies the ability to implement
custom loyalty programs. Not only do our Custom Loyalty Network products
and services offer many of the same features as our ClickRewards Network,
but they are also designed around the customer's brand, existing consumer
base and partners. Our Custom Loyalty Network products and services
enable these companies to award their members with private currency
points and customized redemption options. We launched our first Custom
Loyalty Network for Looksmart in July 1999 and are developing additional
Custom Loyalty Networks, including one for the GO Network that we expect
to launch in the fourth quarter of 1999.
. Enterprise Incentive Solutions. To address the large and growing market
for employee and channel partner incentives, we intend to deploy
additional incentive programs for enterprises based on both the
ClickRewards Network and custom implementations. These incentive programs
allow enterprises to motivate, retain and reward employees, channel
partners, and stakeholders. We launched our first Enterprise Incentive
Solutions program in late 1998 and have operated programs for four
companies including Cisco Systems and Microsoft.
. Online and Offline Rewards Programs. Many merchants have both an online
and offline presence. For such merchants, we intend to offer integrated
rewards programs that increase consumer loyalty across multiple channels.
We intend to pursue strategic partnerships that will enable merchants in
the ClickRewards and Custom Loyalty Networks to award their members and
consumers for offline activity.
Build the Netcentives and ClickRewards Brands
We believe that building greater awareness of the Netcentives and
ClickRewards brands is critical to expanding our merchant, rewards supplier,
and member base and our roster of Enterprise Incentive Solutions and Custom
Loyalty Networks customers. In order to accelerate the acceptance and
penetration of the ClickRewards Network, we have developed and are continuing
to pursue strategic relationships with merchants, rewards suppliers and
technology partners whose brands are well known and widely respected. We
believe that increasing the number of ClickRewards members makes the
ClickRewards Network more attractive and valuable to merchants. Therefore, we
actively promote the ClickRewards brand among consumers through a variety of
marketing programs, including promotions, direct e-mail marketing, and targeted
advertising. We also promote the Netcentives brand to potential Enterprise
Incentive Solutions customers and Custom Loyalty
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Networks customers in trade journals and other industry forums. As we increase
our collective base of merchants rewards suppliers and members, we believe that
the value of the Netcentives and ClickRewards brands will be reinforced.
Offer a Broad Range of Loyalty and Direct Marketing Services
We seek to provide a broad range of marketing solutions to our ClickRewards
merchants and our Custom Loyalty Network clients. Separate from providing these
customers with a promotional currency, we also offer a wide range of
promotional and marketing services including database marketing, promotion
development and management, email direct marketing, and creative services. We
believe that these services offer a complete loyalty marketing solution to our
customers and allow them to maximize the return from their loyalty program.
For example, our advanced technology infrastructure, substantial membership
bases, and merchant and rewards supplier relationships allow us to aggregate
significant data regarding specific consumer behavior throughout each network.
We maintain data warehouses of consumer profiles, transactional activity,
exchange activity, Web traffic activity, click-through response data,
communications history and survey data. We also capture transactional activity
across multiple merchant product categories, allowing us to aggregate and view
consumer patterns throughout each network.
We enforce strict privacy policies that govern how information about members
is used, and communications are sent only to members who have previously agreed
to be contacted. This form of permission-based marketing removes the issue of
unsolicited offers and increases responsiveness to promotional offers. While
adhering to our privacy policies, we intend to use the accumulated
transactional and demographic data to provide advanced marketing services to
merchants and Custom Loyalty Network clients.
Through the use of our tools, information and processes, we have the
capability to assist merchants in targeting members for specific marketing
promotions. Examples include tailored e-mail messages based on past
interactions, preferences and interests and the monitoring of members'
responses to these promotions. We believe that a robust marketing
infrastructure will make Netcentives' direct marketing capabilities attractive
to merchants who prefer to outsource this function rather than make the
necessary investment themselves.
Extend Technology and Business Process Leadership
We believe that our ability to scale our technology and infrastructure in a
secure manner with the growth in the number of merchants, members, and
transactions has been a competitive advantage. We hold a patent that
encompasses a unique set of systems, procedures and methods for providing
Internet-based incentive and reward programs which we license on a non-
exclusive basis. With our recent acquisition of the Panttaja Consulting Group,
Inc., we have added further capacity to develop enhancements to our technology
base and to bring them to market. We expect to continue to invest heavily in
research and development. We also expect to pursue technology partnerships to
enhance the performance, security and functionality of our core technology
infrastructure.
Expand Internationally
To date, we have focused on pursuing opportunities in the United States and
Canada. However, we believe that international markets present an attractive
marketplace for our network loyalty infrastructure. We expect to begin our
international efforts by expanding the ClickRewards Network into Europe. We
intend to expand our Custom Loyalty Networks products to portals and online
merchants based in other countries and our Enterprise Incentive Solutions
products to large multinational corporations.
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Products and Services
We provide a suite of products and services to address our customers' various
needs for online promotions and loyalty programs. Our programs are positioned
as follows:
<TABLE>
<CAPTION>
Netcentives Target Program Program
Solution Customers Members Branding Rewards
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ClickRewards Internet commerce Current shoppers ClickRewards Frequent flyer miles,
Network merchants and ClickRewards branded merchandise and
members travel-related awards
- -----------------------------------------------------------------------------------------------
Custom Loyalty Portals, companies Customer's user Customer branded ClickMiles and
Networks with major brands base customer-specific
and other large scale merchandise
Web sites
- -----------------------------------------------------------------------------------------------
Enterprise Businesses Employees and Customer and ClickMiles and
Incentive channel partners ClickRewards customer-specific
Solutions co-branded merchandise
</TABLE>
ClickRewards Network
The ClickRewards Network brings together e-commerce merchants, ClickRewards
members and awards suppliers into a networked loyalty program. Netcentives
sells merchants ClickMiles, a digital promotions currency. Merchants then award
the ClickMiles to consumers for activities such as making purchases, winning
sweepstakes and completing surveys. Members can earn ClickMiles from merchants
across the ClickRewards Network and can track their award balances online.
Members can redeem their ClickMiles for frequent flyer miles from eight leading
airlines on a one-for-one basis and for other travel awards and merchandise
using our online catalog.
. ClickRewards Membership. Consumers become ClickRewards members by either
signing up on the ClickRewards Web site at www.clickrewards.com, or
qualifying automatically when they make a purchase at a ClickRewards
shopping site. Membership in ClickRewards is free and protected by a
strict privacy policy. Launched in March 1998, as of July 21, 1999, there
were over 1.4 million ClickRewards members who have earned, in the
aggregate, over 250 million ClickMiles. Members learn about earning
opportunities by visiting www.clickrewards.com, receiving member e-mails,
or by electronically visiting a merchant that features ClickRewards. In
addition, the shopping sites that participate in the ClickRewards Network
promote their ClickRewards offers via e-mails to their customers, banner
ads, placement on their Web site and offline advertising. The consumer's
ClickMiles earning activity is integrated with the purchase process so
that the consumer is not required to take any additional actions unless
required by the merchant. Once the qualifying transaction is complete,
information about the member and the ClickMiles that have been earned is
sent to Netcentives securely over the Internet, automatically triggering
an e-mail receipt to the member confirming the deposit of ClickMiles. The
member can then track his or her account balance on the ClickRewards Web
site in a password-protected area.
. ClickMiles Redemption. To redeem ClickMiles, members simply visit the
ClickRewards Web site, log into their personal account, and select the
redemption option of their choice. Members can choose to redeem their
ClickMiles one-for-one and add them into their existing frequent flyer
account with American Airlines, British Airways (USA), Continental
Airlines, Delta Air Lines, Northwest Airlines, TWA, United Airlines, or
US Airways. ClickMiles can also be redeemed for other travel awards such
as car rental and hotel certificates, and for a wide range of
merchandise.
. Merchant Participation. We have targeted premier brand name sites in each
major shopping category as customers. Currently we have 56 e-commerce
shopping sites in the ClickRewards Network. A
36
<PAGE>
representative sample of merchants who have offered ClickRewards
promotions during the past twelve months or are currently developing
ClickRewards promotions include:
Representative Merchants
- -------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
areyougame.com CyberBills.com KBKids.com ShopSports
ArtSelect DealDeal.com TheKnot.com Someone Special
Azazz eBags macys.com Visa
@Backup eNutrition MSN Shopping Visto
barnesandnoble.com E*TRADE(TM) Music Boulevard WebFlyer
beyond.com First Auction OfficeMax.com Wells Fargo
ClubComputer garden.com PlanetRx XOOM.com
Cooking.com iOwn.com Preview Travel 1-800-FLOWERS
iPrint.com Red Herring Online
</TABLE>
Custom Loyalty Networks
We believe that most individual merchant sites are best served by
participating in a network loyalty program, such as ClickRewards. However,
portals and other large community sites have their own network of merchants
and consumers, and possess their own considerable scale, traffic and brand.
Therefore, we are leveraging our experience in building and operating the
ClickRewards Network to offer these major online companies the ability to
implement custom loyalty programs. Not only do our Custom Loyalty Network
products and services offer many of the same features as our ClickRewards
Network, but they are also designed around the customer's brand, existing
consumer base and partners. Our Custom Loyalty Network products and services
enable these companies to award their members with custom branded currency
points and customized redemption options. To build large-scale loyalty
programs, we believe that we can provide the necessary tools and expertise,
such as:
. Overall Program Management. We offer overall management services for
custom loyalty products from the definition phase, to design,
implementation and maintenance.
. Loyalty Program Design Services. We offer program design services that
take advantage of the advertising, promotions, and loyalty program
experience of our management team, including the conceptualization and
development of the awards catalog.
. Technology and Process Licensing. We offer customers access to our base
of proprietary technology and business processes that enable certain
types of promotions.
. Currency Creation. We work with customers to create unique promotional
currencies that specifically target the customer's consumer base and
utilize the customer's brand identity.
. Currency and Liability Management. We have experience with the complex
financial management of rewards programs. We offer these services to
Custom Loyalty customers to allow them to focus on their core business.
. Awards Transaction Processing and Data Center Services. We offer
reliable, secure, and fault-tolerant transaction processing services to
support the issuance of currencies and the exchange of awards. We also
offer reliable data center services for the storage of account
information for a particular customer's program.
. Consumer Services. We offer customers software that enables their
consumer service representatives to have access to real-time consumer
information. In addition, we offer complete outsourcing of the loyalty
program consumer service function.
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<PAGE>
. Risk Management/Fraud Control. Through technical and operational
processes, we offer comprehensive risk management and fraud control
services to address and prevent potential fraudulent activity.
. Database Marketing Consulting. We offer data analysis based on our
understanding of consumer behavior. Database marketing consulting can
provide our customers with the opportunity to design and modify their
program based on demonstrated consumer behavior.
Enterprise Incentive Solutions
The market for enterprise incentive solutions is estimated to be greater than
$20 billion per year by the Incentive Federation, an independent trade
organization. We believe that this market, traditionally managed offline, can
be more efficiently automated using Internet technology that leverages the
enterprise's investment in intranets and extranets. For example, incentives can
be offered to sales forces as additional compensation for the adoption of sales
force automation systems, for performance-based programs and for other
motivational programs. Incentives can also be offered to other employees to
increase loyalty, improve job performance, increase information sharing,
encourage self-improvement training and refer employees.
We believe that the ClickRewards Network has many attributes that make it an
effective platform for enterprise solutions. Our use of the current Netcentives
rewards management technology allows us to reduce the cost of developing and
operating incentive programs for these markets. We launched our first
Enterprise Incentive Solutions program in late 1998 and have operated programs
for four companies including Cisco Systems and Microsoft.
Netcentives Professional Services
Technical and marketing consulting services are an integral part of our
ClickRewards, Custom Loyalty Networks, and Enterprise Incentives Solutions
offerings to customers. Through the Netcentives Professional Services group, we
have provided systems integration and technical consulting services to clients
to help them deploy the ClickRewards program as well to other businesses. We
also offer educational services in the Internet and client/server market
sectors through this group. Additionally, we expect customers of our Custom
Loyalty Networks and Enterprise Incentives Solutions to use our e-commerce
systems development skills to integrate Netcentives technology with their
existing systems, or to build customized applications that support their
e-commerce, loyalty or other initiatives.
Rewards Suppliers
We believe that a critical element of developing successful direct marketing
and promotion products for merchants is to offer compelling awards to consumers
with a high perceived value. Frequent flyer miles are among the most popular,
proven and effective offline consumer incentives. We have cultivated exclusive
relationships with eight major airlines for the use of frequent flyer miles in
points-based Internet-based promotion networks. A significant advantage we
offer with ClickRewards is the ability for consumers to add ClickMiles to their
existing frequent flyer accounts. We have also entered into a variety of
relationships with other suppliers of incentive awards in order to provide
broad yet compelling appeal to our awards catalog offerings. Current awards
suppliers include:
Rewards Suppliers
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
American Airlines AAdvantage TWA Aviators Club
British Airways Executive Club US Airways Dividend Miles
(USA)
Continental Airlines OnePass United Airlines Mileage Plus
Delta Air Lines SkyMiles Azazz.com
Northwest Airlines WorldPerks Marriott Hotels Marriott Rewards
</TABLE>
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<PAGE>
Marketing and Sales
We have a comprehensive approach to marketing and sales. To our ClickRewards
Network merchants and rewards suppliers, we position ourselves as the leader in
providing powerful relationship marketing products and services to drive
consumer behavior. To the consumer, we position the ClickRewards Network as the
most rewarding way to shop online. Finally, for our Custom Loyalty and
Enterprise Incentive Solutions customers, we market Netcentives as the premier
outsourcing partner for relationship marketing and incentive products and
services. As such, our marketing and sales efforts are distinct to each
audience.
ClickRewards Merchants
We have a direct sales force that sells our entire portfolio of products and
services and includes individuals focused on distinct markets and specific
products and services. Our sales force is based out of our San Francisco
headquarters with sales offices in Chicago and New York. An internal telesales
team responds to inbound inquiries and provides additional support to our
direct sales force. We plan to increase our direct sales force and open
additional sales offices in the United States and internationally. We will also
increasingly pursue partnerships with advertising agencies, systems
integrators, consulting firms and others to provide broad indirect distribution
channels. Our marketing department also supports our sales efforts and
coordinates attendance at industry events and pursues trade advertising and
media relations. We also have agreements with several major online sites such
as Yahoo!, MSN Shopping, TAXI and CoolSavings to feature ClickRewards on their
Web sites.
ClickRewards Consumers
We believe that increasing our membership base is a critical element to
making our products and services more valuable to merchants. Therefore, our
consumer marketing strategy and programs are designed to build the ClickRewards
brand, drive new member acquisition, convert members to buyers, encourage
repeat purchases, drive purchases across the network and create loyalty to the
ClickRewards Network and its shopping sites.
We intend to continue building the relationship with our members through
targeted, relevant communications and offers based on their past buying
behavior and preferences. In addition, we offer bonuses to our members to
encourage seasonal purchases and purchases throughout the network. We believe
that if we can build a loyal member base, we can offer greater value to our
merchants.
In order to achieve our brand, acquisition, retention and loyalty goals, we
employ a wide range of promotional, direct marketing, media and public
relations activities.
. Advertising and Public Relations. We advertise in a variety of online and
offline media including newspaper, magazines, radio and Internet banner
advertisements. We intend to begin outdoor and potentially television
advertising in the future. Our advertising efforts are augmented by
extensive consumer public relations to generate coverage in radio and
print, and on television.
. Airline Supplier Co-Marketing. As a benefit of our relationships with our
airline suppliers, we have access to multiple direct marketing channels
targeting the members of the airlines' frequent flyer programs. We have
utilized statement inserts, newsletter articles, statement messaging, e-
mails, in-flight video and Web site placement to reach these frequent
flyer program members.
. Merchant Co-Marketing. The majority of our participating e-commerce
shopping sites feature the ClickRewards logo and promotional offers on
their home page. In addition, the ClickRewards message is often threaded
throughout the purchase process. The ClickRewards offers are often
included in e-mails to the shopping sites' customers and included in
their advertising campaigns both online and offline.
39
<PAGE>
. Ongoing E-mail Communications. We have a variety of ongoing e-mail
communications which feature new shopping sites, new offers and special
offers. We will continue to enhance this channel of communication to
become more personalized and customized.
. Network Promotions. We develop and launch network-wide promotions on a
seasonal basis to provide added incentives for members to shop frequently
and throughout the ClickRewards Network. Examples include volume, multi-
purchase and refer-a-friend bonuses.
Custom Loyalty, Enterprise Incentive Solutions and Netcentives Professional
Services Customers
The launch of a custom loyalty program represents a significant and strategic
decision for a company. Consequently, we are primarily using a direct sales
force for Custom Loyalty Networks. These sales efforts are complemented by our
general trade marketing efforts, that aim to establish our position as the
leader in our field. Enterprise Incentive Solutions products and services are
also sold by a direct sales force. In the future, we expect this solution to be
sold and delivered through resellers and other partners, such as enterprise
software companies, existing incentive product providers and promotion
agencies. Marketing and sales of our professional services and technical
consulting are integrated into the sales and marketing of each of our products.
Additionally, our existing client base and client referrals generate inquiries
and leads for more general e-commerce consulting projects not directly related
to the implementation of a rewards or loyalty product.
Member Service
We believe that to sell high volumes of ClickMiles to merchants we need to
offer them a large attractive base of potential consumers. We believe that our
ability to create a loyal and valuable membership base for ClickRewards depends
on high quality member service. Furthermore, direct member feedback on our
service is an important way in which we can continually improve the
ClickRewards shopping experience. The member service team is responsible for
providing phone support during business hours and e-mail support with a 24-hour
response time. Representatives are responsible for resolving general inquiries
about ClickRewards, and inquiries relating to the status of orders and
redemption requests. Many of these requests require coordination with the
member service teams of participating merchants and reward suppliers. E-mail
support utilizes customized automatic response systems and a staff of trained
member support agents to generate personalized responses to inquiries. To
customers of our Custom Loyalty Networks and Enterprise Incentive Solutions
products, we offer the option of outsourcing member service support for
inquiries related to their program, or utilizing the member service module of
our software platform for their internal member service representatives.
40
<PAGE>
Technology
We have built a robust, scalable, and secure system for the exchange and
management of an online promotional currency. Our SecureRewards Architecture
consists of a set of modular applications and protocols that interact across
the Internet to create a network among merchants, rewards suppliers and
consumers. We designed this system for security and high volume transaction
processing, with the ability to handle hundreds of thousands of transactions
per day. Our system uses a high performance database design and distributed
value transfer architecture.
[A diagram using a grid to represent the Internet and boxes representing the
Netcentives Website and a typical merchant Website. The elements of the
Netcentives software residing on the Netcentives Web site and the merchant
Website are represented by boxes within the boxes representing the Web sites.
The software element within the merchant site is the Reward Broker and the
software elements within the Netcentives site are the Payment System,
Netcentives Central, the Redemption System and the Member Relationship Systems.
Arrows representing the interactions between Netcentives, the merchant, rewards
suppliers and a consumer. The merchant site and the Netcentives site are
connected by the Secure Value Transfer Protocol.]
The modular design of our SecureRewards Architecture allows merchants to
distribute promotional currency safely at their own site. The following is a
description of the modules within the SecureRewards Architecture:
. RewardBroker resides at the merchant or aggregator site and initiates
promotional currency transfers in real time. We provide merchants with a
range of integration options with RewardBroker, including application
programming interfaces, database table integration and integration
services to enable rapid customization and integration with the
merchant's own unique e-commerce environment.
. Payment System resides at our data center and receives and processes all
promotional currency transfer requests from RewardBroker. It first
determines if the requestor is legitimate and that the request has not
been modified. It then passes the request through the Fraud Detection
System, and finally fulfills the request.
. Secure Value Transfer Protocol ensures the privacy and origin of all
messages in the network. RewardBroker and Payment System communicate
through the protocol, which is transport-independent and supports a wide
variety of message types. It employs commercial, financial transaction-
grade cryptography to sign and encrypt messages.
. Fraud Detection System provides both per-transaction and aggregate fraud
detection and prevention. The system applies a combination of business
rules about each promotion and velocity controls based on past behavior
to determine if activity is fraudulent.
. Account Management Systems provides consumer, merchant and reward
supplier lifecycle services, such as account creation and reactivation,
promotion funding and transaction inquiries, as well as a consumer
support knowledge base to facilitate timely response to inquiries.
41
<PAGE>
. Member Relationship Systems presents the current promotions, rewards and
account balance information to individual consumers through an HTML
interface. Each request to manipulate an individual consumer's account
requires authentication to prevent fraudulent activity. Member
Relationship Systems also include the Customer Contact Module and the
Targeting and Segregation Database.
. Consumer Contact Module provides consumers with instant receipts of
account activity and periodic account statements. We are developing the
capability to use the Consumer Contact Module to provide consumers with
relevant promotions and award opportunities based on self-identified
interests and past behavior in the network.
. Targeting and Segmentation Database is being developed to provide
relevant promotions and rewards opportunities by tracking consumer
preferences, both explicit and implicit. It will be used in conjunction
with the Consumer Contact Module to personalize each consumer's
experience.
. Redemption Systems reside at our data center and processes all requests
by consumers to redeem promotional currency for goods or services. The
requests pass through the Fraud Detection System and are then formatted
for transmission as fulfillment requests to the various rewards partners.
Responses to fulfillment requests are also processed by the Redemption
Systems.
. Netcentives Central provides merchants and their account managers with
up-to-date information via the Web on current promotions, including
promotion balances and transactional history.
All elements of the SecureRewards Architecture are designed to be operating
system and hardware independent facilitating deployment on a wide range of
merchant systems. This modularity also helps us to deploy new technologies
without needing to re-write the entire system. Much of the SecureRewards
Architecture is written in Java. The SecureRewards Architecture is the
technological foundation for the ClickRewards Network, Enterprise Incentive
Solutions, and Custom Loyalty Networks.
We designed all elements of the SecureRewards Architecture from the ground up
with security in mind. RewardBroker and Payment System, in particular, utilize
private key cryptography with highly secure financial transaction grade ciphers
to authenticate merchants and encrypt transactions. Each request to manipulate
an individual consumer's account requires authentication to prevent fraudulent
activity and encryption to enhance consumer security. We have implemented
additional fraud prevention mechanisms such as velocity controls and user login
tracking to track unusual behavior.
Competition
As a provider of loyalty, direct marketing, and promotion products, we
generally compete with advertising and other promotion programs for a portion
of a customer's total marketing budget against other marketing solutions such
as advertising. In addition, within the promotions market, we compete with a
variety of businesses in connection with each of our three programs. For the
ClickRewards Network our primary competition can be categorized as follows:
. loyalty programs operated by and/or for portals and other large e-
commerce sites, such as AOL Rewards;
. Custom Loyalty Networks that we intend to operate on behalf of third
parties; and
. standalone loyalty programs and promotion tools developed by and/or for
standalone e-commerce sites, such as Autobytel.com Mobalist Rewards,
CDnow Fast Forward Rewards, CBS Sportsline Rewards, Cybergold and
MyPoints.
We believe that we face substantial obstacles competing against internally
developed products created by our existing and potential customers. Our
Enterprise Incentive Solutions products compete with existing, offline
incentive products provided by parties such as Maritz Marketing Research,
Carlson Marketing Group, Loyalty
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<PAGE>
Group, a division of Alliance Data Systems and BI Performance Services. Our
Custom Loyalty and Enterprise Incentive Solution products and services also
compete with products offered by third parties, such as MyPoints.com.
For each of our programs, we expect competition to intensify as more
competitors enter our markets. We believe that such future competition could
come from newly formed companies and, more importantly, from traditional
offline promotions and loyalty companies such as Carlson Marketing Group,
Brierley & Partners and Signature Group, a division of GE Capital. In addition,
while we currently operate as a partner with many rewards suppliers, such as
airline frequent flyer programs, any of these suppliers could themselves enter
into our markets and provide us with substantial competition.
Many of our current and potential competitors, and in particular offline
promotions companies and offline rewards programs, have longer operating
histories, stronger brand names and significantly greater financial, technical,
marketing and other resources than we do. In addition, these companies may have
existing relationships with our potential customers and may be able to respond
to changes in market dynamics and technology faster than we can. We cannot
assure you that we will be able to compete successfully against our current or
future competitors. If we are unable to compete successfully against current or
future competitors, our business, financial condition and results of operations
would be materially adversely affected.
Proprietary Rights
We currently rely on a mixture of patents, copyrights, trademarks, trade
secrets, agreements with third parties and employees, and clickwrap license
agreements to protect our proprietary rights. Despite our efforts to protect
our proprietary rights, unauthorized parties may utilize aspects of our
business model and products and obtain and use information we regard as
proprietary. In addition, other parties may breach confidentiality agreements
or other protective contracts, and we may not be able to enforce our rights in
the event of such breaches. Our competitors may independently develop
technologies or business models that are substantially equivalent or superior
to ours. Furthermore, if we expand internationally, many countries do not
protect our intellectual property rights to the same extent as the laws of the
United States. In the event that we are unable to protect our proprietary
rights, our business, financial condition and results of operations could be
harmed.
The Internet, and specifically the market for e-commerce and online
advertising, direct marketing and promotions, is characterized by a rapidly
evolving legal landscape. A variety of patents relating to this market have
been issued in the past several months, including our business process patent.
We believe that several additional, related patents are currently pending. We
believe that there will continue to be substantial activity in this area and
that litigation may arise due to our attempts or a third party's efforts to
enforce patent rights.
We may incur substantial expenses, and the attention of our management may be
diverted if such litigation occurs. In addition, whether or not any claims
against us are meritorious, we may be required to enter into license agreements
or be subject to injunctive or other equitable relief, any of which would
materially adversely affect our business, results of operations and financial
condition.
We have obtained a patent on our principal business process, which we believe
would be useful to third parties. We have entered into a non-exclusive,
royalty-bearing license agreement with MyPoints.com, an Internet advertising
company, permitting them to use this patent. We expect to negotiate with other
online promotions companies in this regard, although there can be no assurance
that we will enter into any such license agreements or that any agreements we
do enter into will result in material royalties to us.
Employees
As of June 30, 1999, Netcentives had 149 full time employees, including 78 in
marketing and sales, 35 in research and development, 19 in professional
services, and 17 in finance and administration. Our employees are not
represented by any collective bargaining unit or labor union and we have never
experienced a work stoppage. We believe our relations with our employees are
good.
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<PAGE>
Given our early stage of development, we are dependent on our ability to
attract, retain and motivate high caliber personnel. Competition for qualified
personnel in our industry and geographic region is intense, and we may not be
successful in attracting and retaining such personnel. There are only a limited
number of people with the skills that we require, and the market in which we
compete is characterized by rapidly increasing salaries and equity incentives.
These factors may increase our operating expenses and equity dilution or hinder
our ability to recruit and retain qualified personnel. To the extent we are not
able to attract, retain and motivate additional personnel effectively, our
business, financial condition and results of operations would be adversely
affected. In addition, our business is substantially dependent on the efforts
of certain key executives, including West Shell, III, our Chairman and Chief
Executive Officer, the loss of whom we believe could delay our ability to
achieve major corporate milestones. In addition, we believe that as a result of
the complexity of our financial model, the loss of members of our financial
management team could adversely affect us. We currently do not maintain key
person life insurance on any of our employees.
Facilities
Our current headquarters are located in San Francisco, California, where we
lease five locations aggregating approximately 40,000 square feet under leases
expiring between 2000 and 2001. In May 1997, we entered into a lease that
expires in 2007 for approximately 70,000 square feet in which we will
consolidate our San Francisco headquarters in early 2000. We also lease
approximately 1,000 square feet in Chicago, Illinois, approximately 500 square
feet in New York, New York and approximately 4,000 square feet in Healdsburg,
California under leases that are month-to-month.
Legal Proceedings
We are currently involved in no material legal proceedings.
44
<PAGE>
MANAGEMENT
Executive Officers and Directors
Our executive officers and directors and their ages as of June 30, 1999 are
as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
West Shell, III............ 44 Chairman of the Board of Directors and Chief
Executive Officer
Murray Brozinsky........... 34 Executive Vice President and Managing
Director, North America
John F. Longinotti......... 54 Executive Vice President, Operations and Chief
Financial Officer
Elizabeth S. Ames.......... 42 Senior Vice President and General Manager,
Custom Loyalty Networks
Timothy J. O. Catlin....... 35 Senior Vice President, Research & Development
Edward Fong Soo Hoo........ 47 Senior Vice President, Corporate Development
George Loyer............... 50 Vice President and General Manager,
Netcentives Professional Services
Elliott S. Ng.............. 30 Vice President and General Manager,
ClickRewards
William B. Rusitzky........ 35 Vice President and General Manager, Enterprise
Incentive Solutions
Paul F. Danielsen.......... 44 Vice President, Sales
Perryman K. Maynard........ 43 Vice President, Relationship Marketing and
Strategic Alliances
William McGee.............. 42 Vice President, Corporate Marketing
Stewart Alsop(2)........... 47 Director
Tom Byers, Ph.D.(2)........ 46 Director
Eric W. Tilenius........... 31 Director
Virginia M. Turezyn(1)(2).. 41 Director
Wendell G. Van Auken(1).... 54 Director
Sergio Zyman(1)(2)......... 53 Director
</TABLE>
- ---------------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
Mr. Shell was elected to our Board of Directors in January 1997 and as
Chairman of the Board of Directors in July 1999. He has served as our President
and Chief Executive Officer since June 1997. In 1986, Mr. Shell founded Pacific
Marketing Group (subsequently Highway One Communications), a marketing firm
whose clients included Coca Cola, Inc., Compaq Computer Corp., Disney
Enterprises, Inc., and Visa, and acted as its Managing Partner until November
1996. Prior to founding Pacific Marketing Group, Mr. Shell held marketing
positions at Atari Corp., Johnson & Johnson and Grey Advertising Inc. Mr. Shell
holds a B.S. in Business Administration from the University of Vermont.
Mr. Brozinsky joined Netcentives in April 1998 and has served us in a variety
of capacities since that time, including currently as Executive Vice President
and Managing Director, North America, a position he has held since July 1999.
From September 1994 to April 1998, Mr. Brozinsky was a consultant with the
Boston Consulting Group, a management consulting firm, where he specialized in
developing e-commerce strategies for high technology and financial services
clients. Prior to September 1994, Mr. Brozinsky served as the Director of
Finance at McCaw Cellular Communications Inc., a cellular telecommunications
company, General Manager of Monitor Marine, a subsidiary of Monitor Aerospace
Corporation, a high technology manufacturing company, and as an investment
banker with Morgan Stanley and Company, Inc., an investment bank. Mr. Brozinsky
holds a B.S. in Finance and a B.A. in Philosophy from the University of
Pennsylvania and an M.B.A. in management and manufacturing from Northwestern
University's Kellogg and McCormick schools.
45
<PAGE>
Mr. Longinotti joined Netcentives in January 1998 and has served as our
Executive Vice President, Operations since July 1999 and as Chief Financial
Officer since January 1998. Mr. Longinotti served as a consultant to
Netcentives from October 1997 to January 1998. From April 1995 to January 1998
he was an independent consultant in an operational and financial consulting
practice. From July 1993 to March 1995 Mr. Longinotti was Chief Executive
Officer of Digital Collections, Inc., a graphics software and multimedia firm.
Mr. Longinotti started his career at U.S. Leasing International where he spent
sixteen years in a variety of executive positions, followed by two years at
AT&T Capital. Mr. Longinotti holds a B.S. in Engineering from Stanford
University and an M.B.A. from the University of California at Berkeley's Haas
School of Business.
Ms. Ames joined Netcentives in November 1998 and has served us in a variety
of capacities since that time, including currently as Senior Vice President and
General Manager, Custom Loyalty Networks, a position she has held since July
1999. From May 1998 to November 1998, Ms. Ames was General Manager, Internet
Merchant Group at VeriFone, Inc., an electronic payment system company, where
she had profit and loss responsibility for sales, marketing and product
development for the Internet merchant market. While at VeriFone, Ms. Ames also
served as Director, Product Marketing, Internet Commerce Division from June
1997 to May 1998. From October 1996 to June 1997, Ms. Ames was an independent
consultant with a focus on internet commerce and marketing technology. From
November 1995 to October 1996, Ms. Ames was Vice President, Product Development
at Eagle River Interactive, an interactive advertising agency. From January
1994 to November 1995, Ms. Ames was a Principal at Opus Consulting, a strategic
marketing and Internet consulting group. Prior to 1994, Ms. Ames held a variety
of positions with Apple Computer, Inc., a computer manufacturer. Ms. Ames holds
a B.F.A. from the Hartford Art School at the University of Hartford and an
M.B.A. from Southern Methodist University.
Mr. Catlin joined Netcentives in November 1996 as our Vice President,
Research & Development and became our Senior Vice President, Research &
Development in July 1999. From July 1996 to October 1996, Mr. Catlin was Senior
Director of Engineering at Eagle River Interactive. From March 1995 to July
1996, Mr. Catlin was an Engineering Manager at Intuit, Inc., a financial
software company. From September 1993 to January 1995, Mr. Catlin was President
and Chief Executive Officer of Streetlight Software, Inc., a software services
company. Mr. Catlin holds a B.A. in Computer Science from Brown University.
Mr. Soo Hoo has served as our Senior Vice President, Corporate Development
since March 1998. From September 1997 to March 1998, Mr. Soo Hoo was Executive
Vice President of Sales at Quote.com, Inc., a Web-based financial services
information company. From February 1996 to September 1997, Mr. Soo Hoo was
Director of Business Development at CyberCash, Inc., an Internet commerce
payment solutions company. From January 1994 to February 1996, Mr. Soo Hoo was
Business Development Manager, OEM at Novell, Inc., a network operating systems
manufacturer. Mr. Soo Hoo studied business administration at both the
University of San Francisco and California State University, Hayward.
Mr. Loyer has served as our Vice President and General Manager, Netcentives
Professional Services since July 1999. From December 1998 to July 1999, Mr.
Loyer served as our Director, Netcentives Professional Services. From March
1993 to December 1998, Mr. Loyer served in a variety of capacities at Panttaja
Consulting Group, Inc., a technology consulting firm which was acquired by
Netcentives, including most recently as Panttaja's Vice President and General
Manager from June 1996 to December 1998. Mr. Loyer studied Chemical Engineering
at Rensselaer Polytechnic Institute.
Mr. Ng was a co-founder of Netcentives in June of 1996 and has served
Netcentives in a variety of capacities since that time, including currently as
our Vice President and General Manager, ClickRewards a position he has held
since July 1999. Mr. Ng also served as a Director of Netcentives from June 1996
to September 1997 and as our Chief Financial Officer from June 1996 to January
1998. From December 1995 to June 1996, Mr. Ng was a Partner in Tilenius & Ng
Ventures, a predecessor entity to Netcentives. From July 1991 to August 1994,
Mr. Ng was a Product Manager at Microsoft Corp., a software developer. Mr. Ng
holds a B.A. in Social Studies from Harvard University and an M.B.A. from the
Harvard University Graduate School of Business.
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Mr. Rusitzky joined Netcentives in February 1997, and has served us in a
variety of capacities, including currently as our Vice President and General
Manager, Enterprise Incentive Solutions, a position he has held since July
1999. From February 1994 to February 1997, Mr. Rusitzky was Manager, Business
Development and International Marketing/Sales at Silicon Graphics, Inc., a
computer workstation manufacturer. Prior to 1994, Mr. Rusitzky served in a
variety of positions with Silicon Graphics. Mr. Rusitzky holds a B.M.E. from
the Georgia Institute of Technology and an M.E. in Operations Research and
Industrial Engineering and an M.B.A. from Cornell University.
Mr. Danielsen has served as our Vice President, Sales since May 1997. From
October 1995 to May 1997, Mr. Danielsen was Director of Business Development at
Sportsline USA, Inc., an internet-based sports media company, where he was
responsible for developing strategic relationships with national governing
bodies, athletes, and new channel partnerships. From 1990 to October 1995, Mr.
Danielsen was a Managing Partner of P&P West, a sports marketing company
specializing in event packaging, production and television. Mr. Danielsen holds
a B.A. in Economics from the University of Colorado.
Mr. Maynard has served as our Vice President, Relationship Marketing and
Strategic Alliances since August 1998. From July 1997 to August 1998, Mr.
Maynard was a Principal at Maynard & Associates, a marketing consulting firm.
From February 1996 to June 1997, Mr. Maynard was a Senior Vice President at
Brierley & Partners, a direct marketing agency. From October 1994 to January
1996, Mr. Maynard was Executive Director, Marketing at Hilton Grand Vacations
Corporation, a developer and marketer of timeshare resorts. Prior to October
1994, Mr. Maynard was Vice President, Marketing Programs with Hilton Hotels
Corporation, a hotel management company and owner. Mr. Maynard holds a B.A. in
History from Bates College.
Mr. McGee joined Netcentives in March 1999, and has served us in a variety of
capacities, including, currently, as our Vice President, Corporate Marketing, a
position he has held since July 1999. From March 1999 to July 1999, Mr. McGee
served as our Director of Marketing Services. From September 1990 to March
1999, Mr. McGee was Partner and General Manager of Creative Media, Inc., a
media placement and advertising firm. Prior to September 1990, Mr. McGee served
as a Management Supervisor and Vice President at Ketchum Advertising, an
advertising firm, a Product Manager at Microsoft, an Advertising Manager at
Atari, and as a Media Buyer for Foote, Cone & Belding, an advertising firm. Mr.
McGee holds a B.A. in Economics from the University of California, Santa
Barbara.
Mr. Alsop has served as a director of Netcentives since September 1997. Mr.
Alsop has been a General Partner at New Enterprise Associates, a venture
capital investment firm, since November 1998. Mr. Alsop was a Venture Partner
at New Enterprise Associates from June 1996 to November 1998. From June 1991 to
June 1996, Mr. Alsop served as Senior Vice President and Editor in Chief of
InfoWorld Publishing Company, Inc., which publishes InfoWorld, a weekly
newspaper for information-technology professionals. Prior to 1991, Mr. Alsop
founded Industry Publishing Company, a publisher of computer industry
newsletters. Mr. Alsop also serves on the board of directors of Macromedia,
Inc., a developer of multimedia and digital arts software tools. Mr. Alsop
holds a B.A. in English from Occidental College.
Dr. Byers has served as a director of Netcentives since December 1998. Dr.
Byers has been an Associate Professor at Stanford University and the founding
Director of the Stanford Technology Ventures Program since July 1995. He also
currently serves as the Director of the AEA/Stanford Executive Institute, a
professional development program for high technology executives. From January
1994 to June 1995, Dr. Byers was a Lecturer at the University of California at
Berkeley's Haas School of Business. Dr. Byers also serves on the board of
directors of Visio Corporation, a graphics software company. Dr. Byers holds a
B.S. in Industrial Engineering and Operations Research, and an M.B.A. and Ph.D.
in Business Administration from the University of California, Berkeley.
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<PAGE>
Mr. Tilenius has served as a member of the Board of Directors since our
founding in June 1996. Mr. Tilenius has served as an Entrepreneur-in-Residence
at Mayfield Fund, a venture capital investment firm, since July 1999. Prior to
joining Mayfield Fund, Mr. Tilenius co-founded Netcentives in June 1996, and
served us in a variety of capacities, including as Chairman of the Board of
Directors and Vice President, Business Development, from June 1997 and to July
1999 and President and Chief Executive Officer from June 1996 to June 1997.
From September 1995 to June 1996, Mr. Tilenius was a Partner in Tilenius & Ng
Ventures. From April 1992 to September 1994, Mr. Tilenius was Product Manager
of the Quicken for Macintosh business at Intuit, Inc. From September 1990 to
April 1992 Mr. Tilenius held product management positions at Oracle
Corporation, a database software company. Mr. Tilenius holds a B.A. in
Economics from Princeton, a Certificate in Space Studies from International
Space University and an M.B.A. from Stanford University.
Ms. Turezyn has served as a director of Netcentives since November 1996. Ms.
Turezyn co-founded Information Technology Ventures, a venture capital firm, in
September 1994 and has served as a General Partner from that time to the
present. From April 1982 to September 1994 she served in a variety of
capacities at Morgan Stanley & Company, Inc., including most recently as a Vice
President in the Venture Capital Group. Ms. Turezyn holds a B.A. in Accounting
from Queens College and is a Certified Public Accountant.
Mr. Van Auken has served as a director of Netcentives since September 1997.
Mr. Van Auken has been a General Partner of the Mayfield Fund since October
1986. Prior to joining Mayfield, Mr. Van Auken was an officer, founder or chief
executive officer of three successful start-ups in three different technology-
oriented fields. Mr. Van Auken serves as a director of Advent Software, Inc., a
portfolio management software company and Montgomery Street Income Securities
Inc., a closed-end bond fund. Mr. Van Auken holds a B.E.E. from Rensselaer
Polytechnic Institute and an M.B.A. from Stanford University.
Mr. Zyman has served as a director of Netcentives since December 1998. Mr.
Zyman has been an independent consultant since June 1998. For more than five
years prior to June 1998, Mr. Zyman served in a variety of positions at Coca-
Cola, Inc., including most recently as the Chief Marketing Officer. Mr. Zyman
serves as a director of Gap, Inc., an apparel retailer, and UC Television
Network Corp., a college television network.
Each executive officer serves at the discretion of the Board of Directors.
There are no family relationships among any of the directors or executive
officers of Netcentives.
Board Composition
We currently have authorized seven directors. In accordance with the terms of
our Certificate of Incorporation, effective upon the closing of this offering,
the terms of office of the directors will be divided into two classes: Class I,
whose term will expire at the annual meeting of stockholders to be held in 2000
or special meeting held in lieu thereof, and Class II, whose term will expire
at the annual meeting of stockholders to be held in 2001 or special meeting
held in lieu thereof. The Class I directors are Ms. Turezyn, Messrs. Alsop and
Tilenius and Dr. Byers and the Class II directors are Messrs. Shell, Van Auken,
and Zyman. At each annual meeting of stockholders after the initial
classification or special meeting in lieu thereof, the successors to directors
whose terms will then expire will be elected to serve from the time of election
and qualification until the second annual meeting following election or special
meeting held in lieu thereof. In addition, our Certificate of Incorporation
provides that the authorized number of directors may be changed only by
resolution of the Board of Directors. Any additional directorships resulting
from an increase in the number of directors will be distributed among the two
classes so that, as nearly as possible, each class will consist of one-half of
the directors. This classification of the Board of Directors may have the
effect of delaying or preventing changes in control or management of
Netcentives.
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<PAGE>
Board Compensation
We do not currently compensate our directors, but they are reimbursed for
out-of-pocket expenses incurred in connection with attendance at meetings of
the Board of Directors or its committees. Our directors are generally eligible
to participate in our 1996 Stock Option Plan and, if a director is an employee
of Netcentives, to participate in our 1999 Employee Stock Purchase Plan.
Directors who are not employees will also receive periodic stock option grants
under our 1999 Directors' Stock Option Plan.
Board Committees
The Compensation Committee currently consists of Ms. Turezyn, Messrs. Alsop
and Zyman and Dr. Byers. The Compensation Committee:
. reviews and approves the compensation and benefits for our executive
officers and grants stock options under our stock option plans; and
. makes recommendations to the Board of Directors regarding these matters.
The Audit Committee currently consists of Ms. Turezyn and Messrs. Van Auken
and Zyman. The Audit Committee:
. makes recommendations to the Board of Directors regarding the selection
of independent auditors;
. reviews the results and scope of the audit and other services provided by
our independent auditors; and
. reviews and evaluates our audit and control functions.
Compensation Committee Interlocks and Insider Participation
The members of the Compensation Committee are currently Ms. Turezyn, Messrs.
Alsop and Zyman and Dr. Byers. Neither Ms. Turezyn, Messrs. Alsop and Zyman nor
Dr. Byers has at any time been an officer or employee of Netcentives. No
executive officer of Netcentives serves as a member of the board of directors
or compensation committee of an entity that has one or more executive officers
serving on Netcentives' Board of Directors or Compensation Committee.
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<PAGE>
Executive Compensation
The following table sets forth certain compensation earned by our Chief
Executive Officer and the four other most highly compensated executive officers
whose total compensation exceeded $100,000 during the year ended December 31,
1998.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation
Compensation Awards
----------------- ------------
Other Securities
Annual Underlying
Name and Principal Position Salary Bonus(1) Compensation Options(#)
- --------------------------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C>
West Shell, III.................... $200,000 $66,936 $7,836(2) --
Chairman and Chief Executive
Officer
Timothy J.O. Catlin................ 130,000 44,667 -- 50,000
Senior Vice President, Research &
Development
Paul F. Danielsen.................. 110,000 72,624 -- 40,000
Vice President, Sales
John F. Longinotti................. 137,427 32,163 -- 50,000
Executive Vice President,
Operations and Chief Financial
Officer
Edward Fong Soo Hoo ............... 106,329 56,163 -- 182,000
Senior Vice President, Corporate
Development
</TABLE>
- ---------------------
(1)Includes the fair market value of ClickMiles awarded in the past fiscal
year.
(2)Represents term life insurance payments.
Option Grants in Last Fiscal Year
The following table shows certain information regarding stock options granted
to each of the executive officers named in the Summary Compensation Table
during the year ended December 31, 1998. No stock appreciation rights were
granted to the executive officers named in the Summary Compensation Table
during the year.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Number of Annual Rates Of Stock
Shares Percentage of Price Appreciation
Underlying Total Options Exercise For Option Term(3)
Options Granted to Price Expiration ---------------------
Name Granted(1) Employees(2) per Share Date 5% 10%
- ---- ---------- ------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
West Shell, III......... -- -- -- -- -- --
Timothy J.O. Catlin..... 50,000 1.6% $1.05 12/28/08 $ 33,017 $ 83,671
Paul F. Danielsen....... 40,000 1.3 1.05 12/28/08 26,414 66,937
John F. Longinotti...... 50,000 1.6 1.05 12/28/08 33,017 83,671
Edward Fong Soo Hoo..... 155,000 4.9 0.15 03/15/08 14,622 37,055
27,000 0.9 1.05 12/28/08 17,829 45,183
</TABLE>
- ---------------------
(1) These stock options, which were granted under the 1996 Stock Option Plan,
become exercisable at a rate of 1/8th of the total number of shares of
common stock subject to the option on the six month anniversary of the date
of grant, and 1/48th of the total number of shares monthly thereafter, as
long as the optionee remains an employee of, consultant to, or director of
Netcentives.
(2) Based on an aggregate of 3,132,293 options to purchase common stock of
Netcentives granted by Netcentives under the 1996 Stock Option Plan in
fiscal year 1998.
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<PAGE>
(3) Potential realizable values are net of exercise price, but before taxes
associated with exercise. The 5% and 10% assumed annual rates of compounded
stock price appreciation are mandated by the Securities and Exchange
Commission. There is no assurance provided to any executive officer or any
other holder of our securities that the actual stock price appreciation
over the 10-year option term will be at the assumed 5% and 10% levels or at
any other defined level. Unless the market price of the common stock
appreciates over the option term, no value will be realized from the option
grants made to the executive officers.
Option Exercises and Holdings
The following table sets forth the number of shares of common stock acquired
upon the exercise of stock options by each of the executive officers named in
the Summary Compensation Table during our last fiscal year, and the number and
value of securities underlying unexercised options held by the these executive
officers as of December 31, 1998:
Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities
Number of Underlying Unexercised Value of Unexercised
Shares Options at In-the-Money Options
Acquired on Value December 31, 1998 (#) At December 31, 1998 (2)
Exercise Realized ------------------------- -------------------------
Name (#) (1) Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
West Shell, III......... -- -- 40,833 9,167 $38,191 $ 8,709
Timothy J.O. Catlin..... -- -- 25,000 125,000 22,500 67,500
Paul F. Danielsen....... -- -- 30,833 109,167 28,224 62,975
John F. Longinotti...... 41,979 $20,990 -- 163,021 -- 101,719
Edward Fong Soo Hoo..... -- -- 29,062 152,938 26,156 113,344
</TABLE>
- ---------------------
(1) The amount set forth represents the difference between the fair market
value of the shares on the date of exercise as determined by the Board of
Directors and the exercise price of the option.
(2) Based on the fair market value as of December 31, 1998 ($1.05 per share),
as determined by the Board of Directors, minus the exercise price,
multiplied by the number of shares underlying the option.
Employment Agreements
In June 1997, we entered into an Employment Agreement with West Shell, III,
our Chairman and Chief Executive Officer in which we agreed to pay Mr. Shell an
annualized salary of $200,000. In the event of Mr. Shell's involuntary
termination, we agreed to pay Mr. Shell his regular salary for a period of six
months; agreed to provide medical, dental and other like benefits for a period
of six months; agreed to release our repurchase option as to 1/4th of the
common stock then held by him that is then subject to repurchase; and agreed to
preserve Mr. Shell's eligibility to receive a discretionary bonus on the
involuntary termination date.
In October 1998, we entered into an amendment to Mr. Shell's Employment
Agreement. In this amendment, we agreed to extend the term of the Employment
Agreement until October 29, 2000; agreed to increase Mr. Shell's annualized
salary to $250,000; and agreed to loan Mr. Shell $100,000 upon his request. We
subsequently loaned him $100,000 in January 1999.
In January 1998, we entered into a Change of Control Agreement with John F.
Longinotti, our Executive Vice President, Operations and Chief Financial
Officer in which we agreed that, subject to certain limitations, if Mr.
Longinotti's employment relationship is involuntarily terminated within twelve
months following a change of control transaction, all of Mr. Longinotti's stock
options shall immediately vest.
Stock Plans
1996 Stock Option Plan. Our 1996 Stock Option Plan (the "Option Plan")
provides for the grant of incentive stock options to employees and nonstatutory
stock options and stock purchase rights to employees, directors and
consultants. The purposes of the Option Plan are to attract and retain the best
available personnel,
51
<PAGE>
to provide additional incentives to our employees and consultants and to
promote the success of our business. The Option Plan was originally adopted by
our Board of Directors in November 1996 and approved by our stockholders in
August 1997. Unless terminated earlier by the Board of Directors, the Option
Plan shall terminate in November 2006. A total of 7,671,400 shares of common
stock have been reserved for issuance under the Option Plan, plus an automatic
annual increase on the first day of our fiscal years beginning in 2000, 2001,
2002, 2003 and 2004 equal to 1,250,000 shares or such lesser number of shares
as the Board of Directors determines. As of June 30, 1999, options to purchase
4,815,736 shares of common stock were outstanding at a weighted average
exercise price of $1.93, 563,776 shares had been issued upon exercise of
outstanding options, and 2,291,888 shares remained available for future grant.
In addition, options to purchase 30,000 shares of our common stock were
outstanding outside of the Option Plan.
The Option Plan may be administered by the Board of Directors or a committee
of the Board. The Option Plan administrator determines the terms of options or
purchase rights granted under the Option Plan, including the number of shares
subject to an option or award, the exercise or purchase price, and the term and
exercisability of options. In no event, however, may an individual employee
receive option grants or purchase rights under the Option Plan during any one
fiscal year which would allow him or her to purchase more than 2,000,000
shares. Incentive stock options granted under the Option Plan must have an
exercise price of at least 100% of the fair market value of the common stock on
the date of grant and at least 110% of such fair market value in the case of an
optionee who holds more than 10% of the total voting power of all classes of
our stock. The exercise or purchase price of nonstatutory stock options and
stock purchase rights granted under the Option Plan shall be determined by the
Option Plan administrator; provided however that the exercise price of any
nonstatutory stock option granted to our Chief Executive Officer or our four
other most highly compensated officers will generally equal at least 100% of
the fair market value of the common stock on the date of grant. Payment of the
option exercise or purchase price may be made in cash or other consideration,
as determined by the Administrator.
With respect to options granted under the Option Plan, the Option Plan
administrator determines the term of options, which may not exceed 10 years (or
5 years in the case of an option granted to a holder of more than 10% of the
total voting power of all classes of our stock). No option may be transferred
by the optionee other than by will or the laws of descent or distribution;
provided that the Option Plan administrator may grant nonstatutory stock
options with limited transferability rights in certain circumstances.
Generally, each option may be exercised during the lifetime of the optionee
only by the optionee. The Option Plan administrator determines when options
vest and become exercisable.
In the event of a sale of substantially all of the assets of Netcentives, or
its merger or consolidation with or into another corporation, each option may
be assumed or an equivalent option substituted by the successor corporation.
However, if the successor corporation does not agree to such assumption or
substitution of an option, the option will terminate. The Administrator has the
authority to amend or terminate the Option Plan provided that no action that
impairs the rights of any holder of an outstanding option may be taken without
the holder's consent, and provided that stockholder approval for any amendments
to the Option Plan shall be obtained to the extent required by applicable law.
1999 Employee Stock Purchase Plan. Our 1999 Employee Stock Purchase Plan (the
"Purchase Plan") was adopted by the Board of Directors in March 1999 and was
approved by the stockholders in May 1999, contingent upon the closing of this
offering. A total of 300,000 shares of common stock have been reserved for
issuance under the Purchase Plan, none of which have been issued as of the date
of this offering. The number of shares reserved for issuance under the Purchase
Plan will be subject to an annual increase on the first day of each of our
fiscal years beginning in 2000, 2001, 2002, 2003 and 2004 equal to the lesser
of 75,000 shares, 1% of our outstanding common stock on the last day of the
immediately preceding fiscal year, or such lesser number of shares as the Board
of Directors determines. The Purchase Plan becomes effective upon the date of
this prospectus. Unless terminated earlier by the Board of Directors, the
Purchase Plan shall terminate in March 2019.
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<PAGE>
The Purchase Plan, which is intended to qualify under Section 423 of the
Internal Revenue Code of 1986, will be implemented by a series of overlapping
offering periods of 24 months' duration, with new offering periods (other than
the first offering period) commencing on May 1 and November 1 of each year.
Each offering period will consist of 4 consecutive purchase periods of 6
months' duration. At the end of each such 6 month period an automatic purchase
will be made for participants. The initial offering period is expected to
commence on the date of this offering and end on October 31, 2001; the initial
purchase period is expected to commence on the date of this offering and end on
April 30, 2000. The Board of Directors may, however, amend or terminate an
offering period or a purchase period, if prevailing accounting rules change so
as to have a harmful effect on our financial statements. The Purchase Plan will
be administered by the Board of Directors or by a committee appointed by the
Board. Employees (including officers and employee directors) of Netcentives, or
of any majority-owned subsidiary designated by the Board, are eligible to
participate in the Purchase Plan if they are employed by Netcentives, or any
such subsidiary, for at least 20 hours per week and more than 5 months per
year. The Purchase Plan permits eligible employees to purchase common stock
through payroll deductions of up to 20% of an employee's compensation, at a
price equal to the lower of 85% of the fair market value of the common stock at
the beginning of each offering period or at the end of each purchase period.
The Board of Directors shall have the discretion to increase, prior to the
beginning of an offering period, the percentage of participants' compensation
that may be withheld through the Purchase Plan. Employees may end their
participation in the offering period at any time, and participation
automatically ends on termination of employment.
No employee shall be granted an option under the Purchase Plan if immediately
after the grant such employee would own stock and/or hold outstanding options
to purchase stock equaling 5% or more of the total voting power or value of all
classes of Netcentives' stock or its subsidiaries, or if the option would
permit an employee to purchase stock, under all of our, or our subsidiaries',
employee stock purchase plans, to accrue at a rate that exceeds $25,000 of fair
market value of such stock for each calendar year in which the option is
outstanding at any time. In addition, no employee may purchase more than 2,500
shares of common stock under the Purchase Plan in any one purchase period. If
the fair market value of the common stock on a purchase date is less than the
fair market value at the beginning of the offering period, each participant in
the Purchase Plan shall automatically be withdrawn from the offering period as
of the end of the purchase date and re-enrolled in the new 24 month offering
period beginning on the first business day following the purchase date.
The Purchase Plan provides that in the event of a merger or consolidation of
Netcentives with or into another corporation or a sale of all or substantially
all of its assets, each right to purchase stock under the Purchase Plan will be
assumed or an equivalent right substituted by the successor corporation unless
the Board of Directors shortens any ongoing offering period so that employees'
rights to purchase stock under the Purchase Plan are exercised prior to the
transaction. The Board of Directors has the power to amend or terminate the
Purchase Plan and to change or terminate offering periods as long as such
action does not adversely affect any outstanding rights to purchase stock under
the Purchase Plan, provided however that the Board may amend or terminate the
Purchase Plan or an offering period even if it would adversely affect
outstanding options in order to avoid our incurring adverse accounting charges.
1999 Directors' Stock Option Plan. The 1999 Directors' Stock Option Plan (the
"Directors' Plan") was adopted by the Board of Directors in March 1999 and was
approved by the stockholders in May 1999, contingent upon the closing of this
offering. A total of 400,000 shares of common stock have been reserved for
issuance under the Directors' Plan. The number of shares reserved for issuance
under the Directors' Plan will be subject to an annual increase on the first
day of each of our fiscal years beginning in 2000, 2001, 2002, 2003 and 2004
equal to the lesser of 50,000 shares or 1% of our outstanding common stock on
the last day of the immediately preceding fiscal year. The Directors' Plan
becomes effective upon the effective date of this prospectus. The Directors'
Plan provides for the grant of nonstatutory stock options to nonemployee
directors of Netcentives and is designed to work automatically without
administration; however, to the extent administration is necessary, it will be
performed by the Board of Directors without participation by a director with
respect to matters in which the director has a personal interest. Unless
terminated earlier, the Directors' Plan will terminate in March 2009.
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<PAGE>
The Directors' Plan provides for an initial grant of an option to purchase
40,000 shares of common stock to each nonemployee director who has not received
a grant under the Option Plan during the twelve months preceding the effective
date of the Directors' Plan, and to each person who first becomes a nonemployee
director thereafter. These options shall become exercisable in four equal
installments on the first, second, third, and fourth anniversaries of the
grant. On the first day of each fiscal year, each nonemployee director who has
served on our Board of Directors for at least 6 months shall be granted an
additional option to purchase 10,000 shares of common stock, which shall become
exercisable in full on the fourth anniversary of the date of grant. The
exercise price of all stock options granted under the Directors' Plan shall be
equal to the fair market value of a share of Netcentives' common stock on the
date of grant of the option.
The Directors' Plan sets neither a maximum nor a minimum number of shares for
which options may be granted to any one nonemployee director, but does specify
the number of shares that may be included in any grant and the method of making
a grant. No option granted under the Directors' Plan is transferable by the
optionee other than by will or the laws of descent or distribution or pursuant
to a qualified domestic relations order. Each option is exercisable, during the
lifetime of the optionee, only by the optionee. If a nonemployee director
ceases to serve as a director for any reason other than death or disability, he
or she may, within 90 days after the date he or she ceases to be a director,
exercise options granted under the Directors' Plan to the extent that he or she
was entitled to exercise it at the date of termination. To the extent that he
or she was not entitled to exercise any such option at the date of termination,
or if he or she does not exercise an option (which he or she was entitled to
exercise) within the 90 day period, the option shall terminate. If a director's
service on our Board terminates as a result of his or her death, the director's
estate will have the right to exercise any option granted under the Directors'
Plan as if the deceased director had continued in his or her position on the
Board of Directors for an additional six months following the date of death.
Options granted under the Directors' Plan have a term of ten years.
In the event of a dissolution or liquidation of Netcentives, a sale of all or
substantially all of its assets, or a merger, consolidation or other capital
reorganization of Netcentives with or into another corporation, each option
outstanding under the Directors' Plan shall be assumed or equivalent options
substituted by the successor corporation, unless such successor corporation
does not agree to such assumption or substitution, in which case the options
shall terminate upon consummation of the transaction; provided however that
upon a sale of all or substantially all of our assets or a merger or
consolidation of Netcentives with or into another corporation in which more
than 50% of the shares entitled to vote are exchanged, each director holding
options under the Directors' Plan shall have the right to exercise his or her
options immediately prior to the consummation of such transaction as to all of
the shares of stock underlying such options, including shares as to which the
director would not otherwise be entitled to exercise.
The Board of Directors may amend or terminate the Directors' Plan at any
time; provided however that no such action may adversely affect any outstanding
option and provided that stockholder approval for any amendments to the
Directors' Plan shall be obtained to the extent required by applicable law.
Limitation of Liability and Indemnification Matters
Our Certificate of Incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that a director
of a corporation will not be personally liable for monetary damages for breach
of such individual's fiduciary duties as a director except for liability:
. for any breach of such director's duty of loyalty to Netcentives or to its
stockholders;
. for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
. for unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the Delaware General
Corporation Law; or
. for any transaction from which a director derives an improper personal
benefit.
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Our bylaws provide that we shall indemnify our directors and executive
officers and may indemnify our officers, employees and other agents to the
fullest extent permitted by law. We believe that indemnification under our
bylaws covers at least negligence and gross negligence on the part of an
indemnified party. Our bylaws also permit us to advance expenses incurred by an
indemnified party in connection with the defense of any action or proceeding
arising out of the party's status or service as a director, officer, employee
or other agent of Netcentives upon an undertaking by the party to repay such
advances if it is ultimately determined that the party is not entitled to
indemnification.
We have entered into separate indemnification agreements with each of our
directors and officers. These agreements require us to, among other things,
indemnify each director or officer against expenses (including attorney's
fees), judgments, fines and settlements paid by such individual in connection
with any action, suit or proceeding arising out of an individual's status or
service as a director or officer of Netcentives (other than liabilities arising
from willful misconduct or conduct that is knowingly fraudulent or deliberately
dishonest) and to advance expenses incurred by an individual in connection with
any proceeding against an individual with respect to which an individual may be
entitled to indemnification by us. We believe that our Certificate of
Incorporation and bylaw provisions and indemnification agreements are necessary
to attract and retain qualified persons as directors and officers. We also
expect to obtain directors' and officers' liability insurance.
At present we are not aware of any pending litigation or proceeding involving
any director, officer, employee or agent of Netcentives where indemnification
will be required or permitted. Furthermore, we are not aware of any threatened
litigation or proceeding that might result in a claim for such indemnification.
55
<PAGE>
RELATED PARTY TRANSACTIONS
Certain stock option grants to directors and executive officers of
Netcentives are described in this prospectus under the caption "Management--
Executive Compensation."
Private Placement Transactions
Since our inception, we have issued, in private placement transactions,
shares of preferred stock, warrants for the purchase of shares of preferred
stock, and notes convertible into shares of preferred stock as follows:
. an aggregate of 1,452,613 shares of Series A Preferred Stock at $0.65 per
share in September 1996;
. an aggregate of 485,000 shares of Series B Preferred Stock at $1.00 per
share in November 1996;
. warrants to purchase an aggregate of 175,000 shares of Series B Preferred
Stock, and promissory notes with an aggregate principal amount of
$1,312,601.60 convertible into an aggregate of 2,281,770 shares of Series
C Preferred Stock during January, June, August, and September 1997;
. an aggregate of 7,754,847 shares of Series C Preferred Stock at $1.30 per
share in September 1997;
. warrants to purchase an aggregate of 530,000 shares of Series N Preferred
Stock in July, August, September and October 1997;
. an aggregate of 5,476,192 shares of Series D Preferred Stock at $3.15 per
share in August 1998; and
. an aggregate of 5,278,583 shares of Series E Preferred Stock at $6.82 per
share in March, April and June 1999.
The following table summarizes the shares of preferred stock purchased by the
executive officers named in the Summary Compensation Table, directors and 5%
stockholders of Netcentives, and persons and entities associated with them, in
private placement transactions:
<TABLE>
<CAPTION>
Series A Series B Series C Series D Series E
Preferred Preferred Preferred Preferred Preferred
Investor Stock Stock Stock Stock Stock
-------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Information Technology
Ventures and
Virginia M. Turezyn..... -- 437,243 1,538,461 539,683 73,314
Integral Capital
Partners................ -- -- -- 1,269,841 168,621
Mayfield Fund and Wendell
G. Van Auken............ -- -- 2,769,231 1,317,460 549,857
New Enterprise Associates
and Stewart Alsop....... -- -- 1,923,077 634,921 366,568
</TABLE>
- ---------------------
Each of the above holders is a 5% stockholder.
Loans to Officers
We have loaned West Shell, III, our Chairman and CEO, funds according to the
terms set forth in the table below. In each case such note is secured by the
common stock of Netcentives owned by Mr. Shell and partnerships affiliated with
Mr. Shell.
<TABLE>
<CAPTION>
Note Interest
Issue Date Due Date Amount Rate
---------- -------- --------- --------
<S> <C> <C> <C>
August 1997................................. August 2001 $ 60,000 6.29%
November 1997............................... November 2001 $ 157,290 6.01%
December 1998............................... December 2002 $ 130,000 4.47%
January 1999................................ January 2003 $ 100,000 4.47%
</TABLE>
Indemnification Agreements
We have entered into indemnification agreements with certain of our officers
and directors containing provisions which may require us to, among other
things, indemnify our officers and directors against certain
56
<PAGE>
liabilities that may arise by reason of their status or service as officers or
directors (other than liabilities arising from willful misconduct of a culpable
nature) and to advance their expenses incurred as a result of any proceeding
against them as to which they could be indemnified.
Registration Rights Agreements
Certain holders of common stock and preferred stock have certain registration
rights with respect to their shares of common stock (including common stock
issuable upon conversion of their preferred stock) as described in "Description
of Capital Stock--Registration Rights of Certain Holders."
Other Related Party Transactions
In April 1999, we entered into a computer software licensing agreement with
Connectify which provides for payments by Netcentives of approximately $300,000
in fees during fiscal 1999. Mr. Alsop is a director of both Netcentives and
Connectify. We believe that this agreement was entered into on terms and
conditions no less favorable to Netcentives than those that could have been
obtained from an unaffiliated third party.
57
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to beneficial
ownership of our common stock as of June 30, 1999, and as adjusted to reflect
the sale of common stock offered hereby, as to (i) each person (or group of
affiliated persons) known by us to own beneficially more than 5% of our
outstanding common stock, (ii) each of our directors, (iii) each of the
executive officers named in the Summary Compensation Table, and (iv) all
directors and executive officers of Netcentives as a group.
<TABLE>
<CAPTION>
Percent
Beneficially Owned(2)
---------------------------
Name and Address of Beneficial Number of Before After
Owner(1) Shares(2) Offering Offering(3)
- ------------------------------ ---------- ----------- ------------
<S> <C> <C> <C>
Wendell G. Van Auken(4).............. 4,636,548 17.98% %
2800 Sand Hill Road
Menlo Park, CA 94025
Stewart Alsop(5)..................... 2,873,461 11.14
2490 Sand Hill Road
Menlo Park, CA 94025
Virginia M. Turezyn(6)............... 2,588,701 10.04
3000 Sand Hill Road, Building I
Suite 280
Menlo Park, CA 94025
West Shell, III(7)(8)................ 1,792,766 6.94
Eric W. Tilenius(7).................. 1,004,166 3.89
Timothy J.O. Catlin(7)............... 149,999 * *
Tom Byers............................ 125,000 * *
373 Terman Engineering Center
Stanford University
Stanford, CA 94305-4024
John F. Longinotti(7)................ 76,145 * *
Edward Fong Soo Hoo(7)............... 59,395 * *
Paul F. Danielsen(7)................. 54,166 * *
Sergio Zyman(7)...................... 50,000 * *
PO Box 724705
Atlanta, GA 31139
Mayfield Fund(9)..................... 4,576,741 17.75
2800 Sand Hill Road
Menlo Park, CA 94025
New Enterprise Associates(10)........ 2,924,566 11.34
2490 Sand Hill Road
Menlo Park, CA 94025
Information Technology Ventures(11).. 2,588,701 10.04
3000 Sand Hill Road, Building I
Suite 280
Menlo Park, CA 94025
Integral Capital Partners(12)........ 1,438,462 5.58
2750 Sand Hill Road
Menlo Park, CA 94025
All directors and officers as a group
(18 persons)(4)(5)(6)(7)(8)......... 14,777,353 56.08
</TABLE>
- ---------------------
*Less than 1%.
58
<PAGE>
(1) Except as otherwise noted, the address of each person listed in the table
is c/o Netcentives Inc., 690 Fifth Street San Francisco, California 94107,
and the persons named in the table have sole voting and investment power
with respect to all shares of common stock shown as beneficially owned by
them, subject to community property laws where applicable.
(2) Applicable percentage of beneficial ownership is based on 25,790,282
shares of common stock outstanding as of June 30, 1999, together with
applicable options exercisable within 60 days of June 30, 1999 and
warrants for such stockholder. Shares issuable pursuant to such options
are deemed outstanding for computing the percentage ownership of the
person holding such options but are not deemed outstanding for the
purposes of computing the percentage ownership of each other person.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission.
(3) Assumes that the underwriters do not exercise their over-allotment option.
(4) Includes 59,807 shares held by the Wendell G. Van Auken & Ethel S. Van
Auken Trust. Additionally, Mr. Van Auken is a general partner of Mayfield
VIII Management, which is the General Partner of Mayfield VIII which holds
4,033,692 shares and Mayfield Associates Fund III which holds 212,300
shares. Affinity Trust, an investment entity affiliated with the Mayfield
Fund, holds an additional 330,749 shares. Mr. Van Auken disclaims
beneficial ownership of the shares held by Mayfield VIII, Mayfield
Associates Fund III, and Affinity Trust except to the extent of his
pecuniary interest in such entities. See Note 8.
(5) Mr. Alsop is a limited partner of New Enterprise Associates VII, L.P.
which holds 2,873,461 shares. Mr. Alsop disclaims beneficial ownership of
the shares held by this entity except to the extent of his pecuniary
interests in such entities. See Note 10. Shares attributable to Mr. Alsop
do not include any shares owned by NEA President's Fund or NEA Ventures
1997.
(6) Ms. Turezyn is a general partner of Information Technology Ventures, L.P.
which holds 2,521,988 shares and ITV Affiliates Fund, L.P. which holds
66,713 shares. Ms. Turezyn disclaims beneficial ownership of the shares
held by these entities except to the extent of her pecuniary interests in
such entities. See Note 11.
(7) Includes the following shares issuable upon exercise of outstanding
options exercisable within 60 days of June 30, 1999: Mr. Shell, 44,166;
Mr. Tilenius, 4,166; Mr. Catlin, 20,833; Mr. Danielsen, 54,166;
Mr. Longinotti, 34,166; Mr. Soo Hoo, 59,395; Mr. Zyman, 50,000; and
others, 293,594.
(8) Includes 677,512 shares held by Shell Associates, L.P. a family limited
partnership of which Mr. Shell is a general partner.
(9) Includes 4,033,692 shares held by Mayfield VIII, 212,300 shares held by
Mayfield Associates Fund III, and 330,749 shares held by Affinity Trust.
(10) Includes 2,873,461 shares held by New Enterprise Associates VII, L.P.,
47,259 shares held by NEA President's Fund and 3,846 shares held by NEA
Ventures 1997.
(11) Includes 2,521,988 shares held by Information Technology Ventures, L.P.
and 66,713 shares held by ITV Affiliates Fund, L.P.
(12) Includes 1,431,313 shares held by Integral Capital Partners IV, L.P. and
7,149 shares held by Integral Capital Partners IV MS Side Fund, L.P.
59
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Following the closing of the sale of the shares offered hereby, our
authorized capital stock will consist of 100,000,000 shares of common stock,
$0.001 par value, and 5,000,000 shares of undesignated preferred stock, $0.001
par value.
Common Stock
As of June 30, 1999, there were 25,790,282 shares of common stock outstanding
that were held of record by approximately 129 stockholders after giving effect
to the conversion of our preferred stock into common stock at a one-to-one
ratio and the exercise of 46,891 warrants terminable upon the closing of this
offering, and assuming no exercise or conversion of outstanding convertible
securities after June 30, 1999. There will be shares of common stock
outstanding (assuming no exercise of the underwriters' over-allotment option
and no exercise or conversion of outstanding convertible securities after June
30, 1999) after giving effect to the sale of the shares of common stock offered
hereby.
The holders of common stock are entitled to one vote per share on all matters
to be voted upon by the stockholders. Subject to preferences that may be
applicable to any outstanding preferred stock, the holders of common stock are
entitled to receive ratably such dividends, if any, as may be declared from
time to time by the Board of Directors out of funds legally available therefor.
In the event of a liquidation, dissolution or winding up of Netcentives, the
holders of common stock are entitled to share ratably in all assets remaining
after payment of liabilities, subject to prior rights of preferred stock, if
any, then outstanding. Our common stock has no preemptive or conversion rights
or other subscription rights. There are no redemption or sinking fund
provisions available to the common stockholders. All outstanding shares of
common stock are fully paid and non-assessable.
Preferred Stock
Effective upon the closing of this offering, we will be authorized to issue
5,000,000 shares of undesignated preferred stock. The Board of Directors will
have the authority to issue the undesignated preferred stock in one or more
series and to determine the powers, preferences and rights and the
qualifications, limitations or restrictions granted to or imposed upon any
wholly unissued series of undesignated preferred stock and to fix the number of
shares constituting any series and the designation of such series, without any
further vote or action by the stockholders. The issuance of preferred stock may
have the effect of delaying, deferring or preventing a change in control of
Netcentives without further action by the stockholders and may adversely affect
the voting and other rights of the holders of common stock. At present, we have
no plans to issue any shares of preferred stock.
Registration Rights of Certain Holders
The holders of 20,569,126 shares of common stock, and the holders of 62,948
shares issuable upon exercise of warrants, or their transferees, are entitled
to certain rights with respect to the registration of such shares under the
Securities Act. These rights are provided under the terms of an agreement among
Netcentives and the holders of these securities dated March 19, 1999. Subject
to certain limitations in this agreement, the holders of the these securities
may require, on two occasions at any time after six months from the effective
date of this offering, that we use our best efforts to register the Registrable
Securities for public resale, provided that the proposed aggregate offering
price is at least $10,000,000. If we register any of our common stock either
for our own account or for the account of other security holders, the holders
of these securities are entitled to include their shares of common stock in the
registration. A holder's right to include shares in an underwritten
registration is subject to the ability of the underwriters to limit the number
of shares included in that offering.
Additionally, holders of these securities may require on no more than two
separate occasions in a twelve-month period, that we register their shares for
public resale on Form S-3 or similar short-form registration, once we are
eligible to use Form S-3 or similar short-form registration and provided
further that the value of the securities to be registered is at least $500,000.
60
<PAGE>
All fees, costs and expenses of such registrations must be borne by
Netcentives and all selling expenses (including underwriting discounts, selling
commissions and stock transfer taxes) relating to these securities must be
borne by the holders of the securities being registered.
Anti-Takeover Provisions of Delaware Law
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law. In general, the statute prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date that the person became
an interested stockholder unless (with certain exceptions) the business
combination or the transaction in which the person became an interested
stockholder is approved in a prescribed manner. Generally, a "business
combination" includes a merger, asset or stock sale or other transaction
resulting in a financial benefit to the stockholder, and an "interested
stockholder" is a person who, together with affiliates and associates, owns (or
within three years prior, did own) 15% or more of the corporation's outstanding
voting stock. This provision may have the effect of delaying, deferring or
preventing a change in control of Netcentives without further action by the
stockholders. In addition, upon completion of this offering, certain provisions
of our charter documents, including a provision eliminating the ability of
stockholders to take actions by written consent, may have the effect of
delaying or preventing changes in control or management of Netcentives, which
could have a negative effect on the market price of our common stock. Our
Option Plan, Purchase Plan and Directors' Plan generally provide for assumption
of such plans or substitution of an equivalent option of a successor
corporation or, alternatively, at the discretion of the Board of Directors,
exercise of some or all of the options stock, including non-vested shares, or
acceleration of vesting of shares issued pursuant to stock grants, upon a
change of control or similar event. The Board of Directors has authority to
issue up to 5,000,000 shares of preferred stock and to fix the rights,
preferences, privileges and restrictions, including voting rights, of these
shares without any further vote or action by the stockholders. The rights of
the holders of the common stock will be subject to, and may be adversely
affected by, the rights of the holders of any preferred stock that may be
issued in the future. The issuance of preferred stock, while providing
desirable flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of making it more difficult for a
third party to acquire a majority of our outstanding voting stock, thereby
delaying, deferring or preventing a change in control of Netcentives.
Furthermore, such preferred stock may have other rights, including economic
rights senior to the common stock, and, as a result, the issuance of such
preferred stock could have a negative effect on the market value of the common
stock. We have no present plans to issue shares of preferred stock.
Warrants
As of June 30, 1999, warrants were outstanding to purchase an aggregate of
615,448 shares of common stock at a weighted average exercise price of $1.13
per share. Warrants to purchase 22,500 shares at $2.00 per share will expire in
January 2000. Warrants to purchase 190,000 shares at $1.00 per share will
expire in August 2001. Warrants to purchase 10,000 shares at $1.00 per share
will expire in October 2001. Warrants to purchase 120,000 shares at $1.30 per
share will expire in October 2001. Warrants to purchase 110,000 shares at
$1.00 per share will expire in July 2001. Warrants to purchase 50,000 shares at
$1.00 per share will expire in September 2001. Warrants to purchase 21,000
shares at $1.30 per share will expire in May 2002. Warrants to purchase 10,000
shares at $1.30 per share will expire in September 2002. Warrants to purchase
50,000 shares at $1.00 per share will expire in October 2002. Warrants to
purchase 31,948 shares at $1.30 per share will expire in May 2003.
Transfer Agent and Registrar
The Transfer Agent and Registrar for our common stock is American Stock
Transfer and Trust. Their phone number is (212) 936-5100.
Listing
We expect to apply to list our common stock on the Nasdaq National Market of
the Nasdaq Stock Market, Inc. under the trading symbol "NCNT."
61
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common stock.
We cannot provide any assurances that a significant public market for our
common stock will develop or be sustained after this offering. Future sales of
substantial amounts of common stock in the public market, or the possibility of
such sales occurring, could adversely affect prevailing market prices for our
common stock or our future ability to raise capital through an offering of
equity securities.
After this offering, we will have outstanding shares of common
stock. Of these shares, the shares to be sold in this offering (
shares if the underwriters' over-allotment option is exercised in full) will be
freely tradable in the public market without restriction under the Securities
Act, unless such shares are held by "Affiliates" of Netcentives, as that term
is defined in Rule 144 under the Securities Act of 1933.
The remaining 25,790,282 shares outstanding upon completion of this offering
will be "restricted securities" as that term is defined under Rule 144 (the
"Restricted Shares"). We issued and sold the Restricted Shares in private
transactions in reliance on exemptions from registration under the Securities
Act. Restricted Shares may be sold in the public market only if they are
registered or if they qualify for an exemption from registration under Rule 144
or Rule 701 under the Securities Act, as summarized below.
Pursuant to certain lock-up agreements, all the executive officers, directors
and certain stockholders of Netcentives, who collectively hold the Restricted
Shares, have agreed not to offer, sell, contract to sell, grant any option to
purchase or otherwise dispose of any such shares for a period of 180 days from
the date of this prospectus. We also have entered into an agreement with the
underwriters that we will not offer, sell or otherwise dispose of common stock
for a period of 180 days from the date of this prospectus.
Assuming that this offering is effective on September 15, 1999, on the date
of the expiration of the lock-up agreements, 19,499,026 Restricted Shares that
will not then be subject to any repurchase option will be eligible for
immediate sale (of which 16,298,641 shares will be subject to certain volume,
manner of sale and other limitations under Rule 144). The remaining 6,291,256
Restricted Shares will be eligible for sale pursuant to Rule 144 on the
expiration of various one-year holding periods over the six months following
the expiration of the lock-up period and the expiration of certain repurchase
options over the four years following the original purchase date of such
shares. Following the completion of this offering, warrants to purchase 615,448
shares will be outstanding, which if exercised pursuant to net-exercise
provisions would be immediately saleable without restriction upon the
expiration of the 180 day lock-up period. If such warrants were to be otherwise
exercised, they would be saleable upon the expiration of various one-year
holding periods, subject to certain volume, manner of sale, and other
limitations under Rule 144. In general, under Rule 144 as in effect at the
closing of this offering, beginning 90 days after the date of this prospectus,
a person (or persons whose shares of Netcentives are aggregated) who has
beneficially owned Restricted Shares for at least one year (including the
holding period of any prior owner who is not an Affiliate of Netcentives) would
be entitled to sell, within any three-month period, a number of shares that
does not exceed the greater of (1) 1% of the then-outstanding shares of common
stock or (2) the average weekly trading volume of the common stock during the
four calendar weeks preceding the filing of a Form 144 with respect to such
sale. Sales under Rule 144 are also subject to certain manner of sale and
notice requirements and to the availability of current public information about
Netcentives. Under Rule 144(k), a person who is not deemed to have been an
Affiliate of Netcentives at any time during the 90 days preceding a sale and
who has beneficially owned the shares proposed to be sold for at least two
years (including the holding period of any prior owner who is not an Affiliate
of Netcentives) is entitled to sell such shares without complying with the
manner of sale, public information, volume limitation or notice provisions of
Rule 144.
Of the 4,845,736 options to purchase shares of common stock outstanding as of
June 30, 1999, on the date 180 days following the assumed effective date of
this offering, options to purchase 1,992,091 shares of common stock will be
fully exercisable and saleable.
62
<PAGE>
We intend to file, no later than the effective date of this offering, a
Registration Statement on Form S-8 to register approximately 7,807,624 shares
of common stock reserved for issuance under the Option Plan, the Purchase Plan
and the Directors' Plan. The Registration Statement will become effective
automatically upon filing. Shares issued under the foregoing plans, after the
filing of a Registration Statement on Form S-8, may be sold in the open market,
subject, in the case of certain holders, to the Rule 144 limitations applicable
to Affiliates, the above-referenced lock-up agreements and vesting restrictions
imposed by us.
In addition, following this offering, the holders of 20,569,126 shares of
outstanding common stock and the holders of warrants to purchase 62,948 shares,
or their transferees, will, under certain circumstances, have rights to require
us to register their shares for future sale.
63
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 1999 we have agreed to sell to the underwriters named
below, for whom Credit Suisse First Boston Corporation, Hambrecht & Quist LLC
and Thomas Weisel Partners LLC are acting as representatives, the following
respective numbers of shares of common stock:
<TABLE>
<CAPTION>
Number
of
Underwriter Shares
----------- -------
<S> <C>
Credit Suisse First Boston Corporation.............................
Hambrecht & Quist LLC..............................................
Thomas Weisel Partners LLC.........................................
-------
Total............................................................
=======
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering, if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro rata
basis up to additional shares at the initial public offering price
less the underwriting discounts and commissions. The option may be exercised
only to cover any over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at the
public offering price on the cover page of this prospectus and to selling group
members at that price less a concession of $ per share. The underwriters
and selling group members may allow a discount of $ per share on sales
to other broker/dealers. After the initial public offering, the public offering
price and concession and discount to broker/dealers may be changed by the
representatives.
The following table summarizes the compensation and estimated expenses we
will pay.
<TABLE>
<CAPTION>
Per Share Total
------------------- -----------------------
Without With Without With
Over- Over- Over- Over-
allotment allotment allotment allotment
--------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Underwriting discounts and
commissions paid by us........... $ $ $ $
Expenses payable by us............ $ $ $ $
</TABLE>
The underwriters have informed us that they do not expect discretionary sales
to exceed 5% of the shares of common stock being offered.
We, our officers and directors, and some of our stockholders have agreed that
we and they will not offer, sell, contract to sell, announce our intention to
sell, pledge or otherwise dispose of, directly or indirectly, or file with the
Securities and Exchange Commission a registration statement under the
Securities Act relating to, any shares of our common stock or securities
convertible into or exchangeable or exercisable for any of our common stock
without the prior written consent of Credit Suisse First Boston Corporation for
a period of 180 days after the date of this prospectus, except, in our case,
issuances pursuant to the exercise of employee stock options outstanding on the
date hereof.
64
<PAGE>
The underwriters have reserved for sale, at the initial public offering
price, up to shares of the common stock for employees, directors and
certain other persons associated with us who have expressed an interest in
purchasing common stock in the offering. The number of shares available for
sale to the general public in the offering will be reduced to the extent such
persons purchase such reserved shares. Any reserved shares not so purchased
will be offered by the underwriters to the general public on the same terms as
the other shares.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act, or contribute to payments which the underwriters may be
required to make in that respect.
We will apply to list the shares of common stock on The Nasdaq Stock Market's
National Market under the symbol NCNT.
Prior to this offering, there has been no public market for our common stock.
The initial public offering price will be determined by negotiation between us
and the representatives. The principal factors to be considered in determining
the public offering price include: the information set forth in this prospectus
and otherwise available to the representatives; the history and the prospects
for the industry in which we will compete; the ability of our management; our
prospects for future earnings; the present state of our development and our
current financial condition; the general condition of the securities markets at
the time of this offering; and the recent market prices of, and the demand for,
publicly traded common stock of generally comparable companies.
The representatives on behalf of the underwriters may engage in over-
allotment, stabilizing transactions, syndicate covering transactions, penalty
bids and "passive" market making in accordance with Regulation M under the
Securities Exchange Act of 1934.
. Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.
. Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
. Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions.
. Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by such
syndicate member are purchased in a syndicate covering transaction to
cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty
bids may cause the price of the common stock to be higher than it would
otherwise be in the absence of these transactions. These transactions may be
effected on The Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
Thomas Weisel Partners LLC, one of the representatives of the underwriters,
was organized and registered as a broker-dealer in December 1998. Since
December 1998, Thomas Weisel Partners has been named as a lead or co-manager on
44 filed public offerings of equity securities, of which 26 have been
completed, and has acted as a syndicate member in an additional 19 public
offerings of equity securities. Thomas Weisel Partners does not have any
material relationship with us or any of our officers, directors or other
controlling persons, except as provided below and with respect to its
contractual relationship with us pursuant to the underwriting agreement entered
into in connection with this offering.
65
<PAGE>
In March, April and June 1999, Hambrecht & Quist LLC acted as private
placement agent for the sale of an aggregate of 5,278,583 shares of our Series
E preferred stock for which it received a customary fee for its services.
Hambrecht & Quist did not purchase any of the shares in this sale, and they
were selected as the private placement agent through arms-length negotiations
on terms substantially similar to the terms obtained by other underwriters.
Thomas Weisel Partners LLC purchased 73,313 shares of our Series E preferred
stock on the same terms as other purchasers in this sale.
66
<PAGE>
NOTICE TO CANADIAN RESIDENTS
Resale Restrictions
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of the common
stock in Canada must be made in accordance with applicable securities laws
which will vary depending on the relevant jurisdiction, and which may require
resales to be made in accordance with available statutory exemptions or
pursuant to a discretionary exemption granted by the applicable Canadian
securities regulatory authority. Purchasers are advised to seek legal advice
prior to any resale of the common stock.
Representations of Purchasers
Each purchaser of common stock in Canada who receives a purchase confirmation
will be deemed to represent to us and the dealer from whom such purchase
confirmation is received that (i) such purchaser is entitled under applicable
provincial securities laws to purchase such common stock without the benefit of
a prospectus qualified under these securities laws, (ii) where required by law,
that such purchaser is purchasing as principal and not as agent, and (iii) such
purchaser has reviewed the text above under "Resale Restrictions."
Rights of Action (Ontario Purchasers)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
Enforcement of Legal Rights
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be
possible for Canadian purchasers to effect service of process within Canada
upon the issuer or such persons. All or a substantial portion of the assets of
the issuer and such persons may be located outside of Canada and, as a result,
it may not be possible to satisfy a judgment against the issuer or such persons
in Canada or to enforce a judgment obtained in Canadian courts against such
issuer or persons outside of Canada.
Notice to British Columbia Residents
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by such purchaser in this offering. Such report must be
in the form attached to British Columbia Securities Commission Blanket Order
BOR #95/17, a copy of which may be obtained from us. Only one report must be
filed in respect of common stock acquired on the same date and under the same
prospectus exemption.
Taxation and Eligibility for Investment
Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchaser under relevant Canadian
legislation.
67
<PAGE>
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for
Netcentives by Venture Law Group, A Professional Corporation, Menlo Park,
California. Craig W. Johnson and Elias J. Blawie, each a director of Venture
Law Group, are the Secretary and Assistant Secretary of Netcentives,
respectively. VLG Investments 1996, an entity affiliated with Venture Law
Group, holds an aggregate of 69,538 shares of our common stock. Mr. Johnson and
Mr. Blawie, hold an aggregate of 20,385 shares and 12,692 shares, respectively,
of our common stock and each has a pecuniary interest in the shares owned by
VLG Investments 1996. The underwriters have been represented by Wilson Sonsini
Goodrich & Rosati, Palo Alto, California.
EXPERTS
The (1) consolidated balance sheets of Netcentives Inc. and its subsidiary as
of December 31, 1997 and 1998 and the related consolidated statements of
operations, stockholders' equity and cash flows for the period June 21, 1996
(inception) to December 31, 1996 and for the years ended December 31, 1997 and
1998, and (2) Statements of Operations and Cash Flows of Panttaja Consulting
Group, Inc. for the years ended November 30, 1997 and 1998 included herein and
elsewhere in the registration statement have been audited by Deloitte & Touche
LLP, independent auditors, as stated in their reports appearing in this
prospectus, and are included in reliance upon the reports of such firm given
upon their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have 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. This prospectus, which is part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement, certain
items of which are contained in exhibits to the Registration Statement as
permitted by the rules and regulations of the SEC. For further information with
respect to Netcentives and the common stock being offered, reference is made to
the Registration Statement, including its exhibits, and the financial
statements and notes filed as a part of the Registration Statement. Statements
made in this prospectus concerning the contents of any other document herein
are not necessarily complete. With respect to each such document filed with the
SEC as an exhibit to the Registration Statement, you should see the exhibit
itself for a more complete description of the matter involved. The Registration
Statement, including exhibits and the financial statements and notes filed as a
part of the Registration Statement, as well as such reports and other
information filed with the SEC, may be inspected without charge at the public
reference facilities maintained by the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the regional offices of the SEC located at Seven
World Trade Center, 13th Floor, New York, NY 10048, and the Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
all or any part of these documents may be obtained from the SEC upon payment of
certain fees prescribed by the SEC. These reports and other information may
also be inspected without charge at a Web site maintained by the SEC. The
address of this Web site is http://www.sec.gov.
68
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Netcentives Inc.:
Independent Auditors' Report............................................... F-2
Consolidated Balance Sheets................................................ F-3
Consolidated Statements of Operations ..................................... F-4
Consolidated Statements of Stockholders' Equity............................ F-5
Consolidated Statements of Cash Flows...................................... F-6
Notes to Consolidated Financial Statements................................. F-7
Panttaja Consulting Group, Inc.:
Independent Auditors' Report............................................... F-20
Statements of Operations................................................... F-21
Statements of Cash Flows................................................... F-22
F-23
Notes to Financial Statements..............................................
Pro Forma Consolidated Financial Information:
Pro Forma Consolidated Statement of Operations............................. F-26
Notes to Pro Forma Consolidated Statement of Operations.................... F-27
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Netcentives Inc.:
We have audited the accompanying consolidated balance sheets of Netcentives
Inc. and its subsidiary as of December 31, 1997 and 1998, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the period June 21, 1996 (inception) to December 31, 1996 and for the years
ended December 31, 1997 and 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, such consolidated financial statements present fairly, in all
material respects, the financial position of Netcentives Inc. and its
subsidiary as of December 31, 1997 and 1998, and the results of their
operations and their cash flows for the periods stated above in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
San Jose, California
July 14, 1999
F-2
<PAGE>
NETCENTIVES INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands except share and par value amounts)
<TABLE>
<CAPTION>
December 31,
----------------- March 31,
1997 1998 1999
------- -------- -----------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents............................ $ 6,608 $ 13,651 $ 31,994
Accounts receivable............................. 23 893 862
Prepaid incentive awards........................ 703 1,600 1,575
Prepaid expenses................................ 239 147 269
------- -------- --------
Total current assets.......................... 7,573 16,291 34,700
Property and equipment--net....................... 933 1,858 2,545
Intangible assets--net............................ 36 3,611 3,192
Other assets...................................... 7 175 169
------- -------- --------
Total assets.................................. $ 8,549 $ 21,935 $ 40,606
======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank loan payable............................... $ 200 $ 100 $ --
Accounts payable................................ 583 1,324 1,440
Accrued compensation and benefits............... 51 667 455
Accrued redemption costs........................ -- 509 1,509
Other accrued liabilities....................... 266 1,198 2,303
Deferred revenue--product....................... 43 1,250 1,912
Deferred revenue--services...................... 16 656 945
Current portion of long-term obligations........ 66 664 859
------- -------- --------
Total current liabilities..................... 1,225 6,368 9,423
Long-term obligations............................. 196 1,233 887
Commitments and contingencies (Notes 3, 5, 7, 12
and 13)
Stockholders' equity:
Convertible preferred stock, $.001 par value--
16,050,000 shares authorized;
shares outstanding: 1997, 9,692,460; 1998,
15,168,652; March 31, 1999, 18,762,705
(aggregate liquidation preference of $28,760 at
1998).......................................... 10 15 19
Common stock, $.001 par value--30,000,000 shares
authorized;
shares outstanding: 1997, 3,735,683; 1998,
4,894,069;
March 31, 1999, 5,180,765...................... 4 5 5
Paid-in capital................................. 11,780 41,126 64,925
Deferred stock compensation..................... -- (7,905) (7,438)
Receivables from sales of stock................. (220) (350) (450)
Accumulated deficit............................. (4,446) (18,557) (26,765)
------- -------- --------
Total stockholders' equity.................... 7,128 14,334 30,296
------- -------- --------
Total liabilities and stockholders' equity.... $ 8,549 $ 21,935 $ 40,606
======= ======== ========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
NETCENTIVES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
June 21, 1996 Years Ended Three Months
(Inception) to December 31, Ended March 31,
December 31, ----------------- ----------------
1996 1997 1998 1998 1999
-------------- ------- -------- ------- -------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Product................. $ -- $ -- $ 64 $ 2 $ 103
Program-related
services............... -- 9 583 13 117
Technical consulting
services............... -- -- -- -- 1,436
------ ------- -------- ------- -------
Total revenues........ -- 9 647 15 1,656
------ ------- -------- ------- -------
Costs and expenses:
Cost of product
revenues............... -- -- 59 2 92
Program-related
services, marketing and
support costs.......... 102 1,496 7,293 684 4,519
Cost of technical
consulting services
revenues............... -- -- -- -- 817
Research and
development............ 63 1,505 3,383 685 1,032
Selling, general and
administrative......... 108 1,210 3,134 704 1,992
Amortization of deferred
stock compensation..... -- -- 296 7 467
Amortization of supplier
stock awards........... -- 63 811 65 604
Amortization of
intangibles............ -- -- 79 1 444
------ ------- -------- ------- -------
Total costs and
expenses............. 273 4,274 15,055 2,148 9,967
------ ------- -------- ------- -------
Loss from operations...... (273) (4,265) (14,408) (2,133) (8,311)
Interest income........... 7 121 441 74 146
Interest expense.......... -- (36) (144) (21) (43)
------ ------- -------- ------- -------
Net loss.................. $ (266) $(4,180) $(14,111) $(2,080) $(8,208)
====== ======= ======== ======= =======
Net loss per share--basic
and diluted.............. $(0.97) $ (5.70) $ (8.58) $ (1.63) $ (2.73)
====== ======= ======== ======= =======
Shares used in computing
per share amounts--basic
and diluted.............. 273 734 1,644 1,276 3,004
====== ======= ======== ======= =======
Pro forma net loss per
share--basic and
diluted.................. $ (1.05) $ (0.44)
======== =======
Shares used in computing
pro forma per share
amounts.................. 13,422 18,746
======== =======
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
NETCENTIVES INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended December 31, 1996, 1997 and 1998 and for the three months ended
March 31, 1999
(unaudited)
(In thousands except per share amounts)
<TABLE>
<CAPTION>
Preferred
Stock Common Stock Deferred Receivables
------------- ------------- Paid-In Stock from Sales Accumulated
Shares Amount Shares Amount Capital Compensation of Stock Deficit Total
------ ------ ------ ------ ------- ------------ ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of common
stock................. 2,050 $ 2 $ 1 $ 3
Sale of Series A
preferred stock, at
$0.65 per share, net
of expenses of $7..... 1,453 $ 1 936 937
Sale of Series B
preferred stock, at
$1.00 per share, net
of expenses of $13.... 485 1 471 472
Net loss .............. $ (266) (266)
------ --- ----- --- ------- ------- ----- -------- --------
BALANCES, December 31,
1996................... 1,938 2 2,050 2 1,408 (266) 1,146
Sale of Series C
preferred stock, at
$1.30 per share, net
of expenses of $17.... 7,755 8 10,057 10,065
Sale of common stock... 1,564 2 216 $(207) 11
Exercise of common
stock options......... 122 13 (13)
Stock warrants......... 86 86
Net loss............... (4,180) (4,180)
------ --- ----- --- ------- ------- ----- -------- --------
BALANCES, December 31,
1997................... 9,693 10 3,736 4 11,780 (220) (4,446) 7,128
Sale of Series D
preferred stock, at
$3.15 per share, net
of expenses of $18.... 5,476 5 17,226 17,231
Sale of common stock... 200 630 $ (500) (130) --
Common stock issued for
patent................ 35 76 76
Exercise of common
stock options......... 115 19 19
Stock warrants......... 841 841
Deferred stock
compensation related
to option grants...... 7,071 (7,071) --
Shares issued in
Panttaja acquisition.. 808 1 2,547 (630) 1,918
Vested options issued
in Panttaja
acquisition........... 936 936
Amortization of
deferred stock
compensation.......... 296 296
Net loss............... (14,111) (14,111)
------ --- ----- --- ------- ------- ----- -------- --------
BALANCES, December 31,
1998................... 15,169 15 4,894 5 41,126 (7,905) (350) (18,557) 14,334
Sale of Series E
preferred stock, at
$6.82 per share, net
of
expenses of $1,010*... 3,519 4 22,986 22,990
Issuance of receivable
related to previously
issued common stock*.. (100) (100)
Exercise of common
stock options*........ 287 110 110
Stock warrants*........ 628 628
Exercise of Series B
warrants*............. 75 75 75
Amortization of
deferred stock
compensation*......... 467 467
Net loss*.............. (8,208) (8,208)
------ --- ----- --- ------- ------- ----- -------- --------
BALANCES, March 31,
1999* ................. 18,763 $19 5,181 $ 5 $64,925 $(7,438) $(450) $(26,765) $ 30,296
====== === ===== === ======= ======= ===== ======== ========
</TABLE>
- --------
*unaudited
See notes to consolidated financial statements.
F-5
<PAGE>
NETCENTIVES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Three Months
June 21, 1996 Years Ended Ended March 31,
(Inception) to December 31, ----------------
December 31, -----------------
1996 1997 1998 1998 1999
-------------- ------- -------- ------- -------
(unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Cash received from
customers............... $ -- $ 45 $ 1,294 $ 81 $ 2,288
Cash paid to suppliers
and employees........... (177) (4,222) (11,156) (2,144) (6,398)
Cash paid for interest... -- (23) (114) (21) (43)
Cash paid for income
taxes................... -- (2) -- -- --
Interest received........ 7 121 441 74 146
------ ------- -------- ------- -------
Net cash used in
operating
activities......... (170) (4,081) (9,535) (2,010) (4,007)
------ ------- -------- ------- -------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchases of property and
equipment............... (124) (967) (1,157) (250) (1,474)
Cash paid in Panttaja
acquisition, net of cash
acquired................ -- -- (150) -- --
Other long-term assets... -- -- (58) -- --
------ ------- -------- ------- -------
Net cash used in
investing
activities......... (124) (967) (1,365) (250) (1,474)
------ ------- -------- ------- -------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Sales of common stock.... 3 11 19 -- 110
Issuance of receivable
related to previous
issuances of common
stock................... -- -- -- -- (100)
Sales of preferred
stock................... 1,409 10,065 17,231 -- 24,065
Borrowings on long-term
debt.................... -- 279 1,141 125 --
Principal payments on
long-term debt.......... -- (17) (248) -- (151)
Borrowings on bank loan
payable, net............ -- 200 (200) -- (100)
------ ------- -------- ------- -------
Net cash provided by
financing
activities......... 1,412 10,538 17,943 125 23,824
------ ------- -------- ------- -------
NET INCREASE IN CASH AND
EQUIVALENTS.............. 1,118 5,490 7,043 (2,135) 18,343
CASH AND EQUIVALENTS,
Beginning of period...... -- 1,118 6,608 6,608 13,651
------ ------- -------- ------- -------
CASH AND EQUIVALENTS, End
of period................ $1,118 $ 6,608 $ 13,651 $ 4,473 $31,994
====== ======= ======== ======= =======
NONCASH INVESTING AND
FINANCING ACTIVITIES:
Stock and warrants issued
in exchange for patent.. $ -- $ 10 $ 76 $ -- $ --
====== ======= ======== ======= =======
Sales of stock for notes
and accounts
receivable.............. $ -- $ 217 $ 130 $ -- $ --
====== ======= ======== ======= =======
Acquisition of Panttaja:
Value of stock and
options issued, net of
deferred stock
compensation.......... $ 2,854
Cash paid.............. 194
Liabilities assumed.... 1,090
--------
Assets acquired
(including
intangibles of
$3,526)............ $ 4,138
========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
NETCENTIVES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1996, 1997 and 1998 and three months ended March 31,
1999 and 1998.
(Information as of March 31, 1999 and for the
three months ended March 31, 1999 and 1998 is unaudited)
1. Business and Operations
Netcentives Inc. (the "Company") provides Internet-based merchants, portals
and community sites with promotion tools to drive consumer behavior, loyalty,
and sales on the Internet. The Company was incorporated in June 1996.
The Company has developed an Internet-based network (the "ClickRewards
Network") of merchants ("Merchants"), consumers ("Members") and redemption
award suppliers ("Suppliers"). The Company has developed a promotional currency
("ClickMiles") which is used throughout the network. The Company sells
ClickMiles to Merchants who use them as promotional incentives to drive their
consumers' behavior in areas such as brand loyalty and increased transaction
size. As consumers are awarded ClickMiles, they establish accounts and become
Members of the Company's ClickRewards program. Consumers can accumulate and
manage ClickMiles on their personal online account and redeem these for
frequent flyer airline miles or other merchandise. ClickMiles expire if not
redeemed within specified periods. Members who do not record any activity for a
twelve-month period forfeit their accumulated ClickMiles. The Company also
offers its Merchants consulting, promotional, and direct marketing services for
a variety of fee arrangements.
In December 1998 the Company acquired Panttaja Consulting Group, Inc. (see
Note 3). the Company now provides technical consulting services to its
Merchants as well as other customers through this wholly-owned subsidiary.
2. Summary of Significant Accounting Policies
Principles of Consolidation--The accompanying consolidated financial
statements include the accounts of Netcentives Inc. and its wholly-owned
subsidiary. All significant intercompany accounts and transactions have been
eliminated.
Cash equivalents consist of highly-liquid debt instruments with a maturity at
time of purchase of three months or less.
Prepaid Incentive Awards--The Company has purchased frequent flyer airline
miles ("airmiles") under frequent flyer programs from several airlines. Such
airmiles are stated at cost determined on a weighted-average basis.
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over estimated useful
lives of three years.
Income Taxes--The Company accounts for income taxes using an asset and
liability approach. Deferred income tax assets and liabilities result from
temporary differences between the tax basis of assets and liabilities and their
reported amounts in the financial statements that will result in taxable or
deductible amounts in future years. Valuation allowances are provided when
necessary to reduce deferred tax assets to the amount expected to be realized.
Revenue Recognition--The Company allocates the sales price of ClickMiles
based on relative fair values between the redemption component of the award
ultimately provided to the Member (the "product component") and the service
components related to the marketing and support services provided to Merchants
F-7
<PAGE>
NETCENTIVES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
and members (the "services component"). The product component of revenues is
deferred until the Member redeems the ClickMiles for frequent flyer miles or
other awards, or until the ClickMile expires. The service components of the
ClickMile sale are initially deferred until the sale of the ClickMile becomes
non-refundable, which typically is upon award of the currency by the Merchant
to the Member. Upon award of the ClickMile by the Merchant to a Member,
revenues attributable to the service component generally are amortized over the
period from award through expected redemption or expiration (the life of the
ClickMile). Service revenues relating to separately-priced services,
principally software integration services performed at the inception of the
Merchant relationship, are recognized at the time the services are delivered.
Upon termination of a Merchant relationship, unamortized deferred service
revenue attributable to the Merchant is recognized as revenue.
For all ClickMiles sold through March 31, 1999, the service periods for the
member and merchant elements have been initially calculated for the maximum
life of the ClickMile based on its expiration date. To the extent ClickMiles
are redeemed prior to expiration or Merchants leave the ClickRewards Network,
the remaining amount of deferred service revenues associated with the member or
merchant services, as appropriate, is recognized at that time. Deferred
revenues arising from non-refundable ClickMiles which have not been awarded by
a Merchant are recognized as program-related service revenues at the time the
ClickMiles are forfeited by the Merchant.
The Company exchanges ClickMiles with certain of its Merchants in return for
advertising and merchandise. Such advertising services are recorded as an
expense or prepaid asset, as appropriate, based on the lower of the estimated
fair value of the services received or the cash value of the ClickMiles issued.
Revenues from such barter transactions are accounted for on the same basis as
cash transactions; i.e., the product component of revenues is deferred until
redemption and the marketing services component is recognized over the service
period. In 1998, approximately $956,000 of advertising expense was recognized
under these arrangements, of which 74% was transacted with two Merchants.
ClickMiles exchanged for advertising are non-returnable and must be awarded by
the Merchant within a specified time frame. Program-related service revenues
for 1998 include $296,000 from an Internet portal which provided the
advertising services but permitted the ClickMiles it purchased to expire
unissued.
Program-related revenues are comprised of the service component of ClickMiles
described above, as well as advertising and other direct marketing services
provided to Merchants, which are recognized as these services are performed.
Technical consulting service revenues are recognized as the services are
performed.
Accrued redemption Costs--The Company issues ClickMiles to certain Merchants
in exchange for Member referrals and other cross-promotional activities, as
well as awards ClickMiles directly to Members in connection with promotional
and other activities. These ClickMiles are accounted for as expenses and an
accrual is recorded at the time they are exchanged for these services for the
expected costs to be incurred at redemption.
Advertising Costs--Advertising costs are expensed as incurred. The Company
does not incur any direct-response advertising costs. Advertising expense was
approximately $12,000 in 1996, $534,000 in 1997 and $3,652,000 in 1998.
Stock-Based Compensation--The Company accounts for stock-based awards to
employees using the intrinsic value method in accordance with Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees.
The Company accounts for equity instruments issued to nonemployees in
accordance with the provisions of Statement at Financial Accounting Standards
(SFAS) No. 123, Accounting for Stock-Based Compensation, and Emerging Issues
Task Force ("EITF") Issue No. 96-18, Accounting for Equity Instruments That Are
F-8
<PAGE>
NETCENTIVES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Issued to Other Than Employees for Acquiring, or in Conjunction with Selling,
Goods or Services, which requires that the fair value of such instruments be
recognized as an expense over the period in which the related services are
received.
Segment Reporting--Effective January 1, 1998, the Company adopted SFAS No.
131, Disclosures About Segments of an Enterprise and Related Information. In
1998, the Company operated in a single reportable segment and will evaluate
additional segment disclosure requirements as it expands its operations.
Comprehensive Income--For the periods presented, the Company's comprehensive
loss, as defined by SFAS 130, Reporting Compensation Income, is equal to its
net loss.
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses. The Company
anticipates it will be able to better estimate this expense after it has
obtained additional exchange experience. Actual results will differ from these
estimates.
Concentration of Credit Risk--Financial instruments that potentially subject
the Company to concentrations of credit risk consist of cash and equivalents,
short-term investments, and accounts receivable. Risks associated with cash are
mitigated by banking and creditworthy institutions. Cash equivalents and short-
term investments consist primarily of governmental obligations and bank
certificates of deposit and are regularly monitored by management. Credit risk
with respect to the trade receivables is spread over diverse customers who make
up the Company's customer base. At December 31, 1997, three customers accounted
for 43%, 26% and 26% of total accounts receivable. At December 31, 1998, one
customer accounted for 17% of total accounts receivable.
Recently Issued Accounting Standards--In March 1998, the American Institute
of Certified Public Accountants issued Statement of Position ("SOP") 98-1,
Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use, which requires the capitalization of direct costs after
management commits to funding a project it believes will be completed and used
to perform the functions intended. The Company adopted SOP 98-1 in 1999 as it
is applicable to certain software systems internally developed by the Company.
Through December 31, 1998, no development costs had been capitalized and
capitalized development costs for the three months ended March 31, 1999 were
not significant.
In June 1998, SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, was released. The statement requires the recognition of all
derivatives as either assets or liabilities in the balance sheet and the
measurement of those instruments at fair value. The accounting for changes in
the fair value of a derivative depends on the planned use of the derivative and
the resulting designation. The Company is required to implement the statement
in the first quarter of fiscal 2000. The Company has not used derivative
instruments and is still evaluating the statement's impact.
Fair Value of Financial Instruments--The carrying amount of cash and cash
equivalents, accounts receivable, capital leases and long-term debt approximate
fair value, based on management's estimate.
Unaudited Interim Financial Statements--Unaudited interim financial
statements as of March 31, 1999 and for the three months ended March 31, 1998
and 1999 are unaudited but have been prepared in accordance with generally
accepted accounting principles for interim financial statements. In the opinion
of management, all adjustments (consisting only of normal recurring
adjustments) considered necessary for a fair presentation have been included.
The results of operations of any interim period are not necessarily indicative
of the results of operations for the full year.
F-9
<PAGE>
NETCENTIVES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Reclassifications--Certain prior year amounts have been reclassified for
consistency with the current year presentation. Such reclassifications had no
impact to net loss or total stockholders' equity.
3. Acquisition of Panttaja
On December 18, 1998, the Company acquired all of the outstanding shares and
assumed the outstanding options of Panttaja Consulting Group, Inc.
("Panttaja"), a software consulting firm, in exchange for 808,780 shares of
common stock valued at $2,548,000, cash of $194,000 and options to purchase
455,648 shares of Company stock at $0.254 per share, of which 306,755 were
vested at the date of the acquisition and have been included as part of the
acquisition price at their fair value of $936,000. The common stock includes
200,000 shares subject to vesting over a four-year period, which has initially
been recorded as deferred stock compensation and will be expensed over the
vesting period. The Company also agreed to pay the stockholders additional cash
of up to $450,000 within 13 months following closing based on meeting certain
employment retention milestones, which was considered probable at the time of
the acquisition and has been accrued as part of the purchase price of Panttaja.
The acquisition was accounted for as a purchase and, accordingly, the results
of operations of Panttaja since the date of acquisition have been included in
the Company's consolidated financial statements. The total consideration
exceeded the fair value of the net assets acquired by $3,526,000, which
represents the value of the existing consulting relationships and is being
amortized on a straight-line basis over two years.
The following unaudited pro forma information shows the results of operations
for the two years ended December 31, 1997 and 1998 as if the Panttaja
acquisition had occurred at the beginning of the year. The results are not
necessarily indicative of what would have occurred had the acquisition actually
been made at the beginning of the respective periods presented or of future
operations of the combined companies (in thousands, except per share
information).
<TABLE>
<CAPTION>
1997 1998
------- --------
<S> <C> <C>
Total revenues........................................... $ 3,005 $ 4,079
Net loss................................................. $(6,004) $(16,218)
Net loss per share, basic and diluted.................... $ (4.39) $ (7.12)
</TABLE>
4. Property and Equipment
Property and equipment consists of (in thousands):
<TABLE>
<CAPTION>
December 31,
------------- March 31,
1997 1998 1999
----- ------ -----------
(unaudited)
<S> <C> <C> <C>
Computer equipment................................... $ 557 $2,131 $ 3,171
Office and furniture equipment....................... 340 192 446
Leasehold improvements............................... 194 237 417
----- ------ -------
Total................................................ 1,091 2,560 4,034
Accumulated depreciation............................. (158) (702) (1,489)
----- ------ -------
Total property and equipment--net.................... $ 933 $1,858 $ 2,545
===== ====== =======
</TABLE>
At December 31, 1998 the Company had assets under capital lease with a net
book value of $236,000.
F-10
<PAGE>
NETCENTIVES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. Bank Loan Payable and Line of Credit
The Company had a bank loan with principal outstanding at December 31, 1997
of $200,000. During the year ended December 31, 1998, this loan was paid in
full.
In connection with the Panttaja acquisition, the Company assumed a $100,000
bank loan which was repaid in January 1999. The Company pays interest based on
a variable rate determined by the bank (10.5% at December 31, 1998). At
December 31, 1998, the amount due on the credit line is $100,000. Accounts
receivable are pledged as collateral on this line of credit. The borrowing
agreement includes various covenants, including restrictions on payments of a
note payable to an officer.
6. Long-term Obligations
Long-term obligations consist of the following (in thousands):
<TABLE>
<CAPTION>
December
31,
----------- March 31,
1997 1998 1999
---- ------ -----------
(unaudited)
<S> <C> <C> <C>
Notes payable........................................... $262 $1,155 $1,068
Capital lease obligations............................... -- 193 180
Note payable to officer................................. -- 48 48
Panttaja acquisition payable (note 3)................... -- 450 450
Other................................................... -- 51 --
---- ------ ------
Total................................................... 262 1,897 1,746
Less current portion.................................... 66 664 859
---- ------ ------
Long-term obligations................................... $196 $1,233 $ 887
==== ====== ======
</TABLE>
The notes payable are collateralized by the assets purchased with the
proceeds of these borrowings and are payable in monthly installments through
November 2001. The borrowings bear interest ranging from 9.15% to 14%.
The note payable to officer bears interest at 8%, is subordinated to other
debt of the Company and may not be repaid until other long-term debt is repaid.
Maturities of long-term debt and capital leases as of December 31, 1998 are
as follows (in thousands):
<TABLE>
<CAPTION>
Year Ending Capital
December 31, Debt Leases
------------ ------ -------
<S> <C> <C>
1999.......................................................... $ 577 $103
2000.......................................................... 600 82
2001.......................................................... 527 32
------ ----
Total payments................................................ $1,704 217
======
Less amount representing interest............................. (24)
----
Present value of capital leases............................... $193
====
</TABLE>
F-11
<PAGE>
NETCENTIVES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. Stockholders' Equity
Convertible Preferred Stock
At December 31, 1998, the amounts, terms and liquidation values of the
Company's preferred stock are as follows:
<TABLE>
<CAPTION>
Amount,
Shares Net of Aggregate
Shares Issued and Issue Liquidation
Series Designated Outstanding Costs Preference
------ ---------- ----------- ------- -----------
(In thousands)
<S> <C> <C> <C> <C>
A................................ 1,452,613 1,452,613 $ 937 $ 944
B................................ 660,391 485,000 472 485
C................................ 7,787,155 7,754,847 10,065 10,081
D................................ 5,500,000 5,476,192 17,231 17,250
N................................ 650,000 -- -- --
---------- ---------- ------- -------
Total............................ 16,050,159 15,168,652 $28,705 $28,760
========== ========== ======= =======
</TABLE>
Significant terms of the outstanding preferred stock are as follows:
. Each share of preferred stock is convertible into shares of common stock
on a one-for-one basis, subject to adjustment in certain instances, at
the option of the stockholder. Such shares will be converted
automatically following the effectiveness of a registration statement
under the Securities Act of 1933 meeting certain criteria or the
affirmative vote of the holders of a majority of the shares of preferred
stock outstanding at the time of such vote.
. Except for Series N, each share of preferred stock has voting rights
equivalent to the number of shares of common stock into which it is
convertible. In addition, holders of each series of preferred stock are
entitled as a group to elect two members of the Board of Directors.
Series N has no voting rights.
. Stockholders are entitled to receive noncumulative dividends as declared
by the Board of Directors out of any assets legally available, prior to
and in preference to any declaration or payment of any dividend on the
common stock. The dividend rate for Series A, Series B, Series C, Series
D and Series N preferred stock per share per annum is $0.052, $0.08,
$0.104, $0.252 and $.08 respectively. No dividends have been declared as
of December 31, 1997 and 1998.
. In the event of liquidation, dissolution or winding up of the Company,
stockholders of Series A, Series B, Series C, Series D and Series N
preferred stock are entitled to receive $0.65, $1.00, $1.30, $3.15 and
$1.00 per share, respectively, plus any declared and unpaid dividends
with respect to such shares prior to any distributions to common
stockholders or non-voting convertible stockholders. If the assets and
funds to be distributed are insufficient to permit full payment, then the
funds shall be distributed on a pro rata basis. Upon completion of the
distribution, the holders of the common stock will receive all remaining
assets of the corporation.
Warrants
During 1997, the Company issued warrants to purchase 410,000 shares of Series
N preferred stock at $1.00 per share to various airlines in connection with
their airmile purchase agreements (see Note 12). The warrants vest over three
years, subject to continuation of exclusivity arrangements with such airlines,
and expire in four or five years. Also during 1997, the Company issued warrants
to purchase 120,000 shares of Series N preferred stock at $1.30 per share to
one of its Merchants. The warrants vest over two years, subject to certain
exclusivity provisions, and expire in four years. All of the warrants permit
the holder to "net exercise" and receive shares of stock with a value equal to
the net appreciation at the time of exercise. Because
F-12
<PAGE>
NETCENTIVES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
the vesting of these warrants is subject to maintaining the exclusivity of the
arrangement with these partners, the valuation of the warrants is not finalized
until their vesting date. The value of these warrants has been estimated using
the Black-Scholes option pricing model with the following assumptions: expected
life, the term of the option; risk-free interest rate of 5.8% in 1997 and 4.6%
in 1998; volatility of 70% in 1997 and 95% in 1998; and no dividend during the
expected term. The estimated value of such warrants is being expensed over the
related exclusivity periods. At December 31, 1997 and 1998, 90,000 and 204,000
warrants, respectively, were vested. Operating expenses include $63,000,
$811,000 and $628,000 in 1997 and 1998 and the three months ended March 31,
1999, respectively, relating to these warrants.
During 1997, the Company issued warrants to purchase 175,391 shares of Series
B preferred stock at an average price of $1.16 per share in connection with the
Company's financing transactions. During 1998, the Company issued warrants to
purchase 31,948 shares of Series C preferred stock at an average price of $1.30
per share in connection with the Company's financing transactions. The
estimated fair value of these warrants on their grant date was $105,000 in 1997
and $31,000 in 1998, which is being expensed over the term of the related
financings. The Company has included in interest expense $13,000 and $30,000
for the portion relating to 1997 and 1998, respectively.
All warrants issued were outstanding at December 31, 1998; warrants to
purchase 75,000 shares of Series B were exercised in the three months ended
March 31, 1999.
Receivables from Sales of Stock
At December 31, 1997 and 1998 and March 31, 1999, receivables from sales of
stock included notes receivable from an officer of the Company totaling
$217,000, $347,000 and $447,000, respectively. These notes are secured by
common stock and bear simple interest from 4.5% to 6.3% per annum. At December
31, 1998, the notes are due $217,000 in 2001 and $130,000 in 2002. The stock
sold in connection with these notes is subject to repurchase at the original
sale price; this right lapses ratably over a four-year period subject to the
officer's continued employment. At December 31, 1998, 1,167,875 shares of
common stock were subject to this repurchase right.
Stock Option Plan
The Company has a stock option plan (the 1996 Stock Option Plan), under which
incentive and non-qualified options to purchased 5,671,400 shares of common
stock may be granted to employees and independent contractors. Options
generally vest in installments over four years from the grant date and expire
ten years from the grant date.
F-13
<PAGE>
NETCENTIVES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A summary of activity under the option plan is set forth below:
<TABLE>
<CAPTION>
Outstanding Stock Options
---------------------------
Weighted Average
Number of Exercise Price
Shares per Share
--------- ----------------
<S> <C> <C>
1996 Grants (weighted average fair value of
$0.02 per share).............................. 205,500 $0.10
--------- -----
Outstanding, December 31, 1996................. 205,500 0.10
Granted (weighted average fair value of $0.03
per share).................................... 1,221,550 0.12
Exercised...................................... (122,083) 0.10
Canceled....................................... (16,000) 0.10
--------- -----
Outstanding, December 31, 1997 (284,749
exercisable at a weighted average price of
$.10)......................................... 1,288,967 0.12
Granted (weighted average fair value of
$0.70 per share).............................. 2,676,645 0.64
Issued in connection with Panttaja
acquisition................................... 455,648 0.25
Exercised...................................... (114,606) 0.17
Canceled....................................... (218,137) 0.15
--------- -----
Outstanding, December 31, 1998 (914,132
exercisable at a weighted average price of
$0.26)........................................ 4,088,517 $0.51
========= =====
</TABLE>
At December 31, 1998, options to purchase 1,346,194 shares of common stock
were available for grant.
During the three months ended March 31, 1999, the Company issued options to
purchase 561,790 shares of common stock at a weighted average exercise price of
$6.27 per share.
Additional information regarding options outstanding as of December 31, 1998
is as follows:
<TABLE>
<CAPTION>
Stock Options Outstanding Options Exercisable
-------------------------------- --------------------
Weighted
Average
Remaining Weighted Weighted
Contractual Average Average
Range of Number Life Exercise Number Exercise
Exercise Prices Outstanding (years) Price Exercisable Price
--------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.10-$0.15........... 1,447,559 8.83 $0.14 459,428 $0.13
$0.20-$0.25........... 681,938 9.83 0.25 280,240 0.25
$0.35-$0.65........... 699,588 9.75 0.64 149,000 0.60
$1.05................. 1,259,432 9.92 1.05 25,464 1.05
--------- ---- ----- ------- -----
4,088,517 9.51 $0.51 914,132 $0.26
========= ==== ===== ======= =====
</TABLE>
Shares of common stock sold to employees, directors and consultants under
stock purchase agreements are subject to repurchase at the Company's option
upon termination of their employment or services at the original purchase
price. This right to repurchase expires ratably over the vesting period. At
December 31, 1997 and 1998, respectively, 2,578,985 and 2,105,585 shares were
subject to such repurchase right.
Deferred Stock Compensation
In connection with certain equity transactions during the year ended December
31, 1998, the Company recorded deferred stock compensation of $7,571,000 for
the difference between the exercise or sale price of the stock and deemed fair
value of the stock at that time. This total consists of $7,071,000 related to
stock option
F-14
<PAGE>
NETCENTIVES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
grants (including $432,000 arising from the Panttaja acquisition) and $500,000
related to common stock sold to an officer of the Company. An additional
$630,000 arose from shares of common stock issued in connection with the
Panttaja acquisition which are subject to vesting. Deferred compensation
related to stock option grants is being amortized over the four-year vesting
periods of the related options. Amortization of such expense during 1998 and
the three months ended March 31, 1999 totaled approximately $296,000 and
$467,000, respectively.
Additional Stock Plan Information
As discussed in Note 1, the Company accounts for its stock-based award using
the intrinsic value method in accordance with Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees, and its related
interpretations.
Statement of Financial Accounting Standards No. 123, Accounting for Stock-
Based Compensation, requires the disclosure of pro forma net loss and net loss
per share had the Company adopted the fair value method. The fair value of
stock-based awards to employees has been calculated using the minimum value
method with the following weighted average assumptions: expected life, 48
months; risk-free interest 5.8% in 1996 and 1997 and 4.6% in 1998; and no
dividends during the expected term. The Company's calculations are based on a
single option valuation approach, and forfeitures are recognized as they occur.
If the computed fair values of the Company's awards had been amortized to
expense over their related vesting periods, the effect would have been to
increase net loss to $271,000 ($0.99 per share) in 1996, $4,313,000 ($5.88 per
share) in 1997 and $14,427,000 ($8.78 per share) in 1998.
8. Net Loss Per Share
The following is a reconciliation of the numerators and denominators used in
computing basic and diluted net loss per share (in thousands).
<TABLE>
<CAPTION>
Year Ended Three Months
December 31, Ended March 31,
----------------- ----------------
Period from
June 21, 1996
(inception)
through
December 31,
1996 1997 1998 1998 1999
------------- ------- -------- ------- -------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Net loss (numerator),
basic and diluted... $ (266) $(4,180) $(14,111) $(2,080) $(8,208)
------ ------- -------- ------- -------
Shares (denominator):
Weighted average
common shares
outstanding....... 1,074 2,372 3,818 3,746 5,068
Weighted average
common shares
outstanding
subject to
repurchase........ (801) (1,638) (2,174) (2,470) (2,064)
------ ------- -------- ------- -------
Shares used in
computation, basic
and diluted......... 273 734 1,644 1,276 3,004
====== ======= ======== ======= =======
Net loss per share,
basic and diluted... $(0.97) $ (5.70) $ (8.58) $ (1.63) $ (2.73)
====== ======= ======== ======= =======
</TABLE>
F-15
<PAGE>
NETCENTIVES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For the above mentioned periods, the Company had securities outstanding which
could potentially dilute basic earnings per share in the future, but were
excluded in the computation of diluted net loss per share in the periods
presented, as their effect would have been antidilutive. Such outstanding
securities consist of the following (in thousands):
<TABLE>
<CAPTION>
Period from
June 21, 1996 Three Months
(inception) Year Ended Ended
through December 31, March 31,
December 31, ------------ ------------
1996 1997 1998 1998 1999
------------- ----- ------ ----- ------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Convertible preferred stock.......... 1,938 9,693 15,169 9,693 18,763
Shares of common stock subject to
repurchase.......................... 1,614 2,579 2,106 2,361 1,745
Outstanding options.................. 206 1,289 4,089 1,689 4,280
Warrants............................. -- 705 737 705 662
</TABLE>
Pro forma net loss per share assumes that the conversion of all shares of
convertible preferred stock into common stock, which occurs upon the
consummation of the initial public offering contemplated by this Prospectus,
had occurred as of the beginning of 1998.
9. Income Taxes
Deferred income taxes result from temporary differences in the recognition of
certain assets and liabilities for financial statement and tax return purposes
and from net operating loss carryforwards. Net deferred tax assets at December
31, 1997 and 1998 of approximately $1,420,000 and $7,757,000, respectively,
consist principally of net operating loss carryforwards, which have been offset
by a valuation allowance.
At December 31, 1998, the Company had a net operating loss carryforward for
federal income tax purposes of approximately $14,200,000 which expires through
2018. In addition, the Company had, at December 31, 1998, a net operating loss
carryforward for California state income tax purposes of approximately
$14,100,000 which expires through 2004.
Current Federal and California tax laws include substantial restrictions on
the utilization of net operating losses and tax credits in the event of an
"ownership change" of a corporation. Accordingly, the Company's ability to
utilize net operating loss and tax credit carryforwards may be limited as a
result of such "ownership change" as defined. Such a limitation could result in
the expiration of carryforwards before they are utilized.
10. Employee Benefit Plan
The Company has a 401(k) plan for its employees who meet certain service and
age requirements. Participants may contribute up to 15% of their salaries up to
amounts specified under the Internal Revenue Code. The Company does not
contribute to this plan.
11. Significant Customers and Merchant Relationships
In 1996, no sales were recorded by the Company. In 1997, one Merchant
accounted for 85% of net revenues and 82% of the ClickMiles awarded by all
Merchants during the year. In 1998, two customers accounted individually for
46% and 13% of revenues. Additionally, two Merchants accounted individually for
34% and 21% of the ClickMiles awarded by Merchants during 1998.
F-16
<PAGE>
NETCENTIVES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
12. Airline Arrangements
The Company has entered into certain long-term arrangements to purchase
airmiles from its airline suppliers. At December 31, 1998, the Company had
prepaid for airmiles with a cost of $1,600,000 which are available for
redemption by Members. Certain of these airmiles expire if not exchanged by
Members for Click Miles within specified time periods, including $237,000 which
are subject to expiration in 1999.
The contracts require certain minimum annual airmile purchases in order for
the Company to maintain its exclusivity agreement. These future minimum
payments, including excise tax, are as follows (in thousands):
<TABLE>
<S> <C>
Year ending December 31:
1999............................................................ $1,142
2000............................................................ 1,432
2001............................................................ 860
------
Total......................................................... $3,434
======
</TABLE>
13. Leases
The following is a schedule of future lease payments required under
noncancelable operating leases, as of December 31, 1998 (in thousands):
<TABLE>
<S> <C>
Year Ending December 31,
1999........................................................... $ 552
2000........................................................... 459
2001........................................................... 119
------
Total minimum payments....................................... $1,130
======
</TABLE>
Rent expense under all rental agreements was $8,000 in 1996, $158,000 in 1997
and $334,000 in 1998.
F-17
<PAGE>
NETCENTIVES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
14. Consolidated Statement of Cash Flows Information
A reconciliation of net loss to net cash used in operating activities follows
(in thousands):
<TABLE>
<CAPTION>
June 21, 1996 Years Ended Three months ended
(Inception) to December 31, March 31,
December 31, ----------------- --------------------
1996 1997 1998 1998 1999
-------------- ------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net loss.............. $(266) $(4,180) $(14,111) $ (2,080) $ (8,208)
Reconciliation to net
cash used in
operating activities
Depreciation and
amortization....... 8 150 629 106 1,181
Deferred stock
compensation
expense............ -- -- 296 7 467
Expenses relating to
stock warrants..... -- 76 841 72 628
Advertising expense
arising from barter
transactions....... -- -- 956 -- 350
ClickMiles issued
for services....... -- -- 587 29 1,114
Changes in operating
assets and
liabilities:
Accounts
receivable....... -- (23) (201) (66) 31
Prepaid incentive
awards........... -- (703) (897) (40) 25
Prepaid expenses.. (19) (220) 115 (164) (122)
Other assets...... (2) (31) (155) 10 31
Accounts payable.. 71 512 281 (217) 116
Accrued
compensation and
benefits......... -- 13 877 193 (212)
Accrued redemption
costs............ -- -- (78) (3) (114)
Other accrued
liabilities...... 38 266 477 11 105
Deferred revenue -
product and
services......... -- 59 848 132 601
----- ------- -------- --------- ---------
Net cash used in
operating
activities..... $(170) $(4,081) $ (9,535) $ (2,010) $ (4,007)
===== ======= ======== ========= =========
</TABLE>
15. Subsequent Events
In March and April 1999, the stockholders of the Company approved the
increase of the number of authorized shares of its common stock to 33,240,000
and its preferred stock to 21,329,221 and designated 5,279,062 shares as Series
E. The Series E preferred stock has similar rights and preferences to the other
series of preferred stock (see Note 7), other than its liquidation preference
of $6.82 per share and its annual dividends which, if declared, would be $0.546
per share.
In March 1999, the Company sold 3,519,053 shares of Series E to investors for
aggregate proceeds of approximately $23,000,000, net of expenses. In April and
June 1999, the Company sold an additional 1,759,530 shares of Series E to
investors for aggregate proceeds of approximately $12,000,000, net of expenses.
F-18
<PAGE>
NETCENTIVES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In May 1999, the stockholders of the Company approved the following:
. Adoption of the 1999 Employee Stock Purchase Plan, and reserved 300,000
shares of common stock (increasing by 75,000 shares in each of the
following five years) for sale to employees at a price no less than 85%
of the lower of fair market value at the beginning of the two-year
offering period or the end of each of the six-month purchase periods.
. Adoption of the 1999 Outside Directors Stock Option Plan, and reserved
400,000 shares of common stock (increasing by 50,000 shares in each of
the following five years) for grants of options to each outside director
to purchase 40,000 shares of common stock at fair market value as of the
grant date, as well as additional option grants for 10,000 shares to be
issued in each subsequent year.
. The reincorporation of the Company into Delaware by exchanging one share
of common stock of the successor Delaware corporation for each share of
common stock of the predecessor California corporation. Such
reincorporation and stock exchange will be effective prior to the
effective date of the initial public offering contemplated by this
Prospectus.
. The number of shares of authorized but unissued preferred stock was
designated at 5,000,000. Such authorization is contingent upon the
reincorporation of the Company into Delaware and the closing of the
initial public offering contemplated by this Prospectus.
In June 1999, the stockholders of the Company approved an increase in the
number of authorized shares available under the Employee Stock Option Plan by
2,000,000 shares and provided for annual increases of 1,250,000 shares in each
of the following five years.
In May 1999, the Company entered into a seven-year operating lease for a new
headquarters facility. The lease, which is expected to commence in January
2000, requires annual rental payments ranging from approximately $2,600,000 to
$2,900,000 over the term of the lease. The Company is required to obtain a
letter of credit of approximately $2,400,000 as a security deposit prior to
lease commencement (of which $500,000 was obtained in May 1999), a portion of
which may be released over the term of the lease.
On July 12, 1999, the Company issued to a customer a warrant to purchase
150,000 shares of common stock at an exercise price of $8.00 per share in
exchange for advertising to be provided on the customer's web sites. The
warrant expires in July 2001. The estimated fair value of the warrant of
approximately $630,000 will be expensed at the time the advertising services
are provided.
* * * * *
F-19
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Panttaja Consulting Group, Inc.:
We have audited the accompanying statements of operations and cash flows of
Panttaja Consulting Group, Inc. (the "Company") for the years ended November
30, 1997 and 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. These 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, such financial statements refer to above present fairly, in
all material respects, the result of the Company's operations and its cash
flows for the years ended November 30, 1997 and 1998 in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
San Jose, California
March 12, 1999
F-20
<PAGE>
PANTTAJA CONSULTING GROUP, INC.
STATEMENTS OF OPERATIONS
(In thousands)
<TABLE>
<CAPTION>
Years Ended
November 30,
----------------
1997 1998
------- -------
<S> <C> <C>
Net revenues................................................. $ 3,361 $ 4,048
Cost of revenues............................................. (1,777) (2,521)
------- -------
Gross profit............................................. 1,584 1,527
Selling, general and administrative expenses................. (1,416) (1,624)
------- -------
Income (loss) from operations................................ 168 (97)
Interest income.............................................. 1 1
Interest expense............................................. (39) (42)
Other income (expense), net.................................. 1 (4)
------- -------
Income (loss) before taxes on income......................... 131 (142)
Income tax (expense) benefit................................. (39) 24
------- -------
Net income (loss)............................................ $ 92 $ (118)
======= =======
</TABLE>
See notes to financial statements.
F-21
<PAGE>
PANTTAJA CONSULTING GROUP, INC.
STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Years Ended
November
30,
------------
1997 1998
----- -----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................................... $ 92 $(118)
Reconciliation to net cash used in operating activities:
Depreciation.................................................. 90 87
(Gain) loss from disposition of fixed assets.................. (1) 4
Deferred income tax provision................................. 36 (25)
Changes in operating assets and liabilities:
Accounts receivable......................................... 62 (382)
Other receivable............................................ 2 1
Prepaid expenses............................................ 4 (5)
Accounts payable............................................ (116) 332
Accrued liabilities......................................... (11) 61
Deferred revenues........................................... (14) 7
----- -----
Net cash provided (used) in operating activities.......... 144 (38)
----- -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment............................. (5) (31)
Sale of property and equipment.................................. 7 9
----- -----
Net cash provided (used) in investing activities.......... 2 (22)
----- -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Receipts from short-term borrowing.............................. 55 141
Repayments of capital leases.................................... (58) (80)
Repayments of debt.............................................. (115) (44)
Proceeds from issuing common stock.............................. -- 4
----- -----
Net cash provided (used) in financing activities.......... (118) 21
----- -----
NET INCREASE (DECREASE) IN CASH................................... 28 (39)
CASH, Beginning of year........................................... 16 44
----- -----
CASH, End of year................................................. $ 44 $ 5
===== =====
SUPPLEMENTAL DISCLOSURES--
Noncash investing and financing transactions--
Capital lease obligation incurred for equipment................. $ 82 $ 105
===== =====
</TABLE>
See notes to financial statements.
F-22
<PAGE>
PANTTAJA CONSULTING GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
Years ended November 30, 1997 and 1998
1. Business and Significant Accounting Policies
Line of Business--Panttaja Consulting Group, Inc.'s (the "Company") provides
software consulting, development, and educational services in the internet and
client/server market sectors. The Company was incorporated in January 1990.
Revenue--The Company's revenues consist primarily of fees for services,
including consulting and education. Consulting services are primarily provided
on a time and materials basis. Educational services are generally priced on a
per student basis. Consulting and education revenues are recognized as the
services are performed.
Cost of Revenues--The cost of services consists primarily of compensation and
travel costs associated with providing consulting and education.
Cash and Cash Equivalents--The Company considers all highly liquid
investments with original maturities of ninety days or less to be cash
equivalents.
Depreciation--Depreciation is computed using the straight-line method over
the estimated useful lives of the related assets which range from five to ten
years. Amortization of leasehold improvements is computed over the shorter of
the lease term or the estimated useful lives of the improvements.
Income Taxes--The Company accounts for income taxes using an asset and
liability approach. Deferred income taxes and liabilities result from temporary
differences between the tax basis of assets and liabilities and their reported
amounts in the financial statements that will result in taxable or deductible
amounts in future years. Valuation allowances are provided when necessary to
reduce deferred tax assets to the amount expected to be realized.
Stock-Based Compensation--The Company accounts for stock-based awards to
employees using the intrinsic value method in accordance with Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees.
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses. Actual results
could differ from those estimates.
2. Major Customers
Three customers accounted for 10%, 11%, and 18% of total revenues for the
year ended November 30, 1997. Two customers accounted for 15% and 18% of total
revenues for the year ended November 30, 1998.
3. Leases
Rent expense was $171,000 and $181,000 for the years ended November 30, 1997
and 1998 respectively.
F-23
<PAGE>
PANTTAJA CONSULTING GROUP, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
4. Income Taxes
The provision (benefit) from income taxes consists of (in thousands):
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Current:
Federal..................................................... $ 2 $ --
State....................................................... 1 1
--- ----
3 1
Deferred--federal............................................. 36 (25)
--- ----
$39 $(24)
=== ====
</TABLE>
5. Employee Benefit Plans
Deferred Compensation Plan
The Company maintains a qualified deferred compensation plan under Section
401(k) of the Internal Revenue Code. Under the plan, employees may elect to
defer up to 10% of their salary, subject to Internal Revenue Service limits.
The plan allows the Company to make discretionary contributions. During 1997
and 1998, all contributions were made by the employees.
Stock Option Plan
The Company has adopted a stock option plan for employees. Under the terms of
the plan, options generally vest over a period of one to four years after date
of grant. Common stock issued upon exercise of these options is subject to the
Company's right of first refusal upon future sale or transfer. This right of
first refusal terminates at such time as a established market exists for the
Company's common stock.
A summary of activity under the option plan follows:
<TABLE>
<CAPTION>
Number of Weighted Average
Shares Price per Share
--------- ----------------
<S> <C> <C>
Outstanding, November 30, 1996.............. 1,790,000 $0.05
Granted (fair value of $0.01 per share)..... 375,000 0.05
Exercised................................... (5,000) 0.05
Canceled.................................... (309,000) 0.05
--------- -----
Outstanding, November 30, 1997.............. 1,851,000 0.05
Granted (fair value of $0.01 per share)..... 1,187,000 0.05
Exercised................................... (86,000) 0.05
Canceled.................................... (510,000) 0.05
--------- -----
Outstanding, November 30, 1998.............. 2,442,000 $0.05
========= =====
</TABLE>
Additional Stock Plan Information
As discussed in Note 1, the Company accounts for its stock-based award using
the intrinsic value method in accordance with Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees, and its related
interpretations. Accordingly, no compensation expense has been recognized in
the financial statements for employee stock arrangements.
F-24
<PAGE>
PANTTAJA CONSULTING GROUP, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Statement of Financial Accounting Standards No. 123, Accounting for Stock-
Based Compensation, ("SFAS 123"), requires the disclosure of pro forma net
income (loss) had the Company adopted the fair value method. The fair value of
stock-based awards to employees has been calculated using the minimum value
method with the following weighted average assumptions: expected life, 48
months; risk-free interest 5.8% in 1997 and 4.6% in 1998; and no dividends
during the expected term. The Company's calculations are based on a single
option valuation approach, and forfeitures are recognized as they occur. If the
computed fair values of awards made in 1997 and 1998 had been amortized to
expense over the vesting period of the awards, the effect on reported net
income (loss) would not have been significant.
6. SUBSEQUENT EVENTS
On December 18, 1998, Netcentives Inc. ("Netcentives") acquired all of the
Company's outstanding shares of common stock and assumed all of its outstanding
options, at which time the Company became a wholly owned subsidiary of
Netcentives.
* * * * *
F-25
<PAGE>
NETCENTIVES INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
Year ended December 31, 1998
(Unaudited, in thousands, except per share amounts)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Netcentives Panttaja(1) Adjustments Consolidated
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues:
Product................... $ 64 $ -- $ -- $ 64
Program-related services.. 583 -- -- 583
Technical consulting
services................. -- 4,048 (616)(2) 3,432
-------- ------ ------- --------
Total revenues.......... 647 4,048 (616) 4,079
-------- ------ ------- --------
Costs and expenses:
Cost of product revenues.. 59 -- -- 59
Program-related services,
marketing and support
costs.................... 7,293 -- -- 7,293
Cost of technical
consulting services
revenues................. -- 2,521 (368)(2) 2,153
Research and development.. 3,383 -- (248)(2) 3,135
Selling, general and
administrative........... 3,134 1,624 -- 4,758
Amortization of deferred
stock compensation....... 296 -- 266 (3) 562
Amortization of supplier
stock awards............. 811 -- 1,699 (4) 2,510
Amortization of
intangibles.............. 79 -- -- 79
-------- ------ ------- --------
Total Costs and
expenses............... 15,055 4,145 1,349 20,549
-------- ------ ------- --------
Loss from operations........ (14,408) (97) (1,965) (16,470)
Other income (expense)...... 297 (45) -- 252
-------- ------ ------- --------
Loss before income tax
provision.................. (14,111) (142) (1,965) (16,218)
Income tax benefit.......... 24 (24)(5) --
-------- ------ ------- --------
Net loss.................... $(14,111) $ (118) $(1,989) $(16,218)
======== ====== ======= ========
Net loss per share--basic
and diluted................ $ (8.58) $ (7.12)
======== ========
Shares used in per share
calculations............... 1,644 634 (6) 2,278
======== ======= ========
</TABLE>
See notes to pro forma consolidated statement of operations.
F-26
<PAGE>
NETCENTIVES INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
Year ended December 31, 1998
On December 18, 1998, Netcentives Inc. ("Netcentives") acquired all of the
outstanding shares and assumed the outstanding options of Panttaja Consulting
Group, Inc. ("Panttaja"), a software consulting firm in exchange for 808,780
shares of common stock valued at $2,548,000, cash of $194,000 and options to
purchase 455,648 shares of Netcentives stock at $0.254 per share, of which
306,755 were vested at the date of acquisition and have been included as part
of the acquisition price at their fair value of $936,000. The common stock
includes 200,000 shares subject to vesting over a four-year period, will be
accounted for as deferred compensation over the vesting period. Netcentives
also agreed to pay the stockholders additional cash up to $450,000 within 13
months following closing based on certain employment levels, which was
considered probable at the time of the acquisition and has been accrued as part
of the purchase price of Panttaja.
The acquisition was accounted for as a purchase and, accordingly, the results
of operations of Panttaja since the date of acquisition have been included in
the Company's financial statements. The total consideration exceeded the fair
value of the net assets acquired by $3,526,000, which has been recorded as the
value of the existing consulting relationships and is being amortized on a
straight-line basis over two years.
The accompanying pro forma statement of operations is presented in accordance
with Article 11 of Regulation S-X.
The pro forma statement of operations for the year ended December 31, 1998
includes the following adjustments to reflect consummation of the transaction
as if it had occurred at the beginning of 1998:
1. Represents Panttaja's historical results of operations for its fiscal
year ended November 30, 1998. The results of operations of Panttaja for the
period December 18 through December 31, 1998 included in Netcentive's
consolidated results of operations were not significant.
2. To eliminate intercompany consulting revenues.
3. To record one year of compensation expense ($158,000) related to the
200,000 share restricted stock arrangement and one year of expense
($108,000) relating to the options granted to Panttaja employees.
4. To record one year of amortization of the intangible assets recorded
in the acquisition.
5. To reverse income tax benefits recorded by Panttaja. Netcentives has
incurred losses since inception and records a full valuation on all
operating loss carryforwards and deferred tax assets.
6. To reflect the assumed issuance of 608,780 unrestricted shares of
common stock issued in connection with the acquisition and the vesting of
50,000 shares of restricted stock during the year.
The adjustments do not give effect to any potential benefits that might have
been realized through the combination of operations and are not necessarily
indicative of the consolidated results which would have been reported if the
Panttaja acquisition had actually occurred at the beginning of the period
presented.
F-27
<PAGE>
[INSIDE BACK COVER]
Inside Back Cover Description
[Netcentives name and logo]
Text: The philosophy behind Netcentives is simple: help businesses build
lasting relationships with their customers and employees. Our four promotion
and direct marketing solutions revolve around this basic tenet.
Text: ClickRewards
An Internet-based network loyalty program based on frequent flyer miles,
ClickRewards can help Internet merchants, portals, and community sites attract
and retain valuable consumers. ClickRewards has demonstrated success in
attracting 56 e-commerce merchants and over 1,400,00 members.
Text: Enterprise Incentive Solutions
Our incentive programs also extend to the workplace, helping businesses
motivate and reward employees, partners and stakeholders across intranets and
extranets. Result? Employees stay loyal, and HR departments are able to offer
a new incentive. First companies to offer Enterprise Incentive Solutions:
Cisco Systems and Microsoft.
Text: Netcentive Professional Services
A ready team of experts that can help online and off-line companies develop
cost effective e-commerce and other electronic business applications. NPS
specializes in the integration of online technologies with key infrastructure
systems, helping transform e-commerce into mainstream commerce.
Text: Custom Loyalty Networks
Portals and other Web sites with substantial membership use our proprietary
technology to launch their own branded network loyalty programs, thereby
creating loyal customers and fostering online business growth. Current clients
include Looksmart's Reward Mall and Infoseek's GO Network.
Text: "Most commerce players will achieve a greater return on investment over
two years by participating in a network loyalty program rather than by
operating their own loyalty program."
-Jupiter Communications Loyalty
Programs Report, November 1998
<PAGE>
[LOGO OF NETCENTIVES]
<PAGE>
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
underwriting discounts and commissions, payable by Netcentives in connection
with the sale of common stock being registered. All amounts are estimates
except the SEC registration fee and the NASD filing fee and the Nasdaq Stock
Market listing fee.
<TABLE>
<CAPTION>
Amount to
be Paid
----------
<S> <C>
SEC registration fee........................................... $ 19,182
NASD filing fee................................................ 7,400
Nasdaq Stock Market listing fee................................ 95,000
Printing and engraving expenses................................ 120,000
Legal fees and expenses........................................ 375,000
Accounting fees and expenses................................... 350,000
Transfer Agent and Registrar fees.............................. 4,000
Miscellaneous fees and expenses................................ 29,418
----------
Total........................................................ $1,000,000
==========
</TABLE>
ITEM 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's Board of Directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933, as amended (the "Act").
Article XIV of our Amended and Restated Certificate of Incorporation (Exhibit
3.3) provides for indemnification of our directors and officers to the maximum
extent permitted by the Delaware General Corporation Law and Section 6.1 of
Article VI of our bylaws (Exhibit 3.4) provides for indemnification of our
directors, officers, employees and other agents to the maximum extent permitted
by the Delaware General Corporation Law. In addition, we have entered into
Indemnification Agreements (Exhibit 10.1) with our directors and officers
containing provisions which are in some respects broader than the specific
indemnification provisions contained in the Delaware General Corporation Law.
The indemnification agreements may require us, among other things, to indemnify
our directors against certain liabilities that may arise by reason of their
status or service as directors (other than liabilities arising from willful
misconduct of culpable nature), to advance their expenses incurred as a result
of any proceeding against them as to which they could be indemnified, and to
obtain directors' insurance if available on reasonable terms. Reference is also
made to Section 7 of the Underwriting Agreement contained in Exhibit 1.1,
indemnifying our officers and directors against certain liabilities.
ITEM 15. Recent Sales of Unregistered Securities
(a) From our inception in June 1996 through June 30, 1999, we have issued and
sold (without payment of any selling commission to any person) the following
unregistered securities:
. An aggregate of 2,000,000 shares of common stock at $0.001 per share in
June 1996 to our founders.
. An aggregate of 50,000 shares of common stock at $0.02 per share in
September 1996 to 3 consultants to Netcentives.
. An aggregate of 1,452,613 shares of Series A Preferred Stock at $0.65
per share in September 1996 to 11 investors.
II-1
<PAGE>
. An aggregate of 485,000 shares of Series B Preferred Stock at $1.00 per
share in November 1996 to 7 investors.
. An aggregate of 500,000 shares of common stock at $0.12 per share in
August 1997 to one of our executives.
. Warrants to purchase an aggregate of 175,000 shares of Series B
Preferred Stock, and promissory notes with an aggregate principal amount
of $1,312,601.60 convertible into shares of Series C Preferred Stock
during January, June, August, and September 1997 to 12 investors.
. An aggregate of 7,754,847 shares of Series C Preferred Stock at $1.30
per share in September 1997 to 17 investors.
. Warrants to purchase an aggregate of 530,000 shares of Series N
Preferred Stock in July, August, September and October 1997 to 5
suppliers.
. An aggregate of 30,000 shares of common stock in connection with the
purchase of the United States patent application having SC/Serial Number
08/572,017 in September 1997 and November 1998.
. An aggregate of 1,048,600 shares of common stock at $0.15 per share in
December 1997 to one of our executives.
. Warrants to purchase an aggregate of 31,948 warrants convertible into
shares of Series C Preferred Stock in May 1998 to an equipment lessor.
. An aggregate of 5,476,192 shares of Series D Preferred Stock at $3.15
per share in August 1998 to 18 investors.
. An aggregate of 808,780 shares of common stock with an aggregate value
of approximately $525,707 in connection with the acquisition of Panttaja
Consulting Group Inc. in December 1998.
. An aggregate of 200,000 shares of common stock at $0.65 per share in
December 1998 to one of our executives.
. An aggregate of 5,278,283 shares of Series E Preferred Stock at $6.82
per share in March, April and June 1999 to 27 investors.
. An aggregate of 5,786,808 options to purchase shares of common stock at
an average exercise price of $1.74 per share to our employees and
consultants.
(b) There were no underwritten offerings employed in connection with any of
the transactions set forth in Item 15(a).
The issuances described in Items 15(a) were deemed to be exempt from
registration under the Securities Act in reliance upon Section 4(2) thereof as
transactions by an issuer not involving any public offering and in the case of
the issuances to our founders, executives, employees and consultants are also
exempt from registration pursuant to Rule 701 promulgated under the Securities
Act. The recipients of securities in each such transaction represented their
intentions to acquire the securities for investment only and not with a view to
or for sale in connection with any distribution thereof and appropriate legends
where affixed to the securities issued in such transactions. All recipients had
adequate access, through their relationships with us, to information about us.
ITEM 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Articles of Incorporation of the Registrant.
3.2 Amended and Restated Bylaws of the Registrant.
3.3 Form of Amended and Restated Certificate of Incorporation, to be filed
and effective upon completion of this offering.
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
3.4 Form of Amended and Restated Bylaws of the Netcentives, to be effective
upon completion of this offering.
4.1* Form of the Netcentives common stock certificate.
5.1* Opinion of Venture Law Group, a Professional Corporation.
10.1 Form of Indemnification Agreement for directors and officers of
Netcentives.
10.2 1996 Stock Option Plan, as amended, and form of stock option agreement
and restricted stock purchase agreement.
10.3 1999 Employee Stock Purchase Plan and form of subscription agreement.
10.4 1999 Directors' Stock Option Plan and form of stock option agreement.
10.5 Lease between Panttaja Consulting Group and Britphil & Co. Ltd. dated
November 13, 1995.
10.6 Lease between Netcentives and Townsend Associates, L.L.C. dated August
14, 1997.
10.7 Lease between Netcentives and Townsend Associates, L.L.C. dated August
11, 1998.
10.8+ Confidential Advantage Participation Agreement between American
Airlines, Inc. and Netcentives Inc. dated August 19, 1997.
10.9+ Supply Agreement between Northwest Airlines, Inc. and Netcentives Inc.
dated September 5, 1997.
10.10+ Supply Agreement between Continental Airlines, Inc. and Netcentives
Inc. dated September 5, 1997.
10.11+ Supply Agreement between US Airways, Inc. and Netcentives Inc, dated
September 20, 1997.
10.12+ Supply Agreement between Mileage Plus Marketing, Inc. and Netcentives
Inc. dated March 20, 1998.
10.13+ Marketing Services Agreement between British Airways PLC and
Netcentives Inc. Agreement Number MKTG 002 dated April 4, 1997.
10.14+ Supply Agreement between Trans World Airlines, Inc. and Netcentives
Inc. dated February 25, 1999.
10.15+ Sky Rewards Delta Air Lines Agreement between Delta Air Lines, Inc. and
Netcentives Inc. dated July 24, 1997.
10.16 Office Lease between Netcentives and SKS Brannan Associates, LC dated
May 5, 1999.
10.17 Employment Agreement between Netcentives and West Shell, III dated June
26, 1997 and Amendment to Employment Agreement dated October 29, 1998.
10.18 Change of Control Agreement between Netcentives and John F. Longinotti
dated January 15, 1998.
10.19 Amended and Restated Rights Agreement between Netcentives and certain
stockholders dated March 19, 1999.
21.1 Subsidiaries of the Registrant.
23.1 Independent Auditors' Consent.
23.2* Consent of Counsel (included in Exhibit 5.1).
24.1 Power of Attorney (see page II-5).
27.1 Financial Data Schedule.
</TABLE>
- --------
* To be supplied by amendment.
+Confidential Treatment Requested
II-3
<PAGE>
ITEM 17. Undertakings
Netcentives hereby undertakes to provide to the underwriters at the closing
specified in the Underwriting Agreement, certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of Netcentives
pursuant to the foregoing provisions, or otherwise, Netcentives has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by Netcentives of expenses
incurred or paid by a director, officer or controlling person of Netcentives 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, Netcentives will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
Netcentives hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1), or (4),
or 497(h) under the Securities Act shall be deemed to be a part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, 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 this offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the undersigned
Registrant has duly caused this Registration Statement on Form S-1 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of San
Francisco, State of California, on July 22, 1999.
NETCENTIVES INC.
/s/ West Shell, III
By: _________________________________
West Shell, III,
Chairman and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints West Shell, III and John F. Longinotti, and each
one of them, his or her attorneys-in-fact, each with the power of substitution,
for him in any and all capacities, to sign any and all amendments to this
Registration Statement (including post-effective amendments), and any
Registration Statement relating to this Registration Statement under Rule 462,
and to file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorneys-in-fact, or his or her substitute or
substitutes, may do or cause to be done by virtue hereof. This Power of
Attorney may be signed in several counterparts.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement on Form S-1 has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<C> <S> <C>
/s/ West Shell, III Chairman of the Board of July 22, 1999
____________________________________ Directors and Chief
(West Shell, III) Executive Officer
(Principal Executive
Officer)
/s/ John F. Longinotti Executive Vice President, July 22, 1999
____________________________________ Operations and Chief
(John F. Longinotti) Financial Officer
(Principal Financial and
Accounting Officer)
/s/ Stewart Alsop Director July 22, 1999
____________________________________
(Stewart Alsop)
/s/ Tom Byers Director July 22, 1999
____________________________________
(Tom Byers)
/s/ Eric W. Tilenius Director July 22, 1999
____________________________________
(Eric W. Tilenius)
/s/ Virginia M. Turezyn Director July 22, 1999
____________________________________
(Virginia M. Turezyn)
/s/ Wendell G. Van Auken Director July 22, 1999
____________________________________
(Wendell G. Van Auken)
/s/ Sergio Zyman Director July 22, 1999
____________________________________
(Sergio Zyman)
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Articles of Incorporation of the Registrant.
3.2 Amended and Restated Bylaws of the Registrant.
3.3 Form of Amended and Restated Certificate of Incorporation, to be
filed and effective upon completion of this offering.
3.4 Form of Amended and Restated Bylaws of the Netcentives, to be
effective upon completion of this offering.
4.1* Form of the Netcentives common stock certificate.
5.1* Opinion of Venture Law Group, a Professional Corporation.
10.1 Form of Indemnification Agreement for directors and officers of
Netcentives.
10.2 1996 Stock Option Plan, as amended, and form of stock option
agreement and restricted stock purchase agreement.
10.3 1999 Employee Stock Purchase Plan and form of subscription
agreement.
10.4 1999 Directors' Stock Option Plan and form of stock option
agreement.
10.5 Lease between Panttaja Consulting Group and Britphil & Co. Ltd.
dated November 13, 1995.
10.6 Lease between Netcentives and Townsend Associates, L.L.C. dated
August 14, 1997.
10.7 Lease between Netcentives and Townsend Associates, L.L.C. dated
August 11, 1998.
10.8+ Confidential Advantage Participation Agreement between American
Airlines, Inc. and Netcentives Inc. dated August 19, 1997.
10.9+ Supply Agreement between Northwest Airlines, Inc. and Netcentives
Inc. dated September 5, 1997.
10.10+ Supply Agreement between Continental Airlines, Inc. and
Netcentives Inc. dated September 5, 1997.
10.11+ Supply Agreement between US Airways, Inc. and Netcentives Inc,
dated September 20, 1997.
10.12+ Supply Agreement between Mileage Plus Marketing, Inc. and
Netcentives Inc. dated March 20, 1998.
10.13+ Marketing Services Agreement between British Airways PLC and
Netcentives Inc. Agreement Number MKTG 002 dated April 4, 1997.
10.14+ Supply Agreement between Trans World Airlines, Inc. and
Netcentives Inc. dated February 25, 1999.
10.15+ Sky Rewards Delta Air Lines Agreement between Delta Air Lines,
Inc. and Netcentives Inc. dated July 24, 1997.
10.16 Office Lease between Netcentives and SKS Brannan Associates, LLC
dated May 5, 1999.
10.17 Employment Agreement between Netcentives and West Shell, III dated
June 26, 1997 and Amendment to Employment Agreement dated October
29, 1998.
10.18 Change of Control Agreement between Netcentives and John F.
Longinotti dated January 15, 1998.
10.19 Amended and Restated Rights Agreement between Netcentives and
certain stockholders dated March 19, 1999.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
21.1 Subsidiaries of the Registrant.
23.1 Independent Auditors' Consent.
23.2* Consent of Counsel (included in Exhibit 5.1).
24.1 Power of Attorney (see page II-5).
27.1 Financial Data Schedule.
</TABLE>
- --------
* To be supplied by amendment.
+Confidential Treatment Requested
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
NETCENTIVES INC.
The undersigned, West Shell, III and John F. Longinotti, hereby certify
that:
1. They are the duly elected and acting President and Assistant Secretary,
respectively, of Netcentives Inc., a California corporation.
2. The Articles of Incorporation of this corporation shall be amended and
restated to read in full as follows:
"ARTICLE I
The name of this corporation is Netcentives Inc.
ARTICLE II
The purpose of this corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
California other than the banking business, the trust company business or the
practice of a profession permitted to be incorporated by the California
Corporations Code.
ARTICLE III
(A) CLASSES OF STOCK. This corporation is authorized to issue two classes
----------------
of stock to be designated, respectively, "Common Stock" and "Preferred Stock."
------------ ---------------
The total number of shares which the corporation is authorized to issue is
54,569,221 shares, each with a par value of $0.001 per share. 35,000,000 shares
shall be Common Stock and 19,569,221 shares shall be Preferred Stock. The
rights, preferences and restrictions of the Series A, Series B, Series C, Series
D and Series E Preferred Stock, Series N Preferred Stock and Common Stock shall
be as set forth in Divisions B, C and D, respectively of this Article III.
(B) RIGHTS, PREFERENCES AND RESTRICTIONS OF SERIES A, SERIES B SERIES C,
--------------------------------------------------------------------
SERIES D AND SERIES E PREFERRED STOCK. The Preferred Stock authorized by these
- -------------------------------------
Restated Articles of Incorporation may be issued from time to time in one or
more series. The first Series of Preferred Stock shall be designated "Series A
--------
Preferred Stock" and shall consist of 1,452,613 shares. The second Series of
- ---------------
Preferred Stock shall be designated "Series B Preferred Stock" and shall consist
------------------------
of 660,391 shares. The third Series of Preferred Stock shall be designated
"Series C Preferred Stock" and shall consist of 7,787,155 shares. The fourth
- -------------------------
Series of Preferred Stock shall be designated "Series D Preferred Stock" and
------------------------
shall consist of 5,500,000 shares. The fifth series of Preferred Stock shall be
designated "Series E Preferred Stock" and shall consist of 3,519,062
------------------------
<PAGE>
shares. The rights, preferences, privileges, and restrictions granted to and
imposed on the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and Series E Preferred Stock are as
set forth below in this Article III(B).
1. DIVIDEND PROVISIONS. The holders of shares of Series A Preferred
-------------------
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock and Series E Preferred Stock shall be entitled to receive dividends, out
of any assets legally available therefor, prior and in preference to any
declaration or payment of any dividend (payable other than in Common Stock or
other securities and rights convertible into or entitling the holder thereof to
receive, directly or indirectly, additional shares of Common Stock of this
corporation) on the Series N Preferred Stock or Common Stock of this
corporation, at the rate of (a) $0.052 per share per annum on each outstanding
share of Series A Preferred Stock, (b) $0.08 per share per annum on each
outstanding share of Series B Preferred Stock, (c) $0.104 per share per annum on
each outstanding share of Series C Preferred Stock, (d) $0.252 per share per
annum on each outstanding share of Series D Preferred Stock and (e) $0.546 per
share per annum on each outstanding share of Series E Preferred Stock each
payable quarterly when, as and if declared by the Board of Directors. No
dividends shall be paid on any shares of Common Stock unless a dividend
(including the amount of any dividends paid pursuant to the above provision of
this Section 1) is paid with respect to all outstanding shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock equal to or greater than the
aggregate amount of such dividends for all shares of Common Stock into which
each such share of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock or Series E Preferred Stock could then
be converted. Such dividends shall not be cumulative.
2. LIQUIDATION PREFERENCE.
----------------------
(a) In the event of any liquidation, dissolution or winding up of
this corporation, either voluntary or involuntary, the holders of the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock shall be entitled to receive, prior
and in preference to any distribution of any of the assets of this corporation
to the holders of Series N Preferred Stock or Common Stock by reason of their
ownership thereof, an amount equal to (i) $0.65 for each share of Series A
Preferred Stock then held by them, plus declared but unpaid dividends on the
Series A Preferred Stock, (ii) $1.00 for each share of Series B Preferred Stock
then held by them, plus declared but unpaid dividends on the Series B Preferred
Stock, (iii) $1.30 for each share of Series C Preferred Stock then held by them,
plus declared but unpaid dividends on the Series C Preferred Stock, (iv) $3.15
for each share of Series D Preferred Stock then held by them, plus declared but
unpaid dividends on the Series D Preferred Stock and (v) $6.82 for each shares
of Series E Preferred Stock then held by them, plus declared but unpaid
dividends on the Series E Preferred Stock. If upon the occurrence of such event,
the assets and funds thus distributed among the holders of the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock shall be insufficient to permit the
payment to such holders of the full aforesaid preferential amounts, then, the
entire assets and funds of the corporation legally available for distribution
shall be distributed ratably among the holders of the Series A Preferred Stock,
-2-
<PAGE>
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and
Series E Preferred Stock in proportion to the preferential amount each such
holder is otherwise entitled to receive.
(b) Upon the completion of the distribution required by Section 2(a)
above, if assets remain in this corporation, the holders of the Series N
Preferred Stock and Common Stock of this corporation shall receive all of the
remaining assets of this corporation as provided in Sections 2(a) and (b) of
Division (C), below.
(c) For purposes of this Section 2, a liquidation, dissolution or
winding up of this corporation shall be deemed to be occasioned by, or to
include, (i) the acquisition of the corporation by another entity by means of
any transaction or Series of related transactions (including, without
limitation, any reorganization, merger or consolidation, but excluding any
merger effected exclusively for the purpose of changing the domicile of the
corporation); or (ii) a sale of all or substantially all of the assets of the
corporation, unless the corporation's shareholders of record as constituted
------
immediately prior to such acquisition or sale will, immediately after such
acquisition or sale (by virtue of securities issued as consideration for the
corporation's acquisition or sale or otherwise) hold at least 50% of the voting
power of the surviving or acquiring entity in approximately the same relative
percentages after such acquisition or sale as before such acquisition or sale.
(d) In any of the events specified in (c) above, if the consideration
received by the corporation is other than cash, its value will be deemed its
fair market value. Any securities shall be valued as follows:
(i) Securities not subject to investment letter or other
similar restrictions on free marketability:
(A) If traded on a securities exchange or the Nasdaq National
Market System, the value shall be deemed to be the average of the closing prices
of the securities on such exchange over the thirty-day period ending three (3)
days prior to the closing;
(B) If actively traded over-the-counter, the value shall be
deemed to be the average of the closing bid or sale prices (whichever is
applicable) over the thirty-day period ending three (3) days prior to the
closing; and
(C) If there is no active public market, the value shall be
the fair market value thereof, as mutually determined by the corporation and the
holders of at least a majority of the voting power of all then outstanding
shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock and Series E Preferred Stock.
(ii) The method of valuation of securities subject to investment
letter or other restrictions on free marketability (other than restrictions
arising solely by virtue of a shareholder's status as an affiliate or former
affiliate) shall be to make an appropriate discount from the market value
determined as above in (i) (A), (B) or (C) to reflect the approximate fair
-3-
<PAGE>
market value thereof, as mutually determined by the corporation and the holders
of at least a majority of the voting power of all then outstanding shares of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock and Series E Preferred Stock.
(iii) In the event the requirements of Section 2(d) are not
complied with, this corporation shall forthwith either:
(A) cause such closing to be postponed until such time
as the requirements of this Section 2 have been complied with; or
(B) cancel such transaction, in which event the rights,
preferences and privileges of the holders of the Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and
Series E Preferred Stock shall revert to and be the same as such rights,
preferences and privileges existing immediately prior to the date of the first
notice referred to in Section 2(d)(iv) hereof.
(iv) The corporation shall give each holder of record of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock and Series E Preferred Stock written notice of such
impending transaction not later than twenty (20) days prior to the shareholders'
meeting called to approve such transaction, or twenty (20) days prior to the
closing of such transaction, whichever is earlier, and shall also notify such
holders in writing of the final approval of such transaction. The first of such
notices shall describe the material terms and conditions of the impending
transaction and the provisions of this Section 2, and the corporation shall
thereafter give such holders prompt notice of any material changes. The
transaction shall in no event take place sooner than twenty (20) days after the
corporation has given the first notice provided for herein or sooner than ten
(10) days after the corporation has given notice of any material changes
provided for herein; provided, however, that such periods may be shortened upon
the written consent of the holders of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock that are entitled to such notice rights or similar notice rights
and that represent at least a majority of the voting power of all then
outstanding shares of such Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock.
3. REDEMPTION. The Series A Preferred Stock, Series B Preferred
----------
Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred
Stock are not redeemable.
4. CONVERSION. The holders of the Series A Preferred Stock, Series B
----------
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock shall have conversion rights as follows (the "Conversion
----------
Rights"):
(a) RIGHT TO CONVERT. Subject to Section 4(c), each share of
----------------
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock and Series E Preferred Stock shall be convertible, at
the option of the holder thereof, at any time after the date of issuance of such
share, at the office of this corporation or any transfer agent for such
-4-
<PAGE>
stock, into such number of fully paid and nonassessable shares of Common Stock
as is determined by dividing (i) $0.65 in the case of the Series A Preferred
Stock, (ii) $1.00 in the case of the Series B Preferred Stock, (iii) $1.30 in
the case of the Series C Preferred Stock, (iv) $3.15 in the case of the Series D
Preferred Stock and (v) $6.82 in the case of the Series E Preferred Stock by the
Conversion Price applicable to such share, determined as hereafter provided, in
effect on the date the certificate is surrendered for conversion. The initial
Conversion Prices shall be $0.65 per share of Series A Preferred Stock, $1.00
per share of Series B Preferred Stock, $1.30 per share of Series C Preferred
Stock, $3.15 per share of Series D Preferred Stock and $6.82 per share of Series
E Preferred Stock. Such initial Conversion Prices shall be subject to adjustment
as set forth in Section 4(d).
(b) AUTOMATIC CONVERSION. Each share of Series A Preferred Stock,
--------------------
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and
Series E Preferred Stock shall automatically be converted into shares of Common
Stock at the Conversion Price at the time in effect for such share immediately
upon the earlier of (i) except as provided below in Section 4(c), the
corporation's sale of its Common Stock in a firm commitment underwritten public
offering pursuant to a registration statement under the Securities Act of 1933,
as amended, the public offering price of which is not less than $7.00 per share
(adjusted to reflect subsequent stock dividends, stock splits or
recapitalization) and which results in aggregate cash proceeds to the
corporation of $15,000,000 (net of underwriting discounts and commissions) or
(ii) the date specified by written consent or agreement of the holders of a
majority of the then outstanding shares of the Series of Preferred Stock in
question.
(c) MECHANICS OF CONVERSION. Before any holder of Series A Preferred
-----------------------
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock and Series E Preferred Stock shall be entitled to convert the same into
shares of Common Stock, he or she shall surrender the certificate or
certificates therefor, duly endorsed, at the office of this corporation or of
any transfer agent for the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock or Series E Preferred Stock,
and shall give written notice to this corporation at its principal corporate
office, of the election to convert the same and shall state therein the name or
names in which the certificate or certificates for shares of Common Stock are to
be issued. This corporation shall, as soon as practicable thereafter, issue and
deliver at such office to such holder of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or Series E
Preferred Stock, or to the nominee or nominees of such holder, a certificate or
certificates for the number of shares of Common Stock to which such holder shall
be entitled as aforesaid. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such surrender of the
shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock or Series E Preferred Stock to be converted, and
the person or persons entitled to receive the shares of Common Stock issuable
upon such conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock as of such date. If the conversion is in
connection with an underwritten offering of securities registered pursuant to
the Securities Act of 1933, as amended, the conversion may, at the option of any
holder tendering Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock or Series E Preferred Stock for
conversion, be conditioned upon
-5-
<PAGE>
the closing with the underwriters of the sale of securities pursuant to such
offering, in which event the person(s) entitled to receive Common Stock upon
conversion of such Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock or Series E Preferred Stock shall not
be deemed to have converted such Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock or Series E Preferred
Stock until immediately prior to the closing of such sale of securities.
(d) CONVERSION PRICE ADJUSTMENTS OF SERIES A PREFERRED STOCK, SERIES B
------------------------------------------------------------------
PREFERRED STOCK, SERIES C PREFERRED STOCK, SERIES D PREFERRED STOCK AND SERIES E
- --------------------------------------------------------------------------------
PREFERRED STOCK FOR CERTAIN DILUTIVE ISSUANCES, SPLITS AND COMBINATIONS. The
- -----------------------------------------------------------------------
Conversion Prices of the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock
shall be subject to adjustment from time to time as follows:
(i) (A) If the corporation shall issue, after the date upon which
any shares of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock or Series E Preferred Stock were first
issued (the "Purchase Date" with respect to a particular series), any Additional
-------------
Stock (as defined below) without consideration or for a consideration per share
less than the Conversion Price for such Series of Preferred Stock in effect
immediately prior to the issuance of such Additional Stock, the Conversion Price
for such Series in effect immediately prior to each such issuance shall
automatically (except as otherwise provided in this clause (i)) be adjusted to a
price determined by multiplying such Conversion Price by a fraction, the
numerator of which shall be the number of shares of Common Stock and the number
of shares of Common Stock issuable upon conversion of the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock and Series E Preferred Stock outstanding immediately prior to such
issuance plus the number of shares of Additional Stock that the aggregate
consideration received by the corporation for such issuance would purchase at
such Conversion Price; and the denominator of which shall be the number of
shares of Common Stock and Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock
outstanding immediately prior to such issuance plus the number of shares of such
Additional Stock.
(B) No adjustment of the Conversion Prices for the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock or Series E Preferred Stock shall be made in an amount less than
one cent per share, provided that any adjustments which are not required to be
made by reason of this sentence shall be carried forward and shall be either
taken into account in any subsequent adjustment made prior to three years from
the date of the event giving rise to the adjustment being carried forward, or
shall be made at the end of three years from the date of the event giving rise
to the adjustment being carried forward. Except to the limited extent provided
for in Sections 4(d)(i)(E)(3) and 4(d)(i)(E)(4), no adjustment of a Conversion
Price pursuant to this Section 4(d)(i) shall have the effect of increasing such
Conversion Price above the Conversion Price for such Series in effect
immediately prior to such adjustment.
-6-
<PAGE>
(C) In the case of the issuance of Additional Stock for cash, the
consideration shall be deemed to be the amount of cash paid therefor before
deducting any reasonable discounts, commissions or other expenses allowed, paid
or incurred by this corporation for any underwriting or otherwise in connection
with the issuance and sale thereof.
(D) In the case of the issuance of the Additional Stock for a
consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to be the fair value thereof as determined by the Board of
Directors irrespective of any accounting treatment.
(E) In the case of the issuance (whether before, on or after the
applicable Purchase Date) of options to purchase or rights to subscribe for
Additional Stock, securities by their terms convertible into or exchangeable for
Additional Stock or options to purchase or rights to subscribe for such
convertible or exchangeable securities, the following provisions shall apply for
all purposes of this Section 4(d)(i) and Section 4(d)(ii):
(1) The aggregate maximum number of shares of Additional Stock
deliverable upon exercise (assuming the satisfaction of any conditions to
exercisability, including without limitation, the passage of time, but without
taking into account potential antidilution adjustments) of such options to
purchase or rights to subscribe for Additional Stock shall be deemed to have
been issued at the time such options or rights were issued and for a
consideration equal to the consideration (determined in the manner provided in
Sections 4(d)(i)(C) and 4(d)(i)(D)), if any, received by the corporation upon
the issuance of such options or rights plus the minimum exercise price provided
in such options or rights (without taking into account potential antidilution
adjustments) for the Additional Stock covered thereby.
(2) The aggregate maximum number of shares of Additional Stock
deliverable upon conversion of or in exchange (assuming the satisfaction of any
conditions to convertibility or exchangeability, including, without limitation,
the passage of time, but without taking into account potential antidilution
adjustments) for any such convertible or exchangeable securities or upon the
exercise of options to purchase or rights to subscribe for such convertible or
exchangeable securities and subsequent conversion or exchange thereof shall be
deemed to have been issued at the time such securities were issued or such
options or rights were issued and for a consideration equal to the
consideration, if any, received by the corporation for any such securities and
related options or rights (excluding any cash received on account of accrued
interest or accrued dividends), plus the minimum additional consideration, if
any, to be received by the corporation (without taking into account potential
antidilution adjustments) upon the conversion or exchange of such securities or
the exercise of any related options or rights (the consideration in each case to
be determined in the manner provided in Sections 4(d)(i)(C) and 4(d)(i)(D)).
(3) In the event of any change in the number of shares of
Additional Stock deliverable or in the consideration payable to this corporation
upon exercise of such options or rights or upon conversion of or in exchange for
such convertible or exchangeable securities, including, but not limited to, a
change resulting from the antidilution
-7-
<PAGE>
provisions thereof, the Conversion Prices of the Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and
Series E Preferred Stock, to the extent in any way affected by or computed using
such options, rights or securities, shall be recomputed to reflect such change,
but no further adjustment shall be made for the actual issuance of Additional
Stock or any payment of such consideration upon the exercise of any such options
or rights or the conversion or exchange of such securities.
(4) Upon the expiration of any such options or rights,
the termination of any such rights to convert or exchange or the expiration of
any options or rights related to such convertible or exchangeable securities,
the Conversion Prices of the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock,
to the extent in any way affected by or computed using such options, rights or
securities or options or rights related to such securities, shall be recomputed
to reflect the issuance of only the number of shares of Additional Stock (and
convertible or exchangeable securities which remain in effect) actually issued
upon the exercise of such options or rights, upon the conversion or exchange of
such securities or upon the exercise of the options or rights related to such
securities.
(5) The number of shares of Additional Stock deemed
issued and the consideration deemed paid therefor pursuant to Sections
4(d)(i)(E)(1) and (2) shall be appropriately adjusted to reflect any change,
termination or expiration of the type described in either Section 4(d)(i)(E)(3)
or (4).
(ii) "Additional Stock" shall mean any shares of Common Stock issued
----------------
(or deemed to have been issued pursuant to Section 4(d)(i)(E)) by this
corporation after the Purchase Date) other than:
(A) Common Stock issued pursuant to a transaction described in
Section 4(d)(iii) hereof,
(B) Shares of Common Stock issuable or issued to employees,
consultants or directors of this corporation directly or pursuant to a stock
option plan or restricted stock plan approved by the Board of Directors of this
corporation,
(C) Capital stock, or options or warrants to purchase capital
stock, issued to financial institutions or lessors in connection with commercial
credit arrangements, equipment financings or similar transactions approved by
the Board of Directors of this corporation,
(D) Shares of Common Stock or Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock issuable upon exercise of warrants outstanding as of the date of
these Amended and Restated Articles of Incorporation,
-8-
<PAGE>
(E) Capital stock or warrants or options to purchase capital
stock issued in connection with bona fide acquisitions, mergers or similar
transactions, the terms of which are approved by the Board of Directors of the
corporation,
(F) Shares of Common Stock issued or issuable upon conversion of
the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock and Series E Preferred Stock,
(G) Shares of Common Stock issued or issuable in a public
offering prior to or in connection with which all outstanding shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock will be converted to Common Stock,
and
(H) Shares of Series N Preferred Stock, or options or warrants to
purchase Series N Preferred Stock, issued to suppliers of the Company in
connection with the Company's acquisition of inventory for redistribution in the
ordinary course of the Company's business, which issuances are unanimously
approved by the Board of Directors of the corporation.
(iii) In the event the corporation should at any time or from time to
time after the Purchase Date fix a record date for the effectuation of a split
or subdivision of the outstanding shares of Series N Preferred Stock or Common
Stock or the determination of holders of Series N Preferred Stock or Common
Stock entitled to receive a dividend or other distribution payable in additional
shares of Common Stock or other securities or rights convertible into, or
entitling the holder thereof to receive directly or indirectly, additional
shares of Common Stock (hereinafter referred to as "Common Stock Equivalents")
------------------------
without payment of any consideration by such holder for the additional shares of
Common Stock or the Common Stock Equivalents (including the additional shares of
Common Stock issuable upon conversion or exercise thereof), then, as of such
record date (or the date of such dividend distribution, split or subdivision if
no record date is fixed), the Conversion Prices of the Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or
Series E Preferred Stock respectively shall be appropriately decreased so that
the number of shares of Common Stock issuable on conversion of each share of
Preferred Stock shall be increased in proportion to such increase of the
aggregate of shares of Common Stock outstanding and those issuable with respect
to such Common Stock Equivalents with the number of shares issuable with respect
to Common Stock Equivalents determined from time to time in the manner provided
for deemed issuances in Section 4(d)(i)(E).
(iv) If the number of shares of Series N Preferred Stock or Common
Stock outstanding at any time after the Purchase Date for the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock or Series E Preferred Stock is decreased by a combination of the
outstanding shares of Common Stock, then, following the record date of such
combination, the Conversion Price for such Series shall be appropriately
increased so that the number of shares of Common Stock issuable on conversion of
each share of such Series shall be decreased in proportion to such decrease in
outstanding shares.
-9-
<PAGE>
(e) OTHER DISTRIBUTIONS. In the event this corporation shall declare
-------------------
a distribution payable in securities of other persons, evidences of indebtedness
issued by this corporation or other persons, assets (excluding cash dividends)
or options or rights not referred to in Section 4(d)(iii), then, in each such
case for the purpose of this Section 4(e), the holders of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock or Series E Preferred Stock shall be entitled to a proportionate share of
any such distribution as though they were the holders of (i) the number of
shares of Common Stock of the corporation into which their shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock or Series E Preferred Stock are convertible as of the record
date fixed for the determination of the holders of Common Stock of the
corporation entitled to receive such distribution if such distribution is to be
made to holders of Common Stock or (ii) the number of shares of Series N
Preferred Stock equal to the number of shares of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or
Series E Preferred Stock held by such holder if such distribution is to be made
to holders of Series N Preferred Stock.
(f) RECAPITALIZATIONS. If at any time or from time to time there
-----------------
shall be a recapitalization of the Series N Preferred Stock or Common Stock
(other than a subdivision, combination or merger or sale of assets transaction
provided for elsewhere in this Section 4 or Section 2) provision shall be made
so that the holders of the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock
shall thereafter be entitled to receive upon conversion of the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock the number of shares of stock or
other securities or property of the Company or otherwise, to which a holder of
an equal number of shares of Series N Preferred Stock or Common Stock
deliverable upon conversion, respectively, would have been entitled on such
recapitalization. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 4 with respect to the rights of
the holders of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and Series E Preferred Stock after the
recapitalization to the end that the provisions of this Section 4 (including
adjustment of the Conversion Prices then in effect and the number of shares
purchasable upon conversion of the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred
Stock) shall be applicable after that event and be as nearly equivalent as
practicable.
(g) NO IMPAIRMENT. This corporation will not, by amendment of its
-------------
Articles of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by this
corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Section 4 and in the taking of all such action as may
be necessary or appropriate in order to protect the Conversion Rights of the
holders of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and Series E Preferred Stock against
impairment.
-10-
<PAGE>
(h) NO FRACTIONAL SHARES AND CERTIFICATE AS TO ADJUSTMENTS.
------------------------------------------------------
(i) No fractional shares shall be issued upon the
conversion of any share or shares of the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock, and the number of shares of Common Stock to be issued shall be
rounded to the nearest whole share. Whether or not fractional shares are
issuable upon such conversion shall be determined on the basis of the total
number of shares of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and Series E Preferred Stock the
holder is at the time converting into Common Stock and the number of shares of
Common Stock issuable upon such aggregate conversion.
(ii) Upon the occurrence of each adjustment or readjustment
of a Conversion Price of the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock or Series E Preferred Stock
pursuant to this Section 4, this corporation, at its expense, shall promptly
compute such adjustment or readjustment in accordance with the terms hereof and
prepare and furnish to each holder of affected Series A Preferred Stock, Series
B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series
E Preferred Stock a certificate setting forth such adjustment or readjustment
and showing in detail the facts upon which such adjustment or readjustment is
based. This corporation shall, upon the written request at any time of any
holder of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock and Series E Preferred Stock, furnish or cause
to be furnished to such holder a like certificate setting forth (A) such
adjustment and readjustment, (B) the Conversion Price for the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock and Series E Preferred Stock at the time in effect, and (C) the number of
shares of Common Stock and the amount, if any, of other property which at the
time would be received upon the conversion of a share of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock and Series E Preferred Stock.
(i) NOTICES OF RECORD DATE. In the event of any taking by this
----------------------
corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, this
corporation shall mail to each holder of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock, at least 20 days prior to the date specified therein, a notice
specifying the date on which any such record is to be taken for the purpose of
such dividend, distribution or right, and the amount and character of such
dividend, distribution or right.
(j) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. This
---------------------------------------------
corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock and
-11-
<PAGE>
Series E Preferred Stock, such number of its shares of Common Stock as shall
from time to time be sufficient to effect the conversion of all outstanding
shares of Series N Preferred Stock and Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock; and if at any time the number of authorized but unissued shares
of Common Stock shall not be sufficient to effect the conversion of all then
outstanding shares of Series N Preferred Stock and Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and
Series E Preferred Stock, in addition to such other remedies as shall be
available to the holder of such Preferred Stock, this corporation will take such
corporate action as may, in the opinion of its counsel, be necessary to increase
its authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purposes, including, without limitation, engaging
in best efforts to obtain the requisite shareholder approval of any necessary
amendment to these articles.
(k) NOTICES. Any notice required by the provisions of this Section 4
-------
to be given to the holders of shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock shall be deemed given if deposited in the United States mail,
postage prepaid, and addressed to each holder of record at his address appearing
on the books of this corporation.
5. VOTING RIGHTS.
-------------
(a) GENERAL. Subject to subsection (b) hereof, the holder of each
-------
share of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock and Series E Preferred Stock shall have the
right to one vote for each share of Common Stock into which such Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock could then be converted, and with
respect to such vote, such holder shall have full voting rights and powers equal
to the voting rights and powers of the holders of Common Stock, and shall be
entitled, notwithstanding any provision hereof, to notice of any shareholders'
meeting in accordance with the bylaws of this corporation, and shall be entitled
to vote, together with holders of Common Stock, with respect to any question
upon which holders of Common Stock have the right to vote. Fractional votes
shall not, however, be permitted and any fractional voting rights available on
an as-converted basis (after aggregating all shares into which shares of Series
A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock held by each holder could be
converted) shall be rounded to the nearest whole number (with one-half being
rounded upward).
(b) VOTING FOR BOARD OF DIRECTORS. So long as 3,000,000 shares of
-----------------------------
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock and Series E Preferred Stock are outstanding, the
holders of shares of Series A Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock, voting
separately as a class, shall be entitled to elect three members of the Board of
Directors of this corporation. The holders of shares of Common Stock, voting
separately as a class, shall be entitled to elect two members of the Board of
Directors of the corporation. Any remaining members of the Board of Directors
of this corporation shall be elected by the holders
-12-
<PAGE>
of the Common Stock, Series A Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock voting
together as a single class. If a vacancy on the Board of Directors is to be
filled by the Board of Directors, only a director or directors elected by the
same class of shareholders as those who would be entitled to vote to fill such
vacancy, if any, shall vote to fill such vacancy. No action by members of the
Board of Directors filling a vacancy on the Board of Directors shall be
effective until 10 days after all Board members who do not have a right to vote
on such appointment have received notice thereof. A majority of the Board
members entitled to receive such notice may waive such notice requirement on
behalf of all such Board members. A director may be removed from the Board of
Directors with or without cause by the vote or consent of the holders of the
outstanding class or Series with voting power to elect him or her in accordance
with the California General Corporation Law and these Amended and Restated
Articles of Incorporation.
6. PROTECTIVE PROVISIONS. So long as any shares of Series A
---------------------
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock are outstanding, this corporation
shall not without first obtaining the approval (by vote or written consent, as
provided by law) of the holders of at least a majority of the then outstanding
shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock and Series E Preferred Stock, voting together as
a class:
(a) alter or change the rights, preferences or privileges of the
shares of any Series of Preferred Stock so as to affect adversely the shares of
such series;
(b) increase or decrease (other than by redemption or conversion)
the total number of authorized shares of Preferred Stock;
(c) authorize or issue, or obligate itself to issue, any other
equity security, including any other security convertible into or exercisable
for any equity security having a preference over, or being on a parity with, the
existing Series Preferred Stock with respect to voting, dividends or upon
liquidation;
(d) exchange, reclassify or cancel all or part of the Preferred
Stock;
(e) cancel or modify any dividends on the Preferred Stock which
have accrued but not been paid; or
(f) sell, convey, or otherwise dispose of or encumber all or
substantially all of its property or business or merge into or consolidate with
any other corporation (other than a wholly owned subsidiary corporation) or
effect any transaction or series of transactions in which more than fifty
percent (50%) of the voting power of the corporation is disposed of.
7. STATUS OF CONVERTED STOCK. In the event any shares of Series A
-------------------------
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock or Series E Preferred Stock shall be converted pursuant to
Section 4 hereof, the shares so converted shall be canceled and shall not be
issuable by the corporation. The Articles of Incorporation of this
-13-
<PAGE>
corporation shall be appropriately amended to effect the corresponding reduction
in the corporation's authorized capital stock.
8. REPURCHASE OF SHARES. In connection with repurchases by this
--------------------
Corporation of its Common Stock pursuant to its agreements with certain of the
holders thereof, Sections 502 and 503 of the California General Corporation Law
shall not apply in whole or in part with respect to such repurchases.
(C) RIGHTS, PREFERENCES AND RESTRICTIONS OF SERIES N PREFERRED STOCK. The
----------------------------------------------------------------
fifth Series of Preferred Stock shall be designated "Series N Preferred Stock"
------------------------
and shall consist of 650,000 shares. The rights, preferences, privileges, and
restrictions granted to and imposed on the Series N Preferred Stock are as set
forth below in this Article III(C).
1. DIVIDEND PROVISIONS. The holders of shares of Series N Preferred
-------------------
Stock shall be entitled to receive dividends, out of any assets legally
available therefor, after payment of all dividends to holders of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock but prior and in preference to any
declaration or payment of any dividend (payable other than in Common Stock or
other securities and rights convertible into or entitling the holder thereof to
receive, directly or indirectly, additional shares of Common Stock of this
corporation) on the Common Stock of this corporation, at the rate of $0.08 per
share per annum on each outstanding share of Series N Preferred Stock, payable
quarterly when, as and if declared by the Board of Directors. No dividends shall
be paid on any shares of Series N Preferred Stock unless a dividend (including
the amount of any dividends paid pursuant to the provisions of Division B,
Section 1 above) is paid with respect to all outstanding shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock equal to or greater than the
aggregate amount of such dividends for all shares of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or
Series E Preferred Stock (as adjusted for stock splits, dividends,
recapitalizations and the like). Such dividends shall not be cumulative.
2. LIQUIDATION PREFERENCE.
----------------------
(a) In the event of any liquidation, dissolution or winding up of
this corporation (as defined in Division (B) Section 2(c) above) the holders of
the Series N Preferred Stock shall be entitled to receive, after the
satisfaction of the full liquidation preference of all shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock, but prior and in preference to any
distribution of any of the assets of this corporation to the holders of Common
Stock, by reason of their ownership thereof, an amount equal to $1.00 for each
share of Series N Preferred Stock then held by them plus declared but unpaid
dividends on the Series N Preferred Stock. If upon the occurrence of such event,
the assets and funds thus distributed among the holders of the Series N
Preferred Stock shall be insufficient to permit the payment to such holders of
the full aforesaid preferential amounts, then, the entire assets and funds of
the corporation remaining after distribution of the full liquidation preference
to all holders of Series A Preferred Stock, Series B
-14-
<PAGE>
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock and legally available for distribution shall be distributed
ratably among the holders of the Series N Preferred Stock in proportion to the
preferential amount each such holder is otherwise entitled to receive.
(b) Upon the completion of the distribution required by Section
2(a) above, if assets remain in this corporation, the holders of the Common
Stock of this corporation shall receive all of the remaining assets of this
corporation.
(c) In any of the events specified in (a) above, if the
consideration received by the corporation is other than cash, its value will be
calculated as provided in Division (B), Sections 2(d)(i) and (ii) above.
3. REDEMPTION. The Series N Preferred Stock is not redeemable.
----------
4. CONVERSION.
----------
(a) AUTOMATIC CONVERSION. The Series N Preferred Stock shall
--------------------
automatically be converted into shares of Common Stock at the rate of one share
of Series N Preferred Stock per share of Common Stock (the "Series N Conversion
-------------------
Rate") except as provided below in Section 4(c), immediately upon the earlier of
- ----
(i) the corporation's sale of its Common Stock in a firm commitment underwritten
public offering pursuant to a registration statement under the Securities Act of
1933, as amended, or (ii) the date specified by written consent or agreement of
the holders of a majority of the then outstanding shares of Series N Preferred
Stock, voting together as a class.
(b) MECHANICS OF CONVERSION. Before any shares of Series N
-----------------------
Preferred Stock shall be converted into shares of Common Stock, the holder
thereof shall surrender the certificate or certificates therefor, duly endorsed,
at the office of this corporation or of any transfer agent for the Series N
Preferred Stock, and indicating therewith the name or names in which the
certificate or certificates for shares of Common Stock are to be issued. This
corporation shall, as soon as practicable thereafter, issue and deliver at such
office to such holder of Series N Preferred Stock, or to the nominee or nominees
of such holder, a certificate or certificates for the number of shares of Common
Stock to which such holder shall be entitled as aforesaid. If the conversion is
in connection with an underwritten offering of securities registered pursuant to
the Securities Act of 1933, as amended, the Series N Preferred Stock shall be
deemed to have been converted immediately prior to the closing of such sale of
securities. If the conversion is in connection with a vote or agreement of the
outstanding shares of Series N Preferred Stock, then the Series N Preferred
Stock shall be deemed to be converted on the effective date of such vote or
agreement.
(c) CONVERSION PRICE ADJUSTMENTS OF NON-VOTING CONVERTIBLE FOR
----------------------------------------------------------
SPLITS AND COMBINATIONS. The Series N Conversion Rate shall be subject to
- -----------------------
adjustment from time to time as follows:
-15-
<PAGE>
(i) In the event the corporation should at any time or from time
to time after the date on which Series N Preferred Stock is first issued fix a
record date for the effectuation of a split or subdivision of the outstanding
shares of Common Stock or the determination of holders of Common Stock entitled
to receive a dividend or other distribution payable in Common Stock Equivalents
without payment of any consideration by such holder for the additional shares of
Common Stock or the Common Stock Equivalents (including the additional shares of
Common Stock issuable upon conversion or exercise thereof), then, as of such
record date (or the date of such dividend distribution, split or subdivision if
no record date is fixed), the Series N Conversion Rate shall be appropriately
increased so that the number of shares of Common Stock issuable on conversion of
each share of Series N Preferred Stock shall be increased in proportion to such
increase of the aggregate of shares of Common Stock outstanding and those
issuable with respect to such Common Stock Equivalents with the number of shares
issuable with respect to Common Stock Equivalents determined from time to time
in the manner provided for deemed issuances in Section 4(d)(i)(E) of Division B
of this Article III.
(ii) If the number of shares of Common Stock outstanding at any
time after the date on which Series N Preferred Stock is first issued for the
Series N Preferred Stock is decreased by a combination of the outstanding shares
of Common Stock, then, following the record date of such combination, the Series
N Conversion Rate shall be appropriately decreased so that the number of shares
of Common Stock issuable on conversion of each share of Series N Preferred Stock
shall be decreased in proportion to such decrease in outstanding shares.
(d) OTHER DISTRIBUTIONS. In the event this corporation shall declare
-------------------
a distribution payable in securities of other persons, evidences of indebtedness
issued by this corporation or other persons, assets (excluding cash dividends)
or options or rights not referred to in Section 4(c)(i), then, in each such case
for the purpose of this Section 4(d), the holders of Series N Preferred Stock
shall be entitled to a proportionate share of any such distribution as though
they were the holders of (i) the number of shares of Common Stock of the
corporation into which their shares of Series N Preferred Stock are convertible
as of the record date fixed for the determination of the holders of Common Stock
of the corporation entitled to receive such distribution.
(e) RECAPITALIZATIONS. If at any time or from time to time there
-----------------
shall be a recapitalization of the Common Stock (other than a subdivision,
combination or merger or sale of assets transaction provided for elsewhere in
this Section 4 or Section 2) provision shall be made so that the holders of the
Series N Preferred Stock shall thereafter be entitled to receive upon conversion
of the Series N Preferred Stock the number of shares of stock or other
securities or property of the Company or otherwise, to which a holder of Common
Stock deliverable upon conversion would have been entitled on such
recapitalization. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 4 with respect to the rights of
the holders of the Series N Preferred Stock after the recapitalization to the
end that the provisions of this Section 4 (including adjustment of the Series N
Conversion Rate then in effect and the number of shares purchasable upon
conversion of the Series N Preferred Stock) shall be applicable after that event
and be as nearly equivalent as practicable.
-16-
<PAGE>
(f) NO IMPAIRMENT. This corporation will not, by amendment of its
-------------
Articles of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by this
corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Section 4 and in the taking of all such action as may
be necessary or appropriate in order to protect the rights of the holders of
Series N Preferred Stock against impairment.
(g) NO FRACTIONAL SHARES. No fractional shares shall be issued
--------------------
upon the conversion of any share or shares of the Series N Preferred Stock, and
the number of shares of Common Stock to be issued shall be rounded to the
nearest whole share. Whether or not fractional shares are issuable upon such
conversion shall be determined on the basis of the total number of shares of
Series N Preferred Stock the holder is at the time converting into Common Stock
and the number of shares of Common Stock issuable upon such aggregate
conversion.
5. VOTING RIGHTS. The Series N Preferred Stock shall have no rights
-------------
with respect to the election of directors or any other matter to be put before
the shareholders of the corporation.
6. STATUS OF CONVERTED STOCK. In the event any shares of Series N
-------------------------
Preferred Stock shall be converted pursuant to Section 4 hereof, the shares so
converted shall be canceled and shall not be issuable by the corporation. The
Articles of Incorporation of this corporation shall be appropriately amended to
effect the corresponding reduction in the corporation's authorized capital
stock.
(D) COMMON STOCK.
------------
1. DIVIDEND RIGHTS. Subject to the prior rights of holders of all
---------------
classes of stock at the time outstanding having prior rights as to dividends,
the holders of the Common Stock shall be entitled to receive, when and as
declared by the Board of Directors, out of any assets of the corporation legally
available therefor, such dividends as may be declared from time to time by the
Board of Directors.
2. LIQUIDATION RIGHTS. Upon the liquidation, dissolution or winding
------------------
up of the corporation, the assets of the corporation shall be distributed as
provided in Section 2 of Division (B) and Section 2 of Division (C) of this
Article III.
3. REDEMPTION. The Common Stock is not redeemable.
----------
4. VOTING RIGHTS. The holder of each share of Common Stock shall
-------------
have the right to one vote, and shall be entitled to notice of any shareholders'
meeting in accordance with the bylaws of this corporation, and shall be entitled
to vote upon such matters and in such manner as may be provided by law and these
Amended and Restated Articles of Incorporation.
-17-
<PAGE>
ARTICLE IV
(A) The liability of the directors of this corporation for monetary
damages shall be eliminated to the fullest extent permissible under California
law.
(B) This corporation is authorized to provide indemnification of agents
(as defined in Section 317 of the California Corporations Code) to the fullest
extent permissible under California law.
(C) Any amendment or repeal or modification of the foregoing provisions of
this Article IV by the shareholders of the corporation shall not adversely
affect any right or protection of a director of the corporation existing at the
time of such repeal or modification."
* * *
-18-
<PAGE>
3. The foregoing amendment has been approved by the Board of Directors of
this corporation.
4. The foregoing amendment was approved by the holders of the requisite
number of shares of this corporation in accordance with Sections 902 and 903 of
the California General Corporation Law. The total number of outstanding shares
entitled to vote with respect to the foregoing amendment was 5,171,955 shares of
Common Stock, 1,452,613 shares of Series A Preferred Stock, 560,000 shares of
Series B Preferred Stock, 7,754,847 shares of Series C Preferred Stock,
5,476,192 shares of Series D Preferred Stock and no shares of Series N Preferred
Stock. The number of shares voting in favor of the foregoing amendment equaled
or exceeded the vote required. The percentage vote required was (i) a majority
of the outstanding shares of Common Stock voting separately as a class, (ii) a
majority of the outstanding shares of Preferred Stock voting separately as a
class, (iii) a majority of the outstanding shares of Series N Preferred Stock
voting separately as a class and (iv) a majority of the Common Stock and
Preferred Stock voting together as a class.
The undersigned certify under penalty of perjury under the laws of the
State of California that the matters set forth in this Certificate are true and
correct of our own knowledge.
Executed at San Francisco, California, on March __, 1999.
______________________________________
West Shell, III, President
______________________________________
John F. Longinotti, Asst. Secretary
<PAGE>
EXHIBIT 3.2
BYLAWS
OF
NETCENTIVES INC.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I CORPORATE OFFICES............................................... 1
1.1 Principal Office................................................ 1
1.2 Other Offices................................................... 1
ARTICLE II MEETINGS OF SHAREHOLDERS........................................ 1
2.1 Place Of Meetings............................................... 1
2.2 Annual Meeting.................................................. 1
2.3 Special Meeting................................................. 2
2.4 Notice Of Shareholders' Meetings................................ 2
2.5 Manner Of Giving Notice; Affidavit Of Notice.................... 3
2.6 Quorum.......................................................... 3
2.7 Adjourned Meeting; Notice....................................... 3
2.8 Voting.......................................................... 4
2.9 Validation Of Meetings; Waiver Of Notice; Consent............... 5
2.10 Shareholder Action By Written Consent Without A Meeting......... 5
2.11 Record Date For Shareholder Notice, Voting, Or Giving Consents.. 6
2.12 Proxies......................................................... 6
2.13 Inspectors Of Election.......................................... 7
ARTICLE III DIRECTORS....................................................... 8
3.1 Powers.......................................................... 8
3.2 Number Of Directors............................................. 8
3.3 Election And Term Of Office Of Directors........................ 8
3.4 Resignation And Vacancies....................................... 8
3.5 Place Of Meetings; Meetings By Telephone........................ 9
3.6 Regular Meetings................................................ 9
3.7 Special Meetings; Notice........................................ 9
3.8 Quorum.......................................................... 10
3.9 Waiver Of Notice................................................ 10
3.10 Adjournment..................................................... 10
3.11 Notice Of Adjournment........................................... 10
3.12 Board Action By Written Consent Without A Meeting............... 11
3.13 Fees And Compensation Of Directors.............................. 11
3.14 Approval Of Loans To Officers................................... 11
ARTICLE IV COMMITTEES...................................................... 11
4.1 Committees Of Directors......................................... 11
4.2 Meetings And Action Of Committees............................... 12
ARTICLE V OFFICERS........................................................ 12
5.1 Officers........................................................ 12
5.2 Election Of Officers............................................ 13
5.3 Subordinate Officers............................................ 13
</TABLE>
<PAGE>
<TABLE>
<S> <C>
5.4 Removal And Resignation Of Officers............................. 13
5.5 Vacancies In Offices............................................ 13
5.6 Chairman Of The Board........................................... 13
5.7 President....................................................... 13
5.8 Vice Presidents................................................. 14
5.9 Secretary....................................................... 14
5.10 Chief Financial Officer......................................... 14
ARTICLE VI INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND
OTHER AGENTS.................................................... 15
6.1 Indemnification Of Directors And Officers....................... 15
6.2 Indemnification Of Others....................................... 15
6.3 Payment Of Expenses In Advance.................................. 15
6.4 Indemnity Not Exclusive......................................... 16
6.5 Insurance Indemnification....................................... 16
6.6 Conflicts....................................................... 16
ARTICLE VII RECORDS AND REPORTS............................................. 16
7.1 Maintenance And Inspection Of Share Register.................... 16
7.2 Maintenance And Inspection Of Bylaws............................ 17
7.3 Maintenance And Inspection Of Other Corporate Records........... 17
7.4 Inspection By Directors......................................... 18
7.5 Annual Report To Shareholders; Waiver........................... 18
7.6 Financial Statements............................................ 18
7.7 Representation Of Shares Of Other Corporations.................. 19
ARTICLE VIII GENERAL MATTERS................................................. 19
8.1 Record Date For Purposes Other Than Notice And Voting........... 19
8.2 Checks; Drafts; Evidences Of Indebtedness....................... 19
8.3 Corporate Contracts And Instruments; How Executed.............. 20
8.4 Certificates For Shares......................................... 20
8.5 Lost Certificates............................................... 20
8.6 Construction; Definitions....................................... 20
ARTICLE IX AMENDMENTS...................................................... 21
9.1 Amendment By Shareholders....................................... 21
9.2 Amendment By Directors.......................................... 21
</TABLE>
(ii)
<PAGE>
CERTIFICATE OF AMENDMENT OF BYLAWS
The undersigned, Elias J. Blawie, hereby certifies that:
1. He is the duly elected and incumbent Assistant Secretary of Netcentives
Inc. (the "Company").
2. By approval of the Board of Directors at a meeting held on November 20,
1996, the second sentence of Article III, Section 3.2 of the Bylaws of the
Company are amended, effective November 20, 1996, to read as follows:
"The exact number of directors shall be five (5) until changed,
within the limits specified above, by a bylaw amending this Section
3.2, duly adopted by the Board of Directors or by the
shareholders."
3. The matters set forth in this certificate are true and correct of my
own knowledge.
Date: November 20, 1996
/s/ Elias J. Blawie
----------------------------------
Elias J. Blawie, Assistant Secretary
(iii)
<PAGE>
CERTIFICATE OF AMENDMENT OF BYLAWS
The undersigned, Craig W. Johnson, hereby certifies that:
1. He is the duly elected and incumbent Secretary of Netcentives Inc. (the
"Company").
2. By approval of the Board of Directors at a meeting held on December 12,
1998, the second sentence of Article III, Section 3.2 of the Bylaws of the
Company are amended, effective December 12, 1998, to read as follows:
"The number of directors shall be not less than five (5) nor more
than nine (9). The exact number of directors shall be seven (7)
until changed, within the limits specified above, by a bylaw
amending this Section 3.2, duly adopted by the Board of Directors
or by the shareholders."
3. The matters set forth in this certificate are true and correct of my
own knowledge.
Date: December 12, 1998
/s/ Craig W. Johnson
------------------------------
Craig W. Johnson, Secretary
(iv)
<PAGE>
BYLAWS
------
OF
NETCENTIVES INC.
ARTICLE I
CORPORATE OFFICES
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1.1 PRINCIPAL OFFICE.
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The Board of Directors shall fix the location of the principal
executive office of the corporation at any place within or outside the State of
California. If the principal executive office is located outside such state and
the corporation has one or more business offices in such state, then the Board
of Directors shall fix and designate a principal business office in the State of
California.
1.2 OTHER OFFICES.
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The Board of Directors may at any time establish branch or subordinate
offices at any place or places where the corporation is qualified to do
business.
ARTICLE II
MEETINGS OF SHAREHOLDERS
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2.1 PLACE OF MEETINGS.
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Meetings of shareholders shall be held at any place within or outside
the State of California designated by the Board of Directors. In the absence of
any such designation, shareholders' meetings shall be held at the principal
executive office of the corporation.
2.2 ANNUAL MEETING.
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The annual meeting of shareholders shall be held each year on a date
and at a time designated by the Board of Directors. In the absence of such
designation, the annual meeting of shareholders shall be held on the 15th day of
May. However, if such day falls on a legal holiday, then the meeting shall be
held at the same time and place on the next succeeding full business day. At
the meeting, directors shall be elected, and any other proper business may be
transacted.
2.3 SPECIAL MEETING.
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A special meeting of the shareholders may be called at any time by the
Board of Directors, or by the chairman of the board, or by the president, or by
one or more shareholders
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holding shares in the aggregate entitled to cast not less than ten percent (10%)
of the votes at that meeting.
If a special meeting is called by any person or persons other than the
Board of Directors or the president or the chairman of the board, then the
request shall be in writing, specifying the time of such meeting and the general
nature of the business proposed to be transacted, and shall be delivered
personally or sent by registered mail or by telegraphic or other facsimile
transmission to the chairman of the board, the president, any vice president or
the secretary of the corporation. The officer receiving the request shall cause
notice to be promptly given to the shareholders entitled to vote, in accordance
with the provisions of Sections 2.4 and 2.5 of these bylaws, that a meeting will
be held at the time requested by the person or persons calling the meeting, so
long as that time is not less than thirty-five (35) nor more than sixty (60)
days after the receipt of the request. If the notice is not given within twenty
(20) days after receipt of the request, then the person or persons requesting
the meeting may give the notice. Nothing contained in this paragraph of this
Section 2.3 shall be construed as limiting, fixing or affecting the time when a
meeting of shareholders called by action of the Board of Directors may be held.
2.4 NOTICE OF SHAREHOLDERS' MEETINGS.
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All notices of meetings of shareholders shall be sent or otherwise
given in accordance with Section 2.5 of these bylaws not less than ten (10) (or,
if sent by third-class mail pursuant to Section 2.5 of these bylaws, thirty
(30)) nor more than sixty (60) days before the date of the meeting. The notice
shall specify the place, date, and hour of the meeting and (i) in the case of a
special meeting, the general nature of the business to be transacted (no
business other than that specified in the notice may be transacted) or (ii) in
the case of the annual meeting, those matters which the Board of Directors, at
the time of giving the notice, intends to present for action by the shareholders
(but subject to the provisions of the next paragraph of this Section 2.4 any
proper matter may be presented at the meeting for such action). The notice of
any meeting at which directors are to be elected shall include the name of any
nominee or nominees who, at the time of the notice, the board intends to present
for election.
If action is proposed to be taken at any meeting for approval of (i) a
contract or transaction in which a director has a direct or indirect financial
interest, pursuant to Section 310 of the Corporations Code of California (the
"Code"), (ii) an amendment of the articles of incorporation, pursuant to Section
902 of the Code, (iii) a reorganization of the corporation, pursuant to Section
1201 of the Code, (iv) a voluntary dissolution of the corporation, pursuant to
Section 1900 of the Code, or (v) a distribution in dissolution other than in
accordance with the rights of outstanding preferred shares, pursuant to Section
2007 of the Code, then the notice shall also state the general nature of that
proposal.
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE.
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Written notice of any meeting of shareholders shall be given either
(i) personally or (ii) by first-class mail or (iii) by third-class mail but only
if the corporation has outstanding shares held of record by five hundred (500)
or more persons (determined as provided in
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Section 605 of the Code) on the record date for the shareholders' meeting, or
(iv) by telegraphic or other written communication. Notices not personally
delivered shall be sent charges prepaid and shall be addressed to the
shareholder at the address of that shareholder appearing on the books of the
corporation or given by the shareholder to the corporation for the purpose of
notice. If no such address appears on the corporation's books or is given,
notice shall be deemed to have been given if sent to that shareholder by mail or
telegraphic or other written communication to the corporation's principal
executive office, or if published at least once in a newspaper of general
circulation in the county where that office is located. Notice shall be deemed
to have been given at the time when delivered personally or deposited in the
mail or sent by telegram or other means of written communication.
If any notice addressed to a shareholder at the address of that
shareholder appearing on the books of the corporation is returned to the
corporation by the United States Postal Service marked to indicate that the
United States Postal Service is unable to deliver the notice to the shareholder
at that address, then all future notices or reports shall be deemed to have been
duly given without further mailing if the same shall be available to the
shareholder on written demand of the shareholder at the principal executive
office of the corporation for a period of one (1) year from the date of the
giving of the notice.
An affidavit of the mailing or other means of giving any notice of any
shareholders' meeting, executed by the secretary, assistant secretary or any
transfer agent of the corporation giving the notice, shall be prima facie
evidence of the giving of such notice.
2.6 QUORUM.
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The presence in person or by proxy of the holders of a majority of the
shares entitled to vote thereat constitutes a quorum for the transaction of
business at all meetings of shareholders. The shareholders present at a duly
called or held meeting at which a quorum is present may continue to do business
until adjournment, notwithstanding the withdrawal of enough shareholders to
leave less than a quorum, if any action taken (other than adjournment) is
approved by at least a majority of the shares required to constitute a quorum.
2.7 ADJOURNED MEETING; NOTICE.
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Any shareholders' meeting, annual or special, whether or not a quorum
is present, may be adjourned from time to time by the vote of the majority of
the shares represented at that meeting, either in person or by proxy. In the
absence of a quorum, no other business may be transacted at that meeting except
as provided in Section 2.6 of these bylaws.
When any meeting of shareholders, either annual or special, is
adjourned to another time or place, notice need not be given of the adjourned
meeting if the time and place are announced at the meeting at which the
adjournment is taken. However, if a new record date for the adjourned meeting
is fixed or if the adjournment is for more than forty-five (45) days from the
date set for the original meeting, then notice of the adjourned meeting shall be
given. Notice of any such adjourned meeting shall be given to each shareholder
of record entitled to vote at the adjourned meeting in accordance with the
provisions of Sections 2.4 and 2.5 of these bylaws. At
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any adjourned meeting the corporation may transact any business which might have
been transacted at the original meeting.
2.8 VOTING.
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The shareholders entitled to vote at any meeting of shareholders shall
be determined in accordance with the provisions of Section 2.11 of these bylaws,
subject to the provisions of Sections 702 through 704 of the Code (relating to
voting shares held by a fiduciary, in the name of a corporation or in joint
ownership).
The shareholders' vote may be by voice vote or by ballot; provided,
however, that any election for directors must be by ballot if demanded by any
shareholder at the meeting and before the voting has begun.
Except as provided in the last paragraph of this Section 2.8, or as
may be otherwise provided in the articles of incorporation, each outstanding
share, regardless of class, shall be entitled to one vote on each matter
submitted to a vote of the shareholders. Any shareholder entitled to vote on
any matter may vote part of the shares in favor of the proposal and refrain from
voting the remaining shares or, except when the matter is the election of
directors, may vote them against the proposal; but, if the shareholder fails to
specify the number of shares which the shareholder is voting affirmatively, it
will be conclusively presumed that the shareholder's approving vote is with
respect to all shares which the shareholder is entitled to vote.
If a quorum is present, the affirmative vote of the majority of the
shares represented and voting at a duly held meeting (which shares voting
affirmatively also constitute at least a majority of the required quorum) shall
be the act of the shareholders, unless the vote of a greater number or a vote by
classes is required by the Code or by the articles of incorporation.
At a shareholders' meeting at which directors are to be elected, a
shareholder shall be entitled to cumulate votes (i.e., cast for any candidate a
number of votes greater than the number of votes which such shareholder normally
is entitled to cast) if the candidates' names have been placed in nomination
prior to commencement of the voting and the shareholder has given notice prior
to commencement of the voting of the shareholder's intention to cumulate votes.
If any shareholder has given such a notice, then every shareholder entitled to
vote may cumulate votes for candidates in nomination either (i) by giving one
candidate a number of votes equal to the number of directors to be elected
multiplied by the number of votes to which that shareholder's shares are
normally entitled or (ii) by distributing the shareholder's votes on the same
principle among any or all of the candidates, as the shareholder thinks fit.
The candidates receiving the highest number of affirmative votes, up to the
number of directors to be elected, shall be elected; votes against any candidate
and votes withheld shall have no legal effect.
2.9 VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT.
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The transactions of any meeting of shareholders, either annual or
special, however called and noticed, and wherever held, shall be as valid as
though taken at a meeting duly held
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after regular call and notice, if a quorum is present either in person or by
proxy, and if, either before or after the meeting, each person entitled to vote,
who was not present in person or by proxy, signs a written waiver of notice or a
consent to the holding of the meeting or an approval of the minutes thereof. The
waiver of notice or consent or approval need not specify either the business to
be transacted or the purpose of any annual or special meeting of shareholders,
except that if action is taken or proposed to be taken for approval of any of
those matters specified in the second paragraph of Section 2.4 of these bylaws,
the waiver of notice or consent or approval shall state the general nature of
the proposal. All such waivers, consents, and approvals shall be filed with the
corporate records or made a part of the minutes of the meeting.
Attendance by a person at a meeting shall also constitute a waiver of
notice of and presence at that meeting, except when the person objects at the
beginning of the meeting to the transaction of any business because the meeting
is not lawfully called or convened. Attendance at a meeting is not a waiver of
any right to object to the consideration of matters required by the Code to be
included in the notice of the meeting but not so included, if that objection is
expressly made at the meeting.
2.10 SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING.
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Any action which may be taken at any annual or special meeting of
shareholders may be taken without a meeting and without prior notice, if a
consent in writing, setting forth the action so taken, is signed by the holders
of outstanding shares having not less than the minimum number of votes that
would be necessary to authorize or take that action at a meeting at which all
shares entitled to vote on that action were present and voted.
In the case of election of directors, such a consent shall be
effective only if signed by the holders of all outstanding shares entitled to
vote for the election of directors. However, a director may be elected at any
time to fill any vacancy on the Board of Directors, provided that it was not
created by removal of a director and that it has not been filled by the
directors, by the written consent of the holders of a majority of the
outstanding shares entitled to vote for the election of directors.
All such consents shall be maintained in the corporate records. Any
shareholder giving a written consent, or the shareholder's proxy holders, or a
transferee of the shares, or a personal representative of the shareholder, or
their respective proxy holders, may revoke the consent by a writing received by
the secretary of the corporation before written consents of the number of shares
required to authorize the proposed action have been filed with the secretary.
If the consents of all shareholders entitled to vote have not been
solicited in writing and if the unanimous written consent of all such
shareholders has not been received, then the secretary shall give prompt notice
of the corporate action approved by the shareholders without a meeting. Such
notice shall be given to those shareholders entitled to vote who have not
consented in writing and shall be given in the manner specified in Section 2.5
of these bylaws. In the case of approval of (i) a contract or transaction in
which a director has a direct or indirect financial interest, pursuant to
Section 310 of the Code, (ii) indemnification of a corporate "agent," pursuant
to Section 317 of the Code, (iii) a reorganization of the corporation, pursuant
to
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Section 1201 of the Code, or (iv) a distribution in dissolution other than in
accordance with the rights of outstanding preferred shares, pursuant to Section
2007 of the Code, the notice shall be given at least ten (10) days before the
consummation of any action authorized by that approval.
2.11 RECORD DATE FOR SHAREHOLDER NOTICE, VOTING, OR GIVING CONSENTS.
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For purposes of determining the shareholders entitled to notice of any
meeting or to vote thereat or entitled to give consent to corporate action
without a meeting, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty (60) days nor less than ten (10) days before
the date of any such meeting nor more than sixty (60) days before any such
action without a meeting, and in such event only shareholders of record on the
date so fixed are entitled to notice and to vote or to give consents, as the
case may be, notwithstanding any transfer of any shares on the books of the
corporation after the record date, except as otherwise provided in the Code.
If the Board of Directors does not so fix a record date:
(a) the record date for determining shareholders entitled to notice
of or to vote at a meeting of shareholders shall be at the close of business on
the business day next preceding the day on which notice is given or, if notice
is waived, at the close of business on the business day next preceding the day
on which the meeting is held; and
(b) the record date for determining shareholders entitled to give
consent to corporate action in writing without a meeting, (i) when no prior
action by the board has been taken, shall be the day on which the first written
consent is given, or (ii) when prior action by the board has been taken, shall
be at the close of business on the day on which the board adopts the resolution
relating to that action, or the sixtieth (60th) day before the date of such
other action, whichever is later.
The record date for any other purpose shall be as provided in Article
VIII of these bylaws.
2.12 PROXIES.
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Every person entitled to vote for directors, or on any other matter,
shall have the right to do so either in person or by one or more agents
authorized by a written proxy signed by the person and filed with the secretary
of the corporation. A proxy shall be deemed signed if the shareholder's name is
placed on the proxy (whether by manual signature, typewriting, telegraphic
transmission or otherwise) by the shareholder or the shareholder's attorney-in-
fact. A validly executed proxy which does not state that it is irrevocable
shall continue in full force and effect unless (i) the person who executed the
proxy revokes it prior to the time of voting by delivering a writing to the
corporation stating that the proxy is revoked or by executing a subsequent proxy
and presenting it to the meeting or by voting in person at the meeting, or (ii)
written notice of the death or incapacity of the maker of that proxy is received
by the corporation before the vote pursuant to that proxy is counted; provided,
however, that no proxy shall be valid after the expiration of eleven (11) months
from the date of the proxy, unless otherwise provided in the proxy.
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The dates contained on the forms of proxy presumptively determine the order of
execution, regardless of the postmark dates on the envelopes in which they are
mailed. The revocability of a proxy that states on its face that it is
irrevocable shall be governed by the provisions of Sections 705(e) and 705(f) of
the Code.
2.13 INSPECTORS OF ELECTION.
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Before any meeting of shareholders, the Board of Directors may appoint
an inspector or inspectors of election to act at the meeting or its adjournment.
If no inspector of election is so appointed, then the chairman of the meeting
may, and on the request of any shareholder or a shareholder's proxy shall,
appoint an inspector or inspectors of election to act at the meeting. The
number of inspectors shall be either one (l) or three (3). If inspectors are
appointed at a meeting pursuant to the request of one (l) or more shareholders
or proxies, then the holders of a majority of shares or their proxies present at
the meeting shall determine whether one (l) or three (3) inspectors are to be
appointed. If any person appointed as inspector fails to appear or fails or
refuses to act, then the chairman of the meeting may, and upon the request of
any shareholder or a shareholder's proxy shall, appoint a person to fill that
vacancy.
Such inspectors shall:
(a) determine the number of shares outstanding and the voting power
of each, the number of shares represented at the meeting, the existence of a
quorum, and the authenticity, validity, and effect of proxies;
(b) receive votes, ballots or consents;
(c) hear and determine all challenges and questions in any way
arising in connection with the right to vote;
(d) count and tabulate all votes or consents;
(e) determine when the polls shall close;
(f) determine the result; and
(g) do any other acts that may be proper to conduct the election or
vote with fairness to all shareholders.
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ARTICLE III
DIRECTORS
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3.1 POWERS.
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Subject to the provisions of the Code and any limitations in the
articles of incorporation and these bylaws relating to actions required to be
approved by the shareholders or by the outstanding shares, the business and
affairs of the corporation shall be managed and all corporate powers shall be
exercised by or under the direction of the Board of Directors.
3.2 NUMBER OF DIRECTORS.
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The number of directors of the corporation shall be not less than
three (3) nor more than five (5). The exact number of directors shall be three
(3) until changed, within the limits specified above, by a bylaw amending this
Section 3.2, duly adopted by the Board of Directors or by the shareholders. The
indefinite number of directors may be changed, or a definite number may be fixed
without provision for an indefinite number, by a duly adopted amendment to the
articles of incorporation or by an amendment to this bylaw duly adopted by the
vote or written consent of holders of a majority of the outstanding shares
entitled to vote; provided, however, that an amendment reducing the fixed number
or the minimum number of directors to a number less than five (5) cannot be
adopted if the votes cast against its adoption at a meeting, or the shares not
consenting in the case of an action by written consent, are equal to more than
sixteen and two-thirds percent (16-2/3%) of the outstanding shares entitled to
vote thereon. No amendment may change the stated maximum number of authorized
directors to a number greater than two (2) times the stated minimum number of
directors minus one (1).
No reduction of the authorized number of directors shall have the
effect of removing any director before that director's term of office expires.
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS.
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Directors shall be elected at each annual meeting of shareholders to
hold office until the next annual meeting. Each director, including a director
elected to fill a vacancy, shall hold office until the expiration of the term
for which elected and until a successor has been elected and qualified.
3.4 RESIGNATION AND VACANCIES.
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Any director may resign effective on giving written notice to the
chairman of the board, the president, the secretary or the Board of Directors,
unless the notice specifies a later time for that resignation to become
effective. If the resignation of a director is effective at a future time, the
Board of Directors may elect a successor to take office when the resignation
becomes effective.
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Vacancies in the Board of Directors may be filled by a majority of the
remaining directors, even if less than a quorum, or by a sole remaining
director; however, a vacancy created by the removal of a director by the vote or
written consent of the shareholders or by court order may be filled only by the
affirmative vote of a majority of the shares represented and voting at a duly
held meeting at which a quorum is present (which shares voting affirmatively
also constitute a majority of the required quorum), or by the unanimous written
consent of all shares entitled to vote thereon. Each director so elected shall
hold office until the next annual meeting of the shareholders and until a
successor has been elected and qualified.
A vacancy or vacancies in the Board of Directors shall be deemed to
exist (i) in the event of the death, resignation or removal of any director,
(ii) if the Board of Directors by resolution declares vacant the office of a
director who has been declared of unsound mind by an order of court or convicted
of a felony, (iii) if the authorized number of directors is increased, or (iv)
if the shareholders fail, at any meeting of shareholders at which any director
or directors are elected, to elect the number of directors to be elected at that
meeting.
The shareholders may elect a director or directors at any time to fill
any vacancy or vacancies not filled by the directors, but any such election
other than to fill a vacancy created by removal, if by written consent, shall
require the consent of the holders of a majority of the outstanding shares
entitled to vote thereon.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE.
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Regular meetings of the Board of Directors may be held at any place
within or outside the State of California that has been designated from time to
time by resolution of the board. In the absence of such a designation, regular
meetings shall be held at the principal executive office of the corporation.
Special meetings of the board may be held at any place within or outside the
State of California that has been designated in the notice of the meeting or, if
not stated in the notice or if there is no notice, at the principal executive
office of the corporation.
Any meeting, regular or special, may be held by conference telephone
or similar communication equipment, so long as all directors participating in
the meeting can hear one another; and all such directors shall be deemed to be
present in person at the meeting.
3.6 REGULAR MEETINGS.
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Regular meetings of the Board of Directors may be held without notice
if the times of such meetings are fixed by the Board of Directors.
3.7 SPECIAL MEETINGS; NOTICE.
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Special meetings of the Board of Directors for any purpose or purposes
may be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two directors.
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Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's address
as it is shown on the records of the corporation. If the notice is mailed, it
shall be deposited in the United States mail at least four (4) days before the
time of the holding of the meeting. If the notice is delivered personally or by
telephone or telegram, it shall be delivered personally or by telephone or to
the telegraph company at least forty-eight (48) hours before the time of the
holding of the meeting. Any oral notice given personally or by telephone may be
communicated either to the director or to a person at the office of the director
who the person giving the notice has reason to believe will promptly communicate
it to the director. The notice need not specify the purpose or the place of the
meeting, if the meeting is to be held at the principal executive office of the
corporation.
3.8 QUORUM.
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A majority of the authorized number of directors shall constitute a
quorum for the transaction of business, except to adjourn as provided in Section
3.10 of these bylaws. Every act or decision done or made by a majority of the
directors present at a duly held meeting at which a quorum is present shall be
regarded as the act of the Board of Directors, subject to the provisions of
Section 310 of the Code (as to approval of contracts or transactions in which a
director has a direct or indirect material financial interest), Section 311 of
the Code (as to appointment of committees), Section 317(e) of the Code (as to
indemnification of directors), the articles of incorporation, and other
applicable law.
A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the required quorum for that
meeting.
3.9 WAIVER OF NOTICE.
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Notice of a meeting need not be given to any director (i) who signs a
waiver of notice or a consent to holding the meeting or an approval of the
minutes thereof, whether before or after the meeting, or (ii) who attends the
meeting without protesting, prior thereto or at its commencement, the lack of
notice to such director. All such waivers, consents, and approvals shall be
filed with the corporate records or made part of the minutes of the meeting. A
waiver of notice need not specify the purpose of any regular or special meeting
of the Board of Directors.
3.10 ADJOURNMENT.
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A majority of the directors present, whether or not constituting a
quorum, may adjourn any meeting to another time and place.
3.11 NOTICE OF ADJOURNMENT.
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Notice of the time and place of holding an adjourned meeting need not
be given unless the meeting is adjourned for more than twenty-four (24) hours.
If the meeting is adjourned for more than twenty-four (24) hours, then notice of
the time and place of the
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adjourned meeting shall be given before the adjourned meeting takes place, in
the manner specified in Section 3.7 of these bylaws, to the directors who were
not present at the time of the adjournment.
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING.
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Any action required or permitted to be taken by the Board of Directors
may be taken without a meeting, provided that all members of the board
individually or collectively consent in writing to that action. Such action by
written consent shall have the same force and effect as a unanimous vote of the
Board of Directors. Such written consent and any counterparts thereof shall be
filed with the minutes of the proceedings of the board.
3.13 FEES AND COMPENSATION OF DIRECTORS.
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Directors and members of committees may receive such compensation, if
any, for their services and such reimbursement of expenses as may be fixed or
determined by resolution of the Board of Directors. This Section 3.13 shall not
be construed to preclude any director from serving the corporation in any other
capacity as an officer, agent, employee or otherwise and receiving compensation
for those services.
3.14 APPROVAL OF LOANS TO OFFICERS.
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The corporation may, upon the approval of the Board of Directors
alone, make loans of money or property to, or guarantee the obligations of, any
officer of the corporation or its parent or subsidiary, whether or not a
director, or adopt an employee benefit plan or plans authorizing such loans or
guaranties provided that (i) the Board of Directors determines that such a loan
or guaranty or plan may reasonably be expected to benefit the corporation, (ii)
the corporation has outstanding shares held of record by 100 or more persons
(determined as provided in Section 605 of the Code) on the date of approval by
the Board of Directors, and (iii) the approval of the Board of Directors is by a
vote sufficient without counting the vote of any interested director or
directors.
ARTICLE IV
COMMITTEES
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4.1 COMMITTEES OF DIRECTORS.
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The Board of Directors may, by resolution adopted by a majority of the
authorized number of directors, designate one (1) or more committees, each
consisting of two or more directors, to serve at the pleasure of the board. The
board may designate one (1) or more directors as alternate members of any
committee, who may replace any absent member at any meeting of the committee.
The appointment of members or alternate members of a committee requires the vote
of a majority of the authorized number of directors. Any committee, to the
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extent provided in the resolution of the board, shall have all the authority of
the board, except with respect to:
(a) the approval of any action which, under the Code, also requires
shareholders' approval or approval of the outstanding shares;
(b) the filling of vacancies on the Board of Directors or in any
committee;
(c) the fixing of compensation of the directors for serving on the
board or any committee;
(d) the amendment or repeal of these bylaws or the adoption of new
bylaws;
(e) the amendment or repeal of any resolution of the Board of
Directors which by its express terms is not so amendable or repealable;
(f) a distribution to the shareholders of the corporation, except at a
rate or in a periodic amount or within a price range determined by the Board of
Directors; or
(g) the appointment of any other committees of the Board of Directors
or the members of such committees.
4.2 MEETINGS AND ACTION OF COMMITTEES.
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Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the provisions of Article III of these bylaws, Section
3.5 (place of meetings), Section 3.6 (regular meetings), Section 3.7 (special
meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice),
Section 3.10 (adjournment), Section 3.11 (notice of adjournment), and Section
3.12 (action without meeting), with such changes in the context of those bylaws
as are necessary to substitute the committee and its members for the Board of
Directors and its members; provided, however, that the time of regular meetings
of committees may be determined either by resolution of the Board of Directors
or by resolution of the committee, that special meetings of committees may also
be called by resolution of the Board of Directors, and that notice of special
meetings of committees shall also be given to all alternate members, who shall
have the right to attend all meetings of the committee. The Board of Directors
may adopt rules for the government of any committee not inconsistent with the
provisions of these bylaws.
ARTICLE V
OFFICERS
--------
5.1 OFFICERS.
--------
The officers of the corporation shall be a president, a secretary, and
a chief financial officer. The corporation may also have, at the discretion of
the Board of Directors, a chairman of the board, one or more vice presidents,
one or more assistant secretaries, one or
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<PAGE>
more assistant treasurers, and such other officers as may be appointed in
accordance with the provisions of Section 5.3 of these bylaws. Any number of
offices may be held by the same person.
5.2 ELECTION OF OFFICERS.
--------------------
The officers of the corporation, except such officers as may be
appointed in accordance with the provisions of Section 5.3 or Section 5.5 of
these bylaws, shall be chosen by the board, subject to the rights, if any, of an
officer under any contract of employment. Any contract of employment with an
officer shall be unenforceable unless in writing and specifically authorized by
the Board of Directors.
5.3 SUBORDINATE OFFICERS.
--------------------
The Board of Directors may appoint, or may empower the president to
appoint, such other officers as the business of the corporation may require,
each of whom shall hold office for such period, have such authority, and perform
such duties as are provided in these bylaws or as the Board of Directors may
from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS.
-----------------------------------
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by the
Board of Directors at any regular or special meeting of the board or, except in
case of an officer chosen by the Board of Directors, by any officer upon whom
such power of removal may be conferred by the Board of Directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
5.5 VACANCIES IN OFFICES.
--------------------
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed in
these bylaws for regular appointments to that office.
5.6 CHAIRMAN OF THE BOARD.
---------------------
The chairman of the board, if such an officer is elected, shall, if
present, preside at meetings of the Board of Directors and exercise and perform
such other powers and duties as may from time to time be assigned to him by the
Board of Directors or as may be prescribed by these bylaws. If there is no
president, then the chairman of the board shall also be the chief executive
officer of the corporation and shall have the powers and duties prescribed in
Section 5.7 of these bylaws.
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<PAGE>
5.7 PRESIDENT.
---------
Subject to such supervisory powers, if any, as may be given by the
Board of Directors to the chairman of the board, if there is such an officer,
the president shall be the chief executive officer of the corporation and shall,
subject to the control of the Board of Directors, have general supervision,
direction, and control of the business and the officers of the corporation. He
or She shall preside at all meetings of the shareholders and, in the absence or
nonexistence of a chairman of the board, at all meetings of the Board of
Directors. The President shall have the general powers and duties of management
usually vested in the office of president of a corporation, and shall have such
other powers and duties as may be prescribed by the Board of Directors or these
bylaws.
5.8 VICE PRESIDENTS.
---------------
In the absence or disability of the president, the vice presidents, if
any, in order of their rank as fixed by the Board of Directors or, if not
ranked, a vice president designated by the Board of Directors, shall perform all
the duties of the president and when so acting shall have all the powers of, and
be subject to all the restrictions upon, the president. The vice presidents
shall have such other powers and perform such other duties as from time to time
may be prescribed for them respectively by the Board of Directors, these bylaws,
the president or the chairman of the board.
5.9 SECRETARY.
---------
The secretary shall keep or cause to be kept, at the principal
executive office of the corporation or such other place as the Board of
Directors may direct, a book of minutes of all meetings and actions of
directors, committees of directors and shareholders. The minutes shall show the
time and place of each meeting, whether regular or special (and, if special, how
authorized and the notice given), the names of those present at directors'
meetings or committee meetings, the number of shares present or represented at
shareholders' meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal
executive office of the corporation or at the office of the corporation's
transfer agent or registrar, as determined by resolution of the Board of
Directors, a share register, or a duplicate share register, showing the names of
all shareholders and their addresses, the number and classes of shares held by
each, the number and date of certificates evidencing such shares, and the number
and date of cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings
of the shareholders and of the Board of Directors required to be given by law or
by these bylaws. He or she shall keep the seal of the corporation, if any, in
safe custody and shall have such other powers and perform such other duties as
may be prescribed by the Board of Directors or by these bylaws.
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<PAGE>
5.10 CHIEF FINANCIAL OFFICER.
-----------------------
The chief financial officer shall keep and maintain, or cause to be
kept and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings, and shares. The books of account shall at all reasonable
times be open to inspection by any director.
The chief financial officer shall deposit all money and other
valuables in the name and to the credit of the corporation with such
depositories as may be designated by the Board of Directors. He or she shall
disburse the funds of the corporation as may be ordered by the Board of
Directors, shall render to the president and directors, whenever they request
it, an account of all of his or her transactions as chief financial officer and
of the financial condition of the corporation, and shall have such other powers
and perform such other duties as may be prescribed by the Board of Directors or
these bylaws.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES,
--------------------------------------------------
AND OTHER AGENTS
----------------
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS.
-----------------------------------------
The corporation shall, to the maximum extent and in the manner
permitted by the Code, indemnify each of its directors and officers against
expenses (as defined in Section 317(a) of the Code), judgments, fines,
settlements, and other amounts actually and reasonably incurred in connection
with any proceeding (as defined in Section 317(a) of the Code), arising by
reason of the fact that such person is or was an agent of the corporation. For
purposes of this Article VI, a "director" or "officer" of the corporation
includes any person (i) who is or was a director or officer of the corporation,
(ii) who is or was serving at the request of the corporation as a director or
officer of another corporation, partnership, joint venture, trust or other
enterprise, or (iii) who was a director or officer of a corporation which was a
predecessor corporation of the corporation or of another enterprise at the
request of such predecessor corporation.
6.2 INDEMNIFICATION OF OTHERS.
-------------------------
The corporation shall have the power, to the extent and in the manner
permitted by the Code, to indemnify each of its employees and agents (other than
directors and officers) against expenses (as defined in Section 317(a) of the
Code), judgments, fines, settlements, and other amounts actually and reasonably
incurred in connection with any proceeding (as defined in Section 317(a) of the
Code), arising by reason of the fact that such person is or was an agent of the
corporation. For purposes of this Article VI, an "employee" or "agent" of the
corporation (other than a director or officer) includes any person (i) who is or
was an employee or agent of the corporation, (ii) who is or was serving at the
request of the corporation as an employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, or (iii) who was
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an employee or agent of a corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation.
6.3 PAYMENT OF EXPENSES IN ADVANCE.
------------------------------
Expenses incurred in defending any civil or criminal action or
proceeding for which indemnification is required pursuant to Section 6.1 or for
which indemnification is permitted pursuant to Section 6.2 following
authorization thereof by the Board of Directors shall be paid by the corporation
in advance of the final disposition of such action or proceeding upon receipt of
an undertaking by or on behalf of the indemnified party to repay such amount if
it shall ultimately be determined that the indemnified party is not entitled to
be indemnified as authorized in this Article VI.
6.4 INDEMNITY NOT EXCLUSIVE.
-----------------------
The indemnification provided by this Article VI shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under any bylaw, agreement, vote of shareholders or disinterested
directors or otherwise, both as to action in an official capacity and as to
action in another capacity while holding such office, to the extent that such
additional rights to indemnification are authorized in the articles of
incorporation.
6.5 INSURANCE INDEMNIFICATION.
-------------------------
The corporation shall have the power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation against any liability asserted against or incurred by
such person in such capacity or arising out of such person's status as such,
whether or not the corporation would have the power to indemnify him against
such liability under the provisions of this Article VI.
6.6 CONFLICTS.
---------
No indemnification or advance shall be made under this Article VI,
except where such indemnification or advance is mandated by law or the order,
judgment or decree of any court of competent jurisdiction, in any circumstance
where it appears:
(1) That it would be inconsistent with a provision of the articles of
incorporation, these bylaws, a resolution of the shareholders or an agreement in
effect at the time of the accrual of the alleged cause of the action asserted in
the proceeding in which the expenses were incurred or other amounts were paid,
which prohibits or otherwise limits indemnification; or
(2) That it would be inconsistent with any condition expressly imposed
by a court in approving a settlement.
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<PAGE>
ARTICLE VII
RECORDS AND REPORTS
-------------------
7.1 MAINTENANCE AND INSPECTION OF SHARE REGISTER.
--------------------------------------------
The corporation shall keep either at its principal executive office or
at the office of its transfer agent or registrar (if either is appointed), as
determined by resolution of the Board of Directors, a record of its shareholders
listing the names and addresses of all shareholders and the number and class of
shares held by each shareholder.
A shareholder or shareholders of the corporation holding at least five
percent (5%) in the aggregate of the outstanding voting shares of the
corporation or who hold at least one percent (1%) of such voting shares and have
filed a Schedule 14A with the Securities and Exchange Commission relating to the
election of directors, may (i) inspect and copy the records of shareholders'
names, addresses, and shareholdings during usual business hours on five (5)
days' prior written demand on the corporation, (ii) obtain from the transfer
agent of the corporation, on written demand and on the tender of such transfer
agent's usual charges for such list, a list of the names and addresses of the
shareholders who are entitled to vote for the election of directors, and their
shareholdings, as of the most recent record date for which that list has been
compiled or as of a date specified by the shareholder after the date of demand.
Such list shall be made available to any such shareholder by the transfer agent
on or before the later of five (5) days after the demand is received or five (5)
days after the date specified in the demand as the date as of which the list is
to be compiled.
The record of shareholders shall also be open to inspection on the
written demand of any shareholder or holder of a voting trust certificate, at
any time during usual business hours, for a purpose reasonably related to the
holder's interests as a shareholder or as the holder of a voting trust
certificate.
Any inspection and copying under this Section 7.1 may be made in
person or by an agent or attorney of the shareholder or holder of a voting trust
certificate making the demand.
7.2 MAINTENANCE AND INSPECTION OF BYLAWS.
------------------------------------
The corporation shall keep at its principal executive office or, if
its principal executive office is not in the State of California, at its
principal business office in California the original or a copy of these bylaws
as amended to date, which bylaws shall be open to inspection by the shareholders
at all reasonable times during office hours. If the principal executive office
of the corporation is outside the State of California and the corporation has no
principal business office in such state, then the secretary shall, upon the
written request of any shareholder, furnish to that shareholder a copy of these
bylaws as amended to date.
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<PAGE>
7.3 MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS.
-----------------------------------------------------
The accounting books and records and the minutes of proceedings of the
shareholders, of the Board of Directors, and of any committee or committees of
the Board of Directors shall be kept at such place or places as are designated
by the Board of Directors or, in absence of such designation, at the principal
executive office of the corporation. The minutes shall be kept in written form,
and the accounting books and records shall be kept either in written form or in
any other form capable of being converted into written form.
The minutes and accounting books and records shall be open to
inspection upon the written demand of any shareholder or holder of a voting
trust certificate, at any reasonable time during usual business hours, for a
purpose reasonably related to the holder's interests as a shareholder or as the
holder of a voting trust certificate. The inspection may be made in person or
by an agent or attorney and shall include the right to copy and make extracts.
Such rights of inspection shall extend to the records of each subsidiary
corporation of the corporation.
7.4 INSPECTION BY DIRECTORS.
-----------------------
Every director shall have the absolute right at any reasonable time to
inspect all books, records, and documents of every kind as well as the physical
properties of the corporation and each of its subsidiary corporations. Such
inspection by a director may be made in person or by an agent or attorney. The
right of inspection includes the right to copy and make extracts of documents.
7.5 ANNUAL REPORT TO SHAREHOLDERS; WAIVER.
-------------------------------------
The Board of Directors shall cause an annual report to be sent to the
shareholders not later than one hundred twenty (120) days after the close of the
fiscal year adopted by the corporation. Such report shall be sent at least
fifteen (15) days (or, if sent by third-class mail, thirty-five (35) days)
before the annual meeting of shareholders to be held during the next fiscal year
and in the manner specified in Section 2.5 of these bylaws for giving notice to
shareholders of the corporation.
The annual report shall contain (i) a balance sheet as of the end of
the fiscal year, (ii) an income statement, (iii) a statement of changes in
financial position for the fiscal year, and (iv) any report of independent
accountants or, if there is no such report, the certificate of an authorized
officer of the corporation that the statements were prepared without audit from
the books and records of the corporation.
The foregoing requirement of an annual report shall be waived so long
as the shares of the corporation are held by fewer than one hundred (100)
holders of record.
7.6 FINANCIAL STATEMENTS.
--------------------
If no annual report for the fiscal year has been sent to shareholders,
then the corporation shall, upon the written request of any shareholder made
more than one hundred
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twenty (120) days after the close of such fiscal year, deliver or mail to the
person making the request, within thirty (30) days thereafter, a copy of a
balance sheet as of the end of such fiscal year and an income statement and
statement of changes in financial position for such fiscal year.
If a shareholder or shareholders holding at least five percent (5%) of
the outstanding shares of any class of stock of the corporation makes a written
request to the corporation for an income statement of the corporation for the
three-month, six-month or nine-month period of the then current fiscal year
ended more than thirty (30) days before the date of the request, and for a
balance sheet of the corporation as of the end of that period, then the chief
financial officer shall cause such statement or statements to be prepared, if
not already prepared, and shall deliver personally or mail such statement or
statements to the person making the request within thirty (30) days after the
receipt of the request. If the corporation has not sent to the shareholders its
annual report for the last fiscal year, the statements referred to in the first
paragraph of this Section 7.6 shall likewise be delivered or mailed to the
shareholder or shareholders within thirty (30) days after the request.
The quarterly income statements and balance sheets referred to in this
section shall be accompanied by the report, if any, of any independent
accountants engaged by the corporation or by the certificate of an authorized
officer of the corporation that the financial statements were prepared without
audit from the books and records of the corporation.
7.7 REPRESENTATION OF SHARES OF OTHER CORPORATIONS.
----------------------------------------------
The chairman of the board, the president, any vice president, the
chief financial officer, the secretary or assistant secretary of this
corporation, or any other person authorized by the Board of Directors or the
president or a vice president, is authorized to vote, represent, and exercise on
behalf of this corporation all rights incident to any and all shares of any
other corporation or corporations standing in the name of this corporation. The
authority herein granted may be exercised either by such person directly or by
any other person authorized to do so by proxy or power of attorney duly executed
by the person having such authority.
ARTICLE VIII
GENERAL MATTERS
---------------
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING.
-----------------------------------------------------
For purposes of determining the shareholders entitled to receive
payment of any dividend or other distribution or allotment of any rights or the
shareholders entitled to exercise any rights in respect of any other lawful
action (other than action by shareholders by written consent without a meeting),
the Board of Directors may fix, in advance, a record date, which shall not be
more than sixty (60) days before any such action. In that case, only
shareholders of record at the close of business on the date so fixed are
entitled to receive the dividend, distribution or allotment of rights, or to
exercise such rights, as the case may be, notwithstanding
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any transfer of any shares on the books of the corporation after the record date
so fixed, except as otherwise provided in the Code.
If the Board of Directors does not so fix a record date, then the
record date for determining shareholders for any such purpose shall be at the
close of business on the day on which the board adopts the applicable resolution
or the sixtieth (60th) day before the date of that action, whichever is later.
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS.
-----------------------------------------
From time to time, the Board of Directors shall determine by
resolution which person or persons may sign or endorse all checks, drafts, other
orders for payment of money, notes or other evidences of indebtedness that are
issued in the name of or payable to the corporation, and only the persons so
authorized shall sign or endorse those instruments.
8.3 CORPORATE CONTRACTS AND INSTRUMENTS; HOW EXECUTED.
-------------------------------------------------
The Board of Directors, except as otherwise provided in these bylaws,
may authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the Board of Directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
8.4 CERTIFICATES FOR SHARES.
-----------------------
A certificate or certificates for shares of the corporation shall be
issued to each shareholder when any of such shares are fully paid. The Board of
Directors may authorize the issuance of certificates for shares partly paid
provided that these certificates shall state the total amount of the
consideration to be paid for them and the amount actually paid. All
certificates shall be signed in the name of the corporation by the chairman of
the board or the vice chairman of the board or the president or a vice president
and by the chief financial officer or an assistant treasurer or the secretary or
an assistant secretary, certifying the number of shares and the class or series
of shares owned by the shareholder. Any or all of the signatures on the
certificate may be facsimile.
In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed on a certificate ceases to be that
officer, transfer agent or registrar before that certificate is issued, it may
be issued by the corporation with the same effect as if that person were an
officer, transfer agent or registrar at the date of issue.
8.5 LOST CERTIFICATES.
-----------------
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation
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and canceled at the same time. The Board of Directors may, in case any share
certificate or certificate for any other security is lost, stolen or destroyed,
authorize the issuance of replacement certificates on such terms and conditions
as the board may require; in such case, the board may require indemnification of
the corporation secured by a bond or other adequate security sufficient to
protect the corporation against any claim that may be made against it, including
any expense or liability, on account of the alleged loss, theft or destruction
of the certificate or the issuance of the replacement certificate.
8.6 CONSTRUCTION; DEFINITIONS.
-------------------------
Unless the context requires otherwise, the general provisions, rules
of construction, and definitions in the Code shall govern the construction of
these bylaws. Without limiting the generality of this provision, the singular
number includes the plural, the plural number includes the singular, and the
term "person" includes both a corporation and a natural person.
ARTICLE IX
AMENDMENTS
----------
9.1 AMENDMENT BY SHAREHOLDERS.
-------------------------
New bylaws may be adopted or these bylaws may be amended or repealed
by the vote or written consent of holders of a majority of the outstanding
shares entitled to vote; provided, however, that if the articles of
incorporation of the corporation set forth the number of authorized directors of
the corporation, then the authorized number of directors may be changed only by
an amendment of the articles of incorporation.
9.2 AMENDMENT BY DIRECTORS.
----------------------
Subject to the rights of the shareholders as provided in Section 9.1
of these bylaws, bylaws, other than a bylaw or an amendment of a bylaw changing
the authorized number of directors (except to fix the authorized number of
directors pursuant to a bylaw providing for a variable number of directors), may
be adopted, amended or repealed by the Board of Directors.
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<PAGE>
CERTIFICATE OF ADOPTION OF BYLAWS
OF
NETCENTIVES INC.
ADOPTION BY INCORPORATOR
------------------------
The undersigned person appointed in the articles of incorporation to act as
the Incorporator of Netcentives Inc. hereby adopts the foregoing bylaws,
comprising 21 pages, as the Bylaws of the corporation.
Executed this 11th day of June 1996.
/s/ Eric W. Tilenius
---------------------------------------
Eric W. Tilenius, Incorporator
CERTIFICATE BY SECRETARY OF ADOPTION BY INCORPORATOR
----------------------------------------------------
The undersigned hereby certifies that the undersigned is the duly elected,
qualified, and acting Secretary of Netcentives Inc., and that the foregoing
Bylaws, comprising 21 pages, were adopted as the Bylaws of the corporation on
June 11, 1997, by the person appointed in the articles of incorporation to act
as the Incorporator of the corporation.
Executed this 11th day of June 1996.
/s/ Craig W. Johnson
-------------------------------------
Craig W. Johnson, Secretary
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EXHIBIT 3.3
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
NETCENTIVES INC.
The undersigned, West Shell, III and Sanjay K. Khare, hereby certify that:
1. They are the duly elected and acting President and Assistant
Secretary, respectively, of Netcentives Inc., a Delaware corporation.
2. The Certificate of Incorporation of this corporation was originally
filed with the Secretary of State of Delaware on February 9, 1999.
3. The Certificate of Incorporation of this corporation shall be amended
and restated to read in full as follows:
ARTICLE I
"The name of this corporation is Netcentives Inc. (the "Corporation").
-----------
ARTICLE II
The address of the Corporation's registered office in the State of Delaware
is 1013 Centre Road, Wilmington, County of New Castle. The name of its
registered agent at such address is The Corporation Service Company.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware.
ARTICLE IV
(A) CLASSES OF STOCK. The Corporation is authorized to issue two classes
----------------
of stock to be designated, respectively, "Common Stock" and "Preferred Stock."
------------ ---------------
The total number of shares which the Corporation is authorized to issue is one
hundred five million (105,000,000) shares, each with a par value of $0.001 per
share. One hundred million (100,000,000) shares shall be Common Stock and five
million (5,000,000) shares shall be Preferred Stock.
<PAGE>
(B) The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, within the limitations and
restrictions stated in this Certificate of Incorporation, to determine or alter
the rights, preferences, privileges and restrictions granted to or imposed upon
any wholly unissued series of Preferred Stock and the number of shares
constituting any such series and the designation thereof, or any of them; and to
increase or decrease the number of shares of any series subsequent to the
issuance of shares of that series, but not below the number of shares of such
series then outstanding. In case the number of shares of any series shall be so
decreased, the shares constituting such decrease shall resume the status which
they had prior to the adoption of the resolution originally fixing the number of
shares of such series.
ARTICLE V
The number of directors of the Corporation shall be fixed from time to time
by a bylaw or amendment thereof duly adopted by the Board of Directors.
ARTICLE VI
(A) The Board of Directors of the Corporation shall divide the directors
into two classes, as nearly equal in number as reasonably possible, with the
term of office of the first class to expire at the first annual meeting of
stockholders following the date this Article VI becomes effective (the
"Effective Date") or any special meeting in lieu thereof, the term of office of
---------------
the second class to expire at the second annual meeting of stockholders after
the Effective Date or any special meeting in lieu thereof. At each annual
meeting of stockholders or special meeting in lieu thereof following such
initial classification, directors elected to succeed those directors whose terms
expire shall be elected for a term of office to expire at the second succeeding
annual meeting of stockholders or special meeting in lieu thereof after their
election and until their successors are duly elected and qualified.
(B) Subject to the rights of the holders of any series of Preferred Stock
then outstanding, newly created directorships resulting from any increase in the
authorized number of directors or any vacancies in the Board of Directors
resulting from death, resignation, retirement, disqualification, removal from
office or other cause may be filled only by a majority vote of the directors
then in office even though less than a quorum, or by a sole remaining director.
In the event of any increase or decrease in the authorized number of directors,
(i) each director then serving as such shall nevertheless continue as a director
of the class of which he or she is a member until the expiration of his or her
current term or his or her prior death, retirement, removal or resignation, and
(ii) the newly created or eliminated directorships resulting from such increase
or decrease shall, if reasonably possible, be apportioned by the Board of
Directors between the two classes of directors so as to ensure that no one class
has more than one director more than any other class. To the extent reasonably
possible, consistent with the foregoing rule, any newly created directorships
shall be added to those classes whose terms of office are to expire at the
latest dates following such allocation and newly eliminated directorships shall
be subtracted from those classes whose terms of office are to expire at the
earliest dates following such allocation, unless otherwise provided for from
time to time by resolution adopted by a
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<PAGE>
majority of the directors then in office, although less than a quorum. In the
event of a vacancy in the Board of Directors, the remaining directors, except as
otherwise provided by law, may exercise the powers of the full Board of
Directors until the vacancy is filled. Vacancies in the Board of Directors and
newly created directorships resulting from any increase in the authorized number
of directors shall be filled by a vote of the majority of the directors then in
office, though less than a quorum, or by a sole remaining director.
ARTICLE VII
In the election of directors, each holder of shares of any class or series
of capital stock of the Corporation shall be entitled to one vote for each share
held. No stockholder will be permitted to cumulate votes at any election of
directors.
ARTICLE VIII
No action shall be taken by the stockholders of the Corporation other than
at an annual or special meeting of the stockholders, upon due notice and in
accordance with the provisions of the Corporation's bylaws.
ARTICLE IX
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Amended and Restated Certificate of Incorporation,
in the manner now or hereafter prescribed by statute, and all rights conferred
upon stockholders herein are granted subject to this reservation.
ARTICLE X
The Board of Directors of the Corporation is expressly authorized to make,
alter or repeal Bylaws of the Corporation.
ARTICLE XI
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Corporation.
ARTICLE XII
The Corporation shall have perpetual existence.
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<PAGE>
ARTICLE XIII
(A) To the fullest extent permitted by the General Corporation Law of
Delaware, as the same may be amended from time to time, a director of the
Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director. If
the General Corporation Law of Delaware is hereafter amended to authorize, with
the approval of a corporation's stockholders, further reductions in the
liability of the Corporation's directors for breach of fiduciary duty, then a
director of the Corporation shall not be liable for any such breach to the
fullest extent permitted by the General Corporation Law of Delaware, as so
amended.
(B) Any repeal or modification of the foregoing provisions of this Article
XIII shall not adversely affect any right or protection of a director of the
Corporation with respect to any acts or omissions of such director occurring
prior to such repeal or modification.
ARTICLE XIV
(A) To the fullest extent permitted by applicable law, the Corporation is
also authorized to provide indemnification of (and advancement of expenses to)
such agents (and any other persons to which Delaware law permits the Corporation
to provide indemnification) through bylaw provisions, agreements with such
agents or other persons, vote of stockholders or disinterested directors or
otherwise, in excess of the indemnification and advancement otherwise permitted
by Section 145 of the Delaware General Corporation Law, subject only to limits
created by applicable Delaware law (statutory or non-statutory), with respect to
actions for breach of duty to a corporation, its stockholders, and others.
(B) Any repeal or modification of any of the foregoing provisions of this
Article XIV shall not adversely affect any right or protection of a director,
officer, agent or other person existing at the time of, or increase the
liability of any director of the Corporation with respect to any acts or
omissions of such director, officer or agent occurring prior to such repeal or
modification."
* * *
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<PAGE>
The foregoing Amended and Restated Certificate of Incorporation has been
duly adopted by this Corporation's Board of Directors and stockholders in
accordance with the applicable provisions of Section 228, 242 and 245 of the
General Corporation Law of the State of Delaware.
Executed at San Francisco, California, on ____________________.
____________________________________
West Shell, III, President
____________________________________
Sanjay K. Khare, Assistant Secretary
<PAGE>
EXHIBIT 3.4
BYLAWS
OF
NETCENTIVES, INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I - CORPORATE OFFICES........................................................................ 1
1.1 Registered Office...................................................................... 1
1.2 Other Offices.......................................................................... 1
ARTICLE II - MEETINGS OF STOCKHOLDERS................................................................ 1
2.1 Place Of Meetings...................................................................... 1
2.2 Annual Meeting......................................................................... 1
2.3 Special Meeting........................................................................ 1
2.4 Notice Of Stockholders' Meetings....................................................... 2
2.5 Advance Notice of Stockholder Nominees................................................. 2
2.6 Advance Notice of Stockholder Business................................................. 3
2.7 Quorum................................................................................. 3
2.8 Adjourned Meeting; Notice.............................................................. 4
2.9 Conduct Of Business.................................................................... 4
2.10 Voting................................................................................. 4
2.11 Waiver Of Notice....................................................................... 4
2.12 Record Date For Stockholder Notice; Voting; Giving Consents............................ 4
2.13 Proxies................................................................................ 5
ARTICLE III - DIRECTORS.............................................................................. 6
3.1 Powers................................................................................. 6
3.2 Number Of Directors.................................................................... 6
3.3 Election, Qualification And Term Of Office Of Directors................................ 6
3.4 Resignation And Vacancies.............................................................. 6
3.5 Place Of Meetings; Meetings By Telephone............................................... 7
3.6 Regular Meetings....................................................................... 7
3.7 Special Meetings; Notice............................................................... 7
3.8 Quorum................................................................................. 8
3.9 Waiver Of Notice....................................................................... 8
3.10 Board Action By Written Consent Without A Meeting...................................... 8
3.11 Fees And Compensation Of Directors..................................................... 9
3.12 Approval Of Loans To Officers.......................................................... 9
3.13 Removal Of Directors................................................................... 9
3.14 Chairman Of The Board Of Directors..................................................... 9
ARTICLE IV - COMMITTEES.............................................................................. 10
4.1 Committees Of Directors................................................................ 10
4.2 Committee Minutes...................................................................... 10
4.3 Meetings And Action Of Committees...................................................... 10
ARTICLE V - OFFICERS................................................................................. 11
5.1 Officers............................................................................... 11
5.2 Appointment Of Officers................................................................ 11
5.3 Subordinate Officers................................................................... 11
5.4 Removal And Resignation Of Officers.................................................... 11
</TABLE>
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
5.5 Vacancies In Offices................................................................... 12
5.6 Chief Executive Officer................................................................ 12
5.7 President.............................................................................. 12
5.8 Vice Presidents........................................................................ 12
5.9 Secretary.............................................................................. 12
5.10 Chief Financial Officer................................................................ 13
5.11 Representation Of Shares Of Other Corporations......................................... 13
5.12 Authority And Duties Of Officers....................................................... 14
ARTICLE VI - INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS..................... 14
6.1 Indemnification Of Directors And Officers.............................................. 14
6.2 Indemnification Of Others.............................................................. 14
6.3 Payment Of Expenses In Advance......................................................... 14
6.4 Indemnity Not Exclusive................................................................ 15
6.5 Insurance.............................................................................. 15
6.6 Conflicts.............................................................................. 15
ARTICLE VII - RECORDS AND REPORTS.................................................................... 15
7.1 Maintenance And Inspection Of Records.................................................. 15
7.2 Inspection By Directors................................................................ 16
7.3 Annual Statement To Stockholders....................................................... 16
ARTICLE VIII - GENERAL MATTERS....................................................................... 16
8.1 Checks................................................................................. 16
8.2 Execution Of Corporate Contracts And Instruments....................................... 16
8.3 Stock Certificates; Partly Paid Shares................................................. 17
8.4 Special Designation On Certificates.................................................... 17
8.5 Lost Certificates...................................................................... 18
8.6 Construction; Definitions.............................................................. 18
8.7 Dividends.............................................................................. 18
8.8 Fiscal Year............................................................................ 18
8.9 Seal................................................................................... 18
8.10 Transfer Of Stock...................................................................... 18
8.11 Stock Transfer Agreements.............................................................. 19
8.12 Registered Stockholders................................................................ 19
ARTICLE IX - AMENDMENTS.............................................................................. 19
</TABLE>
<PAGE>
BYLAWS
OF
NETCENTIVES, INC.
ARTICLE I
CORPORATE OFFICES
-----------------
1.1 REGISTERED OFFICE.
-----------------
The registered office of the corporation shall be in the City of
Wilmington, County of New Castle, State of Delaware. The name of the registered
agent of the corporation at such location is CSC-The United States Corporation
Company.
1.2 OTHER OFFICES.
-------------
The Board of Directors may at any time establish other offices at any
place or places where the corporation is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
2.1 PLACE OF MEETINGS.
-----------------
Meetings of stockholders shall be held at any place, within or outside
the State of Delaware, designated by the Board of Directors. In the absence of
any such designation, stockholders' meetings shall be held at the registered
office of the corporation.
2.2 ANNUAL MEETING.
--------------
The annual meeting of stockholders shall be held on such date, time
and place, either within or without the State of Delaware, as may be designated
by resolution of the Board of Directors each year. At the meeting, directors
shall be elected and any other proper business may be transacted.
2.3 SPECIAL MEETING.
---------------
(a) A special meeting of the stockholders may be called at any time
by the Board of Directors, the chairman of the board or the president.
(b) Only such business shall be conducted at a special meeting of
stockholders as shall have been brought before the meeting pursuant to the
notice of meeting given in accordance with the terms of these bylaws.
Nominations of persons for election to the board of
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<PAGE>
directors may be made at a special meeting of stockholders at which directors
are to be selected pursuant to such notice of meeting (i) by or at the direction
of the board of directors or (ii) by any stockholder of the corporation who is a
stockholder of record at the time of giving of notice provided for in this
paragraph, who shall be entitled to vote at the meeting and who complies with
the notice procedures set forth in Section 2.5.
2.4 NOTICE OF STOCKHOLDERS' MEETINGS.
--------------------------------
All notices of meetings with stockholders shall be in writing and
shall be sent or otherwise given in accordance with Section 2.5 of these Bylaws
not less than ten (10) nor more than sixty (60) days before the date of the
meeting to each stockholder entitled to vote at such meeting. The notice shall
specify the place, date, and hour of the meeting, and, in the case of a special
meeting, the purpose or purposes for which the meeting is called.
2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES.
--------------------------------------
Only persons who are nominated in accordance with the procedures set
forth in this Section 2.5 shall be eligible for election as directors.
Nominations of persons for election to the board of directors of the corporation
may be made at a meeting of stockholders by or at the direction of the board of
directors or by any stockholder of the corporation entitled to vote for the
election of directors at the meeting who complies with the notice procedures set
forth in this Section 2.5. Such nominations, other than those made by or at the
direction of the board of directors, shall be made pursuant to timely notice in
writing to the secretary of the corporation. To be timely, a stockholder's
notice shall be delivered to or mailed and received at the principal executive
offices of the corporation not less than one hundred twenty (120) days nor more
than one hundred fifty (150) days prior to the anniversary of the date of notice
of the Company's annual meeting for the prior fiscal year. Such stockholder's
notice shall set forth (a) as to each person whom the stockholder proposes to
nominate for election or re-election as a Director, (i) the name, age, business
address and residence address of such person, (ii) the principal occupation or
employment of such person, (iii) the class and number of shares of the
corporation which are beneficially owned by such person and (iv) any other
information relating to such person that is required to be disclosed in
solicitations of proxies for election of Directors, or is otherwise required, in
each case pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended (including, without limitation, such person's written consent to
being named in the proxy statement as a nominee and to serving as a director if
elected); and (b) as to the stockholder giving the notice (i) the name and
address, as they appear on the corporation's books, of such stockholder and (ii)
the class and number of shares of the corporation which are beneficially owned
by such stockholder. At the request of the Board of Directors any person
nominated by the Board of Directors for election as a director shall furnish to
the secretary of the corporation that information required to be set forth in a
stockholder's notice of nomination which pertains to the nominee. No person
shall be eligible for election as a director of the corporation unless nominated
in accordance with the procedures set forth in this Section 2.5. The Chairman
of the meeting shall, if the facts warrant, determine and declare to the meeting
that a nomination was not made in accordance with the procedures prescribed by
the Bylaws, and if
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<PAGE>
he or she should so determine, he or she shall so declare to the meeting and the
defective nomination shall be disregarded.
2.6 ADVANCE NOTICE OF STOCKHOLDER BUSINESS
--------------------------------------
At an annual meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the meeting. To be
properly brought before an annual meeting, business must be: (a) specified in
the notice of meeting (or any supplement thereto) given by or at the direction
of the Board of Directors, (b) otherwise properly brought before the meeting by
or at the direction of the Board of Directors, or (c) otherwise properly brought
before the meeting by a stockholder. Business to be brought before an annual
meeting by a stockholder shall not be considered properly brought if the
stockholder has not given timely notice thereof in writing to the Secretary of
the corporation. To be timely, a stockholder's notice shall be delivered to or
mailed not less than one hundred twenty (120) days nor more than one hundred
eighty (180) days prior to (i) the anniversary of mailing of the notice of the
prior fiscal year's annual meeting, in the case of an annual meeting, or (ii)
the date of the meeting in question in the event of a special meeting; provided,
--------
however, that in the case of special meeting, where less than one hundred twenty
- -------
(130) days notice or prior public disclosure of the date of the meeting is given
or made to stockholder, notice by the stockholder, to be timely, must be so
received not later than the close of business on the fifth day following the day
on which such notice of the date of the meeting was mailed or such public
disclosure was made. Such stockholder's notice shall set forth as to each
matter the stockholder proposes to bring before the annual meeting: (i) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conduction of such business at the annual meeting, (ii) the name
and address of the stockholder proposing such business, (iii) the class and
number of shares of the corporation which are beneficially owned by the
stockholder, (iv) any material interest of the stockholder in such business, and
(v) any other information that is required by law to be provided by the
stockholder in his capacity as a proponent of a stockholder proposal.
Notwithstanding anything in these bylaws to the contrary, no business shall be
conducted an any annual meeting except in accordance with the procedures set
forth in this Section. The chairman of the annual meeting shall, if the facts
warrant, determine and declare at the meeting that business was not properly
brought before the meeting and in accordance with the provisions of this
Section, and, if he should so determine, he shall so declare at the meeting that
any such business not properly brought before the meeting shall not be
transacted.
2.7 QUORUM.
------
The holders of a majority of the stock issued and outstanding and
entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the certificate of
incorporation. If, however, such quorum is not present or represented at any
meeting of the stockholders, then either (a) the chairman of the meeting or (b)
the stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum is present or
represented. At such adjourned meeting at which a quorum is present or
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<PAGE>
represented, any business may be transacted that might have been transacted at
the meeting as originally noticed.
2.8 ADJOURNED MEETING; NOTICE.
-------------------------
When a meeting is adjourned to another time or place, unless these
Bylaws otherwise require, notice need not be given of the adjourned meeting if
the time and place thereof are announced at the meeting at which the adjournment
is taken. At the adjourned meeting the corporation may transact any business
that might have been transacted at the original meeting. If the adjournment is
for more than thirty (30) days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
2.9 CONDUCT OF BUSINESS.
-------------------
The chairman of any meeting of stockholders shall determine the order
of business and the procedure at the meeting, including the manner of voting and
the conduct of business.
2.10 VOTING.
------
The stockholders entitled to vote at any meeting of stockholders shall
be determined in accordance with the provisions of Section 2.11 of these Bylaws,
subject to the provisions of Sections 217 and 218 of the General Corporation Law
of Delaware (relating to voting rights of fiduciaries, pledgors and joint owners
of stock and to voting trusts and other voting agreements).
Except as may be otherwise provided in the certificate of
incorporation, each stockholder shall be entitled to one vote for each share of
capital stock held by such stockholder.
2.11 WAIVER OF NOTICE.
----------------
Whenever notice is required to be given under any provision of the
General Corporation Law of Delaware or of the certificate of incorporation or
these Bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders need be specified in any written waiver of notice unless so
required by the certificate of incorporation or these Bylaws.
2.12 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS.
-----------------------------------------------------------
In order that the corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, or entitled to receive
-4-
<PAGE>
payment of any dividend or other distribution or allotment of any rights, or
entitled to exercise any rights in respect of any change, conversion or exchange
of stock or for the purpose of any other lawful action, the Board of Directors
may fix, in advance, a record date, which shall not be more than sixty (60) nor
less than ten (10) days before the date of such meeting, nor more than sixty
(60) days prior to any other action.
If the Board of Directors does not so fix a record date:
(a) The record date for determining stockholders entitled to notice of
or to vote at a meeting of stockholders shall be at the close of business on the
day next preceding the day on which notice is given, or, if notice is waived, at
the close of business on the day next preceding the day on which the meeting is
held.
(b) The record date for determining stockholders for any other purpose
shall be at the close of business on the day on which the Board of Directors
adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
2.13 PROXIES.
-------
Each stockholder entitled to vote at a meeting of stockholders may
authorize another person or persons to act for such stockholder by a written
proxy, signed by the stockholder and filed with the secretary of the
corporation, but no such proxy shall be voted or acted upon after three (3)
years from its date, unless the proxy provides for a longer period. A proxy
shall be deemed signed if the stockholder's name is placed on the proxy (whether
by manual signature, typewriting, telegraphic transmission or otherwise) by the
stockholder or the stockholder's attorney-in-fact. The revocability of a proxy
that states on its face that it is irrevocable shall be governed by the
provisions of Section 212(e) of the General Corporation Law of Delaware.
ARTICLE III
DIRECTORS
---------
3.1 POWERS.
------
Subject to the provisions of the General Corporation Law of Delaware
and any limitations in the certificate of incorporation or these Bylaws relating
to action required to be approved by the stockholders or by the outstanding
shares, the business and affairs of the corporation shall be managed and all
corporate powers shall be exercised by or under the direction of the Board of
Directors.
3.2 NUMBER OF DIRECTORS.
-------------------
-5-
<PAGE>
Upon the adoption of these bylaws, the number of directors
constituting the entire Board of Directors shall be seven (7). Thereafter, this
number may be changed by a resolution of the Board of Directors or of the
stockholders, subject to Section 3.4 of these Bylaws. No reduction of the
authorized number of directors shall have the effect of removing any director
before such director's term of office expires.
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS.
-------------------------------------------------------
Except as provided in Section 3.4 of these Bylaws, directors shall be
elected at each annual meeting of stockholders to hold office until the next
annual meeting. Directors need not be stockholders unless so required by the
certificate of incorporation or these Bylaws, wherein other qualifications for
directors may be prescribed. Each director, including a director elected to
fill a vacancy, shall hold office until his or her successor is elected and
qualified or until his or her earlier resignation or removal.
Elections of directors need not be by written ballot.
3.4 RESIGNATION AND VACANCIES.
-------------------------
Any director may resign at any time upon written notice to the
attention of the Secretary of the corporation. When one or more directors so
resigns and the resignation is effective at a future date, a majority of the
directors then in office, including those who have so resigned, shall have power
to fill such vacancy or vacancies, the vote thereon to take effect when such
resignation or resignations shall become effective, and each director so chosen
shall hold office as provided in this section in the filling of other vacancies.
Unless otherwise provided in the certificate of incorporation or these
Bylaws:
(a) Vacancies and newly created directorships resulting from any
increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director.
(b) Whenever the holders of any class or classes of stock or series
thereof are entitled to elect one or more directors by the provisions of the
certificate of incorporation, vacancies and newly created directorships of such
class or classes or series may be filled by a majority of the directors elected
by such class or classes or series thereof then in office, or by a sole
remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the certificate of incorporation or these Bylaws, or may apply
to the Court of Chancery for a decree summarily ordering an election as provided
in Section 211 of the General Corporation Law of Delaware.
-6-
<PAGE>
If, at the time of filling any vacancy or any newly created
directorship, the directors then in office constitute less than a majority of
the whole board (as constituted immediately prior to any such increase), then
the Court of Chancery may, upon application of any stockholder or stockholders
holding at least ten (10) percent of the total number of the shares at the time
outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships,
or to replace the directors chosen by the directors then in office as aforesaid,
which election shall be governed by the provisions of Section 211 of the General
Corporation Law of Delaware as far as applicable.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE.
----------------------------------------
The Board of Directors of the corporation may hold meetings, both
regular and special, either within or outside the State of Delaware.
Unless otherwise restricted by the certificate of incorporation or
these Bylaws, members of the Board of Directors, or any committee designated by
the Board of Directors, may participate in a meeting of the Board of Directors,
or any committee, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.
3.6 REGULAR MEETINGS.
----------------
Regular meetings of the Board of Directors may be held without notice
at such time and at such place as shall from time to time be determined by the
board.
3.7 SPECIAL MEETINGS; NOTICE.
------------------------
Special meetings of the Board of Directors for any purpose or purposes
may be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's address
as it is shown on the records of the corporation. If the notice is mailed, it
shall be deposited in the United States mail at least four (4) days before the
time of the holding of the meeting. If the notice is delivered personally or by
telephone or by telegram, it shall be delivered personally or by telephone or to
the telegraph company at least forty-eight (48) hours before the time of the
holding of the meeting. Any oral notice given personally or by telephone may be
communicated either to the director or to a person at the office of the director
who the person giving the notice has reason to believe will promptly communicate
it to the director. The notice need not specify the purpose or the place of the
meeting, if the meeting is to be held at the principal executive office of the
corporation.
3.8 QUORUM.
------
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<PAGE>
At all meetings of the Board of Directors, a majority of the
authorized number of directors shall constitute a quorum for the transaction of
business and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the Board of Directors, except as
may be otherwise specifically provided by statute or by the certificate of
incorporation. If a quorum is not present at any meeting of the Board of
Directors, then the directors present thereat may adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
is present.
A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the required quorum for that
meeting.
3.9 WAIVER OF NOTICE.
----------------
Whenever notice is required to be given under any provision of the
General Corporation Law of Delaware or of the certificate of incorporation or
these Bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the directors, or members of a committee of directors, need be specified in
any written waiver of notice unless so required by the certificate of
incorporation or these Bylaws.
3.10 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING.
-------------------------------------------------
Unless otherwise restricted by the certificate of incorporation or
these Bylaws, any action required or permitted to be taken at any meeting of the
Board of Directors, or of any committee thereof, may be taken without a meeting
if all members of the board or committee, as the case may be, consent thereto in
writing and the writing or writings are filed with the minutes of proceedings of
the board or committee. Written consents representing actions taken by the
board or committee may be executed by telex, telecopy or other facsimile
transmission, and such facsimile shall be valid and binding to the same extent
as if it were an original.
3.11 FEES AND COMPENSATION OF DIRECTORS.
----------------------------------
Unless otherwise restricted by the certificate of incorporation or
these Bylaws, the Board of Directors shall have the authority to fix the
compensation of directors. No such compensation shall preclude any director
from serving the corporation in any other capacity and receiving compensation
therefor.
3.12 APPROVAL OF LOANS TO OFFICERS.
-----------------------------
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or of its
subsidiary, including any officer
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<PAGE>
or employee who is a director of the corporation or its subsidiary, whenever, in
the judgment of the directors, such loan, guaranty or assistance may reasonably
be expected to benefit the corporation. The loan, guaranty or other assistance
may be with or without interest and may be unsecured, or secured in such manner
as the Board of Directors shall approve, including, without limitation, a pledge
of shares of stock of the corporation. Nothing in this section contained shall
be deemed to deny, limit or restrict the powers of guaranty or warranty of the
corporation at common law or under any statute.
3.13 REMOVAL OF DIRECTORS.
--------------------
Unless otherwise restricted by statute, by the certificate of
incorporation or by these Bylaws, any director or the entire Board of Directors
may be removed, with or without cause, by the holders of a majority of the
shares then entitled to vote at an election of directors; provided, however,
that if the stockholders of the corporation are entitled to cumulative voting,
if less than the entire Board of Directors is to be removed, no director may be
removed without cause if the votes cast against his removal would be sufficient
to elect him if then cumulatively voted at an election of the entire Board of
Directors.
No reduction of the authorized number of directors shall have the
effect of removing any director prior to the expiration of such director's term
of office.
3.14 CHAIRMAN OF THE BOARD OF DIRECTORS.
----------------------------------
The corporation may also have, at the discretion of the Board of
Directors, a chairman of the Board of Directors who shall not be considered an
officer of the corporation.
ARTICLE IV
COMMITTEES
----------
4.1 COMMITTEES OF DIRECTORS.
-----------------------
The Board of Directors, by resolution passed by a majority of the
whole board, designate one or more committees, each committee to consist of one
or more of the directors of the corporation. The Board may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members present at
any meeting and not disqualified from voting, whether or not such member or
members constitute a quorum, may unanimously appoint another member of the Board
of Directors to act at the meeting in the place of any such absent or
disqualified member. Any such committee, to the extent provided in the
resolution of the Board of Directors, or in these Bylaws, shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the corporation, and may authorize the
seal of the corporation to be affixed to all papers which may require it; but no
such committee shall have the power or authority to (a) amend the certificate of
incorporation (except that a committee may, to the extent authorized in the
resolution or resolutions providing for the issuance of shares of stock adopted
-9-
<PAGE>
by the Board of Directors as provided in Section 151(a) of the General
Corporation Law of Delaware, fix the designations and any of the preferences or
rights of such shares relating to dividends, redemption, dissolution, any
distribution of assets of the corporation or the conversion into, or the
exchange of such shares for, shares of any other class or classes or any other
series of the same or any other class or classes of stock of the corporation or
fix the number of shares of any series of stock or authorize the increase or
decrease of the shares of any series), (b) adopt an agreement of merger or
consolidation under Sections 251 or 252 of the General Corporation Law of
Delaware, (c) recommend to the stockholders the sale, lease or exchange of all
or substantially all of the corporation's property and assets, (d) recommend to
the stockholders a dissolution of the corporation or a revocation of a
dissolution, or (e) amend the Bylaws of the corporation; and, unless the board
resolution establishing the committee, the Bylaws or the certificate of
incorporation expressly so provide, no such committee shall have the power or
authority to declare a dividend, to authorize the issuance of stock, or to adopt
a certificate of ownership and merger pursuant to Section 253 of the General
Corporation Law of Delaware.
4.2 COMMITTEE MINUTES.
-----------------
Each committee shall keep regular minutes of its meetings and report
the same to the Board of Directors when required.
4.3 MEETINGS AND ACTION OF COMMITTEES.
---------------------------------
Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the provisions of Section 3.5 (place of meetings and
meetings by telephone), Section 3.6 (regular meetings), Section 3.7 (special
meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice), and
Section 3.10 (action without a meeting) of these Bylaws, with such changes in
the context of such provisions as are necessary to substitute the committee and
its members for the Board of Directors and its members; provided, however, that
the time of regular meetings of committees may be determined either by
resolution of the Board of Directors or by resolution of the committee, that
special meetings of committees may also be called by resolution of the Board of
Directors and that notice of special meetings of committees shall also be given
to all alternate members, who shall have the right to attend all meetings of the
committee. The Board of Directors may adopt rules for the government of any
committee not inconsistent with the provisions of these Bylaws.
ARTICLE V
OFFICERS
--------
5.1 OFFICERS.
--------
The officers of the corporation shall be a president, a secretary, and
a chief financial officer. The corporation may also have, at the discretion of
the Board of Directors, a chief executive officer, one or more vice presidents,
one or more assistant secretaries, one or more assistant treasurers, and any
such other officers as may be appointed in accordance with the
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provisions of Section 5.3 of these Bylaws. Any number of offices may be held by
the same person.
5.2 APPOINTMENT OF OFFICERS.
-----------------------
The officers of the corporation, except such officers as may be
appointed in accordance with the provisions of Sections 5.3 or 5.5 of these
Bylaws, shall be appointed by the Board of Directors, subject to the rights, if
any, of an officer under any contract of employment.
5.3 SUBORDINATE OFFICERS.
--------------------
The Board of Directors may appoint, or empower the chief executive
officer or the president to appoint, such other officers and agents as the
business of the corporation may require, each of whom shall hold office for such
period, have such authority, and perform such duties as are provided in these
Bylaws or as the Board of Directors may from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS.
-----------------------------------
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by an
affirmative vote of the majority of the Board of Directors at any regular or
special meeting of the board or, except in the case of an officer chosen by the
Board of Directors, by any officer upon whom such power of removal may be
conferred by the Board of Directors.
Any officer may resign at any time by giving written notice to the
attention of the Secretary of the corporation. Any resignation shall take
effect at the date of the receipt of that notice or at any later time specified
in that notice; and, unless otherwise specified in that notice, the acceptance
of the resignation shall not be necessary to make it effective. Any resignation
is without prejudice to the rights, if any, of the corporation under any
contract to which the officer is a party.
5.5 VACANCIES IN OFFICES.
--------------------
Any vacancy occurring in any office of the corporation shall be filled
by the Board of Directors.
5.6 CHIEF EXECUTIVE OFFICER.
-----------------------
Subject to such supervisory powers, if any, as may be given by the
Board of Directors to the chairman of the board, if any, the chief executive
officer of the corporation (if such an officer is appointed) shall, subject to
the control of the Board of Directors, have general supervision, direction, and
control of the business and the officers of the corporation. He or she shall
preside at all meetings of the stockholders and, in the absence or nonexistence
of a chairman of the board, at all meetings of the Board of Directors and shall
have the general powers and duties of management usually vested in the office of
chief executive officer of a
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corporation and shall have such other powers and duties as may be prescribed by
the Board of Directors or these bylaws.
5.7 PRESIDENT.
---------
Subject to such supervisory powers, if any, as may be given by the
Board of Directors to the chairman of the board (if any) or the chief executive
officer, the president shall have general supervision, direction, and control of
the business and other officers of the corporation. He or she shall have the
general powers and duties of management usually vested in the office of
president of a corporation and such other powers and duties as may be prescribed
by the Board of Directors or these Bylaws.
5.8 VICE PRESIDENTS.
---------------
In the absence or disability of the chief executive officer and
president, the vice presidents, if any, in order of their rank as fixed by the
Board of Directors or, if not ranked, a vice president designated by the Board
of Directors, shall perform all the duties of the president and when so acting
shall have all the powers of, and be subject to all the restrictions upon, the
president. The vice presidents shall have such other powers and perform such
other duties as from time to time may be prescribed for them respectively by the
Board of Directors, these Bylaws, the president or the chairman of the board.
5.9 SECRETARY.
---------
The secretary shall keep or cause to be kept, at the principal
executive office of the corporation or such other place as the Board of
Directors may direct, a book of minutes of all meetings and actions of
directors, committees of directors, and stockholders. The minutes shall show
the time and place of each meeting, the names of those present at directors'
meetings or committee meetings, the number of shares present or represented at
stockholders' meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal
executive office of the corporation or at the office of the corporation's
transfer agent or registrar, as determined by resolution of the Board of
Directors, a share register, or a duplicate share register, showing the names of
all stockholders and their addresses, the number and classes of shares held by
each, the number and date of certificates evidencing such shares, and the number
and date of cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings
of the stockholders and of the Board of Directors required to be given by law or
by these Bylaws. He or she shall keep the seal of the corporation, if one be
adopted, in safe custody and shall have such other powers and perform such other
duties as may be prescribed by the Board of Directors or by these Bylaws.
5.10 CHIEF FINANCIAL OFFICER.
-----------------------
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The chief financial officer shall keep and maintain, or cause to be
kept and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital
retained earnings, and shares. The books of account shall at all reasonable
times be open to inspection by any director.
The chief financial officer shall deposit all moneys and other
valuables in the name and to the credit of the corporation with such
depositories as may be designated by the Board of Directors. He or she shall
disburse the funds of the corporation as may be ordered by the Board of
Directors, shall render to the president, the chief executive officer, or the
directors, upon request, an account of all his or her transactions as chief
financial officer and of the financial condition of the corporation, and shall
have other powers and perform such other duties as may be prescribed by the
Board of Directors or the bylaws.
5.11 REPRESENTATION OF SHARES OF OTHER CORPORATIONS.
----------------------------------------------
The chairman of the board, the chief executive officer, the president,
any vice president, the chief financial officer, the secretary or assistant
secretary of this corporation, or any other person authorized by the Board of
Directors or the chief executive officer or the president or a vice president,
is authorized to vote, represent, and exercise on behalf of this corporation all
rights incident to any and all shares of any other corporation or corporations
standing in the name of this corporation. The authority granted herein may be
exercised either by such person directly or by any other person authorized to do
so by proxy or power of attorney duly executed by the person having such
authority.
5.12 AUTHORITY AND DUTIES OF OFFICERS.
--------------------------------
In addition to the foregoing authority and duties, all officers of the
corporation shall respectively have such authority and perform such duties in
the management of the business of the corporation as may be designated from time
to time by the Board of Directors or the stockholders.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS
-------------------------------------------------------------------
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS.
-----------------------------------------
The corporation shall, to the maximum extent and in the manner
permitted by the General Corporation Law of Delaware, indemnify each of its
directors and officers against expenses (including attorneys' fees), judgments,
fines, settlements and other amounts actually and reasonably incurred in
connection with any proceeding, arising by reason of the fact that such person
is or was an agent of the corporation. For purposes of this Section 6.1, a
"director" or "officer" of the corporation includes any person (a) who is or was
a director or officer of the corporation, (b) who is or was serving at the
request of the corporation as a director or officer of
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<PAGE>
another corporation, partnership, joint venture, trust or other enterprise, or
(c) who was a director or officer of a corporation which was a predecessor
corporation of the corporation or of another enterprise at the request of such
predecessor corporation.
6.2 INDEMNIFICATION OF OTHERS.
-------------------------
The corporation shall have the power, to the maximum extent and in the
manner permitted by the General Corporation Law of Delaware, to indemnify each
of its employees and agents (other than directors and officers) against expenses
(including attorneys' fees), judgments, fines, settlements and other amounts
actually and reasonably incurred in connection with any proceeding, arising by
reason of the fact that such person is or was an agent of the corporation. For
purposes of this Section 6.2, an "employee" or "agent" of the corporation (other
than a director or officer) includes any person (a) who is or was an employee or
agent of the corporation, (b) who is or was serving at the request of the
corporation as an employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, or (c) who was an employee or agent of a
corporation which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation.
6.3 PAYMENT OF EXPENSES IN ADVANCE.
------------------------------
Expenses incurred in defending any action or proceeding for which
indemnification is required pursuant to Section 6.1 or for which indemnification
is permitted pursuant to Section 6.2 following authorization thereof by the
Board of Directors shall be paid by the corporation in advance of the final
disposition of such action or proceeding upon receipt of an undertaking by or on
behalf of the indemnified party to repay such amount if it shall ultimately be
determined that the indemnified party is not entitled to be indemnified as
authorized in this Article VI.
6.4 INDEMNITY NOT EXCLUSIVE.
-----------------------
The indemnification provided by this Article VI shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under any bylaw, agreement, vote of shareholders or disinterested
directors or otherwise, both as to action in an official capacity and as to
action in another capacity while holding such office, to the extent that such
additional rights to indemnification are authorized in the certificate of
incorporation
6.5 INSURANCE.
---------
The corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him or her and incurred
by him or her in any such capacity, or arising out of his or her status as such,
whether or not the corporation would have the power to indemnify him or her
against such liability under the provisions of the General Corporation Law of
Delaware.
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<PAGE>
6.6 CONFLICTS.
---------
No indemnification or advance shall be made under this Article VI,
except where such indemnification or advance is mandated by law or the order,
judgment or decree of any court of competent jurisdiction, in any circumstance
where it appears:
(a) That it would be inconsistent with a provision of the certificate
of incorporation, these Bylaws, a resolution of the stockholders or an agreement
in effect at the time of the accrual of the alleged cause of the action asserted
in the proceeding in which the expenses were incurred or other amounts were
paid, which prohibits or otherwise limits indemnification; or
(b) That it would be inconsistent with any condition expressly imposed
by a court in approving a settlement.
ARTICLE VII
RECORDS AND REPORTS
-------------------
7.1 MAINTENANCE AND INSPECTION OF RECORDS.
-------------------------------------
The corporation shall, either at its principal executive offices or at
such place or places as designated by the Board of Directors, keep a record of
its stockholders listing their names and addresses and the number and class of
shares held by each stockholder, a copy of these Bylaws as amended to date,
accounting books, and other records.
Any stockholder of record, in person or by attorney or other agent,
shall, upon written demand under oath stating the purpose thereof, have the
right during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent to so act on
behalf of the stockholder. The demand under oath shall be directed to the
corporation at its registered office in Delaware or at its principal place of
business.
7.2 INSPECTION BY DIRECTORS.
-----------------------
Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders, and its other books and records for a
purpose reasonably related to his or her position as a director. The Court of
Chancery is hereby vested with the exclusive jurisdiction to determine whether a
director is entitled to the inspection sought. The Court may summarily order
the corporation to permit the director to inspect any and all books and records,
the stock ledger, and the stock list and to make copies or extracts therefrom.
The Court may, in its
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discretion, prescribe any limitations or conditions with reference to the
inspection, or award such other and further relief as the Court may deem just
and proper.
7.3 ANNUAL STATEMENT TO STOCKHOLDERS.
--------------------------------
The Board of Directors shall present at each annual meeting, and at
any special meeting of the stockholders when called for by vote of the
stockholders, a full and clear statement of the business and condition of the
corporation.
ARTICLE VIII
GENERAL MATTERS
---------------
8.1 CHECKS.
------
From time to time, the Board of Directors shall determine by
resolution which person or persons may sign or endorse all checks, drafts, other
orders for payment of money, notes or other evidences of indebtedness that are
issued in the name of or payable to the corporation, and only the persons so
authorized shall sign or endorse those instruments.
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS.
------------------------------------------------
The Board of Directors, except as otherwise provided in these Bylaws,
may authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the Board of Directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES.
--------------------------------------
The shares of a corporation shall be represented by certificates,
provided that the Board of Directors of the corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
its stock shall be uncertificated shares. Any such resolution shall not apply
to shares represented by a certificate until such certificate is surrendered to
the corporation. Notwithstanding the adoption of such a resolution by the Board
of Directors, every holder of stock represented by certificates and upon request
every holder of uncertificated shares shall be entitled to have a certificate
signed by, or in the name of the corporation by the chairman or vice-chairman of
the Board of Directors, or the president or vice-president, and by the chief
financial officer or an assistant treasurer, or the secretary or an assistant
secretary of such corporation representing the number of shares registered in
certificate form. Any or all of the signatures on the certificate may be a
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate has ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the
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<PAGE>
corporation with the same effect as if he or she were such officer, transfer
agent or registrar at the date of issue.
The corporation may issue the whole or any part of its shares as
partly paid and subject to call for the remainder of the consideration to be
paid therefor. Upon the face or back of each stock certificate issued to
represent any such partly paid shares, upon the books and records of the
corporation in the case of uncertificated partly paid shares, the total amount
of the consideration to be paid therefor and the amount paid thereon shall be
stated. Upon the declaration of any dividend on fully paid shares, the
corporation shall declare a dividend upon partly paid shares of the same class,
but only upon the basis of the percentage of the consideration actually paid
thereon.
8.4 SPECIAL DESIGNATION ON CERTIFICATES.
-----------------------------------
If the corporation is authorized to issue more than one class of stock
or more than one series of any class, then the powers, the designations, the
preferences, and the relative, participating, optional or other special rights
of each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General Corporation Law of
Delaware, in lieu of the foregoing requirements there may be set forth on the
face or back of the certificate that the corporation shall issue to represent
such class or series of stock a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, the designations,
the preferences, and the relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
8.5 LOST CERTIFICATES.
-----------------
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and cancelled at the same time. The corporation
may issue a new certificate of stock or uncertificated shares in the place of
any certificate previously issued by it, alleged to have been lost, stolen or
destroyed, and the corporation may require the owner of the lost, stolen or
destroyed certificate, or the owner's legal representative, to give the
corporation a bond sufficient to indemnify it against any claim that may be made
against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate or uncertificated shares.
8.6 CONSTRUCTION; DEFINITIONS.
-------------------------
Unless the context requires otherwise, the general provisions, rules
of construction, and definitions in the Delaware General Corporation Law shall
govern the construction of these Bylaws. Without limiting the generality of
this provision, the singular number includes the plural, the plural number
includes the singular, and the term "person" includes both a corporation and a
natural person.
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<PAGE>
8.7 DIVIDENDS.
---------
The directors of the corporation, subject to any restrictions
contained in (a) the General Corporation Law of Delaware or (b) the certificate
of incorporation, may declare and pay dividends upon the shares of its capital
stock. Dividends may be paid in cash, in property, or in shares of the
corporation's capital stock.
The directors of the corporation may set apart out of any of the funds
of the corporation available for dividends a reserve or reserves for any proper
purpose and may abolish any such reserve. Such purposes shall include but not be
limited to equalizing dividends, repairing or maintaining any property of the
corporation, and meeting contingencies.
8.8 FISCAL YEAR.
-----------
The fiscal year of the corporation shall be fixed by resolution of the
Board of Directors and may be changed by the Board of Directors.
8.9 SEAL.
----
The corporation may adopt a corporate seal, which may be altered at
pleasure, and may use the same by causing it or a facsimile thereof, to be
impressed or affixed or in any other manner reproduced.
8.10 TRANSFER OF STOCK.
-----------------
Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignation or authority to transfer, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate, and record the transaction in its books.
8.11 STOCK TRANSFER AGREEMENTS.
-------------------------
The corporation shall have power to enter into and perform any
agreement with any number of stockholders of any one or more classes of stock of
the corporation to restrict the transfer of shares of stock of the corporation
of any one or more classes owned by such stockholders in any manner not
prohibited by the General Corporation Law of Delaware.
8.12 REGISTERED STOCKHOLDERS.
-----------------------
The corporation shall be entitled to recognize the exclusive right of
a person registered on its books as the owner of shares to receive dividends and
to vote as such owner, shall be entitled to hold liable for calls and
assessments the person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of another person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
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<PAGE>
ARTICLE IX
AMENDMENTS
----------
The Bylaws of the corporation may be adopted, amended or repealed by
the stockholders entitled to vote; provided, however, that the corporation may,
in its certificate of incorporation, confer the power to adopt, amend or repeal
Bylaws upon the directors. The fact that such power has been so conferred upon
the directors shall not divest the stockholders of the power, nor limit their
power to adopt, amend or repeal Bylaws.
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<PAGE>
EXHIBIT 10.1
INDEMNIFICATION AGREEMENT
-------------------------
This Indemnification Agreement (the "Agreement") is made as of
---------
_______________, 1999, by and between Netcentives Inc., a California corporation
(the "Company"), and IndemniteeName (the "Indemnitee").
------- ----------
RECITALS
--------
The Company and Indemnitee recognize the increasing difficulty in obtaining
liability insurance for directors, officers and key employees, the significant
increases in the cost of such insurance and the general reductions in the
coverage of such insurance. The Company and Indemnitee further recognize the
substantial increase in corporate litigation in general, subjecting directors,
officers and key employees to expensive litigation risks at the same time as the
availability and coverage of liability insurance has been severely limited.
Indemnitee does not regard the current protection available as adequate under
the present circumstances, and Indemnitee and agents of the Company may not be
willing to continue to serve as agents of the Company without additional
protection. The Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, and to indemnify its directors,
officers and key employees so as to provide them with the maximum protection
permitted by law.
AGREEMENT
---------
In consideration of the mutual promises made in this Agreement, and for
other good and valuable consideration, receipt of which is hereby acknowledged,
the Company and Indemnitee hereby agree as follows:
1. INDEMNIFICATION.
---------------
(a) THIRD PARTY PROCEEDINGS. The Company shall indemnify Indemnitee
-----------------------
if Indemnitee is or was a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Company) by reason of the fact that Indemnitee is or was a
director, officer, employee or agent of the Company, or any subsidiary of the
Company, by reason of any action or inaction on the part of Indemnitee while an
officer or director or by reason of the fact that Indemnitee is or was serving
at the request of the Company as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement (if such settlement is approved in advance by the Company, which
approval shall not be unreasonably withheld) actually and reasonably incurred by
Indemnitee in connection with such action, suit or proceeding if Indemnitee
acted in good faith and in a manner Indemnitee reasonably believed to be in or
not opposed to the best interests of the Company, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe Indemnitee's
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that Indemnitee did
not act in good faith and in a manner which Indemnitee
<PAGE>
reasonably believed to be in or not opposed to the best interests of the
Company, or, with respect to any criminal action or proceeding, that Indemnitee
had reasonable cause to believe that Indemnitee's conduct was unlawful.
(b) PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY. The Company shall
---------------------------------------------
indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made
a party to any threatened, pending or completed action or proceeding by or in
the right of the Company or any subsidiary of the Company to procure a judgment
in its favor by reason of the fact that Indemnitee is or was a director,
officer, employee or agent of the Company, or any subsidiary of the Company, by
reason of any action or inaction on the part of Indemnitee while an officer or
director or by reason of the fact that Indemnitee is or was serving at the
request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees) and, to the fullest extent permitted by
law, amounts paid in settlement (if such settlement is approved in advance by
the Company, which approval shall not be unreasonably withheld), in each case to
the extent actually and reasonably incurred by Indemnitee in connection with the
defense or settlement of such action or suit if Indemnitee acted in good faith
and in a manner Indemnitee reasonably believed to be in or not opposed to the
best interests of the Company and its shareholders, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which Indemnitee shall have been finally adjudicated by court order or judgment
to be liable to the Company in the performance of Indemnitee's duty to the
Company and its shareholders unless and only to the extent that the court in
which such action or proceeding is or was pending shall determine upon
application that, in view of all the circumstances of the case, Indemnitee is
fairly and reasonably entitled to indemnity for such expenses which such court
shall deem proper.
(c) MANDATORY PAYMENT OF EXPENSES. To the extent that Indemnitee has
------------------------------
been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Section 1(a) or Section 1(b) or the defense of any
claim, issue or matter therein, Indemnitee shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by Indemnitee in
connection therewith.
2. NO EMPLOYMENT RIGHTS. Nothing contained in this Agreement is intended
--------------------
to create in Indemnitee any right to continued employment.
3. EXPENSES; INDEMNIFICATION PROCEDURE.
-----------------------------------
(a) ADVANCEMENT OF EXPENSES. The Company shall advance all expenses
-----------------------
incurred by Indemnitee in connection with the investigation, defense, settlement
or appeal of any civil or criminal action, suit or proceeding referred to in
Section 1(a) or Section 1(b) of this Agreement (including amounts actually paid
in settlement of any such action, suit or proceeding). Indemnitee hereby
undertakes to repay such amounts advanced only if, and to the extent that, it
shall ultimately be determined that Indemnitee is not entitled to be indemnified
by the Company as authorized hereby.
(b) NOTICE/COOPERATION BY INDEMNITEE. Indemnitee shall, as a
--------------------------------
condition precedent to his or her right to be indemnified under this Agreement,
give the Company notice in
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<PAGE>
writing as soon as practicable of any claim made against Indemnitee for which
indemnification will or could be sought under this Agreement. Notice to the
Company shall be directed to the Chief Executive Officer of the Company and
shall be given in accordance with the provisions of Section 12(d) below. In
addition, Indemnitee shall give the Company such information and cooperation as
it may reasonably require and as shall be within Indemnitee's power.
(c) PROCEDURE. Any indemnification and advances provided for in
---------
Section 1 and this Section 3 shall be made no later than twenty (20) days after
receipt of the written request of Indemnitee. If a claim under this Agreement,
under any statute, or under any provision of the Company's Articles of
Incorporation or Bylaws providing for indemnification, is not paid in full by
the Company within twenty (20) days after a written request for payment thereof
has first been received by the Company, Indemnitee may, but need not, at any
time thereafter bring an action against the Company to recover the unpaid amount
of the claim and, subject to Section 11 of this Agreement, Indemnitee shall also
be entitled to be paid for the expenses (including attorneys' fees) of bringing
such action. It shall be a defense to any such action (other than an action
brought to enforce a claim for expenses incurred in connection with any action,
suit or proceeding in advance of its final disposition) that Indemnitee has not
met the standards of conduct which make it permissible under applicable law for
the Company to indemnify Indemnitee for the amount claimed, but the burden of
proving such defense shall be on the Company and Indemnitee shall be entitled to
receive interim payments of expenses pursuant to Section 3(a) unless and until
such defense may be finally adjudicated by court order or judgment from which no
further right of appeal exists. It is the parties' intention that if the
Company contests Indemnitee's right to indemnification, the question of
Indemnitee's right to indemnification shall be for the court to decide, and
neither the failure of the Company (including its Board of Directors, any
committee or subgroup of the Board of Directors, independent legal counsel, or
its shareholders) to have made a determination that indemnification of
Indemnitee is proper in the circumstances because Indemnitee has met the
applicable standard of conduct required by applicable law, nor an actual
determination by the Company (including its Board of Directors, any committee or
subgroup of the Board of Directors, independent legal counsel, or its
shareholders) that Indemnitee has not met such applicable standard of conduct,
shall create a presumption that Indemnitee has or has not met the applicable
standard of conduct.
(d) NOTICE TO INSURERS. If, at the time of the receipt of a
-------------------
notice of a claim pursuant to Section 3(b) hereof, the Company has director and
officer liability insurance in effect, the Company shall give prompt notice of
the commencement of such proceeding to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall thereafter
take all necessary or desirable action to cause such insurers to pay, on behalf
of the Indemnitee, all amounts payable as a result of such proceeding in
accordance with the terms of such policies.
(e) SELECTION OF COUNSEL. In the event the Company shall be
--------------------
obligated under Section 3(a) hereof to pay the expenses of any proceeding
against Indemnitee, the Company, if appropriate, shall be entitled to assume the
defense of such proceeding, with counsel approved by Indemnitee, upon the
delivery to Indemnitee of written notice of its election so to do. After
delivery of such notice, approval of such counsel by Indemnitee and the
retention of such counsel
-3-
<PAGE>
by the Company, the Company will not be liable to Indemnitee under this
Agreement for any fees of counsel subsequently incurred by Indemnitee with
respect to the same proceeding, provided that (i) Indemnitee shall have the
right to employ counsel in any such proceeding at Indemnitee's expense; and (ii)
if (A) the employment of counsel by Indemnitee has been previously authorized by
the Company, (B) Indemnitee shall have reasonably concluded that there may be a
conflict of interest between the Company and Indemnitee in the conduct of any
such defense or (C) the Company shall not, in fact, have employed counsel to
assume the defense of such proceeding, then the fees and expenses of
Indemnitee's counsel shall be at the expense of the Company.
4. ADDITIONAL INDEMNIFICATION RIGHTS; NONEXCLUSIVITY.
-------------------------------------------------
(a) SCOPE. Notwithstanding any other provision of this Agreement,
-----
the Company hereby agrees to indemnify the Indemnitee to the fullest extent
permitted by law, notwithstanding that such indemnification is not specifically
authorized by the provisions of this Agreement,the Company's Articles of
Incorporation,the Company's Bylaws or by statute. In the event of any change,
after the date of this Agreement, in any applicable law, statute, or rule which
expands the right of a California corporation to indemnify a member of its board
of directors or an officer, such changes shall be deemed to be within the
purview of Indemnitee's rights and the Company's obligations under this
Agreement.In the event of any change in any applicable law, statute or rule
which narrows the right of a California corporation to indemnify a member of its
board of directors or an officer,such changes, to the extent not otherwise
required by such law,statute or rule to be applied to this Agreement shall have
no effect on this Agreement or the parties' rights and obligations hereunder.
(b) NONEXCLUSIVITY. The indemnification provided by this Agreement
--------------
shall not be deemed exclusive of any rights to which Indemnitee may be entitled
under the Company's Articles of Incorporation, its Bylaws, any agreement, any
vote of shareholders or disinterested members of the Company's Board of
Directors, the General Corporation Law of the State of California, or otherwise,
both as to action in Indemnitee's official capacity and as to action in another
capacity while holding such office. The indemnification provided under this
Agreement shall continue as to Indemnitee for any action taken or not taken
while serving in an indemnified capacity even though he or she may have ceased
to serve in any such capacity at the time of any action, suit or other covered
proceeding.
5. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any
-----------------------
provision of this Agreement to indemnification by the Company for some or a
portion of the expenses, judgments, fines or penalties actually or reasonably
incurred in the investigation, defense, appeal or settlement of any civil or
criminal action, suit or proceeding, but not, however, for the total amount
thereof, the Company shall nevertheless indemnify Indemnitee for the portion of
such expenses, judgments, fines or penalties to which Indemnitee is entitled.
6. MUTUAL ACKNOWLEDGMENT. Both the Company and Indemnitee acknowledge
---------------------
that in certain instances, Federal law or public policy may override applicable
state law and prohibit the Company from indemnifying its directors and officers
under this Agreement or otherwise.
-4-
<PAGE>
For example, the Company and Indemnitee acknowledge that the Securities and
Exchange Commission (the "SEC") has taken the position that indemnification is
---
not permissible for liabilities arising under certain federal securities laws,
and federal legislation prohibits indemnification for certain ERISA violations.
Indemnitee understands and acknowledges that the Company has undertaken or may
be required in the future to undertake with the SEC to submit the question of
indemnification to a court in certain circumstances for a determination of the
Company's right under public policy to indemnify Indemnitee.
7. OFFICER AND DIRECTOR LIABILITY INSURANCE. The Company shall, from
----------------------------------------
time to time, make the good faith determination whether or not it is practicable
for the Company to obtain and maintain a policy or policies of insurance with
reputable insurance companies providing the officers and directors of the
Company with coverage for losses from wrongful acts, or to ensure the Company's
performance of its indemnification obligations under this Agreement. Among other
considerations, the Company will weigh the costs of obtaining such insurance
coverage against the protection afforded by such coverage. In all policies of
director and officer liability insurance, Indemnitee shall be named as an
insured in such a manner as to provide Indemnitee the same rights and benefits
as are accorded to the most favorably insured of the Company's directors, if
Indemnitee is a director; or of the Company's officers, if Indemnitee is not a
director of the Company but is an officer; or of the Company's key employees, if
Indemnitee is not an officer or director but is a key employee. Notwithstanding
the foregoing, the Company shall have no obligation to obtain or maintain such
insurance if the Company determines in good faith that such insurance is not
reasonably available, if the premium costs for such insurance are
disproportionate to the amount of coverage provided, if the coverage provided by
such insurance is limited by exclusions so as to provide an insufficient
benefit, or if Indemnitee is covered by similar insurance maintained by a parent
or subsidiary of the Company.
8. SEVERABILITY. Nothing in this Agreement is intended to require or
------------
shall be construed as requiring the Company to do or fail to do any act in
violation of applicable law. The Company's inability, pursuant to court order,
to perform its obligations under this Agreement shall not constitute a breach of
this Agreement. The provisions of this Agreement shall be severable as provided
in this Section 8. If this Agreement or any portion hereof shall be invalidated
on any ground by any court of competent jurisdiction, then the Company shall
nevertheless indemnify Indemnitee to the full extent permitted by any applicable
portion of this Agreement that shall not have been invalidated, and the balance
of this Agreement not so invalidated shall be enforceable in accordance with its
terms.
9. EXCEPTIONS. Any other provision herein to the contrary
----------
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) CLAIMS INITIATED BY INDEMNITEE. To indemnify or advance
------------------------------
expenses to Indemnitee with respect to proceedings or claims initiated or
brought voluntarily by Indemnitee and not by way of defense, except with respect
to proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other statute or law or otherwise as required under
Section 317 of the California General Corporation Law, but such indemnification
or
-5-
<PAGE>
advancement of expenses may be provided by the Company in specific cases if
the Board of Directors finds it to be appropriate;
(b) LACK OF GOOD FAITH. To indemnify Indemnitee for any expenses
------------------
incurred by Indemnitee with respect to any proceeding instituted by Indemnitee
to enforce or interpret this Agreement, if a court of competent jurisdiction
determines that each of the material assertions made by Indemnitee in such
proceeding was not made in good faith or was frivolous;
(c) INSURED CLAIMS. To indemnify Indemnitee for expenses or
--------------
liabilities of any type whatsoever (including, but not limited to, judgments,
fines, ERISA excise taxes or penalties, and amounts paid in settlement) to the
extent such expenses or liabilities have been paid directly to Indemnitee by an
insurance carrier under a policy of officers' and directors' liability insurance
maintained by the Company; or
(d) CLAIMS UNDER SECTION 16(B). To indemnify Indemnitee for
--------------------------
expenses or the payment of profits arising from the purchase and sale by
Indemnitee of securities in violation of Section 16(b) of the Securities
Exchange Act of 1934, as amended, or any similar successor statute.
10. CONSTRUCTION OF CERTAIN PHRASES.
-------------------------------
(a) For purposes of this Agreement, references to the "Company" shall
-------
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
if Indemnitee is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, Indemnitee shall stand in
the same position under the provisions of this Agreement with respect to the
resulting or surviving corporation as Indemnitee would have with respect to such
constituent corporation if its separate existence had continued.
(b) For purposes of this Agreement, references to "other enterprises"
-----------------
shall include employee benefit plans; references to "fines" shall include any
-----
excise taxes assessed on Indemnitee with respect to an employee benefit plan;
and references to "serving at the request of the Company" shall include any
-------------------------------------
service as a director, officer, employee or agent of the Company which imposes
duties on, or involves services by, such director, officer, employee or agent
with respect to an employee benefit plan, its participants, or beneficiaries;
and if Indemnitee acted in good faith and in a manner Indemnitee reasonably
believed to be in the interest of the participants and beneficiaries of an
employee benefit plan, Indemnitee shall be deemed to have acted in a manner "not
---
opposed to the best interests of the Company" as referred to in this Agreement.
- --------------------------------------------
11. ATTORNEYS' FEES. In the event that any action is instituted by
---------------
Indemnitee under this Agreement to enforce or interpret any of the terms hereof,
Indemnitee shall be entitled to be paid all court costs and expenses, including
reasonable attorneys' fees, incurred by Indemnitee
-6-
<PAGE>
with respect to such action, unless as a part of such action, the court of
competent jurisdiction determines that each of the material assertions made by
Indemnitee as a basis for such action were not made in good faith or were
frivolous. In the event of an action instituted by or in the name of the Company
under this Agreement or to enforce or interpret any of the terms of this
Agreement, Indemnitee shall be entitled to be paid all court costs and expenses,
including attorneys' fees, incurred by Indemnitee in defense of such action
(including with respect to Indemnitee's counterclaims and cross-claims made in
such action), unless as a part of such action the court determines that each of
Indemnitee's material defenses to such action were made in bad faith or were
frivolous.
12. MISCELLANEOUS.
-------------
(a) GOVERNING LAW. This Agreement and all acts and transactions
-------------
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
California, without giving effect to principles of conflicts of law.
(b) ENTIRE AGREEMENT; ENFORCEMENT OF RIGHTS. This Agreement sets
----------------------------------------
forth the entire agreement and understanding of the parties relating to the
subject matter herein and merges all prior discussions between them. No
modification of or amendment to this Agreement, nor any waiver of any rights
under this Agreement, shall be effective unless in writing signed by the parties
to this Agreement. The failure by either party to enforce any rights under this
Agreement shall not be construed as a waiver of any rights of such party.
(c) CONSTRUCTION. This Agreement is the result of negotiations
------------
between and has been reviewed by each of the parties hereto and their respective
counsel, if any; accordingly, this Agreement shall be deemed to be the product
of all of the parties hereto, and no ambiguity shall be construed in favor of or
against any one of the parties hereto.
(d) NOTICES. Any notice, demand or request required or permitted to
-------
be given under this Agreement shall be in writing and shall be deemed sufficient
when delivered personally or sent by telegram or fax or forty-eight (48) hours
after being deposited in the U.S. mail, as certified or registered mail, with
postage prepaid, and addressed to the party to be notified at such party's
address as set forth below or as subsequently modified by written notice.
(e) COUNTERPARTS. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(f) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
----------------------
the Company and its successors and assigns, and inure to the benefit of
Indemnitee and Indemnitee's heirs, legal representatives and assigns.
(g) SUBROGATION. In the event of payment under this Agreement, the
-----------
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of
-7-
<PAGE>
Indemnitee, who shall execute all documents required and shall do all acts that
may be necessary to secure such rights and to enable the Company to effectively
bring suit to enforce such rights.
[Signature Page Follows]
-8-
<PAGE>
The parties hereto have executed this Agreement as of the day and year set
forth on the first page of this Agreement.
NETCENTIVES INC.
By: _______________________________
Title: _______________________________
Address: 690 Fifth Street
San Francisco, CA 94107
AGREED TO AND ACCEPTED:
_________________________________
IndemniteeName
Address: IndemniteeAddress1
IndemniteeAddress2
-9-
<PAGE>
EXHIBIT 10.2
NETCENTIVES INC.
1996 STOCK OPTION PLAN
(Amended September 8, 1997)
(Amended December 4, 1997)
(Amended July 29, 1998)
(Amended December 12, 1998)
(Amended March 9, 1999)
(Amended June 10, 1999)
1. PURPOSES OF THE PLAN. The purposes of this 1996 Stock Option Plan are
--------------------
to attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees and Consultants of
the Company and its Subsidiaries and to promote the success of the Company's
business. Options granted under the Plan may be incentive stock options (as
defined under Section 422 of the Code) or nonstatutory stock options, as
determined by the Administrator at the time of grant of an option and subject to
the applicable provisions of Section 422 of the Code, as amended, and the
regulations promulgated thereunder.
2. DEFINITIONS. As used herein, the following definitions shall apply:
-----------
(a) "ADMINISTRATOR" means the Board or any of its Committees appointed
-------------
pursuant to Section 4 of the Plan.
(b) "AFFILIATE" means an entity other than a Subsidiary (as defined
---------
below) in which the Company owns a significant interest, directly or indirectly,
as determined in the discretion of the Committee, or which, together with the
Company, is under common control of a third person or entity.
(c) "APPLICABLE LAWS" means the legal requirements relating to the
---------------
administration of stock option and restricted stock purchase plans under
applicable U.S. state corporate laws, U.S. federal and applicable state
securities laws, the Code, any Stock Exchange rules or regulations and the
applicable laws of any other country or jurisdiction where Options or Stock
Purchase Rights are granted under the Plan, as such laws, rules, regulations and
requirements shall be in place from time to time; provided, however, that to the
extent permitted under such laws, rules, regulations and requirements, the
rights of any participant under the Plan shall be determined in accordance with
the law of the State of California, without giving effect to principles of
conflict of law.
(d) "BOARD" means the Board of Directors of the Company.
-----
(e) "CHANGE OF CONTROL" means a sale of all or substantially all of
-----------------
the Company's assets, or any merger or consolidation of the Company with or into
another corporation other than a merger or consolidation in which the holders of
more than 50% of the shares of capital stock of the Company outstanding
immediately prior to such transaction continue to hold (either by the voting
securities remaining outstanding or by their being converted into voting
securities of the surviving entity) more than 50% of the total voting power
represented by the voting securities of the Company, or such surviving entity,
outstanding immediately after such transaction.
<PAGE>
(f) "CODE" means the Internal Revenue Code of 1986, as amended.
----
(g) "COMMITTEE" means one or more committees or subcommittees of the
---------
Board appointed by the Board to administer the Plan in accordance with Section 4
below.
(h) "COMMON STOCK" means the Common Stock of the Company.
------------
(i) "COMPANY" means Netcentives Inc., a California corporation.
-------
(j) "CONSULTANT" means any person, including an advisor, who renders
----------
services to the Company or any Parent, Subsidiary or Affiliate and is
compensated for such services, and any Director of the Company whether
compensated for such services or not.
(k) "CONTINUOUS SERVICE" means the absence of any interruption or
------------------
termination of service as an Employee or Consultant to the Company or a Parent,
Subsidiary or Affiliate. Continuous Service shall not be considered interrupted
in the case of (i) sick leave; (ii) military leave; (iii) any other leave of
absence approved by the Administrator, provided that such leave is for a period
of not more than 90 days, unless reemployment upon the expiration of such leave
is guaranteed by contract or statute, or unless provided otherwise pursuant to
Company policy adopted from time to time; or (iv) in the case of transfers
between locations of the Company or between the Company, its Parent(s),
Subsidiaries, Affiliates or their respective successors. Unless otherwise
determined by the Administrator or the Company, a change in status from an
Employee to a Consultant or from a Consultant to an Employee will not constitute
a termination of Continuous Service Status.
(l) "CORPORATE TRANSACTION" means a sale of all or substantially all
---------------------
of the Company's assets, or a merger, consolidation or other capital
reorganization of the Company with or into another corporation.
(m) "DIRECTOR" means a member of the Board.
--------
(n) "EMPLOYEE" means any person (including, if appropriate, any Named
--------
Executive, Officer or Director) employed by the Company or any Parent,
Subsidiary or Affiliate of the Company. The payment by the Company of a
director's fee to a Director shall not be sufficient to constitute "employment"
of such Director by the Company.
(o) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
------------
amended.
(p) "FAIR MARKET VALUE" means, as of any date, the value of Common
-----------------
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system including without limitation the National
Market of the National Association of Securities Dealers, Inc. Automated
Quotation ("Nasdaq") System, its Fair Market Value shall be the closing sales
------
price for such stock (or the closing bid, if no sales were reported) as quoted
on such system or exchange on the date of determination (or if no trading or
bids occurred on the date of determination, on the last trading day prior to the
date of determination), as reported in The Wall Street Journal or such other
source as the Administrator deems reliable;
-2-
<PAGE>
(ii) If the Common Stock is quoted on the Nasdaq System (but not
on the National Market thereof) or regularly quoted by a recognized securities
dealer but selling prices are not reported, its Fair Market Value shall be the
mean between the high bid and low asked prices for the Common Stock for the date
of determination (or if no bids occurred on the date of determination, on the
last trading day prior to the date of determination); or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(q) "INCENTIVE STOCK OPTION" means an Option intended to qualify as
----------------------
an incentive stock option within the meaning of Section 422 of the Code, as
designated in the applicable Option Agreement.
(r) "LISTED SECURITY" means any security of the Company that is
---------------
listed or approved for listing on a national securities exchange or designated
or approved for designation as a national market system security on an
interdealer quotation system by the National Association of Securities Dealers,
Inc.
(s) "NAMED EXECUTIVE" means any individual who, on the last day of
---------------
the Company's fiscal year, is the chief executive officer of the Company (or is
acting in such capacity) or among the four most highly compensated officers of
the Company (other than the chief executive officer). Such officer status shall
be determined pursuant to the executive compensation disclosure rules under the
Exchange Act.
(t) "NONSTATUTORY STOCK OPTION" means an Option not intended to
-------------------------
qualify as an Incentive Stock Option, as designated in the applicable Option
Agreement.
(u) "OFFICER" means a person who is an officer of the Company within
-------
the meaning of Section 16(a) of the Exchange Act and the rules and regulations
promulgated thereunder.
(v) "OPTION" means a stock option granted pursuant to the Plan.
------
(w) "OPTION AGREEMENT" means a written document, the form(s) of which
----------------
shall be approved from time to time by the Administrator, reflecting the terms
of an Option granted under the Plan and includes any documents attached to or
incorporated into such Option Agreement, including, but not limited to, a notice
of stock option grant and a form of exercise notice.
(x) "OPTION EXCHANGE PROGRAM" means a program approved by the
-----------------------
Administrator whereby outstanding Options are exchanged for Options with a lower
exercise price.
(y) "OPTIONED STOCK" means the Common Stock subject to an Option.
--------------
(z) "OPTIONEE" means an Employee or Consultant who receives an
--------
Option.
(aa) "PARENT" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
-3-
<PAGE>
(bb) "PARTICIPANT" means any holder of one or more Options or Stock
-----------
Purchase Rights, or the Shares issuable or issued upon exercise of such awards,
under the Plan.
(cc) "PLAN" means this 1999 Stock Plan.
----
(dd) "REPORTING PERSON" means an Officer, Director or greater than 10%
----------------
shareholder of the Company within the meaning of Rule 16a-2 of the Exchange Act,
who is required to file reports pursuant to Rule 16a-3 of the Exchange Act.
(ee) "RESTRICTED STOCK" means shares of Common Stock acquired pursuant
----------------
to a grant of a Stock Purchase Right under Section 11 below.
(ff) "RESTRICTED STOCK PURCHASE AGREEMENT" means a written document,
-----------------------------------
the form(s) of which shall be approved from time to time by the Administrator,
reflecting the terms of a Stock Purchase Right granted under the Plan and
includes any documents attached to such agreement.
(gg) "RULE 16B-3" means Rule 16b-3 promulgated under the Exchange Act,
----------
as amended from time to time, or any successor provision.
(hh) "SHARE" means a share of the Common Stock, as adjusted in
-----
accordance with Section 15 of the Plan.
(ii) "STOCK EXCHANGE" means any stock exchange or consolidated stock
--------------
price reporting system on which prices for the Common Stock are quoted at any
given time.
(jj) "STOCK PURCHASE RIGHT" means the right to purchase Common Stock
--------------------
pursuant to Section 11 below.
(kk) "SUBSIDIARY" means a "subsidiary corporation," whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code.
(ll) "TEN PERCENT HOLDER" means a person who owns stock representing
------------------
more than ten percent (10%) of the voting power of all classes of stock of the
Company or any Parent or Subsidiary.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 15 of
-------------------------
the Plan, the maximum aggregate number of shares that may be sold under the Plan
is 7,671,400 Shares of Common Stock, plus an annual increase on the first day of
each of the Company's fiscal years beginning in 2000, 2001, 2002, 2003 and 2004
equal to the lesser of (i) 1,250,000 Shares, or (ii) such lesser number of
Shares as is determined by the Board. The Shares may be authorized, but
unissued, or reacquired Common Stock.
If an Option expires or becomes unexercisable for any reason without having
been exercised in full, or is surrendered pursuant to an Option Exchange
Program, the unpurchased Shares that were subject thereto shall, unless the Plan
has been terminated, become available for future grant under the Plan. In
addition, any Shares of Common Stock that are retained by the Company upon
exercise of an Option or Stock Purchase Right in order to satisfy the exercise
or purchase price for such Option or Stock Purchase Right or any withholding
taxes due with respect to such exercise or purchase shall be treated as not
issued and shall continue to be
-4-
<PAGE>
available under the Plan. If Shares of Restricted Stock are forfeited before any
dividends have been paid with respect to such Restricted Stock, then such
Restricted Stock shall again become available for awards uner the Plan other
than Incentive Stock Options. Notwithstanding any other provision of the Plan,
Shares issued under the Plan and later repurchased by the Company pursuant to
any repurchase right that the Company may have shall not be available for future
grant under the Plan.
4. ADMINISTRATION OF THE PLAN.
--------------------------
(a) GENERAL. The Plan shall be administered by the Board or a
-------
Committee, or a combination thereof, as determined by the Board. The Plan may
be administered by different administrative bodies with respect to different
classes of Participants and, if permitted by the Applicable Laws, the Board may
authorize one or more officers (who may (but need not) be Officers) to grant
Options or Stock Purchase Rights to Employees and Consultants (other than
Consultants who are Directors).
(b) ADMINISTRATION WITH RESPECT TO REPORTING PERSONS. With respect to
------------------------------------------------
Options granted to Reporting Persons and Named Executives, the Plan may (but
need not) be administered so as to permit grants of Options to Reporting Persons
to qualify for the exemption set forth in Rule 16b-3 and to qualify grants of
Options to Named Executives as performance-based compensation under Section
162(m) of the Code, and otherwise so as to satisfy the Applicable Laws.
(c) COMMITTEE COMPOSITION. If a Committee has been appointed pursuant
---------------------
to this Section 4, such Committee shall continue to serve in its designated
capacity until otherwise directed by the Board. From time to time the Board may
increase the size of any Committee and appoint additional members thereof,
remove members (with or without cause) and appoint new members in substitution
therefor, fill vacancies (however caused) and remove all members of a Committee
and thereafter directly administer the Plan, all to the extent permitted by the
Applicable Laws and, in the case of a Committee administering the Plan pursuant
to Section 4(b) above, to the extent permitted or required by Rule 16b-3 and
Section 162(m) of the Code.
(d) POWERS OF THE ADMINISTRATOR. Subject to the provisions of the
---------------------------
Plan and in the case of a Committee, the specific duties delegated by the Board
to such Committee, the Administrator shall have the authority, in its
discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(p) of the Plan;
(ii) to select the Employees and Consultants to whom Options and
Stock Purchase Rights or any combination thereof may from time to time be
granted;
(iii) to determine whether and to what extent Options and Stock
Purchase Rights or any combination thereof are granted;
(iv) to determine the number of Shares of Common Stock to be
covered by each such award granted;
(v) to approve forms of agreement for use under the Plan;
-5-
<PAGE>
(vi) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted hereunder, which terms and
conditions include but are not limited to the exercise or purchase price, the
time or times when Options or Stock Purchase Rights may be exercised (which may
be based on performance criteria), any vesting acceleration or waiver of
forfeiture restrictions, and any restriction or limitation regarding any Option,
Optioned Stock, Stock Purchase Right or Restricted Stock, based in each case on
such factors as the Administrator, in its sole discretion, shall determine;
(vii) to determine whether and under what circumstances an
Option may be settled in cash under Section 10(f) instead of Common Stock;
(viii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option shall have declined since the date the Option was granted and to
make any other amendments or adjustments to any Option that the Administrator
determines, in its discretion and under the authority granted to it under the
Plan, to be necessary or advisable, provided however that no amendment or
adjustment to an Option that would materially and adversely affect the rights of
any Optionee shall be made without the prior written consent of the Optionee;
(ix) to determine the terms and restrictions applicable to
Stock Purchase Rights and the Restricted Stock purchased by exercising such
Stock Purchase Rights;
(x) to initiate an Option Exchange Program;
(xi) to construe and interpret the terms of the Plan and awards
granted under the Plan; and
(xii) in order to fulfill the purposes of the Plan and without
amending the Plan, to modify grants of Options or Stock Purchase Rights to
Participants who are foreign nationals or employed outside of the United States
in order to recognize differences in local law, tax policies or customs.
(e) EFFECT OF ADMINISTRATOR'S DECISION. All decisions, determinations
----------------------------------
and interpretations of the Administrator shall be final and binding on all
Participants.
5. ELIGIBILITY.
-----------
(a) RECIPIENTS OF GRANTS. Nonstatutory Stock Options and Stock
--------------------
Purchase Rights may be granted to Employees and Consultants. Incentive Stock
Options may be granted only to Employees, provided however that Employees of
Affiliates shall not be eligible to receive Incentive Stock Options. An
Employee or Consultant who has been granted an Option or Stock Option Right may,
if he or she is otherwise eligible, be granted additional Options or Stock
Purchase Rights.
(b) TYPE OF OPTION. Each Option shall be designated in the Option
--------------
Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option.
However, notwithstanding such designations, to the extent that the aggregate
Fair Market Value of Shares with respect to which Options are exercisable for
the first time by an Optionee during any calendar year (under all plans of the
Company or any Parent or Subsidiary) exceeds $100,000,
-6-
<PAGE>
such excess Options shall be treated as Nonstatutory Stock Options. For purposes
of this Section 5(b), Incentive Stock Options shall be taken into account in the
order in which they were granted, and the Fair Market Value of the Shares shall
be determined as of the date of grant of such Option. In the event any Option
designated as an Incentive Stock Option fails to meet the requirements set forth
in this Plan for an Incentive Stock Option or as required to qualify as an
incentive stock option within the meaning of Code Section 422, such Option shall
not be void but instead shall be deemed a Nonstatutory Stock Option.
(c) NO EMPLOYMENT RIGHTS. The Plan shall not confer upon any
--------------------
Participant any right with respect to continuation of employment or consulting
relationship with the Company, nor shall it interfere in any way with his or her
right or the Company's right to terminate his or her employment or consulting
relationship at any time, with or without cause.
6. TERM OF PLAN. The Plan shall become effective upon its adoption by the
------------
Board. It shall continue in effect for a term of ten (10) years unless sooner
terminated under Section 16 of the Plan.
7. TERM OF OPTION. The term of each Option shall be the term stated in
--------------
the Option Agreement; provided however that the term shall be no more than ten
(10) years from the date of grant thereof or such shorter term as may be
provided in the Option Agreement and provided further that, in the case of an
Incentive Stock Option granted to a person who at the time of such grant is a
Ten Percent Holder, the term of such Incentive Stock Option shall be five (5)
years from the date of grant thereof or such shorter term as may be provided in
the Option Agreement.
8. LIMITATION ON GRANTS TO EMPLOYEES. Subject to adjustment as provided
---------------------------------
in Section 13 below, the maximum number of Shares which may be subject to
Options and Stock Purchase Rights granted to any one Employee under this Plan
for any fiscal year of the Company shall be 2,000,000.
9. OPTION EXERCISE PRICE AND CONSIDERATION.
---------------------------------------
(a) EXERCISE PRICE. The per Share exercise price for the Shares to be
--------------
issued pursuant to exercise of an Option shall be such price as is determined by
the Administrator and set forth in the Option Agreement, but shall be subject to
the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who at the time of grant is a Ten
Percent Holder, the per Share exercise price shall be no less than 110% of the
Fair Market Value per Share on the date of grant; or
(B) granted to any other Employee, the per Share exercise
price shall be no less than 100% of the Fair Market Value per Share on the date
of grant.
(ii) In the case of a Nonstatutory Stock Option
(A) granted prior to the date, if any, on which the Common
Stock becomes a Listed Security to a person who is at the time of grant is a Ten
Percent Holder, the per Share exercise price shall be no less than 110% of the
Fair Market Value per Share on the
-7-
<PAGE>
date of grant if required by the Applicable Laws and, if not so required, shall
be such price as is determined by the Administrator;
(B) granted to a person who, at the time of the grant of
such Option, is a Named Executive of the Company, the per share Exercise Price
shall be no less than 100% of the Fair Market Value on the date of grant if such
Option is intended to qualify as performance-based compensation under Section
162(m) of the Code; or
(C) granted prior to the date, if any, on which the Common
Stock becomes a Listed Security to any person other than a Named Executive or a
Ten Percent Holder, the per Share exercise price shall be no less than 85% of
the Fair Market Value per Share on the date of grant if required by Applicable
Law and, if not so required, shall be such price as is determined by the
Administrator.
(iii) Notwithstanding the foregoing, Options may be granted with a
per Share exercise price other than as required above pursuant to a Corporate
Transaction.
(b) PERMISSIBLE CONSIDERATION. The consideration to be paid for the
-------------------------
Shares to be issued upon exercise of an Option, including the method of payment,
shall be determined by the Administrator (and, in the case of an Incentive Stock
Option, shall be determined at the time of grant) and may consist entirely of
(1) cash; (2) check; (3) delivery of Optionee's promissory note with such
recourse, interest, security and redemption provisions as the Administrator
determines to be appropriate; (4) cancellation of indebtedness; (5) surrender of
other Shares that (x) in the case of Shares acquired upon exercise of an Option
either have been owned by the Optionee for more than six months on the date of
surrender (or such other period as may be required to avoid a charge to the
Company's earnings) or were not acquired, directly or indirectly, from the
Company, and (y) have a Fair Market Value on the date of surrender equal to the
aggregate exercise price of the Shares as to which the Option is exercised; (6)
authorization by the Optionee for the Company to retain from the total number of
Shares as to which the Option is exercised that number of Shares having a Fair
Market Value on the date of exercise equal to the exercise price for the total
number of Shares as to which the Option is exercised; (7) delivery of a properly
executed exercise notice together with such other documentation as the
Administrator and the broker, if applicable, shall require to effect exercise of
the Option and prompt delivery to the Company of the sale or loan proceeds
required to pay the exercise price and any applicable withholding taxes; (8) any
combination of the foregoing methods of payment; or (9) such other consideration
and method of payment for the issuance of Shares to the extent permitted under
the Applicable Laws. In making its determination as to the type of
consideration to accept, the Administrator shall consider whether acceptance of
such consideration may be reasonably expected to benefit the Company and the
Administrator may refuse to accept a particular form of consideration at the
time of any Option exercise if, in its sole discretion, acceptance of such form
of consideration is not in the best interests of the Company at such time.
10. EXERCISE OF OPTION.
------------------
(a) VESTING. Any Option granted hereunder shall be exercisable at
-------
such times and under such conditions as determined by the Administrator,
consistent with the terms of the Plan, and reflected in the Option Agreement,
including vesting requirements and/or performance criteria with respect to the
Company and/or the Optionee; provided however that, if required by the
Applicable Laws, any Option granted prior to the date, if any, upon which the
Common
-8-
<PAGE>
Stock becomes a Listed Security shall become exercisable at a rate of at least
20% per year over five years from the date the Option is granted. In the event
that any of the Shares issued upon exercise of an Option (which exercise occurs
prior to the date, if any, upon which the Common Stock becomes a Listed
Security) should be subject to a right of repurchase in the Company's favor,
such repurchase right shall, if required by the Applicable Laws, lapse at the
rate of at least 20% per year over five years from the date the Option is
granted. Notwithstanding the above, in the case of an Option granted to an
officer (including but not limited to Officers), Director or Consultant, the
Option may become exercisable, or a repurchase right, if any, in favor of the
Company shall lapse, at any time or during any period established by the
Administrator. The Administrator shall have the discretion to determine whether
and to what extent the vesting of Options shall be tolled during any unpaid
leave of absence; provided however that in the absence of such determination,
vesting of Options shall be tolled during any such leave.
(b) PROCEDURE FOR EXERCISE. An Option may not be exercised for a
----------------------
fraction of a Share. An Option shall be deemed exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and the Company has
received full payment for the Shares with respect to which the Option is
exercised. Full payment may, as authorized by the Administrator, consist of any
consideration and method of payment allowable under Section 9(b) of the Plan.
Exercise of an Option in any manner shall result in a decrease in the number of
Shares that thereafter may be available, both for purposes of the Plan and for
sale under the Option, by the number of Shares as to which the Option is
exercised.
(c) RIGHTS AS A SHAREHOLDER. Until the issuance (as evidenced by the
-----------------------
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the stock certificate evidencing such Shares, no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such stock certificate promptly
upon exercise of the Option. No adjustment will be made for a dividend or other
right for which the record date is prior to the date the stock certificate is
issued, except as provided in Section 15 of the Plan.
(d) TERMINATION OF CONTINUOUS SERVICE. In the event of termination of
---------------------------------
an Optionee's Continuous Service, such Optionee's right to exercise the Option
shall cease and the Option shall forthwith become void and cease to have effect,
except as set forth specifically in the Option Agreement. Notwithstanding the
foregoing, if required by the Applicable Laws. any Option granted prior to the
date, if any, upon which the Common Stock becomes a Listed Security shall be
exercisable by the Optionee for a period of time following the termination of
the Optionee's Continuous Service as follows:
(i) In the event of termination of Continuous Service for reasons
other than the Optionee's disability or death, the Option shall be exercisable
by the Optionee following such termination for a period of not less than thirty
(30) days, as is determined by the Administrator (with such determination in the
case of an Incentive Stock Option being made at the time of grant of the
Option), after the date of such termination of Continuous Service (but in no
event later than the date of expiration of the term of such Option as set forth
in the Option Agreement), to the extent that the Optionee was entitled to
exercise it at the date of such termination. If an Option Agreement provides
that an Incentive Stock Option may be exercised
-9-
<PAGE>
more than three (3) months after the termination of the Optionee's Continuous
Service, to the extent that such Optionee fails to exercise such Option within
three (3) months of the date of such termination, such Option thereafter shall
be treated as a Nonstatutory Stock Option. To the extent that the Optionee was
not entitled to exercise the Option at the date of such termination, or if the
Optionee does not exercise the Option to the extent so entitled within the time
specified above, the Option shall terminate and the Optioned Stock underlying
the unexercised portion of the Option shall revert to the Plan.
(ii) In the event of termination of Continuous Service as a
result of Optionee's disability, such Optionee may, but only within six (6)
months (or such longer period of time as is determined by the Administrator,
with such determination in the case of an Incentive Stock Option made at the
time of grant of the Option) from the date of such termination (but in no event
later than the date of expiration of the term of such Option as set forth in the
Option Agreement), exercise the Option to the extent he or she was entitled to
exercise it at the date of such termination. To the extent that the Optionee was
not entitled to exercise the Option at the date of termination, or if the
Optionee does not exercise the Option to the extent so entitled within the time
specified herein, the Option shall terminate and the Optioned Stock underlying
the unexercised portion of the Option shall revert to the Plan.
(iii) In the event of the death of an Optionee prior to
termination of his or her Continuous Service, the Option may be exercised at any
time within six (6) months (or such longer period of time as is determined by
the Administrator, with such determination in the case of an Incentive Stock
Option being made at the time of grant of the Option) following the date of
death (but in no event later than the expiration date of the term of such Option
as set forth in the Option Agreement) by such Optionee's estate or by a person
who acquired the right to exercise the Option by bequest or inheritance, but
only to the extent of the right to exercise that had accrued at the date of
death or, if earlier, the date of termination of the Optionee's Continuous
Service. To the extent that the Optionee was not entitled to exercise the Option
at the date of death or termination, as the case may be, or if the Optionee does
not exercise such Option to the extent so entitled within the time specified
above, the Option shall terminate and the Optioned Stock underlying the
unexercised portion of the Option shall revert to the Plan.
(e) EXTENSION OF EXERCISE PERIOD. The Administrator shall have full
----------------------------
power and authority to extend the period of time for which an Option is to
remain exercisable following termination of an Optionee's Continuous Service
from the periods set forth in Sections 10(b), 10(c) and 10(d) above or in the
Option Agreement to such greater time as the Board shall deem appropriate,
provided that in no event shall such Option be exercisable later than the date
of expiration of the term of such Option as set forth in the Option Agreement.
(f) BUY-OUT PROVISIONS. The Administrator may at any time offer to
------------------
buy out for a payment in cash or Shares an Option previously granted under the
Plan based on such terms and conditions as the Administrator shall establish and
communicate to the Optionee at the time such offer is made.
11. STOCK PURCHASE RIGHTS.
---------------------
(a) RIGHTS TO PURCHASE. Stock Purchase Rights may be issued either
------------------
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights
-10-
<PAGE>
under the Plan, it shall advise the offeree in writing of the terms, conditions
and restrictions related to the offer, including the number of Shares that such
person shall be entitled to purchase, the consideration to be paid, and the time
within which such person must accept such offer, which shall in no event exceed
30 days from the date upon which the Administrator made the determination to
grant the Stock Purchase Right. In the case of a Stock Purchase Right granted
prior to the date, if any, on which the Common Stock becomes a Listed Security
and if required by the Applicable Laws at such time, the purchase price of
Shares subject to such Stock Purchase Rights shall not be less than 85% of the
Fair Market Value of the Shares as of the date of the offer, or, in the case of
a Ten Percent Holder, the price shall not be less than 100% of the Fair Market
Value of the Shares as of the date of the offer. The offer to purchase Shares
subject to Stock Purchase Rights shall be accepted by execution of a Restricted
Stock Purchase Agreement in the form determined by the Administrator.
(b) REPURCHASE OPTION. Unless the Administrator determines otherwise,
-----------------
the Restricted Stock Purchase Agreement shall grant the Company an irrevocable,
exclusive option (the "Repurchase Option") exercisable upon the termination of
-----------------
the purchaser's Continuous Service. The purchase price for Shares repurchased
pursuant to the Restricted Stock Purchase Agreement shall be the original
purchase price paid by the purchaser and may be paid by cash, check or
cancellation of any indebtedness of the purchaser to the Company, at the
Company's option. The Repurchase Option shall lapse at such rate as the
Administrator may determine; provided however that with respect to a Stock
Purchase Right granted prior to the date, if any, on which the Common Stock
becomes a Listed Security to a purchaser who is not an officer (including an
Officer), Director or Consultant of the Company or of any Parent or Subsidiary
of the Company, such Repurchase Option shall lapse at a minimum rate of 20% of
the Shares subject to the Stock Purchase Right if required by the Applicable
Laws.
(c) OTHER PROVISIONS. The Restricted Stock Purchase Agreement shall
----------------
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion. In
addition, the provisions of Restricted Stock Purchase Agreements need not be the
same with respect to each purchaser.
(d) RIGHTS AS A SHAREHOLDER. Once the Stock Purchase Right is
-----------------------
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 15
of the Plan.
12. TAXES.
-----
(a) As a condition of the exercise of an Option or Stock Purchase
Right granted under the Plan, the Participant (or in the case of the
Participant's death, the person exercising the Option or Stock Purchase Right)
shall make such arrangements as the Administrator may require for the
satisfaction of any applicable federal, state, local or foreign withholding tax
obligations that may arise in connection with the exercise of Option or Stock
Purchase Right and the issuance of Shares. The Company shall not be required to
issue any Shares under the Plan until such obligations are satisfied.
-11-
<PAGE>
(b) In the case of an Employee and in the absence of any other
arrangement, the Employee shall be deemed to have directed the Company to
withhold or collect from his or her compensation an amount sufficient to satisfy
such tax obligations from the next payroll payment otherwise payable after the
date of an exercise of the Option or Stock Purchase Right.
(c) This Section 12(c) shall apply only after the date, if any, upon
which the Common Stock becomes a Listed Security. In the case of Participant
other than an Employee (or in the case of an Employee where the next payroll
payment is not sufficient to satisfy such tax obligations, with respect to any
remaining tax obligations), in the absence of any other arrangement and to the
extent permitted under the Applicable Laws, the Participant shall be deemed to
have elected to have the Company withhold from the Shares to be issued upon
exercise of the Option or Stock Purchase Right that number of Shares having a
Fair Market Value determined as of the applicable Tax Date (as defined below)
equal to the amount required to be withheld. For purposes of this Section 12,
the Fair Market Value of the Shares to be withheld shall be determined on the
date that the amount of tax to be withheld is to be determined under the
Applicable Laws (the "Tax Date").
--------
(d) At the discretion of the Administrator, a Participant may satisfy
his or her tax withholding obligations arising in connection with an Option by
one or some combination of the following methods: (i) by cash payment; (ii) by
payroll deduction out of the Optionee's current compensation; or (iii) if
permitted by the Administrator, in its discretion, a Participant may satisfy his
or her tax withholding obligations upon exercise of an Option or Stock Purchase
Right by surrendering to the Company Shares that (A) in the case of Shares
previously acquired from the Company, have been owned by the Participant for
more than six (6) months on the date of surrender, and (B) have a Fair Market
Value determined as of the applicable Tax Date equal to the amount required to
be withheld.
(e) Any election or deemed election by a Participant to have Shares
withheld to satisfy tax withholding obligations under Section 12(c) or (d) above
shall be irrevocable as to the particular Shares as to which the election is
made and shall be subject to the consent or disapproval of the Administrator.
Any election by a Participant under Section 12(d) above must be made on or prior
to the applicable Tax Date.
(f) In the event an election to have Shares withheld is made by a
Participant and the Tax Date is deferred under Section 83 of the Code because no
election is filed under Section 83(b) of the Code, the Participant shall receive
the full number of Shares with respect to which the Option or Stock Purchase
Right is exercised but such Participant shall be unconditionally obligated to
tender back to the Company the proper number of Shares on the Tax Date.
13. NON-TRANSFERABILITY OF OPTIONS AND STOCK PURCHASE RIGHTS. Options and
--------------------------------------------------------
Stock Purchase Rights may not be transferred or disposed of in any manner other
than by will or by the laws of descent or distribution or pursuant to a domestic
relations order (as defined by the Code or the rules thereunder); provided that,
after the date, if any, upon which the Common Stock becomes a Listed Security,
the Administrator may in its discretion grant transferable Nonstatutory Stock
Options pursuant to Option Agreements specifying (i) the manner in which such
Nonstatutory Stock Options are transferable and (ii) that any such transfer
shall be subject to the Applicable Laws. The designation of a beneficiary by an
Optionee will not constitute a
-12-
<PAGE>
transfer. An Option or Stock Purchase Right may be exercised, during the
lifetime of the holder of Option or Stock Purchase Right, only by such holder or
a transferee permitted by this Section 13.
14. TIME OF GRANTING OPTIONS AND STOCK PURCHASE RIGHTS. The date of grant
--------------------------------------------------
of an Option or Stock Purchase Right shall, for all purposes, be the date on
which the Administrator makes the determination granting such Option or Stock
Purchase Right, or such later date as is determined by the Administrator;
provided however that in the case of an Incentive Stock Option, the grant date
shall be the later of the date on which the Administrator makes the
determination granting such Incentive Stock Option or the date of commencement
of the Optionee's employment relationship with the Company. Notice of the
determination shall be given to each Employee or Consultant to whom an Option or
Stock Purchase Right is so granted within a reasonable time after the date of
such grant.
15. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, CORPORATE TRANSACTIONS AND
----------------------------------------------------------------------
CERTAIN OTHER TRANSACTIONS.
- --------------------------
(a) CHANGES IN CAPITALIZATION. Subject to any required action by the
-------------------------
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option or Stock Purchase Right, the number of Shares set forth
in Sections 3(a)(i) and 8 above, and the number of shares of Common Stock that
have been authorized for issuance under the Plan but as to which no Options or
Stock Purchase Rights have yet been granted or that have been returned to the
Plan upon cancellation or expiration of an Option or Stock Purchase Right, as
well as the price per Share of Common Stock covered by each such outstanding
Option or Stock Purchase Right, shall be proportionately adjusted for any
increase or decrease in the number of issued Shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination,
recapitalization or reclassification of the Common Stock (including any change
in the number of Shares of Common Stock effected in connection with a change of
domicile of the Company), or any other increase or decrease in the number of
issued Shares of Common Stock effected without receipt of consideration by the
Company; provided however that conversion of any convertible securities of the
Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Administrator, whose
determination in that respect shall be final, binding and conclusive. Except as
expressly provided herein, no issuance by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to, the
number or price of Shares of Common Stock subject to an Option or Stock Purchase
Right.
(b) DISSOLUTION OR LIQUIDATION. In the event of the dissolution or
--------------------------
liquidation of the Company, the Administrator shall notify the Optionee at least
fifteen (15) days prior to such proposed action. To the extent it has not
previously been exercised, each outstanding Option or Stock Purchase Right shall
terminate immediately prior to the consummation of such proposed action, unless
otherwise provided by the Administrator.
(c) CORPORATE TRANSACTIONS; CHANGE OF CONTROL. In the event of a
----------------------------------------
Corporate Transaction, including a Change of Control, each outstanding Option
and Stock Purchase Right shall be assumed or an equivalent option or right shall
be substituted by the successor corporation or a Parent or Subsidiary of such
successor corporation (such entity, the
-13-
<PAGE>
"Successor Corporation"), unless the Successor Corporation does not agree to
---------------------
such assumption or substitution, in which case such Options and Stock Purchase
Rights shall terminate upon consummation of the transaction. In the event of a
Change of Control, all conditions and restrictions with respect to Restricted
Stock shall lapse, except to the extent such conditions and restrictions are
assigned to the Successor Corporation in connection with the Change of Control.
For purposes of this Section 15(c), an Option or a Stock Purchase
Right shall be considered assumed, without limitation, if, at the time of
issuance of the stock or other consideration upon a Corporate Transaction or a
Change of Control, as the case may be, each holder of an Option or Stock
Purchase Right would be entitled to receive upon exercise of the Option or Stock
Purchase Right the same number and kind of shares of stock or the same amount of
property, cash or securities as such holder would have been entitled to receive
upon the occurrence of the transaction if the holder had been, immediately prior
to such transaction, the holder of the number of Shares of Common Stock covered
by the Option or the Stock Purchase Right at such time (after giving effect to
any adjustments in the number of Shares covered by the Option or Stock Purchase
Right as provided for in this Section 15); provided however that if the
consideration received in the transaction is not solely common stock of the
Successor Corporation, the Administrator may, with the consent of the Successor
Corporation, provide for the consideration to be received upon exercise of the
Option or Stock Purchase Right to be solely common stock of the Successor
Corporation equal to the Fair Market Value of the per Share consideration
received by holders of Common Stock in the transaction.
(d) CERTAIN DISTRIBUTIONS. In the event of any distribution to the
---------------------
Company's shareholders of securities of any other entity or other assets (other
than dividends payable in cash or stock of the Company) without receipt of
consideration by the Company, the Administrator may, in its discretion,
appropriately adjust the price per Share of Common Stock covered by each
outstanding Option or Stock Purchase Right to reflect the effect of such
distribution.
16. AMENDMENT AND TERMINATION OF THE PLAN.
-------------------------------------
(a) AMENDMENT AND TERMINATION. The Board may at any time amend,
-------------------------
alter, suspend, discontinue or terminate the Plan. To the extent necessary and
desirable to comply with the Applicable Laws, the Company shall obtain
shareholder approval of any Plan amendment in such a manner and to such as
degree as required.
(b) EFFECT OF AMENDMENT OR TERMINATION. Except as provided in Section
----------------------------------
15, no amendment, suspension or termination of the Plan shall materially and
adversely affect Options already granted and such Options shall remain in full
force and effect as if the Plan had not been amended, suspended or terminated,
unless mutually agreed otherwise between the Optionee and the Company, which
agreement must be in writing and signed by such Optionee and the Company. Except
as provided in Section 15, no amendment, suspension or termination of the Plan
shall materially and adversely affect Stock Purchase Rights already granted, or
the holder of Restricted Stock acquired pursuant to a Stock Purchase Right,
unless mutually agreed otherwise between the holder of the Stock Purchase Right
and the Company, which agreement must be in writing and signed by such holder
and the Company.
17. CONDITIONS UPON ISSUANCE OF SHARES. Notwithstanding any other
----------------------------------
provision of the Plan or any agreement entered into by the Company pursuant to
the Plan, the Company shall
-14-
<PAGE>
not be obligated, and shall have no liability for failure, to issue or deliver
any Shares under the Plan unless such issuance or delivery would comply with the
Applicable Laws, with such compliance determined by the Company in consultation
with its legal counsel.
As a condition to the exercise of an Option or Stock Purchase Right, the
Company may require the person exercising such Option or Stock Purchase Right to
represent and warrant at the time of any such exercise that the Shares are being
purchased only for investment and without any present intention to sell or
distribute such Shares if, in the opinion of counsel for the Company, such a
representation is required by Applicable Laws.
18. RESERVATION OF SHARES. The Company, during the term of this Plan,
---------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
19. AGREEMENTS. Options and Stock Purchase Rights shall be evidenced by
----------
Option Agreements and Restricted Stock Purchase Agreements, respectively, in
such form(s) as the Administrator shall from time to time approve.
20. SHAREHOLDER APPROVAL. If required by the Applicable Laws, continuance
--------------------
of the Plan shall be subject to approval by the shareholders of the Company
within twelve (12) months before or after the date the Plan is adopted. Such
shareholder approval shall be obtained in the manner and to the degree required
under the Applicable Laws.
21. INFORMATION AND DOCUMENTS TO OPTIONEES AND PURCHASERS. Prior to the
-----------------------------------------------------
date, if any, upon which the Common Stock becomes a Listed Security and if
required by the Applicable Laws, the Company shall provide financial statements
at least annually to each Optionee and to each individual who acquired Shares
pursuant to the Plan, during the period such Optionee or purchaser has one or
more Options or Stock Purchase Rights outstanding, and in the case of an
individual who acquired Shares pursuant to the Plan, during the period such
individual owns such Shares. The Company shall not be required to provide such
information if the issuance of Options or Stock Purchase Rights under the Plan
is limited to key employees whose duties in connection with the Company assure
their access to equivalent information.
NETCENTIVES INC.
1996 STOCK OPTION PLAN
NOTICE OF STOCK OPTION GRANT
----------------------------
[[Optionee]]
[[OptioneeAddress1]]
[[gOptioneeAddress2]]
You have been granted an option to purchase Common Stock of Netcentives
Inc. (the "Company") as follows:
-------
-15-
<PAGE>
Board Approval Date: [[BoardApprovDate]]
Date of Grant (Later of Board
Approval Date or Commence-
ment of Employment/Consulting): [[GrantDate]]
Exercise Price per Share: $[[ExercisePrice]]
Total Number of Shares Granted: [[NoofShares]]
Total Exercise Price: $[[TotalExercisePrice]]
Type of Option: [[NoSharesISO]] Incentive Stock Option
---------------
[[NoSharesNSO]] Nonstatutory Stock
---------------
Option
Term/Expiration Date: [[ExpirDate]]
Vesting Commencement Date: [[VestingCommenceDate]]
Vesting Schedule: This Option may be exercised, in whole
or in part, in accordance with the
following schedule: [[Vesting]]
-16-
<PAGE>
Termination Period: Option may be exercised for 30 days after
termination of employment or consulting
relationship except as set out in Sections 6
and 7 of the Stock Option Agreement (but in
no event later than the Expiration Date).
Transferability: [Not Transferable.] [Transferable as
follows: ]
By your signature and the signature of the Company's representative below,
you and the Company agree that this option is granted under and governed by the
terms and conditions of the 1996 Stock Option Plan and the Stock Option
Agreement, both of which are attached and made a part of this document.
[[OPTIONEE]]: NETCENTIVES INC.
_____________________________________ By:______________________________
Signature
_____________________________________ ______________________________
Print Name Print Name and Title
Address (if different from above): Address:
_____________________________________ 690 Fifth Street
San Francisco, CA 94107
_____________________________________
-17-
<PAGE>
NETCENTIVES INC.
1996 STOCK OPTION PLAN
STOCK OPTION AGREEMENT
----------------------
1. GRANT OF OPTION. Netcentives Inc., a California corporation (the
---------------
"Company"), hereby grants to [[Optionee[[ ("Optionee"), an option (the "Option")
------- -------- ------
to purchase a total number of shares of Common Stock (the "Shares") set forth in
------
the Notice of Stock Option Grant, at the exercise price per share set forth in
the Notice of Stock Option Grant (the "Exercise Price") subject to the terms,
--------------
definitions and provisions of the Netcentives Inc. Stock Option Plan (the
"Plan") adopted by the Company, which is incorporated herein by reference.
----
Unless otherwise defined herein, the terms defined in the Plan shall have the
same defined meanings in this Option Agreement. In the event of a conflict
between the terms and conditions of the Plan and the terms and conditions of
this Option Agreement, the terms and conditions of the Plan shall prevail.
To the extent designated an Incentive Stock Option in the Notice of
Stock Option Grant, this Option is intended to qualify as an Incentive Stock
Option as defined in Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code") and, to the extent not so designated, this Option is
intended to be a Nonstatutory Stock Option. Notwithstanding the foregoing, if
designated as an Incentive Stock Option, in the event that the Shares subject to
this Option (and all other Incentive Stock Options granted to Optionee by the
Company or any Parent or Subsidiary) that first become exercisable in any
calendar year have an aggregate fair market value (determined for each Share as
of the date of grant of the option covering such Share) in excess of $100,000,
the Shares in excess of $100,000 shall be treated as subject to a Nonstatutory
Stock Option, in accordance with Section 5(b) of the Plan.
2. EXERCISE OF OPTION.
------------------
(a) RIGHT TO EXERCISE. This Option is exercisable during its Term in
-----------------
accordance with the Vesting Schedule set out in the Notice of Stock Option Grant
and the applicable provisions of the Plan and this Stock Option Agreement. In
the event of Optionee's death, disability or the termination of Optionee's
Continuous Service, the exercisability of the Option is governed by the
applicable provisions of the Plan and this Stock Option Agreement. This Option
may not be exercised for a fraction of a Share.
(b) METHOD OF EXERCISE.
------------------
(i) This Option shall be exercisable in whole or in part as to
Shares which have vested under the Vesting Schedule indicated on the Notice of
Stock Option Grant by execution and delivery to the Company a written notice of
exercise in the form attached as Exhibit A (the "Exercise Notice"), [for Grant
--------- ---------------
subject to early exercise: or in whole or in part at any time after the Date of
Grant as to Shares which have not vested under the Vesting Schedule indicated on
the Notice of Stock Option Grant, except that in the case
<PAGE>
of an Incentive Stock Option such exercise shall be limited to the number of
Shares which, when added to all other Shares first exercisable within the same
calendar year, do not exceed an aggregate fair market value of $100,000
(determined for each Share as of the date of grant of the option covering such
Share) by delivery of an early exercise notice and restricted stock purchase
agreement in the form attached as Exhibit A-1 (the "Early Exercise Notice and
----------- ---------------------
Restricted Stock Purchase Agreement"), in either case] which shall state the
- -----------------------------------
election to exercise the Option, the number of Shares in respect of which the
Option is being exercised (the "Exercised Shares"), and such other
----------------
representations and agreements as to the holder's investment intent with respect
to such Shares of Common Stock as may be required by the Company pursuant to the
provisions of the Plan. Such written notice of exercise shall be signed by
Optionee and shall be delivered in person or by certified mail to the Secretary
of the Company. The written notice of exercise shall be accompanied by payment
of the aggregate Exercise Price as to all Exercised Shares. This Option shall be
deemed to be exercised upon receipt by the Company of such fully executed
written notice of exercise, accompanied by such aggregate Exercise Price.
(ii) As a condition to the exercise of this Option, Optionee
agrees to make adequate provision for federal, state or other tax withholding
obligations, if any, which arise upon the exercise of the Option or disposition
of Shares, whether by withholding, direct payment to the Company, or otherwise,
as set forth in Section 11 of this Agreement.
(iii) No Shares will be issued pursuant to the exercise of an
Option unless such issuance and such exercise shall comply with all relevant
provisions of applicable law and the requirements of any stock exchange upon
which the Shares may then be listed. Assuming such compliance, for income tax
purposes the Shares shall be considered transferred to Optionee on the date on
which the Option is exercised with respect to such Shares.
3. METHOD OF PAYMENT. Payment of the Exercise Price shall be by any of
-----------------
the following, or a combination thereof, at the election of Optionee:
(a) cash;
(b) check;
(c) surrender of other Shares of Common Stock of the Company that (i)
in the case of Shares acquired upon exercise of an Option, have either been
owned by Optionee for more than six (6) months on the date of surrender (or such
other period as may be required to avoid a charge to the Company's earnings) or
were not acquired, directly or indirectly, from the Company, and (ii) have a
fair market value on the date of surrender equal to the Exercise Price of the
Shares as to which the Option is being exercised; or
(d) if there is a public market for the Shares and they are
registered under the Securities Act of 1933, as amended, delivery of a properly
executed exercise notice together with irrevocable instructions to a broker to
deliver promptly to the Company the amount of sale or loan proceeds required to
pay the exercise price.
-2-
<PAGE>
4. RESTRICTIONS ON EXERCISE. This Option may not be exercised until such
------------------------
time as the Plan has been approved by the shareholders of the Company, or if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule under
Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G") as
promulgated by the Federal Reserve Board. As a condition to the exercise of
this Option, the Company may require Optionee to make any representation and
warranty to the Company as may be required by any applicable law or regulation.
5. TERMINATION OF CONTINUOUS SERVICE. In the event of termination of
---------------------------------
Optionee's Continuous Service, Optionee may, to the extent otherwise so entitled
at the date of such termination (the "Termination Date"), exercise this Option
----------------
during the Termination Period set forth in the Notice of Stock Option Grant. To
the extent that Optionee was not entitled to exercise this Option at such
Termination Date, or if Optionee does not exercise this Option within the
Termination Period, the Option shall terminate.
6. DISABILITY OF OPTIONEE.
----------------------
(a) Notwithstanding the provisions of Section 5 above, in the event
of termination of Optionee's Continuous Service as a result of Optionee's total
and permanent disability (as defined in Section 22(e)(3) of the Code), Optionee
may, but only within twelve (12) months from the Termination Date (but in no
event later than the Expiration Date set forth in the Notice of Stock Option
Grant), exercise this Option to the extent Optionee was entitled to exercise it
as of such Termination Date. To the extent that Optionee was not entitled to
exercise the Option as of the Termination Date, or if Optionee does not exercise
such Option (to the extent so entitled) within the time specified in this
Section 6(a), the Option shall terminate.
(b) Notwithstanding the provisions of Section 5 above, in the event
of termination of Optionee's Continuous Service as a result of disability not
constituting a total and permanent disability (as set forth in Section 22(e)(3)
of the Code), Optionee may, but only within six (6) months from the Termination
Date (but in no event later than the Expiration Date set forth in the Notice of
Stock Option Grant), exercise the Option to the extent Optionee was entitled to
exercise it as of such Termination Date; provided, however, that if this is an
Incentive Stock Option and Optionee fails to exercise this Incentive Stock
Option within three (3) months from the Termination Date, this Option will cease
to qualify as an Incentive Stock Option (as defined in Section 422 of the Code)
and Optionee will be treated for federal income tax purposes as having received
ordinary income at the time of such exercise in an amount generally measured by
the difference between the Exercise Price for the Shares and the fair market
value of the Shares on the date of exercise. To the extent that Optionee was not
entitled to exercise the Option at the Termination Date, or if Optionee does not
exercise such Option to the extent so entitled within the time specified in this
Section 6(b), the Option shall terminate.
7. DEATH OF OPTIONEE. In the event of the death of Optionee (a) during
-----------------
the Term of this Option and while an Employee or Consultant of the Company and
having been
-3-
<PAGE>
in Continuous Service since the date of grant of the Option, or (b) within
thirty (30) days after Optionee's Termination Date, the Option may be exercised
at any time within six (6) months following the date of death (but in no event
later than the Expiration Date set forth in the Notice of Stock Option Grant),
by Optionee's estate or by a person who acquired the right to exercise the
Option by bequest or inheritance, but only to the extent of the right to
exercise that had accrued at the Termination Date.
8. NON-TRANSFERABILITY OF OPTION. This Option may not be transferred in
-----------------------------
any manner otherwise than by will or by the laws of descent or distribution or
pursuant to a domestic relations order (as defined by the Code or rules
thereunder), except as set forth in the Notice of Stock Option Grant and subject
to Applicable Laws. This Option may be exercised during the lifetime of
Optionee only by him or her or by a transferee permitted by this Section 8. The
terms of this Option shall be binding upon the executors, administrators, heirs,
successors and assigns of Optionee.
9. TERM OF OPTION. This Option may be exercised only within the Term set
--------------
forth in the Notice of Stock Option Grant, subject to the limitations set forth
in Section 7 of the Plan.
10. TAX CONSEQUENCES. Optionee acknowledges that he or she has read the
----------------
brief summary set forth below of certain of the federal tax consequences of
exercise of this Option and disposition of the Shares under the laws in effect
as of the Date of Grant. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX
LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT A TAX
ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(a) EXERCISE OF INCENTIVE STOCK OPTION. If this Option qualifies as
----------------------------------
an Incentive Stock Option, there will be no regular federal income tax liability
upon the exercise of the Option, although the excess, if any, of the fair market
value of the Shares on the date of exercise over the Exercise Price will be
treated as an item of alternative minimum taxable income for federal tax
purposes and may subject Optionee to the alternative minimum tax in the year of
exercise.
(b) EXERCISE OF NONSTATUTORY STOCK OPTION. If this Option does not
-------------------------------------
qualify as an Incentive Stock Option, Optionee may incur regular federal income
tax liability upon the exercise of the Option. Optionee will be treated as
having received compensation income (taxable at ordinary income tax rates) equal
to the excess, if any, of the fair market value of the Shares on the date of
exercise over the Exercise Price. If Optionee is an employee, the Company will
be required to withhold from Optionee's compensation or collect from Optionee
and pay to the applicable taxing authorities an amount equal to a percentage of
this compensation income at the time of exercise.
(c) DISPOSITION OF SHARES. In the case of a Nonstatutory Stock
---------------------
Option, if Shares are held for more than 12 months, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
income tax purposes. In the case of an
-4-
<PAGE>
Incentive Stock Option, if Shares transferred pursuant to the Option are held
for more than one year after exercise and more than two years after the Date of
Grant, any gain realized on disposition of the Shares will be treated as long-
term capital gain for federal income tax purposes. If Shares purchased under an
Incentive Stock Option are disposed of within either of such two holding
periods, then any gain realized on such disposition will be treated as
compensation income (taxable at ordinary income rates) to the extent of the
difference between the Exercise Price and the lesser of (i) the fair market
value of the Shares on the date of exercise, or (ii) the sales proceeds of the
Shares.
(d) NOTICE OF DISQUALIFYING DISPOSITION OF INCENTIVE STOCK OPTION
-------------------------------------------------------------
SHARES. If the Option granted to Optionee herein is an Incentive Stock Option,
- ------
and if Optionee sells or otherwise disposes of any of the Shares acquired
pursuant to the Incentive Stock Option on or before the later of (i) the date
two years after the Date of Grant, or (ii) the date one year after the date of
exercise, Optionee shall notify the Company in writing within thirty (30) days
after the date of any such disposition. Optionee acknowledges and agrees that
he or she may be subject to income tax withholding by the Company on the
compensation income recognized by Optionee from the early disposition by payment
in cash or out of the current earnings paid to Optionee.
11. WITHHOLDING TAX OBLIGATIONS. Optionee acknowledges and agrees that
---------------------------
the delivery of any Shares under the Plan is conditioned on satisfaction by the
Optionee of applicable federal, state, local or foreign withholding tax
obligations that may arise in connection with the exercise of an Option. Such
withholding obligations shall be satisfied in accordance with the provisions of
Section 12 of the Plan.
12. MARKET STANDOFF AGREEMENT. In connection with the initial public
-------------------------
offering of the Company's securities and upon request of the Company or the
underwriters managing any underwritten offering of the Company's securities,
Optionee hereby agrees not to sell, make any short sale of, loan, grant any
option for the purchase of, or otherwise dispose of any Shares (other than those
included in the registration) without the prior written consent of the Company
or such underwriters, as the case may be, for such period of time (not to exceed
180 days) from the effective date of such registration as may be requested by
the Company or such managing underwriters and to execute an agreement reflecting
the foregoing as may be requested by the underwriters at the time of the public
offering.
[Signature Page Follows]
-5-
<PAGE>
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original and all of which together shall constitute one
document.
NETCENTIVES INC.
By:____________________________
____________________________
(Print name and title)
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE
OPTION HEREOF IS EARNED ONLY BY CONTINUING EMPLOYMENT OR CONSULTANCY AT THE WILL
OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR
ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT
NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S STOCK OPTION PLAN WHICH IS
INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY RIGHT WITH
RESPECT TO CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE COMPANY, NOR SHALL
IT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO
TERMINATE OPTIONEE'S EMPLOYMENT OR CONSULTANCY AT ANY TIME, WITH OR WITHOUT
CAUSE.
Optionee acknowledges receipt of a copy of the Plan and represents that he
or she is familiar with the terms and provisions thereof, and hereby accepts
this Option subject to all of the terms and provisions thereof. Optionee has
reviewed the Plan and this Option in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Option and fully
understands all provisions of the Option. Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Option.
Dated: ________________________ ______________________________
[[Optionee]]
-6-
<PAGE>
EXHIBIT A
---------
NETCENTIVES INC.
1996 STOCK OPTION PLAN
NOTICE OF EXERCISE
------------------
To: NETCENTIVES INC.
Attn: Stock Option Administrator
Subject: Notice of Intention to Exercise Stock Option
--------------------------------------------
This is official notice that the undersigned ("Optionee") intends to
--------
exercise Optionee's option to purchase __________ shares of NETCENTIVES INC.
Common Stock, under and pursuant to the Netcentives Inc. 1996 Stock Option Plan
and the Stock Option Agreement dated _______________, as follows:
Date of Grant (or Grant Number): __________________________________
Type of Option (ISO or NSO): __________________________________
Date of Purchase: __________________________________
Number of Shares: __________________________________
Purchase Price: __________________________________
Method of Payment of
Purchase Price: __________________________________
Social Security No.: __________________________________
The shares should be issued as follows:
Name: _______________________________
Address: _______________________________
_______________________________
_______________________________
Signed: _______________________________
Date: _______________________________
<PAGE>
EXHIBIT A-1
-----------
NETCENTIVES INC.
1996 STOCK OPTION PLAN
EARLY EXERCISE NOTICE AND RESTRICTED STOCK PURCHASE AGREEMENT
-------------------------------------------------------------
This Agreement ("Agreement") is made as of ______________, by and between
---------
Netcentives Inc., a California corporation (the "Company"), and ____________
-------
("Purchaser"). To the extent any capitalized terms used in this Agreement are
- -----------
not defined, they shall have the meaning ascribed to them in the 1996 Stock
Option Plan.
1. EXERCISE OF OPTION. Subject to the terms and conditions hereof,
------------------
Purchaser hereby elects to exercise his or her option to purchase ______________
shares of the Common Stock (the "Shares") of the Company under and pursuant to
------
the Company's 1996 Stock Option Plan (the "Plan") and the Stock Option Agreement
----
dated ______________ (the "Option Agreement"). Of these Shares, Purchaser has
----------------
elected to purchase _____________ Shares which have not yet vested under the
such Vesting Schedule (the "Unvested Shares"). The purchase price for the
---------------
Shares shall be _______ per Share for a total purchase price of
$_______________. The term "Shares" refers to the purchased Shares and all
------
securities received in replacement of the Shares or as stock dividends or
splits, all securities received in replacement of the Shares in a
recapitalization, merger, reorganization, exchange or the like, and all new,
substituted or additional securities or other properties to which Purchaser is
entitled by reason of Purchaser's ownership of the Shares.
2. TIME AND PLACE OF EXERCISE. The purchase and sale of the Shares
--------------------------
under this Agreement shall occur at the principal office of the Company in
accordance with the provisions of Sections 9 and 10 of the Plan. Upon delivery
to the Company of this fully executed Early Exercise Notice and Restricted Stock
Purchase Agreement, together with payment of the purchase price therefor by
Purchaser by (a) cash, (b) check made payable to the Company, (c) delivery of
Shares of the Common Stock of the Company in accordance with Section 3 of the
Option Agreement, or (d) a combination of the foregoing, the Option shall be
deemed to be exercised as to the number of Shares set forth above in this Early
Exercise Notice. As soon as practicable thereafter, the Company will deliver to
Purchaser a certificate representing the Shares purchased by Purchaser (which
shall be issued in Purchaser's name).
3. LIMITATIONS ON TRANSFER. In addition to any other limitation on
-----------------------
transfer created by applicable securities laws, Purchaser shall not assign,
encumber or dispose of any interest in the Shares while the Shares are subject
to the Company's Repurchase Option (as defined below). After any Shares have
been released from such Repurchase Option, Purchaser shall not assign, encumber
or dispose of any interest in such Shares except in compliance with the
provisions below and applicable securities laws.
<PAGE>
4. REPURCHASE OPTION.
-----------------
(a) In the event of the voluntary or involuntary termination of
Purchaser's Continuous Service for any reason (including death or disability),
with or without cause, the Company shall upon the date of such termination (the
"Termination Date") have an irrevocable, exclusive option (the "Repurchase
---------------- ----------
Option") for a period of 60 days from such date to repurchase all or any portion
- ------
of the Unvested Shares held by Purchaser as of the Termination Date which have
not yet been released from the Company's Repurchase Option at the original
purchase price per Share specified in Section 1 (adjusted for any stock splits,
stock dividends and the like).
(b) The Repurchase Option shall be exercised by the Company by written
notice to Purchaser or Purchaser's executor and, at the Company's option, (A) by
delivery to Purchaser or Purchaser's executor with such notice of a check in the
amount of the purchase price for the Shares being purchased, or (B) in the event
Purchaser is indebted to the Company, by cancellation by the Company of an
amount of such indebtedness equal to the purchase price for the Shares being
repurchased, or (C) by a combination of (A) and (B) so that the combined payment
and cancellation of indebtedness equals such purchase price. Upon delivery of
such notice and payment of the purchase price in any of the ways described
above, the Company shall become the legal and beneficial owner of the Shares
being repurchased and all rights and interest therein or related thereto, and
the Company shall have the right to transfer to its own name the number of
Shares being repurchased by the Company, without further action by Purchaser.
(c) One hundred percent (100%) of the Unvested Shares shall initially
be subject to the Repurchase Option. The Unvested Shares shall be released from
the Repurchase Option in accordance with the Vesting Schedule and as set forth
in the Notice of Stock Option Grant.
(d) The right of the Company to purchase any part of the Shares may be
assigned in whole or in part to any shareholder or shareholders of the Company
or other persons or organizations; provided, however, that an assignee, other
than a corporation that is the Parent or a 100% owned Subsidiary of the Company,
must pay the Company, upon assignment of such right, cash equal to the
difference between the original purchase price and Fair Market Value, if the
original purchase price is less than the Fair Market Value of the Shares subject
to the assignment.
(e) All transferees of Shares or any interest therein will receive and
hold such Shares or interest subject to the provisions of this Agreement,
including, insofar as applicable, the Repurchase Option. Any sale or transfer
of the Shares shall be void unless the provisions of this Agreement are
satisfied.
5. ESCROW OF UNVESTED SHARES. For purposes of facilitating the
-------------------------
enforcement of the provisions of Section 4 above, Purchaser agrees, immediately
upon receipt of the certificate(s) for the Shares subject to the Repurchase
Option, to deliver such certificate(s), together with an Assignment Separate
from Certificate in the form attached to this Agreement as Attachment A executed
------------
by Purchaser and by Purchaser's spouse (if required for transfer), in blank, to
the Secretary of the Company, or the Secretary's designee, to hold such
certificate(s) and
-2-
<PAGE>
Assignment Separate from Certificate in escrow and to take all such actions and
to effectuate all such transfers and/or releases as are in accordance with the
terms of this Agreement. Purchaser hereby acknowledges that the Secretary of the
Company, or the Secretary's designee, is so appointed as the escrow holder with
the foregoing authorities as a material inducement to make this Agreement and
that said appointment is coupled with an interest and is accordingly
irrevocable. Purchaser agrees that said escrow holder shall not be liable to any
party hereof (or to any other party). The escrow holder may rely upon any
letter, notice or other document executed by any signature purported to be
genuine and may resign at any time. Purchaser agrees that if the Secretary of
the Company, or the Secretary's designee, resigns as escrow holder for any or no
reason, the Board of Directors of the Company shall have the power to appoint a
successor to serve as escrow holder pursuant to the terms of this Agreement.
6. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS.
--------------------------------------------
(a) LEGENDS. The certificate or certificates representing the Shares
-------
shall bear the following legends (as well as any legends required by applicable
state and federal corporate and securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY IN
ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE
STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.
(b) STOP-TRANSFER NOTICES. Purchaser agrees that, in order to ensure
---------------------
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) REFUSAL TO TRANSFER. The Company shall not be required (i) to
-------------------
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
(d) REMOVAL OF LEGEND. When all of the following events have
-----------------
occurred, the Shares then held by Purchaser will no longer be subject to the
legend referred to in Section 6(a): (i) the expiration or termination of the
market standoff provisions of Section 5 (and of any agreement entered pursuant
to Section 5); and (ii) the expiration or exercise in full of the Repurchase
Option. After such time, and upon Purchaser's request, a new certificate or
certificates representing the Shares not repurchased shall be issued without the
legend referred to in Section 6(a), and delivered to Purchaser.
7. NO EMPLOYMENT RIGHTS. Nothing in this Agreement shall affect in any
--------------------
manner whatsoever the right or power of the Company, or a Parent or Subsidiary
of the Company, to terminate Purchaser's employment or consulting relationship,
for any reason, with or without cause.
-3-
<PAGE>
8. SECTION 83(B) ELECTION. Purchaser understands that Section 83(a) of
----------------------
the Internal Revenue Code of 1986, as amended (the "Code"), taxes as ordinary
----
income for a Nonstatutory Stock Option the difference between the amount paid
for the Shares and the fair market value of the Shares as of the date any
restrictions on the Shares lapse. In this context, "restriction" means the
-----------
right of the Company to buy back the Shares pursuant to the Repurchase Option
set forth in Section 3(a) of this Agreement. Purchaser understands that
Purchaser may elect to be taxed at the time the Shares are purchased, rather
than when and as the Repurchase Option expires, by filing an election under
Section 83(b) of the Code (an "83(b) Election") with the Internal Revenue
--------------
Service within 30 days from the date of purchase. Even if the fair market value
of the Shares at the time of the execution of this Agreement equals the amount
paid for the Shares, the election must be made to avoid income treatment under
Section 83(a) in the future. Purchaser understands that failure to file such an
election in a timely manner may result in adverse tax consequences for
Purchaser. Purchaser further understands that an additional copy of such
election form should be filed with his or her federal income tax return for the
calendar year in which the date of this Agreement falls. Purchaser acknowledges
that the foregoing is only a summary of the effect of United States federal
income taxation with respect to purchase of the Shares hereunder, and does not
purport to be complete. Purchaser further acknowledges that the Company has
directed Purchaser to seek independent advice regarding the applicable
provisions of the Code, the income tax laws of any municipality, state or
foreign country in which Purchaser may reside, and the tax consequences of
Purchaser's death.
Purchaser agrees that he or she will execute and deliver to the Company
with this executed Agreement a copy of the Acknowledgment and Statement of
Decision Regarding Section 83(b) Election (the "Acknowledgment") attached hereto
--------------
Attachment B. Purchaser further agrees that he or she will execute and with the
- ------------
Acknowledgment a copy of the 83(b) Election attached hereto as Attachment C (for
------------
income tax purposes in connection with the early exercise of a Stock Option) if
Purchaser has indicated in the Acknowledgment his or her decision to make such
an election.
9. MISCELLANEOUS.
-------------
(a) GOVERNING LAW. This Agreement and all acts and transactions
-------------
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
California, without giving effect to principles of conflicts of law.
(b) ENTIRE AGREEMENT; ENFORCEMENT OF RIGHTS. This Agreement sets
---------------------------------------
forth the entire agreement and understanding of the parties relating to the
subject matter herein and merges all prior discussions between them. No
modification of or amendment to this Agreement, nor any waiver of any rights
under this Agreement, shall be effective unless in writing signed by the parties
to this Agreement. The failure by either party to enforce any rights under this
Agreement shall not be construed as a waiver of any rights of such party.
(c) SEVERABILITY. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith.
-4-
<PAGE>
In the event that the parties cannot reach a mutually agreeable and enforceable
replacement for such provision, then (i) such provision shall be excluded from
this Agreement, (ii) the balance of the Agreement shall be interpreted as if
such provision were so excluded and (iii) the balance of the Agreement shall be
enforceable in accordance with its terms.
(d) CONSTRUCTION. This Agreement is the result of negotiations
------------
between and has been reviewed by each of the parties hereto and their respective
counsel, if any; accordingly, this Agreement shall be deemed to be the product
of all of the parties hereto, and no ambiguity shall be construed in favor of or
against any one of the parties hereto.
(e) NOTICES. Any notice required or permitted by this Agreement shall
-------
be in writing and shall be deemed sufficient when delivered personally or sent
by telegram or fax or forty-eight (48) hours after being deposited in the U.S.
mail, as certified or registered mail, with postage prepaid, and addressed to
the party to be notified at such party's address as set forth below or as
subsequently modified by written notice.
(f) COUNTERPARTS. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(g) SUCCESSORS AND ASSIGNS. The rights and benefits of this Agreement
----------------------
shall inure to the benefit of, and be enforceable by the Company's successors
and assigns. The rights and obligations of Purchaser under this Agreement may
only be assigned with the prior written consent of the Company.
[Signature Page Follows]
-5-
<PAGE>
The parties have executed this Agreement as of the date first set forth
above.
NETCENTIVES INC.
By:_______________________________________
Name:_____________________________________
(print)
Title:____________________________________
Address:
PURCHASER:
[NAME OF OPTIONEE]
__________________________________________
(Signature)
__________________________________________
(Print Name)
Social Security Number: __________________
Address:
__________________________________________
__________________________________________
I, ______________________, spouse of [______________OPTIONEE], have read and
hereby approve the foregoing Agreement. In consideration of the Company's
granting my spouse the right to purchase the Shares as set forth in the
Agreement, I hereby agree to be bound irrevocably by the Agreement and further
agree that any community property or similar interest that I may have in the
Shares shall hereby be similarly bound by the Agreement. I hereby appoint my
spouse as my attorney-in-fact with respect to any amendment or exercise of any
rights under the Agreement.
_______________________________
Spouse of [__________OPTIONEE]
-6-
<PAGE>
ATTACHMENT A
ASSIGNMENT SEPARATE FROM CERTIFICATE
------------------------------------
FOR VALUE RECEIVED and pursuant to that certain Early Exercise Notice
and Restricted Stock Purchase Agreement between the undersigned ("Purchaser")
--------
and Netcentives Inc. (the "Company") dated _______________ (the "Agreement"),
------- ---------
Purchaser hereby sells, assigns and transfers unto the Company
_______________________________ (________) shares of the Common Stock of the
Company, standing in Purchaser's name on the books of the Company and
represented by Certificate No. ____, and hereby irrevocably appoints
_____________________________ to transfer said stock on the books of the Company
with full power of substitution in the premises. THIS ASSIGNMENT MAY ONLY BE
USED AS AUTHORIZED BY THE AGREEMENT AND THE ATTACHMENTS THERETO.
Dated: ________________
Signature:
____________________________________________
[Name of Purchaser]
____________________________________________
Spouse of [Name of Purchaser] (if applicable)
Instruction: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to enable the Company to exercise its
Repurchase Option set forth in the Agreement without requiring additional
signatures on the part of Purchaser.
<PAGE>
ATTACHMENT B
ACKNOWLEDGMENT AND STATEMENT OF DECISION
----------------------------------------
REGARDING SECTION 83(B) ELECTION
--------------------------------
The undersigned (which term includes the undersigned's spouse), a purchaser
of ___________ shares of Common Stock of Netcentives Inc., a California
corporation (the "Company"), by exercise of an option (the "Option") granted
------- ------
pursuant to the Company's 1996 Stock Option Plan (the "Plan"), hereby states as
----
follows:
1. The undersigned acknowledges receipt of a copy of the Plan relating to
the offering of such shares. The undersigned has carefully reviewed the Plan
and the option agreement pursuant to which the Option was granted.
2. The undersigned either [check and complete as applicable]:
(a) ____ has consulted, and has been fully advised by, the undersigned's own tax
advisor, _____________________________________, whose business address is
______________________________, regarding the federal, state and local tax
consequences of purchasing shares under the Plan, and particularly
regarding the advisability of making elections pursuant to Section 83(b) of
the Internal Revenue Code of 1986, as amended (the "Code") and pursuant to
----
the corresponding provisions, if any, of applicable state law; or
(b) ____ has knowingly chosen not to consult such a tax advisor.
3. The undersigned hereby states that the undersigned has decided [check
as applicable]:
(a) ____ to make an election pursuant to Section 83(b) of the Code, and is
submitting to the Company, together with the undersigned's executed Early
Exercise Notice and Restricted Stock Purchase Agreement, an executed form
entitled "Election Under Section 83(b) of the Internal Revenue Code of
1986;"
(b) ____ to make an election pursuant to Section 83(b) of the Code, and is
submitting to the Company, together with the undersigned's executed Early
Exercise Notice and Restricted Stock Purchase Agreement, an executed form
entitled "Election Under Section 83(b) of the Internal Revenue Code of 1986
for purposes of income tax; or
(c) ____ not to make an election pursuant to Section 83(b) of the Code.
<PAGE>
4. Neither the Company nor any subsidiary or representative of the Company
has made any warranty or representation to the undersigned with respect to the
tax consequences of the undersigned's purchase of shares under the Plan or of
the making or failure to make an election pursuant to Section 83(b) of the Code
or the corresponding provisions, if any, of applicable state law.
Date:_______________________ ______________________________
[Name of Purchaser]
Date:_______________________ ____________________________
Spouse of [Name of Purchaser]
2
<PAGE>
ATTACHMENT C
------------
ELECTION UNDER SECTION 83(b)
----------------------------
OF THE INTERNAL REVENUE CODE OF 1986
------------------------------------
The undersigned taxpayer hereby elects, pursuant to Section 83(b) of the
Internal Revenue Code, to include in taxpayer's gross income for the current
taxable year, the amount of any compensation taxable to taxpayer in connection
with taxpayer's receipt of the property described below:
1. The name, address, taxpayer
identification number and taxable year of
the undersigned are as follows:
NAME OF TAXPAYER: [Name of Purchaser_________________-]
NAME OF SPOUSE: ________________
ADDRESS:
_________________________________________
_________________________________________
IDENTIFICATION NO. OF TAXPAYER: _______________
IDENTIFICATION NO. OF SPOUSE: _______________
TAXABLE YEAR: __________
2. The property with respect to which the election is made is described as
follows:
______________ shares of the Common Stock $.001 par value, of Netcentives
Inc., a California corporation (the "Company").
-------
3. The date on which the property was transferred is: _______________
4. The property is subject to the following restrictions:
Repurchase option at cost in favor of the Company upon termination of
taxpayer's service as an employee or consultant of the Company.
5. The fair market value per share at the time of transfer, determined without
regard to any restriction other than a restriction which by its terms will
never lapse, of such property is: $____________
6. The amount (if any) paid per share for such property: $____________
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
The undersigned understands that the foregoing election may not be revoked
- --------------------------------------------------------------------------
except with the consent of the Commissioner.
- -------------------------------------------
Dated: ____________ __________________________
[Name of Purchaser]
Dated: ____________ __________________________
<PAGE>
Spouse of [Name of Purchaser]
NETCENTIVES inC.
RESTRICTED STOCK PURCHASE AGREEMENT
-----------------------------------
1996 STOCK OPTION PLAN
----------------------
This Restricted Stock Purchase Agreement (the "Agreement") is made as of
---------
__________________, 19__, by and between Netcentives Inc., a California
corporation (the "Company"), and ____________________ ("Purchaser") pursuant to
------- ---------
the Company's 1996 Stock Option Plan.
1. SALE OF STOCK. Subject to the terms and conditions of this Agreement,
-------------
on the Purchase Date (as defined below) the Company will issue and sell to
Purchaser, and Purchaser agrees to purchase from the Company, _______________
shares of the Company's Common Stock (the "Shares") at a purchase price of
------
$_____ per Share for a total purchase price of $_________________. The term
"Shares" refers to the purchased Shares and all securities received in
replacement of or in connection with the Shares pursuant to stock dividends or
splits, all securities received in replacement of the Shares in a
recapitalization, merger, reorganization, exchange or the like, and all new,
substituted or additional securities or other properties to which Purchaser is
entitled by reason of Purchaser's ownership of the Shares.
2. PURCHASE. The purchase and sale of the Shares under this Agreement
--------
shall occur at the principal office of the Company, in accordance with Section
11 of the Plan, simultaneously with the execution of this Agreement by the
parties or on such other date as the Company and Purchaser shall agree (the
"Purchase Date"). On the Purchase Date, the Company will deliver to Purchaser a
-------------
certificate representing the Shares to be purchased by Purchaser (which shall be
issued in Purchaser's name) against payment of the purchase price therefor by
Purchaser by check made payable to the Company.
3. LIMITATIONS ON TRANSFER. In addition to any other limitation on
-----------------------
transfer created by applicable securities laws, Purchaser shall not assign,
encumber or dispose of any interest in the Shares while the Shares are subject
to the Company's Repurchase Option (as defined below). After any Shares have
been released from the Repurchase Option, Purchaser shall not assign, encumber
or dispose of any interest in such Shares except in compliance with the
provisions below and applicable securities laws.
(a) REPURCHASE OPTION.
-----------------
(i) In the event of the voluntary or involuntary termination of
Purchaser's Continuous Service for any reason (including death or disability),
with or without cause, the Company shall upon the date of such termination (the
"Termination Date") have an irrevocable, exclusive option (the "Repurchase
---------------- ----------
Option") for a period of 60 days from such date to repurchase all or any portion
- ------
of the Shares held by Purchaser as of the Termination Date which
-4-
<PAGE>
have not yet been released from the Company's Repurchase Option at the original
purchase price per Share specified in Section 1 (adjusted for any stock splits,
stock dividends and the like).
(ii) The Repurchase Option shall be exercised by the Company by
written notice to Purchaser or Purchaser's executor and, at the Company's
option, (A) by delivery to Purchaser or Purchaser's executor with such notice of
a check in the amount of the purchase price for the Shares being purchased, or
(B) in the event Purchaser is indebted to the Company, by cancellation by the
Company of an amount of such indebtedness equal to the purchase price for the
Shares being repurchased, or (C) by a combination of (A) and (B) so that the
combined payment and cancellation of indebtedness equals such purchase price.
Upon delivery of such notice and payment of the purchase price in any of the
ways described above, the Company shall become the legal and beneficial owner of
the Shares being repurchased and all rights and interest therein or related
thereto, and the Company shall have the right to transfer to its own name the
number of Shares being repurchased by the Company, without further action by
Purchaser.
(iii) _______ percent (___%) of the Shares shall initially be
subject to the Repurchase Option. The Shares shall be released from the
Repurchase Option in accordance with the following Vesting Schedule: [Example:
(provided in each case that Purchaser's Continuous Service has not been
terminated prior to the date of any such release): __ of the total number of
Shares shall be released from the Repurchase Option on the __-month anniversary
of the Vesting Commencement Date (as set forth on the signature page of this
Agreement), and an additional __ of the total number of Shares shall be released
from the Repurchase Option each month thereafter on the Monthly Vesting Date (as
set forth on the signature page of this Agreement), until all Shares are
released from the Repurchase Option.] Fractional shares shall be rounded to the
nearest whole share.
(b) RESTRICTIONS BINDING ON TRANSFEREES. All transferees of Shares or
-----------------------------------
any interest therein will receive and hold such Shares or interest subject to
the provisions of this Agreement, including insofar as applicable the Company's
Repurchase Option. Any sale or transfer of the Shares shall be void unless the
provisions of this Agreement are satisfied.
(c) TERMINATION OF RIGHTS. Upon the expiration or exercise of the
---------------------
Repurchase Option, a new certificate or certificates representing the Shares not
repurchased shall be issued, on request, without the legend referred to in
Section 5(a) below and delivered to Purchaser.
4. ESCROW OF UNVESTED SHARES. For purposes of facilitating the
-------------------------
enforcement of the provisions of Section 3 above, Purchaser agrees, immediately
upon receipt of the certificate(s) for the Shares subject to the Repurchase
Option, to deliver such certificate(s), together with an Assignment Separate
from Certificate in the form attached to this Agreement as Exhibit A executed by
---------
Purchaser and by Purchaser's spouse (if required for transfer), in blank, to the
Secretary of the Company, or the Secretary's designee, to hold such
certificate(s) and Assignment Separate from Certificate in escrow and to take
all such actions and to effectuate all such transfers and/or releases as are in
accordance with the terms of this Agreement. Purchaser
-5-
<PAGE>
hereby acknowledges that the Secretary of the Company, or the Secretary's
designee, is so appointed as the escrow holder with the foregoing authorities as
a material inducement to make this Agreement and that said appointment is
coupled with an interest and is accordingly irrevocable. Purchaser agrees that
said escrow holder shall not be liable to any party hereof (or to any other
party). The escrow holder may rely upon any letter, notice or other document
executed by any signature purported to be genuine and may resign at any time.
Purchaser agrees that if the Secretary of the Company, or the Secretary's
designee, resigns as escrow holder for any or no reason, the Board of Directors
of the Company shall have the power to appoint a successor to serve as escrow
holder pursuant to the terms of this Agreement.
5. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS.
--------------------------------------------
(a) LEGENDS. The certificate or certificates representing the Shares
-------
shall bear the following legend (as well as any legends required by applicable
state and federal corporate and securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE
TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF AN
AGREEMENT BETWEEN THE COMPANY AND THE SHAREHOLDER, A COPY OF
WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.
(b) STOP-TRANSFER NOTICES. Purchaser agrees that, in order to ensure
---------------------
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) REFUSAL TO TRANSFER. The Company shall not be required (i) to
-------------------
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
6. NO EMPLOYMENT RIGHTS. Nothing in this Agreement shall affect in any
--------------------
manner whatsoever the right or power of the Company, or a parent or subsidiary
of the Company, to terminate Purchaser's employment or consulting relationship,
for any reason, with or without cause.
7. SECTION 83(B) ELECTION. Purchaser understands that Section 83(a) of
----------------------
the Internal Revenue Code of 1986, as amended (the "Code"), taxes as ordinary
----
income the difference between the amount paid for the Shares and the fair market
value of the Shares as of the date any restrictions on the Shares lapse. In this
context, "restriction" means the right of the Company to buy back the Shares
-----------
pursuant to the Repurchase Option set forth in Section 3(a) of this Agreement.
Purchaser understands that Purchaser may elect to be taxed at the time the
Shares are purchased, rather than when and as the Repurchase Option expires, by
filing an election
-6-
<PAGE>
under Section 83(b) (an "83(b) Election") of the Code with the Internal Revenue
--------------
Service within 30 days from the date of purchase. Even if the fair market value
-------
of the Shares at the time of the execution of this Agreement equals the amount
paid for the Shares, the election must be made to avoid income under Section
83(a) in the future. Purchaser understands that failure to file such an election
in a timely manner may result in adverse tax consequences for Purchaser.
Purchaser further understands that an additional copy of such election form
should be filed with his or her federal income tax return for the calendar year
in which the date of this Agreement falls. Purchaser acknowledges that the
foregoing is only a summary of the effect of United States federal income
taxation with respect to purchase of the Shares hereunder, and does not purport
to be complete. Purchaser further acknowledges that the Company has directed
Purchaser to seek independent advice regarding the applicable provisions of the
Code, the income tax laws of any municipality, state or foreign country in which
Purchaser may reside, the tax consequences of Purchaser's death and the decision
as to whether or not to file an 83(b) Election in connection with the
acquisition of the Shares.
Purchaser agrees that he will execute and deliver to the Company with this
executed Agreement a copy of the Acknowledgment and Statement of Decision
Regarding Section 83(b) Election (the "Acknowledgment"), attached hereto as
--------------
Exhibit B. Purchaser further agrees that Purchaser will execute and submit with
- ---------
the Acknowledgment a copy of the 83(b) Election, attached hereto as Exhibit C,
---------
if Purchaser has indicated in the Acknowledgment his or her decision to make
such an election.
8. MISCELLANEOUS.
-------------
(a) GOVERNING LAW. This Agreement and all acts and transactions
-------------
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
California, without giving effect to principles of conflicts of law.
(b) ENTIRE AGREEMENT; ENFORCEMENT OF RIGHTS. This Agreement sets
---------------------------------------
forth the entire agreement and understanding of the parties relating to the
subject matter herein and merges all prior discussions between them. No
modification of or amendment to this Agreement, nor any waiver of any rights
under this Agreement, shall be effective unless in writing signed by the parties
to this Agreement. The failure by either party to enforce any rights under this
Agreement shall not be construed as a waiver of any rights of such party.
(c) SEVERABILITY. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of this
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of this Agreement shall be enforceable in accordance with its terms.
(d) CONSTRUCTION. This Agreement is the result of negotiations
------------
between and has been reviewed by each of the parties hereto and their respective
counsel, if any; accordingly,
-7-
<PAGE>
this Agreement shall be deemed to be the product of all of the parties hereto,
and no ambiguity shall be construed in favor of or against any one of the
parties hereto.
(e) NOTICES. Any notice required or permitted by this Agreement shall
-------
be in writing and shall be deemed sufficient when delivered personally or sent
by telegram or fax or 48 hours after being deposited in the U.S. mail, as
certified or registered mail, with postage prepaid, and addressed to the party
to be notified at such party's address or fax number as set forth below or as
subsequently modified by written notice.
(f) COUNTERPARTS. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(g) SUCCESSORS AND ASSIGNS. The rights and benefits of this Agreement
----------------------
shall inure to the benefit of, and be enforceable by the Company's successors
and assigns. The rights and obligations of Purchaser under this Agreement may
only be assigned with the prior written consent of the Company.
[Signature Page Follows]
-8-
<PAGE>
The parties have executed this Agreement as of the date first set forth
above .
NETCENTIVES INC.
By: _________________________________________
Title: ______________________________________
Address:
_____________________________________________
_____________________________________________
PURCHASER ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO
SECTION 3 HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS AN EMPLOYEE OR
CONSULTANT AT THE WILL OF THE COMPANY. PURCHASER FURTHER ACKNOWLEDGES AND AGREES
THAT NOTHING IN THIS AGREEMENT SHALL CONFER UPON PURCHASER ANY RIGHT WITH
RESPECT TO CONTINUATION OF SUCH EMPLOYMENT OR CONSULTING RELATIONSHIP WITH THE
COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH PURCHASER'S RIGHT OR THE
COMPANY'S RIGHT TO TERMINATE PURCHASER'S EMPLOYMENT OR CONSULTING RELATIONSHIP
AT ANY TIME, WITH OR WITHOUT CAUSE.
PURCHASER:
[PURCHASER NAME]
_____________________________________________
(Signature)
Address:
_____________________________________________
_____________________________________________
Vesting Commencement
Date: ____________________
I, ________________________________, spouse of [Purchaser], have read and hereby
approve the foregoing Agreement. In consideration of the Company's granting my
spouse the right to purchase the Shares as set forth in the Agreement, I hereby
agree to be irrevocably bound by the Agreement and further agree that any
community property or similar interest that I may have in the Shares shall be
similarly bound by the Agreement. I hereby appoint my spouse as my attorney-in-
fact with respect to any amendment or exercise of any rights under the
Agreement.
_____________________________________________
Spouse of [Purchaser]
-9-
<PAGE>
EXHIBIT C
---------
EXHIBIT A
---------
ASSIGNMENT SEPARATE FROM CERTIFICATE
------------------------------------
FOR VALUE RECEIVED and pursuant to that certain Common Stock Purchase
Agreement between the undersigned ("Purchaser") and Netcentives Inc. (the
---------
"Company") dated _______________ (the "Agreement"), Purchaser hereby sells,
- -------- ---------
assigns and transfers unto the Company _________________________________
(________) shares of the Common Stock of the Company standing in Purchaser's
name on the Company's books and represented by Certificate No. _____, and does
hereby irrevocably constitute and appoint ______________________ to transfer
said stock on the books of the Company with full power of substitution in the
premises. THIS ASSIGNMENT MAY ONLY BE USED AS AUTHORIZED BY THE AGREEMENT AND
THE EXHIBITS THERETO.
Dated: ______________________
Signature:
______________________________
[Purchaser]
______________________________
Spouse of [Purchaser] (if applicable)
Instruction: Please do not fill in any blanks other than the signature line. The
purpose of this assignment is to enable the Company to exercise its repurchase
option set forth in the Agreement without requiring additional signatures on the
part of Purchaser.
<PAGE>
RECEIPT
-------
Netcentives Inc. hereby acknowledges receipt of a check in the amount of
$__________ given by [Purchaser] as consideration for Certificate No.
___________ for ____________ shares of Common Stock of Netcentives Inc.
Dated: ________________
Netcentives Inc.
By: ____________________________________
Title: _________________________________
<PAGE>
RECEIPT AND CONSENT
-------------------
The undersigned hereby acknowledges receipt of a photocopy of Certificate
No. ______ for _____________ shares of Common Stock of Netcentives Inc. (the
"Company").
- --------
The undersigned further acknowledges that the Secretary of the Company, or
his or her designee, is acting as escrow holder pursuant to the Restricted Stock
Purchase Agreement Purchaser has previously entered into with the Company. As
escrow holder, the Secretary of the Company, or his or her designee, holds the
original of the aforementioned certificate issued in the undersigned's name.
Dated: _________________________
_______________________________________
[Purchaser]
<PAGE>
EXHIBIT B
---------
ACKNOWLEDGMENT AND STATEMENT OF DECISION
----------------------------------------
REGARDING SECTION 83(B) ELECTION
--------------------------------
The undersigned has entered a stock purchase agreement with Netcentives
Inc., a California corporation (the "Company"), pursuant to which the
-------
undersigned is purchasing ______________ shares of Common Stock of the Company
(the "Shares"). In connection with the purchase of the Shares, the undersigned
------
hereby represents as follows:
1. The undersigned has carefully reviewed the stock purchase agreement
pursuant to which the undersigned is purchasing the Shares.
2. The undersigned either [check and complete as applicable]:
(a) ____ has consulted, and has been fully advised by, the undersigned's
own tax advisor, __________________________, whose business address is
_____________________________, regarding the federal, state and local
tax consequences of purchasing the Shares, and particularly regarding
the advisability of making elections pursuant to Section 83(b) of the
Internal Revenue Code of 1986, as amended (the "Code") and pursuant to
----
the corresponding provisions, if any, of applicable state law; or
(b) ____ has knowingly chosen not to consult such a tax advisor.
3. The undersigned hereby states that the undersigned has decided [check
as applicable]:
(a) ____ to make an election pursuant to Section 83(b) of the Code, and is
submitting to the Company, together with the undersigned's executed
Common Stock Purchase Agreement, an executed form entitled "Election
Under Section 83(b) of the Internal Revenue Code of 1986"; or
(b) ____ not to make an election pursuant to Section 83(b) of the Code.
<PAGE>
4. Neither the Company nor any subsidiary or representative of the
Company has made any warranty or representation to the undersigned with respect
to the tax consequences of the undersigned's purchase of the Shares or of the
making or failure to make an election pursuant to Section 83(b) of the Code or
the corresponding provisions, if any, of applicable state law.
Date: ___________________________ __________________________________
[Purchaser]
Date: ___________________________ __________________________________
Spouse of [Purchaser]
<PAGE>
ELECTION UNDER SECTION 83(B)
----------------------------
OF THE INTERNAL REVENUE CODE OF 1986
------------------------------------
The undersigned taxpayer hereby elects, pursuant to Section 83(b) of the
Internal Revenue Code, to include in taxpayer's gross income for the current
taxable year, the amount of any compensation taxable to taxpayer in connection
with taxpayer's receipt of the property described below:
1. The name, address, taxpayer identification number and taxable year of the
undersigned are as follows:
NAME OF TAXPAYER: [Purchaser]
NAME OF SPOUSE:
ADDRESS: _______________________________
_______________________________
IDENTIFICATION NO. OF TAXPAYER:
IDENTIFICATION NO. OF SPOUSE:
TAXABLE YEAR:
2. The property with respect to which the election is made is described as
follows:
______________ shares of the Common Stock $_______ par value, of
Netcentives Inc., a California corporation (the "Company").
3. The date on which the property was transferred is: __________________
4. The property is subject to the following restrictions:
Repurchase option at cost in favor of the Company upon termination of
taxpayer's employment or consulting relationship.
5. The fair market value at the time of transfer, determined without regard to
any restriction other than a restriction which by its terms will never
lapse, of such property is: $_____________.
6. The amount (if any) paid for such property: $______________
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
The undersigned understands that the foregoing election may not be revoked
- --------------------------------------------------------------------------
except with the consent of the Commissioner.
- -------------------------------------------
Dated: ______________________ ____________________________________________
Taxpayer
Dated: ______________________ ____________________________________________
Spouse of Taxpayer
<PAGE>
EXHIBIT 10.3
NETCENTIVES INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
---------------------------------
The following constitute the provisions of the Netcentives Inc. 1999
Employee Stock Purchase Plan.
1. PURPOSE. The purpose of the Plan is to provide employees of the
-------
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company. It is the intention of the Company to have the Plan
qualify as an "Employee Stock Purchase Plan" under Section 423 of the Code. The
provisions of the Plan shall, accordingly, be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. DEFINITIONS.
-----------
(a) "Board" means the Board of Directors of the Company.
-----
(b) "Code" means the Internal Revenue Code of 1986, as amended.
----
(c) "Common Stock" means the Common Stock of the Company.
------------
(d) "Company" means Netcentives Inc., a Delaware corporation.
-------
(e) "Compensation" means all regular straight time gross earnings and
------------
commissions, and shall not include payments for overtime, shift premium,
incentive compensation, incentive payments, bonuses and other compensation.
(f) "Continuous Status as an Employee" means the absence of any
--------------------------------
interruption or termination of service as an Employee. Continuous Status as an
Employee shall not be considered interrupted in the case of (i) sick leave;
(ii) military leave; (iii) any other leave of absence approved by the Company,
provided that such leave is for a period of not more than 90 days, unless
reemployment upon the expiration of such leave is guaranteed by contract or
statute or unless provided otherwise pursuant to Company policy adopted from
time to time.
(g) "Contributions" means all amounts credited to the account of a
-------------
participant pursuant to the Plan.
(h) "Corporate Transaction" means a sale of all or substantially all
---------------------
of the Company's assets, or a merger, consolidation or other capital
reorganization of the Company with or into another corporation.
(i) "Designated Subsidiary" means any Subsidiary which has been
---------------------
designated by the Board from time to time in its sole discretion as eligible to
participate in the Plan.
<PAGE>
(j) "Employee" means any person, including an Officer, who is
--------
customarily employed for at least twenty (20) hours per week and more than five
(5) months in a calendar year by the Company or a Designated Subsidiary.
(k) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(l) "Fair Market Value" means, as of any date, the value of Common
-----------------
Stock determined by the Board in its discretion based on the closing sales price
of the Common Stock for such date (or, in the event that the Common Stock is not
traded on such date, on the immediately preceding Trading Day), as reported by
the National Association of Securities Dealers Automated Quotation (Nasdaq)
National Market or, if such price is not reported, the mean of the bid and asked
prices per share of the Common Stock as reported by Nasdaq or, in the event the
Common Stock is listed on a stock exchange, the Fair Market Value per share
shall be the closing sales price on such exchange on such date (or, in the event
that the Common Stock is not traded on such date, on the immediately preceding
Trading Day), as reported in The Wall Street Journal. For purposes of the
Offering Date of the first Offering Period under the Plan, the Fair Market Value
shall be the initial price to the public as set forth in the final prospectus
included within the registration statement in Form S-1 filed with the Securities
and Exchange Commission pursuant to Rule 424 under the Securities Act of 1933,
as amended, for the initial public offering of the Company's Common Stock (the
"Registration Statement").
(m) "Offering Date" means the first Trading Day of each Offering
-------------
Period of the Plan.
(n) "Offering Period" means a period of approximately twenty-four
---------------
(24) months and not exceeding twenty-seven (27) months. The duration and timing
of the Offering Periods may be changed pursuant to Section 4 of the Plan.
(o) "Officer" means a person who is an officer of the Company within
-------
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(p) "Plan" means this Netcentives, Inc. 1999 Employee Stock Purchase
----
Plan.
(q) "Purchase Date" means the last Trading Day of each Purchase
-------------
Period.
(r) "Purchase Period" means a period of approximately six (6) months
---------------
within an Offering Period, except for the first Purchase Period as set forth in
Section 4(b). The duration and timing of the Purchase Periods may be changed
pursuant to Section 4 of the Plan.
(s) "Purchase Price" means with respect to a Purchase Period an
--------------
amount equal to 85% of the Fair Market Value (as defined in Section 2(l) above)
of a Share of Common Stock on the Offering Date or on the Purchase Date,
whichever is lower; provided, however, that in the event (i) there is any
increase in the number of Shares available for issuance under the Plan as a
result of a shareholder-approved amendment to the Plan, and (ii) all or a
portion of such additional Shares are to be issued with respect to one or more
Offering Periods that are underway
-2-
<PAGE>
at the time of such increase ("Additional Shares"), and (iii) the Fair Market
-----------------
Value of a Share of Common Stock on the date of such increase is higher than the
Fair Market Value on the Offering Date for any such Offering Period, then in
such instance the Purchase Price with respect to such Additional Shares shall be
85% of the Fair Market Value of a Share of Common Stock on the date of such
increase or the Fair Market Value of a Share of Common Stock on the Purchase
Date, whichever is lower.
(t) "Share" means a share of Common Stock, as adjusted in accordance
-----
with Section 20 of the Plan.
(u) "Subsidiary" means a corporation, domestic or foreign, of which
----------
not less than 50% of the voting shares are held by the Company or a Subsidiary,
whether or not such corporation now exists or is hereafter organized or acquired
by the Company or a Subsidiary.
(v) "Trading Day" means a day on which national stock exchanges and
-----------
the Nasdaq System are open for trading.
3. ELIGIBILITY.
-----------
(a) Any person who is an Employee as of the Offering Date of a given
Offering Period shall be eligible to participate in such Offering Period under
the Plan, subject to the requirements of Section 5(a) and the limitations
imposed by Section 423(b) of the Code; provided, however, that eligible
Employees may not participate in more than one Offering Period at a time.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) to the extent that,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding options to
purchase stock possessing five percent (5%) or more of the total combined voting
power or value of all classes of stock of the Company or of any Subsidiary, or
(ii) to the extent that his or her rights to purchase stock under all employee
stock purchase plans (described in Section 423 of the Code) of the Company and
its Subsidiaries accrues at a rate which exceeds twenty-five thousand dollars
($25,000) of the Fair Market Value (as defined in Section 2(l) above) of such
stock (determined at the time such option is granted) for each calendar year in
which such option is outstanding at any time.
4. OFFERING PERIODS AND PURCHASE PERIODS.
-------------------------------------
(a) OFFERING PERIODS. The Plan shall be implemented by a series of
----------------
Offering Periods generally of twenty-four (24) months duration and not
exceeding twenty-seven (27) months duration, with new Offering Periods
commencing on May 1 and November 1 of each year, or at such other time or times
as may be determined by the Board of Directors. Offering Periods shall commence
on a continuing and overlapping basis until terminated in accordance with
Section 21 hereof. Notwithstanding the foregoing, the first Offering Period
under the Plan shall commence with the first Trading Day on or after the date on
which the Securities and
-3-
<PAGE>
Exchange Commission declares the Company's Registration Statement effective (the
"IPO Date") and ending on the last Trading Day on or before October 31, 2001.
--------
The Board of Directors of the Company shall have the power to change the
duration and/or the frequency of Offering Periods with respect to future
offerings without shareholder approval if such change is announced at least five
(5) days prior to the scheduled beginning of the first Offering Period to be
affected.
(b) PURCHASE PERIODS. Each Offering Period shall generally consist
----------------
of four (4) Purchase Periods of approximately six (6) months duration, the first
commencing on the Offering Date and ending on the October 31 or April 30 next
following, and each other Purchase Period in such Offering Period commencing on
the day after the last day of the preceding Purchase Period and ending on the
October 31 or April 30 next following; provided, however, that the first
Purchase Period shall commence on the IPO Date and shall end on April 30, 2000.
The Board of Directors of the Company shall have the power to change the
duration and/or frequency of Purchase Periods with respect to future purchases
without shareholder approval if such change is announced at least five (5) days
prior to the otherwise scheduled beginning of the first Purchase Period to be
affected.
5. PARTICIPATION.
-------------
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement on the form provided by the Company and
filing it with the Company's payroll office prior to the applicable Offering
Date, unless a later time for filing the subscription agreement is set by the
Board for all eligible Employees with respect to a given Offering Period.
(b) The subscription agreement shall set forth the Employee's
participation election, either in the form of a designation of the percentage of
the Employee's Compensation the Employee elects to have deducted from his or her
pay on each pay day during the Offering Period and credited to his or her
account under the Plan to be used to purchase shares on the Purchase Date for
each of the relevant Purchase Periods, which percentage shall be not less than
one percent (1%) and not more than twenty percent (20%), or such greater
percentage as the Board may establish from time to time before an Offering Date,
or, if permitted by the Board, in the form of a designation of the number of
whole shares the Employee elects to purchase at the end of each Purchase Period
with respect to the Offering Period, up to such maximum number of shares as the
Board may establish from time to time before an Offering Date.
(c) A participant's subscription shall be effective for each
successive Offering Period in which he or she is eligible to participate, unless
the participant withdraws in accordance with Section 11(a).
(d) In addition to the limits on an Employee's participation in the
Plan set forth herein, the Board may establish limits on the number of shares an
Employee may elect to purchase with respect to any Offering Period if such limit
is announced at least fifteen (15) days prior to the scheduled beginning of the
first Offering Period to be affected.
-4-
<PAGE>
6. GRANT OF OPTION. On the Offering Date of each Offering Period, each
---------------
eligible Employee participating in such Offering Period shall be granted an
option to purchase on each Purchase Date a number of Shares of the Company's
Common Stock determined by dividing such Employee's Contributions accumulated
prior to such Purchase Date and retained in the participant's account as of the
Purchase Date by the applicable Purchase Price, provided, however, that the
maximum number of Shares an Employee may purchase during each Purchase Period
shall be 2,500 Shares (subject to adjustment pursuant to Section 20 below), and
provided further that such purchase shall be subject to the limitations set
forth in Sections 3(b) and 9(b).
7. METHOD OF PAYMENT OF CONTRIBUTIONS.
----------------------------------
(a) PAYROLL DEDUCTIONS.
------------------
(i) If an Employee's participation election is in the form of
an election to contribute a percentage of his or her Compensation through
payroll deductions, or if an Employee otherwise elects to make contributions to
the Plan through payroll deductions of a specified percentage of his or her
Compensation as permitted by the Board with respect to an Employee's
participation election in the form of an election to purchase a designated
number of shares at the end of each Purchase Period, such payroll deductions
shall commence on the first payroll following the Offering Date and shall end on
the last payroll paid in the Offering Period to which such subscription
agreement and payroll deduction authorization is applicable, unless sooner
terminated by the participant as provided in Section 11. All payroll deductions
made by a participant shall be credited to his or her account under the Plan.
(ii) A participant may discontinue his or her participation in
the Plan as provided in Section 11, or to the extent permitted by the Board in
its discretion, may increase or decrease the rate of his or her payroll
deductions during the Offering Period by completing and filing with the Company
a new subscription agreement authorizing a change in payroll deduction rate. The
change in rate shall be effective as of the beginning of the next calendar month
commencing ten (10) or more business days after the date the new subscription is
filed.
(iii) Notwithstanding the foregoing, to the extent necessary to
comply with Section 423(b)(8) of the Code and Section 3(b) herein, a
participant's payroll deductions may be decreased by the Company to zero percent
(0%) at any time during a Purchase Period. Payroll deductions shall re-commence
at the rate provided in such participant's subscription agreement at the
beginning of the first Purchase Period which is scheduled to end in the folowing
calendar year, unless terminated by the participant as provided in Section 11.
(b) CASH OR STOCK CONTRIBUTIONS. To the extent permitted by the
---------------------------
Board, a participant may make contributions to the Plan for purchase of shares
in cash or by tendering Company stock or by election to receive shares
representing the difference between the Purchase Price and the Fair Market Value
of the shares, less applicable withholding. Any such cash or stock
contribution, or any election to receive net shares, must be received by the
Company in accordance with procedures and at such times as established by the
Board, and a participant's failure to make such contributions or such an
election within the time required, to the extent the aggregate Purchase Price of
the number of shares the participant has an option to purchase on the
-5-
<PAGE>
Purchase Date exceeds payroll deduction contributions made by the participant as
of the Purchase Date, shall be deemed a withdrawal from the Offering Period with
respect to shares subject to the option not purchased on the applicable Purchase
Date and with respect to all other Purchase Periods in such Offering Period.
8. WITHHOLDING TAX OBLIGATIONS. At the time the option is exercised, in
---------------------------
whole or in part, or at the time some or all of the Company's Common Stock
issued under the Plan is disposed of, the participant must make adequate
provision for payment to the Company of the Company's federal, state or other
tax withholding obligations, if any, which arise upon the exercise of the option
or the disposition of the Common Stock. At any time, the Company may, but shall
not be obligated to, withhold from the participant's compensation the amount
necessary for the Company to meet applicable withholding obligations, including
any withholding required to make available to the Company any tax deductions or
benefits attributable to the sale or early disposition of Common Stock by the
participant.
9. EXERCISE OF OPTION.
------------------
(a) Unless a participant withdraws from the Plan as provided in
Section 11, his or her option for the purchase of Shares will be exercised
automatically on each Purchase Date of an Offering Period, and the maximum
number of full Shares subject to the option will be purchased at the applicable
Purchase Price with the accumulated Contributions in his or her account. The
Shares purchased upon exercise of an option hereunder shall be deemed to be
transferred to the participant on the Purchase Date. During his or her
lifetime, a participant's option to purchase Shares hereunder is exercisable
only by him or her.
(b) If the Board determines that, on a given Purchase Date, the
number of Shares with respect to which options are to be exercised may exceed
(i) the number of Shares of Common Stock that were available on the Offering
Date of the applicable Offering Period (after deduction of all Shares for which
options have been exercised or are then outstanding), or (ii) the number of
shares available for sale under the Plan on such Purchase Date (after deduction
of all Shares for which options have been exercised or are then outstanding),
the Board may, in its sole discretion, provide that the Shares of Common Stock
available for purchase on such Offering Date or Purchase Date, as applicable,
shall be allocated pro rata, in as uniform a manner as shall be practicable and
as it shall determine in its sole discretion to be equitable among all
participants exercising options to purchase Common Stock on such Purchase Date
and (x) continue all Offering Periods then in effect or (y) pursuant to Section
21 below, terminate any or all Offering Periods then in effect. The Board may
direct that the Shares available on the Offering Date of any applicable Offering
Period pursuant to the preceding sentence be allocated pro rata, notwithstanding
any authorization of additional Shares for issuance under the Plan by the
Company's shareholders subsequent to such Offering Date.
(c) Any cash remaining to the credit of a participant's account under the
Plan after a purchase by him or her of Shares at the termination of each
Purchase Period which is insufficient to purchase a full Share shall be carried
over to the next Purchase Period if the Employee continues to participate in the
Plan, or if the Employee does not continue to participate, shall be
-6-
<PAGE>
returned to the participant. Any other amounts left over in a participant's
account after a Purchase Date shall be returned to the participant.
10. DELIVERY. As promptly as practicable after each Purchase Date of each
--------
Offering Period, the Company shall arrange the delivery to each participant, as
appropriate, of a certificate representing the Shares purchased upon exercise of
his or her option.
11. VOLUNTARY WITHDRAWAL.
--------------------
(a) A participant may withdraw all but not less than all the
Contributions credited to his or her account under the Plan at any time prior to
each Purchase Date by giving written notice to the Company. All of the
participant's Contributions credited to his or her account will be paid to him
or her promptly after receipt of his or her notice of withdrawal and his or her
option for the current Offering Period will be automatically terminated, and no
further Contributions for the purchase of Shares will be made during and with
respect to such Offering Period.
(b) A participant's voluntary withdrawal from an offering will not
have any effect upon his or her eligibility to participate in a succeeding
Offering Period or in any similar plan which may hereafter be adopted by the
Company.
12. AUTOMATIC WITHDRAWAL.
--------------------
(a) REDUCTION OF HOURS. In the event an Employee fails to remain in
-------------------
Continuous Status as an Employee of the Company for at least twenty (20) hours
per week during the Offering Period in which the employee is a participant, he
or she will be deemed to have elected to withdraw from the Plan and the
Contributions credited to his or her account will be returned to him or her and
his or her option terminated.
(b) TERMINATION OF EMPLOYMENT. Upon termination of the participant's
-------------------------
Continuous Status as an Employee prior to the Purchase Date of an Offering
Period (other than on account of death), he or she will be automatically
withdrawn from the Plan effective as of the date of such termination of his or
her Continuous Status as an Employee, the Contributions credited to his or her
account will be returned to him or her, and his or her option will be
automatically terminated.
(c) DEATH OF PARTICIPANT. Upon the death of a participant prior to
--------------------
the Purchase Date of an Offering Period, he or she will be automatically
withdrawn from the Plan, the Contributions credited to his or her account will
be returned to the person or persons entitled thereto under Section 15, and his
or her option will be automatically terminated.
(d) REDUCTION IN FAIR MARKET VALUE. To the extent permitted by any
------------------------------
applicable laws, regulations or stock exchange rules, if the Fair Market Value
of the Shares on a Purchase Date of an Offering Period (other than the final
Purchase Date of such Offering Period) is less than the Fair Market Value of the
Shares on the Offering Date for such Offering Period, then every participant
shall automatically (i) be withdrawn from such Offering Period at the close
-7-
<PAGE>
of such Purchase Date and after the acquisition of Shares for such Purchase
Period, and (ii) be enrolled in the Offering Period commencing on the first
business day subsequent to such Purchase Date. If the Fair Market Value of the
Shares on April 30, 1999 is less than the Fair Market Value of the Shares on the
IPO Date, each participant shall automatically be withdrawn as of April 30, 1999
from the Offering Period beginning on the IPO Date and re-enrolled in the
Offering Period beginning on May 1, 1999 unless such participant notifies the
Administrator prior to April 30, 1999 that he or she does not wish to be
withdrawn and re-enrolled. All payroll deductions accumulated in a participant's
account as of such withdrawal date shall be returned to the participant.
13. INTEREST. No interest shall accrue on the Contributions of a
--------
participant in the Plan.
14. STOCK.
-----
(a) The maximum number of Shares which shall be made available for
sale under the Plan shall be 300,000 Shares, plus an annual increase on the
first day of each of the Company's fiscal years beginning in 2000, 2001, 2002,
2003 and 2004, equal to the lesser of (A) 75,000 Shares, (B) 1% of the Shares
outstanding on the last day of the immediately preceding fiscal year, or (C)
such lesser number of Shares as is determined by the Board, subject to
adjustment upon changes in capitalization of the Company as provided in Section
20.
(b) The participant shall have no interest or voting right in Shares
covered by his or her option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan will be
registered in the name of the participant or in the name of the participant and
his or her spouse.
15. ADMINISTRATION. The Board, or a committee named by the Board, shall
--------------
supervise and administer the Plan and shall have full power to adopt, amend and
rescind any rules deemed desirable and appropriate for the administration of the
Plan and not inconsistent with the Plan, to construe and interpret the Plan, and
to make all other determinations necessary or advisable for the administration
of the Plan. Every finding, decision and determination made by the Board or its
committee shall, to the full extent permitted by law, be final and binding upon
all parties.
16. DESIGNATION OF BENEFICIARY.
--------------------------
(a) A participant may file a written designation of a beneficiary who
is to receive any Shares and cash, if any, from the participant's account under
the Plan in the event of such participant's death subsequent to the end of a
Purchase Period but prior to delivery to him or her of such Shares and cash. In
addition, a participant may file a written designation of a beneficiary who is
to receive any cash from the participant's account under the Plan in the event
of such participant's death prior to the Purchase Date of an Offering Period.
If a participant is married and the designated beneficiary is not the spouse,
spousal consent shall be required for such designation to be effective. Such
designation of beneficiary may be changed by the
-8-
<PAGE>
participant (with the consent of his or her spouse, if any) at any time by
written notice effective upon receipt by the Company of such notice.
(b) In the event of the death of a participant and in the absence of a
beneficiary validly designated in accordance with Section 16(a) who is living at
the time of such participant's death, the Company shall deliver such Shares
and/or cash to the executor or administrator of the estate of the participant,
or if no such executor or administrator has been appointed (to the knowledge of
the Company), the Company, in its discretion, may deliver such Shares and/or
cash to the spouse or to any one or more dependents or relatives of the
participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
17. TRANSFERABILITY. Neither Contributions credited to a participant's
---------------
account nor any rights with regard to the exercise of an option or to receive
Shares under the Plan may be assigned, transferred, pledged or otherwise
disposed of in any way by the participant (other than by will, the laws of
descent and distribution, or as provided in Section 16). Any such attempt at
assignment, transfer, pledge or other disposition shall be without effect,
except that the Company may treat such act as an election to withdraw funds in
accordance with Section 11.
18. USE OF FUNDS. All Contributions received or held by the Company under
------------
the Plan may be used by the Company for any corporate purpose, and the Company
shall not be obligated to segregate such Contributions.
19. REPORTS. Individual accounts will be maintained for each participant
-------
in the Plan. Statements of account will be given to participating Employees at
least annually, which statements will set forth the amounts of Contributions,
the per Share Purchase Price, the number of Shares purchased and the remaining
cash balance, if any.
20. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION; CORPORATE TRANSACTIONS.
------------------------------------------------------------------
(a) ADJUSTMENT. Subject to any required action by the shareholders of
----------
the Company, the number of Shares covered by each option under the Plan which
has not yet been exercised and the number of Shares which have been authorized
for issuance under the Plan but have not yet been placed under option
(collectively, the "Reserves"), as well as the maximum number of shares of
--------
Common Stock which may be purchased by a participant in a Purchase Period, the
number of shares of Common Stock set forth in Section 14(a) above, and the price
per Share of Common Stock covered by each option under the Plan which has not
yet been exercised, shall be proportionately adjusted for any increase or
decrease in the number of issued Shares resulting from a stock split, reverse
stock split, stock dividend, combination or reclassification of the Common Stock
(including any such change in the number of shares of Common Stock effected in
connection with a change in domicile of the Company), or any other increase or
decrease in the number of Shares effected without receipt of consideration by
the Company; provided, however, that conversion of any convertible securities of
the Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Board, whose determination
in that respect shall be final, binding and conclusive. Except as expressly
provided herein, no issue by the Company of shares of stock of any class, or
-9-
<PAGE>
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of Shares subject to an option.
(b) CORPORATE TRANSACTIONS. In the event of a dissolution or
----------------------
liquidation of the Company, any Purchase Period and Offering Period then in
progress will terminate immediately prior to the consummation of such action,
unless otherwise provided by the Board. In the event of a Corporate
Transaction, each option outstanding under the Plan shall be assumed or an
equivalent option shall be substituted by the successor corporation or a parent
or subsidiary of such successor corporation, unless the Board determines, in the
exercise of its sole discretion and in lieu of such assumption or substitution,
to shorten any Purchase Period and Offering Period then in progress by setting a
new Purchase Date (the "New Purchase Date"), as of which date any Purchase
-----------------
Period and Offering Period then in progress will terminate. If the Board
shortens the Purchase Period and Offering Period then in progress in lieu of
assumption or substitution in the event of a Corporate Transaction, the Board
will notify each participant in writing, at least ten (10) days prior to the New
Purchase Date, that the Purchase Date for his or her option has been changed to
the New Purchase Date and that his or her option will be exercised automatically
on the New Purchase Date, unless prior to such date he or she has withdrawn from
the Offering Period as provided in Section 11. For purposes of this Section
20(b), an option granted under the Plan shall be deemed to be assumed, without
limitation, if, at the time of issuance of the stock or other consideration upon
a Corporate Transaction, each holder of an option under the Plan would be
entitled to receive upon exercise of the option the same number and kind of
shares of stock or the same amount of property, cash or securities as such
holder would have been entitled to receive upon the occurrence of the Corporate
Transaction if the holder had been, immediately prior to the Corporate
Transaction , the holder of the number of Shares of Common Stock covered by the
option at such time (after giving effect to any adjustments in the number of
Shares covered by the option as provided in Section 20(a)); provided however
that if the consideration received in the transaction is not solely common stock
of the successor corporation or its parent (as defined in Section 424(e) of the
Code), the Board may, with the consent of the successor corporation, provide for
the consideration to be received upon exercise of the option to be solely common
stock of the successor corporation or its parent equal in Fair Market Value to
the per Share consideration received by holders of Common Stock in the Corporate
Transaction.
The Board may, if it so determines in the exercise of its sole discretion,
also make provision for adjusting the Reserves, as well as the price per Share
of Common Stock covered by each outstanding option, in the event that the
Company effects one or more reorganizations, recapitalizations, rights offerings
or other increases or reductions of Shares of its outstanding Common Stock, and
in the event of the Company's being consolidated with or merged into any other
corporation.
21. AMENDMENT AND TERMINATION.
-------------------------
(a) The Board may at any time and for any reason terminate or amend
the Plan. Except as provided in Section 20, no such termination of the Plan may
affect options previously granted, provided that the Plan or an Offering Period
may be terminated by the Board
-10-
<PAGE>
on a Purchase Date or by the Board's setting a new Purchase Date with respect to
an Offering Period and Purchase Period then in progress if the Board determines
that termination of the Plan and/or the Offering Period is in the best interests
of the Company and the shareholders or if continuation of the Plan and/or the
Offering Period would cause the Company to incur adverse accounting charges as a
result of a change after the effective date of the Plan in the generally
accepted accounting rules applicable to the Plan. Except as provided in Section
20 and this Section 21, no amendment to the Plan shall make any change in any
option previously granted which adversely affects the rights of any participant.
In addition, to the extent necessary to comply with Section 423 of the Code (or
any successor rule or provision or any other applicable law or regulation), the
Company shall obtain shareholder approval in such a manner and to such a degree
as so required.
(b) Without shareholder consent and without regard to whether any
participant rights may be considered to have been adversely affected, the Board
(or its committee) shall be entitled to change the Offering Periods and Purchase
Periods, limit the frequency and/or number of changes in the amount withheld
from a participant's Compensation during an Offering Period, establish the
exchange ratio applicable to amounts withheld in a currency other than U.S.
dollars, permit 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, establish reasonable
waiting and adjustment periods and/or accounting and crediting procedures to
ensure that amounts applied toward the purchase of Common Stock for each
participant properly correspond with amounts withheld from the participant's
Compensation, establish such other limitations or procedures as the Board (or
its committee) determines in its sole discretion advisable which are consistent
with the Plan.
22. NOTICES. All notices or other communications by a participant to the
-------
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
23. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued with
----------------------------------
respect to an option unless the exercise of such option and the issuance and
delivery of such Shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Exchange Act, the rules and regulations
promulgated thereunder, applicable state securities laws and the requirements of
any stock exchange upon which the Shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may require the
person exercising such option to represent and warrant at the time of any such
exercise that the Shares are being purchased only for investment and without any
present intention to sell or distribute such Shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned applicable provisions of law.
-11-
<PAGE>
24. TERM OF PLAN; EFFECTIVE DATE. The Plan shall become effective upon
----------------------------
the IPO Date. It shall continue in effect for a term of twenty (20) years
unless sooner terminated under Section 21.
25. ADDITIONAL RESTRICTIONS OF RULE 16B-3. The terms and conditions of
-------------------------------------
options granted hereunder to, and the purchase of Shares by, persons subject to
Section 16 of the Exchange Act shall comply with the applicable provisions of
Rule 16b-3. This Plan shall be deemed to contain, and such options shall
contain, and the Shares issued upon exercise thereof shall be subject to, such
additional conditions and restrictions as may be required by Rule 16b-3 to
qualify for the maximum exemption from Section 16 of the Exchange Act with
respect to Plan transactions.
-12-
<PAGE>
NETCENTIVES, inc.
1999 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
----------------------
New Election ______
Change of Election ______
1. I, ________________________, hereby elect to participate in the
Netcentives, Inc. 1999 Employee Stock Purchase Plan (the "Plan") commencing with
----
the Offering Period ______________, ____ to _______________, ____, and subscribe
to purchase shares of the Company's Common Stock in accordance with this
Subscription Agreement and the Plan.
2. I elect to have Contributions in the amount of ____% of my
Compensation, as those terms are defined in the Plan, applied to this purchase.
I understand that this amount must not be less than 1% and not more than 20% of
my Compensation during the Offering Period. (Please note that no fractional
percentages are permitted).
3. I hereby authorize payroll deductions from each paycheck during the
Offering Period at the rate stated in Item 2 of this Subscription Agreement. I
understand that all payroll deductions made by me shall be credited to my
account under the Plan and that I may not make any additional payments into such
account. I understand that all payments made by me shall be accumulated for the
purchase of shares of Common Stock at the applicable purchase price determined
in accordance with the Plan. I further understand that, except as otherwise set
forth in the Plan, shares will be purchased for me automatically on each
Purchase Date of an Offering Period unless I otherwise withdraw from the
Offering Period prior to a Purchase Date by giving written notice to the Company
for such purpose.
4. I understand that I may decrease (but not increase) the rate of my
Contributions on one occasion only during any Offering Period by completing and
filing a new Subscription Agreement with such decrease taking effect as of the
beginning of the calendar month following the date of filing of the new
Subscription Agreement, if filed at least ten (10) business days prior to the
beginning of such month. I also understand that I may change the rate of
deductions for future Offering Periods by filing a new Subscription Agreement,
and any such change will be effective as of the beginning of the next Offering
Period in which I am eligible to participate commencing after the new
Subscription Agreement is filed.
5. I understand that I may discontinue my participation in an Offering
Period at any time prior to a Purchase Date as provided in Section 11 of the
Plan, and that if I do so I will not be permitted to renew participation in such
Offering Period.
I UNDERSTAND THAT UNLESS I DISCONTINUE MY PARTICIPATION IN AN OFFERING
PERIOD AS PROVIDED IN SECTION 11 OF THE PLAN OR CHANGE THE RATE OF DEDUCTIONS BY
FILING A NEW
<PAGE>
SUBSCRIPTION AGREEMENT, MY ELECTION WILL CONTINUE TO BE EFFECTIVE
FOR EACH SUCCESSIVE OFFERING PERIOD COMMENCING AFTER THE TERMINATION OF AN
OFFERING PERIOD IN WHICH I HAVE PARTICIPATED.
6. I have received a copy of the Company's most recent description of the
Plan and a copy of the complete "Netcentives, Inc. 1999 Employee Stock Purchase
Plan." I understand that my participation in the Plan is in all respects
subject to the terms of the Plan.
7. Shares purchased for me under the Plan should be issued in the name(s)
of (name of employee or employee and spouse only):
_______________________________________
_______________________________________
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due to me under the Plan:
NAME: (Please print) _______________________________________
(First) (Middle) (Last)
____________________ _______________________________________
(Relationship) (Address)
_______________________________________
Summary of Tax Treatment on Sale of Shares
------------------------------------------
The following information regarding the federal tax treatment on sale of
------------------------------------------------------------------------
shares acquired under the Plan is only a summary and is subject to change,
- ---------------------------------------------------------------------------
and is not intended to represent or provide tax advice to the participant, his
- ------------------------------------------------------------------------------
or her spouse or beneficiaries. You should consult a tax advisor concerning the
- --------------------------------------------------------------------------------
tax implications of the purchase and sale of stock under the Plan.
- -----------------------------------------------------------------
If any shares received pursuant to the Plan are sold or otherwise disposed
of within two (2) years after the Offering Date or within one (1) year after the
Purchase Date, the excess of the fair market value of the shares on the Purchase
Date over the price paid for the shares on such Purchase Date will be treated
for federal income tax purposes as ordinary compensation income at the time of
such disposition, regardless of the amount received on sale or other disposition
of the shares, even if such amount is less than their fair market value at the
Purchase Date. The remainder of the gain or loss, if any, recognized on such
disposition will be treated as capital gain or loss.
If any shares received pursuant to the Plan are sold or otherwise disposed
of at any time after expiration of the 2-year and 1-year holding periods, the
lesser of 15% of the fair market
<PAGE>
value of the shares on the Offering Date or the excess of the fair market value
of the shares at the time of such sale or disposition over the price paid for
the shares on the Purchase Date will be treated for federal income tax purposes
as ordinary compensation income. The remainder of the gain or loss, if any,
recognized on such disposition will be treated as capital gain or loss.
9. I hereby agree to notify the Company in writing within 30 days after
the date of any disposition of shares within two (2) years after the Offering
Date or within one (1) year after the Purchase Date, and I will make adequate
provision for federal, state or other tax withholding obligations, if any, which
arise upon the disposition of the Common Stock. The Company may, but will not be
obligated to, withhold from my compensation the amount necessary to meet any
applicable withholding obligation including any withholding necessary to make
available to the Company any tax deductions or benefits attributable to the sale
or early disposition of Common Stock by me.
10. I hereby agree to be bound by the terms of the Plan. The effectiveness
of this Subscription Agreement is dependent upon my eligibility to participate
in the Plan.
SIGNATURE: __________________________
SOCIAL SECURITY #: __________________
DATE: _______________________________
SPOUSE'S SIGNATURE (necessary
if beneficiary is not spouse):
_____________________________________
(Signature)
_____________________________________
(Print name)
<PAGE>
NETCENTIVES, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
--------------------
I, __________________________, hereby elect to withdraw my participation in
the Netcentives, Inc. 1999 Employee Stock Purchase Plan (the "Plan") for the
----
Offering Period _________. This withdrawal covers all Contributions credited to
my account and is effective on the date designated below.
I understand that all Contributions credited to my account will be paid to
me within ten (10) business days of receipt by the Company of this Notice of
Withdrawal and that my option for the current period will automatically
terminate, and that no further Contributions for the purchase of shares can be
made by me during the Offering Period.
I further understand and agree that I will be eligible to participate in
succeeding Offering Periods only by delivering to the Company a new Subscription
Agreement prior to the commencement of such Offering Period in accordance with
procedures established by the Company.
Dated:___________________ _________________________________
Signature of Employee
_________________________________
Social Security Number
<PAGE>
EXHIBIT 10.4
NETCENTIVES INC.
1999 DIRECTORS' STOCK OPTION PLAN
---------------------------------
1. PURPOSES OF THE PLAN. The purposes of this Directors' Stock Option
--------------------
Plan are to attract and retain the best available personnel for service as
Directors of the Company, to provide additional incentive to the Outside
Directors of the Company to serve as Directors, and to encourage their continued
service on the Board.
All options granted hereunder shall be nonstatutory stock options.
2. DEFINITIONS. As used herein, the following definitions shall apply:
-----------
(a) "BOARD" means the Board of Directors of the Company.
-----
(b) "CHANGE OF CONTROL" means a sale of all or substantially all of
-----------------
the Company's assets, or any merger or consolidation of the Company with or into
another corporation other than a merger or consolidation in which the holders of
more than 50% of the shares of capital stock of the Company outstanding
immediately prior to such transaction continue to hold (either by the voting
securities remaining outstanding or by their being converted into voting
securities of the surviving entity) more than 50% of the total voting power
represented by the voting securities of the Company, or such surviving entity,
outstanding immediately after such transaction.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
----
(d) "COMMON STOCK" means the Common Stock of the Company.
------------
(e) "COMPANY" means Netcentives Inc., a California corporation.
-------
(f) "CONTINUOUS STATUS AS A DIRECTOR" means the absence of any
-------------------------------
interruption or termination of service as a Director.
(g) "CORPORATE TRANSACTION" means a dissolution or liquidation of the
---------------------
Company, a sale of all or substantially all of the Company's assets, or a
merger, consolidation or other capital reorganization of the Company with or
into another corporation.
(h) "DIRECTOR" means a member of the Board.
--------
(i) "EMPLOYEE" means any person, including any officer or Director,
--------
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a director's fee by the Company shall not be sufficient in and of itself to
constitute "employment" by the Company.
(j) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
------------
amended.
<PAGE>
(k) "OPTION" means a stock option granted pursuant to the Plan. All
------
options shall be nonstatutory stock options (i.e., options that are not intended
to qualify as incentive stock options under Section 422 of the Code).
(l) "OPTIONED STOCK" means the Common Stock subject to an Option.
--------------
(m) "OPTIONEE" means an Outside Director who receives an Option.
--------
(n) "OUTSIDE DIRECTOR" means a Director who is not an Employee.
----------------
(o) "PARENT" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(p) "PLAN" means this 1999 Directors' Stock Option Plan.
----
(q) "SHARE" means a share of the Common Stock, as adjusted in
-----
accordance with Section 11 of the Plan.
(r) "SUBSIDIARY" means a "subsidiary corporation," whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 11 of
-------------------------
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 400,000 Shares of Common Stock, plus an annual increase on the
first day of each of the Company's fiscal years beginning in 2000, 2001, 2002,
2003 and 2004 equal to the lesser of (i) 50,000 Shares, (ii) one percent (1%) of
the Shares outstanding on the last day of the immediately preceding fiscal year,
or (iii) such lesser number of Shares as is determined by the Board. The Shares
may be authorized, but unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any reason without
having been exercised in full, the unpurchased Shares which were subject thereto
shall, unless the Plan has been terminated, become available for future grant
under the Plan. In addition, any Shares of Common Stock that are retained by the
Company upon exercise of an Option in order to satisfy the exercise price for
such Option, or any withholding taxes due with respect to such exercise, shall
be treated as not issued and shall continue to be available under the Plan. If
Shares that were acquired upon exercise of an Option are subsequently
repurchased by the Company, such Shares shall not in any event be returned to
the Plan and shall not become available for future grant under the Plan.
4. ADMINISTRATION OF AND GRANTS OF OPTIONS UNDER THE PLAN.
------------------------------------------------------
(a) ADMINISTRATOR. Except as otherwise required herein, the Plan
-------------
shall be administered by the Board.
(b) PROCEDURE FOR GRANTS. All grants of Options hereunder shall be
--------------------
automatic and nondiscretionary and shall be made strictly in accordance with the
following provisions:
-2-
<PAGE>
(i) No person shall have any discretion to select which
Outside Directors shall be granted Options or to determine the number of Shares
to be covered by Options granted to Outside Directors.
(ii) Each Outside Director who becomes an Outside Director
after the effective date of this Plan shall be automatically granted an Option
to purchase 40,000 Shares (the "First Option") on the date on which such person
------------
first becomes an Outside Director, whether through election by the shareholders
of the Company or appointment by the Board to fill a vacancy.
(iii) Each Outside Director shall thereafter be automatically
granted an Option to purchase 10,000 Shares (a "Subsequent Option") on the first
-----------------
day of each fiscal year of the Company, provided that, on such date, he or she
shall have served on the Board for at least six (6) months prior to the date of
such Annual Meeting.
(iv) Each Outside Director who is an Outside Director on the
date the Securities and Exchange Commission declares effective the registration
statement in Form S-1 filed with the Securities and Exchange Commission pursuant
to Rule 424 under the Securities Act of 1933, as amended, for the initial public
offering of the Company's Common Stock (the "IPO Date"), shall be automatically
granted an option to purchase 40,000 Shares (an "IPO Option") on the IPO Date,
----------
provided that such Outside Director did not receive a grant of an option under
the Company's 1996 Stock Option Plan during 1998.
(v) Notwithstanding the provisions of subsections (ii) and
(iii) and (iv) hereof, in the event that a grant would cause the number of
Shares subject to outstanding Options plus the number of Shares previously
purchased upon exercise of Options to exceed the maximum aggregate number of
Shares designated in Section 3 above, then each such automatic grant shall be
for that number of Shares determined by dividing the total number of Shares
remaining available for grant by the number of Outside Directors receiving an
Option on the automatic grant date. Any further grants shall then be deferred
until such time, if any, as additional Shares become available for grant under
the Plan through action of the shareholders to increase the number of Shares
which may be issued under the Plan or through cancellation or expiration of
Options previously granted hereunder.
(vi) Notwithstanding the provisions of subsections (ii) and
(iii) and (iv) hereof, any grant of an Option made before the Company has
obtained shareholder approval of the Plan in accordance with Section 17 hereof
shall be conditioned upon obtaining such shareholder approval of the Plan in
accordance with Section 17 hereof.
(c) TERMS OF THE OPTIONS. The terms of each Option granted hereunder
--------------------
shall be as follows:
(i) The Option shall be exercisable only while the Outside
Director remains a Director of the Company, except as set forth in Section 9
below.
(ii) The exercise price per Share shall be 100% of the fair
market value per Share on the date of grant of the Option, determined in
accordance with Section 8 hereof.
-3-
<PAGE>
(iii) Each First Option and each IPO Option shall vest and
become exercisable as to twenty-five percent (25%) of the Shares subject to the
Option on each of the first, second, third and fourth anniversaries of the date
of grant.
(iv) Each Subsequent Option shall vest and become exercisable
as to one hundred percent (100%) of the Shares subject to the Option on the
fourth anniversary of the date of grant.
(v) The Option may be exercised in whole or in part at any
time after the date of grant as to Shares which have not vested under the
vesting schedule set forth in Section 4(c)(iii) or (iv), as applicable (the
"Unvested Shares"), provided that any Unvested Shares purchased by Optionee
shall be subject to the right of the Company to repurchase all or any portion of
such Shares in the event Optionee ceases to serve as a Director while such
Shares remain Unvested Shares, at the original per Share exercise price, for a
period of sixty (60) days from the date the Optionee ceases to serve as a
Director, upon written notice to Optionee or Optionee's executor and, at the
Company's option, (A) by delivery to Optionee or Optionee's executor with such
notice of a check in the amount of the purchase price for the Shares being
purchased, or (B) in the event Optionee is indebted to the Company, by
cancellation by the Company of an amount of such indebtedness equal to the
purchase price for the Shares being repurchased, or (C) by a combination of (A)
or (B) so that the combined payment and cancellation of indebtedness equals such
purchase price. Upon delivery of such notice and payment of the purchase price
in any of the ways described above, the Company shall become the legal and
beneficial owner of the Shares being repurchased and all rights and interest
therein or related thereto, and the Company shall have the right to transfer to
its own name the number of Shares being repurchased by the Company, without
further action by the Optionee. The repurchase right of the Company described
herein shall lapse in accordance with the vesting schedule set forth in Section
4(c)(iii) or (iv), as applicable, or, in the event of death of the Optionee
while in Continuous Status as a Director, as to Unvested Shares which would have
vested in accordance with such vesting schedule within six (6) months of the
date of death had the Optionee's Continuous Status as a Director not terminated.
(d) POWERS OF THE BOARD. Subject to the provisions and restrictions
-------------------
of the Plan, the Board shall have the authority, in its discretion: (i) to
determine, upon review of relevant information and in accordance with Section
8(b) of the Plan, the fair market value of the Common Stock; (ii) to determine
the exercise price per Share of Options to be granted, which exercise price
shall be determined in accordance with Section 8 of the Plan; (iii) to interpret
the Plan; (iv) to prescribe, amend and rescind rules and regulations relating to
the Plan; (v) to authorize any person to execute on behalf of the Company any
instrument required to effectuate the grant of an Option previously granted
hereunder; and (vi) to make all other determinations deemed necessary or
advisable for the administration of the Plan.
(e) EFFECT OF BOARD'S DECISION. All decisions, determinations and
--------------------------
interpretations of the Board shall be final and binding on all Optionees and any
other holders of any Options granted under the Plan.
(f) SUSPENSION OR TERMINATION OF OPTION. If the Chief Executive
-----------------------------------
Officer or his or her designee reasonably believes that an Optionee has
committed an act of misconduct,
-4-
<PAGE>
such officer may suspend the Optionee's right to exercise any option pending a
determination by the Board (excluding the Outside Director accused of such
misconduct). If the Board (excluding the Outside Director accused of such
misconduct) determines an Optionee has committed an act of embezzlement, fraud,
dishonesty, nonpayment of an obligation owed to the Company, breach of fiduciary
duty or deliberate disregard of the Company rules resulting in loss, damage or
injury to the Company, or if an Optionee makes an unauthorized disclosure of any
Company trade secret or confidential information, engages in any conduct
constituting unfair competition, induces any Company customer to breach a
contract with the Company or induces any principal for whom the Company acts as
agent to terminate such agency relationship, neither the Optionee nor his or her
estate shall be entitled to exercise any Option whatsoever. In making such
determination, the Board of Directors (excluding the Outside Director accused of
such misconduct) shall act fairly and shall give the Optionee an opportunity to
appear and present evidence on Optionee's behalf at a hearing before the Board
or a committee of the Board.
5. ELIGIBILITY. Options may be granted only to Outside Directors. All
-----------
Options shall be automatically granted in accordance with the terms set forth in
Section 4(b) above. An Outside Director who has been granted an Option may, if
he or she is otherwise eligible, be granted an additional Option or Options in
accordance with such provisions.
The Plan shall not confer upon any Optionee any right with respect to
continuation of service as a Director or nomination to serve as a Director, nor
shall it interfere in any way with any rights which the Director or the Company
may have to terminate his or her directorship at any time.
6. TERM OF PLAN; EFFECTIVE DATE. The Plan shall become effective on the
----------------------------
effectiveness of the registration statement under the Securities Act of 1933, as
amended, relating to the Company's initial public offering of securities. It
shall continue in effect for a term of ten (10) years unless sooner terminated
under Section 13 of the Plan.
7. TERM OF OPTIONS. The term of each Option shall be ten (10) years from
---------------
the date of grant thereof unless an Option terminates sooner pursuant to Section
9 below.
8. EXERCISE PRICE AND CONSIDERATION.
--------------------------------
(a) EXERCISE PRICE. The per Share exercise price for the Shares to be
--------------
issued pursuant to exercise of an Option shall be 100% of the fair market value
per Share on the date of grant of the Option.
(b) FAIR MARKET VALUE. The fair market value shall be determined by
-----------------
the Board; provided however that in the event the Common Stock is traded on the
Nasdaq National Market or listed on a stock exchange, the fair market value per
Share shall be the closing sales price on such system or exchange on the date of
grant of the Option (or, in the event that the Common Stock is not traded on
such date, on the immediately preceding trading date), as reported in The Wall
--------
Street Journal, or if there is a public market for the Common Stock but the
- --------------
Common Stock is not traded on the Nasdaq National Market or listed on a stock
exchange, the
-5-
<PAGE>
fair market value per Share shall be the mean of the bid and asked prices of the
Common Stock in the over-the-counter market on the date of grant, as reported in
The Wall Street Journal (or, if not so reported, as otherwise reported by the
- ------------------------
National Association of Securities Dealers Automated Quotation ("Nasdaq")
System).
(c) FORM OF CONSIDERATION. The consideration to be paid for the
---------------------
Shares to be issued upon exercise of an Option shall consist entirely of cash,
check, other Shares of Common Stock having a fair market value on the date of
surrender equal to the aggregate exercise price of the Shares as to which the
Option shall be exercised (which, if acquired upon exercise of an Option
directly or indirectly from the Company, shall have been held for at least six
months or such other period as may be required to avoid a charge to the
Company's earnings), or any combination of such methods of payment and/or any
other consideration or method of payment as shall be permitted under applicable
corporate law.
9. EXERCISE OF OPTION.
------------------
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any Option
-----------------------------------------------
granted hereunder shall be exercisable at such times as are set forth in Section
4(b) above; provided however that no Options shall be exercisable prior to
shareholder approval of the Plan in accordance with Section 17 below has been
obtained.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may consist of any consideration and method of payment
allowable under Section 8(c) of the Plan. Until the issuance (as evidenced by
the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company) of the stock certificate evidencing such Shares,
no right to vote or receive dividends or any other rights as a shareholder shall
exist with respect to the Optioned Stock, notwithstanding the exercise of the
Option. A share certificate for the number of Shares so acquired shall be issued
to the Optionee as soon as practicable after exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 11 of the Plan.
Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) TERMINATION OF CONTINUOUS STATUS AS A DIRECTOR. If an Outside
----------------------------------------------
Director ceases to serve as a Director, he or she may, but only within ninety
(90) days after the date he or she ceases to be a Director of the Company,
exercise his or her Option to the extent that he or she was entitled to exercise
it at the date of such termination. Notwithstanding the foregoing, in no event
may the Option be exercised after its term set forth in Section 7 has expired.
To the extent that such Outside Director was not entitled to exercise an Option
at the date of such termination, or does not exercise such Option (to the extent
he or she was entitled to exercise) within the time
-6-
<PAGE>
specified above, the Option shall terminate and the Shares underlying the
unexercised portion of the Option shall revert to the Plan.
(c) DISABILITY OF OPTIONEE. Notwithstanding Section 9(b) above, in
----------------------
the event a Director is unable to continue his or her service as a Director with
the Company as a result of his or her total and permanent disability (as defined
in Section 22(e)(3) of the Code), he or she may, but only within twelve (12)
months from the date of such termination, exercise his or her Option to the
extent he or she was entitled to exercise it at the date of such termination.
Notwithstanding the foregoing, in no event may the Option be exercised after its
term set forth in Section 7 has expired. To the extent that he or she was not
entitled to exercise the Option at the date of termination, or if he or she does
not exercise such Option (to the extent he or she was entitled to exercise)
within the time specified above, the Option shall terminate and the Shares
underlying the unexercised portion of the Option shall revert to the Plan.
(d) DEATH OF OPTIONEE. In the event of the death of an Optionee:
-----------------
(i) During the term of the Option who is, at the time of his or
her death, a Director of the Company and who shall have been in Continuous
Status as a Director since the date of grant of the Option, the Option may be
exercised, at any time within twelve (12) months following the date of death, by
the Optionee's estate or by a person who acquired the right to exercise the
Option by bequest or inheritance, but only to the extent of the right to
exercise that would have accrued had the Optionee continued living and remained
in Continuous Status as Director for six (6) months after the date of death.
Notwithstanding the foregoing, in no event may the Option be exercised after its
term set forth in Section 7 has expired.
(ii) Within three (3) months after the termination of Continuous
Status as a Director, the Option may be exercised, at any time within twelve
(12) months following the date of death, by the Optionee's estate or by a person
who acquired the right to exercise the Option by bequest or inheritance, but
only to the extent of the right to exercise that had accrued at the date of
termination. Notwithstanding the foregoing, in no event may the option be
exercised after its term set forth in Section 7 has expired.
To the extent that an Optionee was not entitled to exercise the Option
at the date of death or termination, as provided in Section 9(d)(i) or (ii)
above, or if he or she does not exercise such Option (to the extent he or she
was entitled to exercise) within the time specified above, the Option shall
terminate and the Shares underlying the unexercised portion of the Option shall
revert to the Plan.
10. NONTRANSFERABILITY OF OPTIONS. The Option may not be sold, pledged,
-----------------------------
assigned, hypothecated, transferred or disposed of in any manner other than by
will or by the laws of descent or distribution or pursuant to a qualified
domestic relations order (as defined by the Code or the rules thereunder). The
designation of a beneficiary by an Optionee does not constitute a transfer. An
Option may be exercised during the lifetime of an Optionee only by the Optionee
or a transferee permitted by this Section.
-7-
<PAGE>
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION; CORPORATE TRANSACTIONS.
------------------------------------------------------------------
(a) ADJUSTMENT. Subject to any required action by the shareholders of
----------
the Company, the number of shares of Common Stock covered by each outstanding
Option, the number of Shares of Common Stock set forth in Sections 4(b)(ii) and
(iii) above, and the number of Shares of Common Stock which have been authorized
for issuance under the Plan but as to which no Options have yet been granted or
which have been returned to the Plan upon cancellation or expiration of an
Option, as well as the price per Share of Common Stock covered by each such
outstanding Option, shall be proportionately adjusted for any increase or
decrease in the number of issued Shares of Common Stock resulting from a stock
split, reverse stock split, stock dividend, combination or reclassification of
the Common Stock (including any such change in the number of Shares of Common
Stock effected in connection with a change in domicile of the Company) or any
other increase or decrease in the number of issued Shares of Common Stock
effected without receipt of consideration by the Company; provided however that
conversion of any convertible securities of the Company shall not be deemed to
have been "effected without receipt of consideration." Such adjustment shall be
made by the Board, whose determination in that respect shall be final, binding
and conclusive. Except as expressly provided herein, no issuance by the Company
of shares of stock of any class, or securities convertible into shares of stock
of any class, shall affect, and no adjustment by reason thereof shall be made
with respect to, the number or price of shares of Common Stock subject to an
Option.
(b) CORPORATE TRANSACTIONS; CHANGE OF CONTROL. In the event of a
-----------------------------------------
Corporate Transaction, each outstanding Option shall be assumed or an equivalent
option shall be substituted by the successor corporation or a Parent or
Subsidiary of such successor corporation, unless the successor corporation does
not agree to assume the outstanding Options or to substitute equivalent options,
in which case the Options shall terminate upon the consummation of the
transaction; provided however that in the event of a Change of Control, each
Optionee shall have the right to exercise his or her Option as to all of the
Optioned Stock, including Shares as to which the Option would not otherwise be
exercisable, immediately prior to the consummation of such transaction.
For purposes of this Section 11(b), an Option shall be considered
assumed, without limitation, if, at the time of issuance of the stock or other
consideration upon such Corporate Transaction or Change of Control, each
Optionee would be entitled to receive upon exercise of an Option the same number
and kind of shares of stock or the same amount of property, cash or securities
as the Optionee would have been entitled to receive upon the occurrence of such
transaction if the Optionee had been, immediately prior to such transaction, the
holder of the number of Shares of Common Stock covered by the Option at such
time (after giving effect to any adjustments in the number of Shares covered by
the Option as provided for in this Section 11); provided however that if such
consideration received in the transaction was not solely common stock of the
successor corporation or its Parent, the Administrator may, with the consent of
the successor corporation, provide for the consideration to be received upon
exercise of the Option to be solely common stock of the successor corporation or
its Parent equal to the Fair Market Value of the per Share consideration
received by holders of Common Stock in the transaction.
-8-
<PAGE>
(c) CERTAIN DISTRIBUTIONS. In the event of any distribution to the
---------------------
Company's shareholders of securities of any other entity or other assets (other
than dividends payable in cash or stock of the Company) without receipt of
consideration by the Company, the Administrator may, in its discretion,
appropriately adjust the price per Share of Common Stock covered by each
outstanding Option to reflect the effect of such distribution.
12. TIME OF GRANTING OPTIONS. The date of grant of an Option shall, for
------------------------
all purposes, be the date determined in accordance with Section 4(b) hereof.
Notice of the determination shall be given to each Outside Director to whom an
Option is so granted within a reasonable time after the date of such grant.
13. AMENDMENT AND TERMINATION OF THE PLAN.
-------------------------------------
(a) AMENDMENT AND TERMINATION. The Board may amend or terminate the
-------------------------
Plan from time to time in such respects as the Board may deem advisable;
provided that, to the extent necessary and desirable to comply with Rule 16b-3
under the Exchange Act (or any other applicable law or regulation), the Company
shall obtain approval of the shareholders of the Company to Plan amendments to
the extent and in the manner required by such law or regulation.
(b) EFFECT OF AMENDMENT OR TERMINATION. Any such amendment or
----------------------------------
termination of the Plan that would impair the rights of any Optionee shall not
affect Options already granted to such Optionee and such Options shall remain in
full force and effect as if this Plan had not been amended or terminated, unless
mutually agreed otherwise between the Optionee and the Board, which agreement
must be in writing and signed by the Optionee and the Company.
14. CONDITIONS UPON ISSUANCE OF SHARES. Notwithstanding any other
----------------------------------
provision of the Plan or any agreement entered into by the Company pursuant to
the Plan, the Company shall not be obligated, and shall have no liability for
failure, to issue or deliver any Shares under the Plan unless such issuance or
delivery would comply with the legal requirements relating to the administration
of stock option plans under applicable U.S. state corporate laws, U.S. federal
and applicable state securities laws, the Code, any stock exchange or Nasdaq
rules or regulations to which the Company may be subject and the applicable laws
of any other country or jurisdiction where Options are granted under the Plan,
as such laws, rules, regulations and requirements shall be in place from time to
time (the "Applicable Laws"). Such compliance shall be determined by the
---------------
Company in consultation with its legal counsel.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by law.
15. RESERVATION OF SHARES. The Company, during the term of this Plan,
---------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
-9-
<PAGE>
16. OPTION AGREEMENT. Options shall be evidenced by written option
----------------
agreements in such form as the Board shall approve.
17. SHAREHOLDER APPROVAL. If required by the Applicable Laws, continuance
--------------------
of the Plan shall be subject to approval by the shareholders of the Company.
Such shareholder approval shall be obtained in the manner and to the degree
required under the Applicable Laws.
NETCENTIVES INC.
1999 DIRECTORS' STOCK OPTION PLAN
NOTICE OF STOCK OPTION GRANT
----------------------------
[[Optionee]]
[[OptioneeAddress1]]
[[OptioneeAddress2]]
You have been granted an option to purchase Common Stock of NETCENTIVES
INC. (the "Company") as follows:
-------
Date of Grant [[GrantDate]]
Exercise Price per Share [[ExercisePrice]]
Total Number of Shares Granted ________ Shares
[50,000 Initial or IPO Grant; 12,500 Annual Grant]
Total Exercise Price [[TotalExercisePrice]]
Expiration Date [[ExpirDate]]
Vesting Schedule So long as Optionee
continues his or her service as a Director,
the shares underlying this Option (the
"Shares") shall vest in accordance with the
following schedule: [Initial or IPO Grant:
25% of the Shares subject to the Option shall
vest on each of the first, second, third and
fourth anniversaries of the Date of Grant.]
[Annual Grant: 100% of the Shares subject to
the Option shall vest on the fourth
anniversary of the Date of Grant.]
Notwithstanding the foregoing, in the event
of a Change of Control (as defined in the
Plan) 100% of the Shares subject to the
Option shall vest immediately prior to the
Change of Control.
-10-
<PAGE>
Termination Period This Option may be exercised for 90 days
after termination of Optionee's Continuous
Status as a Director, or such longer period
as may be applicable upon death or Disability
of Optionee as provided in the Plan, but in
no event later than the Expiration Date as
provided above.
By your signature and the signature of the Company's representative below,
you and the Company agree that this option is granted under and governed by the
terms and conditions of the 1999 Directors' Stock Option Plan and the
Nonstatutory Stock Option Agreement, all of which are attached and made a part
of this document.
OPTIONEE: NETCENTIVES INC.
___________________________ By:____________________________
Signature
Title:_________________________
___________________________
Print Name
-11-
<PAGE>
NETCENTIVES INC.
NONSTATUTORY STOCK OPTION AGREEMENT
-----------------------------------
1. GRANT OF OPTION. The Board of Directors of the Company hereby grants
---------------
to the Optionee named in the Notice of Stock Option Grant attached to this
Agreement (the "Optionee"), an option (the "Option") to purchase a number of
-------- ------
Shares, as set forth in the Notice of Stock Option Grant, at the exercise price
per share set forth in the Notice of Stock Option Grant (the "Exercise Price"'),
--------------
subject to the terms and conditions of the Netcentives Inc. 1999 Directors'
Stock Option Plan (the "Plan"), which is incorporated herein by reference.
----
(Capitalized terms not defined herein shall have the meanings ascribed to such
terms in the Plan.) In the event of a conflict between the terms and conditions
of the Plan and the terms and conditions of this Nonstatutory Stock Option
Agreement, the terms and conditions of the Plan shall prevail.
2. EXERCISE OF OPTION.
------------------
(a) RIGHT TO EXERCISE. This Option is exercisable during its term in
-----------------
accordance with the Vesting Schedule set out in the Notice of Stock Option Grant
and the applicable provisions of the Plan and this Nonstatutory Stock Option
Agreement. In the event of Optionee's death, disability or the termination of
Optionee's service as a Director, the exercisability of the Option is governed
by the applicable provisions of the Plan and this Nonstatutory Stock Option
Agreement. This Option may not be exercised for a fraction of a Share.
(b) METHOD OF EXERCISE. This Option is exercisable (i) in whole or in
------------------
part as to Shares which have vested under the Vesting Schedule indicated on the
Notice of Stock Option Grant by delivery of an exercise notice in the form
attached as Exhibit A (the "Exercise Notice"), or (ii) in whole or in part at
--------- ---------------
any time after the Date of Grant as to Shares which have not vested under the
Vesting Schedule indicated on the Notice of Stock Option Grant by delivery of an
early exercise notice and restricted stock purchase agreement in the form
attached as Exhibit B (the "Early Exercise Notice and Restricted Stock Purchase
---------------------------------------------------
Agreement"), in either case which shall state the election to exercise the
- ---------
Option, the number of Shares in respect of which the Option is being exercised
(the "Exercised Shares"), and such other representations and agreements as may
----------------
be required by the Company pursuant to the provisions of the Plan. The Exercise
Notice or Early Exercise Notice and Restricted Stock Purchase Agreement, as the
case may be, shall be signed by the Optionee and shall be delivered in person or
by certified mail to the Secretary of the Company, and shall be accompanied by
payment of the aggregate Exercise Price as to all Exercised Shares. This Option
shall be deemed to be exercised upon receipt by the Company of such fully
executed Exercise Notice or Early Exercise Notice and Restricted Stock Purchase
Agreement, as the case may be, accompanied by such aggregate Exercise Price.
No Shares shall be issued pursuant to the exercise of this Option
unless such issuance and exercise complies with all relevant provisions of law
and the requirements of any stock
<PAGE>
exchange or quotation service upon which the Shares are then listed. Assuming
such compliance, for income tax purposes the Exercised Shares shall be
considered transferred to the Optionee on the date the Option is exercised with
respect to such Exercised Shares.
3. METHOD OF PAYMENT. Payment of the aggregate Exercise Price shall be by
-----------------
any of the following, or a combination thereof, at the election of the Optionee:
(a) cash;
(b) check;
(c) delivery of a properly executed exercise notice together with
such other documentation as the Administrator and the broker, if applicable,
shall require to effect an exercise of the Option and delivery to the Company of
the sale or loan proceeds required to pay the exercise price; or
(d) surrender of other Shares that (i) in the case of Shares acquired
upon exercise of an Option, have either been owned by the Optionee for more than
six (6) months on the date of surrender (or such other period as may be required
to avoid a charge to the Company's earnings) or were not acquired, directly or
indirectly, from the Company, and (ii) have a Fair Market Value on the date of
surrender equal to the aggregate Exercise Price of the Exercised Shares.
4. SUSPENSION OR TERMINATION OF OPTION.
-----------------------------------
(a) MISCONDUCT. If the Chief Executive Officer or his or her designee
----------
reasonably believes that an Optionee has committed an act of misconduct, such
officer may suspend the Optionee's right to exercise any option pending a
determination by the Board (excluding the Outside Director accused of such
misconduct). If the Board (excluding the Outside Director accused of such
misconduct) determines an Optionee has committed an act of embezzlement, fraud,
dishonesty, nonpayment of an obligation owed to the Company, breach of fiduciary
duty or deliberate disregard of the Company rules resulting in loss, damage or
injury to the Company, or if an Optionee makes an unauthorized disclosure of any
Company trade secret or confidential information, engages in any conduct
constituting unfair competition, induces any Company customer to breach a
contract with the Company or induces any principal for whom the Company acts as
agent to terminate such agency relationship, neither the Optionee nor his or her
estate shall be entitled to exercise any Option whatsoever. In making such
determination, the Board of Directors (excluding the Outside Director accused of
such misconduct) shall act fairly and shall give the Optionee an opportunity to
appear and present evidence on Optionee's behalf at a hearing before the Board
or a committee of the Board.
(b) TERMINATION OF CONTINUOUS STATUS AS A DIRECTOR. If an Outside
----------------------------------------------
Director ceases to serve as a Director, he or she may, but only within ninety
(90) days after the date he or she ceases to be a Director of the Company,
exercise his or her Option to the extent that he or she was entitled to exercise
it at the date of such termination. Notwithstanding the foregoing, in no event
may the Option be exercised after its Expiration Date set forth in the Notice of
Stock
-2-
<PAGE>
Option Grant. To the extent that such Outside Director was not entitled to
exercise an Option at the date of such termination, or does not exercise such
Option (to the extent he or she was entitled to exercise) within the time
specified above, the Option shall terminate and the Shares underlying the
unexercised portion of the Option shall revert to the Plan.
(c) DISABILITY OF OPTIONEE. Notwithstanding Section 4(b) above, in
----------------------
the event a Director is unable to continue his or her service as a Director with
the Company as a result of his or her total and permanent disability (as defined
in Section 22(e)(3) of the Code), he or she may, but only within twelve (12)
months from the date of such termination, exercise his or her Option to the
extent he or she was entitled to exercise it at the date of such termination.
Notwithstanding the foregoing, in no event may the Option be exercised after its
Expiration Date set forth in the Notice of Stock Option Grant. To the extent
that he or she was not entitled to exercise the Option at the date of
termination, or if he or she does not exercise such Option (to the extent he or
she was entitled to exercise) within the time specified above, the Option shall
terminate and the Shares underlying the unexercised portion of the Option shall
revert to the Plan.
(d) DEATH OF OPTIONEE. In the event of the death of an Optionee:
-----------------
(i) During the term of the Option who is, at the time of his or
her death, a Director of the Company and who shall have been in Continuous
Status as a Director since the date of grant of the Option, the Option may be
exercised, at any time within twelve (12) months following the date of death, by
the Optionee's estate or by a person who acquired the right to exercise the
Option by bequest or inheritance, but only to the extent of the right to
exercise that would have accrued had the Optionee continued living and remained
in Continuous Status as Director for six (6) months after the date of death.
Notwithstanding the foregoing, in no event may the Option be exercised after its
Expiration Date set forth in the Notice of Stock Option Grant.
(ii) Within three (3) months after the termination of Continuous
Status as a Director, the Option may be exercised, at any time within twelve
(12) months following the date of death, by the Optionee's estate or by a person
who acquired the right to exercise the Option by bequest or inheritance, but
only to the extent of the right to exercise that had accrued at the date of
termination. Notwithstanding the foregoing, in no event may the option be
exercised after its Expiration Date set forth in the Notice of Stock Option
Grant.
To the extent that an Optionee was not entitled to exercise the Option
at the date of death or termination, as provided in Section 4(d)(i) or (ii)
above, or if he or she does not exercise such Option (to the extent he or she
was entitled to exercise) within the time specified above, the Option shall
terminate and the Shares underlying the unexercised portion of the Option shall
revert to the Plan.
5. NON-TRANSFERABILITY OF OPTION. This Option may not be transferred in
-----------------------------
any manner otherwise than by will or by the laws of descent or distribution or
pursuant to a domestic relations order (as defined by the Code or the rules
thereunder) and may be exercised during the lifetime of Optionee only by the
Optionee or a transferee permitted by Section 10 of the Plan.
-3-
<PAGE>
The terms of the Plan and this Nonstatutory Stock Option Agreement shall be
binding upon the executors, administrators, heirs, successors and assigns of the
Optionee.
6. TERM OF OPTION. This Option may be exercised only within the term set
--------------
out in the Notice of Stock Option Grant, and may be exercised during such term
only in accordance with the Plan and the terms of this Nonstatutory Stock Option
Agreement.
7. TAX CONSEQUENCES. Set forth below is a brief summary of certain
----------------
federal and California tax consequences relating to this Option under the law in
effect as of the date of grant. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE
TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT HIS OR
HER OWN TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(a) EXERCISING THE OPTION. This Option does not qualify as an
---------------------
incentive stock option under Section 422 of the Code. Therefore, the Optionee
may incur regular federal and state income tax liability upon exercise. The
Optionee will be treated as having received compensation income (taxable at
ordinary income tax rates) equal to the excess, if any, of the fair market value
of the Exercised Shares on the date of exercise over their aggregate Exercise
Price.
(b) DISPOSITION OF SHARES. If the Optionee holds the Option Shares
---------------------
for more than one year, gain realized on disposition of the Shares will be
treated as long-term capital gain for federal income tax purposes. The long-
term capital gain will be taxed for federal income tax at a maximum rate of 20%.
By your signature and the signature of the Company's representative below,
you (as Optionee) and the Company agree that this Option is granted under and
governed by the terms and conditions of the Plan and this Nonstatutory Stock
Option Agreement. You as Optionee have reviewed the Plan and this Nonstatutory
Stock Option Agreement in their entirety, have had an opportunity to obtain the
advice of counsel prior to executing this Nonstatutory Stock Option Agreement
and fully understand all provisions of the Plan and Nonstatutory Stock Option
Agreement. You as Optionee hereby agree to accept as binding, conclusive and
final all decisions or interpretations of the Administrator upon any questions
relating to the Plan and Nonstatutory Stock Option Agreement.
NETCENTIVES INC.
______________________________ By:_______________________________
[[Optionee]]
Title:____________________________
-4-
<PAGE>
CONSENT OF SPOUSE
-----------------
The undersigned spouse of Optionee has read and hereby approves the terms
and conditions of the Plan and this Nonstatutory Stock Option Agreement. In
consideration of the Company's granting his or her spouse the right to purchase
Shares as set forth in the Plan and this Nonstatutory Stock Option Agreement,
the undersigned hereby agrees to be irrevocably bound by the terms and
conditions of the Plan and this Nonstatutory Stock Option Agreement and further
agrees that any community property interest shall be similarly bound. The
undersigned hereby appoints the undersigned's spouse as attorney-in-fact for the
undersigned with respect to any amendment or exercise of rights under the Plan
or this Nonstatutory Stock Option Agreement.
_______________________________________
Spouse of Optionee
-5-
<PAGE>
EXHIBIT A
---------
NETCENTIVES INC.
1999 DIRECTORS' STOCK OPTION PLAN
NOTICE OF EXERCISE
------------------
To: NETCENTIVES INC.
Attn: Stock Option Administrator
Subject: Notice of Intention to Exercise Stock Option
--------------------------------------------
This is official notice that the undersigned ("Optionee") intends to
--------
exercise Optionee's option to purchase __________ shares of NETCENTIVES INC.
Common Stock, under and pursuant to the Netcentives Inc. 1999 Directors' Stock
Option Plan and the Nonstatutory Stock Option Agreement dated _______________,
as follows:
Date of Grant (or Grant Number): ___________________________________
Date of Purchase: ___________________________________
Number of Shares: ___________________________________
Purchase Price: ___________________________________
Method of Payment of ___________________________________
Purchase Price: ___________________________________
Social Security No.: ___________________________________
The shares should be issued as follows:
Name: ________________________________
Address: ________________________________
________________________________
________________________________
Signed: ________________________________
Date: ________________________________
<PAGE>
EXHIBIT B
---------
NETCENTIVES INC.
1999 DIRECTORS' STOCK OPTION PLAN
EARLY EXERCISE NOTICE AND RESTRICTED STOCK PURCHASE AGREEMENT
-------------------------------------------------------------
This Agreement ("Agreement") is made as of ______________, by and between
---------
Netcentives Inc., a California corporation (the "Company"), and ____________
-------
("Purchaser"). To the extent any capitalized terms used in this Agreement are
- -----------
not defined, they shall have the meaning ascribed to them in the 1999 Directors'
Stock Option Plan.
1. EXERCISE OF OPTION. Subject to the terms and conditions hereof,
------------------
Purchaser hereby elects to exercise his or her option to purchase ______________
shares of the Common Stock (the "Shares") of the Company under and pursuant to
------
the Company's 1999 Directors' Stock Option Plan (the "Plan") and the Stock
----
Option Agreement dated ______________ (the "Option Agreement"). Of these
----------------
Shares, Purchaser has elected to purchase _____________ Shares which have not
yet vested under the such Vesting Schedule (the "Unvested Shares"). The
---------------
purchase price for the Shares shall be _______ per Share for a total purchase
price of $_______________. The term "Shares" refers to the purchased Shares and
------
all securities received in replacement of the Shares or as stock dividends or
splits, all securities received in replacement of the Shares in a
recapitalization, merger, reorganization, exchange or the like, and all new,
substituted or additional securities or other properties to which Purchaser is
entitled by reason of Purchaser's ownership of the Shares.
2. TIME AND PLACE OF EXERCISE. The purchase and sale of the Shares under
--------------------------
this Agreement shall occur at the principal office of the Company in accordance
with the provisions of Section 9 of the Plan. Upon delivery to the Company of
this fully executed Early Exercise Notice and Restricted Stock Purchase
Agreement, together with payment of the purchase price therefor by Purchaser by
(a) cash, (b) check made payable to the Company, (c) delivery of Shares of the
Common Stock of the Company in accordance with Section 3 of the Option
Agreement, or (d) a combination of the foregoing, the Option shall be deemed to
be exercised as to the number of Shares set forth above in this Early Exercise
Notice. As soon as practicable thereafter, the Company will deliver to Purchaser
a certificate representing the Shares purchased by Purchaser (which shall be
issued in Purchaser's name).
3. LIMITATIONS ON TRANSFER. In addition to any other limitation on
-----------------------
transfer created by applicable securities laws, Purchaser shall not assign,
encumber or dispose of any interest in the Shares while the Shares are subject
to the Company's Repurchase Option (as defined below). After any Shares have
been released from such Repurchase Option, Purchaser shall not assign, encumber
or dispose of any interest in such Shares except in compliance with the
provisions below and applicable securities laws.
<PAGE>
4. REPURCHASE OPTION.
-----------------
(a) In the event of the voluntary or involuntary termination of
Purchaser's Continuous Status as a Director for any reason (including death or
disability), with or without cause, the Company shall upon the date of such
termination (the "Termination Date") have an irrevocable, exclusive option (the
----------------
"Repurchase Option") for a period of 60 days from such date to repurchase all or
-----------------
any portion of the Unvested Shares held by Purchaser as of the Termination Date
which have not yet been released from the Company's Repurchase Option at the
original purchase price per Share specified in Section 1 (adjusted for any stock
splits, stock dividends and the like).
(b) The Repurchase Option shall be exercised by the Company by written
notice to Purchaser or Purchaser's executor and, at the Company's option, (A) by
delivery to Purchaser or Purchaser's executor with such notice of a check in the
amount of the purchase price for the Shares being purchased, or (B) in the event
Purchaser is indebted to the Company, by cancellation by the Company of an
amount of such indebtedness equal to the purchase price for the Shares being
repurchased, or (C) by a combination of (A) and (B) so that the combined payment
and cancellation of indebtedness equals such purchase price. Upon delivery of
such notice and payment of the purchase price in any of the ways described
above, the Company shall become the legal and beneficial owner of the Shares
being repurchased and all rights and interest therein or related thereto, and
the Company shall have the right to transfer to its own name the number of
Shares being repurchased by the Company, without further action by Purchaser.
(c) One hundred percent (100%) of the Unvested Shares shall initially
be subject to the Repurchase Option. The Unvested Shares shall be released from
the Repurchase Option in accordance with the Vesting Schedule and as set forth
in the Notice of Stock Option Grant, or, in accordance with Section 9(d)(i) of
the Plan, in the case of death of the Purchaser while in service as a Director
and with respect to Unvested Shares that would have vested in accordance with
the Vesting Schedule within six (6) months of the date of death, such Unvested
Shares that would have vested during such six-month period shall be released
from the Repurchase Option. Fractional shares shall be rounded to the nearest
whole share.
(d) The right of the Company to purchase any part of the Shares may be
assigned in whole or in part to any shareholder or shareholders of the Company
or other persons or organizations; provided, however, that an assignee, other
than a corporation that is the Parent or a 100% owned Subsidiary of the Company,
must pay the Company, upon assignment of such right, cash equal to the
difference between the original purchase price and Fair Market Value, if the
original purchase price is less than the Fair Market Value of the Shares subject
to the assignment.
(e) All transferees of Shares or any interest therein will receive and
hold such Shares or interest subject to the provisions of this Agreement,
including, insofar as applicable, the Repurchase Option. Any sale or transfer
of the Shares shall be void unless the provisions of this Agreement are
satisfied.
-2-
<PAGE>
5. ESCROW OF UNVESTED SHARES. For purposes of facilitating the
-------------------------
enforcement of the provisions of Section 4 above, Purchaser agrees, immediately
upon receipt of the certificate(s) for the Shares subject to the Repurchase
Option, to deliver such certificate(s), together with an Assignment Separate
from Certificate in the form attached to this Agreement as Attachment A executed
------------
by Purchaser and by Purchaser's spouse (if required for transfer), in blank, to
the Secretary of the Company, or the Secretary's designee, to hold such
certificate(s) and Assignment Separate from Certificate in escrow and to take
all such actions and to effectuate all such transfers and/or releases as are in
accordance with the terms of this Agreement. Purchaser hereby acknowledges that
the Secretary of the Company, or the Secretary's designee, is so appointed as
the escrow holder with the foregoing authorities as a material inducement to
make this Agreement and that said appointment is coupled with an interest and is
accordingly irrevocable. Purchaser agrees that said escrow holder shall not be
liable to any party hereof (or to any other party). The escrow holder may rely
upon any letter, notice or other document executed by any signature purported to
be genuine and may resign at any time. Purchaser agrees that if the Secretary
of the Company, or the Secretary's designee, resigns as escrow holder for any or
no reason, the Board of Directors of the Company shall have the power to appoint
a successor to serve as escrow holder pursuant to the terms of this Agreement.
6. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS.
--------------------------------------------
(a) LEGENDS. The certificate or certificates representing the Shares
-------
shall bear the following legends (as well as any legends required by applicable
state and federal corporate and securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY IN
ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE
STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.
(b) STOP-TRANSFER NOTICES. Purchaser agrees that, in order to ensure
---------------------
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) REFUSAL TO TRANSFER. The Company shall not be required (i) to
-------------------
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
(d) REMOVAL OF LEGEND. When all of the following events have
-----------------
occurred, the Shares then held by Purchaser will no longer be subject to the
legend referred to in Section 6(a): (i) the expiration or termination of the
market standoff provisions of Section 5 (and of any agreement entered pursuant
to Section 5); and (ii) the expiration or exercise in full of the Repurchase
Option. After such time, and upon Purchaser's request, a new certificate or
-3-
<PAGE>
certificates representing the Shares not repurchased shall be issued without the
legend referred to in Section 6(a), and delivered to Purchaser.
7. NO EMPLOYMENT RIGHTS. Nothing in this Agreement shall affect in any
--------------------
manner whatsoever the right or power of the Company, or a Parent or Subsidiary
of the Company, to terminate Purchaser's employment or consulting relationship,
for any reason, with or without cause.
8. SECTION 83(B) ELECTION. Purchaser understands that Section 83(a) of
----------------------
the Internal Revenue Code of 1986, as amended (the "Code"), taxes as ordinary
----
income for a Nonstatutory Stock Option the difference between the amount paid
for the Shares and the fair market value of the Shares as of the date any
restrictions on the Shares lapse. In this context, "restriction" means the
-----------
right of the Company to buy back the Shares pursuant to the Repurchase Option
set forth in Section 3(a) of this Agreement. Purchaser understands that
Purchaser may elect to be taxed at the time the Shares are purchased, rather
than when and as the Repurchase Option expires, by filing an election under
Section 83(b) of the Code (an "83(b) Election") with the Internal Revenue
--------------
Service within 30 days from the date of purchase. Even if the fair market value
of the Shares at the time of the execution of this Agreement equals the amount
paid for the Shares, the election must be made to avoid income treatment under
Section 83(a) in the future. Purchaser understands that failure to file such an
election in a timely manner may result in adverse tax consequences for
Purchaser. Purchaser further understands that an additional copy of such
election form should be filed with his or her federal income tax return for the
calendar year in which the date of this Agreement falls. Purchaser acknowledges
that the foregoing is only a summary of the effect of United States federal
income taxation with respect to purchase of the Shares hereunder, and does not
purport to be complete. Purchaser further acknowledges that the Company has
directed Purchaser to seek independent advice regarding the applicable
provisions of the Code, the income tax laws of any municipality, state or
foreign country in which Purchaser may reside, and the tax consequences of
Purchaser's death.
Purchaser agrees that he or she will execute and deliver to the Company
with this executed Agreement a copy of the Acknowledgment and Statement of
Decision Regarding Section 83(b) Election (the "Acknowledgment") attached hereto
--------------
as Attachment B. Purchaser further agrees that he or she will execute and
------------
submit with the Acknowledgment a copy of the 83(b) Election attached hereto as
Attachment C (for income tax purposes in connection with the early exercise of a
- ------------
Nonstatutory Stock Option) if Purchaser has indicated in the Acknowledgment his
or her decision to make such an election.
9. MISCELLANEOUS.
-------------
(a) GOVERNING LAW. This Agreement and all acts and transactions
-------------
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
California, without giving effect to principles of conflicts of law.
(b) ENTIRE AGREEMENT; ENFORCEMENT OF RIGHTS. This Agreement sets
---------------------------------------
forth the entire agreement and understanding of the parties relating to the
subject matter herein and
-4-
<PAGE>
merges all prior discussions between them. No modification of or amendment to
this Agreement, nor any waiver of any rights under this Agreement, shall be
effective unless in writing signed by the parties to this Agreement. The failure
by either party to enforce any rights under this Agreement shall not be
construed as a waiver of any rights of such party.
(c) SEVERABILITY. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of the Agreement shall be enforceable in accordance with its terms.
(d) CONSTRUCTION. This Agreement is the result of negotiations
------------
between and has been reviewed by each of the parties hereto and their respective
counsel, if any; accordingly, this Agreement shall be deemed to be the product
of all of the parties hereto, and no ambiguity shall be construed in favor of or
against any one of the parties hereto.
(e) NOTICES. Any notice required or permitted by this Agreement shall
-------
be in writing and shall be deemed sufficient when delivered personally or sent
by telegram or fax or forty-eight (48) hours after being deposited in the U.S.
mail, as certified or registered mail, with postage prepaid, and addressed to
the party to be notified at such party's address as set forth below or as
subsequently modified by written notice.
(f) COUNTERPARTS. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(g) SUCCESSORS AND ASSIGNS. The rights and benefits of this Agreement
----------------------
shall inure to the benefit of, and be enforceable by the Company's successors
and assigns. The rights and obligations of Purchaser under this Agreement may
only be assigned with the prior written consent of the Company.
[Signature Page Follows]
-5-
<PAGE>
The parties have executed this Agreement as of the date first set forth
above.
NETCENTIVES INC.
By:_____________________________
Name:___________________________
(print)
Title:__________________________
Address:
PURCHASER:
[NAME OF OPTIONEE]
________________________________
(Signature)
________________________________
(Print Name)
Social Security Number: ________
Address:
________________________________
________________________________
I, ______________________, spouse of [______________OPTIONEE], have read and
hereby approve the foregoing Agreement. In consideration of the Company's
granting my spouse the right to purchase the Shares as set forth in the
Agreement, I hereby agree to be bound irrevocably by the Agreement and further
agree that any community property or similar interest that I may have in the
Shares shall hereby be similarly bound by the Agreement. I hereby appoint my
spouse as my attorney-in-fact with respect to any amendment or exercise of any
rights under the Agreement.
________________________________
Spouse of[__________OPTIONEE]
-6-
<PAGE>
EXHIBIT C
---------
ATTACHMENT A
ASSIGNMENT SEPARATE FROM CERTIFICATE
------------------------------------
FOR VALUE RECEIVED and pursuant to that certain Early Exercise Notice
and Restricted Stock Purchase Agreement between the undersigned ("Purchaser")
--------
and Netcentives Inc. (the "Company") dated _______________ (the "Agreement"),
------- ---------
Purchaser hereby sells, assigns and transfers unto the Company
_______________________________ (________) shares of the Common Stock of the
Company, standing in Purchaser's name on the books of the Company and
represented by Certificate No. ____, and hereby irrevocably appoints
_____________________________ to transfer said stock on the books of the Company
with full power of substitution in the premises. THIS ASSIGNMENT MAY ONLY BE
USED AS AUTHORIZED BY THE AGREEMENT AND THE ATTACHMENTS THERETO.
Dated: ________________
Signature:
________________________________________
[Name of Purchaser]
_________________________________________
Spouse of [Name of Purchaser] (if applicable)
Instruction: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to enable the Company to exercise its
Repurchase Option set forth in the Agreement without requiring additional
signatures on the part of Purchaser.
<PAGE>
RECEIPT
-------
Netcentives Inc. hereby acknowledges receipt of a check in the amount of
$__________ given by [Purchaser] as consideration for Certificate No.
___________ for ____________ shares of Common Stock of Netcentives Inc.
Dated: ________________
Netcentives Inc.
By:_________________________________
Title:______________________________
<PAGE>
RECEIPT AND CONSENT
-------------------
The undersigned hereby acknowledges receipt of a photocopy of Certificate
No. ______ for _____________ shares of Common Stock of Netcentives Inc. (the
"Company").
-------
The undersigned further acknowledges that the Secretary of the Company, or
his or her designee, is acting as escrow holder pursuant to the Early Exercise
Notice and Restricte Stock Purchase Agreement Purchaser has previously entered
into with the Company. As escrow holder, the Secretary of the Company, or his
or her designee, holds the original of the aforementioned certificate issued in
the undersigned's name.
Dated: _________________________
________________________________
[Purchaser]
<PAGE>
ATTACHMENT B
ACKNOWLEDGMENT AND STATEMENT OF DECISION
----------------------------------------
REGARDING SECTION 83(B) ELECTION
--------------------------------
The undersigned (which term includes the undersigned's spouse), a purchaser
of ___________ shares of Common Stock of Netcentives Inc., a California
corporation (the "Company"), by exercise of an option (the "Option") granted
------- ------
pursuant to the Company's 1999 Directors' Stock Option Plan (the "Plan"), hereby
----
states as follows:
1. The undersigned acknowledges receipt of a copy of the Plan relating to
the offering of such shares. The undersigned has carefully reviewed the Plan
and the option agreement pursuant to which the Option was granted.
2. The undersigned either [check and complete as applicable]:
(a) ____ has consulted, and has been fully advised by, the undersigned's own tax
advisor, _____________________________________, whose business address is
______________________________, regarding the federal, state and local tax
consequences of purchasing shares under the Plan, and particularly
regarding the advisability of making elections pursuant to Section 83(b) of
the Internal Revenue Code of 1986, as amended (the "Code") and pursuant to
----
the corresponding provisions, if any, of applicable state law; or
(b) ____ has knowingly chosen not to consult such a tax advisor.
3. The undersigned hereby states that the undersigned has decided [check
as applicable]:
(a) ____ to make an election pursuant to Section 83(b) of the Code, and is
submitting to the Company, together with the undersigned's executed Early
Exercise Notice and Restricted Stock Purchase Agreement, an executed form
entitled "Election Under Section 83(b) of the Internal Revenue Code of
1986;"
(b) ____ to make an election pursuant to Section 83(b) of the Code, and is
submitting to the Company, together with the undersigned's executed Early
Exercise Notice and Restricted Stock Purchase Agreement, an executed form
entitled "Election Under Section 83(b) of the Internal Revenue Code of 1986
for purposes of income tax; or
(c) ____ not to make an election pursuant to Section 83(b) of the Code.
<PAGE>
4. Neither the Company nor any subsidiary or representative of the Company
has made any warranty or representation to the undersigned with respect to the
tax consequences of the undersigned's purchase of shares under the Plan or of
the making or failure to make an election pursuant to Section 83(b) of the Code
or the corresponding provisions, if any, of applicable state law.
Date:___________________________ ________________________________
[Name of Purchaser]
Date:___________________________ _________________________________
Spouse of [Name of Purchaser]
2
<PAGE>
ATTACHMENT C
------------
ELECTION UNDER SECTION 83(b)
----------------------------
OF THE INTERNAL REVENUE CODE OF 1986
------------------------------------
The undersigned taxpayer hereby elects, pursuant to Section 83(b) of the
Internal Revenue Code, to include in taxpayer's gross income for the current
taxable year, the amount of any compensation taxable to taxpayer in connection
with taxpayer's receipt of the property described below:
1. The name, address, taxpayer identification number and taxable year of the
undersigned are as follows:
NAME OF TAXPAYER: [Name of Purchaser_________________-]
NAME OF SPOUSE: ________________
ADDRESS: _____________________________________
_____________________________________
IDENTIFICATION NO. OF TAXPAYER: _______________
IDENTIFICATION NO. OF SPOUSE: _______________
TAXABLE YEAR: __________
2. The property with respect to which the election is made is described as
follows:
______________ shares of the Common Stock $.001 par value, of Netcentives
Inc., a California corporation (the "Company").
-------
3. The date on which the property was transferred is: _______________
4. The property is subject to the following restrictions:
Repurchase option at cost in favor of the Company upon termination of
taxpayer's service as a director of the Company.
5. The fair market value per share at the time of transfer, determined without
regard to any restriction other than a restriction which by its terms will
never lapse, of such property is: $____________
6. The amount (if any) paid per share for such property: $____________
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
The undersigned understands that the foregoing election may not be revoked
- --------------------------------------------------------------------------
except with the consent of the Commissioner.
- -------------------------------------------
Dated: ____________ ______________________________
[Name of Purchaser]
Dated: ____________ ______________________________
Spouse of [Name of Purchaser]
<PAGE>
EXHIBIT 10.5
LEASE
THIS LEASE is made as of the date set forth in the Basic Lease Information
(attached hereto and made a part hereof) by and between Britphil & Co. (US)
Ltd., a California corporation (hereinafter called "Landlord") and Panttaja
Consulting Group, Inc. (hereinafter called "Tenant").
1. Demise of Premises. Landlord leases to Tenant and Tenant leases from
------------------
Landlord, upon the terms and conditions hereinafter set forth, those premises
(the "Premises") as described in the Basic Lease Information. The Premises are
a part of the building (the "Building") commonly known as 160 Pine Street, San
Francisco, California.
2. A. Intentionally deleted.
B. Construction of Improvements. Landlord shall provide a turnkey
----------------------------
buildout based upon the detailed plans and specifications prepared by Korth
Sunseri Architects dated October 16, 1995, including the "Add Alternate Plan",
referenced therein ("Tenant Improvements"). Landlord further agrees to provide
Tenant with space planning services through the Building's space planner. The
term commencement date ("Term Commencement Date") shall be the date on which the
Tenant Improvements have been substantially completed in accordance with the
plans and specifications, but in no case earlier than January 1, 1996. If, for
any reason, Landlord cannot deliver possession of the Premises to Tenant on the
Estimated Term Commencement Date, Landlord shall not be subject to any liability
therefor, nor shall Landlord be in default hereunder. In the event of any
dispute as to substantial completion of work performed or required to be
performed by Landlord, the certificate of Landlord's architect or general
contractor shall be conclusive, and Tenant shall commence to pay Base Rent as of
the term Commencement Date specified by Landlord. Substantial completion shall
have occurred notwithstanding Tenant submission of a punchlist to Landlord,
which Tenant shall submit, if at all, within thirty (30) days after the Term
Commencement Date. Tenant shall upon demand, execute and deliver to Landlord a
letter of acceptance of delivery of the Premises in the form attached hereto as
Exhibit A.
3. A. Term Commencement. The Term of the lease shall commence on the
-----------------
Term Commencement Date and continue in full force and effect for the number of
months specified as the Length of Term in the Basic Lease information or until
this Lease is terminated as otherwise provided herein. If the Term Commencement
Date is a date other than the first day of the calendar month, the Term shall be
the number of months of the Length of Term in addition to the remainder of the
calendar month following the Term Commencement Date. A Memorandum of Term
Commencement Date in the form set forth in Exhibit A hereto shall be executed by
both parties as soon as practicable after the Term Commencement Date.
B. Nonoccurrence. If the Term Commencement Date has not occurred for
-------------
any reason except for delays resulting from the actions or inaction of Tenant,
on or before March 1, 1996, then, as Tenant's sole and exclusive remedy for such
failure. Tenant may terminate the Lease by giving written notice to Landlord on
or before February 20, 1996,
<PAGE>
whereupon the Lease will terminate immediately. Landlord shall then return any
security deposit or prepaid rent it has received from Tenant.
4. Use of Premises.
---------------
A. General. Tenant shall use the Premises for the Permitted Use and
-------
for no other use or purpose. Tenant and Tenant's employees, agents, customers,
visitors, invitees, licensees, contractors, assignees and subtenants
(collectively, "Tenant's Parties") shall have the nonexclusive right to use, in
common with other parties occupying the Building, the common corridors and
hallways, stairwells, elevators, restrooms and other public or common areas;
provided, however, that the manner in which the public and common areas are
maintained and operated shall be at the sole discretion of Landlord and the use
thereof shall be subject to such rules, regulations and restrictions as Landlord
may make from time to time. Landlord reserves the right to make alterations or
additions to or to change the location of elements of the Building and the
common areas thereof in Landlord's sole discretion, provided, however, that
Tenant's use and occupancy of the Premises shall not unreasonably be disturbed.
B. Limitations. Tenant shall not use the Premises, or permit the
-----------
Premises to be used, in any manner which: (a) causes or is likely to cause
damage to the Building or Premises; (b) violates a requirement or condition of
any fire and extended insurance policy covering the Building and/or Premises, or
increases the cost of such policy; (c) violates any Regulation (as defined in
Section 4.c. below); (d) constitutes or is reasonably likely to constitute a
nuisance, annoyance or inconvenience to other tenants or occupants of the
Building or its equipment, facilities or systems; (e) interferes with, or is
reasonably likely to interfere with, the transmission or reception of microwave,
television, radio, telephone or other communication signals by antennae or other
facilities located in the Building; or (f) violates the Rules and Regulations
described in Exhibit B attached hereto. Storage outside the Premises of
materials, vehicles or any other items without the express, written approval of
Landlord is prohibited. Tenant shall not use or allow the Premises to be used
for any improper, immoral, unlawful or objectionable purpose, nor shall Tenant
cause or maintain or permit any nuisance in, on or about the Premises. Tenant
shall not commit or suffer the commission of any waste in, on or about the
Premises. Tenant shall not allow any sale by auction upon the Premises, or
place any loads upon the floors, walls or ceilings which endanger the structure,
or place any harmful liquids in the drainage system of the Building. No waste,
materials or refuse shall be dumped upon or permitted to remain outside the
Premises. Landlord shall not be responsible to Tenant for the non-compliance by
any other tenant or occupant of the Building with any of the above-referenced
rules or any other terms or provisions of such tenant's or occupant's lease or
other contract, provided Landlord shall use reasonable efforts to enforce the
rules, as applicable against other tenants.
C. Compliance with Regulations. By entering the Premises, Tenant
---------------------------
accepts the Premises in the condition existing as of the date of such entry,
subject to the punchlist and all existing or future applicable municipal, state
and federal and other governmental statutes, regulations, laws and ordinances,
including zoning ordinances and regulations governing and
-2-
<PAGE>
relating to the use, occupancy and possession of the Premises and the use,
storage, generation and disposal of Hazardous Materials (hereinafter defined)
in, on and under the Premises (collectively "Regulations"). Tenant shall, at
Tenant's sole expense, strictly comply with all Regulations now in force or
which may hereafter be in force relating to the Premises and the use of the
Premises and/or the use, storage, generation of Hazardous Materials in, on and
under the Premises. Tenant shall at its sole cost and expense obtain any and all
licenses or permits necessary for Tenant's use of the Premises. Tenant shall
indemnify, defend, protect and hold Landlord harmless from and against any loss,
cost, expense, damage, attorneys' fees or liability arising out of the failure
of Tenant to comply with any applicable Regulation or comply with the
requirements as set forth herein. The judgment of any court of competent
jurisdiction or the admission of Tenant in any judicial action, regardless of
whether Landlord is a party thereto, that Tenant has violated any of the
Regulations shall be conclusive of that fact as between Landlord and Tenant.
D. Hazardous Wastes. Tenant shall not cause, or allow any of
----------------
Tenant's Parties to cause any Hazardous Materials to be used, generated, stored
or disposed of on or about the Premises or the Building. [Notwithstanding the
foregoing, normal quantities of those Hazardous Materials customarily used in
the conduct of general administrative and executive office activities (e.g.,
copier fluids and cleaning supplies) may be used and stored at the Premises
without Landlord's prior written consent, but only in compliance with all
applicable Regulations.] Notwithstanding the obligation of Tenant to indemnify
Landlord pursuant to this Lease, Tenant shall, at its sole cost and expense,
promptly take all actions required by any federal state or local government or
political subdivision, or necessary for Landlord to make full economic use of
the Premises or any portion of the Building, which requirements or necessity
arises from Tenant's use or handling of Hazardous Materials upon, about, above
or beneath the Premises or any portion of the Building. Such actions shall
include, but shall not be limited to, the investigation of the environmental
condition of the Premises or any portion of the Building, the preparation of any
feasibility studies or reports and the performance of any cleanup, remedial
removal or restoration work. Tenant shall take all actions necessary to restore
the Premises or any portion of the Building to the condition existing prior to
the introduction of Tenant's Hazardous Materials, notwithstanding any less
stringent standards or remediation allowable under applicable Regulations.
Tenant shall nevertheless obtain Landlord's written approval prior to
undertaking any actions required by this Section, which approval shall not be
unreasonably withheld so long as such actions would not potentially have a
material adverse long-term or short-term effect on the Premises or any portion
of the Building. As used in this Lease, "Hazardous Materials" shall include,
but not be limited to, hazardous, toxic and radioactive materials and substances
defined as "hazardous substances," "hazardous materials," "hazardous wastes"
"toxic substances," or other similar designations in any federal state, or local
law, regulation, or ordinance. Landlord shall have the right upon no less than
twenty-four (24) hours' notice to Tenant (except in case of emergency) to
inspect the Premises and to conduct tests and investigations as reasonably
necessary to determine whether Tenant is in compliance with the foregoing
provisions, the costs of all such inspections, tests and investigations to be
borne by Tenant, provided, however, that such inspections, tests or
investigations shall not unreasonably interfere with Tenant's use and occupancy
of the Premises. Tenant shall indemnify, defend,
-3-
<PAGE>
protect and hold Landlord harmless from and against all liabilities, losses,
cost and expenses, demands, causes of action, claims or judgments directly or
indirectly arising out of the use, generation, storage or disposal of Hazardous
Materials by Tenant or any of Tenant's Parties, which indemnity shall include,
without limitation, the cost of any required or necessary repair, cleanup or
detoxification, and the preparation of any closure or other required plans,
whether such action is required or necessary prior to or following the
termination of this Lease. Neither the written consent by Landlord to the use,
generation, storage or disposal of Hazardous Materials, nor the strict
compliance by Tenant with all laws pertaining to Hazardous Materials shall
excuse Tenant from Tenant's obligation or indemnification to this Paragraph 4.D.
Tenant's obligations pursuant to the foregoing indemnity shall survive the
termination of this Lease.
Landlord shall indemnify, defend, protect and hold Tenant harmless
from and against any costs incurred by Tenant resulting from claims brought
against Tenant by a governmental authority attributable solely to Hazardous
Materials deposited onto the Premises by Landlord (but specifically excluding
Landlord's agents, contractors, invitees, employees and tenants).
5. Rules and Regulations. Tenant shall faithfully observe and comply with
---------------------
the rules and regulations set forth in Exhibit B (attached hereto and made a
part hereof), as modified by Landlord from time to time in writing, for the
purpose of maintaining the proper care, cleanliness, safety, traffic flow and
general order of the Premises or Building. Tenant shall cause Tenant's Parties
to comply with such rules and regulations. Landlord shall not be responsible to
Tenant for the noncompliance by any other tenant or occupant of the Building
with any of the rules and regulations or any other terms or provisions of such
tenant's or occupant's lease or other contract.
6. Rent.
----
A. Base Rent. Beginning on the Term Commencement Date, Tenant shall
---------
pay to Landlord, without demand, throughout the Term, Base Rent as specified in
the Basic Lease Information, payable in monthly installments in advance on or
before the first day of each calendar month, in lawful money of the United
States, without deduction, abatement or setoff whatsoever, except as otherwise
expressly provided herein, at the address specified in the Basic Lease
information or to such other place as Landlord may from time to time designate
in writing. Notwithstanding anything to the contrary contained herein, Tenant
shall be entitled to free rent for the first month of the Term. If the
obligation for payment of Base Rent commences on a day other than the first day
of a month, then Base Rent for the first and last partial months shall be
prorated, based on a thirty (30)-day month.
B. Additional Rent. All monies other than Base Rent required to be
---------------
paid by Tenant hereunder, including, but not limited to, the interest and late
charge described in Paragraph 25.D., any monies spent by Landlord pursuant to
Paragraph 10, and Tenant's Proportionate Share of Basic Operating Cost as
specified in Paragraph 7 of this Lease, shall be
-4-
<PAGE>
considered additional rent ("Additional Rent"). "Rent" shall mean Base Rent and
Additional Rent.
7. Operating Expenses.
------------------
A. Basic Operating Cost. In addition to the Base Rent required to be
--------------------
paid hereunder, commencing with the first day of the first month following
expiration of the Base Year, Tenant shall pay as Additional Rent, Tenant's
Proportionate Share, as defined in the Basic Lease Information, of the excess,
if any, of Basic Operating Cost for each Expense Year, as hereinafter defined,
over the Basic Operating Cost for the Base Year, in the manner set forth below
(such amount hereinafter referred to as "Tenant's Proportionate Share of Basic
Operating Cost"). Basic Operating Cost shall mean all expenses and costs which
Landlord shall pay or become obligated to pay, because of or in connection with
the management, maintenance, preservation and operation of the Building and its
supporting facilities (determined in accordance with generally accepted
accounting principles, consistently applied) including, but not limited to, the
following:
(1) Taxes. All real property taxes, possessory interest taxes,
-----
business or license taxes or fees, service payments in lieu of such taxes or
fees, annual or periodic license or use fees, excises, transit charges, housing
fund assessments, sewer rents, open space charges, assessments, levies, fees or
charges, general and special, ordinary and extraordinary, unforeseen as well as
foreseen, of any kind (including fees "in lieu" of any such tax or assessment)
which are assessed, levied, charged, confirmed, or imposed by any public
authority upon the Building, its operations or the Rent (or any portion or
component thereof) (all of the foregoing being hereinafter collectively referred
to as "Real Property Taxes"), or any tax imposed in substitution, partially or
totally, of any tax previously included within the definition of Real Property
Taxes, or any additional tax the nature of which was previously included within
the definition of Real Property Taxes, except (a) gift, inheritance or estate
taxes imposed upon or assessed against the Building, or any part thereof or
interest therein, and (b) taxes computed upon the basis of net income of
Landlord or the owner of any interest therein except as otherwise provided in
the following sentence. Basic Operating Cost shall also include any taxes,
assessments, or any other fees imposed by any public authority upon or measured
by the monthly rental or other charges payable hereunder, including, without
limitation, any gross income or receipt tax or excise tax levied by the local
governmental authority in which the Building is located, the federal government
or any other governmental body with respect to receipt of such rental or upon,
with respect to, or by reason of the development, possession, leasing,
operation, management, maintenance, alteration, repair, use or occupancy by
Tenant of the Premises or any portion thereof or upon this transaction or any
document to which Tenant is a party creating or transferring an interest or an
estate in the Premises. Real Property Taxes shall include all fees and costs,
including attorneys' fees, appraisals and consultants' fees, incurred by
Landlord in seeking to obtain a reduction of, or a limit on the increase in, any
Real Property Taxes, regardless of whether any reduction or limitation is
obtained. In the event that it shall not be lawful for Tenant to reimburse
Landlord for all or any part of any increase in any items specified in this
Paragraph 7.A.(1), the monthly rental payable to Landlord under this Lease shall
be revised to
-5-
<PAGE>
net to Landlord the same net rental after imposition of any such increased taxes
as would have been payable to Landlord prior to the payment of any such taxes.
(2) Insurance. All insurance premiums and costs, including but not
---------
limited to, any deductible costs, premiums and costs of insurance incurred by
Landlord, as more fully set forth in Paragraph 8 herein; provided, however, that
such costs shall not include increases in insurance costs caused by the
activities of another occupant of the Building.
(3) Other Operating Expenses. Any and all costs and expenses paid or
------------------------
incurred by Landlord in connection with the operation, maintenance, management
and repair of the Building. By way of illustration, but not limitation, such
expenses shall include the following: (i) the cost of air conditioning,
electricity, steam, heating, water, mechanical, ventilating, sanitary and storm
drainage, the cost of environmental surcharges imposed by any governmental
entity, escalator and elevator systems and all other utilities and the cost of
supplies and equipment and maintenance and service contracts in connection
therewith; (ii) the cost of repairs, general maintenance and replacing
components of equipment or machinery (subject to Section vii below), including,
without limitation, heating, refrigeration, ventilation, electrical, plumbing,
mechanical, elevator, escalator, sprinklers, fire/life safety, security and
energy management systems, including service contracts, maintenance contracts,
supplies and parts; (iii) wages, salaries and other labor costs, including
uniforms, taxes, insurance, retirement, medical and other employee benefits;
(iv) fees, charges and other costs including management fees, consulting fees,
legal fees and accounting fees paid in connection with the Building and the
costs of supplying, replacing and cleaning employee uniforms; (v) the cost of
licenses, permits and inspections and the cost of contesting the validity or
applicability of any governmental enactments which may affect any expenses set
forth herein; (vi) the fair market rental value of the property manager's office
in the Building; (vii) the cost of any capital improvements made to the Building
after completion of its construction intended as a labor-saving device or to
effect other economies in the operation or maintenance of the Building, or made
to the Building after the date of this Lease that are required under any
governmental law or regulation that was not applicable to the Building at the
time that permits for the construction thereof were obtained, such costs to be
amortized over their useful life in accordance with generally accepted
accounting principles, consistently applied, together with interest on the
unamortized balance at the "prime rate" charged at the time such improvements or
capital assets are constructed or acquired by Wells Fargo Bank, NA. (San
Francisco), plus two (2) percentage points, but in no event more than the
maximum rate permitted by law; (viii) cleaning expenses, including, without
limitation, janitorial services, window cleaning and garbage and refuse removal;
(ix) the costs of policing, security and supervision of the Building; (x) the
cost of the rental of any machinery or equipment and the cost of supplies used
in the maintenance and operation of the Building; (xi) audit fees and the cost
of accounting services incurred in the preparation of statements referred to in
this Lease and financial statements used in the computation of the rents and
charges payable by tenants of the Building, (xii) legal fees and expenses
including, but not limited to, such expenses that relate to seeking or obtaining
reductions in or refunds of Real Property Taxes, or components thereof; and
(xiii) a fee for the administration and management of the Building appropriate
to the first-class nature of the Building as reasonably determined by the
Landlord
-6-
<PAGE>
from time to time. The foregoing notwithstanding, for purposes of this Lease,
such expenses shall not include interest expense (except as provided in clause
(vii) above), leasing commissions, depreciation on the improvements contained in
the Building or the cost of capital expenditures not included within clause
(vii) above. The computation of such expenses shall be made in accordance with
generally accepted accounting principles.
In the event that the Building is not fully occupied during any fiscal
year of the Term as reasonably determined by Landlord, an adjustment shall be
made in computing the Basic Operating Cost for such year so that Tenant pays an
equitable portion of all variable items of Basic Operating Costs as reasonably
determined by Landlord so that the total Basic Operating Costs equals the total
amount which would have been paid or incurred by Landlord had the Building been
one hundred percent (100%) occupied for the entire calendar year; provided,
however, that in no event shall Landlord be entitled to costs in excess of one
hundred percent (100%) of the total Basic Operating Cost from all of the tenants
in the Building including Tenant.
Basic Operating Cost shall not include specific costs incurred for the
account of; separately billed to and paid by, specific tenants. Notwithstanding
anything herein to the contrary, in any instance wherein Landlord, in Landlord's
sole discretion, deems Tenant to be responsible for any amounts greater than
Tenant's Proportionate Share, Landlord shall have the right to allocate costs in
any manner Landlord deems appropriate.
B. Payment of Estimated Basic Operating Cost. "Estimated Basic Operating
-----------------------------------------
Cost" for any particular Expense Year shall mean Landlord's estimate of the
amount of the Basic Operating Cost for such Expense Year, made prior to
commencement of such Expense Year as hereinafter provided. "Expense Year" shall
be each twelve (12) consecutive month period commencing January 1st of each year
during the Term, provided that Landlord, upon notice to Tenant, may change the
Expense Year from time to time to any other twelve (12) consecutive month
period, and, in the event of any such change, Tenant's Proportionate Share of
Basic Operating Cost shall be equitably adjusted for the Expense Year involved
in any such change. During the last month of each Expense Year during the Term,
or as soon thereafter as practicable, Landlord shall give Tenant written notice
of Estimated Basic Operating Cost for the ensuing Expense Year. Tenant shall pay
Tenant's Proportionate Share of Estimated Basic Operating Cost (computed in the
same manner as Tenant's Proportionate Share of Basic Operating Cost) with
installments of Base Rent for the Expense Year to which the Estimated Basic
Operating Cost applies in monthly installments on the first day of each calendar
month during such year, in advance. If, at any time during the course of any
Expense Year, Landlord determines that Basic Operating Cost is projected to vary
from the then-Estimated Basic Operating Cost by more than five percent (5%),
Landlord may, by written notice to Tenant, revise the Estimated Basic Operating
Cost for the balance of such fiscal year, and Tenant's monthly installments for
the remainder of such year shall be adjusted so that by the end of such Expense
Year Tenant has paid to Landlord Tenant's Proportionate Share of the revised
Estimated Basic Operating Cost for such year.
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C. Computation of Basic Operating Cost. "Basic Operating Cost
-----------------------------------
Adjustment" shall mean the difference between (i) Estimated Basic Operating Cost
and (ii) Basic Operating Cost for any Expense Year, determined as hereinafter
provided. Within one hundred twenty (120) days after the end of each Expense
Year or as soon thereafter as practicable, Landlord shall deliver to Tenant a
statement of Basic Operating Cost for the Expense Year just ended, accompanied
by a computation of Basic Operating Cost. If such statement shows that Tenant's
payments based upon Estimated Basic Operating Cost is less than Tenant's
Proportionate Share of Basic Operating Cost, then Tenant shall pay to Landlord
the difference within twenty (20) days after receipt of such statement. If such
statement shows that Tenant's payments of Estimated Basic Operating Cost exceed
Tenant's Proportionate Share of Basic Operating Cost then (provided that Tenant
is not in default under this Lease), such excess shall be credited against
Tenant's monthly installment of Tenant's Proportionate share of Estimated Basic
Operating Cost next coming due hereunder. If this Lease has been terminated or
the Term hereof has expired prior to the date of such statement, then the Basic
Operating Cost Adjustment shall be paid by the appropriate party within twenty
(20) days after the date of delivery of the statement. Should this Lease
commence or terminate at any time other than the first day of the fiscal year,
Tenant's Proportionate Share of the Basic Operating Cost Adjustment shall be
prorated by reference to the exact number of calendar days during such Expense
Year that this Lease is in effect.
D. Tenant Audit. In the event that Tenant shall dispute the amount
------------
set forth in any statement provided by Landlord under Paragraph 7.B or 7.C.
above, and provided that Tenant is not then in default hereunder, Tenant shall
have the right, not later than thirty (30) days following the receipt of such
statement and upon the condition that Tenant shall first deposit with Landlord
the full amount in dispute, to cause Landlords books and records with respect to
Basic Operating Cost for such fiscal year to be audited by certified public
accountants selected by Tenant and subject to Landlord's reasonable right of
approval. The Basic Operating Cost Adjustment shall be appropriately adjusted
on the basis of such audit. If such audit discloses a liability for a refund in
excess of ten percent (10%) of Tenant's Proportionate Share of Basic Operating
Cost previously reported, the cost of such audit shall be borne by Landlord;
otherwise the cost of such audit shall be paid by Tenant. If Tenant shall not
request an audit in accordance with the provisions of this Paragraph 7.D. within
thirty (30) days after receipt of Landlord's statement provided pursuant to
Paragraph 7.B. or 7.C., such statement shall be final and binding for all
purposes hereof. The right of Tenant under this Paragraph 7.D. may only be
exercised once for any Landlord statement, and if Tenant fails to meet any of
the above conditions as a prerequisite to the exercise of such right, the right
of Tenant under this Paragraph 7.D. for a particular Landlord's statement shall
be deemed waived.
8. Insurance and Indemnity
-----------------------
A. Landlord's Insurance. Landlord agrees to maintain insurance
--------------------
insuring the Building against fire, lightning, vandalism and malicious mischief
(including, if Landlord elects, "All Risk" coverage, boiler, sprinkler,
earthquake, and/or flood insurance), in an amount not less than eighty percent
(80%) of the replacement cost thereof; with deductibles and the form and
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<PAGE>
endorsements of such coverage as selected by Landlord. Such insurance may also
include, at Landlord's option, insurance against loss of Base Rent and
Additional Rent in an amount equal to the amount of Base Rent and Additional
Rent payable by Tenant for a period of at least twelve (12) months commencing on
the date of loss. Such insurance shall be for the sole benefit of Landlord and
under Landlord's sole control. Landlord shall not be obligated to insure any
furniture, equipment, machinery, goods or supplies which Tenant may keep or
maintain in the Premises, or any leasehold improvements, additions or
alterations within the Premises. Landlord may also carry such other insurance
as Landlord reasonably deems prudent or advisable, including, without
limitation, liability insurance in such amounts and on such terms as Landlord
shall reasonably determine. Tenant shall neither use the Premises nor permit
the Premises to be used in any way which will (a) increase the premium of any
insurance described above; (b) cause a cancellation of or be in conflict with
any such insurance policies; (c) result in a refusal by insurance companies of
good standing to insure the Building in amounts reasonably satisfactory to
Landlord; (d) subject Landlord to any liability unsatisfactory to Landlord; or
(e) subject Landlord to any liability or responsibility for injury to any person
or property by reason of any operation being conducted in the Premises. Tenant
shall at Tenant's expense, comply as to the Premises with all insurance company
requirements pertaining to the use of the Premises. If Tenant's conduct or use
of the Premises causes any increase in the premium for such insurance policies,
and such conduct is otherwise permitted by Landlord, then Tenant shall reimburse
Landlord for any such increase. Tenant, at Tenant's expense, shall comply with
all rules, orders, regulations or requirements of the American Insurance
Association (formerly the National Board of Fire Underwriters) and with any
similar body.
B. Tenant's Insurance.
------------------
(1) Property Insurance. Tenant shall procure at Tenant's sole cost
------------------
and expense and keep in effect from the date of this Lease and at all times
until the end of the Term, insurance on all personal property, furniture and
fixtures of Tenant and all improvements made by or for Tenant to the Premises,
insuring such property for the full replacement value of such property. The
proceeds of such insurance shall be used for the repair or replacement of the
property so insured, except that if not so applied or if this Lease is
terminated following a casualty, the proceeds applicable to the leasehold
improvements shall be paid to Landlord and the proceeds applicable to Tenant's
personal property shall be paid to Tenant.
(2) Liability Insurance. Tenant shall procure at Tenant's sole cost
-------------------
and expense and keep in effect from the date of this Lease and at all times
until the end of the Term, either Comprehensive General Liability insurance or
Commercial General Liability insurance applying to the use and occupancy of the
Premises and the Building, and any part of either, and any areas adjacent
thereto, and the business operated by Tenant, or by any other occupant on the
Premises. Such insurance shall include Broad Form Contractual Liability
insurance coverage insuring all of Tenant's indemnity obligations under this
Lease. Such coverage shall have a minimum combined single limit of liability of
at least One Million Dollars ($1,000,000.00), and a general aggregate limit of
Two Million Dollars ($2,000,000.00). All such policies shall be written to
apply to all bodily injury, property damage, personal injury and other covered
loss,
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<PAGE>
however occasioned, occurring during the policy term, shall be endorsed to
add Landlord and its agents, beneficiaries, partners, employees, and any deed of
trust holder or mortgagee of Landlord or any ground lessor as an additional
insured, and to provide that such coverage shall be primary and that any
insurance maintained by Landlord shall be excess insurance only. Such coverage
shall also contain endorsements: (i) deleting any employee exclusion on personal
injury coverage; (ii) including employees as additional insureds; (iii) deleting
any liquor liability exclusion; and (iv) providing for coverage of employer's
automobile non-ownership liability. All such insurance shall provide for
severability of interests; shall provide that an act or omission of one of the
named insureds shall not reduce or avoid coverage to the other named insureds;
and shall afford coverage for all claims based on acts, omissions, injury and
damage, which claims occurred or arose (or the onset of which occurred or arose)
in whole or in part during the policy period and shall be written as primary
policies, not excess or contributing with or secondary to any other insurance as
may be available to the additional insureds. Said coverage shall be written on
an "occurrence" basis, if available. If an "occurrence" basis form is not
available, Tenant must purchase "tail" coverage for the most number of years
available if for any reason this Lease is terminated or if the policy is
canceled or if the retroactive date is changed which might leave a gap in
coverage for occurrences that might have occurred in prior years. If a "claims
made" policy is ever used, the policy must be endorsed so that Landlord is given
the right to purchase "tail" coverage should Tenant for any reason not do so or
the policy is to be canceled for nonpayment of premium.
(3) General Insurance Requirements. All coverages described in this
------------------------------
Paragraph 8.B, shall be endorsed to provide Landlord with thirty (30) day's
notice of cancellation or change in terms. If at any time during the Term, the
amount or coverage of insurance which Tenant is required to carry under this
Paragraph 8.B, is, in Landlord's reasonable judgment, materially less than the
amount or type of insurance coverage typically carried by owners or tenants of
properties located in the general area in which the Premises are located which
are similar to and operated for similar purposes as the Premises, Landlord shall
have the right to require Tenant to increase the amount or change the types of
insurance coverage required under this Paragraph 8.B. All insurance policies
required to be carried under this Lease shall be written by companies rated A+
XII or better in "Best's Insurance Guide" and authorized to do business in
California. Any deductible amounts under any insurance policies required
hereunder shall be subject to Landlord's prior written approval. In any event,
deductible amounts shall not exceed One Thousand Dollars ($1,000.00). Tenant
shall deliver to Landlord before the Term Commencement Date, and thereafter at
least thirty (30) days before the expiration dates of the expiring policies,
certified copies of Tenant's insurance policies, or a certificate evidencing the
same, issued by the insurer thereunder, showing that all premiums have been paid
for the full policy period; and, in the event Tenant shall fail to procure such
insurance, or to deliver such policies or certificates, Landlord may, at
Landlord's option and in addition to Landlord's other remedies in the event of a
default by Tenant hereunder, procure the same for the account of Tenant, and the
cost thereof shall be paid to Landlord as Additional Rent.
C Indemnification. Landlord shall not be liable to Tenant for any
---------------
loss or damage to person or property caused by a fire, acts of God, acts of a
public enemy, riot,
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<PAGE>
strike, insurrection, war, court order, requisition or order of governmental
body or authority or for any damage or inconvenience which may arise through
repair or alteration of any part of the Building or failure to make any such
repair, except as expressly otherwise provided in Paragraph 10 and except to the
extent caused by the gross negligence or willful misconduct of Landlord, its
agents or contractors. Tenant shall indemnify, defend by counsel acceptable to
Landlord, protect and hold Landlord harmless from and against any and all
liabilities, losses, costs, damages, injuries or expenses, including reasonable
attorneys' fees and court costs, arising out of or related to: (1) claims of
injury to or death of persons or damage to property occurring or resulting
directly or indirectly from the use or occupancy of the Premises, or from
activities of Tenant, Tenant's Parties or anyone in or about the Premises or
Building, or from any cause whatsoever; (2) claims for work or labor performed,
or for materials or supplies furnished to or at the request of Tenant in
connection with the performance of any work done for the account of Tenant
within the Premises or Building; and (3) claims arising from any breach or
default on the part of Tenant in the performance of any covenant contained in
this Lease. The foregoing indemnity shall not be applicable to claims arising
from the active negligence or willful misconduct of Landlord. The provisions of
this paragraph shall survive the expiration or termination of this Lease with
respect to any claims or liability occurring prior to such expiration or
termination. Landlord shall indemnify, defend by counsel acceptable to Tenant,
protect and hold Tenant harmless from and against liabilities, losses, costs,
damages, injuries or expenses, consequential damages excluded, caused solely by
the gross negligence or willful misconduct of Landlord.
9. Subrogation. To the extent permitted by law and without affecting the
-----------
coverage provided by insurance to be maintained hereunder, Landlord and Tenant
each waive any right to recover against the other for: (a) damages for injury to
or death of persons; (b) damages to property; (c) damages to the Premises or any
part thereof; and (d) claims arising by reason of the foregoing due to hazards
covered by insurance to the extent of proceeds recovered therefrom. This
provision is intended to waive fully, and for the benefit of each party, any
rights and/or claims which might give rise to a right of subrogation in favor of
any insurance carrier. The coverage obtained by each party pursuant to this
Lease shall include, without limitation, a waiver of subrogation by the carrier
which conforms to the provisions of this paragraph.
10. Landlord Repairs. Subject to reimbursement pursuant to Paragraph 7 of
----------------
the Lease, Landlord shall repair and maintain the structural portions of the
Building, including the exterior walls, underflooring, the roof; plumbing work
and plumbing fixtures, heating, air conditioning, electrical systems, lighting
systems, and fire sprinklers installed or furnished by Landlord and the
Building's life safety systems. If any maintenance or repair becomes necessary
in whole or in part due to the act, neglect, fault or omission of any duty by
Tenant, its employees, agents, customers or invitees, or due to damage caused by
a breaking and entering, Tenant shall pay to Landlord the entire cost of such
maintenance or repair. Landlord shall not be liable for, and Tenant shall not
be entitled to any reduction of the Base Rent or Additional Rent by reason of
Landlord's failure to make any repair or to perform any maintenance required on
the part of Landlord hereunder. Furthermore, Landlord shall not be liable under
any circumstances for a loss of or injury to property, loss of profits, or for
injury to or interference with Tenant's business arising from or in connection
with the making of or Landlord's failure to make any repairs,
-11-
<PAGE>
maintenance, alterations or improvements in or to any portion of the Building or
in or to fixtures, appurtenances and equipment therein. Tenant shall immediately
give Landlord written notice of any defect or need or repairs for which Landlord
is responsible for under this Paragraph 10, after which notice Landlord shall
have a reasonable opportunity to repair same. Tenant hereby waives and releases
its right to make repairs at Landlord's expense under Sections 1941 and 1942 of
the California Civil Code or under any similar law, statute, or ordinance now or
hereafter in effect.
Notwithstanding anything to the contrary contained herein, Tenant shall be
entitled to a proportionate abatement of rent if Tenant provided written notice
to Landlord of a repair that is the Landlord's obligation and that is necessary
to end a material interference with the operation of Tenant's business in the
Premises and Landlord does not complete such repair within sixty (60) days of
receipt of such notice; provided however, that Tenant shall not be entitled to
such abatement if the repairs are such that they cannot reasonably be completed
within sixty (60) days.
11. Tenant Repairs. Except as provided in Paragraph 10 above, Tenant
--------------
shall, at Tenant's expense, maintain all parts of the Premises in a good, clean
and secure condition and repair. Tenant shall promptly notify Landlord of all
necessary repairs and replacements. Tenant agrees to surrender the Premises
upon the expiration or sooner termination of this Lease in the same condition as
when received, reasonable wear and tear and damage by fire, earthquake, acts of
God, and the elements excepted. Landlord has no obligation to alter, add to,
improve, repair, remodel or paint the Premises, except as specified herein.
Nothing herein shall be construed to require Tenant to perform or construct any
repair, maintenance or improvements necessitated solely by the acts of Landlord,
or any other occupants of the Building.
12. Alterations. Tenant shall not make, or allow to be made, any
-----------
alterations, improvements or physical additions (collectively "Alterations") in,
about or to the Premises without obtaining the prior written consent of
Landlord, which consent shall not be unreasonably withheld with respect to
proposed Alterations which: (a) do not affect the Building's structure and
comply with all applicable laws, ordinances, rules and regulations; (b) are, in
Landlord's opinion, compatible with the Building and its mechanical, plumbing,
electrical, heating/ventilation/air conditioning systems, and life safety
Systems; and (c) will not interfere with the use and occupancy of any other
portion of the Building by any other tenant or its invitees. Specifically, but
without limiting the generality of the foregoing, Landlord shall have the right
of written consent for all plans and specifications for the proposed
Alterations, construction means and methods, all appropriate permits and
licenses, any contractor or subcontractor to be employed on the work of
Alterations, and the time for performance of such work. Tenant shall also
supply to Landlord any documents and information reasonably requested by
Landlord in connection with Landlord's consideration of a request for approval
hereunder. Landlord's consent shall be conditioned upon receipt of performance
bonds or other bonds from contractors or subcontractors performing Alterations,
if Landlord so requires. Tenant shall reimburse Landlord for all costs which
Landlord may incur in connection with granting approval to Tenant for any such
Alterations, including any costs or expenses which Landlord may reasonably incur
in electing to have outside architects and engineers review said plans and
specifications; provided, however, that such Landlord costs with respect to
approving those non-
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<PAGE>
structural Alterations shall not exceed Five Hundred Dollars ($500.00). All
Alterations shall be performed at Tenant's sole cost and expense (including
reasonable costs for Landlord's supervision). All Alterations shall remain the
property of Tenant until termination of this Lease, at which time they shall be
and become the property of Landlord if Landlord so elects; provided, however,
that Landlord may, at Landlord's option, elect by notice to Tenant at the time
of approval, that Tenant, at Tenant's expense, remove any or all Alterations
made by Tenant and restore the Premises by the termination of this Lease,
whether by lapse of time, or otherwise, to their condition existing prior to the
construction of any such Alterations, reasonable wear and tear, and acts of God,
condemnation or casualty (unless Tenant is responsible) excepted. All such
removals and restoration shall be accomplished in a good and workmanlike manner
so as not to cause any damage to the Premises whatsoever. If Tenant fails to so
remove such Alterations (if it is required to do so) or Tenant's trade fixtures
or furniture, Landlord may keep and use them or remove any of them and cause
them to be stored or sold in accordance with applicable law, at Tenant's sole
expense. In addition to and wholly apart from Tenant's obligation to pay
Tenant's Proportionate Share of Basic Operating Cost, Tenant shall be
responsible for, and shall pay prior to delinquency, any taxes or governmental
service fees, possessory interest taxes, fees or charges in lieu of any such
taxes, capital levies, or other charges imposed upon, levied with respect to or
assessed against its personal property, on the value of the Alterations, and on
Tenant's interest pursuant to this Lease, to the extent that such taxes are not
included in Basic Operating Costs. To the extent that any such taxes are not
separately assessed or billed to Tenant, Tenant shall pay the amount thereof as
invoiced to Tenant by Landlord.
13. Signs. All signs, notices and graphics of every kind or character,
-----
visible in or from public view or corridors, the common areas or the exterior of
the Premises, shall be subject to Landlord's prior written approval. Tenant
shall not place or maintain any banners whatsoever or any window decor in or on
any exterior window or window fronting upon any common areas or service areas
without Landlord's prior written approval. If Tenant leases an entire floor of
the Building, Building standard identification signage may be installed in the
elevator lobby of the floor on which the Premises are located, subject to
Landlord's prior written approval. Any signs, notices, logos, pictures, names
or advertisements which are installed that have not been individually approved
by Landlord may be removed without notice by Landlord at the sole expense of
Tenant. Any installation of signs or graphics on or about the Premises shall be
subject to any applicable governmental laws, ordinances, regulations and to any
other requirements imposed by Landlord. Tenant shall remove all signs and
graphics prior to the termination of this Lease (including without limitations,
the "Identification Sign"). Such installations and removals shall be made in
such manner as to avoid injury or defacement of the Premises, or Building and
any other improvements contained therein, and Tenant shall repair any injury or
defacement, including without limitation, discoloration caused by such
installation or removal. Notwithstanding anything to the contrary contained
herein, Landlord shall provide Tenant with a Building standard signage on or
adjacent to the front door of the Premises ("Identification Sign"), and building
directory signage pursuant to Subparagraph 38.P.
14. Landlord Entry. Upon twenty-four hours' advance notice to Tenant,
--------------
except in emergencies where no such notice shall be required, Landlord, and
Landlord's agents and
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<PAGE>
representatives, shall have the right to enter the Premises, and Tenant may
elect to have a representative accompany Landlord, to inspect the same, to
clean, to perform such work as may be permitted or required hereunder, to make
repairs or alterations to the Premises or Building or to other tenant spaces
therein, to deal with emergencies, to post such notices as may be permitted or
required by law to prevent the perfection of liens against Landlord's interest
in the Building or to Exhibit the Premises to prospective tenants, purchasers,
encumbrancers or others, or for any other purpose as Landlord may deem necessary
or desirable; provided, however, that Landlord shall use reasonable efforts not
to unreasonably interfere with Tenant's business operations. Tenant shall not be
entitled to any abatement of Rent by reason of the exercise of any such right of
entry. At any time within six (6) months prior to the end of the Term, Landlord
shall have the right to erect on the Premises and/or Building a suitable sign
indicating that the Premises are available for lease. Tenant shall give written
notice to Landlord at least thirty (30) days prior to vacating the Premises and
shall meet with Landlord for a joint inspection of the Premises at the time of
vacating. In the event of Tenant's failure to give such notice or participate in
such joint inspection, Landlord's inspection at or after Tenant's vacating the
Premises shall conclusively be deemed correct for purposes of determining
Tenant's responsibility for repairs and restoration.
15. Utilities and Services. Landlord agrees to furnish to the Premises
----------------------
during reasonable hours of generally recognized business days, and as is
customary and usual for general office usages in like and comparable building in
the Financial District in San Francisco, as determined by Landlord, electricity
for building-standard lighting and for normal fractional horsepower office
machines, including personal computers and printers, fax machines and office
copiers, heating, air conditioning and ventilation required in Landlord's
judgment for the comfortable use and occupation of the Premises, elevator and
janitorial service, and water for lavatory and drinking purposes. Landlord
shall also maintain and keep lighted the common stairs, common entries and
toilet rooms in the common areas of the Building. Landlord's operation and
delivery of services to the Building and the Premises shall be in a manner
reasonably consistent with other comparable office buildings located in the City
and County of San Francisco. Except as otherwise expressly set forth herein,
Landlord shall not be liable for, and Tenant shall not be entitled to any
abatement of Rent by reason of, Landlord's failure to furnish any of the
services or utilities described above when such failure is caused by acts of
God, accident, breakage, repairs, strikes, lockouts or other labor disturbances
or disputes of any character, unavailability of materials or labor, or by any
other cause similar or dissimilar, beyond the reasonable control of Landlord, or
by rationing or restrictions on the use of said services and utilities due to
energy shortages or other causes, or the making of repairs, alterations or
improvements to the Premises or Building whether or not any of the above result
from acts or omissions of Landlord. Furthermore, Landlord shall not be liable
under any circumstances for a loss of or injury to property or for injury to or
interference with Tenant's business, including, without limitation, loss of
profits, however occurring, through or in connection with or incidental to
failure to furnish any of the foregoing services or utilities, except to the
extent such loss, injury, or interference is caused by the gross negligence or
willful misconduct of Landlord. Landlord shall be entitled to cooperate
voluntarily in a reasonable manner with the efforts of national, state or local
governmental bodies or of suppliers of utilities in reducing energy or other
resources consumption, and Tenant shall not be relieved of its obligation to pay
the full Rent by
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<PAGE>
reason thereof. Landlord shall also have the exclusive right, but not the
obligation, to provide any additional services which may be required by Tenant,
including, without limitation, locksmithing, lamp replacement, additional
janitorial service, delivery services, additional repair and maintenance,
provided that Tenant shall pay to Landlord upon billing the sum of all costs to
Landlord of such additional services, plus a ten percent (10%) administration
fee. Tenant shall not, without Landlord's prior written consent, use heat-
generating machines other than normal fractional horsepower office machines, or
equipment or lighting other than building-standard lights in the Premises which
may affect the temperature otherwise maintained by the air conditioning system
or increase the water normally furnished for the Premises. If such consent is
given, Landlord shall have the right to install supplementary air conditioning
units or other facilities in the Premises, and the reasonable cost thereof,
including the cost of installation, operation and maintenance, increased wear
and tear on existing equipment and other similar charges, shall be paid by
Tenant to Landlord within ten (10) business days of billing by Landlord. Such
cost shall include the cost of electrical metering or surveying necessary to
determine the additional charges by reason of Tenant's off-hours or additional
use of utilities or services, for the use of non-standard machines, equipment or
lighting, and because of the carelessness of Tenant or the nature of Tenant's
business. Tenant shall not, without Landlord's prior written consent, install
lighting or equipment which would cause the electric current requirements of the
Premises to exceed at any time three and one-half (3.5) watts per square foot of
net rentable area of the Premises. If such consent is given, Tenant shall pay to
Landlord upon billing for the cost of such excess consumption. In the event any
governmental entity promulgates or revises any statute, ordinance or building,
fire or other code or imposes mandatory controls or guidelines on Landlord or
the Building or any part thereof, relating to the use or conservation of energy,
water, gas, light or electricity or other emissions or the provision of any
other utility or service provided with respect to this Lease, or in the event
Landlord is required or elects to make alterations to the Building in order to
comply with such mandatory controls or guidelines, Landlord may, in its sole
discretion, comply with such mandatory controls or guidelines or make such
alterations to the Building related thereto. Such compliance and the making of
such alterations shall in no event entitle Tenant to any damages, relieve Tenant
of the obligation to pay the full Annual Rent and additional rent reserved
hereunder or constitute or be constituted as a constructive or other eviction of
Tenant, provided, however, that Tenant shall be entitled to an abatement of rent
should such compliance and such alterations prevent Tenant's use and occupancy
of the Premises for any period of time exceeding ten (10) days continuously.
16. A. Subordination. Without the necessity of any additional document
-------------
being executed by Tenant for the purpose of effecting a subordination, the Lease
shall be subject and subordinate at all times to: (a) all ground leases or
underlying leases which may now exist or hereafter be executed affecting the
Premises and/or the land upon which the Premises and Building are situated, or
both; and (b) any mortgage or deed of trust which may now exist or be placed
upon the Building, land, ground leases or underlying leases, or Landlord's
interest or estate in any of said items which is specified as security.
Notwithstanding the foregoing, Landlord shall have the right to subordinate or
cause to be subordinated any such ground leases or underlying leases or any such
liens to this Lease. In the event that any ground lease or underlying lease
terminates for any reason or any mortgage or deed of trust is foreclosed or a
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<PAGE>
conveyance in lieu of foreclosure is made for any reason. Tenant shall,
notwithstanding any subordination, attorn to and become the Tenant of the
successor-in-interest to Landlord at the option of such successor in interest.
Within ten (10) days after request by Landlord, Tenant shall execute and deliver
any additional documents evidencing Tenant's attornment or the subordination of
this Lease with respect to any such ground leases or underlying leases or any
such mortgage or deed of trust, in the form requested by Landlord or by any
ground Landlord, mortgagee, or beneficiary under a deed of trust. Such
instruments may contain, among other things, provisions to the effect that such
lessor, mortgagee or beneficiary (hereafter, for the purposes of this Section
16.A, a "Successor Landlord") shall (i) not be liable for any act or omission of
Landlord or its predecessors, if any, prior to the date of such Successor
Landlord's succession to Landlord's interest under this Lease; (ii) not be
subject to any offsets or defenses which Tenant may have been able to assert
against Landlord or its predecessors, if any, prior to the date of such
Successor Landlord's succession to Landlord's interest under this Lease; (iii)
not be liable for the return of any security deposit under the Lease unless the
same shall have actually been deposited with such Successor Landlord; and (iv)
be entitled to receive notice of any Landlord default under this Lease plus a
reasonable opportunity to cure such default prior to Tenant having any right or
ability to terminate this Lease as a result of such Landlord default.
B. Attornment. If requested to do so, Tenant shall attorn to and
----------
recognize as Tenant's Landlord under this lease any superior lessor, superior
mortgagee or other purchaser or person taking title to the Building by reason of
the termination of any superior lease or the foreclosure of any superior
mortgage or deed of trust, and Tenant shall, upon demand, execute any documents
reasonably requested by any such person to evidence the attornment described in
this Section 16.B.
C. Mortgage Protection. Tenant agrees to give any holder of any
-------------------
mortgage and any ground lessor, by registered or certified mail, a copy of any
notice of default served upon the Landlord by Tenant, provided that prior to
such notice Tenant has been notified in writing of the address of such mortgage
holder or ground lessor (hereafter the "Notified Party"). Tenant further agrees
that if Landlord shall have failed to cure such default within twenty (20) days
after such notice to Landlord (or if such default cannot be cured or corrected
within that time, then such additional time as may be necessary if Landlord has
commenced within such twenty (20) days and is diligently pursuing the remedies
or steps necessary to cure or correct such default), then the Notified Party
shall have an additional thirty (30) days within which to cure or correct such
default (or if such default cannot be cured or corrected within that time, then
such additional time as may be necessary if the Notified Party has commenced
within such thirty (30) days and is diligently pursuing the remedies or steps
necessary to cure or correct such default). Until the time allowed, as
aforesaid, for the Notified Party to cure such default has expired without cure,
Tenant shall have no right to, and shall not, terminate this Lease on account of
Landlord's default.
17. Financial Statements. Execution of the Lease is strictly conditioned
--------------------
upon, among other things, Landlord's review and approval of Tenants financial
statements and credit references. Tenant shall provide to Landlord Tenant's
current financial statement or other
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<PAGE>
information discussing financial worth of Tenant, which Landlord shall use
solely for purposes of this Lease and in connection with the ownership,
management and disposition of the Building, and which shall be kept confidential
by Landlord, except to the extent such information is required to be disclosed
by law and provided Landlord shall have the right to disclose such information
to its advisors, including, without limitation, its accountants and attorneys,
and to potential lenders or purchasers.
18. Estoppel Certificates. Tenant agrees from time to time, within ten
---------------------
(10) days after request of Landlord, to deliver to Landlord, or Landlord's
designee, an estoppel certificate stating whether this Lease is in full force
and effect, the date to which Rent has been paid, the unexpired portion of this
Lease, and such other matters pertaining to this Lease as may be reasonably
requested by Landlord. Failure by Tenant to execute and deliver such
certificate shall constitute an acceptance of the Premises and acknowledgment by
Tenant that the statements included are true and correct without exception.
Landlord and Tenant intend that any statement delivered pursuant to this
paragraph may be relied upon by any mortgagee, beneficiary, purchaser or
prospective purchaser of the Building or any interest therein. The parties
agree that Tenant's obligation to furnish such estoppel certificates in a timely
fashion is a material inducement for Landlord's execution of the Lease, and
shall be an event of default if Tenant fails to fully comply. Within fifteen
(15) days after request by Tenant, Landlord shall execute a similar estoppel
certificate in favor of Tenant.
19. Security Deposit. Tenant agrees to deposit with Landlord upon
----------------
execution of this Lease a Security Deposit as stated in the Basic Lease
Information, which sum shall be held by Landlord, without obligation for
interest, as security for the performance of Tenant's covenants and obligations
under this Lease. The Security Deposit is not an advance rental deposit or a
measure of damages incurred by Landlord in case of Tenant's default. Upon the
occurrence of any event of default by Tenant, Landlord may, from time to time,
without prejudice to any other remedy provided herein or provided by law, use
such fund to the extent necessary to make good any arrears of Rent or other
payments due to Landlord hereunder, and any other damage, injury, expense or
liability caused by such event of default, and Tenant shall pay to Landlord, on
demand, the amount so applied in order to restore the Security Deposit to its
original amount. Although the Security Deposit shall be deemed the property of
Landlord, any remaining balance of such deposit shall be returned by Landlord to
Tenant at such time after termination of this Lease that all of Tenant's
obligations under this Lease have been fulfilled. Landlord may use and
commingle the Security Deposit with other funds of Landlord.
20. Landlord Liability. The liability of Landlord to Tenant for any
------------------
default by Landlord under the terms of this Lease are not personal obligations
of the individual or other partners, directors, officers and shareholders of
Landlord, and Tenant agrees to look solely to Landlord's interest in the
Building for the recovery of any amount from Landlord, and shall not look to
other assets of Landlord nor seek recourse against the assets of the individual
or other partners, directors, officers and shareholders of Landlord. Any lien
obtained to enforce any such judgment and any levy of execution thereon shall be
subject and subordinate to any lien, mortgage or deed of trust on the Building.
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<PAGE>
21. Assignment/Sublet.
-----------------
A. General. Tenant shall not assign or sublet the Premises or any
-------
part thereof without Landlord's prior written approval except as provided
herein. If Tenant desires to assign this Lease or sublet any or all of the
Premises, Tenant shall give Landlord written notice thirty (30) days prior to
the anticipated effective date of the assignment or sublease. Landlord shall
then have a period of twenty (20) days following receipt of such notice to
notify Tenant in writing that Landlord elects either: (1) to terminate this
Lease as to the space so affected as of the date so requested by Tenant; or (2)
to permit Tenant to assign this Lease or sublet such space, subject, however, to
Landlord's prior written approval of the proposed assignee or subtenant and of
any related documents or agreements associated with the assignment or sublease.
If Landlord should fail to notify Tenant in writing of such election within said
period, Landlord shall be deemed to have waived option (1) above, but written
approval by Landlord of the proposed assignee or subtenant shall be required.
If Landlord does not exercise the option provided in subitem (1) above,
Landlord's consent to a proposed assignment or sublet shall not be unreasonably
withheld, conditioned or delayed. Without limiting the other instances in which
it may be reasonable for Landlord to withhold Landlord's consent to an
assignment or subletting, Landlord and Tenant acknowledge that it shall be
reasonable for Landlord to withhold Landlord's consent in the following
instances: The use of the Premises by such proposed assignee or subtenant would
not be a Permitted Use; the proposed assignee or subtenant is not of sound
financial condition; the proposed assignee or subtenant is a governmental
agency; the proposed assignee or subtenant does not have a good reputation as a
tenant of property, the proposed assignee or subtenant is a person with whom
Landlord is negotiating to lease space in the Building, the assignment or
subletting would entail any alterations which would lessen the value of the
leasehold improvements in the Premises; or if Tenant is in default of any
obligation of Tenant under this Lease, or Tenant has defaulted under this Lease
on three (3) or more occasions during any twelve (12) months preceding the date
that Tenant shall request consent. Tenant shall pay promptly upon billing any
and all reasonable attorneys' fees and other costs reasonably incurred by
Landlord for the review or preparation of any documents in connection with a
proposed assignment or sublease. Failure by Landlord to approve a proposed
assignee or subtenant shall not cause a termination of this Lease. Upon
termination under this Paragraph 21.A., Landlord may lease the Premises to any
party including parties with whom Tenant has negotiated an assignment or
sublease, without incurring any liability to Tenant.
B. Bonus Rent. Any Rent or other consideration realized by Tenant
----------
under any such sublease or assignment in excess of the Rent payable hereunder,
or in the event such sublease is for a portion of the Premises, in excess of the
Rent that is fairly allocable to such portion, as determined by Landlord, less
any expenses reasonably incurred by Tenant in connection therewith, including,
any improvements for any subtenant to the Premises paid by Tenant, and the costs
of leasing, shall be divided and paid, fifty percent (50%) to Tenant, fifty
percent (50%) to Landlord. In any subletting or assignment undertaken by
Tenant. Tenant shall diligently seek to obtain the maximum rental amount
available in the marketplace for such subletting or assignment.
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<PAGE>
C. Corporation. If Tenant is a corporation, a transfer of corporate
-----------
shares by sale, assignment, bequest, inheritance, operation of law or other
disposition (including such a transfer to or by a receiver or trustee in federal
or state bankruptcy, insolvency or other proceedings), so as to result in a
change in the present control of such corporation or any of its parent
corporations by the person or persons owning a majority of said corporate
shares, shall constitute an assignment for purposes of this Lease.
D. Partnership. If Tenant is a partnership, joint venture or other
-----------
incorporated business form, a transfer of the interest of persons, firms or
entities responsible for managerial control of Tenant by sale, assignment,
bequest, inheritance, operation of law or other disposition, so as to result in
a change in the present control of said entity and/or a change in the identity
of the persons responsible for the general credit obligations of said entity
shall constitute an assignment for all purposes of this Lease.
E. Liability. No assignment or subletting by Tenant shall relieve
---------
Tenant of any obligation under this Lease. Any assignment or subletting which
conflicts with the provisions hereof shall be void.
F. Permitted Transfers. Notwithstanding anything to the contrary
-------------------
contained herein, Tenant may, without Landlord's prior written consent but upon
prompt written notice to Landlord, assign this lease to (i) a subsidiary,
affiliate, division or corporation controlling, controlled by or under common
control with Tenant, (ii) a successor corporation related to Tenant by merger or
consolidation, or (iii) a purchaser of substantially all of Tenant's assets.
Notwithstanding the foregoing, Tenant shall nevertheless remain liable for all
its obligations hereunder after such assignment. For the purposes of this
Lease, a sale of Tenant's capital stock through any public exchange shall not be
deemed an assignment, sublet or other transfer.
22. Authority. Landlord represents and warrants that it has full right
---------
and authority to enter into this Lease and to perform all of Landlord's
obligations hereunder. Tenant represents and warrants that it has full right
and authority to enter into this Lease and to perform all of Tenant's
obligations hereunder.
23. Eminent Domain.
--------------
A. Condemnation Resulting in Termination. If the whole or any
-------------------------------------
substantial part of the Building should be taken or condemned for any public use
under governmental law, ordinance or regulation, or by right of eminent domain,
or by private purchase in lieu thereof, and the taking would prevent or
materially interfere with the Permitted Use of the Premises, this Lease shall
terminate and the Rent shall be abated during the unexpired portion of this
Lease, effective when the physical taking of said Premises shall have occurred.
B. Condemnation Not Resulting in Termination. If a portion of the
-----------------------------------------
Building should be taken or condemned for any public use underlying governmental
law, ordinance, or regulation, of by right of eminent domain, or by private
purchase in lieu thereof, and this Lease is not terminated as provided in
Paragraph 23.A. above, this Lease shall not terminate, but the Rent
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<PAGE>
payable hereunder during the unexpired portion of the Lease shall be reduced,
beginning on the date when the physical taking shall have occurred, to such
amount as may be fair and reasonable under all of the circumstances.
C. Award. Landlord shall be entitled to any and all payment,
-----
income, rent, award, or any interest therein whatsoever which may be paid or
made in connection with such taking or conveyance, and Tenant shall have no
claim against Landlord or otherwise for the value of any unexpired portion of
this Lease. Notwithstanding the foregoing, any compensation specifically awarded
Tenant for loss of business, Tenant's personal property, moving costs and loss
of goodwill, shall be and remain the property of Tenant.
24. Damage or Destruction.
---------------------
A. General. If the Premises or Building should be damaged or
-------
destroyed by fire or other casualty, Tenant shall give immediate written notice
thereof to Landlord. Within thirty (30) days after Landlord's receipt of such
notice, Landlord shall notify Tenant whether in Landlord's opinion such repairs
can reasonably be made either: (1) within ninety (90) days; (2) in more than
ninety (90) days but in less than one hundred eighty (180) days; or (3) in more
than one hundred eighty (180) days from the date of such notice. Landlord's
determination shall be binding on Tenant.
B. Less Than 90 Days. If the Premises or Building should be damaged
-----------------
by fire or other casualty but only to such extent that rebuilding or repairs
can, in Landlord's reasonable estimation, be reasonably completed within ninety
(90) days after the date of such damage, this Lease shall not terminate, and
provided that insurance proceeds are available to fully repair the damage,
Landlord shall proceed to rebuild and repair the Premises in the manner
determined by Landlord, except that Landlord shall not be required to rebuild,
repair or replace any part of the partitions, fixtures, additions and other
leasehold improvements which may have been placed in, on or about the Premises
after the Term Commencement Date. If the Premises are untenantable in whole or
in part following such damage, the Rent payable hereunder during the period in
which they are untenantable shall be abated proportionately, but only to the
extent of rental abatement insurance proceeds received by Landlord during the
time and to the extent the Premises are unfit for the conduct of Tenant's
business.
C. Greater Than 90 Days. If the Premises or Building should be
--------------------
damaged by fire or other casualty, but only to such extent that rebuilding or
repairs can, in Landlord's reasonable estimation, be reasonably completed in
more than ninety (90) days but in less than one hundred eighty (180) days, then
Landlord shall have the option of either: (1) terminating the Lease effective
upon the date of the occurrence of such damage, in which event the Rent shall be
abated during the unexpired portion of the Lease; or (2) electing to rebuild or
repair the Premises to substantially the condition in which they existed prior
to such damage, provided that insurance proceeds are available to fully repair
the damage, except that Landlord shall not be required to rebuild, repair or
replace any part of the partitions, fixtures, additions and other improvements
which may have been placed in, on or about the Premises after the Term
Commencement Date.
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<PAGE>
If the Premises are untenantable in whole or in part following such damage, the
Rent payable hereunder during the period in which they are untenantable shall be
abated proportionately, but only to the extent of rental abatement insurance
proceeds received by Landlord during the time and to the extent the Premises are
unfit for the conduct of Tenant's business. In the event that Landlord should
fail to complete such repairs and rebuilding within one hundred eighty (180)
days after the date upon which Landlord is notified by Tenant of such damage,
such period of time to be extended for delays caused by the fault or neglect of
Tenant or because of acts of God, acts of public agencies, labor disputes,
strikes, fires, freight embargoes, rainy or stormy weather, inability to obtain
materials, supplies or fuels, or delays of the contractors or subcontractors or
any other causes or contingencies beyond the reasonable control of Landlord,
Tenant may at Tenant's option within ten (10) days after the expiration of such
one hundred eighty (180) day period (as such may be extended), terminate this
Lease by delivering written notice of termination to Landlord as Tenant's
exclusive remedy, whereupon all rights hereunder shall cease and terminate
thirty (30) days after Landlord's receipt of such termination notice.
D. Greater Than 180 Days. If the Premises or Building should be so
---------------------
damaged by fire or other casualty that rebuilding or repairs cannot, in
Landlord's reasonable estimation, be completed within one hundred eighty (180)
days after such damage, this Lease shall terminate and the Rent shall be abated
during the unexpired portion of this Lease, effective upon the occurrence of
such damage.
E. Tenant's Fault. If the Premises or any other portion of the
--------------
Building are damaged by fire or other casualty resulting from the fault,
negligence, or breach of this Lease by Tenant or any of Tenant's Parties, Base
Rent and Additional Rent shall not be dismissed during the repair of such
damage, and Tenant shall be liable to Landlord for the cost and expense of the
repair and restoration of the Building caused thereby to the extent such cost
and expense is not covered by insurance proceeds.
F. Uninsured Casualty. Notwithstanding anything herein to the
------------------
contrary, in the event that the Premises or Building are damaged or destroyed
and are not fully covered by the insurance proceeds received by Landlord, or in
the event that the holder of any indebtedness secured by a mortgage or deed of
trust covering the Premises requires that the insurance proceeds be applied to
such indebtedness, then in either case, Landlord shall have the right to
terminate this Lease by delivering written notice of termination to Tenant
within thirty (30) days after the date of notice to Landlord that said damage or
destruction is not fully covered by insurance or such requirement is made by any
such holder, as the case may be, whereupon all rights and obligations hereunder
shall cease and terminate.
G. Waiver. Except as otherwise provided in this Paragraph 24,
------
Tenant hereby waives the provisions of Sections 1932, 1933(4), 1941 and 1942 of
the Civil Code of California.
25. Holding Over. If Tenant shall retain the possession of the Premises
------------
or any portion thereof without Landlord's consent following the expiration of
the Lease or sooner termination for any reason, then Tenant shall pay to
Landlord for each day of such retention one hundred
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<PAGE>
fifty percent (150%) the amount of the daily Rent as of the last month prior to
the date of expiration or termination. Tenant shall also indemnify, defend,
protect and hold Landlord harmless from any loss, liability or cost, including
reasonable attorneys' fees, resulting from delay by Tenant in surrendering the
Premises, including, without limitation, any claims made by any succeeding
tenant founded on such delay. Acceptance of Rent by Landlord following
expiration or termination shall not constitute a renewal of this Lease, and
nothing contained in this Paragraph 25 shall waive Landlord's right of reentry
or any other right. Unless Landlord consents in writing to Tenant's holding
over, Tenant shall be only a Tenant at sufferance, whether or not Landlord
accepts, any Rent from Tenant while Tenant is holding over without Landlord's
written consent. Additionally, in the event that upon termination of the Lease,
Tenant has not fulfilled its obligation with respect to repairs and cleanup of
the Premises or any other Tenant obligations as set forth in this Lease, then
Landlord shall have the right to perform any such obligations as it reasonably
deems necessary at Tenant's sole cost and expense, and any time required by
Landlord to complete such obligations shall be considered a period of holding
over and the terms of this Paragraph 25 shall apply.
26. Default.
-------
A. Events of Default. The occurrence of any of the following shall
-----------------
constitute an event of default on the part of Tenant:
(1) Abandonment. Abandonment of the Premises for a continuous
-----------
period in excess of five (5) days. Tenant waives any right to notice Tenant may
have under Section 1951.3 of the Civil Code of the State of California, the
terms of this Paragraph 26.A. being deemed such notice to Tenant as required by
said Section 1951.3.
(2) Nonpayment of Rent. Failure to pay any installment of
------------------
Rent or any other amount due and payable within three (3) days after Landlord
gives written notice of such delinquency.
(3) Other Obligations. Failure to perform any obligation,
-----------------
agreement or covenant under this Lease other than those matters specified in
subparagraphs (1) and (2) of this Paragraph 26.A., such failure continuing for
fifteen (15) days (or such longer time as may reasonably be required to cure the
default, provided Tenant promptly begins curing and continues diligently to
proceed with such curing) after written notice of such failure.
(4) General Assignment. A general assignment by Tenant for the
------------------
benefit of creditors.
(5) Bankruptcy. The filing of any voluntary petition in
----------
bankruptcy by Tenant, or the filing of an involuntary petition by Tenant's
creditors, which involuntary petition remains undischarged for a period of
thirty (30) days. In the event that under applicable law the trustee in
bankruptcy or Tenant has the right to affirm this Lease and continue to perform
the obligations of Tenant hereunder, such trustee or Tenant shall, in such time
period as may be permitted by the bankruptcy court having jurisdiction, cure all
defaults of Tenant hereunder
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<PAGE>
outstanding as of the date of the affirmance of this Lease and provide to
Landlord such adequate assurances as may be necessary to ensure Landlord of the
continued performance of Tenant's obligations under this Lease.
(6) Receivership. The employment of a receiver to take
------------
possession of substantially all of Tenant's assets or the Premises, if such
appointment remains undismissed or undercharged for a period of ten (10) days
after the order therefor.
(7) Attachment. The attachment, execution or other judicial
----------
seizure of all or substantially all of Tenant's assets or the Premises, if such
attachment or other seizure remains undismissed or undischarged for a period of
ten (10) days after the levy thereof.
B. Remedies Upon Default.
---------------------
(1) Termination. In the event of the occurrence of any event of
-----------
default, and subject to applicable law, Landlord shall have the right to give a
written termination notice to Tenant. On the date specified in such notice,
Tenant's right to possession shall terminate, and this Lease shall terminate
unless on or before such date all arrears of rental and all other sums payable
by Tenant under this Lease and all costs and expenses incurred by or on behalf
of Landlord hereunder shall have been paid by Tenant and all other events of
default of this Lease by Tenant at the time existing shall have been fully
remedied to the satisfaction of Landlord. At any time after such termination,
Landlord may recover possession of the Premises or any part thereof and expel
and remove therefrom Tenant and any other person occupying the same, by any
lawful means, and again repossess and enjoy the Premises without prejudice to
any of the remedies that Landlord may have under this Lease, or at law or equity
by reason of Tenant's default or of such termination.
(2) Continuation After Default. Even though an event of
--------------------------
default may have occurred, this Lease shall continue in effect for so long as
Landlord does not terminate Tenant's right to possession under Paragraph
26.B.(l) hereof and Landlord may enforce all of Landlord's rights and remedies
under this Lease including, without limitation, the right to recover Rent as it
becomes due, and Landlord, without terminating this Lease, may exercise all of
the rights and remedies of a Landlord under Section 1951.4 of the Civil Code of
the State of California or any successor code section. Acts of maintenance,
preservation or efforts to lease the Premises or the appointment of a receiver
upon application of Landlord to protect Landlord's interest under this Lease
shall not constitute an election to terminate Tenant's right to possession.
C. Damages After Default. Should Landlord terminate this Lease
---------------------
pursuant to the provisions of Paragraph 26.B.(l) hereof, Landlord shall have the
rights and remedies of a Landlord provided by Section 1951.2 of the Civil Code
of the State of California, or successor code sections. Upon such termination,
in addition to any other rights and remedies to which Landlord may be entitled
under applicable law, Landlord shall be entitled to recover from Tenant: (1) the
worth at the time of award of the unpaid Rent and other amounts which had been
earned at the time of termination; (2) the worth at the time of award of the
amount by which the unpaid Rent which would have been earned after termination
until the time of award exceeds the
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<PAGE>
amount of such Rent loss that Tenant proves could have been reasonably avoided;
(3) the worth at the time of award of the amount by which the unpaid Rent for
the balance of the Term after the time of award exceeds the amount of such Rent
loss that the Tenant proves could be reasonably avoided; and (4) any other
amount necessary to compensate Landlord for all the detriment proximately caused
by Tenant's failure to perform Tenant's obligations under this Lease or which,
in the ordinary course of things, would be likely to result therefrom. The
"worth at the time of award" of the amounts referred to in (1) and (2) above,
shall be computed at the lesser of the "prime rate," as announced from time to
time by Wells Fargo Bank, NA. (San Francisco), plus three (3) percentage points,
or the maximum interest rate allowed by law ("Applicable Interest Rate"). The
"worth at the time of award" of the amount referred to in (3) above shall be
computed by discounting such amount at the Federal Discount Rate of the Federal
Reserve Bank of San Francisco at the time of the award. If this Lease provides
for any periods during the Term during which Tenant is not required to pay Base
Rent or if Tenant otherwise receives a Rent concession, then upon the occurrence
of an event of default, Tenant shall owe to Landlord the full amount of such
Base Rent or value of such Rent concession, plus interest at the Applicable
Interest Rate, calculated from the date that such Base Rent or Rent concession
would have been payable.
D. Late Charge. If any installment of Rent is not paid promptly
-----------
when due, such amount shall bear interest at the Applicable Interest Rate from
the date on which said payment shall be due until the date on which Landlord
shall receive said payment, and Tenant shall pay Landlord a late charge equal to
five percent (5%) of the delinquency to compensate Landlord for the loss of the
use of the amount not paid and the administrative costs caused by the
delinquency, the parties agreeing that Landlord's damage by virtue of such
delinquencies would be difficult to compute and the amount stated herein
represents a reasonable estimate thereof. This provision shall not relieve
Tenant of Tenant's obligation to pay Rent at the time and in the manner herein
specified.
INITIALS: Landlord ________ Tenant _________
E. Remedies Cumulative. All rights, privileges and elections or
-------------------
remedies of the parties are cumulative and not alternative to the extent
permitted by law and except as otherwise provided herein.
27. Mechanic's Liens. Tenant shall keep the Premises free from liens
-----------------
arising out of or related to work performed, materials or supplies furnished or
obligations incurred by Tenant or in connection with work made, suffered or done
by or on behalf of Tenant in or on the Premises or Building. In the event that
Tenant shall not, within ten (10) days following the imposition of any such
lien, cause the same to be released of record by payment or posting of a proper
bond, Landlord shall have, in addition to all other remedies provided herein and
by law, the right, but not the obligation, to cause the same to be released by
such means as Landlord shall deem proper, including payment of the claim giving
rise to such lien. All sums paid by Landlord on behalf of Tenant, and all
expenses incurred by Landlord in connection therefor, shall be payable to
Landlord by Tenant on demand with interest at the Applicable Interest Rate.
Landlord
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<PAGE>
shall have the right at all times to post and keep posted on the Premises any
notices permitted or required by law, or which Landlord shall deem proper, for
the protection of Landlord, the Premises, the Building and any other party
having an interest therein, from mechanics' and materialmen's liens, and Tenant
shall give Landlord not less than ten (10) business days' prior written notice
of the commencement of any work in the Premises or Building which would lawfully
give rise to a claim for mechanics' or materialmen's liens.
28. Intentionally deleted.
29. Sale of Building. In the event of a sale or conveyance by Landlord of
----------------
the Building or a foreclosure by any creditor of Landlord, the same shall
operate to release Landlord from any liability upon any of the covenants or
conditions, express or implied, herein contained in favor of Tenant, to the
extent required to be performed after the passing of title to Landlord's
successor-in-interest. In such event, Tenant agrees to look solely to the
responsibility of the successor-in-interest of Landlord under this Lease with
respect to the performance of the covenants and duties of "Landlord" to be
performed after the passing of title to Landlord's successor-in-interest,
provided that, in the event of a sale, the purchaser assumes the obligations of
Landlord in writing. This Lease shall not be affected by any such sale, and
Tenant agrees to attorn to the purchaser or assignee. Landlord's successor(s)-
in-interest shall not have liability to Tenant with respect to the failure to
perform all of the obligations of "Landlord," to the extent required to be
performed prior to the date such successor(s)-in-interest became the owner of
the Building.
30. Tenant Covenants. Except as otherwise expressly provided herein, all
----------------
covenants and agreements to be performed by Tenant under any of the terms of
this Lease shall be performed by Tenant at Tenant's sole cost and expense and
without any abatement of Rent. If Tenant shall fail to pay any sum of money,
other than Base Rent and Basic Operating Cost, required to be paid by Tenant
hereunder or shall fail to perform any other act on Tenant's part to be
performed hereunder, and such failure shall continue for five (5) days after
notice thereof by Landlord (or, with respect to non-financial failures of
performance, such later time as may reasonably be necessary to cure such
failure, provided Tenant promptly begins curing such failure and continues to
diligently proceed with such curing), Landlord may, but shall not be obligated
to do so, and without waiving or releasing Tenant from any obligations of
Tenant, make any such payment or perform any such act on Tenant's part to be
made or performed. All sums, so paid by Landlord, and all necessary incidental
costs together with interest thereon at the Applicable Interest Rate from the
date such payment by Landlord, shall be payable to Landlord on demand, and
Tenant covenants to pay such sums, and Landlord shall have, in addition to any
other right or remedy of Landlord, the same right and remedies in the event of
the nonpayment thereof by Tenant as in the case of default by Tenant in the
payment of Base Rent and Basic Operating Cost.
31. Waiver of Covenants. If either Landlord or Tenant waives the
-------------------
performance of any term, covenant or condition contained in this Lease, such
waiver shall not be deemed a waiver of any subsequent breach of the same or any
other term, covenant or condition contained herein.
-25-
<PAGE>
The acceptance of Rent by Landlord shall not constitute a waiver of any
preceding breach by Tenant of any term, covenant or condition of this Lease
regardless of Landlord's knowledge of such preceding breach at the time Landlord
accepted such Rent. Failure by Landlord to enforce any of the terms, covenants
or conditions of this Lease for any length of time shall not be deemed to waive
or to decrease the right of Landlord to insist thereafter upon strict
performance by Tenant. Waiver by either party of any term, covenant or condition
contained in this Lease may only be made by a written document signed by such
party.
32. Notices. Each provision of this Lease or of any applicable
-------
governmental laws, ordinances, regulations and other requirements with reference
to sending, mailing, or delivery of any notice or the making of any payment by
Landlord or Tenant to the other shall be deemed to be complied with when and if
the following steps are taken:
A. Rent. All Rent and other payments required to be made by Tenant
----
to Landlord hereunder shall be payable to Landlord at the address set forth in
the Basic Lease Information, or at such other address as Landlord may specify
from time to time by written notice delivered in accordance herewith. Tenant's
obligation to pay Rent and any other amounts to Landlord under the terms of this
Lease shall not be deemed satisfied until such Rent and other amounts have been
actually received by Landlord.
B. Other. All notices, demands, consents and approvals, which may
-----
or are required to be given by either party to the other hereunder, shall be in
writing and either personally delivered, sent by commercial overnight courier,
or mailed, certified or registered, postage prepaid, and addressed to the party
to be notified at the address for such party as specified in the Basic Lease
Information or to such other place as the party to be notified may from time to
time designate by at least fifteen (15) day's notice to the notifying party.
Notices shall be deemed served upon receipt or refusal to accept delivery.
Tenant appoints as its agent to receive the service of all default notices and
notice of commencement of unlawful detainer proceedings the person in charge of
or apparently in charge of occupying the Premises at the time, and, if there is
no such person, then such service may be made by attaching the same on the main
entrance of the Premises.
33. Attorneys' Fees. In the event that Landlord places the enforcement of
---------------
this Lease, or any part thereof, or the collection of any Rent due, or to become
due hereunder, or recovery of possession of the Premises in the hands of an
attorney, Tenant shall pay to Landlord, upon demand, Landlord's reasonable
attorneys' fees and court costs. In any action which Landlord or Tenant brings
to enforce its respective rights hereunder, the unsuccessful party shall pay all
costs incurred by the prevailing party, including reasonable attorneys' fees to
be fixed by the court, and said costs and attorneys' fees shall be a part of the
judgment in said action.
34. Successors and Assigns. This Lease shall be binding upon and inure to
----------------------
the benefit of Landlord, its successors and assigns, and, subject to Paragraph
21, shall be binding upon and inure to the benefit of Tenant, its successors,
and to the extent an assignment is approved by Landlord hereunder, Tenant's
assigns.
-26-
<PAGE>
35. Force Majeure. Whenever a period of time is herein prescribed for
-------------
action to be taken by either party, such party shall not be liable or
responsible for, and there shall be excluded from the computation for any such
period of time, any delays due to strikes, riots, acts of God, shortages of
labor or materials, war, governmental laws, regulations or restrictions or any
other causes of any kind whatsoever which are beyond the control of such party
(except for financial inability).
36. Brokers. Landlord shall pay a brokerage commission to its Broker
-------
pursuant to a separate agreement between Landlord and Landlord's Broker.
Landlord shall pay a brokerage commission of $35,210 to Tenant's Broker as
follows, fifty percent (50%) upon lease execution by Tenant and Landlord and
fifty percent (50%) upon Lease commencement. Each party warrants to the other
that it has engaged no broker in connection with this transaction other than the
foregoing brokers. Tenant warrants to Landlord that Tenant's sole contact with
Landlord or with the Premises in connection with this transaction has been
directly with Landlord and the Brokers specified in the Basic Lease Information,
and that no other broker or finder can properly claim a right to a commission or
a finder's fee based upon contacts between the claimant and Tenant with respect
to Landlord or the Premises. Each party shall indemnify, defend by counsel
acceptable to the other party, protect and hold the other party harmless from
and against any loss, cost or expense, including, but not limited to, attorneys'
fees and costs, resulting from any claim for a fee or commission by any broker
or finder in connection with the Premises and this Lease other than the Brokers
specified in the Basic Lease Information.
37. Intentionally deleted.
38. A. General. The term "Tenant" or any pronoun used in place thereof
-------
shall indicate and include the masculine or feminine, the singular or plural
number, individuals, firms or corporations, and their respective successors,
executors, administrators and permitted assigns, according to the context
hereof.
B. Time. Time is of the essence regarding this Lease and all of its
----
provisions.
C. Choice of Law. This Lease shall in all respects be governed by
-------------
the laws of the State of California.
D Entire Agreement. This Lease, together with its Exhibits,
----------------
contains all the agreements of the parties hereto and supersedes any previous
negotiations. There have been no representations made by either party hereto or
understandings made between the parties other than those set forth in this Lease
and its exhibits.
E. Notification. This Lease may not be modified except by a written
------------
instrument signed by the parties hereto.
F. Severability. If for any reason whatsoever any of the provisions
------------
hereof shall be unenforceable or ineffective, all of the other provisions shall
be and remain in full force and effect.
-27-
<PAGE>
G. Recordation. Tenant shall not record this Lease or a short form
-----------
memorandum hereof.
H. Examination of Lease. Submission of this Lease to Tenant does
--------------------
not constitute an option or offer to lease, and this Lease is not effective
otherwise until execution and delivery by both Landlord and Tenant.
I. Accord and Satisfaction. Neither payment by Tenant of a lesser
-----------------------
amount than the Rent nor any endorsement on any check or letter accompanying any
check or payment of Rent shall be deemed an accord and satisfaction of full
payment of Rent, and Landlord may accept such payment without prejudice to
Landlord's right to recover the balance of such Rent or to pursue other
remedies.
J. Easements. Landlord may grant easements on the Building and
---------
dedicate for public use portions of the Building without Tenant's consent;
provided that no such grant or dedication shall substantially interfere with
Tenant's use or occupancy of the Premises. Upon Landlord's demand, Tenant shall
execute, acknowledge and deliver to Landlord documents, instruments, maps and
plats necessary to effectuate Tenant's covenants hereunder.
K. Drafting and Determination Presumption. The parties acknowledge
--------------------------------------
that this Lease has been agreed to by both the parties, that both Landlord and
Tenant have consulted with attorneys with respect to the terms of this Lease,
and that no presumption shall be created against Landlord because Landlord
drafted this Lease. Except as otherwise specifically set forth in this Lease,
with respect to any consent, determination or estimation of Landlord required in
this Lease or requested of Landlord, Landlord's consent, determination or
estimation shall not be unreasonably withheld, denied or delayed.
L. Exhibits. Exhibits A and B attached hereto are hereby
--------
incorporated herein by this reference.
M. No Light, Air or View Easement. Any diminution or shutting off
------------------------------
of light, air or view by any structure which may be erected on lands adjacent to
or in the vicinity of the Building shall in no way affect this Lease or impose
any liability on Landlord.
N. No Third Party Benefit. This Lease is a contract between
----------------------
Landlord and Tenant, and nothing herein is intended to create any third party
benefit.
O. Building. Landlord shall have the right at any time to change
--------
the name of the Building, to increase the size of the real property upon which
the Building is located by adding additional real property thereto, to construct
other buildings or improvements on any portion of such real property, to change
the location and/or character of or to make alterations or additions to such
real property, provided, however, that such actions shall not unreasonably
disturb Tenant's use or occupancy of the Premises. Tenant shall not use the
Building's name for any purpose other than as part of its business address. Any
use of such name in the designation of Tenant's business shall constitute a
default under this Lease.
-28-
<PAGE>
P. Directory. Landlord shall provide a directory in a conspicuous
---------
place, with names of tenants. Tenant shall be entitled to one (1) directory
strip (one line) for the placement of names in such directory for each one
thousand (1,000) rentable square feet of space in the Premises. Any revision in
such directory shall be made by Landlord at Tenant's expense within a reasonable
time after notice from Tenant of Tenant's request for such revision. If Tenant
desires additional names to be listed on such directory, to the extent space is
available thereon after consideration of other tenants' desires, Landlord agrees
Tenant may list such names at Tenant's sole cost and expense.
Q. Survival of Obligations. Any obligations of Tenant arising prior
-----------------------
to the expiration of the Lease shall survive the termination of the Lease, and
Tenant shall promptly perform all such obligations whether or not this Lease has
expired.
R. Independent Covenants. Each covenant, agreement, obligation or
---------------------
other provision of this Lease to be performed by Tenant are separate and
independent covenants of Tenant, and not dependent on any other provision of the
Lease.
S. Joint and Several Liability. If Tenant comprises more than one
---------------------------
entity or person, or if this Lease is guaranteed by any party, all such persons
shall be jointly and severally liable for payment of rents and for performance
of Tenant's obligations hereunder.
T. Offer to Lease. The submission of this Lease to Tenant or its
--------------
broker or other agent does not constitute an offer to Tenant to lease the
Premises. This Lease shall have no force and effect until (a) it is executed
and delivered by Tenant to Landlord and (b) it is fully reviewed and executed by
Landlord; provided, however, that upon execution of this Lease by Tenant and
delivery to Landlord, such execution and delivery by Tenant shall, in
consideration of the time and expense incurred by Landlord in reviewing the
Lease and Tenant's credit, constitute an offer by Tenant to lease the Premises
upon the terms and conditions set forth herein (which offer to lease shall be
irrevocable for twenty (20) business days following the date of delivery).
39. Right of First Offer. During the term of the Lease, Tenant shall have
--------------------
the following right of first offer to lease any space ("Takedown Space") on the
third (3rd) floor contiguous to the Premises if and when such Takedown Space
becomes available for lease, on the following terms and conditions:
A. Provided that an event of default has not occurred nor has any
event occurred which with the passing of time or the giving of notice, or both,
would constitute an event of default under any of the terms, conditions,
covenants or provisions of this Lease, either as of the date Tenant exercises
its Takedown Right (as defined below) or the date of execution of the Takedown
Amendment (as defined below), Tenant shall have the right (the "Takedown
Right"), but not the obligation, to lease Takedown Space. During the term of
the Lease, Landlord shall give Tenant written notice (the "Takedown Notice") if
any Takedown Space becomes available and, in such event, Tenant shall have three
(3) business days after its receipt of the Takedown Notice to exercise its
Takedown Right by delivering written notice of such exercise to Landlord. If
Landlord fails to receive such notice from Tenant on or before 5:00 p.m.
-29-
<PAGE>
on the third (3rd) business day after Landlord delivers the Takedown Notice to
Tenant, Tenant shall conclusively be deemed to have elected not to lease the
Takedown Space, and neither party shall have any further obligations or rights
hereunder with respect to such Takedown Space.
B. If Tenant timely exercises the Takedown Right regarding Takedown
Space pursuant to this Paragraph 39, Landlord and Tenant shall execute an
------------
amendment (the "Takedown Amendment") adding the Takedown Space to the Premises
for the remaining term of the Lease as the same may be extended. In such event,
the commencement date of the term of the Takedown Amendment (the "Takedown Space
Commencement Date") shall be the date Tenant receives possession of the Takedown
Space from Landlord. For purposes of this Paragraph 39, Tenant's possession of
------------
the Takedown Space shall be deemed to have occurred when the Takedown Space has
been vacated by the Future Occupant, if any, and the Takedown Space is delivered
to Tenant. Landlord shall lease Takedown Space to Tenant subject to the terms
and conditions of this Lease, except that (i) the Base Rent shall be equal to
one hundred percent (100%) of the then Prevailing Market Rent for Comparable
Buildings (as such terms are defined in Paragraph 40 below), and (ii) from and
after the Takedown Space Commencement Date, Tenant's Proportionate Share as set
forth in the Basic Lease Information shall be adjusted to reflect the increase
in the size of the Premises.
C. Landlord shall deliver the Takedown Space to Tenant in an "as is"
condition. Any alterations or special finish work required by Tenant shall be
made at Tenant's sole cost and expense upon the prior written approval of
Landlord in accordance with this Lease.
40. Renewal Option. Tenant shall have one (1) option (the "Renewal
--------------
Option") to extend the Term for an additional three (3) years beyond the
Expiration Date (the "Renewal Term"). The Renewal Option shall be effective
only if an event of default is not occurring, nor has any event occurred which,
with the giving of notice or the passage of time, or both, would constitute an
event of default under this Lease, either at the time of exercise of the Renewal
Option or the time of commencement of the Renewal Term. The Renewal Option must
be exercised, if at all, by written notice from Tenant to Landlord given not
more than nine (9) months nor less than six (6) months prior to the expiration
of the initial Term. Any such notice given by Tenant to Landlord shall be
irrevocable. If Tenant fails to exercise the Renewal Option in a timely manner
as provided for above, the Renewal Option shall be void. The Renewal Term shall
be upon the same terms and conditions as the initial Term, except that the
annual Base Rent during the Renewal Term shall be equal to ninety-five percent
(95%) of the Prevailing Market Rate (as such term is defined below) for space of
comparable size and location to the Premises being offered for rent in
comparable office buildings in the San Francisco Financial District
(collectively "Comparable Buildings") at the commencement of the Renewal Term;
provided, however, that in no event shall the Base Rent for the Renewal Term be
less than the Base Rent for the last year of the initial Term. As used herein,
the term "Prevailing Market Rate" shall mean the base annual rental for such
comparable space, taking into account any additional rental and all other
payments and escalations payable hereunder and by tenants under leases of such
comparable space, and any refurbishment allowances or tenant improvement
allowances, if any, that are prevalent in lease renewals in the market as such
times. If Tenant disputes Landlord's
-30-
<PAGE>
determination of the Prevailing Market Rate, Tenant shall so notify Landlord
within ten (10) days following Landlord's notice to Tenant of the Prevailing
Market Rate and such dispute shall be resolved as follows:
A. Within thirty (30) calendar days following Landlord's notice to
Tenant of the Prevailing Market Rate, Landlord and Tenant shall meet no less
than two (2) times, at a mutually agreeable time and place, to attempt to
resolve any such disagreement.
B. If within this thirty (30) day period Landlord and Tenant cannot
reach agreement as to the Prevailing Market Rate, they shall each select one
appraiser to determine the Prevailing Market Rate. Each such appraiser shall
arrive at a determination of the Prevailing Market Rate and submit his
conclusions to Landlord and Tenant within thirty (30) days of the expiration of
the expiration of the thirty (30) day consultation period described in paragraph
(a) above.
C. If only one appraisal is submitted within the requisite time
period, it shall be deemed to be the Prevailing Market Rate. If both appraisals
are submitted within such time period, and if the two appraisals so submitted
differ by less than ten (10) percent of the higher of the two, the average of
the two shall be the Prevailing Market Rate. If the two appraisals differ by
more than ten (10) percent of the higher of the two, then the two appraisers
shall immediately select a third appraiser. Such Third appraiser shall, within
thirty (30) days of his selection, make a determination of the Prevailing Market
Rate and submit such determination to the Landlord and Tenant. This third
appraisal will then be averaged with the closer of the two previous appraisals,
and the result shall be the Prevailing Market Rate.
D. All appraisers specified pursuant hereto shall be licensed real
estate brokers in the State of California with not less than five (5) years'
experience appraising commercial properties in the San Francisco Financial
District. Each party shall pay the cost of the appraiser selected by such party
and one-half (l/2) of the cost of the third appraiser plus, if required, one-
half (1/2) of any other costs incurred in the arbitration.
41. Right to Terminate. Tenant shall have the right to terminate the
------------------
Lease ("Termination Right"), effective as of the thirty-sixth (36th) month of
the Term, subject to the following terms and conditions. Provided that an event
of default is not occurring, nor is an event occurring which, with the passing
of time or the giving of notice, or both, would constitute an event of default
under the terms and conditions of this Lease at the time of exercise of the
Termination Right, Tenant may exercise the Termination Right by delivery to
Landlord of written notice ("Termination Notice") no later than the end of the
thirtieth (30th) month of the Term of the Lease. Within thirty (30) days
following receipt of Tenant's Termination Notice, Landlord shall deliver written
notice to Tenant of the amount of the cash payment due from Tenant which shall
be equal to the unamortized portion of Tenant Improvements and brokerage
commissions payable to the Brokers specified in the Basic Lease Information as
of the date of termination ("Termination Payment"). The Termination Payment
shall be due and payable within thirty (30) days after Tenant's receipt of such
notice from Landlord. For purposes of
-31-
<PAGE>
calculating the Termination Payment, Tenant Improvements and brokerage
commissions shall be deemed to be amortized, together with interest thereon, at
the rate of ten percent (10%) per annum, on a straight-line basis monthly over
the initial Term of the Lease, not including any renewal option period.
-32-
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have caused this instrument to be
executed and delivered as of this 13 day of November, 1995.
TENANT: PANTTAJA CONSULTING GROUP, INC.,
A California Corporation
By: /s/ Mary Panttaja
--------------------
Its: President
----------
LANDLORD:BRITPHIL & CO. (US) LTD.,
a California corporation
By: /s/ Philip Ouyang
-----------------
Its: President
---------
-33-
<PAGE>
Exhibit A
MEMORANDUM OF TERM COMMENCEMENT DATE
------------------------------------
Landlord: Britphil & Co. (US) Ltd., a California corporation
TENANT:
PREMISES:
160 Pine Street
San Francisco, California 94111
Pursuant to Paragraph 3 of the above-referenced Lease, the Commencement Date is
hereby established as ______________________.
Dated:
Landlord Tenant
- -------- ------
Britphil & Co. (US) Ltd. Panttaja Consulting Group, Inc.
By:___________________________ By:_____________________________
Its:__________________________ Its:____________________________
<PAGE>
Exhibit B
RULES AND REGULATIONS
---------------------
Tenant shall faithfully observe and comply with the Rules and Regulations set
forth in this Exhibit D, as reasonably modified by Landlord from time to time in
writing. Landlord shall not be responsible to Tenant for the nonperformance of
any of said Rules and Regulations by or otherwise with respect to the acts or
omissions of any other tenants or occupants of the Building.
1. Signage. No sign, placard, picture, advertisement, name or notice
-------
shall be installed or displayed on any part of the outside or inside of the
building without the prior written consent of the Landlord. Landlord shall have
the right to remove, at Tenant's expense and without written notice, any sign
installed or displayed in violation of this rule. All approved signs or
lettering on doors and walls shall be printed, painted, affixed or inscribed at
the expense of Tenant by a person chosen by Landlord.
2. Window Coverings. If Landlord objects in writing to any curtains,
----------------
blinds, shades or screens attached to or hung in or used in connection with any
window or door of the Premise, Tenant shall immediately discontinue such use. No
awning shall be permitted on any part of the Premises. Tenant shall not place
anything against glass partitions or doors or windows which may appear unsightly
from the outside Premises.
3. Access. Tenant shall have access to its Premises twenty-four (24)
------
hours a day, three hundred sixty-five days a year. Tenant shall not loiter in or
obstruct any sidewalks, halls, passages, exits, entrances, elevators, escalators
or stairways of the Building. The halls, passages, exits, entrances, shopping
malls, elevators, escalators and stairways shall be used only as a means of
ingress and egress for the leased Premises, and Landlord shall in all cases
retain the right to control and prevent access thereto to all persons whose
presence in the judgment of Landlord would be prejudicial to the safety,
character, reputation and interests of the Building and its tenants provided
that nothing herein contained shall be construed to prevent such access to
persons with whom any tenant normally deals in the ordinary course of its
business, unless such persons are engaged in illegal activities. No tenant and
no employee or invitee of any tenant shall go upon the roof of the Building, or
in other restricted access areas within the Building. Landlord reserves the
right to close and keep locked all entrance and exit doors of the Building
during such hours as are customary for comparable buildings in the City of San
Francisco. Tenant, its employees or agents must be sure that the doors to the
Building are securely closed and locked when leaving the Premises after the
normal hours of business for the Building. Any tenant, its employees or agents
or any other persons entering or leaving the Building at any time when it is so
locked, or any time when it is considered to be after normal business hours for
the Building, may be required to sign the Building Register when so doing.
Access to the Building may be refused unless the person seeking access has the
proper identification or has previously arranged a pass for access to the
Building. Landlord and its agents shall in no case be liable for damages for any
error with regard to the admission to or exclusion from the Building of any
person. In case of invasion, mob riot, public excitement, or other commotion.
Landlord reserves
<PAGE>
the right to prevent access to the Building during the continuance of same by
any means it deems appropriate for the safety and protection of life and
property.
4. Building Directory. The directory of the Building will be provided
------------------
exclusively for the display of the name and location of Tenants only, and
Landlord reserves the right to exclude any other names therefrom.
5. Janitorial Services. All cleaning and janitorial services for the
-------------------
Building and the Premises shall be provided exclusively through Landlord, and
except with the written consent of Landlord, no person or persons other than
those approved by Landlord shall be employed by Tenant or permitted to enter the
Building for the purpose of cleaning the same. Tenant shall not cause any
unnecessary labor by carelessness or indifference to the good order and
cleanliness of the Premises. Landlord shall not in any way be responsible to any
tenant for any loss of property on the Premises, however occurring, or for any
damage to any Tenants property by the janitor or any other employee or any other
person.
6. Keys. Landlord will furnish to Tenant free of charge with two keys to
----
each door lock in the Premises. Landlord may make a reasonable charge for any
additional keys. Tenant shall not make or have made additional keys, and Tenant
shall not alter any lock or install a new or additional lock or bolt on any door
of its Premises. Tenant, upon the termination of its tenancy, shall deliver to
Landlord the keys of all doors which have been furnished to Tenant, and in the
event of loss of any keys so furnished, shall pay Landlord therefor.
7. Fixtures. Landlord reserves the right to approve both where and how
--------
telephonic wires, security alarms and similar equipment are to be introduced to
the Premises. No boring or cutting for wires shall be allowed without the
consent of Landlord. The location of telephone, call boxes and other office
equipment affixed to the Premises shall be subject to the approval of Landlord.
8. Freight Elevator. The freight 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, and no equipment, materials,
furniture, packages, supplies, merchandise or other property will be received in
the Building or carried in the elevators except between such hours and in such
elevators as may be designated and approved by Landlord.
9. Loads. Tenant shall not place a load upon any floor of the Premises
-----
which exceeds the load per square foot which such floor was designed to carry
and which is allowed by law. Landlord shall have the right to prescribe the
weight, height and position of all equipment materials, furniture or other
property brought into the Building. Heavy objects shall, if considered necessary
by Tenant, stand on such platforms as are determined necessary by Landlord to
properly distribute the weight. Business machines and mechanical equipment
belonging to Tenant which cause noise or vibration that may be transmitted to
the structure of the Building or to any space therein to such a degree as to be
objectionable to Landlord or to any tenants in the Building shall be placed and
maintained by Tenant, at Tenant's expense, on vibration eliminators or other
devices sufficient to eliminate noise or vibration. The persons
-36-
<PAGE>
employed to move such equipment in or out of the Building must be acceptable to
Landlord. Landlord will not be responsible for loss of, or damage to, any such
equipment or other property from any cause, and all damage done to the Building
by maintaining or moving such equipment or other property shall be repaired at
the expense of the Tenant.
10. Toxics. Tenant shall not use or keep in the Premises any kerosene,
------
gasoline or flammable or combustible fluid or material other than limited
quantities necessary for the operation or maintenance of office equipment.
Tenant shall not use or permit to be used in the Premises any foul or noxious
gas or substance, or permit or allow the Premises to be occupied or used in a
manner offensive or objectionable to Landlord or other occupants of the Building
by reason of noise, odors or vibrations. Tenant shall not bring into or keep
within the Building or the Premises any animals, birds, bicycles or other
vehicles.
11. Heating/Air. Tenant shall not use any method of heating or air
-----------
conditioning other than that supplied by Landlord, unless Tenant has Landlord's
written approval for said alteration. Heating or air conditioning alterations
shall be governed by guidelines established in Paragraph 12 of the Lease.
Landlord shall furnish heating and air conditioning during the hours of 7:00
a.m. to 6:00 p.m., Monday through Friday. In the event Tenant requires heating
and air conditioning during off hours, Saturdays, Sundays, or holidays, Landlord
on forty-eight (48) hours' prior written notice from Tenant may provide such
services at an hourly rate to be established by Landlord, from time to time.
12. Natural Resource Use. Tenant shall not waste electricity, water or
--------------------
air-conditioning and agrees to cooperate fully with Landlord to assure the most
effective operation of the Building's heating and air-conditioning, and shall
refrain from attempting to adjust any controls other than room thermostats
installed for Tenant's use. Tenant shall keep corridor doors closed.
13. Building Name/Address. Landlord reserves the right, exercisable
---------------------
without notice and without liability to Tenant, to change the name and street
address of the Building.
14. Secure Premises. Tenant shall close and lock the doors of its
---------------
Premises and entirely shut off all water faucets or other water apparatus and
electricity, gas or air outlets, and all electric machines (coffee pots) before
Tenant and its employees leave the Premises. Tenant shall be responsible for any
damage or injuries sustained by other tenants or occupants of the Building or by
Landlord for noncompliance with this rule.
15. Vendors. Tenant shall not obtain for use on the Premises ice, food,
-------
beverage, towel or other similar services or accept barbering or bootblacking
services upon the Premises, except at such hours and under such regulations as
may be fixed by Landlord. Tenant may obtain bottled water service provided by an
independent vendor.
16. Restrooms. The toilet rooms, toilets, urinals, wash bowls and other
---------
apparatus shall not be used for any purpose other than that for which they were
constructed. No foreign substance of any kind whatsoever shall be thrown
therein, and the expense of any breakage,
-37-
<PAGE>
stoppage or damage resulting from the violation of this rule shall be borne by
the Tenant who, or whose employees or invitees, shall have caused it.
17. Retail Sales. Tenant shall not sell, or permit the sale at retail, of
------------
newspapers, magazines, periodicals, theater tickets or any other goods or
merchandise to the general public in or on the Premises. Tenant shall not make
any room-to-room solicitation of business from other tenants in the Building.
Tenant shall not use the Premises for any business or activity other than that
specifically provided for in such Tenants lease. Canvassing, soliciting and
distribution of handbills or any other written material, and peddling in the
Building are prohibited and each tenant shall cooperate to prevent same.
18. Building Exterior. Tenant shall not install any radio or television
-----------------
antenna, loudspeaker or other device on the roof or exterior walls of the
Building without Landlord's prior written approval. Tenant shall not interfere
with radio or television broadcasting or reception from or in tile Building or
elsewhere.
19. Maintenance of Walls/Carpet. Tenant shall not mark, drive nails,
---------------------------
screw or drill into the partitions, woodwork or plaster or in any way deface the
Premises or any part thereof except for nails and screws used for normal
decorating purposes. Landlord reserves the right to direct electricians as to
where and how telephone and telegraph wires are to be introduced to the
Premises. Tenant shall not cut or bore holes for wires. Tenant shall not affix
any floor covering to the floor of the Premises in any manner except as approved
by Landlord. Tenant shall repair any damage resulting from noncompliance with
this rule. In all carpeted areas where desks and chairs are utilized, Landlord
shall require Tenant, at Tenant's sole cost, to place mats under each and every
chair in order to protect said carpeting from unnecessary wear and tear.
20. Vending Machines. Tenant shall not install, maintain or operate upon
----------------
the Premises any vending machines without the written consent of Landlord.
21. Trash Storage. Tenant shall store all its trash and garbage within
-------------
its Premises. Tenant shall not place in any trash box or receptacle any material
which cannot be disposed of in the ordinary and customary manner of trash and
garbage disposal. All garbage and refuse disposal shall be made in accordance
with directions issued from time to time by Landlord.
21. Cooking. The Premises shall not be used for the storage of
-------
merchandise held for sale to the general public, or for lodging or for
manufacturing of any kind without prior written approval of Landlord, nor shall
Premises be used for any improper, immoral or objectionable purpose. No cooking
shall be done or permitted by any tenant on the Premises, except that use by the
tenant of Underwriters' Laboratory approved equipment inclusive of a microwave
oven for heating food and equipment for brewing coffee, tea, hot chocolate and
similar beverages shall be permitted, provided that such equipment and use is in
accordance with all applicable federal, state and city laws, codes, ordinances,
rules and regulations.
22. Hand Trucks. Tenant shall not use in any space or in the public halls
-----------
of the Building any hand trucks except those equipped with rubber tires and side
guards or such other
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<PAGE>
material-handling equipment as Landlord may approve. Tenant shall not bring any
other vehicles of any kind into the Building. Tenant shall obey all Building
rules and regulations covering the timing, procedures and restrictions for
moving objects in and out of the Premises (i.e., masonite over tile).
23. Tenant Use of Building Name. Without the written consent of Landlord,
---------------------------
Tenant shall not use the name of the Building in connection with or in promoting
or advertising the business of Tenant except as Tenant's address.
24. Life Safety. Tenant shall comply with all safety, fire protection
-----------
and evacuation procedures and regulations established by Landlord or any
governmental agency, including the attendance of required safety seminars and
demonstrations.
25. Theft. Tenant assumes any and all responsibility for protecting its
-----
Premises from theft, robbery and pilferage. All doors opening to public
corridors shall be kept closed at all times.
26. Notification. The requirements of Tenant will be attended to only
------------
upon appropriate application to the office of the Building by an authorized
individual. Employees of Landlord shall not perform any work or do anything
outside of their regular duties unless under special instructions from Landlord,
and no employee of Landlord will admit any person (Tenant or otherwise) to any
office without specific instructions from Landlord.
27. Landlord Control. Landlord reserves the right to exclude or expel
----------------
from the Building any person who, in Landlord's judgment, is intoxicated or
under the influence of liquor or drugs or who is in violation of any rules and
regulations of the Building. Landlord shall have the right to control and
operate the public portions of the Building, the public facilities, the heating
and air conditioning, and any other facilities furnished for the common use of
Tenants, in such manner as is customary for comparable buildings in the City of
San Francisco. Landlord reserves the right to make such other and reasonable
rules and regulations as in its judgment may from time to time be needed for
safety and security, for care and cleanliness of the building and for the
preservation of good order therein. Tenant agrees to abide by all such rules and
regulations hereinabove stated and any additional rules and regulations which
are adopted.
28. Lease Agreement. These Rules and Regulations are in addition to,
---------------
and shall not be construed to in any way modify or amend, in whole or in part,
the terms, covenants, agreements and conditions of any lease of premises in the
Building.
29 Building. The word "Building" as used herein means the Building of
--------
which the Premises are a part.
30. Tenant Responsibility. Tenant shall be responsible for the observance
---------------------
of all of the foregoing rules by Tenant's employees, agents, clients, customers,
invitees and guests.
31. Elevator Use. See Exhibit D- 1.
------------
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<PAGE>
EXHIBIT D-1
ELEVATOR USE
[Note: For Presentation Purposes Only. Needs to be modified where necessary.]
CONDITIONS
- ----------
1. Elevator use is subject to availability, scheduling and approval of Building
Staff.
2. Elevator(s) provided only in Dedicated Run (Independent Run/Move mode) as
follows:
Weeknights: 6:00 p.m. to 5:30 a.m.
Weekdays: 5:30 a.m. to 6:30 a.m. (small move slot)
Weekends: 6:00 a.m. on Friday through 5:30 a.m. on Monday
Holidays: Contact Building Staff for use times
3. Dedicated Run Elevator USC limited 10 Freight Elevator, unless otherwise
arranged, scheduled, and approved by Building Staff.
4. Elevators only provided in Dedicated Run to Movers and Contractors (with
valid Certificate of Insurance) and Building Staff.
5. Masonite protection required on elevator floor (Contractors: also around
interior walls) during moves. Contact Building Management for details prior
to each move.
6. Applying to involved Elevator(s): Cardboard protection folded and MASKING
taped (only) around edges of elevator entrance frames on move floor(s)
involved. Cardboard (to span height of no less than 6 feet.
7. Elevator use may be cancelled at any time, without notice or reason, by the
Building Staff.
8. Dedicated Run Elevator Use way be provided to only one entity (Mover or
Contractor) at a time, regardless of circumstances.
FRIGHT ELEVATOR DIMENSIONS:
- --------------------------
Interior Width (left to right when facing rear wall of (elevator): ________
--------------
inches wide.
Interior Death Excluding Elevator Door Indentation (front right or left
--------------------------------------------------
corner of rear or left corner): 64 inches deep.
Width of Elevator Entrance/Doors: _____ inches tall.
--------------------------------
Height of Elevator Interior: _____ inches tall.
---------------------------
HEIGHT OF ELEVATOR ENTRANCE (from Outside Facing Entrance):
- ---------------------------
______ feet _____ inches or ______ inches tall.
PROHIBITED:
- ----------
1. Loading/stacking materials/articles into elevator while elevator is in Normal
Mode.
2. Use of STOP Emergency alarm button in non-emergencies.
3. Holding, jamming, propping, blocking, obstructing or impeding of elevator
entrances and doors.
4. Use/providing of keys for operation of elevator(s).
5. Tampering with elevator controls, locks, etc.
<PAGE>
EXHIBIT 10.6
LEASE
-----
TOWNSEND ASSOCIATES, LLC LESSOR
NETCENTIVES INC. LESSEE
<PAGE>
EXHIBIT 10.6
LEASE
-----
TOWNSEND ASSOCIATES, LLC LESSOR
NETCENTIVES INC. LESSEE
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C>
1. PARTIES............................................ 1
2. PREMISES........................................... 1
3. TERM............................................... 1
4. POSSESSION......................................... 1
5. RENTAL............................................. 1
6. LATE CHARGES....................................... 2
7. SECURITY DEPOSIT................................... 2
8. SERVICES........................................... 3
9. INSURANCE.......................................... 3
10. TAX INCREASES...................................... 4
11. MAINTENANCE AND REPAIRS............................ 5
12. SIGNS.............................................. 6
13. USE................................................ 7
14. ENTRY BY LESSOR.................................... 7
15. PARKING............................................ 8
16. CONDITION OF PREMISES.............................. 8
17. COMPLIANCE WITH LAW................................ 9
18. DESTRUCTION OF PREMISES............................ 9
19. ASSIGNMENT AND SUBLETTING.......................... 10
20. SURRENDER OF LEASE................................. 11
21. DEFAULT............................................ 11
22. INSOLVENCY OR BANKRUPTCY........................... 12
23. ALTERATIONS........................................ 12
24. INDEMNIFICATION OF LESSOR.......................... 12
25. WAIVER OF CLAIMS AND LIMITATION OF LIABILITY....... 13
26. WAIVER OF TERMS.................................... 14
27. HOLDING OVER....................................... 14
28. ESTOPPEL CERTIFICATE............................... 14
29. TRANSFER OF LESSOR'S INTEREST...................... 15
30. CONDEMNATION....................................... 15
31. SUBORDINATION...................................... 15
32. SECURITY........................................... 16
33. ATTORNEYS' FEES.................................... 16
34. NOTICES............................................ 16
35. LIENS.............................................. 16
36. RECORDATION........................................ 16
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
37. LOADING DOCK....................................... 17
38. RULES AND REGULATIONS.............................. 17
39. QUIET ENJOYMENT.................................... 17
40. RIGHT OF FIRST OFFER............................... 17
41. CORPORATE RESOLUTION AND FINANCIAL STATEMENT....... 17
42. GENERAL PROVISIONS................................. 18
</TABLE>
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<PAGE>
LEASE
PARTIES
1. This Lease is made this 14th day of August, 1997 by TOWNSEND
ASSOCIATES, LLC, a California Limited Liability Company, hereinafter referred to
as "Lessor" and NETCENTIVES INC., a California Corporation, hereinafter
"Lessee".
PREMISES
2. Lessor hereby leases to Lessee and Lessee hereby leases from Lessor
for the term at the rental, and upon all of the conditions set forth herein,
that certain commercial building consisting of approximately 12,446 square feet
situated at 690 - 5th Street, San Francisco, California, hereinafter referred to
as the "Premises." Diagrammatic floor plans of the Premises are attached hereto
as Exhibit "A" and incorporated herein by reference.
TERM
3. This Lease is for a term ("The Term"') commencing two weeks from the
date Lessor delivers possession of the premises to Lessee ("The Commencement
Date") and ending on the last day of the 36th month after the Commencement Date.
Lessee shall have the option to extend this lease upon the same terms and
conditions (except for rent and except that the base tax year shall be 2000 -
2001) for an additional three year period commencing on the first day of the
month following the end of the initial term. Lessee shall exercise its option
by giving notice to Lessor on or before April 1, 2000.
POSSESSION
4. The premises are presently occupied by American online to a lease and
sublease which terminates August 31, 1997. In the event American Online
surrenders possession to Lessor prior to August 31, Lessor will deliver
possession to Lessee as soon as possible to permit Lessee to begin its
improvements. Prior to taking possession of the premises, Lessee shall deliver
to Lessor, certificates of insurance as required by Paragraph 9 hereof. In the
event Lessor is unable to deliver possession by September 30, 1997, this Lease
shall be voidable at the option of Lessee, written notice of which shall be
given to Lessor on or before October 15, 1997; however Lessor shall not be
liable to Lessee for any loss or damage resulting therefrom.
RENTAL
5. All rent is payable in advance and is due on the first day of each
calendar month, without deduction or offset (except as set forth in Paragraph
16) at the address specified by Lessor. Partial months, whether at the
commencement or termination of the Term, shall be prorated on a thirty (30) day
basis.
Commencing on the Commencement Date, Lessee shall pay to Lessor an Initial
Monthly Rent in the amount of $23,149.56. The first full months rent shall be
payable upon execution of
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<PAGE>
this lease. Rent for any partial month after the Commencement Date shall be
payable on the first day of the month following the Commencement Date.
The Initial Monthly Rent shall be subject to adjustment following the Lease
Commencement Date and annually thereafter as follows: Commencing on the first
day of the month following 12 calendar months from the Commencement Date the
monthly rent shall be increased to $23,771.86 and on the first day of the month
following 24 calendar months from the commencement date it shall be increased to
$24,414.90.
The monthly rent for the initial term has been calculated on the
presumption that Lessor will pay Lessee an improvement allowance in the sum of
$149,352.00 pursuant to Paragraph 16 hereof. Included in the monthly rent is
Lessee's repayment of one half of the allowance amortized over 3 years at a rate
of 10%.
In the event Lessee exercises its option, rent shall be as follows:
Beginning on the first day of the month following the end of the initial term,
$23,108.07 per month, on the first day of the thirteenth month of the option
term, $24,259.33 per month, and on the first day of the twenty-fifth month of
the option term, $25,472.81 per month.
LATE CHARGES
6. Monthly Rent shall be due and payable on the first day of each month
during the Term of this Lease. Lessee acknowledges that late payment by Lessee
to Lessor of Monthly Rent will cause Lessor to incur costs not contemplated by
this lease, the exact amount of such costs being extremely difficult and
impracticable to fix. Such costs include, without limitation, processing and
accounting charges, and late charges that may be imposed on Lessor by the terms
of any encumbrance and note secured by the Premises. Therefore, if any
installment of rent due from Lessee is not received by Lessor on or before the
tenth day of the month, Lessee shall pay to Lessor an additional sum of five
percent (5%) of the Monthly Rent as a late charge. No late charge shall accrue
if Lessee pays the delinquent amount within ten (10) days after receipt from
Lessor of written notice of non-payment, provided that in no event shall Lessor
be obligated to give more than one ten day notice of late payment to Lessee
during any lease year.
The parties agree that this late charge represents a fair and reasonable
estimate of the costs that Lessor will incur by reason of late payment by
Lessee. Acceptance of any late charge or late rent shall not constitute a
waiver of Lessee's default with respect to the overdue amount, nor prevent
Lessor from exercising any of the other rights and remedies available to Lessor.
SECURITY DEPOSIT
7. Upon completion of Lessee's improvements pursuant to Paragraph 16,
Lessee shall pay Lessor $46,299.12 which Lessor is to retain as security for the
faithful performance of all of the covenants, conditions and agreements of
Lessee under the Lease. In no event shall Lessor be obligated during the Term
to apply all or any part of the same towards rents or other charges or for
damages upon Lessee's failure to perform any of the covenants, conditions and
agreements of the Lease. On October 15, 1997 Lessee shall pay Lessor the sum of
$23,149.56 as
-2-
<PAGE>
additional security for performance under this lease. On October 1, 1998,
provided Lessee has faithfully performed its obligations under this Lease,
Lessor shall return to Lessee a portion of the deposit in the sum of $23,149.56.
Upon continued faithful performance, Lessor shall return the further sum of
$23,149.00 on October 1, 1999.
The security deposit, to the extent not used by Lessor, shall be returned
to Lessee (without interest for the period said moneys were held by Lessor)
after the Lessor received possession of the Premises or Lessor shall notify
Lessee of its disposition. Lessor's obligations with respect to the security
deposit are those of a debtor and not a trustee.
In the event that during the Term Lessor uses all or any portion of such
security deposit to remedy any default of Lessee, Lessee agrees to redeposit the
amount so used or applied within ten (10) days from the date of Lessor's demand
therefore.
SERVICES
8. (a) Except as provided below, Lessee agrees to pay for utilities
furnished to the Premises during the Term, including but not limited to
electricity, gas, water, garbage, telephone service, janitorial service or any
other services contracted for by Lessee.
(b) Lessee shall provide and maintain fire extinguishers in such
numbers and locations specified by the insurance underwriters, the San Francisco
Fire department, and all applicable governmental regulations.
INSURANCE
9.1 (a) Lessee, at Lessee's sole expense, shall obtain, update and keep
in force during the Tern all-risk insurance policies providing the following
coverage:
(1) Standard fire insurance, with extended coverage, covering
all of Lessee's fixtures, furniture, equipment, inventory, goods and other
personal property on the Premises and also covering Lessee's leasehold
improvements and alterations, to the extent of at least eighty percent (80%) of
the replacement value thereof;
(2) Commercial public liability and property damage insurance
insuring against all claims, accidents injuries and damages or bodily injury to,
and death of, persons, and for loss of, or damage to, property, arising out of
the use, occupancy or maintenance of the Premises by Lessee, its employees,
agents, representatives and invitees. Such insurance shall have liability limits
of (i) not less than $500,000 per occurrence for bodily injuries or death and
(ii) not less than $500,000 per occurrence for property damage.
(b) Policies or confirmation thereof, of insurance provided for
herein shall be delivered to Lessor prior to the Lease Commencement Date and
shall (i) be approved as to form and substance by Lessor, which approval shall
not be unreasonably withheld, (ii) be issued by insurance companies which are
qualified to do business in the State of California and which are rated A-VIII
or better in the most currently available "Best's Insurance Reports," (iii) be
issued
-3-
<PAGE>
in the name of Lessee and Lessor shall be named an additional insured for the
mutual and joint benefit and protection of Lessor and Lessee as their interests
may appear, provided, however, that Lessee's interest in any proceeds of a fire
insurance or casualty policy shall be subordinate to Lessor's to the extent that
any funds advanced by Lessor for Tenant Improvements shall not be fully repaid,
(iv) give Lessor thirty (30) days' prior written notice of any cancellation or
lapse or any reduction in the amounts of insurance, and (v) contain an
endorsement containing an express waiver of any right of subrogation by the
insurance company against Lessor (whether Lessor is named as an insured or not).
All public liability, property damage and other casualty policies provided for
herein shall (i) contain a provision that Lessor, although named as an
additional insured, shall nevertheless be entitled to recover under said
policies for any loss occasioned to Lessor or to Lessor's employees, agents,
invitees, or representatives or to Lessor's property by reason of the negligence
of Lessee or Lessee's employees, agents or representatives, and (ii) be written
as primary policies, not contributing to, or in excess of, coverage which Lessor
may carry.
(c) Executed copies of such policies of insurance or certificates
thereof shall be delivered to Lessor within ten (10) days after delivery of
possession of the Premises to Lessee and thereafter renewal notices at least
fifteen (15) days prior to the expiration of the term of such policy. If not so
delivered, Lessor may, but shall not be required to, order such insurance and
charge the cost thereof to Lessee, which amount shall be payable on demand.
(d) No more than once every two years during the term hereof, Lessor
may require that Lessee increase the limits of its public liability insurance to
such limits as Lessor shall deem reasonably necessary.
9.2 Lessor shall obtain and keep in force during the term hereof a policy
or policies of insurance covering loss or damage to Lessor's buildings,
providing protection against all perils included within the classification of
fire, extended coverage, vandalism, and malicious mischief, such insurance to be
in an amount of at least eighty percent of the replacement cost of Lessor's
buildings, and to contain an agreed amount endorsement. Lessor shall also
maintain commercial public liability insurance.
9.3 Any insurance carried by either party with respect to the premises and
property or occurrences relating to them shall include a clause or endorsement
denying to the insurer rights of subrogation against the other party to the
extent rights have been waived by the insured prior to occurrence of injury or
loss. Each party, notwithstanding any provisions of this lease to the contrary,
waives any right of recovery against the other for injury or loss due to hazards
covered by insurance containing such clause or endorsement to the extent that
the injury or loss is covered by such insurance.
TAX INCREASES
10. In the event there is any increase during any year of the Term in the
municipal, state or county real estate taxes or assessments, general or special,
on the land and Building containing the Premises over and above the amount of
such taxes assessed for the tax year 1997-1998 whether because of increased or
added rates, taxes, or assessments or increased valuation,
-4-
<PAGE>
the Lessee shall pay to the Lessor annually during the Lease term upon notice
the total increase in taxes upon the whole of the land and Building. To the
extent assessments are payable in installments, Lessee's share of any increase
in assessments shall be calculated at the installment rate. Lessor agrees that
the base for the tax year 1997-1998 shall include the increase from the 1996-
1997 tax year caused by Lessee's purchase of the property in November, 1996.
Lessee shall be solely responsible for any increase taxes caused by an
increase in assessed valuation due to work done, construction improvements made
or equipment installed by, Lessee in the Premises at any time during the Term.
The amount of Lessee's obligation under this paragraph for the last year of
the Term shall be prorated in the proportion that the period this Lease is in
effect during the tax year in which this Lease terminates bears to the full tax
year.
Lessee shall also pay, before delinquency any and all taxes levied or
assessed and which become payable, during the Term upon Lessee's equipment,
furniture, fixtures and other personal property located in the Premises. In
addition to rental and other charges to be paid by Lessee hereunder, Lessee
shall reimburse to Lessor, upon demand, any and all taxes, assessments or
special assessments payable by Lessor (other than net income, inheritance,
franchise, and transfer taxes) whether or not now customary or within the
contemplation of the parties hereto; (a) upon, allocable to, or measured by or
on the same percentage as the square foot area of the Premises bears to the
square foot area of the entire Building (excluding the Parking Lot) including,
without limitation, any gross income tax or excise tax levied by the State, any
political subdivision thereof, or Federal Government with respect to the receipt
of such rental; or (b) upon, or with respect to, the possession, leasing,
operation, management, maintenance, alteration, repair, use of occupancy by
Lessee of the Premises or any portion thereof; or (c) upon or measured by the
value of Lessee's equipment, furniture, fixtures and other personal property
located in the Premises or by the cost or value of any leasehold improvements
located in the Premises; or (d) upon this transaction or any document to which
Lessee if a party creating or transferring an interest or an estate in the
Premises.
Lessee shall pay annually on each anniversary of the Lease any increase in
the sewer tax or charge over such taxes or charges for the First Lease Year.
The amounts due hereunder shall be paid by Lessee on the first day of the
month following two weeks' written notice to Lessee. Lessor shall furnish
copies of the tax bill for the year in question at Lessee's request.
MAINTENANCE AND REPAIRS
11. (a) Except as provided in paragraphs 18 and 30 hereunder, Lessor
shall, at Lessor's sole cost and expense, keep and maintain, in good condition,
the structural parts of the Building in which the Premises are located. As used
herein, "structural parts" include only the foundations, bearing and exterior
walls (excluding glass and doors), sub-flooring and roof and the unexposed
plumbing, electrical, sprinkler, and sewage systems servicing the Premises.
Notwithstanding any of the above, Lessee shall be liable for any damage to the
structural parts or
-5-
<PAGE>
other parts of the Building which are caused by, or result from the acts or
omissions of Lessee, its authorized agents, or representatives or employees or
invitees, to the extent not covered by insurance carried by the parties.
Further, Lessee shall be responsible for any repairs to any systems servicing
the premises where such repairs are necessitated by improvements made by Lessee.
(b) Subject to Paragraphs 11(a) and 18 hereof, and subject to the
following sentence, Lessee shall, at Lessee's sole cost and expense, keep and
maintain the Premises, and all improvements in said Premises in good condition
and repair. Subject to Paragraph 11(a), Lessor shall have no responsibility to
maintain or repair the Premises unless any damage to said Premises are caused by
(i) acts or omissions of the Lessor, or its authorized agents, representatives
or employees, or (ii) Lessor's negligent failure to perform its obligations
above stated.
In the event Lessee, contrary to its obligations hereunder, fails to
maintain and repair the Premises or fails to commence appropriate work following
ten (10) days, Lessor may, at Lessor's option, cause the maintenance and repairs
to be made and Lessee shall pay to Lessor the total cost thereof within ten (10)
days of Lessor's written demand for said payment. Lessor may, at its
discretion, determine that a particular needed repair constitutes an emergency.
If Lessor determines that a repair is an emergency, Lessor shall make reasonable
efforts to notify Lessee of said emergency condition and request immediate
repairs. In the event that Lessor is unable to contact Lessee or Lessee fails
to make said emergency repairs immediately upon the request of Lessor, Lessor
may, in its discretion, cause said emergency repairs to be made and, provided
Lessee is otherwise obligated hereunder, Lessee shall pay to Lessor the cost of
said repairs within ten (10) days' written notice thereof. Nothing contained in
this subparagraph shall be construed to impose upon Lessor any obligation to
make any emergency or non-emergency maintenance or repairs to said Premises.
SIGNS
12. Lessee agrees that Lessee will not, without Lessor's consent,
construct or place, or permit to be constructed or placed, signs, displays,
advertisements, awnings, marquees, or other items on the exterior of the
Premises, nor on the interior of the windows. Any signs, displays,
advertisements, or decorations placed by Lessee without Lessor's prior written
consent within ten (10) days after receiving written notice from Lessor to
remove same, Lessor reserves the right to enter the Premises and remove them at
Lessee's expense.
Any approved sign provided for or allowed herein to be installed by Lessee
shall, unless otherwise agreed, be removed at the expiration or earlier
termination of the Lease at Lessee's expense and Lessee shall repair any damage
caused to the Premises resulting from such removal. If Lessee fails to do so,
Lessor may cause such removal and repair on Lessee's behalf, at Lessee's
expense.
-6-
<PAGE>
USE
13. Lessee shall use the Premises for general offices, and shall not use
or permit the Premises to be used for any other purpose without the prior
written consent of Lessor.
Lessee shall not do, or permit anything to be done, in or about the
Premises therein which will in any way increase the existing rate of, or affect
any fire or other, insurance coverage upon the Building or its contents, or
cause cancellation of any insurance policy covering said Building or any part
thereof or its contents. Lessee shall not do, or permit anything to be done in
or about the Premises, including common areas, which will in any way obstruct or
interfere with the rights of other Lessees or occupants of the Building or
injure or annoy them or use or allow the Premises to be used for any improper,
immoral, unlawful or objectionable purpose. Lessee shall not cause, maintain or
permit any nuisance or waste in, on or about the Premises.
Lessee shall not use the Premises, or permit them to be used, for any
auction, fire, liquidation, or bankruptcy sale.
In the event of the Lessee's failure to comply with any provision in this
paragraph, Lessor, at its option, may treat such failure as a breach of this
Lease or require that Lessee pay for any increase in the rate of any insurance,
or for any other damages, resulting from said failure to comply.
ENTRY BY LESSOR
14. Upon reasonable notice, Lessee will permit Lessor and his agents to
enter into the Lessee at all reasonable times to inspect them and to maintain
the Building in which the Premises are situated, or to make repairs,
alterations, or additions to any other portion of said Building. This entry
shall be without any rebate of rent to the Lessee for any loss of occupancy or
quiet enjoyment of the Premises thereby occasioned. The work to be performed by
Lessor shall include the right to penetrate walls, floor and ceilings of the
Premises if necessary for improvements or alterations or areas outside of the
Premises. Lessor shall use reasonable efforts to confine such activities within
the demising walls. If, however, it is impractical to confine such alterations
to the demising walls, Lessor may invade the demised Premises to accomplish such
work without abatement of rent to long as there is a reduction of no more than
2-1/2 square feet of floor area from the demised Premises. Such installations
shall be concealed and made as inconspicuous as reasonably possible. Such
penetrations shall be diligently and promptly repaired to its previous
appearance and condition and shall not materially or unreasonably affect or
interrupt the Lessee's conduct of business. Such installations shall be made in
a workmanlike manner during normal business days and hours observed by local
trades or crafts involved in such work and with minimum disruption of the
Premises of Lessee.
Upon reasonable notice to Lessee, Lessor may also have access to said
Premises to exhibit them during reasonable hours to prospective purchasers at
anytime during the lease to show prospective tenants during the last 90 days of
the lease. Lessor reserves the right to place "For Sale" of Building (not
business) signs on the Premises at any time during the Lease, or "For
-7-
<PAGE>
Lease or "For Rent" signs on the premises at any time within ninety (90) days of
the expiration of the Lease.
PARKING
15 Lessee shall have the right to lease 8 parking stalls on Lessor's
property, as shown on Exhibit "A" attached hereto for the current rate of
$100.00 per month per stall. Such parking stalls shall be marked for the
exclusive use of Lessee. Lessor shall have the right to increase the rate per
stall from time to time to a rate not more than the rate then being paid by
holders of 70% of the stalls. Lessor shall maintain the parking area in good
condition.
CONDITION OF PREMISES
16. By entry hereunder, Lessee accepts the Premises as being in good and
sanitary order, condition and repair, except that Lessee shall have 30 days from
delivery of the premises to present Lessor with a punch list of items not
covered by Lessee's improvement allowance as detailed below. Lessor shall
arrange to cure the punch list items within 30 days of receipt of the list.
Lessee agrees on the last day of the Term, or sooner termination of this Lease,
to surrender to Lessor the Premises in the same condition and state as when
received, reasonable use and wear, Lessor's maintenance and repair obligations
and casualty losses excepted, and to remove all of the Lessee's signs from said
Premises however, Lessee shall have no obligation to remove tenant improvements
made at or near the beginning of the Term. Lessor shall deliver the HVAC
systems, and the existing electrical service to Lessee in good working order at
the beginning of the term. Provided Lessee performs any recommended routine
maintenance, Lessor warrants the HVAC for ordinary use for the first year of the
term. Throughout the term and any option period, Lessee shall maintain the HVAC
system in good working order.
Upon Lessee taking possession of the premises, Lessor agrees to provide
Lessee an allowance not to exceed $149,352.00 for Lessee to do the following
improvements to the premises: Painting, new carpeting, computer and telephone
cabling, a card-key entry security system, and minor interior modifications
including architectural or engineering fees related thereto. Before performing
any modifications to the premises or installing a card-key entry system, Lessee
shall obtain Lessor's consent pursuant to Paragraph 23. Lessor shall pay the
allowance to Lessee in progress payments not more than every fifteen days upon
Lessee presenting Lessor with invoices for completed work. Should Lessor fault
to pay any portion of the allowance presented to Lessor pursuant to this
paragraph, Lessee, in this instance only, may offset such payment against rent.
Further, should Lessor fault to timely pay an amount payable hereunder, Lessor
shall pay to Lessee a late charge equal to five percent (5%) of such delinquent
amount.
Prior to executing this Lease, Lessor has provided Lessee the opportunity
to inspect at Lessor's office all structural and hazardous material reports in
Lessor's possession that relate to the premises.
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COMPLIANCE WITH LAW
17. Lessee shall not use, nor permit anything to be done in or about the
Premises which will in any way conflict with any law, statute, ordinance or
governmental rule or regulation now in force or hereafter be enacted or
promulgated Lessee shall, at its sole cost and expense, promptly comply with all
laws, statutes, ordinances and governmental rules, regulations and requirements
now or hereafter in force, and with the requirements of any board of fire
insurance underwriters or other similar bodies now or hereafter constituted,
relating to, or affecting the condition, use of occupancy of the Premises,
excluding structural changes. The judgment of any court of competent
jurisdiction or the admission of Lessee in any action against Lessee, whether
Lessor be a party thereto or not, that Lessee has violated any law, statute,
ordinance or governmental rule, regulation or requirement, shall be conclusive
of that fact as between the Lessor and Lessee.
Anything herein to the contrary notwithstanding: (i) Lessor shall bear the
responsibility for compliance under applicable building codes, Title 24, the
Americans with Disabilities Act and any other law, statute or ordinance
requiring structural alterations, additions or improvements, even if such
compliance is required on account of improvements made to the premises by
Lessee; and (ii) Lessor shall bear responsibility for complying with all
environmental hazardous materials laws, statutes, ordinances and regulations,
pertaining to or affecting the Premises, except to the extent arising from
hazardous materials brought onto the Premises by Lessee.
DESTRUCTION OF PREMISES
18. In the event of a partial destruction of said Premises during the
Term, from an insured cause, Lessor shall forthwith repair the Premises provided
such repairs, in Lessor's reasonable opinion can be completed within one hundred
eighty (180) days, such to be made in accordance with the laws and regulations
of State, Federal, County or Municipal authorities. In the event of a partial
destruction of the Premises from an insured cause, Lessor shall forthwith repair
the Premises provided the cost of such repair does not exceed five percent (5%)
of the replacement cost of the building, such repairs to be made in accordance
with the laws and regulations of State, Federal, County or Municipal
authorities. Such partial destruction shall in no way annul or void this Lease,
except that Lessee shall be entitled to a reduction of rent while such repairs
are being made, in proportion to the square footage of the Premises which is
rendered unusable by Lessee in the conduct of its business.
If such areas, in Lessor's sole opinion, cannot be completed in one hundred
eighty (180) days or, if such partial destruction results from an uninsured
cause in an amount more than 5% of the replacement cost of the building, Lessor
may, at his option repair the same within a reasonable time, this Lease
continuing in full force and effect and the rent to be proportionately reduced
as said in the preceding paragraph.
In the event that Lessor determines that such partial destruction cannot be
repaired in one hundred eighty (180) days or if such partial destruction results
from an uninsured cause in an amount more than 5% of the replacement cost of the
building, and Lessor elects not to make such
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repairs, this Lease may be terminated at the option of either party. A total
destruction of the Building in which the Premises may be situated shall
terminate this Lease.
If Lessor is required or elects to restore the Premises as provided in this
paragraph, Lessor shall not be required to restore alterations made by Lessee
including Lessee's Initial Tenant Improvements or Lessee's personal property,
such items being the sole responsibility of Lessee to restore at Lessee's sole
cost and expense.
As soon as possible following any casualty loss, Lessor shall notify Lessee
in writing of the amount of time required to complete repairs; anything in this
Lease to the contrary notwithstanding, Lessee may elect to terminate the Lease
if repairs will not be completed within one hundred eight (180) days from the
date of the loss by notifying Lessor in writing of such election within thirty
(30) days after receipt of Lessor's notice.
Lessee hereby waives any rights it may have to terminate this Lease
pursuant to California Civil Code Sections 1932(2) and 1933(4), except as
provided hereunder.
ASSIGNMENT AND SUBLETTING
19. Lease shall not assign, mortgage or hypothecate this Lease, or any
interest in this Lease, or permit the use of the Premises by any person or
persons other than Lessee, or sublet the Premises, or any part of the Premises
without Lessor's prior written consent, which consent shall not be unreasonably
withheld or delayed. No consent of Lessor is required to a sublease to a
related company of Lessee in which Lessee holds an ownership interest of not
less than 30%. Lessee shall pay Lessor 50% of any sublease rents over the base
rent payable by Lessee to Lessor in excess of Lessee's expense of subletting.
Lessor's consent to any proposed assignment or subletting may take into
account the financial worth and stability and the business experience of any
proposed transferee.
A transfer of this Lease from Lessee to a) a corporation into which Lessee
is merged or consolidated or acquiring all of the property of Lessee and
assuming all of Lessee's liability and the net worth of said corporation is
equal or more than the net worth of Lessee at the time of commencement of this
Lease, or b) a subsidiary of Lessee in which Lessee owns greater than fifty
percent (50%) of the shares of such subsidiary, shall not constitute an
assignment or sublease for the purposes of this Lease and shall not require
Lessor's consent hereunder, however, Lessee agrees to give Lessor prompt written
notice of any such transfer.
Except as specified hereinabove, any attempted assignment or subletting
without Lessor's prior written consent shall be void. In the event Lessee does
not rescind a wrongful subletting or assignment within 30 days of Lessor's
notice, Lessor at its option may terminate this Lease. Consent by Lessor to any
assignment or subletting shall not release Lessee from its primary liability
under the Lease and Lessor's consent to one assignment, subletting or occupation
or use by other parties shall not be deemed a consent to other subleases or
assignments or occupation or use by other parties.
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Lessee immediately and irrevocably assigns to Lessor, as security for
Lessee's obligations under this Lease, all rent from any subletting of all or a
part of the Premises as permitted by this lease, and Lessor, as assignee, shall
be the attorney-in-fact for Lessee to collect such rent and apply it towards
Lessee's obligations under this Lease; except that, until the occurrence of an
act of default by Lessee beyond any cure period. Lessee shall have the right to
collect such rent.
SURRENDER OF LEASE
20. The voluntary or other surrender of this Lease by Lessee, or a mutual
cancellation thereof, shall not work a merger, and shall, at the option of
Lessor, terminate all or any existing subleases or subtenancies, or may, at the
option of Lessor, operate as an assignment to him of any or all such subleases
or subtenancies.
DEFAULT
21. The occurrence of any one or more of the following events shall
constitute a material default and breach of this Lease by Lessee:
(a) The failure by Lessee to make any payment of rent or any other
payment required to be made by Lessee hereunder, as and when due, where such
failure shall continue for a period of ten (10) days after written notice
thereof from Lessor to Lessee.
(b) The failure by Lessee to observe or perform any of the covenants,
conditions or provisions of this Lease to be observed or performed by Lessee,
other than described in paragraph (b) above, where such failure shall continue
for a period of twenty (20) days after written notice hereof from Lessor to
Lessee; provided, however, that if the nature of Lessee's default is such that
more than twenty (20) days are reasonably required for its cure, then Lessee
shall not be deemed to be in default if Lessee commenced such cure within said
twenty-day period and thereafter diligently pursues such cure to completion.
(c) In the event of any breach of this Lease by Lessee, then Lessor,
besides other rights and remedies he may have, shall have the immediate right of
re-entry and may remove all persons and property from the Premises. If the
Lessor's right of re-entry is exercised following abandonment of the Premises by
the Lessee, then Lessor may consider any personal property belonging to Lessee
and left on the Premises to also have been abandoned, in which case Lessor may
dispose of all such personal property in any manner consistent with the
California Civil Code.
(d) If Lessee breaches this Lease and abandons the Premises before
the end of the Term, or if Lessee's right to possession in terminated by Lessor
because of a breach of the Lease, then in either such case Lessor may recover
from Lessee all damages suffered by Lessor as the result of Lessee's failure to
perform his obligations hereunder, described in Civil Code Section 1951.2,
including, but not restricted to, the worth at the time of the aware (computed
in accordance with paragraph (3) of subdivision (a) of Section 1951.2 of the
California Civil Code) of the amount by which the rent then unpaid hereunder for
the balance of the Lease Term
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exceeds the amount of such rental loss for the same period which the Lessee
proves could be reasonably avoided by Lessor, and in such case, Lessor, prior to
the award, may relate the Premises for the purpose of mitigating damages
suffered by Lessor because of Lessee's failure to perform his obligations
hereunder, provided, however, that even though Lessee has abandoned the Premises
following such breach, this Lease shall nevertheless continue in full force and
effect for as long as the Lessor does not terminate Lessee's right of
possession, and until such termination, Lessor may enforce all his rights and
remedies under this Lease, including the right to recover the rent from Lessee
as it becomes due hereunder.
INSOLVENCY OR BANKRUPTCY
22. Either (a) the appointment of a receiver to take possession of all of
the assets of Lessee or (b) a general assignment by Lessee for the benefit of
creditors, or (c) any action taken or suffered by Lessee under any insolvency or
bankruptcy act shall constitute a breach of this Lease by Lessee. If Lessee
fails dismiss any proceeding permitting the happening of any such event within
90 days of its occurrence, this Lease shall terminate immediately upon written
notice of termination from Lessor to Lessee.
ALTERATIONS
23. Alterations shall not be made to the premises without the prior
written consent of Lessor which may not be unreasonably withheld or delayed.
Lessee shall provide to Lessor any proposed alterations in writing and, upon
approval by Lessor, said written description of alterations shall be attached to
this lease as an exhibit. In the event Lessee makes any alterations to the
Premises as provided in this paragraph, said alterations shall not be commenced
until ten (10) days after Lessor has received notice from Lessee stating the
date the installation of the alterations is to commence so that Lessor can post
and record an appropriate notice of non-responsibility.
Any alterations made shall remain on and be surrender with the Premises on
expiration or earlier termination of the Term except that Lessor can elect at
the time Lessor's consent to such alterations is granted to require Lessee to
remove any alterations that Lessee has made to the Premises, other than those
alterations, additions or improvements made at or near the beginning of the
Term. If Lessor so elects, Lessee, at its sole cost and expense, shall restore
the Premises to the condition and state it was in prior to said alterations.
Lessee's movable furniture and trade fixtures shall not become part of the
reality and shall not belong to Lessor in any event.
INDEMNIFICATION OF LESSOR
24. Lessee shall indemnify, defend, protect and hold harmless Lessor from
and against any and all claims arising from Lessee's use of the Premises or the
conduct of its business or from any activity, work, or thing done, permitted or
suffered by the Lessee in or about the Premises, and shall further indemnify and
hold harmless Lessor against and from any and all claims arising from any breach
of default in the perform of any obligation on Lessee's part to be performed
under the terms of this Lease, or arising from any act, neglect, fault or
omission of the Lessee, or of its agents or employees, and from and against all
costs, attorneys'
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fees, expenses and liabilities incurred in, connected with, or about such
claims, actions or proceedings brought as a result. In case any action or
proceeding be brought against Lessor by reason of such claim, Lessee, upon
notice from Lessor, shall defend the same at Lessee's expense by counsel
reasonably satisfactory to Lessor. In the same manner Lessor shall indemnify,
defend, and hold Lessee harmless from any and all claims arising from any breach
or default in the performance of Lessor's obligations under this lease, and/or
from Lessor's negligence.
The obligation of Lessee under this section arising by reason of any
occurrence taking place during the term of this Lease shall survive the
expiration on any termination of this Lease.
WAIVER OF CLAIMS AND LIMITATION OF LIABILITY
25. (a) Lessee, as a material part of the consideration to be rendered to
Lessor, hereby assumes all risk of damage to the Premises or injury to persons
in or about the Premises and waives all claims against Lessor for damages to
goods, wares and merchandise, in, upon or about the Premises and for injury to
Lessee, its agents, employees, invitees, or third persons on or about the
Premises from any cause excepting causes arising by reason of the intentional
acts or gross negligence of Lessor, its agents or employees.
(b) If Lessor is in default of this Lease, and as a consequence,
Lessee recovers a money judgment against Lessor, the judgment shall be satisfied
only out of the proceeds of sale received on execution of the judgment and levy
against the right, title and interest of Lessor of Lessor in the Building of
which the Demised Premises are a part, and out of rent or other income from such
Building receivable by Lessor or out of the consideration received by Lessor
from the sale or other disposition of all or any part of Lessor's right, title
and interest in the Building.
(c) Lessor shall not be personally liable for any deficiency, and if
Lessor (or a successor Lessor against which action is brought) is a partnership,
the partners of Lessor shall be sued or named as a party in any suit or action
or service of process be made against any partner of Lessor except as may be
necessary to secure jurisdiction of the partnership. No partner of Lessor shall
be required to answer or otherwise plead to any service of process and no
judgment will be taken or writ of execution levied against any partner of
Lessor.
(d) Notwithstanding the foregoing, if Lessee holds an unpaid final
judgment, Lessee may take action as otherwise permitted under law to recover
that portion of load proceeds from any loan entered into by Lessor after that
date Lessee first filed the action which resulted in Lessee obtaining judgment
against Lessor to the extent that the loan proceeds from such loan caused
encumbrances against the Building to exceed eighty percent (80%) of the
appraised value of such Building as such Building was appraised at time of the
loan. Further, nothing contained within this paragraph 25 shall permit Lessor
to make distribution of its rentals or other cash proceeds to its partners or
share holders (if any) at any date after Lessee's judgment has become final, no
appeal being then pending and time for further appeal having passed unless and
until the judgment owed to Lessee shall have been paid in full and nothing
herein shall prevent Lessee from taking such actions as may be permitted under
law or in equity to recover any funds so disbursed by Lessor in violation of the
provisions of this section.
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WAIVER OF TERMS
26. The failure of Lessor to object to any breach of any term, covenant or
condition by Lessee shall not be deemed to be a waiver of such term, covenant or
condition. The subsequent acceptance of rent or other performance hereunder by
Lessor shall not be deemed to be a waiver of any preceding breach by Lessee of
any term, covenant or condition of this Lease, other than the failure of Lessee
to pay the particular rental so accepted, regardless of Landlord's knowledge of
such preceding breach at the time of acceptance of such rent.
HOLDING OVER
27. If Lessee should remain in possession of the Premises after the
expiration of the Lease term and without executing a new lease, then such
holding over shall be construed as a tenancy from month to month, subject to all
the conditions, provisions and obligations of this Lease insofar as the same are
applicable to a month-to-month tenancy, except that the minimum monthly rent
payable by Lessee to Lessor shall be 125% of the minimum monthly rent during the
last year of the Lease Term.
ESTOPPEL CERTIFICATE
28. (a) Lessee shall, within ten (10) days after written notice from
Lessor, execute, acknowledge and deliver to Lessor a statement in writing (i)
certifying that this Lease is unmodified and in full force and effect (or, if
modified, stating the nature of such modification and certifying that this
Lease, as so modified, is in full force and effect) and the date to which the
rent and other charges are paid in advance, if any, and (ii) acknowledging that
there are not, to Lessee's knowledge, any uncured defaults on the part of the
Lessor hereunder, or specifying such defaults if any are claimed. Any such
statement may be conclusively relied upon by any prospective purchaser or
encumbrancer of the Premises.
(b) Lessee's failure to deliver such statement within such time shall
be conclusive upon Lessee (i) that this Lease is in full force and effect,
without modification, except as may be represented by Lessor, (ii) that there
are no uncured defaults in Lessor's performance, and (iii) that not more than
one month's rent has been paid in advance or at Lessor's option be considered by
Lessor as a default by Lessee under this Lease.
(c) If Lessor desires to finance or refinance the Premises, or any
part thereof, Lessee hereby agrees to deliver to any lender designated by Lessor
such current financial statements of Lessee as may be reasonably required by
such lender. All such financial statements shall be received in confidence and
shall be used only for the purposes herein set forth.
TRANSFER OF LESSOR'S INTEREST
29. In the event of a sale or conveyance by Lessor of Lessor's interest in
the Premises, other than a transfer for security purposes only, provided that
the transferee agrees to be bound by the provisions of this Lease, Lessor shall
be relieved from and after the date specified in any
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such notice of transfer of all obligations and liabilities accruing thereafter
on the part of Lessor except the payment of the allowance due Lessee pursuant to
Paragraph 16. The Lessee's right of occupancy under this Lease shall not be
affected by any such sale, and Lessee agrees to attorn to the purchaser of
assignee.
CONDEMNATION
30. If any part of the Premises shall be taken or condemned for a public
or quasi-public use, and a part thereof remains which is susceptible of
occupation hereunder, this Lease shall, as to the part so taken, terminate as of
the date title shall vest in the condemnor, and the rent payable hereunder shall
be adjusted for the remainder of the Term in proportion to the number of square
feet remaining after the condemnation to the number of square feet in the entire
Premises at the date of condemnation. If the portion taken renders the premises
unsuitable for Lessees purposes, Lessee may terminate this Lease. In any event,
Lessor shall also have the option to terminate this Lease as of the date when
title to the part so condemned vests in the condemnor. If a part or all of the
Premises be taken or condemned, all compensation awarded upon such condemnation
or taking shall go to the Lessor and the Lessee shall have no claim thereto, and
the Lessee hereby irrevocably assigns and transfers to the Lessor any right to
compensation or damages to which the Lessee may be entitled during the term
hereof by reason of the condemnation of all, or part of the Premises. The
foregoing notwithstanding, Lessee shall be entitled to that portion of any ward
attributable to improvements made by Lessee, at Lessee's expense.
Each party waives the provisions of Code of Civil Procedure Section
1265.130 allowing either party to petition the superior court to terminate this
Lease in the event of a partial taking of the Premises for public use.
SUBORDINATION
31. This Lease, at Lessor's option, shall be subordinate to any ground
lease, mortgage, deed of trust, or any other hypothecation for security now or
hereafter placed upon the real property of which the Premises are a part and to
any and all advances made on the security thereof and to all renewals,
modifications, consolidations, replacements and extensions thereof. If any
mortgagee, trustee or ground Lessor shall elect to have this Lease prior to the
lien of its mortgage, deed of trust, or ground lease, and shall give written
notice thereof to Lessee, this Lease shall be deemed prior to such mortgage,
deed of trust, or ground lease, whether this Lease is dated prior or subsequent
to the date of said mortgage, deed of trust or ground lease or the date of
recording thereof. Notwithstanding the above, Lessees' Lease shall remain
undisturbed. Lessor shall obtain from all future ground Lessors, mortgagees and
lienholders, and shall use reasonable efforts to obtain from existing
groundLessors, mortgagees and lienholders, a non-disturbance agreement providing
that Lessee's rights and possession under this Lease shall not be affected or
disbursed as long as Lessee is not in default under this Lease beyond applicable
cure periods.
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SECURITY
32. Lessor shall have no obligation to provide policing or security to the
common areas, Parking Lot and Garage, Premises or the Building of which the
Premises are a part. Lessor shall not be responsible for loss or damage to
person or property for damages sustained by Lessee, its employees or business
invitees unless due to Lessor's negligence. Lessee shall provide security
protection within said Premises, at Lessee's option and at Lessee's sole expense
but not without first providing written notice to Lessor.
ATTORNEYS' FEES
33. In the event of any legal action or proceeding between the parties
hereto, reasonable attorneys' fees and expenses in any such addition or
proceeding shall be awarded to the prevailing party. Should Lessor be named as
a defendant in any suit brought against Lessee in connection with or arising out
of Lessee's occupancy hereunder, Lessee shall pay to Lessor Lessor's costs and
expenses incurred in such suit, including reasonable attorneys' fees.
NOTICES
34. Any notices or demands to be given hereunder shall be given to Lessor
at 520 Third Street, Suite 202, Oakland, CA 94607 and to Lessee at 690 Fifth
Street, San Francisco, California 94107. All notices or demands of any kind
required or desired to be given by Lessor to Lessee hereunder shall be in
writing and shall be deemed delivered forty-eight (48) hours after depositing
the notice or demand in the United States mail, certified or registered, postage
prepaid, or in the alternative, an express mail service which provides overnight
delivery and a receipt of delivery, addressed to the Lessor or Lessee,
respectively, at the addresses set forth in this paragraph.
LIENS
35. Lessee shall keep the Premises and the property in which the Premises
are situated, free from any liens arising out of any work performed, materials
furnished, or obligations incurred by Lessee. Lessee shall give ten (10) days
written notice to Lessor before commencing any alterations, repairs, or other
work, or taking any other action, which might give rise to any lien against the
Premises or property in which the Premises are situated, so as to give Lessor an
opportunity to post and record an appropriate notice of non-responsibility.
RECORDATION
36. Lessee shall not record this Lease or short form memorandum hereof
without the prior written consent of Lessor.
LOADING DOCK
37. (Omitted)
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RULES AND REGULATIONS
38. Lessee shall faithfully observe and comply with any Rules and
Regulations that Lessor shall from time to time promulgate. Lessor reserves the
right from time to make all reasonable modifications to said rules. The
additions and modifications to those rules shall be binding upon Lessee upon
delivery of a copy of them to Lessee. Lessor shall not be responsible to Lessee
for the nonperformance of any said rules by any other tenants or occupants.
QUIET ENJOYMENT
39. Lessor covenants and agrees with Lessee that upon Lessee paying rent
and other monetary sums due under the Lease, performing its covenants and
conditions under the Lease. Lessee shall and may peaceably and quietly have,
hold and enjoy the Premises for the term, subject, however, to the terms of the
Lease and any of the aforesaid ground leases, mortgages, or deed of trust
described above. Lessor will not be financially responsible for any damage
caused to Premises by other Building tenants.
RIGHT OF FIRST OFFER
40. In the event Business Resource Group vacates its 5,505 square foot
premises at 670 - 5th Street, Lessee shall have the right of first to lease such
premises under the same terms and conditions and at the same rent per square
foot as Lessee is then paying under this Lease, less any portion representing
repayment of Lessee's improvement allowance ($20.00 psf the first lease year,
$20.60 the second lease year and $21.22 the third lease year). If Lessee
exercises its right, it shall be entitled to five additional parking stalls at
the prevailing rate. Any lease for 670 - 5th Street would have the same option
and termination date as this lease. Lessor shall notify Lessee in writing when
such premises become available, and Lessee shall have ten (10) days after
receipt of such notice to elect to lease such premises under the terms described
above. Lessee's failure to notify Lessor within such ten (10) days shall be
deemed on election not to lease said premises.
CORPORATE RESOLUTION AND FINANCIAL STATEMENT
41. Concurrently with the execution of this Lease, Lessor shall be
furnished with a certified copy of a resolution adopted by the Board of
Directors of the corporate Lessee authorizing its execution of the within Lease,
if Lessee is a corporation.
Lessee agrees to provide Lessor with the current Corporate Financial
Statements of Lessee upon request by Lessor which Lessor shall keep confidential
except as its lender may require.
GENERAL PROVISIONS
42. (a) Whenever the singular number is used in this Lease and when
required by the context, the same shall include the plural, and the masculine
gender shall include the feminine and neuter genders, and word "person" shall
include corporation, firm or association. If
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there be more than one Lessee, the obligations imposed upon Lessee under this
Lease shall be joint and several.
(b) The headings or titles to paragraphs of this Lease are not part
of this Lease and shall have no effect upon the construction or interpretation
of any part of this Lease.
(c) This instrument contains all of the agreements and conditions
made between the parties of this Lease and may not be modified orally or in any
other manner than by agreement in writing signed by all parties to this Lease.
(d) Time is of the essence of each term and provision of this Lease.
(e) Except as otherwise expressly stated, each payment required to be
made by Lessee shall be in addition to and not in substitution for other
payments to be made by Lessee.
(f) The terms and provisions of this Lease shall be binding upon and
inure to the benefits of the heirs, executors, administrators, successors and
permitted assigns of Lessor and Lessee under this Lease.
(g) All covenants and agreements to be performed by Lessee under any
of the terms of this Lease shall be performed by Lessee at Lessee's sole cost
and expense and without any abatement of rent.
(h) The rights, powers, elections and remedies of the Lessor
contained in this Lease shall be construed as cumulative and none of them is or
shall be considered exclusive and none of them is or shall be considered
exclusive of any rights or remedies allowed by law, and the exercise of one or
more rights, powers, elections or remedies shall not impair Lessor's right to
exercise any other.
(i) All sums required to be paid by Tenant under this Lease shall
bear interest from the date due after any notice requirement until paid at the
greater of ten percent (10%) or the maximum rate an individual is permitted by
law to charge.
(j) If any term, covenant, condition or provision of this Lease held
by a court of competent jurisdiction to be invalid, void or unenforceable, the
remainder of the provisions shall remain in full force and effect and shall in
no way be affected, impaired or invalidated.
(k) Lessee acknowledges that it has had no contact or dealings
regarding this Lease with any licensed real estate broker or other party who can
claim a right to a commission or fee other than Terranomics and/or Mike McCormac
Realtors representing Lessor and The CAC Group representing Lessee. Lessor
agrees to pay The CAC Group a commission of $37,338.00 upon the rent
commencement date after execution of this Lease. In the event Lessee exercises
its right of first offer within 9 months of taking possession of the premises
under this lease, Lessor shall pay the CAC Group a commission of 50 cents psf
per year for not more than 3 years upon Lessee taking possession of the premises
subject to the first offer. Lessee agrees to indemnify, defend and hold
harmless Lessor from any cost, loss or expense, including attorneys'
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fees and court costs, resulting from any claim for a fee or commission from a
broker other than CAC claiming to represent Lessee.
(l) As used herein, rent shall mean all payments made pursuant to
this Lease, including, but not limited to, minimum monthly rent, prepaid rent,
security deposit, real property taxes and assessments, common area charges,
operating costs, parking fees, insurance, utilities and all other charges
payable by Lessee to Lessor.
(m) Wherever the consent of Lessor is required hereunder, such
consent shall not be unreasonably withheld.
IN WITNESS WHEREOF, the parties set their signature hereto as of the
date stated hereinbelow.
LESSOR:
TOWNSEND ASSOCIATES, LLC Dated: August 14, 1997
by TERRANOMICS, its Manager
By: /s/ Peter Morriss
-------------------
LESSEE:
NETCENTIVES INC.
By: /s/ Elliott S. Ng
-----------------
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<PAGE>
EXHIBIT 10.7
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
PARTIES................................................................................................. 1
PREMISES................................................................................................ 1
TERM.................................................................................................... 1
POSSESSION.............................................................................................. 1
RENTAL.................................................................................................. 1
LATE CHARGES............................................................................................ 2
SECURITY DEPOSIT........................................................................................ 2
SERVICES................................................................................................ 3
INSURANCE............................................................................................... 3
TAX INCREASES........................................................................................... 4
MAINTENANCE AND REPAIRS................................................................................. 5
SIGNS................................................................................................... 6
USE..................................................................................................... 7
ENTRY BY LESSOR......................................................................................... 7
PARKING................................................................................................. 8
CONDITION OF PREMISES................................................................................... 8
COMPLIANCE WITH LAW..................................................................................... 9
DESTRUCTION OF PREMISES................................................................................. 9
ASSIGNMENT AND SUBLETTING............................................................................... 10
SURRENDER OF LEASE...................................................................................... 11
DEFAULT................................................................................................. 11
INSOLVENCY OR BANKRUPTCY................................................................................ 12
ALTERATIONS............................................................................................. 12
INDEMNIFICATION OF LESSOR............................................................................... 13
WAIVER OF CLAIMS AND LIMITATION OF LIABILITY............................................................ 13
WAIVER OF TERMS......................................................................................... 14
HOLDING OVER............................................................................................ 14
ESTOPPEL CERTIFICATE.................................................................................... 14
TRANSFER OF LESSOR'S INTEREST........................................................................... 15
CONDEMNATION............................................................................................ 15
SUBORDINATION........................................................................................... 16
SECURITY................................................................................................ 16
ATTORNEYS' FEES......................................................................................... 16
NOTICES................................................................................................. 16
LIENS................................................................................................... 17
RECORDATION............................................................................................. 17
LOADING DOCK............................................................................................ 17
RULES AND REGULATIONS................................................................................... 17
QUIET ENJOYMENT......................................................................................... 17
CORPORATE RESOLUTION AND FINANCIAL STATEMENT............................................................ 17
GENERAL PROVISIONS...................................................................................... 18
</TABLE>
<PAGE>
LEASE
PARTIES
1. This Lease is made this 11th day of August, 1998 by TOWNSEND
ASSOCIATES, LLC, a California Limited Liability Company, hereinafter referred to
as "Lessor" and NETCENTIVES INC., a California Corporation, hereinafter
"Lessee."
PREMISES
2. Lessor hereby leases to Lessee and Lessee hereby leases from Lessor for
the term, at the rental, and upon all of the conditions set forth herein, that
certain commercial space consisting of approximately 5505 square feet situated
at 670 - 5th Street, San Francisco, California, hereinafter referred to as the
"Premises." Lessee's pro rata share of the leaseable square feet of the
Building (the "Building") wherein the Premises are located, which is 72,000
square feet is 7.6%. Diagrammatic floor plans of the Premises are attached
hereto as Exhibit "A" and incorporated herein by reference.
TERM
3. This Lease is for a term ("The Term") commencing on October 1, 1998
("The Commencement Date") and ending on May 31, 2001. Lessee shall have the
option to extend this lease upon the same terms and conditions (except for rent
and except that the base tax year shall be 2001-2002) for an additional three
year period commencing on the first day of the month following the end of the
initial term. Lessee shall exercise its option by giving notice to Lessor on or
before September 1, 2000.
POSSESSION
4. Lessor shall deliver possession of the Premises to Lessee upon the
Commencement Date. If Lessor is unable to deliver the Premises to Lessee by the
Commencement Date as a result of causes beyond its reasonable control, Lessor
shall not be liable for any damage caused for failing to deliver possession.
Lessee shall not be liable for rent until Lessor delivers possession of the
Premises to Lessee but the Term shall not be extended by the delay. Lessor
shall immediately terminate the tenancy of Office Furniture Solutions Inc.
(Business Resources Group) with regard to the Premises. Lessor shall use
diligent efforts, including pursuing unlawful detainer proceedings, to cause
Office Furniture Solutions Inc. (Business Resources Group) to vacate the
premises as soon as possible.
RENTAL
5. All rent is payable in advance and is due on the first day of each
calendar month, without deduction or offset (except as set forth in Paragraph
16) at the address specified by Lessor. Partial months, whether at the
commencement or termination of the Term, shall be prorated on a thirty (30) day
basis.
<PAGE>
Commencing on the Commencement Date, Lessee shall pay to Lessor an Initial
Monthly Rent in the amount of $10,240.00. The first full months rent shall be
payable upon execution of this lease. Rent for any partial month after the
Commencement Date shall be payable on the first day of the month following the
Commencement Date.
The Initial Monthly Rent shall be subject to adjustment following the Lease
Commencement Date and annually thereafter as follows: Commencing on the first
day of the month following 12 calendar months from the Commencement Date the
monthly rent shall be increased to $10,515.00 and on the first day of the month
following 24 calendar months from the commencement date it shall be increased to
$10,798.00.
In the event Lessee exercises its option, rent shall be as follows:
Beginning on the first day of the month following the end of the initial term,
$10,221.00 per month, on the first day of the thirteenth month of the option
term, $10,732.00 per month, and on the first day of the twenty-fifth month of
the option term, $11,269.00 per month.
LATE CHARGES
6. Monthly Rent shall be due and payable on the first day of each month
during the Term of this Lease. Lessee acknowledges that late payment by Lessee
to Lessor of Monthly Rent will cause Lessor to incur costs not contemplated by
this Lease, the exact amount of such costs being extremely difficult and
impracticable to fix. Such costs include, without limitation, processing and
accounting charges, and late charges that may be imposed on Lessor by the terms
of any encumbrance and note secured by the Premises. Therefore, if any
installment of rent due from Lessee is not received by Lessor on or before the
tenth day of the month, Lessee shall pay to Lessor an additional sum of five
percent (5%) of the Monthly Rent as a late charge. No late charge shall accrue
if Lessee pays the delinquent amount within ten (10) days after receipt from
Lessor of written notice of non-payment, provided that in no event shall Lessor
be obligated to give more than one ten day notice of late payment to Lessee
during any lease year.
The parties agree that this late charge represents a fair and reasonable
estimate of the costs that Lessor will incur by reason of late payment by
Lessee. Acceptance of any late charge or late rent shall not constitute a
waiver of Lessee's default with respect to the overdue amount, nor prevent
Lessor from exercising any of the other rights and remedies available to Lessor.
SECURITY DEPOSIT
7. Upon execution of this Lease, Lessee shall pay Lessor a security
deposit of $10,240.00. Upon completion of Lessee's improvements pursuant to
Paragraph 16, Lessee shall pay Lessor an additional security deposit of
$20,480.00. Lessor shall retain such deposits as security for the faithful
performance of all of the covenants, conditions and agreements of Lessee under
the Lease. In no event shall Lessor be obligated during the Term to apply all
or any part of the same towards rents or other charges or for damages upon
Lessee's failure to perform any of the covenants, conditions and agreements of
the Lease. On June 1, 1999, provided Lessee has faithfully performed its
obligations under this Lease, Lessor shall return to Lessee a portion of
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<PAGE>
the deposit in the sum of $10,240.00. Upon continued faithful performance,
Lessor shall return the further sum of $l0,240.00 on June 1, 2000.
The security deposit, to the extent not used by Lessor, shall be returned
to Lessee (without interest for the period said moneys were held by Lessor)
after the Lessor received possession of the Premises or Lessor shall notify
Lessee of its disposition. Lessor's obligations with respect to the security
deposit are those of a debtor and not a trustee.
In the event that during the Term Lessor uses all or any portion of such
security deposit to remedy any default of Lessee, Lessee agrees to redeposit the
amount so used or applied within ten (10) days from the date of Lessor's demand
therefore.
SERVICES
8. (a) Except as provided below, Lessee agrees to pay for utilities
furnished to the Premises during the Term, including but not limited to
electricity, gas, water, garbage, telephone service, janitorial service or any
other services contracted for by Lessee.
(b) Lessee shall provide and maintain fire extinguishers in such
numbers and locations specified by the insurance underwriters, the San Francisco
Fire department, and all applicable governmental regulations.
(c) Lessee shall have the right to use the common restrooms located in
the Building. Lessor shall be responsible for cleaning and maintaining the
common restrooms.
INSURANCE
9.1 (a) Lessee, at Lessee's sole expense, shall obtain, update and keep
in force during the Term all-risk insurance policies providing the following
coverage:
(1) Standard fire insurance, with extended coverage, covering
all of Lessee's fixtures, furniture, equipment, inventory, goods and other
personal property on the Premises and also covering Lessee's leasehold
improvements and alterations, to the extent of at least eighty percent (80%) of
the replacement value thereof;
(2) Commercial public liability and property damage insurance
insuring against all claims, accidents injuries and damages or bodily injury to,
and death of, persons, and for loss of, or damage to, property, arising out of
the use, occupancy or maintenance of the Premises by Lessee, its employees,
agents, representatives and invitees. Such insurance shall have liability limits
of (i) not less than $500,000 per occurrence for bodily injuries or death and
(ii) not less than $500,000 per occurrence for property damage.
(b) Policies or confirmation thereof, of insurance provided for herein
shall be delivered to Lessor prior to the Lease Commencement Date and shall (i)
be approved as to form and substance by Lessor, which approval shall not be
unreasonably withheld, (ii) be issued by insurance companies which are qualified
to do business in the State of California and which are
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<PAGE>
rated A-VIII or better in the most currently available "Best's Insurance
Reports", (iii) be issued in the name of Lessee and Lessor shall be named an
additional insured for the mutual and joint benefit and protection of Lessor and
Lessee as their interests may appear, provided, however, that Lessee's interest
in any proceeds of a fire insurance or casualty policy shall be subordinate to
Lessor's to the extent that any funds advanced by Lessor for Tenant Improvements
shall not be fully repaid, (iv) give Lessor thirty (30) days' prior written
notice of any cancellation or lapse or any reduction in the amounts of
insurance, and (v) contain an endorsement containing an express waiver of any
right of subrogation by the insurance company against Lessor (whether Lessor is
named as an insured or not). All public liability, property damage and other
casualty policies provided for herein shall (i) contain a provision that Lessor,
although named as an additional insured, shall nevertheless be entitled to
recover under said policies for any loss occasioned to Lessor or to Lessor's
employees, agents, invitees, or representatives or to Lessor's property by
reason of the negligence of Lessee or Lessee's employees, agents or
representatives, and (ii) be written as primary policies, not contributing to,
or in excess of; coverage which Lessor may carry.
(c) Executed copies of such policies of insurance or certificates
thereof shall be delivered to Lessor within ten (10) days after delivery of
possession of the Premises to Lessee and thereafter renewal notices at least
fifteen (15) days prior to the expiration of the term of such policy. If not so
delivered, Lessor may, but shall not be required to, order such insurance and
charge the cost thereof to Lessee, which amount shall be payable on demand.
(d) No more than once every two years during the term hereof, Lessor
may require that Lessee increase the limits of its public liability insurance to
such limits as Lessor shall deem reasonably necessary.
9.2 Lessor shall obtain and keep in force during the term hereof a policy
or policies of insurance covering loss or damage to Lessor's buildings,
providing protection against all perils included within the classification of
fire, extended coverage, vandalism, and malicious mischief, such insurance to be
in an amount of at least eighty percent of the replacement cost of Lessor's
buildings, and to contain an agreed amount endorsement. Lessor shall also
maintain commercial public liability insurance.
9.3 Any insurance carried by either party with respect to the premises and
property or occurrences relating to them shall include a clause or endorsement
denying to the insurer rights of subrogation against the other party to the
extent rights have been waived by the insured prior to occurrence of injury or
loss.
Each party, notwithstanding any provisions of this lease to the contrary,
waives any right of recovery against the other for injury or loss due to hazards
covered by insurance containing such clause or endorsement to the extent that
the injury or loss is covered by such insurance.
TAX INCREASES
10. In the event there is any increase during any year of the Term in the
municipal, state or county real estate taxes or assessments, general or special,
on the land and Building
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containing the Premises over and above the amount of such taxes assessed for the
tax year 1998-1999 whether because of increased or added rates, taxes, or
assessments or increased valuation, the Lessee shall pay to the Lessor annually
during the Lease term upon notice its pro rata share of the total increase in
taxes upon the whole of the land and Building upon and within which the premises
are situate. To the extent assessments are payable in installments, Lessee's
share of any increase in assessments shall be calculated at the installment
rate. Lessor agrees that the base for the tax year 1998-1999 shall include the
increase from the 1996-1997 tax year caused by Lessee's purchase of the property
in November, 1996.
Lessee shall be solely responsible for any increase in taxes caused by an
increase in assessed valuation due to work done, construction improvements made
or equipment installed, by Lessee in the Premises at any time during the Term.
The amount of Lessee's obligation under this paragraph for the last year of
the Term shall be prorated in the proportion that the period this Lease is in
effect during the tax year in which this Lease terminates bears to the full tax
year.
Lessee shall also pay, before delinquency any and all taxes levied or
assessed and which become payable, during the Term upon Lessee's equipment,
furniture, fixtures and other personal property located in the Premises. In
addition to rental and other charges to be paid by Lessee hereunder, Lessee
shall reimburse to Lessor, upon demand, any and all taxes, assessments or
special assessments payable by Lessor (other than net income, inheritance,
franchise, and transfer taxes) whether or not now customary or within the
contemplation of the parties hereto: (a) upon, allocable to, or measured by or
on the same percentage as the square foot area of the Premises bears to the
square foot area of the entire Building (excluding the Parking Lot) including,
without limitation, any gross income tax or excise tax levied by the State, any
political subdivision thereof; or Federal Government with respect to the receipt
of such rental; or (b) upon, or with respect to, the possession, leasing,
operation, management, maintenance, alteration, repair, use of occupancy by
Lessee of the Premises or any portion thereof; or (c) upon or measured by the
value of Lessee's equipment, furniture, fixtures and other personal property
located in the Premises or by the cost or value of any leasehold improvements
located in the Premises; or (d) upon this transaction or any document to which
Lessee is a party creating or transferring an interest or an estate in the
Premises.
Lessee shall pay annually on each anniversary of the Lease any increase in
the sewer tax or charge over such taxes or charges for the First Lease Year.
The amounts due hereunder shall be paid by Lessee on the first day of the
month following two weeks' written notice to Lessee. Lessor shall furnish
copies of the tax bill for the year in question at Lessee's request.
MAINTENANCE AND REPAIRS
11. (a) Except as provided in paragraphs 18 and 30 hereunder, Lessor
shall, at Lessor's sole cost and expense, keep and maintain, in good condition,
the structural parts of the Building in which the Premises are located. As used
herein, "structural parts" include only the
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<PAGE>
foundations, bearing and exterior walls (excluding glass and doors), sub-
flooring and roof and the unexposed plumbing, electrical, sprinkler, and sewage
systems servicing the Premises. Notwithstanding any of the above, Lessee shall
be liable for any damage to the structural parts or other parts of the Building
which are caused by, or result from the acts or omissions of Lessee, its
authorized agents, or representatives or employees or invitees, to the extent
not covered by insurance carried by the parties. Further, Lessee shall be
responsible for any repairs to any systems servicing the premises where such
repairs are necessitated by improvements made by Lessee.
(b) Subject to Paragraphs 11(a) and 18 hereof; and subject to the
following sentence, Lessee shall, at Lessee's sole cost and expense, keep and
maintain the Premises, and all improvements in said Premises in good condition
and repair. Subject to Paragraph 11(a), Lessor shall have no responsibility to
maintain or repair the Premises unless any damage to said Premises are caused by
(i) acts or omissions of the Lessor, or its authorized agents, representatives
or employees, or (ii) Lessor's negligent failure to perform its obligations
above stated.
In the event Lessee, contrary to its obligations hereunder, fails to
maintain and repair the Premises or fails to commence appropriate work following
ten (10) days, Lessor may, at Lessor's option, cause the maintenance and repairs
to be made and Lessee shall pay to Lessor the total cost thereof within ten (10)
days of Lessor's written demand for said payment. Lessor may, at its
discretion, determine that a particular needed repair constitutes an emergency.
If Lessor determines that a repair is an emergency, Lessor shall make reasonable
efforts to notify Lessee of said emergency condition and request immediate
repairs. In the event that Lessor is unable to contact Lessee or Lessee fails
to make said emergency repairs immediately upon the request of Lessor, Lessor
may, in its discretion, cause said emergency repairs to be made and, provided
Lessee is otherwise obligated hereunder, Lessee shall pay to Lessor the cost of
said repairs within ten (10) days' written notice thereof. Nothing contained in
this subparagraph shall be construed to impose upon Lessor any obligation to
make any emergency or non-emergency maintenance or repairs to said Premises.
SIGNS
12. Lessee agrees that Lessee will not, without Lessor's consent,
construct or place, or permit to be constructed or placed, signs, displays,
advertisements, awnings, marquees, or other items on the exterior of the
Premises, nor on the interior of the windows. Any signs, displays,
advertisements, or decorations placed by Lessee without Lessor's prior written
consent within ten (10) days alter receiving written notice from Lessor to
remove same, Lessor reserves the right to enter the Premises and remove them at
Lessee's expense.
Any approved sign provided for or allowed herein to be installed by Lessee
shall, unless otherwise agreed, be removed at the expiration or earlier
termination of the Lease at Lessee's expense and Lessee shall repair any damage
caused to the Premises resulting from such removal. If Lessee fails to do so,
Lessor may cause such removal and repair on Lessee's behalf, at Lessee's
expense.
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<PAGE>
USE
13. Lessee shall use the Premises for general offices, and shall not use
or permit the Premises to be used for any other purpose without the prior
written consent of Lessor.
Lessee shall not do, or permit anything to be done, in or about the
Premises therein which will in any way increase the existing rate of, or affect
any fire or other, insurance coverage upon the Building or its contents, or
cause cancellation of any insurance policy covering said Building or any part
thereof or its contents. Lessee shall not do, or permit anything to be done in
or about the Premises, including common areas, which will in any way obstruct or
interfere with the rights of other Lessees or occupants of the Building or
injure or annoy them or use or allow the Premises to be used for any improper,
immoral, unlawful or objectionable purpose. Lessee shall not cause, maintain or
permit any nuisance or waste in, on or about the Premises.
Lessee shall not use the Premises, or permit them to be used, for any
auction, fire, liquidation, or bankruptcy sale.
In the event of the Lessee's failure to comply with any provision in this
paragraph, Lessor, at its option, may treat such failure as a breach of this
Lease or require that Lessee pay for any increase in the rate of any insurance,
or for any other damages, resulting from said failure to comply.
Lessor shall not permit any uses in the space adjacent to the Premises that
shares the common stairway and entry area with Lessee, which would be offensive
to reasonable office tenants.
ENTRY BY LESSOR
14. Upon reasonable notice, Lessee will permit Lessor and his agents to
enter into the Premises at all reasonable times to inspect them and to maintain
the Building in which the Premises are situated, or to make repairs,
alterations, or additions to any other portion of said Building. This entry
shall be without any rebate of rent to the Lessee for any loss of occupancy or
quiet enjoyment of the Premises thereby occasioned. The work to be performed by
Lessor shall include the right to penetrate walls, floor and ceilings of the
Premises if necessary for improvements or alterations or areas outside of the
Premises. Lessor shall use reasonable efforts to confine such activities within
the demising walls. If, however, it is impractical to confine such alterations
to the demising walls, Lessor may invade the demised Premises to accomplish such
work without abatement of rent so long as there is a reduction of no more than
2-1/2 square feet of floor area from the demised Premises. Such installations
shall be concealed and made as inconspicuous as reasonably possible. Such
penetrations shall be diligently and promptly repaired to its previous
appearance and condition and shall not materially or unreasonably affect or
interrupt the Lessee's conduct of business. Such installations shall be made in
a workmanlike manner during normal business days and hours observed by local
trades or crafts involved in such work and with minimum disruption of the
Premises of Lessee.
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Upon reasonable notice to Lessee, Lessor may also have access to said
Premises to exhibit them during reasonable hours to prospective purchasers at
any time during the lease to show prospective tenants during the last 90 days of
the lease. Lessor reserves the right to place "For Sale" of Building (not
business) signs on the Premises at any time during the Lease, or "For Lease" or
"For Rent" signs on the Premises at any time within ninety (90) days of the
expiration of the Lease.
PARKING
15. Lessee shall have the right to lease 5 parking stalls on Lessor's
property, as shown on Exhibit "A" attached hereto for the current rate of
$100.00 per month per stall. Such parking stalls shall be marked for the
exclusive use of Lessee. Lessor shall have the right to increase the rate per
stall from time to time to a rate not more than the rate then being paid by
holders of 70% of the stalls. Lessor shall maintain the parking area in good
condition.
CONDITION OF PREMISES
16. By entry hereunder, Lessee accepts the Premises as being in good and
sanitary order, condition and repair. Lessee agrees on the last day of the
Term, or sooner termination of this Lease, to surrender to Lessor the Premises
in the same condition and state as when received, reasonable use and wear,
Lessor's maintenance and repair obligations and casualty losses excepted, and to
remove all of the Lessee's signs from said Premises however, Lessee shall have
no obligation to remove tenant improvements made at or near the beginning of the
Term. At the time Lessee takes physical possession of the premises from its
subtenant, Lessor will inspect the HVAC system serving the premises and make any
repairs required to have the system in good working order. Subject to the
requirement that Lessee perform recommended maintenance, Lessor warrants that
the system will adequately serve the premises as presently configured for one
year from Lessee taking possession.
Lessor shall provide Lessee an allowance of up to $55,000.00 for Lessee to
do the following improvements to the premises: Painting, new carpeting,
computer and telephone cabling, a card-key entry security system, and minor
interior modifications including architectural or engineering fees related
thereto. Before performing any modifications to the premises or installing a
card-key entry system, Lessee shall obtain Lessor's consent pursuant to
Paragraph 23. Lessor shall pay the allowance to Lessee in progress payments not
more often than every fifteen days upon Lessee presenting Lessor with invoices
for completed work. In the event Lessee's improvement costs exceed $55,000.00,
Lessee shall pay the next $18,333.00 in costs. In the event such costs then
exceed a total of $73,333.00, Lessor shall contribute 75% of such additional
costs not to exceed a total contribution by Lessor of $66,000.00 (not including
the $8,000.00 payment by Lessor upon Lessee occupying the premises). Should
Lessor fail to pay any portion of the allowance presented to Lessor pursuant to
this paragraph, Lessee, in this instance only, may offer such payment against
rent. Further, should Lessor fail to timely pay an amount payable hereunder,
Lessor shall pay to Lessee a late charge equal to five percent (5%) of such
delinquent amount.
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Prior to executing this Lease, Lessor has provided Lessee the opportunity
to inspect at Lessor's office all structural and hazardous material reports in
Lessor's possession that relate to the premises.
COMPLIANCE WITH LAW
17. Lessee shall not use, nor permit anything to be done in or about the
Premises which will in any way conflict with any law, statute, ordinance or
governmental rules or regulation now in force or hereafter be enacted or
promulgated. Lessee shall, at its sole cost and expense, promptly comply with
all laws, statutes, ordinances and governmental rules, regulations and
requirements now or hereafter in force, and with the requirements of any board
of fire insurance underwriters or other similar bodies now or hereafter
constituted, relating to, or affecting the condition, use of occupancy of the
Premises, excluding structural changes. The judgment of any court of competent
jurisdiction or the addition of Lessee in any action against Lessee, whether
Lessor be a party thereto or not, that Lessee has violated any law, statute,
ordinance or governmental rule, regulation or requirement, shall be conclusive
of that fact as between the Lessor and Lessee.
Anything herein to the contrary notwithstanding: (i) Lessee shall, as part
of its improvements to the Premises or the common bathrooms serving the
Premises, bear the responsibility for compliance under applicable building
codes, Title 24, the Americans with Disabilities Act (ADA) and any other law,
statute or ordinance requiring structural alterations, additions or
improvements; (ii) Lessor shall bear responsibility for complying with all
environmental hazardous materials laws, statutes, ordinances, and regulations,
pertaining to or affecting such common bathrooms, the Premises, and/or the
Building, except to the extent arising from the hazardous materials brought onto
the Premises by Lessee; (iii) Lessee shall make any structural alterations or
additions necessary to physically accommodate or physically support improvements
being made by Lessee to the Premises; and, (iv) except as set forth specifically
in (i) above, Lessor shall bear the responsibility for compliance under
applicable building codes, Title 24, ADA, and any other law, Statute, or
ordinance requiring compliance, structural alterations, additions or
improvements to the Building, including without limitation compliance required
to correct existing deficiencies triggered by Lessee's making improvements, and
required ADA additions and/or changes to the exterior entrance to the Premises.
In the event Lessee's contractor estimates ADA compliance work to the
Premises and common bathrooms serving the Premises, required by the City of San
Francisco will collectively exceed $25,000.00, may elect to terminate this Lease
prior to commencing construction.
DESTRUCTION OF PREMISES
18. In the event of a partial destruction of said Premises during the
Term, from an insured cause, Lessor shall forthwith repair the Premises provided
such repairs, in Lessor's reasonable opinion can be completed within one hundred
eighty (180) days, such repairs to be made in accordance with the laws and
regulations of State, Federal, County or Municipal authorities. In the event of
a partial destruction of the Premises from an uninsured cause, Lessor shall
forthwith repair the Premises provided the cost of such repair does not exceed
five percent
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(5%) of the replacement cost of the building, such repairs to be made in
accordance with the laws and regulations of State, Federal, County or Municipal
authorities. Such partial destruction shall in no way annul or void this Lease,
except that Lessee shall be entitled to a reduction of rent while such repairs
are being made, in proportion to the square footage of the Premises which is
rendered unusable by Lessee in the conduct of its business.
If such repairs, in Lessor's sole opinion, cannot be completed in one
hundred eighty (180) days or, if such partial destruction results from an
uninsured cause in an amount more than 5% of the replacement cost of the
building, Lessor may, at his option repair the same within a reasonable time,
this Lease continuing in full force and effect and the rent to be
proportionately reduced as said in the preceding paragraph.
In the event that Lessor determines that such partial destruction cannot be
repaired in one hundred eighty (180) days or if such partial destruction results
from an uninsured cause in an amount more than 5% of the replacement cost of the
building, and Lessor elects not to make such repairs, this Lease may be
terminated at the option of either party. A total destruction of the Building
in which the Premises may be situated shall terminate this Lease.
If Lessor is required or elects to restore the Premises as provided in this
paragraph, Lessor shall not be required to restore alterations made by Lessee
including Lessee's Initial Tenant Improvements or Lessee's personal property,
such items being the sole responsibility of Lessee to restore at Lessee's sole
cost and expense.
As soon as possible following any casualty loss, Lessor shall notify Lessee
in writing of the amount of time required to complete repairs; anything in this
Lease to the contrary notwithstanding, Lessee may elect to terminate the Lease
if repairs will not be completed within one hundred eighty (180) days from the
date of the loss by notifying Lessor in writing of such election within thirty
(30) days after receipt of Lessor's notice.
Lessee hereby waives any rights it may have to terminate this Lease
pursuant to California Civil Code Sections 1932(2) and 1933(4), except as
provided hereunder.
ASSIGNMENT AND SUBLETTING
19. Lessee shall not assign, mortgage or hypothecate this Lease, or any
interest in this Lease, or permit the use of the Premises by any person or
persons other than Lessee, or sublet the Premises, or any part of the Premises
without Lessor's prior written consent, which consent shall not be unreasonably
withheld or delayed. No consent of Lessor is required for a sublease to a
related company of Lessee in which Lessee holds an ownership interest of not
less than 30%. Lessor consents to a sublease to the existing tenant in the
premises, Office Furniture Solutions Inc. (BRG). Lessee shall pay Lessor 50% of
any sublease rents over the base rent payable by Lessee to Lessor in excess of
Lessee's expenses of subletting.
Lessor's consent to any proposed assignment or subletting may take into
account the financial worth and stability and the business experience of any
proposed transferee.
-10-
<PAGE>
A transfer of this Lease from Lessee to a) a corporation into which Lessee
is merged or consolidated or acquiring all of the property of Lessee and
assuming all of Lessee's liability and the net worth of said corporation is
equal or more than the net worth of Lessee at the time of commencement of this
Lease, or b) a subsidiary of Lessee in which Lessee owns greater than fifty
percent (50%) of the shares of such subsidiary, shall not constitute an
assignment or sublease for the purposes of this Lease and shall not require
Lessor's consent hereunder, however, Lessee agrees to give Lessor prompt written
notice of any such transfer.
Except as specified hereinabove, any attempted assignment or subletting
without Lessor's prior written consent shall be void. In the event Lessee does
not rescind a wrongful subletting or assignment within 30 days of Lessor's
notice, Lessor at its option may terminate this Lease. Consent by Lessor to any
assignment or subletting shall not release Lessee from its primary liability
under the Lease and Lessor's consent to one assignment, subletting or occupation
or use by other parties shall not be deemed a consent to other subleases or
assignments or occupation or use by other parties.
Lessee immediately and irrevocably assigns to Lessor, as security for
Lessee's obligations under this Lease, all rent from any subletting of all or a
part of the Premises as permitted by this lease, and Lessor, as assignee, shall
be the attorney-in-fact for Lessee to collect such rent and apply it towards
Lessee's obligations under this Lease; except that, until the occurrence of an
act of default by Lessee beyond any cure period. Lessee shall have the right to
collect such rent.
SURRENDER OF LEASE
20. The voluntary or other surrender of this Lease by Lessee, or a mutual
cancellation thereof, shall not work a merger, and shall, at the option of
Lessor, terminate all or any existing subleases or subtenancies, or may, at the
option of Lessor, operate as an assignment to him of any or all such subleases
or subtenancies.
DEFAULT
21. The occurrence of any one or more of the following events shall
constitute a material default and breach of this Lease by Lessee:
(a) The failure by Lessee to make any payment of rent or any other
payment required to be made by Lessee hereunder, as and when due, where such
failure shall continue for a period of ten (10) days after written notice
thereof from Lessor to Lessee.
(b) The failure by Lessee to observe or perform any of the covenants,
conditions or provisions of this Lease to be observed or performed by Lessee,
other than described in paragraph (b) above, where such failure shall continue
for a period of twenty (20) days after written notice hereof from Lessor to
Lessee; provided, however, that if the nature of Lessee's default is such that
more than twenty (20) days are reasonably required for its cure, then Lessee
shall not be deemed to be in default if Lessee commenced such cure within said
twenty-day period and thereafter diligently pursues such cure to completion.
-11-
<PAGE>
(c) In the event of any breach of this Lease by Lessee, then Lessor,
besides other rights and remedies he may have, shall have the immediate right of
re-entry and may remove all persons and property from the Premises. If the
Lessor's right of re-entry is exercised following abandonment of the Premises by
the Lessee, then Lessor may consider any personal property belonging to Lessee
and left on the Premises to also have been abandoned, in which case Lessor may
dispose of all such personal property in any manner consistent with the
California Civil Code.
(d) If Lessee breaches this Lease and abandons the Premises before the
end of the Term, or if Lessee's right to possession is terminated by Lessor
because of a breach of the Lease, then in either such case Lessor may recover
from Lessee all damages suffered by Lessor as the result of Lessee's failure to
perform his obligations hereunder, described in Civil Code Section 1951.2,
including, but not restricted to, the worth at the time of the award (computed
in accordance with paragraph (3) of subdivision (a) of Section 1951.2 of the
California Civil Code) of the amount by which the rent then unpaid hereunder for
the balance of the Lease Term exceeds the amount of such rental loss for the
same period which the Lessee proves could be reasonably avoided by Lessor, and
in such case, Lessor, prior to the award, may relet the Premises for the purpose
of mitigating damages suffered by Lessor because of Lessee's failure to perform
his obligations hereunder; provided, however, that even though Lessee has
abandoned the Premises following such breach, this Lease shall nevertheless
continue in full force and effect for as long as the Lessor does not terminate
Lessee's right of possession, and until such termination, Lessor may enforce all
his rights and remedies under this Lease, including the right to recover the
rent from Lessee as it becomes due hereunder.
INSOLVENCY OR BANKRUPTCY
22. Either (a) the appointment of a receiver to take possession of all of
the assets of Lessee, or (b) a general assignment by Lessee for the benefit of
creditors, or (c) any action taken or suffered by Lessee under any insolvency or
bankruptcy act shall constitute a breach of this Lease by Lessee. If Lessee
fails to dismiss any proceeding permitting the happening of any such event
within 90 days of its occurrence, this Lease shall terminate immediately upon
written notice of termination from Lessor to Lessee.
ALTERATIONS
23. Alterations shall not be made to the Premises without the prior
written consent of Lessor which may not be unreasonably withheld or delayed.
Lessee shall provide to Lessor any proposed alterations in writing and, upon
approval by Lessor, said written description of alterations shall be attached to
this Lease as an exhibit. In the event Lessee makes any alterations to the
Premises as provided in this paragraph, said alterations shall not be commenced
until ten (10) days after Lessor has received notice from Lessee stating the
date the installation of the alterations is to commence so that Lessor can post
and record an appropriate notice of non-responsibility.
Any alterations made shall remain on and be surrendered with the Premises
on expiration or earlier termination of the Term except that Lessor can elect at
the time Lessor's consent to
-12-
<PAGE>
such alterations is granted, to require Lessee to remove any alterations that
Lessee has made to the Premises, other than those alterations, additions or
improvements made at or near the beginning of the Term. If Lessor so elects,
Lessee, at its sole cost and expense, shall restore the Premises to the
condition and state it was in prior to said alterations. Lessee's movable
furniture and trade fixtures shall not become part of the reality and shall not
belong to Lessor in any event.
Lessor shall not make any modifications or alterations to the common areas
around the entrances to the Premises without Lessee's prior written consent,
such consent not to be unreasonably withheld.
INDEMNIFICATION OF LESSOR
24. Lessee shall indemnify, defend, protect and hold harmless Lessor from
and against any and all claims arising from Lessee's use of the Premises or the
conduct of its business or from any activity, work, or thing done, permitted or
suffered by the Lessee in or about the Premises, and shall further indemnify and
hold harmless Lessor against and from any and all claims arising from any breach
of default in the performance of any obligation on Lessee's part to be performed
under the terms of this Lease, or arising from any act, neglect, fault or
omission of the Lessee, or of its agents or employees, and from and against all
costs, attorneys' fees, expenses and liabilities incurred in, connected with, or
about such claims, actions or proceedings brought as a result. In case any
action or proceeding be brought against Lessor by reason of such claim, Lessee,
upon notice from Lessor, shall defend the same at Lessee's expense by counsel
reasonably satisfactory to Lessor. In the same manner Lessor shall indemnify,
defend, and hold Lessee harmless from any and all claims arising from any breach
or default in the performance of Lessor's obligations under this lease, and/or
from Lessor's negligence.
The obligation of Lessee under this section arising by reason of any
occurrence taking place during the term of this Lease shall survive the
expiration on any termination of this Lease.
WAIVER OF CLAIMS AND LIMITATION OF LIABILITY
25. (a) Lessee, as a material part of the consideration to be rendered to
Lessor, hereby assumes all risk of damage to the Premises or injury to persons
in or about the Premises and waives all claims against Lessor for damages to
goods, wares and merchandise, in, upon or about the Premises and for injury to
Lessee, its agents, employees, invitees, or third persons on or about the
Premises from any cause excepting causes arising by reason of the intentional
acts or gross negligence of Lessor, its agents or employees.
(b) If Lessor is in default of this Lease, and as a consequence,
Lessee recovers a money judgment against Lessor, the judgment shall be satisfied
only out of the proceeds of sale received on execution of the judgment and levy
against the right, title and interest of Lessor in the Building of which the
Demised Premises are a part, and out of rent or other income from such Building
receivable by Lessor or out of the consideration received by Lessor from the
sale or other disposition of all or any part of Lessor's right, title and
interest in the Building.
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<PAGE>
(c) Lessor shall not be personally liable for any deficiency, and if
Lessor (or a successor Lessor against which action is brought) is a partnership,
the partners of Lessor shall be sued or named as a party in any suit or action
or service of process be made against any partner of Lessor except as may be
necessary to secure jurisdiction of the partnership. No partner of Lessor shall
be required to answer or otherwise plead to any service of process and no
judgment will be taken or writ of execution levied against any partner of
Lessor.
(d) Notwithstanding the foregoing, if Lessee holds an unpaid final
judgment, Lessee may take action as otherwise permitted under law to recover
that portion of loan proceeds from any loan entered into by Lessor after that
date Lessee first filed the action which resulted in Lessee obtaining judgment
against Lessor to the extent that the loan proceeds from such loan caused
encumbrances against the Building to exceed eighty percent (80%) of the
appraised value of such Building as such Building with appraised at time of the
loan. Further, nothing contained within this paragraph 25 shall permit Lessor
to make distribution of its rentals or other cash proceeds to its partners or
share holders (if any) at any date after Lessee's judgment has become final, no
appeal being then pending and time for further appeal having passed unless and
until the judgment owed to Lessee shall have been paid in full and nothing
herein shall prevent Lessee from taking such actions as may be permitted under
law or in equity to recover any fluids so disbursed by Lessor in violation of
the provisions of this section.
WAIVER OF TERMS
26. The failure of Lessor to object to any breach of any term, covenant or
condition by Lessee shall not be deemed to be a waiver of such term, covenant or
condition. The subsequent acceptance of rent or other performance hereunder by
Lessor shall not be deemed to be a waiver of any preceding breach by Lessee of
any term, covenant or condition of this Lease, other than the failure of Lessee
to pay the particular rental so accepted, regardless of Landlord's knowledge of
such preceding breach at the time of acceptance of such rent.
HOLDING OVER
27. If Lessee should remain in possession of the Premises after the
expiration of the Lease term and without executing a new lease, then such
holding over shall be construed as a tenancy from month to month, subject to all
the conditions, provisions and obligations of this Lease insofar as the same are
applicable to a month-to-month tenancy, except that the minimum monthly rent
payable by Lessee to Lessor shall be 125% of the minimum monthly rent during the
last year of the Lease Term.
ESTOPPEL CERTIFICATE
28. (a) Lessee shall, within ten (10) days after written notice from
Lessor, execute, acknowledge and deliver to Lessor a statement in writing (i)
certifying that this Lease is unmodified and in full force and effect (or, if
modified, stating the nature of such modification and certifying that this
Lease, as so modified, is in full force and effect) and the date to which the
rent and other charges are paid in advance, if any, and (ii) acknowledging that
there are not, to Lessee's knowledge, any uncured defaults on the part of the
Lessor hereunder, or specifying such
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<PAGE>
defaults if any are claimed. Any such statement may be conclusively relied upon
by any prospective purchaser or encumbrancer of the Premises.
(b) Lessee's failure to deliver such statement within such time shall
be conclusive upon Lessee (i) that this Lease is in full force and effect,
without modification, except as may be represented by Lessor, (ii) that there
are no uncured defaults in Lessor's performance, and (iii) that not more than
one month's rent has been paid in advance or at Lessor's option be considered by
Lessor as a default by Lessee under this Lease.
(c) If Lessor desires to finance or refinance the Premises, or any
part thereof, Lessee hereby agrees to deliver to any lender designated by Lessor
such current financial statements of Lessee as may be reasonably required by
such lender. All Such financial statements shall be received in confidence and
shall be used only for the purposes herein set forth.
TRANSFER OF LESSOR'S INTEREST'
29. In the event of a sale or conveyance by Lessor of Lessor's interest in
the Premises, other than a transfer for security purposes only, provided that
the transferee agrees to be bound by the provisions of this lease, Lessor shall
be relieved from and after the date specified in any such notice of transfer of
all obligations and liabilities accruing thereafter on the part of Lessor except
the payment of the allowance due Lessee pursuant to Paragraph 16. The Lessee's
right of occupancy under this Lease shall not be affected by any such sale, and
Lessee agrees to attorn to the purchaser or assignee.
CONDEMNATION
30. If any part of the Premises shall be taken or condemned for a public
or quasi-public use, and a part thereof remains which is susceptible of
occupation hereunder, this Lease shall, as to the part so taken, terminate as of
the date title shall vest in the condemnor, and the rent payable hereunder shall
be adjusted for the remainder of the Term in proportion to the number of square
feet remaining after the condemnation to the number of square feet in the entire
Premises at the date of condemnation. If the portion taken renders the premises
unsuitable for Lessees purposes, Lessee may terminate this Lease. In any event,
Lessor shall also have the option to terminate this Lease as of the date when
title to the part so condemned vests in the condemnor. If a part or all of the
Premises be taken or condemned, all compensation awarded upon such condemnation
or taking shall go to the Lessor and the Lessee shall have no claim thereto, and
the Lessee hereby irrevocably assigns and transfers to the Lessor any right to
compensation or damages to which the Lessee may be entitled during the term
hereof by reason of the condemnation of all, or part of the Premises. The
foregoing notwithstanding, Lessee shall be entitled to that portion of any award
attributable to improvements made by Lessee, at Lessee's expense.
Each party waives the provisions of Code of Civil Procedure Section
1265.130 allowing either party to petition the superior court to terminate this
Lease in the event of a partial taking of the Premises for public use.
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<PAGE>
SUBORDINATION
31. This Lease, at Lessor's option, shall be subordinate to any ground
lease, mortgage, deed of trust, or any other hypothecation for security now or
hereafter placed upon the real property of which the Premises are a part and to
any and all advances made on the security thereof and to all renewals,
modifications, consolidations, replacements and extensions thereof. If any
mortgagee, trustee or ground lessor shall elect to have this Lease prior to the
lien of its mortgage, deed of trust, or ground lease, and shall give written
notice thereof to Lessee, this Lease shall be deemed prior to such mortgage,
deed of trust, or ground lease, whether this Lease is dated prior or subsequent
to the date of said mortgage, deed of trust or ground lease or the date of
recording thereof. Notwithstanding the above, Lessees' Lease shall remain
undisturbed. Lessor shall obtain from all future ground lessors, mortgagees and
lienholders, and shall use reasonable efforts to obtain from existing
groundlessors, mortgagees and lienholders, a non-disturbance agreement providing
that Lessee's rights and possession under this Lease shall not be affected or
disturbed as long as Lessee is not in default under this Lease beyond applicable
current periods.
SECURITY
32. Lessor shall have no obligation to provide policing or security to the
common areas, Parking Lot and Garage, Premises or the Building of which the
Premises are a part Lessor shall not be responsible for loss or damage to person
or property for damages sustained by Lessee, its employees or business invitees
unless due to Lessor's negligence. Lessee shall provide security protection
within said Premises, at Lessee's option and at Lessee's sole expense but not
without first providing written notice to Lessor.
ATTORNEYS' FEES'
33. In the event of any legal action or proceeding between the parties
hereto, reasonable attorneys' fees and expenses in any such action or proceeding
shall be awarded to the prevailing party. Should Lessor be named as a defendant
in any suit brought against Lessee in connection with or arising out of Lessee's
occupancy hereunder, Lessee shall pay to Lessor Lessor's costs and expenses
incurred in such suit, including reasonable attorneys' fees.
NOTICES
34. Any notices or demands to be given hereunder shall be given to Lessor
at 520 Third Street, Suite 202, Oakland, California 94607 and to Lessee at 690
Fifth Street, San Francisco, California 94107. All notices or demands of any
kind required or desired to be given by Lessor to Lessee hereunder shall be in
writing and shall be deemed delivered forty-eight (48) hours after depositing
the notice or demand in the United States mail, certified or registered, postage
prepaid, or in the alternative, an express mail service which provides overnight
delivery and a receipt of delivery, addressed to the Lessor or Lessee,
respectively, at the addresses set forth in this paragraph.
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LIENS
35. Lessee shall keep the Premises and the property in which the Premises
are situated, free from any liens arising out of any work performed, materials
furnished, or obligations incurred by Lessee. Lessee shall give ten (10) days
written notice to Lessor before commencing any alterations , repairs, or other
work, or taking any other action, which might give rise to any lien against the
Premises or property in which the Premises are situated, so as to give Lessor an
opportunity to post and record an appropriate notice of non-responsibility.
RECORDATION
36. Lessee shall not record this Lease or short form memorandum hereof
without the prior written consent of Lessor.
LOADING DOCK
37. (Omitted)
RULES AND REGULATIONS
38. Lessee shall faithfully observe and comply with any Rules and
Regulations that Lessor shall from time to time promulgate. Lessor reserves the
right from time to time to make all reasonable modifications to said rules. The
additions and modifications to those rules shall be binding upon Lessee upon
delivery of a copy of them to Lessee. Lessor shall not be responsible to Lessee
for the nonperformance of any said rules by any other tenants or occupants.
QUIET ENJOYMENT
39. Lessor covenants and agrees with Lessee that upon Lessee paying rent
and other monetary sums due under the Lease, performing its covenants and
conditions under the Lease. Lessee shall and may peaceably and quietly have,
hold and enjoy the Premises for the term, subject, however, to the terms of the
Lease and any of the aforesaid ground leases, mortgages, or deed of trust
described above. Lessor will not be financially responsible for any damage
caused to Premises by other Building tenants.
CORPORATE RESOLUTION AND FINANCIAL STATEMENT
40. Concurrently with the execution of this Lease, Lessor shall be
furnished with a certified copy of a resolution adopted by the Board of
Directors of the corporate Lessee authorizing its execution of the within Lease,
if Lessee is a corporation.
Lessee agrees to provide Lessor with the current Corporate Financial
Statements of Lessee upon request by Lessor which Lessor shall keep confidential
except as its lender may require.
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GENERAL PROVISIONS
41. (a) Whenever the singular number is used in this Lease and when
required by the context, the same shall include the plural, and the masculine
gender shall include the feminine and neuter genders, and word "person" shall
include corporation, firm or association. If there be more than one Lessee, the
obligations imposed upon Lessee under this Lease shall be joint and several.
(b) The headings or titles to paragraphs of this Lease are not part
of this Lease and shall have no effect upon the construction or interpretation
of any part of this Lease.
(c) This instrument contains all of the agreements and conditions
made between the parties of this Lease and may not be modified orally or in any
other manner than by agreement in writing signed by all parties to this Lease.
(d) Time is of the essence of each term and provision of this Lease.
(e) Except as otherwise expressly stated, each payment required to be
made by Lessee shall be in addition to and not in substitution for other
payments to be made by Lessee.
(f) The terms and provisions of this Lease shall be binding upon and
inure to the benefits of the heirs, executors, administrators, successors and
permitted assigns of Lessor and Lessee under this Lease.
(g) All covenants and agreements to be performed by Lessee under any
of the terms of this Lease shall be performed by Lessee at Lessee's sole cost
and expense and without any abatement of rent.
(h) The rights, powers, elections and remedies of the Lessor
contained in this Lease shall be construed as cumulative and none of them is or
shall be considered exclusive and none of them is or shall be considered
exclusive of any rights or remedies allowed by law, and the exercise of one or
more rights, powers, elections or remedies shall not impair Lessor's right to
exercise any other.
(i) All sums required to be paid by Tenant under this Lease shall
bear interest from the date due after any notice requirement until paid at the
greater of ten percent (10%) or the maximum rate an individual is permitted by
law to charge.
(j) If any term, covenant, condition or provision of this Lease is
held by a court of competent jurisdiction to be invalid, void or unenforceable,
the remainder of the provisions shall remain in full force and effect and shall
in no way be affected, impaired or invalidate
(k) Lessee acknowledges that it has had no contact or dealings
regarding this Lease with any licensed real estate broker or other party who can
claim a right to a commission or fee other than Terranomics and/or Mike McCormac
Realtors representing Lessor and The
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CAC Group representing Lessee. Lessor agrees to pay The CAC Group a commission
of $8,257.50 upon the rent commencement date after execution of this Lease.
Lessee agrees to indemnify, defend and hold harmless Lessor from any cost, loss
or expense, including attorneys' fees and court costs, resulting from any claim
for a fee or commission from a broker other than CAC claiming to represent
Lessee.
(l) As used herein, rent shall mean all payments made pursuant to
this Lease, including, but not limited to, minimum monthly rent, prepaid rent,
security deposit, real property taxes and assessments, common area charges,
operating costs, parking fees, insurance, utilities and all other charges
payable by Lessee to Lessor.
(m) Wherever the consent of Lessor is required hereunder, such
consent shall not be unreasonably withheld.
(n) In the event additional space comes available, or will become
available for lease on the first floor of the building at 650-70 Fifth Street,
Lessor agrees to immediately notify Lessee of such availability, prior to Lessor
entering into any marketing activities or negotiations related to such space.
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IN WITNESS WHEREOF, the parties set their signatures hereto as of the date
stated hereinbelow.
LESSOR:
TOWNSEND ASSOCIATES, LLC Dated: August 11, 1998
by TERRANOMICS, its Manager
By /s/ Peter Morris
----------------
LESSEE:
NETCENTIVES INC.
By /s/ John F. Longinotti
-----------------------
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EXHIBIT A
FLOOR PLAN
----------
<PAGE>
EXHIBIT 10.8
CONFIDENTIAL
AADVANTAGE PARTICIPATION AGREEMENT
BETWEEN
AMERICAN AIRLINES, INC.
AND
NETCENTIVES INC.
Confidential treatment has been requested for portions of this exhibit. The copy
filed herewith omits the information subject to the confidentiality request.
Omissions are designated as ******. A complete version of this exhibit has been
filed separately with the Securities and Exchange Commission.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
<S> <C>
1 DEFINITIONS........................................................................................... 1
2 MILEAGE ACCRUAL....................................................................................... 6
2.1 Mileage Accrual............................................................................ 6
2.2 Good Standing.............................................................................. 6
2.3 Rounding................................................................................... 6
2.4 Bonus Miles................................................................................ 6
2.5 Ongoing Conditions Precedent - American.................................................... 6
2.6 Ongoing Conditions Precedent - Participant................................................. 7
2.7 Survival................................................................................... 8
3 CHARGES............................................................................................... 8
3.1 Pricing.................................................................................... 8
3.2 Mileage Payments........................................................................... 8
3.3 Method of Payments......................................................................... 9
3.4 Minimum Purchase; Prepayment............................................................... 9
3.5 Survival................................................................................... 9
4 PROGRAM CONTENT AND ADMINISTRATION.................................................................... 9
4.1 Program Content............................................................................ 9
4.2 AADVANTAGE Program Enrollment.............................................................. 10
4.3 AADVANTAGE Program Administration.......................................................... 10
4.4 Customer Service........................................................................... 10
4.5 Member Disputes............................................................................ 10
4.6 Transaction Processing..................................................................... 11
4.7 Training................................................................................... 11
4.8 Trademarks................................................................................. 11
4.9 Applicable Law............................................................................. 12
4.10 AADVANTAGE Program Abuse.................................................................. 12
4.11 Cancellation or Alteration of AADVANTAGE Program.......................................... 12
4.12 Air Carrier Sponsor....................................................................... 13
4.13 Reserve Requirement....................................................................... 13
4.14 Management of Program..................................................................... 13
4.15 Computer Reservation Function............................................................. 13
5 EXCLUSIVITY........................................................................................... 13
5.1 Limited Exclusivity........................................................................ 13
5.2 Termination of Limited Exclusivity......................................................... 14
6 REPORTS............................................................................................... 14
6.1 Report from Participant.................................................................... 14
</TABLE>
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<TABLE>
<S> <C>
6.2 Verification............................................................................... 14
6.3 Report from American....................................................................... 14
6.4 Tax Reporting.............................................................................. 14
6.5 Survival................................................................................... 14
7 MARKETING AND ADVERTISING............................................................................. 15
7.1 Web Site and Telephone Number.............................................................. 15
7.2 Newsletter Inserts......................................................................... 15
7.3 American Approval of Promotional Materials; Graphic Standards.............................. 15
7.4 Web Site Co-Marketing...................................................................... 16
7.5 Termination................................................................................ 16
8 REPORTS; AUDITS....................................................................................... 16
8.1 Informational Reports...................................................................... 16
8.2 Audit Access............................................................................... 16
8.3 Survival................................................................................... 16
9 TERM OF AGREEMENT..................................................................................... 17
9.1 Term....................................................................................... 17
9.2 Notice of Termination...................................................................... 17
10 INDEMNIFICATION; LIMITATION OF USABILITY............................................................. 17
10.1 Participant Indemnification............................................................... 17
10.2 Limitation................................................................................ 17
10.3 Survival.................................................................................. 17
11 DEFAULT OF PARTICIPANT; REMEDIES; OTHER RIGHTS OF AMERICAN........................................... 18
11.1 Participant Default....................................................................... 18
11.2 American Remedies......................................................................... 18
11.3 Additional Rights......................................................................... 18
12 DEFAULT OF AMERICAN; Remedies........................................................................ 19
12.1 American Default.......................................................................... 19
12.2 Participant Remedies...................................................................... 19
13 REPRESENTATIONS AND WARRANTIES OF PARTICIPANT........................................................ 19
13.1 Due Organization.......................................................................... 19
13.2 Requisite Power; Enforceability........................................................... 20
13.3 No Conflict............................................................................... 20
13.4 No Consent................................................................................ 20
14 REPRESENTATIONS AND WARRANTIES OF AMERICAN........................................................... 20
14.1 Due Organization.......................................................................... 20
14.2 Requisite Power; Enforceability........................................................... 20
14.3 No Conflict............................................................................... 21
14.4 No Consent................................................................................ 21
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
15 NOTICES.............................................................................................. 21
16 GOVERNING LAW; CONSENT TO JURISDICTION............................................................... 22
17 WAIVER............................................................................................... 22
18 AMERICAN'S CONFIDENTIALITY........................................................................... 23
18.1 American's Confidential Information....................................................... 23
18.2 Non-Disclosure by Participant............................................................. 23
18.3 Return of American's Confidential Information............................................. 24
18.4 Participant's Employees and Agents........................................................ 24
18.5 American's Equitable Relief............................................................... 24
18.6 Survival.................................................................................. 24
19 PARTICIPANT'S CONFIDENTIALITY........................................................................ 24
19.1 Participant's Confidential Information.................................................... 24
19.2 Non-Disclosure by American................................................................ 25
19.3 Return of Participant's Confidential Information.......................................... 25
19.4 American's Employees and Agents........................................................... 25
19.5 Participant's Equitable Relief............................................................ 25
19.6 AADVANTAGE Database....................................................................... 26
19.7 Survival.................................................................................. 26
20 FORCE MAJEURE........................................................................................ 26
21 INDEPENDENT CONTRACTOR............................................................................... 26
22 ENTIRE AGREEMENT..................................................................................... 26
23 SUCCESSORS AND ASSIGNS............................................................................... 26
24 TAXES................................................................................................ 27
24.2 Indemnity for Taxes....................................................................... 27
24.3 Withholding............................................................................... 27
25 CAPTIONS............................................................................................. 27
26 CONSTRUCTION......................................................................................... 27
27 SEVERABILITY......................................................................................... 27
28 NO THIRD PARTY BENEFICIARIES......................................................................... 27
29 EFFECTIVE DATE....................................................................................... 27
</TABLE>
-iii-
<PAGE>
<TABLE>
<S> <C>
Attachment 1
Pricing......................................................................................... 1-1
Attachment 2
Minimum Purchase Requirements and Prepayment Schedule........................................... 2-1
Attachment 3
Netcentives Approval Request Form............................................................... 3-1
Attachment 4
Data Transmission Layouts....................................................................... 4-1
Attachment 5
Guidelines for Producing AADVANTAGE(R) Related Materials
and Using the AADVANTAGE Travel Awards' Trademark............................................... 5-1
</TABLE>
-iv-
<PAGE>
AADVANTAGE PARTICIPATION AGREEMENT
AGREEMENT made as of the date set forth below between AMERICAN
AIRLINES, INC., a corporation organized and existing under the laws of Delaware
("American") and NETCENTIVES INC., a corporation organized and existing under
the laws of California ("Participant").
WHEREAS, American has developed the AADVANTAGE Program, under which
Members are awarded AADVANTAGE Miles for travel on American, and certain other
AADVANTAGE Participants, and for the purchase of goods or services from other
AADVANTAGE Participants in association with the AADVANTAGE Program, and can
obtain Award Travel and other AADVANTAGE Awards for such AADVANTAGE Miles; and
WHEREAS, American is willing to allow Participant to participate in the
AADVANTAGE Program on the following terms and conditions;
NOW, THEREFORE, in consideration of the mutual covenants and promises
in this Agreement, the parties hereto agree as follows:
1 Definitions. The words "hereof", "herein" or "hereunder" as
-----------
used in this Agreement refer to this Agreement as a whole and not to any
specific portion or provision of this Agreement. For all purposes of this
Agreement, the following terms shall have the following meanings:
"AADVANTAGE Account" means the record, maintained by American,
------------------
of a Member's AADVANTAGE Program activity, including, without limitation, the
accrual and redemption of AADVANTAGE Miles by such Member.
"AADVANTAGE Awards" means the awards or benefits that Members
-----------------
can receive from American, American Eagle and/or certain AADVANTAGE Participants
pursuant to the AADVANTAGE Program Rules in exchange for the redemption of
accrued AADVANTAGE Miles, and if applicable, other consideration.
"AADVANTAGE Miles" means the points or "Miles" (including
----------------
bonus points or "Miles") accrued under the AADVANTAGE Program Rules by Members
for (i) travel on American or American Eagle, (ii) travel on, and/or the
purchase of goods or services from, AADVANTAGE Participants, or (iii) any other
reason permitted by American.
"AADVANTAGE Participant" means any Person that, pursuant to
----------------------
the AADVANTAGE Program Rules and an agreement between American or an Affiliate
of American and such Person regarding such Person's participation in the
AADVANTAGE Program: (i) provides goods or services to Members in exchange for
the redemption of AADVANTAGE Miles, or (ii) in connection with the sale of goods
or services by such Person to Member offers AADVANTAGE Miles to such Member.
<PAGE>
"AADVANTAGE Program" means the travel awards program
------------------
established and governed by American, as such program may be in effect from time
to time, pursuant to which, among other things, Members receive AADVANTAGE Miles
for travel on American or for travel on, or for the use or purchase of goods or
services offered by, an AADVANTAGE Participant, or for any reason permitted by
American.
"AADVANTAGE Program Rules" means the rules, regulations, terms
------------------------
and conditions established or modified, from time to time, by American, in its
sole discretion, which shall govern the AADVANTAGE Program.
"Additional Warrant Agreement" means the Letter Agreement
----------------------------
dated on or about the date hereof, executed by American and Participant, as it
may be amended from time to time, concerning certain additional warrants for
certain non-voting common stock of Participant potentially available to
American.
"Affiliate" means, with respect to any Person, any other
---------
Person directly or indirectly controlling or controlled by or under common
control with such Person. For purposes of this definition, "control" (including
"controlled by" and "under common control with") shall mean the power, directly
or indirectly, to direct or cause the direction of the management and policies
of such Person whether through the ownership of voting securities or by contract
or otherwise.
"Agreement" means this AADVANTAGE Participation Agreement, as
---------
it may, from time to time, be amended or modified in accordance herewith.
"American" has the meaning assigned to such term in the
--------
preamble to this Agreement.
"American Default" shall have the meaning assigned to such
----------------
term in Section 12.1 (American Default).
------------
"American Eagle" means the scheduled air carrier operations of
--------------
any regional airlines that are permitted by American or an Affiliate of American
to do business under the name American Eagle, whether or not an Affiliate of
American.
"American Indemnified Parties" shall have the meaning assigned
----------------------------
to such term in Section 10.1 (Participant Indemnification).a
------------
"American's Confidential Information" shall have the meaning
-----------------------------------
assigned to such term in Section 18.1 (American's Confidential Information).
------------
"Applicable Law" means all applicable laws of any
--------------
jurisdiction, worldwide, including securities laws, tax laws, tariff and trade
laws, ordinances, judgments, decrees, injunctions, writs and orders or like
actions of any Competent Authority and the rules, regulations, orders,
interpretations, licenses and permits of any Competent Authority.
-2-
<PAGE>
"Award Certificate" means a document, issued to a Member by
-----------------
American, that entitles such Member to Award Travel or other AADVANTAGE Awards
obtained by such Member in accordance with this Agreement and the AADVANTAGE
Program Rules.
"Award Ticket" means a ticket good for Award Travel, issued by
------------
American or American's authorized agents.
"Award Travel" means the air transportation on, or any
------------
upgrades or other benefits provided by, American or American Eagle or an
AADVANTAGE Participant, and provided wholly or partly in exchange for the
redemption of AADVANTAGE Miles pursuant to the AADVANTAGE Program Rules.
"Base Miles" means AADVANTAGE Miles awarded to a Member for
----------
each Qualifying Transaction as described in Section 2.1 (Mileage Accrual).
-----------
"Base Rate" shall have the meaning assigned to such term in
---------
Section 3.1 (Pricing).
- -----------
"Bonus Miles" means AADVANTAGE Miles offered by Participant in
-----------
addition to Base Miles offered in connection with a Qualifying Transaction with
American's prior written consent or in connection with other offers made by
Participant to Members with American's prior written consent.
"Business Day" means any day other than a Saturday, Sunday or
------------
other day on which banks in Fort Worth, Texas, are required or authorized to
close.
"Competent Authority" means any foreign, international,
-------------------
national, federal, state, county, local or municipal government body, bureau,
commission, board, board of arbitration, instrumentality, authority, agency,
court, department, inspector, minister, ministry, official or public or
statutory person (whether autonomous or not) having jurisdiction over this
Agreement or any of the parties to this Agreement.
"Commencement Date" shall have the meaning assigned to such
-----------------
term in Section 9.1 (Term).
-----------
"Contract Year" means each August 1 of one (1) year through
-------------
July 31 of the immediately following year during the Term.
"Contract Quarter" means each three (3) month period ending
----------------
October 31, January 31, April 30 and July 31 during the Term.
"Direct Competitor of Participant" shall have the meaning
--------------------------------
assigned to such term in Section 5.1 (Limited Exclusivity).
-----------
"Exclusivity Termination Notice" shall have the meaning
------------------------------
assigned to such term in Section 5.2 (Termination of Limited Exclusivity).
-----------
-3-
<PAGE>
"FFP Supplier" shall have the meaning assigned to such term in
------------
Section 4.1 (Program Content).
- -----------
"Frequent Flyer Points" shall mean the points, credits, or
---------------------
miles, for example, AADVANTAGE Miles, however denominated, offered under a FFP
Supplier's travel awards program or frequent flyer program.
"Incentive Program" shall have the meaning assigned to such
-----------------
term in Section 5.1 (Limited Exclusivity).
-----------
"Limited Exclusivity" shall have the meaning assigned to such
-------------------
term in Section 5.1 (Limited Exclusivity).
-----------
"Losses" means any and all liabilities, obligations, losses,
------
damages, claims, deficiencies, penalties, taxes, levies, actions, judgments,
settlements, suits, costs, legal fees, accountants' fees, disbursements or
expenses.
"Material Adverse Effect" means with respect to any Person, a
-----------------------
material adverse effect on (a) the business, assets, operations, performance,
properties or condition (financial or otherwise) of such Person or (b) the
ability of such Person to perform its obligations under this Agreement.
"Member" means, as of any date, any individual who is a member
------
in good standing of the AADVANTAGE Program.
"Netcentives Points" shall have the meaning assigned to such
------------------
term in Section 4.1 (Program Content).
-----------
"Netcentives Program" shall have the meaning assigned to such
-------------------
term in Section 4.1 (Program Content).
-----------
"Participant Default" shall have the meaning assigned to such
-------------------
term in Section 11.1 (Participant Default).
------------
"Participant Indemnification" shall have the meaning assigned
---------------------------
to such term in Section 10.1 (Participant Indemnification).
------------
"Participants Confidential Information" shall have the
-------------------------------------
meaning assigned to such term in Section 19.1 (Participant's Confidential
------------
Information).
"Participant's Product or Service" shall have the meaning
--------------------------------
assigned to such term in Section 4.1 (Program Content).
-----------
"Participant Taxes" shall have the meaning assigned to such
-----------------
term in Section 24.1 (Participant Taxes).
------------
-4-
<PAGE>
"Person" means any individual, corporation, partnership, joint
------
venture, association, joint stock company, trust, unincorporated organization or
Competent Authority.
"Qualifying Transaction" shall have the meaning assigned to
----------------------
such term in Section 4.1 (Program Content).
-----------
"Report" means the report to be delivered by Participant
------
pursuant to Section 6.1 (Report from Participant) hereof, which Report shall
-----------
contain such information, and shall follow' such procedures, as American shall
reasonably specify from time to time.
"Rights Agreement" means the Netcentives Inc. Rights Agreement
----------------
dated on or about the date hereof, executed by American and Participant, as it
may be amended from time to time, concerning certain additional warrants for
certain non-voting common stock of Participant potentially available to American
and other FFP Suppliers.
"Sponsors" shall have the meaning assigned to such term in
--------
Section 4.1 (Program Content).
- -----------
"Sponsor Contacts" shall have the meaning assigned to such
----------------
term in Section 4.1 (Program Content).
-----------
"$" and "Dollar" means United States Dollars.
--------------
"Total Netcentives Points Redeemed for Frequent Flyer Points"
-----------------------------------------------------------
shall mean all Netcentives Points redeemed for Frequent Flyer Points of FFP
Suppliers.
"Total Redeemed Netcentives Points" shall mean the total
---------------------------------
Netcentives Points redeemed for any service or product.
"Taxes" shall have the meaning assigned to such term in
-----
Section 24.1 (Participant Taxes).
- ------------
"Term" shall have the meaning assigned to such term in Section
---- -------
9.1 (Term).
- ---
"Tour Packages" shall have the meaning assigned to such term
-------------
in Section 4.1 (Program Content).
-----------
"United States" or "U.S." means the fifty United States of
----------------------
America, the District of Columbia, Puerto Rico and territories or possessions of
the United States.
"U.S. AADVANTAGE Summary" means the summary of AADVANTAGE
-----------------------
Program activity sent at intervals to all Members except those with mailing
addresses in Japan, Europe, the Middle East, Africa, and/or Latin America.
"Warrant Agreements" means the two Warrant Agreements dated on
------------------
or about the date hereof, executed by American and Participant, as each may be
amended from time to time,
-5-
<PAGE>
concerning grants of [*****] share tranches, respectively, of warrants for
certain non-voting common stock of Participant.
2 Mileage Accrual.
---------------
2.1 Mileage Accrual. In connection with each Qualifying
---------------
Transaction, (i) Participant shall purchase from American and American shall
sell to Participant AADVANTAGE Miles upon payment terms specified herein, (ii)
Participant shall award AADVANTAGE Miles in exchange for Netcentives Points
subject to the terms stated in Section 4.1 (Program Content) and (iii) American
-----------
shall post such AADVANTAGE Miles in accordance with Section 4.6 Transaction
-----------
Processing).
Any pre-paid AADVANTAGE Miles must be awarded by Participant
pursuant to the terms of this Agreement not later than two (2) years following
their purchase or American's obligation to post such AADVANTAGE Miles shall
cease. American may, at American's option, return to Participant the amount
pre-paid by Participant for such unawarded AADVANTAGE Miles by written notice at
any time upon sixty (60) days prior written notice after one (1) year following
Participant's payment therefor. In such case, Participant shall not be entitled
to award such AADVANTAGE Miles.
Provisions of this Agreement that are stated to survive
termination or expiration of this Agreement shall survive for an additional
period, if longer, until all pre-paid AADVANTAGE Miles purchased hereunder are
awarded as provided in the immediately preceding paragraph.
2.2 Good Standing. American will post AADVANTAGE Miles
-------------
hereunder only if such Member is enrolled and in good standing in the AADVANTAGE
Program. In order for a Member to be in good standing such Member must not
engage in activity that is contrary to AADVANTAGE Program Rules. There shall be
no refunds to Participant for AADVANTAGE Miles posted by American to a Member's
AADVANTAGE Account that are subsequently canceled or voided by American due to
such Member's failure to be in good standing as of the date such AADVANTAGE
Miles were posted or due to the circumstances described in Section 4.10
------------
(AADVANTAGE Program Abuse).
2.3 Rounding. In any Qualifying Transaction, if applicable, a
--------
partial AADVANTAGE Mile in such Transaction of (a) .50 or greater shall be
rounded up to one (1) AADVANTAGE Mile and (b) .49 or less shall be rounded down
to zero (0) AADVANTAGE Miles.
2.4 Bonus Miles. Participant may offer Bonus Miles for special
-----------
promotions with American's prior written consent, such consent not to be
unreasonably withheld.
2.5 Ongoing Conditions Precedent - American. The obligation of
---------------------------------------
American to perform hereunder and make available AADVANTAGE Miles to Participant
at any time shall be subject to the conditions precedent that, as of the date of
the purchase of such AADVANTAGE Miles or the date such performance is due by
American, as applicable:
-6-
****** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
<PAGE>
2.5.1 No Defaults. There exists no Participant
-----------
Default or any event that with the giving of notice or lapse of time, or both,
would become a Participant Default.
2.5.2 Compliance with Agreement. Participant
-------------------------
shall have performed and complied in all material respects with all agreements
and conditions contained herein which are required to be performed or complied
with by Participant before or at the date of such purchase of AADVANTAGE Miles.
2.5.3 No Material Adverse Effect. No event has
--------------------------
occurred after the date hereof having a Material Adverse Effect on Participant.
2.5.4 Representations and Warranties. The
------------------------------
representations and warranties of Participant contained in Section 13
----------
(Representations and Warranties of Participant) shall be true in all material
respects on the date of such purchase of AADVANTAGE Miles, with the same force
and effect as though made on and as of that date.
2.5.5 Bankruptcy Proceedings. No federal, state
----------------------
or foreign bankruptcy proceeding, case or similar action under similar laws
shall have been commenced by or against Participant.
2.5.6 Judicial or Environmental Intervention. No
--------------------------------------
proceeding or case is pending before any court or governmental authority
investigating or seeking to enjoin or limit (i) American's rights hereunder or
(ii) the sale of AADVANTAGE Miles by American to Participant.
2.5.7 Force Majeure. No event or condition has
-------------
occurred or is existing for which Participant is excused from performing
hereunder pursuant to Section 20 (Force Majeure).
----------
2.6 Ongoing Conditions Precedent - Participant. The
------------------------------------------
obligation of Participant to perform hereunder and purchase AADVANTAGE Miles
from American at any time shall be subject to the conditions precedent that, as
of the date of the requirement to purchase such AADVANTAGE Miles or the date
such performance is due Participant, as applicable:
2.6.1 No Defaults. There exists no American
-----------
Default or any event that with the giving of notice or lapse of time, or both,
would become an American Default.
2.6.2 Compliance with Agreement. American shall
-------------------------
have performed and complied in all material respects with all agreements and
conditions contained herein which are required to be performed or complied with
by American before or at the date such performance is due.
2.6.3 No Material Adverse Effect. No event has
--------------------------
occurred after the date hereof having a Material Adverse Effect on American.
-7-
<PAGE>
2.6.4 Representations and Warranties. The
------------------------------
representations and warranties of American contained in Section 14
----------
(Representations and Warranties of American) shall be true in all material
respects on the date of such performance is due, with the same force and effect
as though made on and as of that date.
2.6.5 Bankruptcy Proceedings. No federal, state
----------------------
or foreign bankruptcy proceeding, case or similar action under similar laws
shall have been commenced by or against American.
2.6.6 Judicial or Governmental Intervention. No
-------------------------------------
proceeding or case is pending before any court or governmental authority
investigating or seeking to enjoin or limit Participants rights hereunder.
2.6.7 Force Majeure. No event or condition has
-------------
occurred or is existing for which American is excused from performing hereunder
pursuant to Section 20 (Force Majeure).
----------
2.7 Survival. Sections 2.2 (Good Standing) and 2.3
-------- ------------ ---
(Rounding) shall survive termination or expiration of this Agreement and shall
continue in full force and effect until all AADVANTAGE Miles awarded hereunder
have been paid for.
3 Charges.
-------
3.1 Pricing. For Participant's participation in the
-------
AADVANTAGE Program, and for the AADVANTAGE Miles purchased by Participant
hereunder, Participant shall pay American, without offset, in accordance with
Section 3.2 (Mileage Payments), the amount per AADVANTAGE Mile ("Base Rate")
- -----------
purchased by Participant hereunder as specified on Attachment 1. Participant
------------
shall also pay either (i) a one time data processing hookup charge (less than
$1,000) for processing mileage transmissions or, at Participant's option, (ii)
the applicable per-mile administration and handling fee for the AAIM processing
mechanism chosen by Participant that shall be no greater than the administrative
fee charged to other AAIM customers.
3.2 Mileage Payments. Not later than five (5) Business
----------------
Days after the date that Participant provides American with cartridges or
transmissions for AADVANTAGE Miles to be posted hereunder as provided in Section
-------
6.1 (Report from Participant), Participant shall pay American the per AADVANTAGE
- ---
Mile Base Rate charges described in Section 3.1 (Pricing). American shall
-----------
reconcile the payment amount received against the cartridge or transmission not
later than 30 days after American's receipt of the payment and will notify
Participant of any discrepancies. Any under-payment or over-payment by
Participant will require adjustment to subsequent payments in the amount of such
over-payment or under-payment and, with respect to underpayment, such adjustment
shall be paid by Participant before there will be any subsequent posting of
AADVANTAGE Miles. At American's option, American may choose not to post
AADVANTAGE Miles with respect to any under-paid amount.
-8-
<PAGE>
3.3 Method of Payments. All payments hereunder shall be
------------------
made on their respective due dates by check or by wire transfer pursuant to
wiring instructions given by American or by other means of payment agreed in
writing by American.
3.4 Minimum Purchase; Prepayment. Participant shall
----------------------------
prepay and purchase from American a minimum number of AADVANTAGE Miles each year
as specified in Attachment 2.
------------
3.5 Survival. This Section 3 shall survive termination or
-------- ---------
expiration of this Agreement and shall continue in full force and effect until
all AADVANTAGE Miles awarded hereunder have been paid for.
4 Program Content and Administration.
----------------------------------
4.1 Program Content. Participant will carry out a
---------------
promotional program that includes the following key elements (such promotional
program is hereinafter referred to as the "Netcentives Program"). Participant
will enter into contracts ("Sponsor Contracts") with manufacturers, wholesalers,
retailers and service providers ("Sponsors") under which Sponsors will be
entitled to purchase from Participant and provide credits or points
("Netcentives Points") to such Sponsors' customers solely in connection with
offers appearing on the Internet and online services. [***] unless Netcentives
Points will not be exchangeable for AADVANTAGE Miles in connection with such
offer. [***] not later than two (2) Business Days after American's receipt of
such request. [***] Effective upon not less than ninety (90) days prior written
notice by American to Participant, [***] American. For informational purposes,
American hereby discloses to Participant that [***]
Except for special limited-time promotions, Netcentives Points
will be exchangeable for AADVANTAGE Miles at a ratio not less favorable to the
Member than the exchange ratio applicable to Frequent Flyer Points offered by
any other airline participating as a Frequent Flyer Point award supplier ("FFP
Supplier") in the Netcentives Program, but in any event not less than a ratio of
one (1) AADVANTAGE Mile for each one (1) Netcentives Point.
-9-
****** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
<PAGE>
Participant shall maintain a database of Netcentives Points earned and redeemed
by Sponsors' customers. Participant shall maintain a web site where Sponsors,
customers can check on the status of their Netcentives Points account and redeem
Netcentives Points for awards. Participant will not offer as an award under the
Netcentives Program any tour package in which any air travel component thereof
is supplied by an air carrier other than a FFP Supplier. Except for special
limited-time promotions, Participant will at all times remain neutral in
communicating the availability of Frequent Flyer Point awards on Participant's
web site, advertising and press releases so that in no instance is American
treated less favorably than any other FFP Supplier and will ensure that Sponsors
are similarly bound under their Sponsor Contracts.
"Qualifying Transaction" shall mean a redemption of
----------------------
Netcentives Points for AADVANTAGE Miles in accordance with the terms herein
stated. "Participant's Product or Service" shall mean the product(s) or
service(s) of Participant as described in this Section 4.1.
-----------
4.2 AADVANTAGE Program Enrollment. Prospective Members must
-----------------------------
be enrolled in the AADVANTAGE Program in accordance with AADVANTAGE Program
Rules in order to earn AADVANTAGE Miles hereunder. American will not post
AADVANTAGE Miles hereunder until an AADVANTAGE Account number has been assigned.
4.3 AADVANTAGE Program Administration. Administration of the
---------------------------------
AADVANTAGE Program shall be performed by American and all AADVANTAGE Program
Rules shall apply to Participant's participation in the AADVANTAGE Program.
American will issue all Award Certificates, U.S. AADVANTAGE Summaries, and
AADVANTAGE Program newsletters.
4.4 Customer Service. Member questions concerning
----------------
Participant's participation in the AADVANTAGE Program or record keeping in
connection therewith will be referred by American to Participant's customer
service department having a web site address and telephone number to be
furnished by Participant to American. Participant will maintain a customer
service department, with personnel available 8:00 A.M. PST to 5:00 P.M. PST, to
resolve any Member questions. This department will be staffed and supported by
Participant in such a manner that Participant will be able to effectively
address Member issues relating to Participant's participation in the AADVANTAGE
Program. Participant will ensure that the quality of Participant's Product or
Service and the quality of customer service provided by Participant to Members
hereunder shall be commensurate with that offered by major U.S. World Wide Web
providers and marketers of similar products or services.
4.5 Member Disputes. If a Member asserts that he or she is
---------------
entitled to AADVANTAGE Miles in connection with a Qualifying Transaction but did
not receive such AADVANTAGE Miles, and Participant has not, not later than
fifteen (15) Business Days after request of American, provided American with
documents (e.g., photocopy of correspondence) indicating that Participant has
----
responded to such Member concerning such dispute, and provided the Member
applies to American within twelve (12) months after the date of the Qualifying
Transaction, American shall have the right to post to the Member's AADVANTAGE
Account
-10-
<PAGE>
and invoice Participant, and Participant shall pay, in accordance with Section
-------
3.1 (Pricing), for the AADVANTAGE Miles in dispute.
- ---
4.6 Transaction Processing. Participant will be
----------------------
responsible for obtaining and maintaining the transaction processing function
necessary to process Qualifying Transactions. Participant will calculate the
number of AADVANTAGE Miles earned by Members for each Qualifying Transaction and
will incorporate that information into each Report to be furnished by
Participant to American pursuant to this Agreement. Participant understands and
agrees that American will rely on the accuracy of each Report submitted by
Participant to post AADVANTAGE Miles to a Member's AADVANTAGE Account subject to
any adjustment provided for in Section 3.2 (Mileage Payments) and Section 4.5
----------- -----------
(Member Disputes).
4.7 Training. Participant will provide training for all
--------
relevant Participant field and corporate staff members during the Term. Updated
training material as related to Participant's participation in the AADVANTAGE
Program will be produced and distributed by Participant on a regular basis. The
nature and extent of such training programs shall be sufficient to enable proper
administration of all items for which Participant is responsible hereunder.
4.8 Trademarks.
----------
4.8.1 American's Marks. Participant acknowledges
----------------
that the AADVANTAGE Program name and logo and the other names and marks referred
to below are the property of American and upon termination of this Agreement,
Participant will cease use of such logo, names and marks. The marks "AMERICAN
AIRLINES," and "AADVANTAGE" are the only marks owned by American that may be
used by Participant in marketing and promoting Participant's participation in
the AADVANTAGE Program and then only as provided in this Section and Section 7.3
-----------
(American Approval of Promotional Materials; Graphics Standards). Whenever the
words trademark, service mark or trade name are used in this Agreement, such
words shall be deemed to refer to the marks listed immediately above.
Participant will take no actions that are adverse to American's ownership rights
in such marks. Participant shall use only the term "Participant" to describe its
participation in the AADVANTAGE Program. Participant shall provide for
American's approval one or more templates for Netcentives Program description
for use in Sponsors' web sites and for Netcentives Program Internet banner ads
if any of such items use any of American's marks. Upon approval by American,
Participant may use and make available such templates for use by Sponsors.
Except as provided above, with respect to pre-approved templates, Sponsors may
not use in any press release, web site, web advertisement or other public
communication any of American's names or marks listed above without American's
prior written consent. Participant will ensure that Sponsors are so bound in
their Sponsor Contracts. Upon request of American, Participant shall terminate
from the Netcentives Program any Sponsor that fails to comply with the
foregoing.
4.8.2 Netcentives' Marks. American acknowledges
------------------
that Netcentives, ClickRewards, and ClickPoints names and logos (and other marks
as disclosed by Participant to American during the course of this Agreement) are
the property of Participant and upon
-11-
<PAGE>
termination of this Agreement, American will cease use of such logo, names and
marks. Netcentives hereby grants American a limited, non-exclusive license to
duplicate and use Participant's marks in American's promotional materials and on
its Internet web site, during the Term of this Agreement, provided, however,
that any use of Participant's marks shall be for the purpose of promoting the
AADVANTAGE Program or the Netcentives Program and shall only be used with regard
to the inclusion of AADVANTAGE Miles within the Netcentives Program or
termination as provided in Section 7.5 (Termination).
-----------
4.9 Applicable Law. Participant will comply with Applicable
--------------
Law with respect to its operations, including the marketing and sale of
Participant's Product or Service, and its role in connection with the AADVANTAGE
Program.
4.10 AADVANTAGE Program Abuse. American reserves the right to
------------------------
terminate from the AADVANTAGE Program any Member that, in American's judgment,
engages in any activity that is contrary to AADVANTAGE Program Rules contained
in the AADVANTAGE member guide in effect from time to time. Fraud or abuse in
relation to AADVANTAGE mileage credit or award usage is subject to appropriate
administrative and/or legal action by American including, without limitation:
the forfeiture of all Award Certificates, tickets issued against Award
Certificates and any accrued mileage in a Member's AADVANTAGE Account; as well
as cancellation of the account and Member's future participation in the
AADVANTAGE Program. Participant shall cooperate with all reasonable requests of
American concerning any investigation and/or prosecution of anyone engaging in
or suspected of engaging in AADVANTAGE Program abuse or fraud, including but not
limited to assisting American in verifying any purported Member's AADVANTAGE
Program membership status and cooperating with any civil or criminal
prosecution. In the event that Participant detects fraud or abuse in relation to
the issuance or redemption of Netcentives Points, American shall, insofar as
such fraud or abuse involves the AADVANTAGE Program, cooperate with all
reasonable requests of Participant concerning any investigation of anyone
engaging in or suspected of engaging in Netcentives Program abuse or fraud,
including but not limited to, assisting Participant in verifying AADVANTAGE
Program membership status.
4.11 Cancellation or Alteration of AADVANTAGE Program.
------------------------------------------------
Participant acknowledges that American may cancel or alter any part of the
AADVANTAGE Program, the AADVANTAGE mileage accrual structure, or any AADVANTAGE
Award at any time and may offer supplemental award promotions. American may add
or delete other Persons as AADVANTAGE Participants, subject to Section 5
---------
(Exclusivity).
4.12 Air Carrier Sponsor. No air carrier that is not a FFP
-------------------
Supplier may be a Sponsor or may advertise on Participant's web site.
Participant agrees that American or its Affiliates shall have the right to be a
Sponsor or advertise on Participant's web site on terms mutually acceptable to
American or such Affiliate, as applicable, and Participant, but in any event on
terms no less favorable to American or such Affiliate than those terms
applicable to any other FFP Supplier Sponsor in the Netcentives Program.
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<PAGE>
4.13 Reserve Requirement. Participant shall work with Deloitte
-------------------
& Touche, or such other "Big 6" auditor as Participant deems fit, to structure a
reserve process to provide for redemptions. American shall, upon thirty (30)
days written request, receive from Participants auditor an opinion on the
suitability of such reserve process to meet Participant's business obligations.
4.14 Management of Program. The price, terms and conditions
---------------------
for the purchase of Frequent Flyer Points from a FFP Supplier, as well as the
selection of FFP Suppliers, shall be determined exclusively by Participant
without participation by any FFP Supplier. American and its Affiliates shall
have no duties or responsibilities, administrative, financial or otherwise, with
respect to the Netcentives Program except, in the case of American, American's
duties and responsibilities expressly set forth herein as a vendor of AADVANTAGE
Miles and any other responsibilities or American expressly set forth herein.
American and its Affiliates shall have no implied duties or obligations with
respect to the Program. Participant shall operate its business and the Program
independently from the FFP Suppliers and shall not permit any FFP Supplier to
exercise influence or control over management of its business or the Netcentives
Program.
4.15 Computer Reservation Function. Participant shall allow
-----------------------------
American or its Affiliates, including The SABRE Group, Inc., to bid on providing
Participant with computerized reservation booking capability if Participant
decides it needs such capability.
5 Exclusivity.
5.1 Limited Exclusivity. Subject to the terms and limitations
-------------------
set forth herein, American will not offer AADVANTAGE Miles to be used as an
incentive in any program that is a Direct Competitor of Participant. The term
"Direct Competitor of Participant" means [......]. This limited exclusivity is
herein referred to as "Limited Exclusivity." It is acknowledged and understood
by Participant that except as pertains to a Direct Competitor of Participant,
American may [***] and that none of such actual or potential promotional
activities are precluded hereunder. [***] Participant acknowledges and agrees
that [***]
5.2 Termination of Limited Exclusivity. American or
----------------------------------
Participant may terminate American's obligations with respect to Limited
Exclusivity by giving not less than ninety (90) days prior written notice of
such termination to the other party ("Exclusivity Termination Notice");
provided, however, that in no event may American so terminate its
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****** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
<PAGE>
obligations with respect to Limited Exclusivity with an effective date of
termination prior to January 31, 1998. Effective [***] after Participant's or
American's receipt of the other party's Exclusivity Termination Notice, [.....]
(ii) the AADVANTAGE Mile minimum purchase and prepayment requirements shall end
as provided on Attachment 2 and (iii) American will not be bound under the terms
------------
of Limited Exclusivity.
6 Reports.
-------
6.1 Report from Participant. Participant will provide American
-----------------------
with cartridges or transmissions listing AADVANTAGE Miles to be posted by Member
name, AADVANTAGE Account number, transaction code and other items as specified
in the Report. Participant will submit these cartridges or transmissions, which
will be merged with the AADVANTAGE data base maintained by American, to American
at least once each month (and if only once each month, on the day of the month
specified by written notice from American to Participant), but not more often
than once each week. The cartridges or transmissions will include all AADVANTAGE
Miles to be posted for Qualifying Transactions for the immediately preceding
period and any corrections of prior cartridges or transmissions.
6.2 Verification. To minimize posting errors, Participant will
------------
verify that the Member's AADVANTAGE Account number is valid prior to
transmission to American as per the algorithm outlined in the Report.
6.3 Report from American. American will promptly provide
--------------------
Participant with cartridge, tape, transmission or hard copy summary error report
concerning requested postings.
6.4 Tax Reporting. Participant shall be responsible for any
-------------
tax reporting in connection with the award of AADVANTAGE Miles hereunder.
6.5 Survival. This Section 6 shall survive termination or
-------- ---------
expiration of this Agreement and shall continue in full force and effect until
all AADVANTAGE Miles awarded hereunder have been paid for.
7 Marketing and Advertising.
-------------------------
7.1 Web Site and Telephone Number. Participant at its sole
-----------------------------
expense shall maintain throughout the Term a web site and telephone number to be
used exclusively for marketing Participant's Product or Service. All advertising
and promotion of Participant's Product or Service by Participant shall feature
Participant's web site address. Participant will have adequate personnel
available 8:00 A.M. PST to 5:00 P.M. PST to service callers on the telephone
number. Participant shall furnish American such statistical information
concerning the calls that relate to Participant's participation in the
AADVANTAGE Program as American may request from time to time.
7.2 Newsletter Inserts. Subject to the terms hereof and
------------------
American's ability to physically accommodate the insert in the U.S. AADVANTAGE
Summary envelope, Participant shall purchase two (2) inserts in the U.S.
AADVANTAGE Summary envelope sent by American
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****** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
<PAGE>
to Members for each Contract Year during the Term. Participant shall pay the
preferred AADVANTAGE Participant rate for inserts. American may, but shall not
be obligated to, make additional insert opportunities available to Participant
on a space available basis. All inserts are subject to a maximum weight of .10
ounces. Participant, at its sole cost and expense, shall create and produce all
inserts that it wishes American to consider inducing. Participant shall deliver
each insert to American no less than five (5) Business Days prior to the date of
the U.S. AADVANTAGE Summary mailing. Insertion costs associated with these
inserts is included in American's preferred rates referred to above, provided
the insert does not place the mailing overweight or require special handling by
the mailing vendor, in which case Participant shall pay the extra costs.
American shall have the right to approve the content of such inserts. In the
event that such insert will require extra postage, Participant shall have the
option to pay such extra postage or to reschedule the insert to a U.S.
AADVANTAGE Summary mailing when no extra postage will be required but
Participant must still meet the timing requirement described above, if
applicable. Nothing herein shall be considered as giving Participant the right
to an insert for any particular summary mailing. In the event Participant
chooses not to incorporate a requested insert that has been approved and
scheduled by American, it must provide American with written notice not less
than sixty (60) days prior to the scheduled insertion date.
7.3 American Approval of Promotional Materials; Graphic
---------------------------------------------------
Standards. Participant shall submit to American for review and approval, prior
- ---------
to publication or use, the portion of any and all artwork, scripts, copy,
advertising, promotional materials, direct mail, press releases, newsletters,
Internet pages or other communications or any other publicity published or
distributed by Participant (or at its direction or authorization) that
specifically references this Agreement, the AADVANTAGE Program, American (or any
of American's Affiliates) or uses any trademark, service mark, logo or trade
name of American or any of its Affiliates. All such promotional materials shall
follow the graphics standards and AADVANTAGE Program disclaimers set forth on
Attachment 5. American shall have the right to modify the graphics standards and
- ------------
AADVANTAGE Program disclaimers from time to time. All promotional or
informational material using the name "AADVANTAGE" or "American Airline" will
require the tag line "American Airlines and AADVANTAGE are registered trademarks
of American Airlines, Inc." Notwithstanding the foregoing, certain templates are
to be submitted for American's approval as provided in Section 4.8.1 (American's
-------------
Marks). American and Participant shall issue mutually acceptable press releases,
at a mutually agreed time, concerning American's participation in the
Netcentives Program, including the exclusive nature of such participation.
American will have a representative at Participant's Netcentives Program launch
press conference.
7.4 Web Site Co-Marketing. American agrees to provide a link
---------------------
to Participant's web site from American's web site. Participant agrees to
provide a link to American's web site from Participant's web site.
7.5 Termination. All promotion and publication rights of
-----------
Participant and American hereunder shall immediately cease upon notice of
termination of this Agreement by either party.
-15-
<PAGE>
8 Reports; Audits.
---------------
8.1 Informational Reports. Participant will produce and
---------------------
deliver to American, at such intervals as American shall reasonably request,
reports of the aggregate number of Netcentives Points issued to or purchased by
Sponsors (as a whole and not identified as to any particular Sponsor), the
aggregate number of Netcentives Points distributed by Sponsors (as a whole and
not identified as to any particular Sponsor) to their customers, Total Redeemed
Netcentives Points, Total Netcentives Points Redeemed for Frequent Flyer Points
(as a whole and not identified as to any particular FFP Supplier) of FFP
Suppliers, forecasts of Netcentives Program demand and such other reports and
information regarding the sale or licensing and redemption of Netcentives Points
in relation to American's participation in the Netcentives Program as American
shall reasonably request.
8.2 Audit Access. Participant will permit American and any of
------------
American's accountants, attorneys and representatives reasonable access to audit
Participant's participation in the AADVANTAGE Program and for such purpose to
examine all books of account, records, reports and other papers, to make copies
therefrom and to discuss same with Participant's officers, employees and
accountants, all at such reasonable times and as often as may be reasonably
requested by American. Such audits will be at American's sole cost. Such audits
may include but will not be limited to, an audit of Participant's records
concerning AADVANTAGE Miles purchased or awarded by Participant, the quality of
customer service provided by Participant to Members, the compliance by
Participant with Applicable Law and compliance by Participant with the terms of
this Agreement.
8.3 Survival. This Section 8 shall survive termination or
-------- ---------
expiration of this Agreement and shall continue in full force and effect until
all AADVANTAGE Miles awarded hereunder have been paid for.
9 Term of Agreement.
-----------------
9.1 Term. This Agreement shall become effective on the date
----
hereof ("Commencement Date") and shall continue in full force and effect until
and including July 31, 2000 (the "Term").
9.2 Notice of Termination. All notices to the general public
---------------------
and Members of the termination of Participant's participation in the AADVANTAGE
Program will be the sole responsibility of American and shall be undertaken at
American's sole cost and expense. In addition, Participant may announce
termination to Netcentives Program members at Participant's cost and expense.
10 Indemnification; Limitation of Usability.
----------------------------------------
10.1 Participant Indemnification. Participant shall indemnify
---------------------------
and hold harmless American, as well as American's parent company, subsidiaries,
licensees and Affiliates and their officers, shareholders, directors, employees
and agents (herein collectively referred to as "American Indemnified Parties")
from and against any and all Losses incurred by, borne by or
-16-
<PAGE>
asserted against any of the American Indemnified Parties arising out of or
resulting from (i) Participant's performance, failure to perform or improper
performance of this Agreement, (ii) breach of any representation or warranty of
Participant contained herein, (iii) the marketing, sale or use of Participant's
Product or Service, (iv) any claim that any permitted use hereunder by American
of any Participant trademark or name infringes on any existing copyright,
trademark or property right of any Person, (v) any claims or statements made by
Participant in its advertising or promotional activities that are in conflict,
or inconsistent, with the terms of this Agreement or fail to comply with
Applicable Law, or (vi) any Program Sponsor's purchase or use of Netcentives
Points. American will inform Participant promptly after American receives notice
of any claim with respect to which indemnity hereunder is asserted and will
grant to Participant the right to control, and will cooperate with Participant
in, the defense of such claim.
10.2 Limitation. Except for the indemnification obligations
----------
stated above, in no event will either party be liable under this Agreement or
under Applicable Law in connection with this Agreement to the other party for
consequential, punitive or exemplary damages relating to this Agreement and each
party hereby releases and waives any claims against the other party for such
damages. In no event shall American be liable under this Agreement or under
Applicable Law in connection with this Agreement for an amount in excess of the
aggregate amount of revenues received by American from Participant under this
Agreement.
10.3 Survival. This Section 10 shall survive termination or
-------- ----------
expiration of this Agreement and shall continue in full force and effect for a
period of three (3) years thereafter.
11 Default of Participant; Remedies; Other Rights of American.
----------------------------------------------------------
11.1 Participant Default. The occurrence of any one or more
-------------------
of the following events shall constitute a "Participant Default":
11.1.1 Participant defaults in the performance of any
of the terms and conditions of this Agreement, and such default continues for a
period of thirty (30) days or longer (ten (10) days or longer in the case of
default in payment of any sums due hereunder) following written notice thereof
from American to Participant, which notice shall describe in reasonable detail
the alleged default;
11.1.2 Participant defaults under, or breaches the terms
of, the Warrant Agreement;
11.1.3 Participant voluntarily files for bankruptcy or
makes an assignment for the benefit of its creditors, or if an involuntary
assignment or bankruptcy petition is made or filed against Participant and not
dismissed or satisfied within sixty (60) days, or if the interest of Participant
hereunder passes by operation of law to any Person; or
11.1.4 Any representation or warranty made at any time
by Participant to American proves to be untrue in any material respect.
-17-
<PAGE>
11.2 American Remedies. If a Participant Default shall
-----------------
occur, then American, at its option, may immediately terminate this Agreement by
written notice to Participant at any time after the occurrence of such
Participant Default and/or pursue any remedies available under Applicable Law,
subject to the limitations stated in Section 10.2 (Limitation). Nothing
------------
contained herein shall be deemed to restrict or prevent American from pursuing
equitable remedies at any time to prevent or enjoin the breach or threatened
breach of this Agreement by Participant. All such remedies shall be cumulative
and the pursuit of one or more remedies by American shall not be deemed a waiver
of any other rights or remedies of American hereunder.
11.3 Additional Rights. American shall have the following
-----------------
additional rights and Participant the following additional duties whether or not
there exists a Participant Default:
11.3.1 If American decides to terminate the AADVANTAGE
Program, American may terminate this Agreement at any time upon not less than
one hundred eighty (180) days' prior written notice to Participant.
11.3.2 In the event that (i) Participant merges with
or into or is acquired, in whole or in part, by another Person; (ii)
Participant sells substantially all of its assets; or (iii) Participant acquires
another Person or purchases substantially all of the assets of another Person,
American shall have the right, upon not less than thirty (30) days prior written
notice, to terminate this Agreement if in American's judgment (a) such other
Person is a competitor of American or (b) such event will have a Material
Adverse Effect upon this Agreement or Participant's participation in the
AADVANTAGE Program.
In the event of termination by American under this Section
11.3, any amounts prepaid by Participant hereunder will promptly be refunded by
American to Participant net of any amounts due and owing to American hereunder.
12 Default of American; Remedies:
-----------------------------
12.1 American Default. The occurrence of any one or more
----------------
of the following events shall constitute an "American Default":
12.1.1 American defaults in the performance of any of
the terms and conditions of this Agreement, and such default continues
for a period of thirty (30) days or longer following written notice thereof from
Participant to American, which notice shall describe in reasonable detail the
alleged default;
12.1.2 American voluntarily files for bankruptcy or
makes an assignment for the benefit of its creditors, or if an involuntary
assignment or bankruptcy petition is made or filed against American and not
dismissed or satisfied within sixty (60) days, or if the interest of American
hereunder passes by operation of law to any Person; or
12.1.3 Any representation or warranty made hereunder
by American to Participant proves to be untrue in any material respect.
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<PAGE>
12.2 Participant Remedies. If an American Default shall occur,
--------------------
then Participant, at its option, may immediately terminate this Agreement by
written notice to American at any time after the occurrence of such American
Default and/or pursue any remedies available under Applicable Law, subject to
the limitations stated in Section 10.2 (Limitation), including without
------------
limitation the right to promptly receive a refund from American of any amounts
prepaid by Participant hereunder, net of any amounts due and owing to American
hereunder. Nothing contained herein shall be deemed to restrict or prevent
Participant from pursuing equitable remedies at any time to prevent or enjoin
the breach or threatened breach of this Agreement by American. All such remedies
shall be cumulative and the pursuit of one or more remedies by Participant shall
not be deemed a waiver of any other rights or remedies of Participant hereunder.
13 Representations and Warranties of Participant. As an
---------------------------------------------
inducement to American to enter into this Agreement, Participant represents and
warrants to American as follows:
13.1 Due Organization. Participant is a corporation duly
----------------
organized and validly existing under the laws of California. Participant has
full power to own or lease its properties and to conduct its business as
presently conducted, including the marketing and sale of Participant's Product
or Service. Participant is duly authorized, qualified or licensed to do business
and validly existing as a foreign corporation in each jurisdiction in which it
is so required to be authorized, qualified or licensed where the failure to be
so qualified would have a Material Adverse Effect on Participant.
13.2 Requisite Power; Enforceability. Participant has all
-------------------------------
requisite corporate power and authority to execute, enter into and carry out the
terms and conditions of this Agreement and any other agreements and instruments
contemplated hereby, and to perform its obligations hereunder and thereunder.
This Agreement has been duly executed and delivered and is a legal, valid and
binding agreement of Participant, enforceable in accordance with its terms,
except that the enforceability of this Agreement may be subject to bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect relating to creditors' rights generally and that the remedy of specific
performance and injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.
13.3 No Conflict. Neither the execution or delivery of this
-----------
Agreement, nor the consummation of the transactions contemplated hereby, will
conflict with or result in the breach of any term or provision of, or constitute
a default under, or give any third party the right to accelerate any material
obligation under, any charter provision, bylaw, contract or Applicable Law to
which Participant is a party or by which Participant or any its assets or
properties are in any way bound or obligated.
13.4 No Consent. No consent, approval, order or authorization
----------
of, or registration, qualification, designation, declaration or filing with, any
Competent Authority is required on the part of Participant in connection with
the transactions contemplated by this Agreement, except for those which have
been obtained and except for the filing of revised
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<PAGE>
Articles of Incorporation with the Secretary of State of California with respect
to the issuance of non-voting convertible stock. No consent, approval, waiver or
other action by any Person under any contract is required or necessary for the
execution, delivery and performance of this Agreement by Participant, or the
consummation by Participant of the transactions contemplated hereby, except for
those which have been obtained, except for approval by Participant's Board with
respect to the warrants contemplated under this Agreement.
14 Representations and Warranties of American. As an
------------------------------------------
inducement to Participant to enter into this Agreement, American represents and
warrants to Participant as follows:
14.1 Due Organization. American is a corporation duly
----------------
organized and validly existing under the laws of Delaware. American has full
power to own or lease its properties and to conduct its business as presently
conducted. American is duly authorized, qualified or licensed to do business and
validly existing as a foreign corporation in each jurisdiction in which it is so
required to be authorized, qualified or licensed.
14.2 Requisite Power; Enforceability. American has all
-------------------------------
requisite corporate power and authority to execute, enter into and carry out the
terms and conditions of this Agreement and any other agreements and instruments
contemplated hereby, and to perform its obligations hereunder and thereunder.
This Agreement has been duly executed and delivered and is a legal, valid and
binding agreement of the American, enforceable in accordance with its terms,
except that the enforceability of this Agreement may be subject to bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect relating to creditors' rights generally and that the remedy of specific
performance and injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.
14.3 No Conflict. Neither the execution or delivery of this
-----------
Agreement, nor the consummation of the transactions contemplated hereby, will
conflict with or result in the breach of any term or provision of, or constitute
a default under, or give any third party the right to accelerate any material
obligation under, any charter provision, bylaw, contract or Applicable Law to
which American is a party or by which American or any its assets or properties
are in any way bound or obligated.
14.4 No Consent. No consent, approval, order or authorization
----------
of, or registration, qualification, designation, declaration or filing with, any
Competent Authority is required on the part of American in connection with the
transactions contemplated by this Agreement, except for those which have been
obtained. No consent, approval, waiver or other action by any Person under any
contract is required or necessary for the execution, delivery and performance of
this Agreement by American, or the consummation by American of the, transactions
contemplated hereby, except for those which have been obtained.
15 Notices. All notices, reports, invoices and other
-------
communications required or permitted hereunder to be given to or made upon any
party hereto in writing, shall be addressed as provided below and shall be
considered as property given (i) if delivered in person; (ii) if sent by an
express courier delivery service which provides signed acknowledgments of
receipt; (iii) if
-20-
<PAGE>
deposited in the US. certified or registered first class mail, postage prepaid,
return receipt requested or (iv) if transmitted by telecopier (upon receipt by
sender thereof of evidence that a complete transmission of such telecopy was
made to the recipient thereof) and, in the case of telecopier transmission,
confirmed by (a) telephone contemporaneously to the person entitled to receive
such notice or to such person's secretary, and (b) dispatching a copy of such
notice by the methods described in clause (i), (ii) and (iii) above. All notices
shall be effective upon receipt. For the purposes of notice, the addresses of
the parties shall be as set forth below; provided, however, that either party
shall have the right to change its address for notice hereunder to any other
location by giving not less than thirty (30) days notice to the other party in
the manner set forth above.
If to American:
--------------
By Mail: American Airlines, Inc.
P.O. Box 619616, MD 2424
DFW Airport, TX 75261-9616
Attn: Bruce Chemel
By Courier: 4200 Amon Carter Boulevard
MD 2424
Fort Worth, TX 76155
Attn: Bruce Chemel
Phone: (817) 931-2526
Fax: (817) 967-3037
If to Participant:
-----------------
Netcentives Inc.
2121 El Camino Real
Suite 615
San Mateo, CA 94403
Attn: Eric W. Tilenius, Chairman
Phone: (415) 577-3535
Fax: (415) 572-5205
16 Governing Law; Consent to Jurisdiction. THIS AGREEMENT AND THE
--------------------------------------
RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY,
AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF TEXAS,
EXCLUDING ITS RULES OF CONFLICTS OF LAW. Each party hereto irrevocably consents,
agrees and submits to the exclusive jurisdiction of the U.S. federal courts of
the Northern District of Texas or, if such court does not have jurisdiction, of
the courts of the State of Texas in Tarrant County, for the purposes of any
suit, action or proceeding arising out of or relating to this Agreement and
irrevocably waives, to the
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<PAGE>
fullest extent permitted by law, any objection to the Iaylng of venue of any
such suit, action or proceeding in any such court or any claim that any such
suit, action or proceeding has been brought in an inconvenient forum. Each party
agrees that neither of them will bring any suit, action or other proceeding
arising out of this Agreement, the subject matter herein, or any of the
transactions described herein, in any jurisdiction other than the jurisdiction
described above. Each party consents to process being served in any such suit,
action or proceeding by any of the methods of notice specified in Section 15
(Notices). Each such party agrees that such service shall be deemed in every
respect effective service of process in any such suit, action or proceeding and
shall, to the fullest extent permitted by law be taken and held to be valid
personal service upon and personal delivery to such party.
17 Waiver. No waiver of breach of any provision of this Agreement by
------
either party shall constitute a waiver of any subsequent breach of the same or
any other provision hereof, and no waiver shall be effective unless made in
writing and signed by an officer of the other party.
18 American's Confidentiality.
--------------------------
18.1 American's Confidential Information. "American's
-----------------------------------
Confidential Information" shall mean (i) all data, reports, interpretations,
forecasts, records or other information concerning the AADVANTAGE Program or
Members, tangible or intangible, oral or written, which American may give
Participant access to or which Participant obtains through the Netcentives
Program, (ii) all AADVANTAGE Program documents and marketing materials that
American may provide to Participant where such documents are identified orally
or in writing by American as confidential immediately prior to or immediately
after disclosure by American to Participant, and (iii) any other information
identified orally or in writing by American as confidential immediately prior to
or immediately after disclosure by American to Participant. Participant
acknowledges that American's Confidential Information is the sole and exclusive
property of American. Participant acknowledges that American's Confidential
Information includes this Agreement and its terms and the names, addresses and
other information disclosed by American to Participant regarding any Member or
obtained by Participant in connection with processing mileage accrual for
Qualifying Transactions. Nothing in this Agreement, however, shall prevent
Participant from independently compiling information regarding its customers so
long as (i) the status of being an AADVANTAGE Member, AADVANTAGE Account
numbers, any other AADVANTAGE membership data, or any reference to or other
association with American is not identified in, or used as a factor or criteria
in compiling, such information, and (ii) any promotions or communications
directed at such customers, or any partial grouping thereof, by Participant or
by Participant jointly with another Person or Persons, are not directed
exclusively to such individuals, and will not reference such individuals, as
Members or travelers on American, without American's prior written consent.
18.2 Non-Disclosure by Participant. Participant shall not
-----------------------------
sell, transfer, publish, disclose, display or otherwise make available
American's Confidential Information to any third Person except as may be
required by Applicable Law, in which case Participant shall (i) promptly notify
American, (ii) use reasonable and lawful efforts to resist making any disclosure
not approved by American, (iii) use reasonable and lawful efforts to limit the
amount of
-22-
<PAGE>
confidential information to be disclosed pursuant to any such disclosure not
approved by American, and (iv) use reasonable and lawful efforts to obtain a
protective order or other appropriate relief to minimize the further
dissemination of any confidential information to be disclosed pursuant to any
such disclosure not approved by American. In addition, Participant shall not
disclose American's Confidential Information to any Affiliate, employee, or
agent of Participant, except on a need-to-know basis. Participant shall ensure
that all such Affiliates, employees and agents recognize that American's
Confidential Information is subject to this non-disclosure obligation.
Furthermore, Participant will not use American's Confidential Information for
any purposes other than as expressly provided in this Agreement. Participant
will maintain American's Confidential Information in secrecy at all times, using
at least the same degree of care with respect to such confidential information
as Participant uses in protecting Participant's own proprietary information and
trade secrets. Information shall not be subject to the foregoing confidentiality
restrictions to the extent such information (i) was in possession of or known to
Participant prior to Participant's execution of this Agreement, unless such
information was received by Participant subject to earlier confidentiality
agreements or arrangements with American or its Affiliates; (ii) is or becomes
public knowledge other than by means of a breach of confidentiality by
Participant; (iii) is received by Participant from a third party that
Participant reasonably believes is lawfully in possession of such information
and under no duty to keep it in confidence, or (iv) is approved by American, in
writing, for release by Participant.
18.3 Return of American's Confidential Information. Upon
---------------------------------------------
termination or expiration of this Agreement for any reason, American's
Confidential Information shall be promptly returned to American and Participant
shall destroy any copies, extracts or other reproductions, in whole or in part,
of American's Confidential Information, regardless of the media in which
recorded or stored, and any working papers or notes containing any item of
American's Confidential Information. Upon written request of American,
Participant shall deliver to American a signed certification that all such
copies, extracts, reproductions and working papers have been destroyed.
18.4 Participant's Employees and Agents. Participant covenants
----------------------------------
and agrees that it shall cause Participant's principals, members, partners,
officers, directors, stockholders, employees, agents and contractors who may
gain access to American's Confidential Information, whether or not such access
is permitted hereunder, to comply with each agreement of Participant under this
Section 18.
- ----------
18.5 American's Equitable Relief. Participant acknowledges and
---------------------------
agrees that American will have no adequate remedy at law if there is a breach or
threatened breach of this Section 18 and, accordingly, that American shall be
----------
entitled to an injunction against such breach. Nothing herein shall be construed
as a waiver of any other legal or equitable remedies which may be available to
American if Participant breaches this Section 18.
----------
18.6 Survival. This Section 18 shall survive termination or
-------- ----------
expiration of this Agreement and shall continue in full force and effect for a
period of five (5) years thereafter.
-23-
<PAGE>
19 Participant's Confidentiality.
-----------------------------
19.1 Participant's Confidential Information. "Participant's
--------------------------------------
Confidential Information" shall mean any information, technical data, or
know-how, including, but not limited to, that which relates to research, product
plans, products, services, information on individuals who are members of the
Netcentives Program, customers, markets, software, developments, inventions,
processes, designs, drawings, engineering, hardware, configuration information,
marketing or finances of Participant, which is designated in writing to be
confidential or proprietary, or if given orally, is identified as confidential
or proprietary at the time of disclosure. American acknowledges that
Participant's Confidential Information is the sole and exclusive property of
Participant.
19.2 Non-Disclosure by American. American shall not sell,
--------------------------
transfer, publish, disclose, display or otherwise make available Participant's
Confidential Information to any third Person except as may be required by
Applicable Law, in which case American shall (i) promptly notify Participant,
(ii) use reasonable and lawful efforts to resist making any disclosure not
approved by Participant, (iii) use reasonable and lawful efforts to limit the
amount of confidential information to be disclosed pursuant to any such
disclosure not approved by Participant, and (iv) use reasonable and lawful
efforts to obtain a protective order or other appropriate relief to minimize the
further dissemination of any confidential information to be disclosed pursuant
to any such disclosure not approved by Participant. In addition, American shall
not disclose Participant's Confidential Information to any Affiliate, employee,
or agent of American, except on a need-to-know basis. American shall ensure that
all such Affiliates, employees and agents recognize that Participant's
Confidential Information is subject to this non-disclosure obligation.
Furthermore, American will not use Participant's Confidential Information for
any purposes other than as expressly provided in this Agreement. American will
maintain Participant's Confidential Information in secrecy at all times, using
at least the same degree of care with respect to such confidential information
as American uses in protecting American's own proprietary information and trade
secrets. Information shall not be subject to the foregoing confidentiality
restrictions to the extent such information (i) was in possession of or known to
American prior to American's execution of this Agreement, unless such
information was received by American subject to earlier confidentiality
agreements or arrangements with Participant or its Affiliates; (ii) is or
becomes public knowledge other than by means of a breach of confidentiality by
American; (iii) is received by American from a third party that American
reasonably believes is lawfully in possession of such information and under no
duty to keep it in confidence, or (iv) is approved by Participant, in writing,
for release by American.
19.3 Return of Participant's Confidential Information. Upon
------------------------------------------------
termination or expiration of this Agreement for any reason, Participant's
Confidential Information shall be promptly returned to Participant and American
shall destroy any copies, extracts or other reproductions, in whole or in part,
of Participant's Confidential Information and any working papers or notes
containing any item of Participant's Confidential Information. Upon written
request of Participant, American shall deliver to Participant a signed
certification that all such copies, extracts, reproductions and working papers
have been destroyed.
-24-
<PAGE>
19.4 American's Employees and Agents. American covenants and
-------------------------------
agrees that it shall cause American's principals, members, partners, officers,
directors, stockholders, employees, agents and contractors who may gain access
to Participant's Confidential Information, whether or not such access is
permitted hereunder, to comply with each agreement of American under this
Section 19.
- ----------
19.5 Participant's Equitable Relief. American acknowledges and
------------------------------
agrees that Participant will have no adequate remedy at law if there is a breach
or threatened breach of this Section 19 and, accordingly, that Participant shall
----------
be entitled to an injunction against such breach. Nothing herein shall be
construed as a waiver of any other legal or equitable remedies which may be
available to Participant if American breaches this Section 19.
----------
19.6 AADVANTAGE Database. Notwithstanding the foregoing,
-------------------
Participant acknowledges and agrees that names, addresses, phone numbers and
other information concerning Participant's customers may become part of the
AADVANTAGE Program database and American shall not be restricted in any way in
its utilization of such database. However, American will not furnish AADVANTAGE
membership data that identifies a Member as a customer of Participant to any
Person without Participant's prior written consent.
19.7 Survival. This Section 19 shall survive termination or
-------- ----------
expiration of this Agreement and shall continue in full force and effect for a
period of five (5) years thereafter.
20 Force Majeure. Neither party shall be liable for delays or
-------------
failure in its performance hereunder caused by any act of God, war, strike,
labor dispute, work stoppage, fire, act of government, or any other cause,
whether similar or dissimilar, beyond the control of that party; provided
however that this clause shall not apply to Participant's obligation to pay for
AADVANTAGE Miles or pay other sums when due hereunder.
21 Independent Contractor. Nothing in this Agreement is intended or
----------------------
shall be construed to create or establish any agency, partnership or joint
venture relationship between the parties. The parties expressly disclaim such
relationship, agree that they are acting solely as independent contractors
hereunder and agree that the parties have no fiduciary duty to one another or
any other special or implied duties that are not expressly stated herein.
22 Entire Agreement. This Agreement and all Attachments hereto
----------------
constitute the entire agreement between the parties with respect to the subject
matter hereof and supersede any prior or contemporaneous agreement or
understanding, whether written or oral, if any, between the parties with respect
to such subject matter. This Agreement may be modified only by a further written
agreement signed by all of the parties hereto. THERE ARE NO ORAL AGREEMENTS
CONCERNING THE SUBJECT MATTER OF THIS AGREEMENT.
23 Successors and Assigns. This Agreement shall be binding upon and
----------------------
shall inure to the benefit of the permitted successors and assigns of each party
hereto. Participant may not assign, delegate or otherwise convey this Agreement,
or any of its rights and obligations hereunder, to any Person without the prior
written consent of American, and any such attempted assignment without consent
shall be void. American may assign the administration of this
-25-
<PAGE>
Agreement to any Person that is an Affiliate of American. American may, from
time to time, delegate one or more of American's administrative duties hereunder
to an Affiliate or non-Affiliate of American.
24 Taxes.
-----
24.1 Participant Taxes. Participant will pay when due all
-----------------
present and future taxes and levies, imposts, deductions, charges, stamp taxes
or withholdings whatsoever, including without limitation sales, use, excise or
goods and services taxes (collectively "Taxes") imposed, assessed, levied or
collected by any taxing jurisdictions together with interest thereon and
penalties, fines and surcharges with respect thereto, if any, on or in respect
of any payments made or to be made by Participant under this Agreement but
excluding any such Taxes arising from or measured by American's net income (such
non-excluded taxes are collectively referred to as "Participant Taxes").
24.2 Indemnity for Taxes. Without limiting the foregoing,
-------------------
Participant will indemnify American against, and reimburse American upon demand
for, any Participant Taxes that American is obligated to pay or has paid.
24.3 Withholding. In the event that Participant is required by
-----------
Applicable Law to deduct or withhold Participant Taxes from any amounts payable
under or in respect of this Agreement, Participant shall (i) pay to American
such additional amounts as may be required, so that after the deduction or
withholding of such Participant Taxes, American will receive from Participant on
the due date thereof an amount equal to the amount stated to be payable to
American under this Agreement had such Participant Taxes not been imposed, (ii)
make the required deduction or withholding and (iii) promptly pay the
authorities before penalties attach thereto or interest accrues thereon.
25 Captions. The captions appearing in this Agreement have been
--------
inserted as a matter of convenience and in no way define, limit or enlarge the
scope of this Agreement or any of the provisions hereof.
26 Construction. The parties acknowledge and agree that this
------------
Agreement has been drafted and prepared through the efforts of both parties and
the rule of construction that any vague or ambiguous terms are to be construed
against the party drafting same shall not be applied to either party to this
Agreement.
27 Severability. If any provision of this Agreement is deemed to be
------------
illegal, invalid or unenforceable for any reason, the remaining provisions of
this Agreement shall be unaffected, and this Agreement shall continue in full
force and effect.
28 No Third Party Beneficiaries. All rights, remedies and
----------------------------
obligations of the parties under this Agreement shall accrue or apply solely to
the parties hereto or their permitted successors or assigns and there is no
intent to benefit any other Person, including without limitation Members.
-26-
<PAGE>
29 Effective Date. Although signed as of the date specified below,
--------------
this Agreement shall not become effective unless and until (i) the Rights
Agreement, Additional Warrant Agreement and Warrant Agreements have been signed
by all parties thereto and become effective and the first [.......] of warrants
has been granted by the board of directors of Participant; and (ii) Participant
has delivered to American an opinion of Participant's legal counsel, in
substantially the form attached hereto.
-27-
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of __________________, 199_.
NETCENTIVES INC. AMERICAN AIRLINES, INC.
By: /s/ Eric W. Tilenius By: /s/ Michael W. Gunn
-------------------- ---------------------
Name: Eric Tilenius Name: Michael W. Gunn
Title: Chairman Title: Senior Vice President,
Marketing
-28-
<PAGE>
ATTACHMENT 1
Pricing
The following volume pricing and rebate shall apply to all AADVANTAGE
Miles purchased by Participant during each Contract Year hereunder. With respect
to any Contract Year, the volume discount and rebate amount apply only to the
incremental volume set forth opposite the price discount and rebate amount in
the chart below that is actually purchased and paid for by Participant during
such Contract Year. With respect to any Contract Year, so long as no Participant
Default has occurred and is continuing, or event that with the giving of notice
or lapse of time or both would constitute a Participant Default, American, upon
written request from Participant, shall promptly pay over to Participant the
rebate amount, net of any amounts due and owing from Participant to American
hereunder, but only if and when the total volume of AADVANTAGE Miles purchased
by Participant hereunder during such Contract Year equals or exceeds
[56,349,207]. If the [56,349,207] AADVANTAGE Mile threshold is not met during a
Contract Year, there will be no rebate for AADVANTAGE Miles purchased by
Participant during such Contract Year. Participant may prepay in order to
receive a volume discount and qualify for a rebate.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
VOLUME OF PRICE PER REBATE PER
AADVANTAGE MILES AADVANTAGE MILE AADVANTAGE MILE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
[..........................
- -----------------------------------------------------------------------------------------------------------
..........................
- -----------------------------------------------------------------------------------------------------------
.......................]
- -----------------------------------------------------------------------------------------------------------
</TABLE>
[.....]. With respect to any Contract Year, the volume price discount
applies only to the incremental volume set forth opposite the price discount in
the chart below that is actually purchased and paid for by Participant during
such Contract Year after the effective date of termination of Limited
Exclusivity. Participant may prepay in order to receive a volume discount.
- ------------------------------------------------------------------------
VOLUME OF PRICE PER
AADVANTAGE MILES AADVANTAGE MILE
- ------------------------------------------------------------------------
[****] [**]
- -------------------- ------
- ------------------------------------------------------------------------
[******] [**]
- ----------------------- -----
- ------------------------------------------------------------------------
[.............................
- ------------------------------------------------------------------------
..............................]
- ------------------------------------------------------------------------
[......]
1-1
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
<PAGE>
ATTACHMENT 2
Minimum Purchase Requirements and Prepayment Schedule
1. Minimum Purchase Requirement. [***], Participant shall
----------------------------
purchase and pay for [***] worth of AADVANTAGE Miles during each
Contract Year during the Term. [***].
2. Prepayment Schedule. Participant shall pay American [***] on
-------------------
the date this Agreement is executed and on the first day of each Contract Year
thereafter as a prepayment of Participant's AADVANTAGE Mile purchase obligations
hereunder. This amount will be credited against payments due under Section 3.2
----------
(Mileage Payments) until such amount will be exhausted. If American terminates
Limited Exclusivity with an effective date of termination within ninety (90)
days after the beginning of any Contract Year, American shall, promptly upon
Participant's written request, refund the unused portion of the prepayment made
by Participant for such Contract Year, net of any amount due and owing by
Participant to American hereunder.
2-1
****** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
<PAGE>
ATTACHMENT 3
------------
[***]
______________________________ ______________________________
Signature Signature
______________________________ ______________________________
Title Title
______________________________ ______________________________
Date Date
3-1
****** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
<PAGE>
ATTACHMENT 4
------------
Data Transmission Layouts
[***]
****** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
<PAGE>
ATTACHMENT 5
------------
Guidelines for Producing AADVANTAGE(R) Related Materials
and Using the AADVANTAGE Travel Awards' Trademark
To protect the legal registration of the AADVANTAGE trademark and to
achieve instant and consistent recognition of the AADVANTAGE travel awards
program, the following guidelines must be followed when producing AADVANTAGE
related material.
Register Mark: The first time the word "AADVANTAGE" or "American Airlines"
- -------------
appears in a headline, subhead or text, it must include the register mark
of (R)or (R).
Eagle: The first time the word "AADVANTAGE" appears in a headline, subhead or
- -----
text, it must include an eagle between the two capital A's and carry the
register mark (R). The eagle must always be facing to the right. If the Eagle
----------------------------------
cannot be produced, as in a letter, it is not required but, the register mark
(R) must still be used.
Note: Both the registrar mark (R) and Eagle are required only one time
-------------
per piece
Tag Line: When using the word "AADVANTAGE" in a headline, subhead or text, if
- --------
the slug "A registered trademark of American Airlines, Inc." is not used
immediately below the AADVANTAGE logo, the following tag line must appear at the
bottom of the page/piece (along with the disclaimer):
American Airlines and AADVANTAGE are registered trademarks of American
Airlines, Inc.
(The eagle and registered mark (R) do not have to appear in the tag
line.)
NOTE: You should also include other AA trademark names in the tag line when
appropriate. For example: AADVANTAGE Platinum, AADVANTAGE Gold, American
Eagle, Something Special in the Air, Admirals Club, etc.
Disclaimer: All pieces discussing the AADVANTAGE travel awards program must have
- ----------
a legal disclaimer added to the bottom of the page/piece. The disclaimer is in
accordance with guidelines of the National Association of Attorneys General. If
the material referencing AADVANTAGE has perforations or can be separated, each
separate piece that can potentially be viewed as a "stand-alone" piece must have
both the disclaimer and tag line. See the attached list of disclaimers that are
to be used.
Multiple Pieces: If several pieces are being produced for distribution, each
- ---------------
separate piece that can potentially be viewed as a "stand-alone" piece must have
both the tag line and disclaimer.
Colors: PMS 485 Red and PMS 281 Blue are the colors for the AADVANTAGE logo. The
- ------
preferred treatment for the AADVANTAGE logo is the first capital A in red with
the rest of the word, register mark (R) and the eagle in blue.
A AADVANTAGE(R) American Airlines(R)
(red) (blue) (red) (blue)
5-1
<PAGE>
If it is not possible to use both red and blue, the AADVANTAGE logo is also
acceptable as follows:
- all blue
- all black
- reversed out in all white
Other colors or color combinations are not acceptable.
Type: AADVANTAGE and American Airlines are to be printed in Helvetica type if
- ---- --
printed as a logo. For text or headings, the type may match that used for the
- -----------------
rest of the piece noting the following provisions: AADVANTAGE should not be
printed in SCRIPT illustrated or art typefaces.
Spacing: The word "AADVANTAGE" should never be hyphenated and the name
- -------
American Airlines should not be split over any lines.
Use as an Adjective: The word "AADVANTAGE" may never be used as a noun or verb.
- -------------------
It should only be used as an adjective and in connection with the common name of
the service, such as the "AADVANTAGE travel awards program."
Any play on the word ADVANTAGE should be avoided. For example, copy
such as "The AADVANTAGE of American Airlines" or "THE ADVANTAGES AND BENEFITS OF
MEMBERSHIP" are not acceptable.
---
Awards: If awards are mentioned, the wording of the awards should be the same
- ------
as the wording used in our AADVANTAGE Rules Brochure or on our Mileage Summary.
Description of Miles: AADVANTAGE miles or mileage cannot be described as FREE.
- --------------------
Miles are not free, they are EARNED as a result of a specified transaction.
Description of Program: Any time the AADVANTAGE program is explained, the
- ----------------------
descriptive phrase "travel awards program" should be used versus "frequent flyer
program." The AADVANTAGE program benefits not only frequent travelers, but also
infrequent travelers who use our AADVANTAGE Participants or travel on American
consistently. Additionally, there are several non-travel related opportunities
to earn mileage credit.
The piece should not mention any other companies or organizations
unless approved by the American Airlines Partner Marketing Department, AA/HDQ-MD
5321. Other airlines participating in the AADVANTAGE travel awards program
should be referred to as "participating carriers," NOT affiliated carriers.
Additionally, no AADVANTAGE Participant should be referred to as a partner. The
words partner or partnership should never be used in any promotional materials.
Announcements: If Bonus Miles or any enhancements to the AADVANTAGE travel
- -------------
awards program are being introduced, the announcement should first be made by
-----------------------
AA/HDQ and, if Possible, through the AADVANTAGE Newsletter.
- ----------------------------------------------------------
5-2
<PAGE>
AADVANTAGE PROGRAM DISCLAIMERS
The following disclaimers are required on all/any advertisement or promotional
piece that references the AADVANTAGE program. The length of the disclaimer
varies with the type of promotion.
LONG VERSION
------------
(Rules Brochure, Newsletter, Certificates, detailed AADVANTAGE information)
American Airlines may find it necessary to change AADVANTAGE program rules,
regulations, travel awards and special offers at any time. This means that
American may initiate changes impacting, for example, participant affiliations,
rules for earning mileage credit, mileage levels and rules for the use of travel
awards, continued availability of travel awards, blackout dates and limited
seating for travel awards, and the features of special offers. American Airlines
reserves the right to end the AADVANTAGE program with six months notice.
AADVANTAGE travel awards, mileage accrual and special offers subject to
government regulations. American Airlines is not responsible for products or
services offered by other participating companies.
MEDIUM VERSION
--------------
(Promotional brochures, mailings, when AADVANTAGE is not
the main subject of piece but the program is mentioned).
American Airlines may find it necessary to change AADVANTAGE program rules,
regulations, travel awards and special offers at any time, impacting, for
example, Participant affiliations, rules for earning mileage and blackout dates
and limited seating for travel awards. American reserves the right to end the
AADVANTAGE program with six months notice. AADVANTAGE travel awards, mileage
accrual and special offers subject to government regulations. American Airlines
is not responsible for products or services offered by other participating
companies.
SHORT VERSION
-------------
(Posters, advertising)
American Airlines reserves the right to change AADVANTAGE program rules,
regulations, travel awards and special offers at any time without notice, and to
end the AADVANTAGE program with six months notice. American Airlines is not
responsible for products or services offered by other participating companies.
(OR)
American Airlines reserves the right to change the AADVANTAGE program at any
time without notice. American Airlines is not responsible for products or
services offered by other participating companies.
5-3
<PAGE>
AADVANTAGE ADVERTISING COPY
RETAIL COPY STANDARDS
SHORT VERSION
-------------
Members of our AADVANTAGE travel awards program can earn valuable mileage credit
good for special upgrades and free trips to exciting destinations around the
world.
MEDIUM VERSION
--------------
Our AADVANTAGE travel awards program makes it easy for you to earn valuable
mileage credit every time you fly on American Airlines or American Eagle, or use
one of our AADVANTAGE Participants. You can redeem your AADVANTAGE miles for
special upgrades to Business and First Class, as well as free tickets to a host
of exciting destinations around the world.
LONG VERSION
------------
Our AADVANTAGE travel awards program makes it easy for you to earn valuable
mileage credit every time you fly on American Airlines or American Eagle, or use
one of our AADVANTAGE Participants. You can redeem your AADVANTAGE miles for
special upgrades to Business and First Class, as well as free tickets to a host
of exciting destinations around the world.
If you're not a member of the AADVANTAGE program, now's the time to enroll. You
can join instantly at any American Airlines ticket counter, or by calling
1-800-433-7300 or your local American Airlines Reservations number.
NOTE: APPROPRIATE AADVANTAGE DISCLAIMER
MUST BE INCLUDED WITH ALL VERSIONS.
5-4
<PAGE>
EXHIBIT 10.9
NETCENTIVES INC.
SUPPLY AGREEMENT
This Supply Agreement (the "Agreement") is entered into between Netcentives
---------
Inc., a California corporation ("Netcentives") and Northwest Airlines, Inc., a
-----------
Minnesota corporation ("NW") and shall be effective for all purposes as of
--
September 5, 1997 (the "Effective Date").
--------------
RECITALS
WHEREAS, Netcentives has developed an Internet-based program which provides
for the grant of airline frequent flier miles and other incentives to end-users
(the "Netcentives Program");
-------------------
WHEREAS, NW has established a travel awards program (the "WorldPerks
----------
Program") pursuant to which, among other things, certain persons may receive
- -------
frequent flier miles for travel on NW and for such other reasons as are
permitted by NW;
WHEREAS, in connection with the execution of this Agreement, NW has joined
a Rights Agreement among Netcentives and certain other parties and Netcentives
has issued NW a Warrant to purchase shares of the Non-Voting Convertible Stock
of Netcentives;
WHEREAS, Netcentives wishes to purchase Miles (as hereinafter defined) from
NW and NW wishes to sell Miles to Netcentives pursuant to the terms of this
Agreement;
NOW THEREFORE, in consideration of the foregoing and the mutual
consideration provided for herein, the parties hereto hereby agree as follows:
SECTION I
DEFINITIONS
For purposes of this Agreement, the following terms shall have the
following meanings:
1.1 "Account" shall mean the account of Netcentives Members who are also
-------
WorldPerks Members in which Miles balances are maintained by NW.
1.2 "Confidential Information" means any information, technical data, or
------------------------
know-how, including, but not limited to, that which relates to research, product
plans, products, services, Netcentives Members, customers, markets, software,
developments, inventions, processes, designs, drawings, engineering, hardware
configuration information, marketing or finances of a party, which is designated
in writing to be confidential or proprietary, or if given orally, is identified
as confidential or proprietary at the time of disclosure or is obviously
confidential considering the context in which such disclosure is made.
Confidential Information does not include information, technical data or know-
how which (i) is rightfully in the possession of the receiving party at the time
of disclosure, (ii) prior to or after the time of disclosure becomes part
Confidential treatment has been requested for portions of this exhibit. The copy
filed herewith omits the information subject to the confidentiality request.
Omissions are designated as *****. A complete version of this has been filed
separately with the Securities and Exchange Commission.
<PAGE>
of the public knowledge or literature other than as a result of any improper
inaction or action of the receiving party hereunder, or (iii) is approved by the
disclosing party, in writing, for release.
1.3 "Direct Competitor of Netcentives" means [***]
--------------------------------
1.4 NW and Netcentives shall have a relationship of "Limited Exclusivity"
-------------------
so long as (a) this Agreement has not been terminated in accordance with its
terms, (b) NW has not been released from its obligations under clause (c) hereof
pursuant to Section 5.1 hereof, and (c) NW has not sold Miles to any Direct
Competitor of Netcentives.
1.5 "Miles" means the points accrued under the Supplier Program by
-----
WorldPerks Members for travel on NW or such other reasons as are permitted by
NW.
1.6 "Netcentives Marks" means the trademarks and logos of Netcentives set
-----------------
forth on Exhibit A1 hereto.
----------
1.7 "Netcentives Member" means, as of any date, an individual who is a
------------------
member in good standing of the Netcentives Program.
1.8 "Partner Advisory Board" means the consultative board of Netcentives
----------------------
which is composed of representatives of certain suppliers to Netcentives.
1.9 "Supplier Marks" means the trademarks and logos of NW set forth on
--------------
Exhibit A2 hereto.
- ----------
1.10 "Term" has the meaning given it in Section 5.2(a) hereof.
----
1.11 "WorldPerks Member" means, as of any date, an individual who is a
-----------------
member in good standing of the WorldPerks Program.
SECTION II
PURCHASE AND SALE
2.1 Orders. Netcentives shall deliver orders to NW for Miles in such
------
format as is mutually agreed by the parties, which orders shall designate the
aggregate number of Miles to be purchased, the Account or Accounts to which such
Miles are to be credited, and the number of Miles to be credited to each such
Account. NW shall credit Accounts designated by Netcentives within a reasonable
time after receipt of an order from Netcentives, but in any event within seven
(7) business days thereof. Netcentives will supply NW with computer tapes, or
other mutually agreeable format, twice a month indicating those WorldPerks
Members who are eligible for Miles from Netcentives. The tapes will include the
name, WorldPerks number, the number of miles to be credited and any other
information reasonably identified as necessary by NW. All costs associated with
the accumulation of these data and delivery to NW will be borne by Netcentives.
-2-
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
<PAGE>
2.2 Purchase Terms. The terms specific to the purchase of NW's WorldPerks
--------------
Miles by Netcentives under this Agreement are fixed and are contained in
Appendix A hereto. The prices for Miles shall not be changed during the term of
this Agreement without the prior written consent of Netcentives, [***].
2.3 Payment. The number of Miles will be obtained from the twice monthly
-------
tapes sent by Netcentives to NW. NW will issue an invoice to Netcentives by the
end of the month following the previous month for payment. The invoice shall
set forth an account total for all transactions for Miles during the previous
month, any retroactive transactions for the previous six months and the total
amount due. Within thirty (30) days of the receipt of such invoice, Netcentives
shall pay NW the amount set forth thereon. Should Netcentives reasonably
believe there is discrepancy in the number of transactions billed and so advises
NW, the parties will work together in good faith to resolve the dispute within
sixty (60) days of the receipt of the invoice. Netcentives shall pay the
disputed portion of the invoice as provided above. At termination of this
Agreement, any outstanding balance owed by Netcentives to NW will be paid within
thirty (30) days of receipt of the invoice.
2.4 Letter of Credit. To secure its payment obligation hereunder,
----------------
simultaneous with execution of this Agreement, Netcentives will establish for
the exclusive benefit of NW an irrevocable Letter of Credit, upon substantially
the same terms as in Appendix B, with Silicon Valley Bank, or another bank at
Netcentives' discretion, provided such bank has assets in excess of
$2,000,000,000 and is headquartered in on of the 48 states. The initial amount
of such Letter of Credit shall be $10,000, which is the parties' present
estimate of Netcentives' monthly payment obligations hereunder. To the extent
such monthly obligation is reasonably estimated by NW to increase, it may, from
time to time, require Netcentives to increase the Letter of Credit face amount
to an appropriate level to secure anticipated monthly payment obligations. Any
such increase in the Letter of Credit will be accomplished within ten (10) days
of notice. The Letter of Credit shall provide for payment upon the terms set
forth in Appendix B. In addition to this remedy, a failure to make any payment
due hereunder or to provide or increase the Letter of Credit shall also be the
basis for NW to terminate the Agreement pursuant to Section 5.2 (a) (ii), except
that for payment defaults related to the Letter of Credit there shall be no cure
period.
SECTION III
OBLIGATIONS OF NETCENTIVES
3.1 Distribution to Netcentives Members. Netcentives shall only request
-----------------------------------
that Miles be credited to the accounts of persons in exchange for their
participation in the Netcentives Program.
3.2 Distribution to WorldPerks Members. Netcentives shall only request
----------------------------------
that Miles be credited to the Accounts of Netcentives Members whom Netcentives
believes in good faith to be WorldPerks Members. To the extent that Netcentives
requests that Miles be credited to a person who is not a WorldPerks Member, NW
shall not be obligated to credit such Account, provided however, that upon
----------------
giving notice to Netcentives that a specified account does not
-3-
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
<PAGE>
belong to a WorldPerks Member, NW treat such Miles as if they had never been
ordered (in which case Netcentives' payment obligation shall be reduced
accordingly).
3.3 No Resale Of Miles. At no time shall Netcentives offer Miles to any
------------------
person for resale to a third party. If Netcentives discovers with reasonable
certainty that any Netcentives Member is inappropriately redistributing Miles,
Netcentives shall immediately cease requesting that Miles be credited to the
Account of such Netcentives Member, and shall notify NW of the identity of such
Netcentives Member and the nature of the potential infraction.
3.4 Partner Advisory Board. For so long as Netcentives and NW maintain a
----------------------
relationship of Limited Exclusivity and Netcentives has an active Partner
Advisory Board, Netcentives shall permit one representative of NW to participate
in all of its Partner Advisory Board meetings, pursuant to the rules and
regulations of the Partner Advisory Board in effect at the time.
SECTION IV
PROPRIETARY INFORMATION
4.1 Confidential Information. Each party agrees not to use any
------------------------
Confidential Information disclosed to it by the other party for its own use or
for any purpose other than to carry out its obligations under this Agreement.
Neither party will disclose any Confidential Information of the other party to
third parties or to employees of the party receiving Confidential Information,
other than employees who are required to have the information in order to carry
out such party's obligations under this Agreement. Each party agrees that it
will take all reasonable measures to protect the secrecy of and avoid disclosure
or use of Confidential Information of the other party in order to prevent it
from falling into the public domain or the possession of persons other than
those persons authorized under this Agreement to have any such information,
including (without limitation) ensuring that recipients of the disclosing
party's Confidential Information adhere to confidentiality terms in content
substantially similar to the terms in this Agreement. Such measures shall
include the highest degree of care that the receiving party utilizes to protect
its own Confidential Information of a similar nature. Each party agrees to
notify the other in writing of any misuse or misappropriation of Confidential
Information of the disclosing party which may come to the receiving party's
attention.
4.2 Publicity. After the execution of this Agreement, Netcentives shall
---------
be permitted, at its discretion, to issue a press release which may, among other
things, confirm the existence of a relationship between the parties and of the
exclusive nature of such relationship, and may request that NW issue a similar
press release. Any other information regarding the relationship between the
parties including the other terms of this Agreement and any other agreement
between the parties shall be considered Confidential Information under the
definition set forth herein.
-4-
<PAGE>
4.3 Trademarks.
----------
(a) NW hereby grants Netcentives a limited, non-exclusive license to
duplicate and use the Supplier Marks in Netcentives' promotional materials and
on its Internet Web site, during the Term of this Agreement (as extended by
Section 5.2(b)(ii), as appropriate), provided however, that any use of the
----------------
Supplier Marks shall be for the purpose of promoting the Netcentives Program and
shall only be used with regard to the inclusion of Miles within the Netcentives
Program.
(b) Netcentives hereby grants NW a limited, non-exclusive license to
duplicate and use the Netcentives Marks in NW's promotional materials and on its
Internet Web site, during the Term of this Agreement, provided however, that any
----------------
use of the Netcentives Marks shall be for the purpose of promoting the
WorldPerks Program or the Netcentives Program and shall only be used with regard
to the inclusion of Miles within the Netcentives Program.
(c) Nothing herein shall be deemed to grant either party any ownership
interest in the Marks of the other party.
SECTION V
LIMITED EXCLUSIVITY; TERM AND TERMINATION
5.1 Limited Exclusivity.
-------------------
(a) Relationship. The parties hereto acknowledge that they shall have
------------
a relationship of Limited Exclusivity during the Term of this Agreement, whereby
NW grants Netcentives Limited Exclusivity on the Internet by agreeing not to
sell Miles to any Direct Competitor of Netcentives, and that certain rights and
privileges under this Agreement and other agreements between the parties are
dependent on the maintenance of such a relationship. [*****]. As long as a
program is not a direct competitor of Netcentives, NW is free to [***]. Either
party hereto may terminate the obligations of the parties under the relationship
of Limited Exclusivity upon provision of [*****] written notice to the non-
terminating party (the "Notice"), which termination shall have the effects set
------
effects set forth in subsection (b), below.
(b) Effect of Termination of Limited Exclusivity. Termination of the
--------------------------------------------
relationship of Limited Exclusivity between NW and Netcentives shall not affect
the obligations of the parties under this Agreement except that upon the
termination of the relationship of Limited Exclusivity, in addition to the loss
of certain other rights as set forth in other Agreements between the parties,
(i) immediately upon receipt of the Notice by the non-terminating party,
[****]; (ii) immediately upon receipt of the Notice by the non-terminating
party, designees of NW shall no longer be permitted to participate on the
Partner Advisory Board; and (iii)
-5-
[****] Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
<PAGE>
beginning [****] after receipt of the Notice by the non-terminating party, NW
shall be permitted to sell Miles to any third party, including a Direct
Competitor of Netcentives.
5.2 Term and Termination.
--------------------
(a) Term and Termination.
--------------------
(i) The term of this Agreement shall be four (4) years from
the Effective Date (the "Term"), unless terminated pursuant to this Section 5.2.
----
This Agreement shall terminate upon the expiration of the Term unless renewed by
the parties hereto in writing.
(ii) If either party defaults in the performance of any
material provision of this Agreement then the non-defaulting party may give
written notice to the defaulting party that if the default is not cured within
thirty (30) days, the Agreement will be terminated. If the non-defaulting party
gives such notice and the default is not cured during the thirty (30) day
period, then the Agreement shall automatically terminate at the end of that
period.
(iii) This Agreement shall terminate, without notice, (A) upon
the institution by or against either party of insolvency, receivership or
bankruptcy proceedings or any other proceedings for the settlement of such
party's debts, (B) upon either party's making an assignment for the benefit of
creditors, (C) upon the dissolution of either party.
(b) Effect of Termination or Expiration. Upon termination of this
-----------------------------------
Agreement for any reason whatsoever: (i) NW will credit all uncredited orders to
the Accounts originally designated by Netcentives; and (ii) if the parties
choose, by mutual agreement, to provide for a "winding down" period during which
Netcentives Members may redeem their accumulated Netcentives Points for Miles,
then the term of the license granted to Netcentives under section 4.3(a) shall
be extended until the end of such "winding down" period.
(c) Survival. NW's obligations to credit Accounts in a timely manner
--------
and Netcentives' obligations to pay NW all amounts due hereunder, as well as
Sections 4.1, 4.2, 4.3(a) (to the extent provided in Section 5.2(b) above),
4.3(c), 6.2, 6.3 and 6.7 shall survive termination of this Agreement.
SECTION VI
MISCELLANEOUS
6.1 Independent Contractors. The relationship of Netcentives and NW
-----------------------
established by this Agreement is that of independent contractors, and nothing
contained in this Agreement shall be construed to constitute the parties as
agents, partners, joint venturers, co-owners or otherwise as participants in a
joint or common undertaking.
6.2 Indemnification.
---------------
(a) NW hereby agrees to indemnify, defend and hold harmless
Netcentives and its respective directors, officers. agents and employees, from
and against any and all claims,
-6-
[****] Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
<PAGE>
losses, damages, suits, judgments, costs and expenses (including litigation
costs and reasonable attorneys' fees) arising out of or relating to (i) NW's
operation of the WorldPerks Program including without limitation, claims by
participants in the WorldPerks Program of NW's breach, violation or failure to
comply with the terms of the WorldPerks Program and (ii) an allegation that
Netcentives use of the Supplier Marks licensed hereunder infringes a copyright
or trademark existing or issued as of the date of such use, provided in each
case that Netcentives promptly notifies NW in writing of any such claim, gives
NW sole control of the defense and all related settlement negotiations, and
cooperates with NW in defending or settling any such claim.
(b) Netcentives hereby agrees to indemnify, defend and hold harmless
NW and its respective directors, officers, agents and employees, from and
against any and all claims, losses, damages, suits, judgments, costs and
expenses (including litigation costs and reasonable attorneys' fees) arising out
of or relating to (i) Netcentives' operation of the Netcentives Program
including without limitation, claims by participants in the Netcentives Program
of Netcentives' breach, violation or failure to comply with the terms of the
Netcentives Program and (ii) an allegation that NW's use of the Netcentives
Marks licensed hereunder infringes a copyright or trademark existing or issued
as of the date of such use, provided in each case that NW promptly notifies
Netcentives in writing of any such claim, gives Netcentives sole control of the
defense and all related settlement negotiations, and cooperates with Netcentives
in defending or settling any such claim.
6.3 Notices. All notices and demands hereunder shall be in writing and
-------
shall be delivered by personal service or by telex, facsimile, cable, telegram,
certified or registered mail, or return receipt express courier to the address
of the receiving party set forth on the signature page of this Agreement, or to
any other address of the receiving party designated by written notice in
accordance with this paragraph.
6.4 Waiver, Amendment and Modification. No waiver, amendment or
----------------------------------
modification of any provision hereof shall be effective unless in writing and
signed by the party against whom such waiver, amendment or modification is
sought to be enforced. No failure by either party to exercise and no delay by
either party in exercising any right, power or remedy with respect to the
obligations secured hereby shall operate as a subsequent waiver of any such
right, power or remedy.
6.5 Assignment. Each of the parties agrees that its rights and
----------
obligations under this Agreement may not be transferred or assigned directly or
indirectly without the prior written consent of the other party, provided
--------
however, that such consent shall not be required for an assignment of this
- -------
contract pursuant to a merger, sale of substantially all of the assets, or sale
of all of the outstanding stock of either party. This Agreement shall be
binding upon and inure to the benefit of the parties hereto, their successors
and assigns.
6.6 Severability. In the event that any of the provisions of this
------------
Agreement shall be held by a court of competent jurisdiction to be
unenforceable, such provision will be enforced to the maximum extent permissible
and the remaining portions of this Agreement shall remain in full force and
effect. The parties agree to negotiate in good faith a substitute, valid and
-7-
<PAGE>
enforceable provision that most nearly effects the parties' intent and to be
bound by the mutually agreed substitute provision.
6.7 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Minnesota, without reference to
conflict of laws provisions thereof. Sole and exclusive jurisdiction of any
lawsuit filed by either party shall be in a federal or state court located in
Hennepin or Dakota counties, Minnesota.
6.8 Force Majeure. Neither party shall be responsible for any failure to
-------------
perform (except for payment obligations) due to unforeseen circumstances or to
causes beyond its control, including but not limited to acts of God, war, riot
embargoes, acts of civil or military authorities, fire, floods, accidents,
strikes, or shortages of transportation facilities, fuel, energy, labor or
materials. A party whose performance is affected by a force majeure condition
shall be excused from such performance to the extent required by the force
majeure condition so long as such party takes all reasonable steps to avoid or
remove such causes of nonperformance and immediately continues performance
whenever and to the extent such causes are removed.
6.9 Entire Agreement; Amendment. This Agreement together with the Rights
---------------------------
Agreement among NW, Netcentives and certain other parties and the Warrant to
Purchase Non-Voting Convertible Stock of even date herewith, constitute the
final and entire Agreement between the parties and may not be modified or
amended except in writing signed by both of the parties.
6.10 Headings. The headings and captions used in this Agreement are for
--------
convenience of reference only, and shall not in any way affect the
interpretation of the provisions of this Agreement.
6.11 Counterparts. This Agreement maybe executed in counterparts, each of
------------
which shall be deemed an original and all of which together shall constitute one
instrument.
[SIGNATURE PAGE TO FOLLOW]
-8-
<PAGE>
The parties have executed this Supply Agreement as of the date set forth
below.
NETCENTIVES INC.
ADDRESS:
2121 S. El Camino Real, Suite 615
San Mateo, CA 94403
/s/ Eric W. Tilenius Facsimile: (415) 572-5205
- ------------------------------
Eric W Tilenius, Chairman
NORTHWEST AIRLINES, INC.
ADDRESS:
Northwest Airlines, Inc.
Dept. A6800 5101 Northwest Dr.
St. Paul, MN 55111-3034
/s/ Susan B. Edberg Facsimile: (612) 726-7049
- ------------------------------
(Signature of Authorized Person)
Susan B. Edberg
- ------------------------------
(Print Name of Signatory)
Director - WorldPerks Mktg
- ------------------------------
(Print Title of Signatory)
[SIGNATURE PAGE TO SUPPLY AGREEMENT]
-9-
<PAGE>
EXHIBIT A1
TRADEMARKS OF NETCENTIVES
Netcentives
ClickRewards
ClickPoints
Internet Incentives Network
NETCENTIVES
C1ICKREWARDS
Online Rewards Program
<PAGE>
EXHIBIT A2
TRADEMARKS OF NW
<PAGE>
APPENDIX A
PURCHASE TERMS
--------------
[****]
****** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
<PAGE>
APPENDIX B
LETTER OF CREDIT TERMS
----------------------
Beneficiary's signed statement stating that Netcentives Inc. is in default
of payment of its certain invoice(s) and/or other obligations, such as a
required increase in the amount of this Letter of Credit, which is/are unpaid
and due, under the terms of the contract between Netcentives Inc. and Northwest
Airlines, Inc., dated September, 1997.
Copy(ies) of the above mentioned invoice(s) marked "UNPAID" (no such
invoices required with respect to Letter of Credit claims).
<PAGE>
EXHIBIT 10.10
NETCENTIVES INC.
SUPPLY AGREEMENT
This Supply Agreement (the "Agreement") is entered into between Netcentives
---------
Inc., a California corporation ("Netcentives") and Continental Airlines, Inc., a
-----------
Delaware corporation ("Continental") and shall be effective for all purposes as
-----------
of September 5, 1997 (the "Effective Date").
--------------
RECITALS
WHEREAS, Netcentives has developed an Internet-based program which provides
for the grant of airline frequent flier miles and other incentives to end-users
(the "Netcentives Program");
-------------------
WHEREAS, Continental has established a travel awards program (the "OnePass
-------
Program") pursuant to which, among other things, certain persons may receive
- -------
frequent flier miles for travel on Continental and for such other reasons as are
permitted by Continental;
WHEREAS, in connection with the execution of this Agreement, Continental
has joined a Rights Agreement among Netcentives and certain other parties and
Netcentives has issued Continental a Warrant to purchase shares of the Non-
Voting Convertible Stock of Netcentives;
WHEREAS, Netcentives wishes to purchase Miles (as hereinafter defined) from
Continental and Continental wishes to sell Miles to Netcentives pursuant to the
terms of this Agreement;
NOW THEREFORE, in consideration of the foregoing and the mutual
consideration provided for herein, the parties hereto hereby agree as follows:
SECTION I
DEFINITIONS
For purposes of this Agreement, the following terms shall have the
following meanings:
1.1 "Account" shall mean the account of Netcentives Members who are also
-------
OnePass Program Members in which Miles balances are maintained by Continental.
1.2 "Confidential Information" means any information, technical data, or
------------------------
know-how, including, but not limited to, that which relates to research, product
plans, products, services, Netcentives Members, customers, markets, software,
developments, inventions, processes, designs, drawings, engineering, hardware
configuration information, marketing or finances of a party, which is designated
in writing to be confidential or proprietary, or if given orally, is identified
as confidential or proprietary at the time of disclosure or is obviously
confidential considering the context in which such disclosure is made.
Confidential Information does not
Confidential treatment has been requested for portions of this exhibit. The copy
filed herewith omits the information subject to the confidentiality request.
Omissions are designated as ****. A complete version of this exhibit has been
filed separately with the Securities and Exchange Commission.
<PAGE>
include information, technical data or know-how which (i) is rightfully in the
possession of the receiving party at the time of disclosure, (ii) prior to or
after the time of disclosure becomes part of the public knowledge or literature
other than as a result of any improper inaction or action of the receiving party
hereunder, or (iii) is approved by the disclosing party in writing, for release.
1.3 "Direct Competitor of Netcentives" means [****].
--------------------------------
1.4 "Limited Exclusivity" means Continental agrees not to sell Miles to
-------------------
any Direct Competitor of Netcentives as defined above. Continental and
Netcentives shall have a relationship of "Limited Exclusivity" so long as (a)
-------------------
this Agreement has not been terminated in accordance with its terms, and (b)
Continental has not sold Miles to any Direct Competitor of Netcentives.
1.5 "Miles" means the points accrued under the OnePass Program by OnePass
-----
Program Members for travel on Continental or such other reasons as are permitted
by Continental.
1.6 "Netcentives Marks" means the trademarks and logos of Netcentives set
-----------------
forth on Exhibit Al hereto.
----------
1.7 "Netcentives Member" means, as of any date, an individual who is a
------------------
member in good standing of the Netcentives Program.
1.8 "Supplier Marks" means the trademarks and logos of Continental set
--------------
forth on Exhibit A2 hereto.
----------
1.9 "Term" has the meaning given it in Section 5.2(a) hereof.
----
1.10 "OnePass Program Member" means, as of any date, an individual who is
----------------------
a member in good standing of the OnePass Program.
SECTION II
PURCHASE AND SALE
2.1 Orders.
------
(a) General. Netcentives shall deliver orders to Continental for
-------
Miles in such format as is detailed in Attachment A3, which orders shall
designate the aggregate number of Miles to be purchased, the Account or Accounts
to which such Miles are to be credited, and the number of Miles to be credited
to each such Account. Continental shall credit Accounts designated by
Netcentives within a reasonable time after receipt of an order from Netcentives,
but in any event within fifteen (15) business days thereof. As long as this
Agreement is in effect, Continental shall not reject any order of Netcentives,
except in accordance with the terms of Section 3.2 hereof.
-2-
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
<PAGE>
(b) Reserve Account. Netcentives may also order Miles for
---------------
undesignated accounts, which Miles shall be reserved in an Account for the
benefit of Netcentives (the "Reserve Account"). Upon notice by Netcentives (in
---------------
such format as is mutually agreed by the parties) of an election to credit some
or all Miles retained in the Reserve Account to an Account, such Miles shall be
credited to the designated Account within two (2) business days of such notice.
Miles held in the Reserve Account shall be valid and shall not expire while this
Agreement between Continental and Netcentives is in place, as extended by
Section 5.2(b).
(c) Minimum Orders. Beginning on March 5, 1998, and every six (6)
--------------
months thereafter during the Term of this Agreement, if Netcentives and
Continental have a relationship of Limited Exclusivity and if Netcentives has
purchased less than an aggregate of [***] Miles during the preceding six (6)
month period, Netcentives shall submit an order for that number of Miles that
represents the difference between [***] and the aggregate Miles purchased by
Netcentives during such six (6) month period. The Miles subject to such order
may be designated by Netcentives for credit to any Account, including the
Reserve Account. Netcentives shall not be obligated to purchase any quantity of
Miles if Netcentives and Continental do not have a relationship of Limited
Exclusivity.
2.2 Price. [***]. The prices for Miles shall not be changed during the
-------
term of this Agreement without the prior written consent of Netcentives.
2.3 Payment. All payments due to Continental pursuant to an order under
-------
this Section 2 shall become due and payable within thirty (30) days of
presentation of evidence that the Miles subject to such order have been credited
to the appropriate Account or Accounts. Any payments made by Netcentives to
Continental hereunder shall be non-refundable.
2.4 Mileage Usage. Netcentives agrees to not transfer Miles to any party
-------------
for resale. All sales not in the form of Netcentive Points to eligible
consumers for redemption of Continental Miles may be awarded only with previous
approval by Continental.
2.5 Taxes. Prices for Miles do not include taxes. Netcentives is
-----
responsible for any and all taxes on the sale of Miles to Netcentives pursuant
to this Agreement.
SECTION III
OBLIGATIONS OF NETCENTIVES
3.1 Distribution to Netcentives Members. Netcentives shall only request
-----------------------------------
that Miles be credited to the accounts of persons in exchange for their
participation in the Netcentives Program.
3.2 Distribution to OnePass Program Members. Netcentives shall only
---------------------------------------
request that Miles be credited to the Accounts of Netcentives Members whom
Netcentives believes in good faith to be OnePass Program Members. To the extent
that Netcentives requests that Miles be credited to a person who is not a
OnePass Program Member, Continental shall not be obligated to credit such
Account, provided however, that upon receiving Notice from Continental that a
----------------
-3-
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
<PAGE>
specified account does not belong to a OnePass Program Member, Netcentives may,
at its election, have such Miles credited to the Reserve Account (in which case
Netcentives shall be obligated to pay Continental as if it had originally
requested that such Miles be placed in the Reserve Account) or treat such Miles
as if they had never been ordered (in which case Netcentives' payment obligation
shall be reduced accordingly).
3.3 No Resale Of Miles. At no time shall Netcentives offer Miles to any
------------------
person for resale to a third party. If Netcentives discovers with reasonable
certainty that any Netcentives Member is inappropriately redistributing Miles,
Netcentives shall immediately cease requesting that Miles be credited to the
Account of such Netcentives Member, and shall notify Continental of the identity
of such Netcentives Member and the nature of the potential infraction.
3.4 Maximum Number of Miles Per Year. Netcentives agrees that it will not
--------------------------------
allow a Netcentives Member to redeem Netcentives Points for more than [***]
Miles during any calendar year without Continental's written permission.
SECTION IV
PROPRIETARY INFORMATION
4.1 Confidential Information. Each party agrees not to use any
------------------------
Confidential Information disclosed to it by the other party for its own use or
for any purpose other than to carry out its obligations under this Agreement.
Neither party will disclose any Confidential Information of the other party to
third parties or to employees of the party receiving Confidential Information,
other than employees who are required to have the information in order to carry
out such party's obligations under this Agreement. Each party agrees that it
will take all reasonable measures to protect the secrecy of and avoid disclosure
or use of Confidential Information of the other party in order to prevent it
from falling into the public domain or the possession of persons other than
those persons authorized under this Agreement to have any such information,
including (without limitation) ensuring that recipients of the disclosing
party's Confidential Information adhere to confidentiality terms in content
substantially similar to the terms in this Agreement. Such measures shall
include the highest degree of care that the receiving party utilizes to protect
its own Confidential Information of a similar nature. Each party agrees to
notify the other in writing of any misuse or misappropriation of Confidential
Information of the disclosing party which may come to the receiving party's
attention.
4.2 Publicity. After the execution of this Agreement, Netcentives shall
---------
be permitted, at its discretion, to issue a press release which may, among other
things, confirm the existence of a relationship between the parties and of the
exclusive nature of such relationship, and may request that Continental issue a
similar press release. Such press release shall require Continental's previous
written approval, which shall not be unreasonably withheld. Any other
information regarding the relationship between the parties including the other
terms of this Agreement and any other agreement between the parties shall be
considered Confidential Information under the definition set forth herein.
4.3 Trademarks.
----------
-4-
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
<PAGE>
(a) Continental hereby grants Netcentives a limited, non-exclusive
license to duplicate and use the Supplier Marks in Netcentives' promotional
materials and on its Internet Web site, during the Term of this Agreement (as
extended by Section 5.2(b)(iii), as appropriate), provided however, that any use
----------------
of the Supplier Marks shall be for the purpose of promoting the Netcentives
Program, shall only be used with regard to the inclusion of Miles within the
Netcentives Program, and shall be used only upon previous written approval by
Continental. Such approval shall not be unreasonably withheld.
(b) Netcentives hereby grants Continental a limited, non-exclusive
license to duplicate and use the Netcentives Marks in Continental's promotional
materials and on its Internet Web site, during the Term of this Agreement,
provided however, that any use of the Netcentives Marks shall be for the purpose
- ----------------
of promoting the OnePass Program or the Netcentives Program, shall only be used
with regard to the inclusion of Miles within the Netcentives Program, and shall
be used only upon previous written approval by Netcentives. Such approval shall
not be unreasonably withheld.
(c) Nothing herein shall be deemed to grant either party any ownership
interest in the Marks of the other party.
SECTION V
LIMITED EXCLUSIVITY; TERM AND TERMINATION
5.1 Limited Exclusivity.
-------------------
(a) Relationship. The parties hereto acknowledge that they shall have
------------
a relationship of Limited Exclusivity (as defined in Section 1.4) during the
Term of this Agreement and that certain rights and privileges under this
Agreement and other agreements between the parties are dependent on the
maintenance of such a relationship. Either party may terminate the obligations
of the parties under the relationship of Limited Exclusivity upon provision of
[****] written notice (the "Notice") to the non-terminating party, which
------
termination shall have the effects set forth in subsection (b), below.
(b) Effect of Termination of Limited Exclusivity. Termination of the
--------------------------------------------
relationship of Limited Exclusivity between Continental and Netcentives shall
not affect the obligations of the parties under this Agreement except that upon
the termination of the relationship of Limited Exclusivity, in addition to the
loss of certain other rights as set forth in other Agreements between the
parties, (i) immediately upon receipt of the Notice by Netcentives, [.....]; and
(ii) beginning [****] after receipt of the Notice by Netcentives, Continental
shall be permitted to sell Miles to any third party, including a Direct
Competitor of Netcentives. Any sales by Continental to a Direct Competitor of
Netcentives prior to the expiration of such period shall be considered a
material breach of this Agreement. Each party agrees that its obligations under
Limited Exclusivity as provided herein are necessary and reasonable in order to
protect Netcentives and its business, and each party expressly agrees that
monetary damages would be inadequate to compensate Netcentives for any breach by
Continental of its Limited Exclusivity related covenants and agreements.
Accordingly, each party agrees and acknowledges
-5-
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
<PAGE>
that any such violation would cause irreparable injury to Netcentives and that,
in addition to any other remedies that may be available, in law, in equity or
otherwise, Netcentives shall be entitled to obtain injunctive relief against any
such breach or the continuation of any such breach by Continental, without the
necessity of proving actual damages. Notwithstanding the above, Netcentives
recognizes that third parties may obtain Miles through Continental's "Miles of
Thanks" program, and that it is not always possible to determine the intended
use of the Miles purchased in the "Miles of Thanks" program. [****]
5.2 Term and Termination.
--------------------
(a) Term and Termination.
--------------------
(i) The term of this Agreement shall be three (3) years from
the Effective Date (the "Term"), unless terminated pursuant to this Section 5.2.
----
This Agreement shall terminate upon the expiration of the Term unless renewed by
the parties hereto in writing.
(ii) If either party defaults in the performance of any material
provision of this Agreement then the non-defaulting party may give written
notice to the defaulting party that if the default is not cured within thirty
(30) days, the Agreement will be terminated. If the non-defaulting party gives
such notice and the default is not cured during the thirty (30) day period, then
the Agreement shall automatically terminate at the end of that period.
(iii) This Agreement shall terminate, without notice, (A) upon
the institution by or against either party of insolvency, receivership or
bankruptcy proceedings or any other proceedings for the settlement of such
party's debts, (B) upon either party's making an assignment for the benefit of
creditors, (C) upon the dissolution of either party.
(b) Effect of Termination or Expiration. Upon termination of this
-----------------------------------
Agreement for any reason whatsoever: (i) Continental will credit all uncredited
orders to the Accounts originally designated by Netcentives in accordance with
this Agreement, provided that it has received payment; (ii) all Miles in the
Reserve Account shall be credited to Accounts in the manner provided for herein
and shall remain valid for the shorter of (a) one year, or (b) until the balance
of Miles in the Reserve Account is zero (0); and (iii) the term of the license
granted to Netcentives under section 4.3(a) shall be extended until the balance
of Miles in the Reserve Account is zero (0) or all such miles have expired;
Netcentives agrees not to use such license for the solicitation of new
Netcentives Members.
-6-
***** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
<PAGE>
(c) Survival. Continental's obligations to credit Accounts in a
--------
timely manner and Netcentives' obligations to pay Continental all amounts due
hereunder, as well as Sections 3.1, 3.2, 3.3, 3.4, 4.1, 4.2, 4.3(a) (to the
extent provided in Section 5.2(b) above), 4.3(c), 6.2, 6.3 and 6.7 shall survive
termination and expiration of this Agreement.
SECTION VI
MISCELLANEOUS
6.1 Independent Contractors. The relationship of Netcentives and
-----------------------
Continental established by this Agreement is that of independent contractors,
and nothing contained in this Agreement shall be construed to constitute the
parties as agents, partners, joint venturers, coowners or otherwise as
participants in a joint or common undertaking.
6.2 Indemnification.
---------------
(a) Continental hereby agrees to indemnify, defend and hold harmless
Netcentives and its respective directors, officers, agents and employees, from
and against any and all claims, losses, damages, suits, judgments, costs and
expenses (including litigation costs and reasonable attorneys' fees) arising out
of or relating to (i) Continental's operation of the OnePass Program including
without limitation, claims by participants in the OnePass Program of
Continental's breach, violation or failure to comply with the terms of the
OnePass Program and (ii) an allegation that Netcentives use of the Supplier
Marks licensed hereunder infringes a copyright or trademark existing or issued
as of the date of such use, provided in each case that Netcentives promptly
notifies Continental in writing of any such claim, gives Continental sole
control of the defense and all related settlement negotiations, and cooperates
with Continental in defending or settling any such claim.
(b) Netcentives hereby agrees to indemnify, defend and hold harmless
Continental and its respective directors, officers, agents and employees, from
and against any and all claims, losses, damages, suits, judgments, costs and
expenses (including litigation costs and reasonable attorneys' fees) arising out
of or relating to (i) Netcentives' operation of the Netcentives Program
including without limitation, claims by participants in the Netcentives Program
of Netcentives' breach, violation or failure to comply with the terms of the
Netcentives Program and (ii) an allegation that Continental's use of the
Netcentives Marks licensed hereunder infringes a copyright or trademark existing
or issued as of the date of such use, provided in each case that Continental
promptly notifies Netcentives in writing of any such claim, gives Netcentives
sole control of the defense and all related settlement negotiations, and
cooperates with Netcentives in defending or settling any such claim.
6.3 Notices. All notices and demands hereunder shall be in writing and
-------
shall be delivered by personal service or by telex, facsimile, cable, telegram,
certified or registered mail, or return receipt express courier to the address
of the receiving party set forth on the signature page of this Agreement, or to
any other address of the receiving party designated by written notice in
accordance with this paragraph.
-7-
<PAGE>
6.4 Waiver, Amendment and Modification. No waiver, amendment or
----------------------------------
modification of any provision hereof shall be effective unless in writing and
signed by the party against whom such waiver, amendment or modification is
sought to be enforced. No failure by either party to exercise and no delay by
either party in exercising any right, power or remedy with respect to the
obligations secured hereby shall operate as a subsequent waiver of any such
right, power or remedy.
6.5 Assignment. Each of the parties agrees that its rights and
----------
obligations under this Agreement may not be transferred or assigned directly or
indirectly without the prior written consent of the other party, provided
--------
however, that such consent shall not be required for an assignment of this
- -------
contract pursuant to a merger, sale of substantially all of the assets, or sale
of all of the outstanding stock of either party. This Agreement shall be
binding upon and inure to the benefit of the parties hereto, their successors
and assigns.
6.6 Severability. In the event that any of the provisions of this
------------
Agreement shall be held by a court of competent jurisdiction to be
unenforceable, such provision will be enforced to the maximum extent permissible
and the remaining portions of this Agreement shall remain in full force and
effect. The parties agree to negotiate in good faith a substitute, valid and
enforceable provision that most nearly effects the parties' intent and to be
bound by the mutually agreed substitute provision.
6.7 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of California, without reference to
conflict of laws provisions thereof.
6.8 Force Majeure. Neither party shall be responsible for any failure to
-------------
perform (except for payment obligations) due to unforeseen circumstances or to
causes beyond its control, including but not limited to acts of God, war, riot,
embargoes, acts of civil or military authorities, fire, floods, accidents,
strikes, or shortages of transportation facilities, fuel, energy, labor or
materials. A party whose performance is affected by a force majeure condition
shall be excused from such performance to the extent required by the force
majeure condition so long as such party takes all reasonable steps to avoid or
remove such causes of nonperformance and immediately continues performance
whenever and to the extent such causes are removed.
6.9 Entire Agreement; Amendment. This Agreement together with the Rights
---------------------------
Agreement among Continental, Netcentives and certain other parties and the
Warrant to Purchase Non-Voting Convertible Stock of even date herewith,
constitute the final and entire Agreement between the parties and may not be
modified or amended except in writing signed by both of the parties.
6.10 Headings. The headings and captions used in this Agreement are for
--------
convenience of reference only, and shall not in any way affect the
interpretation of the provisions of this Agreement.
6.11 Counterparts. This Agreement may be executed in counterparts, each
------------
of which shall be deemed an original and all of which together shall constitute
one instrument.
-8-
<PAGE>
[SIGNATURE PAGE TO FOLLOW]
-9-
<PAGE>
The parties have executed this Supply Agreement as of the date set forth
below.
NETCENTIVES INC.
ADDRESS:
2121 S. El Camino Real, Suite 615
San Mateo, CA 94403
/s/ Eric W. Tilenius Facsimile: (415) 572-5205
- ----------------------------------
Eric W. Tilenius
Chairman
CONTINENTAL AIRLINES, INC.
ADDRESS:
2929 Allen Parkway, Suite 1231
Houston, TX 77219
Facsimile: (713) 834-2828
/s/ Richard H. Metzner
- ----------------------------------
Richard H. Metzner
Vice President, Marketing Programs
[SIGNATURE PAGE TO SUPPLY AGREEMENT]
<PAGE>
DESIGN GUIDELINES AND LOGO SHEET
[THIS PAGE CONTAINS ARTWORK FOR CONTINENTAL ONEPASS LOGO]
<PAGE>
PROCEDURES FOR TRANSFERRING FILES
BETWEEN THE MAIN FRAME AND A PERSONAL COMPUTER USING RLINK
[***]
****** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
<PAGE>
EXHIBIT A1
TRADEMARKS OF CONTINENTAL
<PAGE>
NETCENTIVES INC.
2121 S. El Camino Real, Suite 615
San Mateo, CA 94403
September 29, 1997
Continental Airlines, Inc.
2929 Allen Parkway, Suite 1231
Houston,TX 77219
Attention: Colleen McCauley
Dear Ms. McCauley:
This letter agreement (the "Amendment") is entered into between the parties
as of September 25, 1997 (the "Effective Date") for the purpose of amending the
Supply Agreement dated September 5, 1997 between Netcentives Inc.
("Netcentives") and Continental Airlines, Inc. ("Continental"). When used
herein, capitalized terms will have the same meaning as in the Supply Agreement.
1. Netcentives agrees to purchase, and Continental agrees to sell
[***] Miles at [***], for a total payment of [***]. Following receipt of
payment from Netcentives, such Miles shall be held, pursuant to Section 2.1(b)
of the Supply Agreement, in the Reserve Account for the benefit of Netcentives.
2. Continental agrees that the Miles purchased under this Amendment shall
be credited towards Netcentives' minimum order obligation set forth in Section
2.1(c) of the Supply Agreement.
3. Continental shall promptly provide an invoice to Netcentives for the
Miles purchased under this Amendment. Payment shall be due upon receipt of such
invoice.
4. Absent a breach of the Supply Agreement by Continental, Netcentives
shall not be entitled to a refund for Miles that are purchased under this
Amendment, but not used by Netcentives.
5. The parties shall execute the Tax Indemnification Agreement in the form
set forth in the Attachment hereto.
6. Continental agrees to promptly notify Netcentives of any taxes claimed
due pursuant to Section 2.5 of the Supply Agreement, and Continental shall
remit, subject to Netcentives' payment of same, any such taxes to the
appropriate government authority.
****** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
<PAGE>
Continential Airlines, Inc.
September 29, 1997
Page 2
7. Except as set forth in this Amendment, the Supply Agreement constitutes
the entire agreement between the parties pertaining to the subject matter
contained herein, and each provision of the Supply Agreement shall continue in
full force and effect.
If the foregoing accurately reflects your understanding, please have this
Amendment executed on behalf of Continental by a duly authorized officer and
return it to me as soon as possible.
Best regards,
NETCENTIVES INC.
By: /s/ Eric W. Tilenius
-----------------------------
Eric Tilenius
Chairman and Executive Vice President
AGREED AND ACCEPTED AS OF
THE DATE FIRST SET FORTH ABOVE:
CONTINENTAL AIRLINES, INC.
By: /s/ Richard H. Metzner
------------------------------------------
Title: Vice President Marketing Programs
-------------------------------------
<PAGE>
EXHIBIT 10.11
NETCENTIVES INC.
SUPPLY AGREEMENT
This Supply Agreement (the "Agreement") is entered into between Netcentives
---------
Inc., a California corporation ("Netcentives") and US Airways, Inc., a Delaware
-----------
corporation ("US Airways") and shall be effective for all purposes as of
----------
September 20, 1997 (the "Effective Date").
--------------
RECITALS
WHEREAS, Netcentives is in a business to provide for the grant of points
redeemable for airline frequent flier miles and other incentives to end-users of
a certain Internet-based program (the "Netcentives Program");
-------------------
WHEREAS, US Airways has established a travel awards program (the "Dividend
--------
Miles Program") pursuant to which, among other things, certain persons may
- -------------
receive frequent flier miles for travel on US Airways and for such other reasons
as are permitted by US Airways; and
WHEREAS, Netcentives wishes to purchase Miles (as hereinafter defined) from
US Airways and US Airways wishes to sell Miles to Netcentives pursuant to the
terms of this Agreement;
NOW THEREFORE, in consideration of the foregoing and the mutual
consideration provided for herein, the parties hereto hereby agree as follows:
SECTION I
DEFINITIONS
For purposes of this Agreement, the following terms shall have the
following meanings:
1.1 "Account" shall mean the account of Netcentives Members who are also
-------
Dividend Miles Members in which Miles balances are maintained by US Airways.
1.2 "Confidential Information" means any information, technical data, or
------------------------
know-how, including, but not limited to, that which relates to research, product
plans, products, services, Netcentives Members, customers, markets, software,
developments, inventions, processes, designs, drawings, engineering, hardware
configuration information, marketing or finances of a party, which is designated
in writing to be confidential or proprietary, or if given orally, is identified
as confidential or proprietary at the time of disclosure or is obviously
confidential considering the context in which such disclosure is made.
Confidential Information does not include information, technical data or know-
how which (i) is rightfully in the possession of the receiving party at the time
of disclosure, (ii) prior to or after the time of disclosure becomes part of the
public knowledge or literature other than as a result of any improper inaction
or action of the receiving party hereunder, or (iii) is approved by the
disclosing party, in writing, for release.
Confidential treatment has been requested for portions of this exhibit. The copy
filed herewith omits the information subject to the confidentiality request.
Omissions are designated as *****. A complete version of this exhibit has been
filed separately with the Securities and Exchange Commission.
<PAGE>
1.3 "Direct Competitor of Netcentives" means [***].
--------------------------------
1.4 "Dividend Miles Member" means, as of any date, an individual who is a
---------------------
member in good standing of the Dividend Miles Program.
1.5 "Limited Exclusivity" means US Airways agrees not to sell Miles to any
-------------------
Direct Competitor of Netcentives as defined above. US Airways and Netcentives
shall have a relationship of "Limited Exclusivity" so long as (a) this Agreement
has not been terminated in accordance with its terms, and (b) US Airways has not
sold Miles to any Direct Competitor of Netcentives.
1.6 "Miles" means the points accrued under the Dividend Miles Program by
-----
Dividend Miles Members for travel on US Airways or such other reasons as are
permitted by US Airways.
1.7 "Netcentives Marks" means the trademarks and logos of Netcentives set
-----------------
forth on Exhibit A1 hereto, which exhibit may be changed by Netcentives from
----------
time to time upon notice to US Airways.
1.8 "Netcentives Member" means, as of any date, an individual who is a
------------------
member in good standing of the Netcentives Program.
1.9 "Netcentives Points" shall mean the points accrued under the
------------------
Netcentives Program by Netcentives Members for redemption for such products and
services as are offered by Netcentives from time to time.
1.10 "Term" has the meaning given it in Section 5.2(a) hereof.
----
1.11 "US Airways Marks" means the designated trademarks and logos of US
----------------
Airways set forth on Exhibit A2 hereto, which exhibit may be changed by US
----------
Airways from time to time upon notice to Netcentives.
SECTION II
PURCHASE AND SALE
2.1 Orders.
------
(a) General. Netcentives shall deliver orders to US Airways for Miles
-------
in such format as is detailed in Attachment A3 (to be determined by both parties
within the first 30 days of the Effective Date of this Agreement), which orders
shall designate the aggregate number of Miles to be purchased, the Account or
Accounts to which such Miles are to be credited, and the number of Miles to be
credited to each such Account. US Airways shall credit Accounts designated by
Netcentives within a reasonable time after receipt of an order from Netcentives,
but in any event within seven (7) business days thereof. As long is this
Agreement is in effect, US Airways shall not reject any order of Netcentives,
except in accordance with the terms of Section 3.2 hereof.
****** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
-2-
<PAGE>
(b) Pre-paid Miles Account. Netcentives will order Miles to be used
----------------------
at its discretion, which Miles shall be reserved in an Account for the benefit
of Netcentives (the "Pre-paid Miles Account"). Upon receipt of an order for
----------------------
Miles pursuant to Section 2.1(a) above, US Airways shall deduct the aggregate
number of Miles required to fulfill such order from the Pre-Paid Miles Account.
If there are not enough Miles in the Pre-paid Miles Account to fulfill such
order, US Airways shall issue additional Miles to fulfill such order, and bill
Netcentives for the difference in accordance with Section 2.3 herein. Miles
held in the Pre-paid Miles Account shall be valid and shall not expire for a
period of two (2) years from the date of credit to the Pre-paid Miles Account.
(c) Minimum Orders. Netcentives agrees to purchase a minimum number
--------------
of Miles during the term of this Agreement from US Airways (the "Minimum
-------
Orders"), as set forth in Appendix A hereto, in accordance with the terms and
- ------
conditions therein. The due date of such Minimum Orders shall be as set forth
in Appendix A hereto. Any Miles purchased to meet a Minimum Order shall be
credited to the Pre-paid Miles Account. Any orders above the Minimum Orders
shall be at the discretion of Netcentives.
2.2 Purchase Terms. The terms specific to the purchase of Miles by
--------------
Netcentives under this Agreement are fixed and are contained in Appendix B
hereto.
2.3 Payment. If any orders for Miles exceed the balance in the Pre-paid
-------
Miles account, US Airways shall invoice Netcentives monthly for the additional
amount due. Netcentives will pay such invoice within thirty (30) days of
receipt of the invoice. Any payments made by Netcentives to US Airways
hereunder shall be non-refundable.
2.4 Taxes. Prices for Miles do not include taxes. Netcentives is
-----
responsible for any and all taxes on the sale of Miles to Netcentives pursuant
to this Agreement.
SECTION III
OBLIGATIONS OF NETCENTIVES
3.1 Distribution to Netcentives Members. Netcentives shall only request
-----------------------------------
that Miles be credited to the Accounts of Dividend Miles Members in exchange for
their participation in the Netcentives Program.
3.2 Distribution to Dividend Miles Members. Netcentives shall only
--------------------------------------
request that Miles be credited to the accounts of Netcentives Members whom
Netcentives believes in good faith to be Dividend Miles Members. In the event
that Netcentives requests that Miles be credited to the account of a person who
is not a Dividend Miles Member, US Airways shall deposit the Miles in the Pre-
paid Miles Account and promptly notify Netcentives.
3.3 No Resale Of Miles. At no time shall Netcentives offer Miles to any
------------------
person for resale or redistribution to a third party. If Netcentives discovers
with reasonable certainty that any Netcentives Member is inappropriately
redistributing Miles, Netcentives shall immediately cease requesting that Miles
be credited to the Account of such Netcentives Member, and shall
-3-
<PAGE>
notify US Airways of the identity of such Netcentives Member and the nature of
the potential infraction. If US Airways discovers that any Netcentives Member
has resold or redistributed Miles in violation of this provision, US Airways
can, at its option, cease distributing any additional Miles to such Dividend
Miles Member's Account, or exercise any other legal right to which it is
entitled under this, or its Frequent Traveler Program Agreement.
3.4 Limits to Distribution of Miles. Netcentives will not allow
-------------------------------
Netcentives Points earned for Restricted Activities to be converted to Miles.
For the purposes of this Agreement, "Restricted Activities" are transactions
involving [***]
3.5 Maximum Number of Miles Per Year. Netcentives will notify US Airways
--------------------------------
if any Netcentives Member redeems Netcentives Points for [***] or more during
any calendar year, and will provide US Airways with a summary of such Netcentive
Member's Mile redemption activity.
3.6 Dividend Miles Program Information. Netcentives shall post contact
----------------------------------
information regarding the Dividend Miles Program on its Internet Web site to
enable Netcentives Members to enroll in the Dividend Miles Program.
SECTION IV
PROPRIETARY INFORMATION
4.1 Confidential Information. Each party agrees not to use any
------------------------
Confidential Information disclosed to it by the other party for its own use or
for any purpose other than to carry out its obligations under this Agreement.
Neither party will disclose any Confidential Information of the other party to
third parties or to employees of the party receiving Confidential Information,
other than employees who are required to have the information in order to carry
out such party's obligations under this Agreement. Each party agrees that it
will take all reasonable measures to protect the secrecy of and avoid disclosure
or use of Confidential Information of the other party in order to prevent it
from falling into the public domain or the possession of persons other than
those persons authorized under this Agreement to have any such information,
including (without limitation) ensuring that recipients of the disclosing
party's Confidential Information adhere to confidentiality terms in content
substantially similar to the terms in this Agreement. Such measures shall
include the highest degree of care that the receiving party utilizes to protect
its own Confidential Information of a similar nature. Each party agrees to
notify the other in writing of any misuse or misappropriation of Confidential
Information of the disclosing party which may come to the receiving party's
attention.
****** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
-4-
<PAGE>
4.2 Publicity. After the execution of this Agreement, Netcentives shall,
---------
at its discretion, and with approval from and coordination with a designated
representative of US Airways, whose approval shall not be unreasonably withheld,
issue a press release which may, among other things, confirm the existence of a
relationship between the parties and of the exclusive nature of such
relationship, and may request that US Airways issue a similar press release.
Any other information regarding the relationship between the parties including
the other terms of this Agreement and any other agreement between the parties
shall be considered Confidential Information under the definition set forth
herein.
4.3 Trademarks.
----------
(a) US Airways hereby grants to Netcentives a limited, non-exclusive,
royalty-free license, without the right to sublicense, to use, reproduce,
display, and transmit the US Airways Marks in Netcentives' promotional materials
and on its Internet Web site during the Term of this Agreement (as extended by
Section 5.2(b)(iii), as appropriate), provided however, that any use of the US
----------------
Airways Marks shall be for the purpose of promoting the Netcentives Program,
shall only be used with regard to the inclusion of Miles within the Netcentives
Program, and shall be subject to the review and prior approval of US Airways.
US Airways shall use its best efforts to provide approval of, or comments upon,
submitted materials promptly, but in no event later than five business day
following receipt of such materials.
(b) Netcentives hereby grants to US Airways a limited, non-exclusive,
royalty-free license, without the right to sublicense, to use, reproduce,
display, and transmit the Netcentives Marks in US Airways's promotional
materials and on its Internet Web site during the Term of this Agreement,
provided however, that any use of the Netcentives Marks shall be for the purpose
- ----------------
of promoting the Dividend Miles Program or the Netcentives Program and shall
only be used with regard to the inclusion of Miles within the Netcentives
Program.
(c) Nothing herein shall be deemed to grant either party any ownership
interest in the Marks of the other party. Netcentives shall retain all right,
title, and interest in and to the Netcentives Program. US Airways shall retain
all right, title, and interest in and to the Dividend Miles Program.
SECTION V
LIMITED EXCLUSIVITY; TERM AND TERMINATION
5.1 Limited Exclusivity.
-------------------
(a) Relationship. The parties hereto acknowledge that they shall have
------------
a relationship of Limited Exclusivity during the Term of this Agreement and that
certain rights and privileges under this Agreement and other agreements between
the parties are dependent on the maintenance of such a relationship. Either
party may terminate the obligations of the parties under the relationship of
Limited Exclusivity upon provision of ninety (90) days written notice to the
non-terminating party (the "Notice"), which termination shall have the effects
------
set forth in subsection (b), below.
-5-
<PAGE>
(b) Effect of Termination of Limited Exclusivity. Termination of the
--------------------------------------------
relationship of Limited Exclusivity between US Airways and Netcentives shall not
affect the obligations of the parties under this Agreement except that upon the
termination of the relationship of Limited Exclusivity, in addition to the loss
of certain other rights as set forth in other Agreements between the parties,
(i) immediately upon receipt of the Notice by Netcentives, Netcentives shall no
longer be responsible for meeting the volume purchase requirements as set forth
in this Agreement, (ii) beginning [***] after receipt of the Notice by
Netcentives, US Airways shall be permitted to sell Miles to any third party,
including a Direct Competitor of Netcentives, [.....]. Each party agrees that
its obligations under Limited Exclusivity as provided herein are necessary and
reasonable in order to protect Netcentives and its business, and each party
expressly agrees that monetary damages would be inadequate to compensate
Netcentives for any breach by US Airways of its Limited Exclusivity related
covenants and agreements. Accordingly, each party agrees and acknowledges that
any such violation would cause irreparable injury to Netcentives and that, in
addition to any other remedies that may be available, in law, in equity or
otherwise, Netcentives shall be entitled to obtain injunctive relief against any
such breach or the continuation of any such breach by US Airways, without the
necessity of proving actual damages.
(c) Breach; Cure. Any sales by US Airways to a Direct Competitor of
------------
Netcentives prior to the expiration of the Limited Exclusivity period shall be
considered a material breach of this Agreement. Notwithstanding the foregoing,
Netcentives recognizes that it is not always possible to determine whether a
purchaser is a Direct Competitor. US Airways agrees to use its reasonable
commercial efforts to prevent any Direct Competitor from purchasing Miles.
However, if despite using such efforts, US Airways sells Miles to a Direct
Competitor, US Airways will not be in breach of the Agreement and the Limited
Exclusivity period will not be terminated, provided however, that once
----------------
Netcentives notifies US Airways that Miles were sold to a Direct Competitor, US
Airways immediately: (i) refuses to sell any additional Miles to such Direct
Competitor; (ii) removes participation by such Direct Competitor in the Dividend
Miles Program (except that US Airways shall not be required to repurchase Miles
sold to such Direct Competitor as part of such removal); and (iii) takes all
necessary steps to ensure that no additional Miles are sold to such Direct
Competitor until the effective date of termination or expiration of this
Agreement, or until the effective date of termination of the Limited Exclusivity
period, whichever comes first.
5.2 Term and Termination.
--------------------
(a) Term and Termination.
--------------------
(i) This Agreement shall become effective as of the Effective
Date, and unless sooner terminated as provided below, shall remain effective for
an initial term of three (3) years (the "Initial Term"). The Initial Term shall
------------
automatically be extended for successive periods of one (1) year (the "Extension
---------
Terms"), unless either party provides the other party with written notice of
- -----
termination at least 120 days prior to the end of such Initial Term or Extension
Term as applicable. The parties shall renegotiate the terms reflected in
Appendix A and
****** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
-6-
<PAGE>
Appendix B at least ninety (90) days prior to the commencement of each Extension
Term. As used herein, "Term" shall mean the Initial Term plus any applicable
----
Extension Terms.
(ii) If either party defaults in the performance of any material
provision of this Agreement then the non-defaulting party may give written
notice to the defaulting party that if the default is not cured within thirty
(30) days, the Agreement will be terminated. If the non-defaulting party gives
such notice and the default is not cured during the thirty (30) day period, then
the Agreement shall automatically terminate at the end of that period.
(iii) This Agreement shall terminate with 60 days written notice
and reasonable opportunity to cure, (A) upon Netcentives' failure to make
payment by a due date indicated in this Agreement, (B) upon Netcentives'
violation of an applicable governmental regulation with respect to Miles granted
under this Agreement, or (C) upon Netcentives' inability to meet its financial
obligations as they become due.
(iv) US Airways may suspend or cancel its Miles program or
Netcentives' participation in the program at any time upon 120 days advance
written notice. Upon such notification, a winding down period of six months
will begin, during which both US Airways and Netcentives will let US Airways and
Netcentives customers know that the relationship will be ending. During such
period, Netcentives customers may continue to redeem their points for US Airways
Miles as set forth under this Agreement. US Airways will refund to Netcentives
the price paid for any Miles in the Pre-paid Miles Account that Netcentives may
no longer use.
(b) Effect of Termination or Expiration. Upon termination of this
-----------------------------------
Agreement for any reason whatsoever: (i) US Airways will credit all uncredited
orders to the Accounts originally designated by Netcentives; (ii) all Miles in
the Pre-paid Miles Account shall remain valid for their fall term and shall be
credited to Accounts in the manner provided for herein until the balance of
Miles in the Pre-paid Miles Account is zero (0); and (iii) the term of the
license granted to Netcentives under section 4.3(a) shall be extended until the
balance of Miles in the Pre-paid Miles Account is zero (0) or all such miles
have expired.
(c) Survival. US Airways' obligations to credit Accounts in a timely
--------
manner and Netcentives' obligations to pay US Airways all amounts due hereunder,
as well as Sections 1, 4.1,4.2,4.3(a) (to the extent provided in Section 5.2(b)
above), 4.3(c), 5.2(a)(iv), 5.2(b), 5.2(c), 6.2, 6.3 and 6.7 shall survive
termination of this Agreement.
SECTION VI
MISCELLANEOUS
6.1 Independent Contractors. The relationship of Netcentives and US
-----------------------
Airways established by this Agreement is that of independent contractors, and
nothing contained in this Agreement shall be construed to constitute the parties
as agents, partners, joint venturers, co-owners or otherwise as participants in
a joint or common undertaking.
-7-
<PAGE>
6.2 Indemnification.
---------------
(a) US Airways hereby agrees to indemnify, defend and hold harmless
Netcentives and its respective directors, officers, agents and employees, from
and against any and all claims, losses, damages, suits, judgments, costs and
expenses (including litigation costs and reasonable attorneys' fees) arising out
of or relating to (i) US Airways' operation of the Dividend Miles Program
including without limitation, claims by participants in the Dividend Miles
Program of US Airways' breach, violation or failure to comply with the terms of
the Dividend Miles Program and (ii) any allegation that Netcentives use of the
US Airways Marks within the scope of this Agreement infringes a copyright or
trademark existing or issued as of the date of such use, provided in each case
that Netcentives promptly notifies US Airways in writing of any such claim,
gives US Airways sole control of the defense and all related settlement
negotiations, and cooperates with US Airways in defending or settling any such
claim.
(b) Netcentives hereby agrees to indemnify, defend and hold harmless
US Airways and its respective directors, officers, agents and employees, from
and against any and all claims, losses, damages, suits, judgments, costs and
expenses (including litigation costs and reasonable attorneys' fees) arising out
of or relating to (i) Netcentives' operation of the Netcentives Program
including without limitation, claims by participants in the Netcentives Program
of Netcentives' breach, violation or failure to comply with the terms of the
Netcentives Program and (ii) any allegation that US Airways' use of the
Netcentives Marks within the scope of this Agreement infringes a copyright or
trademark existing or issued as of the date of such use, provided in each case
that US Airways promptly notifies Netcentives in writing of any such claim,
gives Netcentives sole control of the defense and all related settlement
negotiations, and cooperates with Netcentives in defending or settling any such
claim.
6.3 Notices. All notices and demands hereunder shall be in writing and
-------
shall be delivered by personal service or by telex, facsimile, cable, telegram,
certified or registered mail, or return receipt express courier to the address
of the receiving party set forth on the signature page of this Agreement (and if
to US Airways, with a copy to the Office of the General Counsel, fax no: (703)
872-5252), or to any other address of the receiving party designated by written
notice in accordance with this paragraph.
6.4 Waiver, Amendment and Modification. No waiver, amendment or
----------------------------------
modification of any provision hereof shall be effective unless in writing and
signed by the party against whom such waiver, amendment or modification is
sought to be enforced. No failure by either party to exercise and no delay by
either party in exercising any right, power or remedy with respect to the
obligations secured hereby shall operate as a subsequent waiver of any such
right, power or remedy.
6.5 Assignment. Each of the parties agrees that its rights and
----------
obligations under this Agreement may not be transferred or assigned directly or
indirectly without the prior written consent of the other party, provided
--------
however, that such consent shall not be required for an assignment of this
- -------
contract pursuant to a merger, sale of substantially all of the assets, or sale
of
-8-
<PAGE>
all of the outstanding stock of either party. This Agreement shall be binding
upon and inure to the benefit of the parties hereto, their successors and
assigns.
6.6 Severability. In the event that any of the provisions of this
------------
Agreement shall be held by a court of competent jurisdiction to be
unenforceable, such provision will be enforced to the maximum extent permissible
and the remaining portions of this Agreement shall remain in full force and
effect. The parties agree to negotiate in good faith a substitute, valid and
enforceable provision that most nearly effects the parties' intent and to be
bound by the mutually agreed substitute provision.
6.7 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of New York, without reference to conflict
of laws provisions thereof.
6.8 Force Majeure. Neither party shall be responsible for any failure to
-------------
perform (except for payment obligations) due to unforeseen circumstances or to
causes beyond its control, including but not limited to acts of God, war, riot,
embargoes, acts of civil or military authorities, fire, floods, accidents,
strikes, or shortages of transportation facilities, fuel, energy, labor or
materials. A party whose performance is affected by a force majeure condition
shall be excused from such performance to the extent required by the force
majeure condition so long as such party takes all reasonable steps to avoid or
remove such causes of nonperformance and immediately continues performance
whenever and to the extent such causes are removed.
6.9 Entire Agreement; Amendment. This Agreement constitutes the final and
---------------------------
entire Agreement between the parties and may not be modified or amended except
in writing signed by both of the parties.
6.10 Headings. The headings and captions used in this Agreement are for
--------
convenience of reference only, and shall not in any way affect the
interpretation of the provisions of this Agreement.
6.11 Counterparts. This Agreement may be executed in counterparts, each
------------
of which shall be deemed an original and all of which together shall constitute
one instrument.
[SIGNATURE PAGE TO FOLLOW]
-9-
<PAGE>
The parties have executed this Supply Agreement as of the date set forth
above.
NETCENTIVES INC.
ADDRESS:
2121 S. El Camino Real, Suite 615
San Mateo, CA 94403
/s/ Eric W. Tilenius Facsimile: (415) 572-5205
- --------------------------------
Eric W. Tilenius, Chairman
US AIRWAYS, INC.
ADDRESS:
2345 Crystal Drive
Arlington, VA 22227
/s/ Martin C. White
- --------------------------------
Martin C. White Facsimile: (703) 872-7057
Vice President
Marketing Programs and Services
[SIGNATURE PAGE TO SUPPLY AGREEMENT]
-10-
<PAGE>
EXHIBIT A1
TRADEMARKS OF NETCENTIVES
NETCENTIVES
CLICKREWARDS
CLICKPOINTS
INTERNET INCENTIVES NETWORK
Netcentives
ClickRewards
ClickRewards(TM)
ClickRewards(TM)
Online Incentives Network
ClickRewards(TM)
Online Incentives Network
-11-
<PAGE>
EXHIBIT A2
TRADEMARKS OF US AIRWAYS
<PAGE>
EXHIBIT A3
SPECIFICATIONS FOR DATA
<PAGE>
APPENDIX A
MINIMUM ORDERS
--------------
While Limited Exclusivity is in effect:
On each date specified below, Netcentives shall pay to US Airways [******]
------------------------------------------------------------
DATE [*****]
------------------------------------------------------------
Effective Date [*****]
January 1, 1998 [*****]
April 1, 1998 [*****]
July 1, 1998 [*****]
October 1, 1998 [*****]
January 1, 1999 [*****]
April 1, 1999 [*****]
July 1, 1999 [*****]
October 1, 1999 [*****]
January 1, 2000 [*****]
April 1, 2000 [*****]
July 1, 2000 [*****]
------------------------------------------------------------
If Limited Exclusivity is dropped:
- ---------------------------------
[******]
___________________
/1/ For example, if on April 1, 1998 Netcentives has purchased a total of
[***] Miles for a cumulative price of [*****], Netcentives shall pay [*****] to
US Airways for the purchase of [***] additional Miles, and US Airways shall
credit [***] Miles to the Pre-paid Miles Account (in accordance with Section
2.1(c)).
****** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
<PAGE>
APPENDIX B
PRICING
[****]
****** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
<PAGE>
EXHIBIT 10.12
NETCENTIVES INC.
SUPPLY AGREEMENT
This Supply Agreement (the "Agreement") is entered into between Netcentives
---------
Inc., a California corporation ("Netcentives") and Mileage Plus Marketing, Inc.,
-----------
acting as agent for Mileage Plus, Inc. ("MPI"), a wholly-owned subsidiary of
---
United Airlines, Inc., a Delaware corporation ("United") and shall be effective
------
for all purposes as of the date that both parties have executed this Agreement
(the "Effective Date").
--------------
RECITALS
WHEREAS, Netcentives is in a business to provide for the grant of points
redeemable for airline frequent flier miles and other incentives to end-users of
a certain Internet-based program (the "ClickRewards Program");
--------------------
WHEREAS, MPI is operating a travel awards program (the "Mileage Plus
------------
Program") pursuant to which, among other things, certain persons may receive
- -------
frequent flier miles for travel on United and for such other reasons as are
permitted by MPI;
WHEREAS, Netcentives wishes to purchase the right to award Miles (as
hereinafter defined) from MPI and MPI wishes to grant such right to Netcentives
pursuant to the terms of this Agreement;
NOW THEREFORE, in consideration of the foregoing and the mutual
consideration provided for herein, the parties hereto hereby agree as follows:
SECTION 1
DEFINITIONS
For purposes of this Agreement, the following terms shall have the
following meanings:
1.1 "Account" shall mean the Mileage Plus account of a Mileage Plus member
-------
who is also a Netcentives Member in which Miles balances are maintained by MPI.
1.2 "Confidential Information" means any information, technical data, or
------------------------
know-how, including, but not limited to, that which relates to research, product
plans, products, services, Netcentives Members, Mileage Plus Members, customers,
markets, software, developments, inventions, processes, designs, drawings,
engineering, hardware configuration information, marketing or finances of a
party, which is designated in writing to be confidential or proprietary, or if
given orally, is identified as confidential or proprietary at the time of
disclosure or is obviously confidential considering the context in which such
disclosure is made. Confidential Information does not include information,
technical data or know-how which (i) is rightfully in the possession of the
receiving party at the time of disclosure, (ii) prior to or after the time of
disclosure becomes part of the public knowledge of literature other than as a
result of any
Confidential treatment has been requested for portions of this exhibit. The
copy filed herewith omits the information subject to the confidential request.
Omissions are designated as *****. A complete version of this exhibit has been
filed separately with the Securities and Exchange Commission.
<PAGE>
improper inaction or action of the receiving party hereunder, or (iii) is
approved by the disclosing party, in writing, for release by the receiving party
hereunder.
1.3 "Contract Year" means the twelve (12) month period following the
-------------
Effective Date, or any consecutive twelve (12) month period commencing on an
anniversary of the Effective Date thereafter for the duration of the Term.
1.4 "Direct Competitor of Netcentives" means [****]
--------------------------------
1.5 "Limited Exclusivity" means MPI's agreement not to sell the right to
-------------------
award Miles to any Direct Competitor of Netcentives. Limited Exclusivity may be
terminated under this Agreement in accordance with the provisions of Section
5.1(c).
1.6 "Mileage Plus Member" means, as of any date during the Term of this
-------------------
Agreement, an individual who is a member in good standing of the Mileage Plus
Program.
1.7 "Miles" means the points accrued under the Mileage Plus Program by
-----
Mileage Plus Members for travel on United or such other reasons as are permitted
by MPI.
1.8 "Netcentives Marks" means the trademarks and logos of Netcentives set
-----------------
forth on Exhibit A1 hereto, which exhibit may be changed by Netcentives from
----------
time to time upon notice to United.
1.9 "Netcentives Member" means, as of any date, an individual who is a
------------------
member in good standing of the ClickRewards Program.
1.10 "United Marks" means the trademarks and logos of United reasonably
------------
necessary for use by Netcentives in connection with the promotion of the Mileage
Plus Program within the Netcentives Program, including without limitation, the
United logo, the Mileage Plus logo, and the terms United Airlines and Mileage
Plus.
1.11 "Term" has the meaning given it in Section 5.2(a) hereof.
----
SECTION II
PURCHASE AND SALE
2.1 Orders.
------
(a) General. Netcentives shall deliver instructions to United for
-------
Miles issuance rights in a format to be mutually agreed upon by the parties,
which orders (i) shall designate the aggregate number of Miles issuance rights
to be purchased, (ii) shall specify the Account or Accounts to which such Miles
are to be credited, and the number of Miles to be credited to each such Account,
and (iii) shall request a minimum of 500 Miles be credited to any Account for
which a credit is requested. United shall credit Accounts designated by
Netcentives within a reasonable time after receipt for an order from
Netcentives, but in any event within fourteen (14) business days thereof. As
long as this Agreement is in effect, United shall not
****** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
<PAGE>
reject any order for Miles crediting of Netcentives for use as incentives in the
ClickRewards program, except in accordance with the terms for Section 3.2 hereof
and/or otherwise in accordance with the published and generally applicable terms
and conditions of the Mileage Plus Program.
(b) Minimum Orders; Price. Netcentives agrees to purchase a minimum
---------------------
number of Miles from United as of the dates as set forth on Exhibit B hereto,
---------
provided however, that in the event that Netcentives has not identified the
- ----------------
Account or Accounts to which all such Miles are to be credited, such Miles shall
be reserved for future credit to an Account or Accounts as requested by
Netcentives in accordance with this Agreement. Miles reserved for future credit
shall expire upon the earlier of (a) ninety (90) days following the second
anniversary date of the purchase of such Miles by Netcentives, and (b) such date
as Netcentives is no longer entitled to award Miles to Mileage Plus Members
hereunder or under any immediately subsequent agreement between Netcentives and
MPI. Any orders applied against Miles previously reserved for future credit
will be credited on a first-in, first-out basis.
2.2 Payment. All amounts due to MPI shall be paid to United and become
-------
due and payable: (a) in the case of the minimum payment obligations set forth on
Exhibit B, as of the date set forth thereon, and (b) in the case of any
- ---------
additional orders, within thirty (30) days of the receipt by Netcentives of an
invoice for Miles which have been credited to the appropriate Account. Any
payments made by Netcentives to United hereunder shall be non-refundable.
2.3 Taxes. Prices for Miles are net of any and all federal excise taxes
-----
imposed on the sale of Miles by MPI to Netcentives under this Agreement.
Netcentives is responsible for any and all such taxes.
SECTION III
ADDITIONAL OBLIGATIONS AND REPRESENTATIONS
3.1 Distribution to Netcentives Members. Netcentives shall only request
-----------------------------------
that Miles be credited to the Accounts of persons in exchange for their
participation in the ClickRewards Program.
3.2 Distribution to Mileage Plus Members. Netcentives shall only request
------------------------------------
that Miles be credited to the Accounts of Netcentives Members whom Netcentives
believes in good faith to be Mileage Plus Members. To the extent that
Netcentives requests that Miles be credited to a person who is not a Mileage
Plus Member, MPI shall not be obligated to credit such Account, provided
--------
however, that Netcentives shall not be invoiced for any Miles which are not
- -------
credited to an Account.
3.3 No Resale of Miles. At no time shall Netcentives offer Miles to any
------------------
person for resale, barter or redistribution to a third party.
3.4 Representations of Netcentives. Netcentives represents and warrants
------------------------------
to MPI that: (a) it has the full corporate right, power, and authority to enter
into this Agreement and perform
<PAGE>
the acts required of it hereunder, (b) the execution of this Agreement by
Netcentives, and the performance by Netcentives of its obligations and duties
hereunder, do not and will not violate any agreement to which Netcentives is a
party or by which it is otherwise bound, (c) when executed and delivered by
Netcentives, this Agreement will constitute the legal, valid and binding
obligation of Netcentives, enforceable against Netcentives in accordance with
its terms, and (d) Netcentives will operate the ClickRewards Program and perform
its obligations under this Agreement in accordance with all applicable laws,
governmental regulations and court orders.
3.5 Representation of MPI. MPI represents and warrants to Netcentives
---------------------
that : (a) it has the full corporate right, power, and authority to enter into
this Agreement, perform the acts required of it hereunder, (b) the execution of
this Agreement by MPI, and the performance by MPI of its obligations and duties
hereunder, do not and will not violate any agreement to which MPI is a party or
by which it is otherwise bound, and (c) when executed and delivered by MPI, this
Agreement will constitute the legal, valid and binding obligation of MPI,
enforceable against MPI in accordance with its terms. MPI further represents
that it has the authority to allow Netcentives to use the United Marks in
accordance with the terms hereof.
SECTION IV
PROPRIETARY INFORMATION
4.1 Confidential Information. Each party agrees not to use any
------------------------
Confidential Information disclosed to it by the other party for its own use or
for any purpose other than to carry out its obligations under this Agreement.
Neither party will disclose any Confidential Information of the other party to
third parties or to employees of the party receiving Confidential Information,
other than employees who are required to have the information in order to carry
out such party's obligations under this Agreement. Each party agrees that it
will take all reasonable measures to protect the secrecy of and avoid disclosure
or use of Confidential Information of the other party in order to prevent it
from falling into the public domain or the possession of persons other than
those persons authorized under this Agreement to have any such information,
including (without limitation) ensuring that recipients of the disclosing
party's Confidential Information adhere to confidentiality terms in content
substantially similar to the terms in this Agreement. Such measures shall
include the highest degree of care that the receiving party utilizes to protect
its own Confidential Information of a similar nature. Each party agrees to
notify the other in writing of any misuse or misappropriation of Confidential
Information of the disclosing party which may come to the receiving party's
attention.
4.2 Publicity. After the execution of this Agreement, Netcentives may, at
---------
its discretion, issue a press release, in consultation with MPI and United,
which may, among other things, confirm the existence of a relationship between
the parties and state that "Netcentives is the exclusive, Internet, points-based
rewards partner in the United Airlines Mileage Plus Program." MPI and United
may, at their sole discretion, also issue a press release, in a form similar to
that issued by Netcentives. Any such press releases shall be subject to the
prior approval of the non-releasing party, provided that (a) such approval shall
not be unreasonably withheld, and (b) any disapproval shall be provided to the
non-releasing party within two (2)
<PAGE>
business days of such request. Upon inquiry from any other party, (a) MPI will
and will cause United to confirm the accuracy of information disclosed by
Netcentives in any of its press releases, which information was provided by MPI
or United, and (2) Netcentives will confirm the accuracy of information
disclosed by MPI or United in any of its press releases, which information was
provided by Netcentives. Netcentives' status as "the exclusive, Internet,
points-based rewards partner in the United Airlines Mileage Plus Program" shall
be deemed to be information provided by both parties. Any other proprietary,
confidential, sensitive or competitive information regarding the relationship
between the parties including the other terms of this Agreement and any other
agreement between the parties shall be considered Confidential Information under
the definition set forth herein.
4.3 Promotion. During the term of this Agreement, and so long as (a)
---------
Limited Exclusivity is in effect, or (b) Netcentives has purchased or makes a
binding commitment to purchase a total of [***] Miles during the applicable
Contract Year, whether pursuant to Limited Exclusivity commitments as provided
in Exhibit B attached hereto or otherwise, United agrees to promote the
ClickRewards Program by(a) running one newsletter story in its Mileage Plus
Member magazine per calendar year which features the ClickRewards Program, (b)
including the ClickRewards Program in all lists of Mileage Plus partners and
MPI, (c) providing Netcentives with one free insert per calendar year to be
placed in Mileage Plus Member statements (provided that the cost of developing,
producing and shipping such inserts shall be borne by Netcentives), and (d) as
soon as feasible, and at all times thereafter, providing a link from the United
Mileage Plus worldwide web site to the ClickRewards worldwide web home page.
During the term of this Agreement, Netcentives agrees to promote the Mileage
Plus program by providing a link from the ClickRewards worldwide web site to the
United Mileage Plus worldwide web home page and featuring the United Airlines
logo with the ClickRewards web site.
4.4 Additional Marketing Programs. During the term of this Agreement, and
-----------------------------
so long as a) Limited Exclusivity is in effect, or b) Netcentives has purchased
or makes a binding commitment to purchase a total of [***] Miles during the
applicable Contract Year, whether pursuant to Limited Exclusivity commitments as
provided in Exhibit B attached hereto or otherwise, MPI agrees to offer
Netcentives the opportunity to purchase inserts in Mileage Plus Member
statements and advertisements in any Mileage Plus Member magazines on terms and
conditions no less favorable than those offered to similarly situated non-travel
purchasers of Miles from MPI, subject to space availability. Netcentives agrees
to offer MPI the opportunity to purchase advertising on the ClickRewards web
site on terms and conditions no less favorable than those offered to similarly
situated purchasers of advertising from Netcentives, as space is available.
4.5 Trademarks.
----------
(a) Permission of United. MPI hereby confirms that, by Netcentives'
--------------------
signing of this Agreement, United thereby will permit Netcentives to duplicate,
transmit, display and use
****** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
<PAGE>
the United Marks in Netcentives' promotional materials and on its Internet Web
site, during the Term of and in accordance with this Agreement (as extended by
Section 5.2(b)(iii), as appropriate), provided however, that any use of the
----------------
United Marks hereunder shall be only for the purpose of promoting the
ClickRewards Program, shall only be used with regard to the inclusion of Miles
within the ClickRewards Program and only after approval by United of each
different type of use proposed by Netcentives. United shall provide notice of
any disapproval of a use within two (2) business days of such request, and shall
not unreasonably disapprove of any such use.
(b) Permission of Netcentives. Netcentives hereby confirms that, by
-------------------------
MPI's signing of this Agreement, Netcentives thereby will permit MPI and United
to duplicate, transmit, display and use the Netcentives Marks in MPI's or
United's promotional materials and on its Internet Web site, during the Term of
and in accordance with this Agreement (as extended by Section 5.2(b)(iii), as
appropriate), provided however, that any use of the Netcentives Marks hereunder
----------------
shall be only for the purpose of promoting the ClickRewards Program, shall only
be used with regard to the inclusion of Miles within the ClickRewards Program
and only after approval by Netcentives of each different type of use proposed by
MPI or United. For all approvals pursuant to this Section 4.5(b), Netcentives
shall provided notice of any disapproval within one (1) business day of such
request, and shall not unreasonably disapprove of any such use.
(c) No Ownership. Nothing herein shall be deemed to grant either
------------
party any ownership interest in the Marks or the Internet web sites of the other
party.
SECTION V
LIMITED EXCLUSIVITY; TERM AND TERMINATION
5.1 Limited Exclusivity.
-------------------
(a) Relationship. The parties hereto acknowledge that they shall have
------------
a relationship of Limited Exclusivity (as defined in Section 1.5) during the
Term of this Agreement. As a result of such relationship:
(i) Following the execution of this Agreement, MPI will not, and
will cause United not to, renew any agreements with a Direct Competitor of
Netcentives for the sale of Miles to such party and will cease selling any
additional Miles to any such party; and
(ii) MPI will not, and will cause United not to, enter into an
agreement to sell any Miles to a Direct Competitor of Netcentives.
(b) Termination of Limited Exclusivity. Either party may terminate
----------------------------------
the obligations of the parties under the relationship of Limited Exclusivity
upon provision of ninety (90) days written notice (the "Notice") to the non-
terminating party, which termination shall have the effects set forth in
subsection (c), below, provided however, that neither party may give such notice
----------------
during the ninety (90) day period beginning on the Effective Date. During the
ninety (90)
<PAGE>
day period following the Notice, each of the parties will negotiate with the
other in good faith to determine on what terms and conditions, if any, Limited
Exclusivity may be maintained by the parties during the full term of this
Agreement.
(c) Effect of Termination of Limited Exclusivity. Termination of the
--------------------------------------------
relationship of Limited Exclusivity between MPI and Netcentives shall not affect
the obligations of the parties under this Agreement except that upon the
termination of the relationship of Limited Exclusivity: (i) immediately upon
receipt of the Notice by the non-terminating party, Netcentives shall no longer
be responsible for meeting the minimum volume purchase requirements as set forth
in Exhibit B, (ii) beginning [***] after receipt of the Notice by the non-
---------
terminating party, MPI shall be permitted to sell Miles to any third party,
including a Direct Competitor of Netcentives, and (iii) if such Notice is
delivered by MPI, then effective on and after [***] after receipt of the Notice
by Netcentives, [***], as set forth in Exhibit B. Any sales by United or MPI
---------
to a Direct Competitor of Netcentives prior to the expiration of such Limited
Exclusivity period shall be considered a material breach of this Agreement by
MPI, unless excepted in Section 5.1(a) in accordance with the provisions of this
Section 5.1(c).
5.2 Term and Termination.
--------------------
(a) Term and Termination.
--------------------
(i) The term of this Agreement shall be three (3) years from the
Effective Date (the "Term"), unless terminated earlier pursuant to this Section
----
5.2. This Agreement shall terminate upon the expiration of the Term unless
renewed by the parties hereto in writing.
(ii) If either party defaults in the performance of any material
provision of this Agreement then the non-defaulting party may give written
notice to the defaulting party that if the default is not cured within thirty
(30) days, the Agreement will be terminated. If the non-defaulting party gives
such notice and the default is not cured during the thirty (30) day period, then
the non-defaulting party may terminate the Agreement at the end of that period
unless otherwise agreed in writing by the parties.
(b) Effect of Termination or Expiration. Upon termination of this
-----------------------------------
Agreement for any reason whatsoever: (i) MPI will credit all uncredited orders
to the Accounts originally designated by Netcentives; (ii) MPI will continue to
credit any Miles already purchased by Netcentives but not yet credited to
Accounts to such Accounts as are designated by Netcentives in accordance with
the terms of this Agreement until the earlier of one hundred twenty (120) days
from the date on which Netcentives retains award rights for a number of
uncredited Miles less than or equal to the number of Miles requested by
Netcentives for credit during the immediately preceding one hundred twenty (120)
day period or the date upon which there are no such Miles remaining, but in no
event later than 180 days after termination of this Agreement; and (iii) the
term of the license granted to Netcentives under section 4.3(a) shall be
extended until the expiration of the period described in clause (ii) above.
During the period described in clause (ii) above, Netcentives will not request
that more than 20,000 Miles be credited to the Account of a Netcentives Member
other than in the ordinary course of business, consistent with
****** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
<PAGE>
past practice (examples of such actions include, but are not limited to, the
award of Miles pursuant to sweepstakes). Any Miles not awarded by Netcentives as
of the end of the 180 day period shall become void and Netcentives shall forfeit
any such Miles without refund.
(c) Survival. MPI's obligations to credit Accounts in a timely manner
--------
and Netcentives' obligations to pay MPI all amounts due hereunder, as well as
Sections 4.1 (Confidential Information), 4.2 (Publicity), 4.5(a)(Permission of
United) to the extent provided in Section 5.2(b) above, 4.5(c)(No Ownership),
5.2 (Termination), 6.2 (Indemnification), 6.3 (Notices) and 6.7 (Governing Law)
shall survive termination of this Agreement.
Section VI
Miscellaneous
6.1 Independent Contractors. The relationship of Netcentives and MPI
-----------------------
established by this Agreement is that of independent contractors, and nothing
contained in this Agreement shall be construed to constitute the parties as
agents, partners, joint venturers, co-owners or otherwise as participants in a
joint or common undertaking.
6.2 Indemnification.
---------------
(a) MPI hereby agrees to indemnify, defend and hold harmless
Netcentives and its respective directors, officers, agents and employees, from
and against any and all third-party claims, losses, damages, suits, judgments,
costs and expenses (including reasonable attorneys' fees and costs) arising out
of or relating to (i) MPI's operation of the Mileage Plus Program including
without limitation, claims by participants in the Mileage Plus Program of MPI's
breach, violation or failure to comply with the terms of the Mileage Plus
Program and (ii) any allegation that Netcentives' permitted use of the United
Marks hereunder infringes a copyright or trademark existing or issued as of the
date of such use, provided in each case that Netcentives promptly notifies MPI
and United in writing of any such claim, gives MPI or United control of the
defense and all related settlement negotiations, and cooperates with MPI and
United in defending or settling any such claim.
(b) Netcentives hereby agrees to indemnify, defend and hold harmless
MPI, United and their respective directors, officers, agents and employees, from
and against any and all third-party claims, losses, damages, suits, judgments,
costs and expenses (including reasonable attorneys' fees and costs) arising out
of or relating to (i) Netcentives' operation of the ClickRewards Program
including without limitation, claims by participants in the ClickRewards Program
of Netcentives' breach, violation or failure to comply with the terms of the
ClickRewards Program and (ii) any allegation that MPI's or United's use
(provided that such use is in accordance with the terms of the then current
style guide of Netcentives governing such use) of the Netcentives Marks licensed
hereunder infringes a copyright or trademark existing or issued as of the date
of such use, provided in each case that MPI or United promptly notifies
Netcentives in writing of any such claim, gives Netcentives sole control of the
defense and all
<PAGE>
related settlement negotiations, and cooperates with Netcentives in defending or
settling any such claim.
6.3 Notices. All notices and demands hereunder shall be in writing and
-------
shall be delivered by personal service or by facsimile, certified or registered
mail, or return receipt express courier to the address of the receiving party
set forth on the signature page of this Agreement, or to any other address of
the receiving party designated by written notice in accordance with this
paragraph.
6.4 Waiver, Amendment and Modification. No waiver, amendment or
----------------------------------
modification of any provision hereof shall be effective unless in writing and
signed by the party against whom such waiver, amendment or modification is
sought to be enforced. No failure by either party to exercise and no delay by
either party in exercising any right, power or remedy with respect to the
obligations secured hereby shall operate as a subsequent waiver of any such
right, power or remedy.
6.5 Assignment. Each of the parties agrees that its rights and
----------
obligations under this Agreement may not be transferred or assigned directly or
indirectly without the prior written consent of the other party, provided
--------
however, that such consent shall not be required for an assignment of this
- -------
contract by MPI to its parent corporation or any subsidiary or affiliate of MPI,
or by either party pursuant to a merger, sale of substantially all of its
assets, or sale of all of its outstanding stock. Any violation of this
provision will be cause for immediate termination of this Agreement or, at the
option of the non-assigning party, the non-assigning party may declare the
assignment of any of the rights or obligations under this Agreement null and
void as of the date of the purported assignment. In the event of a valid
assignment of this Agreement, it shall be binding upon and inure to the benefit
of the parties hereto, their successors and assigns.
6.6 Severability. In the event that any of the provisions of this
------------
Agreement shall be held by a court of competent jurisdiction to be
unenforceable, such provision will be enforced to the maximum extent permissible
and the remaining portions of this Agreement shall remain in full force and
effect. The parties agree to negotiate in good faith a substitute, valid and
enforceable provision that most nearly effects the parties' intent and to be
bound by the mutually agreed substitute provision.
6.7 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of California, without reference to
conflict of laws provisions thereof.
6.8 Force Majeure. Neither party shall be responsible for any failure to
-------------
perform (except for payment obligations) due to causes beyond its control,
including but not limited to acts of God, war, riot, embargoes, acts of civil or
military authorities, fire, floods, accidents, strikes, telecommunications
failures, power outages or shortages of transportation facilities, fuel, energy,
labor or materials. A party whose performance is affected by a force majeure
condition shall be excused from such performance to the extent required by the
force majeure condition so long as such party takes all reasonable steps to
avoid or remove such causes of nonperformance and immediately continues
performance whenever and to the extent such causes are removed.
<PAGE>
The parties have executed this Supply Agreement as of the Effective Date.
NETCENTIVES INC.
ADDRESS:
690 Fifth Street
San Francisco, CA 94107
/s/ Eric W. Tilenius Facsimile: (415) 538-1889
- ---------------------------------------
Eric W. Tilenius, Chairman
Date: 3/19/98
----------------------------------
Mileage Plus Marketing, Inc. in behalf of
MILEAGE PLUS, INC.
ADDRESS:
World Headquarters - WHQAD
1200 E. Algonquin Road
/s/ Patricia A. Marsh Elk Grove Township, IL 60007
- ---------------------------------------
(Signature of Authorized Person) Facsimile: (847) 700-6038
Patricia A. Marsh
- ---------------------------------------
(Print Name of Signatory)
President, Mileage Plus Marketing, Inc.
- ---------------------------------------
(Print Title of Signatory)
Date: 3/20/98
-----------------------------------
<PAGE>
EXHIBIT A1
TRADEMARKS OF NETCENTIVES
NETCENTIVES
CLICKREWARDS
CLICKPOINTS
CLICKMILES
INTERNET INCENTIVES NETWORK
NETCENTIVES
CLICKREWARDS
CLICKREWARDS
CLICKREWARDS
ONLINE INCENTIVES NETWORK
CLICKREWARDS
ONLINE INCENTIVES NETWORK
<PAGE>
EXHIBIT B
MINIMUM ORDERS; PRICING
-----------------------
PRICING
- -------
[****]
* The Price per Mile level for all Miles purchased under a given order
will be based on the total dollar value of all orders received by
United from Netcentives during the applicable Contract Year including
all amounts purchased under such order.
+ [***]
VOLUME
------
Subject to neither party having delivered notice of termination of Limited
Exclusivity:
(a) Netcentives will purchase [***] in Miles upon the execution
of this Agreement.
(b) Netcentives will purchase [***] in Miles on the date six
months from the Effective Date.
(c) If Netcentives fails to purchase at least [***] in Miles
during the second year of this Agreement (i.e., between March
2, 1999 and March 1, 2000) then on March 2, 2000 Netcentives
agrees to purchase enough Miles from United such that its
aggregate purchases during such year equal or exceed [***]
(d) If Netcentives fails to purchase at least [***] in Miles
during the third year of this Agreement (i.e., between March
2, 2000 and March 1, 2001) then on March 2, 2001 Netcentives
agrees to purchase enough Miles from United such that its
aggregate purchases during such year equal or exceed [***]
****** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
<PAGE>
EXHIBIT10.13
MARKETING SERVICES AGREEMENT
BETWEEN
BRITISH AIRWAYS PLC
AND
NETCENTIVES INC.
AGREEMENT NUMBER MKTG 002
Confidential treatment has been requested for portions of this exhibit. The copy
herewith omits the information subject to the confidentiality request. Omissions
are designated as *****. A complete version of this exhibit has been filed
separately with the Securities and Exchange Commission.
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C> <C>
1. INTRODUCTION............................................... 3
2. PURPOSE.................................................... 3
3. DEFINITIONS................................................ 3
4. THE SERVICE................................................ 4
5. PRICE...................................................... 4
6. PAYMENT TERMS.............................................. 4
7. MILEAGE ADMINISTRATION AND USAGE........................... 4
8. ASSIGNMENT AND SUBCONTRACT................................. 5
9. LIMITED EXCLUSIVITY........................................ 5
10. AMENDMENTS................................................. 6
11. RIGHT OF AUDIT............................................. 6
12. DURATION AND TERMINATION................................... 6
13. INSURANCE.................................................. 7
14. INDEMNITY.................................................. 7
15. INTELLECTUAL PROPERTY RIGHTS............................... 8
16. CONFIDENTIALITY............................................ 8
17. ADVERTISING................................................ 9
18. FORCE MAJEURE.............................................. 9
19. OFFERS OF EMPLOYMENT....................................... 9
20. NO AGENCY OR PARTNERSHIP................................... 9
21. TAXATION................................................... 9
22. WAIVERS/AMENDMENTS......................................... 9
23. NOTICES.................................................... 10
24. GENERAL.................................................... 10
25. LAW........................................................ 11
Appendix A...................................................... 12
Appendix B...................................................... 13
</TABLE>
<PAGE>
1. INTRODUCTION
This Agreement is made this 4th day of April between Netcentives Inc. whose
corporate offices and operations are located at 2121 El Camino Real, Suite 615,
San Mateo, California 94403, (hereafter referred to as "NETCENTIVES") and
BRITISH AIRWAYS PLC whose registered address is at P0 Box 10, London Heathrow
Airport, Hounslow, Middlesex TW6 2JA England (hereinafter called "BA"), with
Regional offices at 75-20 Astoria Boulevard, Jackson Heights, NY 11370 United
States of America.
2. PURPOSE
This Agreement sets out the terms and conditions under which NETCENTIVES
will purchase BA Executive ClubUSA miles from BA and agrees to provide the
products and services as specified in the Appendices hereto to BA's Executive
ClubUSA members.
3. DEFINITIONS
"The NETCENTIVES Representative" Shall mean the designated
representative of NETCENTIVES
namely:
President
"BA Purchasing" Shall mean the designated
representative of BA Purchasing
Department namely:
Vice President Purchase
The Americas
or
Senior Buyer
Purchasing, The Americas
"BA Representative" Shall mean the designated
representative of BA USA Marketing
department namely:
Vice President Business Travel
Marketing or Manager Executive
Club and Partners
"Service" Shall mean all and/or any of the
elements of the services supplied
by NETCENTIVES to BA and BA to
NETCENTIVES pursuant to this
Agreement.
"Carlson Marketing Group" The administrator of BA's
Executive Club program.
Hereinafter referenced as CMG.
<PAGE>
"BA Executive Club USA" Shall mean British Airways'
frequent traveler program based in
the USA. Hereinafter referenced as
BA Executive Club.
"Netcentives Points" Any points or award system run by
NETCENTIVES as outlined in or
pursuant to this Agreement.
4. THE SERVICE
In accordance with the terms of this Agreement hereof Netcentives agrees to
purchase from BA and BA agrees to sell to NETCENTIVES BA Executive Club miles as
detailed in the Appendices of this agreement.
BA and NETCENTIVES agree to meet on an annual basis on or near the
effective date of this Agreement to review the business conducted between the
two parties and the results for the previous year. The business shall include a
price and volume review.
5. PRICE
The prices specific to the purchase of BA's Executive Club miles by
NETCENTIVES under this agreement are fixed for the first year of this agreement
and are contained in Appendix B hereto.
6. PAYMENT TERMS
6.1 NETCENTIVES will send to CMG on a monthly basis a tape, disk or EDI to
BA and CMG's specifications which will contain the BA Executive Club miles
purchased for that month (to be sent by the 15th of the following month) to the
following address:
Carlson Marketing Group
Carlson Parkway
PO Box 59159
Minneapolis, MN 55459-8262
6.2 BA will invoice NETCENTIVES on a monthly basis with payment due by
NETCENTIVES on a net 30 day basis.
6.3 All payments must be clearly marked with "in accordance with"
Agreement Number Mktg 002 and sent to:
British Airways
Business Marketing/Executive Club
75-20 Astoria Boulevard
-4-
<PAGE>
Jackson Heights, NY 11370
6.4 Appendix B contains the payment guarantees that NETCENTIVES is
committed to submitting to BA for the duration of this Agreement. It is agreed
and understood that the payment guarantees represent the minimum amount of
-------
Executive Club miles to be purchased by NETCENTIVES from BA on a per annum basis
and does not preclude NETCENTIVES from purchasing beyond the guaranteed minimum
and there shall be no maximum purchase.
7. MILEAGE ADMINISTRATION AND USAGE
7.1 It is agreed and understood that NETCENTIVES can utilize purchased
Executive Club miles for a period of 2.5 (two and a half) years from the date of
purchase. Any Executive Club mileage that is not utilized in the 2.5 year
period from date of purchase is returned to BA during the term of this
Agreement.
7.2 NETCENTIVES agrees to not transfer BA Executive Club miles to any
party for resale. All sales will be in the form of Netcentive Points to
eligible consumers for redemption of BA Executive Club USA awards.
7.3 For administrative purposes, the crediting of Executive Club mileage
purchased by NETCENTIVES from BA will be held in an account and managed by CMG.
NETCENTIVES may not return any miles purchased here for cash or other
considerations under any circumstances.
7.4 At the mutual discretion of BA and NETCENTIVES, NETCENTIVES will work
with BA to agree on terms under which BA can purchase Netcentive Points from
NETCENTIVES. Those terms will be under a separate agreement.
7.5 The method by which BA, NETCENTIVES and CMG administer and communicate
on the issuing an awardance of BA Executive Club miles are referenced in
Appendix A of this Agreement. It is understood by BA and NETCENTIVES that the
administration of such is critical to the success of this Agreement. It is
agreed that upon receipt of tape, EDI, or disk to CMG's and BA's specifications
containing purchased miles BA will use best efforts to credit member's accounts
with miles in a timely manner.
8. ASSIGNMENT AND SUBCONTRACT
This agreement is personal between NETCENTIVES and BA. Obligations
hereunder shall not be assigned, transferred or sub-contracted or otherwise
disposed of by either party whether in whole or part, except with the prior
written notice to the other party. It is clearly understood that NETCENTIVES
shall remain responsible at all times for the performance of their obligations
in this Agreement.
-5-
<PAGE>
9. LIMITED EXCLUSIVITY
9.1 BA grants NETCENTIVES limited exclusivity by agreeing not to sell its
Executive Club miles to any direct competitor of NETCENTIVES. A direct
competitor, for the purposes of this Agreement, shall be defined as [.....].
9.2 For the first year of this Agreement, NETCENTIVES grants BA limited
exclusivity by agreeing that it [***]. This limited exclusivity is valid only
in conjunction with the effective exclusivity terms in clause 9.1.
9.3 The exclusivity contained in this Agreement is strictly between BA USA
and NETCENTIVES USA.
9.4 The limited exclusivity does not prevent BA from pursuing its own
sales of Executive Club Miles on the Internet. BA is permitted to: [***]
9.5 BA may at its option cancel the limited exclusivity restrictions
described within this Agreement. BA agrees to give NETCENTIVES [***] notice of
limited exclusivity cancellation. After [***] notice BA will be entitled to work
with any direct competitor of NETCENTIVES and [***].
9.6 NETCENTIVES at its option can, upon [***] notice, free BA from its
limited exclusivity. After [***] notice BA will be entitled to work with any
direct competitor of NETCENTIVES and [***].
10. AMENDMENTS
10.1 No change to this Agreement which affects price, delivery,
specification, functionality or any other term or condition herein shall be in
any way binding without the prior express agreement of both parties in the form
of a written amendment.
10.2 Amendments shall only be signed by a duly authorized representative
of BA on behalf of BA and a duly authorized representative of NETCENTIVES. Upon
execution the amendment shall constitute an amendment to this Agreement.
11. RIGHT OF AUDIT
NETCENTIVES shall permit access to and provide such assistance as BA may
require to the duly authorized representative of BA to inspect, audit, review
and take copies of all books,
****** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
-6-
<PAGE>
time sheets, records, computer records, correspondence, instructions, receipts
and memoranda in relation to this agreement. BA agrees to give NETCENTIVES 14
(fourteen) days prior notice when BA requires to view such information. Any
expenses incurred by BA during the audit shall be paid by BA. Audits shall be
directly related to the terms of this Agreement.
This Right of Audit Clause is to be used only for the sole purpose of
ensuring compliance with the terms of this Agreement. The particular matter of
compliance that the audit is designed to determine must be presented to
NETCENTIVES prior to the audit.
12. DURATION AND TERMINATION
12.1 This Agreement is deemed to have commenced upon signature of this
Agreement and shall remain in full force and effect for three (3) years or
unless terminated sooner in accordance with the terms contained in this Clause.
12.2 This agreement may be terminated by either parry by the serving of
one hundred eighty (180) days written notice to the other party at any time for
any or no reason.
12.3 In addition to the circumstances set out elsewhere in this Agreement,
the non-defaulting party shall be entitled to terminate this Agreement
immediately by written notice to the other party as follows:
12.3.1 If either party fails to observe or perform any of its
material obligations and duties hereunder, provided if such failure is capable
of remedy, that it has not been remedied to the satisfaction of the non-
defaulting party within thirty (30) days of written notice of failure;
12.3.2 If the other party makes or offers to make any arrangement or
composition with or for the benefit of its creditors;
12.3.3 If the other party ceases or threatens to cease to carry on
business or suspends or threatens to suspend all or substantially all of its
operations (other than temporarily by reason of strike) or suspends payment of
its debt or is, or becomes, unable to pay its debts as they become due and
payable or commits any act of insolvency or bankruptcy;
12.3.4 If a petition or resolution for the making of any
administration order or for the bankruptcy, winding-up, or dissolution of the
other party (other than a winding-up for the purposes of reconstruction or
amalgamation of a solvent company) is presented or passed;
12.3.5 If the other party files a voluntary petition in bankruptcy or
insolvency and
12.3.6 If a liquidator, trustee, supervisor, receiver, administrator,
administrative receiver or encumbrancer takes possession of or is appointed over
the whole or any part of the assets of the other party.
12.4 Any such termination by a party shall be without prejudice to the
rights of the other patty in respect of the matter giving rise to such
termination or in respect of any accrued rights arising prior to such
termination.
-7-
<PAGE>
12.5 Upon notice of termination of this Agreement due to the reasons
stated in Clause 12.2 the following will apply:
I. There will be a one (1) year period to complete redemption of
NETCENTIVES points to BA Executive Club miles.
II. NETCENTIVES will have a six (6) month period to continue to
purchase Executive Club miles from BA.
III. BA shall have the option to purchase any unused mileage at the
end of the one (1) year period back from NETCENTIVES at 40% of the original
purchase price.
IV. Any volume purchases agreed will terminate immediately.
13. INSURANCE
13.1 NETCENTIVES agrees to effect and to demonstrate such to BA if so
requested, public liability insurance for an amount of not less than one million
dollars ($l,000,000) per event in respect of loss, damage or injury to property
or persons.
14. INDEMNITY
14.1 NETCENTIVES agrees to fully defend, indemnify and hold BA, its
directors. officers and employees harmless from any and all liability, claims,
demands, damages, losses, legal costs and expenses arising out of, or in
connection with or as a consequence of:
- Any act or omission of NETCENTIVES, its servants, employees,
agents pursuant to or in breach of the Agreement;
- Any loss or damage to property belonging to NETCENTIVES or its
servants agents irrespective of the cause of such loss or damage save where due
to the gross negligence of BA or its employees;
- Any injury of whatsoever kind and however caused including but not
limited to property loss, personal injury or death to the third parties,
servants/agents of NETCENTIVES or BA in connection with this agreement save
where due to the gross negligence of BA or its employees;
- Any claim arising out of an allegation that BA's use of the
Netcentive's logo infringes a copyright or trademark existing or issued as of
the date of such use. The indemnification for BA of the Netcentive's logo is
limited to the United States, Canada and Europe.
14.2 BA agrees to fully defend, indemnify and hold NETCENTIVES, its
directors, officers and employees harmless from any and all liability, claims,
demands, damages, losses, legal costs and expenses arising out of, or in
connection with or as a consequence of:
-8-
<PAGE>
- Any act or omission of BA, its servants, employees, agents pursuant
to or in breach of the Agreement;
- Any loss or damage to property belonging to BA and/or its servants
agents irrespective of the cause of such loss or damage save where due to the
gross negligence of NETCENTIVES or its employees;
- Any injury of whatsoever kind and however caused including but not
limited to property loss, personal injury or death to the third parties,
servants/agents of NETCENTIVES or BA in connection with this agreement save
where due to the gross negligence of NETCENTIVES or its employees;
- Any claim arising out of an allegation that Netcentive's use of the
BA logo infringes a copyright or trademark existing or issued as of the date of
such use.
15. INTELLECTUAL PROPERTY RIGHTS
NETCENTIVES and BA warrants that the Service supplied in the course of this
Agreement does not and will not infringe any copyright, design right, registered
design, patent or any other intellectual property right of any third party.
16. CONFIDENTIALITY
This Agreement and all information regarding the business or activities of
either party made available to the other party under or as a result of this
Agreement shall at all times be treated by both parties as confidential on a
need to know basis and shall not be published, disclosed or circulated except
with the prior written consent of the other parry. BA shall, however, be
permitted to disclose information, on a need to know basis, regarding this
agreement and the business or activities of NETCENTIVES made available to BA
under or as a result of this agreement to its subsidiary or associated companies
including, but not limited to QANTAS Airways Limited, and any entities which BA
has or may form an affiliation with in connection with present or future
alliances.
17. ADVERTISING
17.1 Neither party nor any of its servants, agents or subsidiaries shall
mention the other party in any advertisement relating to or arising out of this
Agreement without the permission of the other party except as agreed in Clause
17.2 below. Such permission shall not be unreasonably withheld.
17.2 NETCENTIVES may utilize the BA and BA USA Executive Club logos for
the purpose of this Agreement. NETCENTIVES agrees to utilize BA's logos in
accordance with the terms and conditions of this Agreement. It is understood
that BA should never be advertised as a standalone award provider in any
advertising by NETCENTIVES without prior written permission from BA.
-9-
<PAGE>
17.3 NETCENTIVES agrees, when utilizing the BA logo, to adhere to BA's
graphical standards. BA agrees to advise NETCENTIVES in a timely manner of any
changes to its logo.
18. FORCE MAJEURE
Neither party shall be entitled to terminate this Agreement for any breach
of any provision hereof or failure to perform any obligation hereunder where
such breach or failure results from some cause beyond the other party's control
(unless such breach extends for a period of 1 (one) month or more) and provided
that the party seeking to rely on the above shall have promptly notified the
other party of the cause and probable duration of the failure and shall have
used all reasonable commercial endeavors to remedy the matter giving rise to the
breach.
19. OFFERS OF EMPLOYMENT
Neither party shall be permitted to offer employment of any kind in any
capacity to such person(s) at any time during the period of this Agreement or
within 6 (six) months after its termination, howsoever rising, without the
express permission of the other party.
20. NO AGENCY OR PARTNERSHIP
Nothing in this Agreement shall constitute or be deemed to constitute a
partnership between the parties hereto or constitute NETCENTIVES as agents of BA
for any purpose whatsoever and NETCENTIVES shall have no authority or power to
bind BA or to contract in the name of or create a liability against BA in any
way or for any purpose.
21. TAXATION
NETCENTIVES shall be totally responsible for any taxation liability of any
kind which may arise on it pursuant to this Agreement, including any such
liabilities in respect of NETCENTIVES employees, servants or agents. BA however
agrees to pay sales tax on all invoices submitted by NETCENTIVES pursuant to
this Agreement if applicable.
22. WAIVERS/AMENDMENTS
22.1 No failure or neglect on the part of either party or its
representatives to enforce any of the terms and conditions of this Agreement or
terms and conditions relating to a design or promotion therefore shall insist
upon the strict performance or observance thereof shall be considered as a
waiver, unless specifically stated to be a waiver in writing and signed by the
that party. A waiver by either party on one occasion shall not automatically be
construed as permitting a waiver in the future.
22.2 The rights and remedies provided in this Agreement or in respect of a
design or promotion for the benefit or in favor of BA or NETCENTIVES are
cumulative and shall not exclude any other right or remedy provided for by law.
-10-
<PAGE>
23. NOTICES
All demands, notices or other documents required to be given hereunder by
either party to the other shall be sent by facsimile transmission, registered
letter, first class mail or by hand to NETCENTIVES at the following address:
NETCENTIVES
Eric Tilenus
2121 El Camino Real
Suite 615
San Mateo, California 94403
Telephone: 415.577.3535
Fax: 415.572.5205
and any notices to be given to BA will be sent by facsimile transmission,
registered letter, first class mail, by hand or by telex to:
BRITISH AIRWAYS PLC
Vice President, Purchasing
75-20 Astoria Boulevard
Jackson Heights, NY, 11370
Telephone: 718.397.4276
Fax: 718.397.4746
A copy of such notices must also be sent to the BA Marketing Department at:
BRITISH AIRWAYS PLC
Vice President Business Marketing, USA
75-20 Astoria Boulevard
Jackson Heights, NY, 11370
Telephone: 718.397.4532
Fax: 718.397.4580
24. GENERAL
24.1 Where the terms and conditions of this Agreement conflict with the
terms and conditions of any previous correspondence of whatever nature then this
Agreement shall prevail.
24.2 All Appendices referred to in this Agreement and attached to this
Agreement form part of this Agreement provided that if there is any conflict
between the terms and conditions of this Agreement and the Appendices, the terms
and conditions of the Agreement shall prevail.
-11-
<PAGE>
24. No failure on the part of either party at any time or from time to
time to enforce or to require the strict adherence and performance of any of the
terms or conditions shall affect or impair its right to enforce such terms or
conditions in any way.
24.4 The headings of this Agreement are for the convenience only and shall
not affect the construction of the provisions of this Agreement. The invalidity
or enforceability of any part of this Agreement shall not prejudice or affect
the validity or enforceability of the remainder. The masculine gender shall
include the feminine and vice versa.
24.5 The following clauses shall survive termination of this Agreement,
for whatever reason, and shall remain in full force and effect:
Clauses: 14, 15, 16, 17, 19, 24, 25.
25. LAW
This Agreement shall be governed and construed in all respects in
accordance with the laws of the State of New York courts.
-12-
<PAGE>
In Witness whereof the parties have caused this Agreement to be duly
executed by their authorized representative the day and year first above
written.
FOR AND ON BEHALF OF
BRITISH AIRWAYS PLC.
SIGNED ./s/ Edith E. Peckl
-------------------
NAME: Edith E. Peckl
TITLE: Senior Buyer, Purchasing, The Americas
DATE: April 04, 1997
FOR AND ON BEHALF OF
BRITISH AIRWAYS PLC.
SIGNED /s/ Woody Harford
-----------------
NAME: Woody Harford
TITLE: Vice President Business Marketing
DATE: April 4, 1997
FOR AND ON BEHALF OF
NETCENTIVES
SIGNED /s/ Eric W. Tilenius
--------------------
NAME: Eric Tilenius
TITLE: President
DATE: April 30, 1997
-13-
<PAGE>
APPENDIX A
SPECIFICATIONS
A. Netcentives Services and Executive Club Communication
-----------------------------------------------------
Netcentives will be awarding Netcentive Points to eligible consumers at
various websites on the Internet. These Netcentive Points, in turn, may be
redeemed with several award programs, including BA's Executive Club.
It is NETCENTIVE'S responsibility to ensure that any consumer
redeeming/converting Netcentive points for BA Executive Club miles is a member
of BA's Executive Club. A confirmation procedure will be set up between
NETCENTIVES, CMG and BA.
If a consumer eligible for Netcentives point redemption is not a BA
Executive Club member then Netcentives is responsible for advising the consumer
the method by which he/she can join BA's Executive Club. The method of
advisement is To Be Advised and to be discussed between BA, CMG and NETCENTIVES.
B. Marketing Support
-----------------
BA and NETCENTIVES both mutually agree to use best efforts to market the
Netcentives Points program and the BA Executive Club during the term of this
Agreement. It is agreed between BA and NETCENTIVES that within two months of
signature of this Agreement both parties will meet to discuss an annual
marketing plan.
<PAGE>
APPENDIX B
PRICING AND PAYMENTS
Pricing
- -------
[***]
*It is understood that the payment and mileage guarantee is in effect while
limited exclusivity as per Clause 19.1 is effective.
Payment
- -------
Date Payment Guarantee Miles Credited
- ---- ----------------- --------------
April 30, 1997 [***] [***]
July 31, 1997 [***] [***]
October 31, 1997 [***] [***]
January 31, 1998 [***] [***]
Total [***] [***]
*All subsequent years of this Agreement will follow the same payment guarantee
and time schedule.
****** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
<PAGE>
CONFIDENTIAL
EXHIBIT 10.14
NETCENTIVES INC.
SUPPLY AGREEMENT
This Supply Agreement (the "Agreement") is entered into between Netcentives
---------
Inc., a California corporation ("Netcentives") and Trans World Airlines, Inc., a
-----------
Delaware corporation ("TWA") and shall be effective for all purposes as of
---
February 25, 1999 (the "Effective Date").
--------------
RECITALS
WHEREAS, Netcentives develops certain Internet-based programs which
provide for the grant of points which are redeemable for airline frequent flier
miles and other incentives to end-users (collectively, the "ClickRewards
------------
Program");
- -------
WHEREAS, TWA has established a travel awards program (the "Aviators
--------
Program") pursuant to which, among other things, certain persons may receive
frequent flier miles for travel on TWA and for such other reasons as are
permitted by TWA;
WHEREAS, Netcentives wishes to purchase Aviators Miles (as hereinafter
defined) from TWA and TWA wishes to sell Aviators Miles to Netcentives pursuant
to the terms of this Agreement;
NOW THEREFORE, in consideration of the foregoing and the mutual
consideration provided for herein, the parties hereto hereby agree as follows:
SECTION I
DEFINITIONS
For purposes of this Agreement, the following terms shall have the
following meanings:
1.1 "Account" shall mean the account of ClickRewards Members who are also
-------
Aviators Members in which Aviators Miles balances are maintained by TWA.
1.2 "Aviators Member" means, as of any date, an individual who is a member
---------------
in good standing of the Aviators Program.
1.3 "Aviators Miles" means the points accrued under the Aviators Program
by Aviators Members for travel on TWA or such other reasons as are permitted by
TWA.
1.4 "ClickRewards Member" means, as of any date, an individual who is a
-------------------
member in good standing of the ClickRewards Program.
1.5 "Confidential Information" means any information, technical data, or
know-how, including, but not limited to, that which relates to research, product
plans, products, services, ClickRewards Members, customers, markets, software,
developments, inventions, processes, designs, drawings, engineering, hardware
configuration information, marketing or finances of a party, which is designated
in writing to be confidential or proprietary, or if given orally, is identified
as confidential or proprietary at the time of disclosure or is obviously
confidential considering the context in which such disclosure is made.
Confidential Information does not include information, technical data or know-
how
Confidential treatment has been requested for portions of this exhibit. The copy
filed herewith omits the information subject to the confidentiality request.
Omissions are designated as *****. A complete version of this exhibit has been
filed separately with the Securities and Exchange Commission.
<PAGE>
CONFIDENTIAL
which (i) is rightfully in the possession of the receiving party at the time of
disclosure, (ii) prior to or after the time of disclosure becomes part of the
public knowledge or literature other than as a result of any improper inaction
or action of the receiving party hereunder, or (iii) is approved by the
disclosing party, in writing, for release.
1.6 "Direct Competitor of Netcentives" means [****]. Direct Competitors
--------------------------------
of Netcentives include, without limitation, the companies listed in Exhibit B
attached hereto.
1.7 "Limited Exclusivity" means TWA's agreement not to sell Aviators Miles
-------------------
to any Direct Competitor of Netcentives as defined above. TWA and Netcentives
shall have a relationship of Limited Exclusivity during the Term.
1.8 "Netcentives Marks" means the trademarks and logos of Netcentives set
-----------------
forth on Exhibit A1 hereto, as the same may be amended by Netcentives from time
----------
to time upon notice to TWA.
1.9 "Term" has the meaning given it in Section 6.2(a) hereof.
----
1.10 "TWA Marks" means the designated trademarks and logos of TWA set forth
---------
on Exhibit A2 hereto, as the same may be amended by TWA from time to time upon
----------
notice to Netcentives.
SECTION II
PURCHASE AND SALE; OBLIGATIONS OF BOTH PARTIES
2.1 Orders. Pursuant to this Agreement, Netcentives agrees to purchase
------
from TWA, and TWA agrees to sell to Netcentives, Aviators Miles. Netcentives
shall deliver orders to TWA for Aviators Miles, which orders shall designate the
aggregate number of Aviators Miles to be purchased, the Account or Accounts to
which such Aviators Miles are to be credited, and the number of Aviators Miles
to be credited to each such Account. TWA shall credit Accounts designated by
Netcentives within a reasonable time after receipt of an order from Netcentives,
but in any event within seven (7) business days thereof. As long as this
Agreement is in effect, TWA shall not reject any order of Netcentives, except in
accordance with the terms of Section 3.2 hereof.
2.2 Purchase Terms. Netcentives shall pay to TWA the price of [****] per
--------------
Aviators Mile purchased pursuant to this Agreement.
2.3 Payment. All payments due to TWA pursuant to an order under this
-------
Section 2 shall become due and payable by check or wire transfer, at the option
of Netcentives, within thirty (30) days of transfer of Aviators Miles to the
appropriate Account or Accounts. Any payments made by Netcentives to TWA
hereunder shall be non-refundable.
2.4 Taxes. Prices for Aviators Miles do not include taxes. Netcentives
-----
is responsible for federal excise taxes on the sale of Aviators Miles to
Netcentives pursuant to this Agreement. Aviators Miles are currently taxed at a
rate of 7.5% (the "Taxes"). Netcentives shall not be responsible for taxes on
-----
TWA's net worth or income. Netcentives shall remit such Taxes to TWA, and TWA
shall be responsible for remitting such Taxes to the appropriate government
authority.
****** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
-2-
<PAGE>
CONFIDENTIAL
2.5 Reporting. For all Aviators Miles credited to Accounts pursuant to
---------
Section 2.1, TWA shall provide Netcentives with reports on a monthly basis
confirming such credit. Such confirmation will include, at minimum, the
Accounts to which the Aviators Miles were credited, and the applicable number of
Aviators Miles so credited.
2.6 Customer Service and Operations. Both parties agree to respond to and
-------------------------------
resolve customer services inquiries addressed to it promptly. Each party shall
respond to customer service inquiries within no more than five (5) business days
of receipt of such inquiry. Each party shall designate a specific individual
employee of such party to be the contact person for any operations or customer
service issues which may arise during the Term.
SECTION III
OBLIGATIONS OF NETCENTIVES
3.1 Distribution to ClickRewards Members. Netcentives shall only request
------------------------------------
that Aviators Miles be credited to the accounts of persons in exchange for their
participation in the ClickRewards Program.
3.2 Distribution to Aviators Members. Netcentives shall only request that
--------------------------------
Aviators Miles be credited to the Accounts of ClickRewards Members whom
Netcentives believes in good faith to be Aviators Members. To the extent that
Netcentives requests that Aviators Miles be credited to a person who is not a
Aviators Member, TWA shall not be obligated to credit such Account and shall
treat such Aviators Miles as if they had never been ordered (in which case
Netcentives' payment obligation shall be reduced accordingly). In the event
that TWA rejects an Order, it shall notify Netcentives in writing of the reasons
for such rejection.
3.3 No Resale Of Aviators Miles. At no time shall Netcentives offer
---------------------------
Aviators Miles to any person for resale or redistribution to a third party. If
Netcentives discovers with reasonable certainty that any ClickRewards Member is
inappropriately redistributing Aviators Miles, Netcentives shall immediately
cease requesting that Aviators Miles be credited to the Account of such
ClickRewards Member, and shall notify TWA of the identity of such ClickRewards
Member and the nature of the potential infraction. If TWA discovers that any
ClickRewards Member has resold or redistributed Aviators Miles in violation of
this provision, TWA can, with notice to Netcentives, cease distributing any
additional Aviators Miles to such Aviators Member's Account.
3.4 Other Obligations.
------------------
(a) Inclusion in Promotional Materials. Netcentives shall include TWA
-----------------------------------
and/or the Aviators Program in printed and electronic ClickRewards Program
materials consistent with space constraints.
(b) Member Access. Netcentives shall, at its sole discretion, give
--------------
TWA the opportunity to be included in e-mails to the ClickRewards Member base in
order to make offers and invitations to such ClickRewards Members, provided that
such access does not violate the ClickRewards Privacy Policy (currently located
at www.clickrewards.com), nor any applicable rules and regulations.
---------------------
-3-
<PAGE>
CONFIDENTIAL
(c) Promotion Participation. Netcentives may, from time to time, give
------------------------
TWA the opportunity to participate in promotions targeting the ClickRewards
Member base and other e-commerce consumers in the event that such promotions are
undertaken by Netcentives.
(d) Web Site Exposure. Netcentives shall place the TWA logo and a
-----------------
link to the Aviators Program home page on the ClickRewards web site.
Netcentives shall also place a link on the ClickRewards web site to the Consumer
Account information pages at the TWA web site, which allows consumers to access
their Account data from ClickRewards.
(e) Other Marketing Obligations. Netcentives shall:
----------------------------
(i) Include TWA in offline advertising from time to time;
(ii) Actively promote TWA's participation as a Netcentives
partner to the Netcentives Member base and in new Member acquisition efforts;
(iii) Give TWA access to Netcentives-sponsored online research
data, provided that the provision of such data does not conflict with the
Privacy Policy and other agreements of Netcentives, or any applicable laws and
regulations.
(iv) Give TWA the opportunity to work with Netcentives' merchant
partners for the purpose of running joint ClickRewards promotions, consistent
with the needs of the applicable merchant partners.
SECTION IV
OBLIGATIONS OF TWA
4.1 Marketing Access.
----------------
(a) During each calendar year during which this Agreement is in
effect, Netcentives shall have access to the entire Aviators Member base for one
targeted solicitation and ClickRewards offer communication. Netcentives shall
bear all costs associated with the fulfillment of such mailing, provided,
however, that TWA shall provide access to the names and addresses of the
Aviators Member base at no additional cost to Netcentives.
(b) During each year of the Term, TWA shall give Netcentives at least
one (1) Aviators newsletter for article space to promote membership in
Netcentives. TWA shall also provide an introductory article announcing the
addition of ClickRewards as a new way to earn Aviators Miles. The text of such
article shall be subject to Netcentives' prior approval, not to be unreasonably
withheld.
(c) At least twice during each year of the Term, TWA shall give
Netcentives insert space in at least two Aviators statement mailings at no
additional charge to Netcentives.
(d) TWA shall include ClickRewards in all Aviators Program materials
in which partners are listed (including, without limitation, print and
electronic materials), as an
-4-
<PAGE>
CONFIDENTIAL
Aviators earning partner. When possible, such materials shall include a link to
the Netcentives web site at a URL to be specified by Netcentives. TWA shall also
include the ClickRewards logo and a link to an explanatory page on all TWA
Aviators "mileage earning opportunities" web pages and account information
pages, provided however, TWA shall not be required to include the ClickRewards
logo on the TWA home page.
4.2 Data Transmission. Orders pursuant to Section 2.1 shall be transmitted
------------------
in an electronic file format to be mutually agreed by the parties in writing.
SECTION V
PROPRIETARY INFORMATION
5.1 Confidential Information. Each party agrees not to use any
------------------------
Confidential Information disclosed to it by the other party for its own use or
for any purpose other than to carry out its obligations under this Agreement.
Neither party will disclose any Confidential Information of the other party to
third parties or to employees of the party receiving Confidential Information,
other than employees who are required to have the information in order to carry
out such party's obligations under this Agreement. Each party agrees that it
will take all reasonable measures to protect the secrecy of and avoid disclosure
or use of Confidential Information of the other party in order to prevent it
from falling into the public domain or the possession of persons other than
those persons authorized under this Agreement to have any such information,
including (without limitation) ensuring that recipients of the disclosing
party's Confidential Information adhere to confidentiality terms in content
substantially similar to the terms in this Agreement. Such measures shall
include the highest degree of care that the receiving party utilizes to protect
its own Confidential Information of a similar nature. Each party agrees to
notify the other in writing of any misuse or misappropriation of Confidential
Information of the disclosing party which may come to the receiving party's
attention.
5.2 Publicity. After the execution of this Agreement, Netcentives may
---------
issue a press release which may, among other things, confirm the existence of a
relationship between the parties and of the exclusive nature of such
relationship, and may request that TWA issue a similar press release. Any other
information regarding the relationship between the parties including the other
terms of this Agreement and any other agreement between the parties shall be
considered Confidential Information under the definition set forth herein.
5.3 Trademarks.
----------
(a) TWA hereby grants Netcentives a limited, non-exclusive license to
duplicate, transmit and use the TWA Marks in Netcentives' promotional materials
and on its Internet Web site, during the Term of this Agreement (as extended by
Section 6.2(b)(iii), as appropriate), provided, however, that any use of the TWA
-----------------
Marks shall be for the purpose of promoting the ClickRewards Program, and shall
only be used with regard to the inclusion of Aviators Miles within the
ClickRewards Program. Netcentives shall also have the right to use the TWA Marks
on information pages about the ClickRewards Program housed at the sites of its
merchant partners. Each type of use of TWA Marks by Netcentives is subject to
prior written approval by TWA for each type of use. TWA shall provide notice of
any disapproval of any type of use within three (3) Business Days of such
request, and shall not unreasonably disapprove of any such use. Failure to
respond to a request for approval within three (3) Business Days shall be deemed
to be approval of such type of use.
-5-
<PAGE>
CONFIDENTIAL
(b) Netcentives hereby grants TWA a limited, non-exclusive license to
duplicate, transmit and use the Netcentives Marks in TWA's promotional materials
and on its Internet Web site, during the Term of this Agreement, provided,
--------
however, that any use of the Netcentives Marks shall be for the purpose of
- -------
promoting the Aviators Program or the ClickRewards Program and shall only be
used with regard to the inclusion of Aviators Miles within the ClickRewards
Program. Each type of use of Netcentives Marks by TWA is subject to prior
written approval by Netcentives for each type of use. Netcentives shall provide
notice of any disapproval of any type of use within three (3) Business Days of
such request, and shall not unreasonably disapprove of any such use. Failure to
respond to a request for approval within three (3) Business Days shall be deemed
to be approval of such type of use.
(c) Nothing herein shall be deemed to grant either party any ownership
interest in the Marks of the other party.
SECTION VI
LIMITED EXCLUSIVITY; TERM AND TERMINATION
6.1 Limited Exclusivity.
-------------------
(a) Relationship. The parties hereto acknowledge that they shall have
------------
a relationship of Limited Exclusivity during the Term of this Agreement.
Notwithstanding anything to the contrary in this Agreement, it is expressly
understood and agreed by the parties that the foregoing Limited Exclusivity is
intended solely to restrict TWA during the Term of this Agreement from entering
into any agreement with companies or entities meeting the definition of Direct
Competitor of Netcentives. It is further agreed that nothing in this Agreement
shall restrict or prohibit TWA from entering into any agreement with companies
or entities which are not Direct Competitors of Netcentives, for the award of
frequent flyer miles in TWA's Aviators Program in connection with the sale or
offer to sell any goods or services, provided that such companies or entities
will be subject to Section 6.1(B)(i) below.
(b) Obligations.
-----------
(i) TWA shall not sell or grant, or permit third parties to
sell or grant, Aviators Miles to any Direct Competitor of Netcentives during the
Term.
(ii) TWA shall not permit direct mail or e-mail access
(including, without limitation, access through regular or e-mail) to its
Aviators Members by any Direct Competitor of Netcentives.
(iii) Any violation of Sections 6.1(b)(i) and/or(ii) during the
Term shall be considered a material breach of this Agreement. Each party agrees
that its obligations under Limited Exclusivity as provided herein are necessary
and reasonable in order to protect Netcentives and its business, and each party
expressly agrees that monetary damages would be inadequate to compensate
Netcentives for any breach by TWA of its Limited Exclusivity related covenants
and agreements. Accordingly, each party agrees and acknowledges that any such
violation would cause irreparable injury to Netcentives and that, in addition to
any other remedies that may be available, in law, in equity or otherwise,
Netcentives shall be entitled to obtain injunctive relief against any such
breach or the continuation of any such breach by TWA, without the necessity of
proving actual damages.
-6-
<PAGE>
CONFIDENTIAL
6.2 Term and Termination.
--------------------
(a) Term and Termination.
--------------------
(i) The term of this Agreement shall be three (3) years from the
Effective Date (the "Term"), unless terminated pursuant to this Section 6.2.
----
This Agreement shall terminate upon the expiration of the Term unless renewed by
the parties hereto in writing. Notwithstanding the foregoing, at any time after
the first twelve (12) months after the Effective Date, either party may give
written notice of termination to the other party, which termination will take
effect on the later of (x) six (6) months after the date of such notice, or (y)
eighteen months after the Effective Date.
(ii) If either party defaults in the performance of any material
provision of this Agreement then the non-defaulting party may give written
notice to the defaulting party that if the default is not cured within thirty
(30) days, the Agreement will be terminated. If the non-defaulting party gives
such notice and the default is not cured during the thirty (30) day period, then
the non-defaulting party may terminate the Agreement immediately at the end of
that period.
(b) Effect of Termination or Expiration. Upon termination of this
-----------------------------------
Agreement for any reason whatsoever, a winding down period of six months (the
"Wind-Down Period") will begin, during which both TWA and Netcentives will let
----------------
TWA and Netcentives customers know that the relationship will be ending. During
such period, Netcentives customers may continue to redeem their points for TWA
Aviators Miles as set forth under this Agreement. During the Wind-Down Period,
the following Sections shall survive: Section 2 (Purchase and Sale), and Section
5.3 (Trademarks).
(c) Termination of Wind-Down Period. Upon termination of the Wind-
--------------------------------
Down Period, TWA will credit all uncredited orders to the Accounts originally
designated by Netcentives.
(d) Survival. TWA's obligations to credit Accounts in a timely manner
--------
and Netcentives' obligations to pay TWA all amounts due hereunder, as well as
Sections 5.1 (Confidentiality), 5.3 (a, b) (Trademarks) (to the extent provided
in Section 6.2(b) above), 5.3(c) (Ownership), 6.2 (b) (Effect of Termination or
Expiration), 6.2(c) (Termination of Wind-Down Period), 6.2(d) (Survival), and 7
(Miscellaneous) shall survive termination of this Agreement.
SECTION VII
MISCELLANEOUS
7.1 Independent Contractors. The relationship of Netcentives and TWA
-----------------------
established by this Agreement is that of independent contractors, and nothing
contained in this Agreement shall be construed to constitute the parties as
agents, partners, joint venturers, co-owners or otherwise as participants in a
joint or common undertaking.
7.2 Indemnification.
---------------
(a) TWA hereby agrees to indemnify, defend and hold harmless
Netcentives and its respective directors, officers, agents and employees, from
and against any and all claims, losses, damages, suits, judgments, costs and
expenses (including litigation costs and reasonable attorneys' fees) arising out
of or relating to (i) TWA' operation of the Aviators Program including without
limitation,
-7-
<PAGE>
CONFIDENTIAL
claims by participants in the Aviators Program of TWA's breach, violation or
failure to comply with the terms of the Aviators Program and (ii) any allegation
that Netcentives use of the TWA Marks licensed hereunder infringes a third party
U.S. copyright or trademark existing or issued as of the date of such use,
provided in each case that Netcentives promptly notifies TWA in writing of any
- --------
such claim, gives TWA sole control of the defense and all related settlement
negotiations, and cooperates with TWA in defending or settling any such claim.
(b) Netcentives hereby agrees to indemnify, defend and hold harmless
TWA and its respective directors, officers, agents and employees, from and
against any and all claims, losses, damages, suits, judgments, costs and
expenses (including litigation costs and reasonable attorneys' fees) arising out
of or relating to (i) Netcentives' operation of the ClickRewards Program
including without limitation, claims by participants in the ClickRewards Program
of Netcentives' breach, violation or failure to comply with the terms of the
ClickRewards Program and (ii) any allegation that TWA's use of the Netcentives
Marks licensed hereunder infringes a third party U.S. copyright or trademark
existing or issued as of the date of such use, provided in each case that TWA
--------
promptly notifies Netcentives in writing of any such claim, gives Netcentives
sole control of the defense and all related settlement negotiations, and
cooperates with Netcentives in defending or settling any such claim.
7.3 Notices. All notices and demands hereunder shall be in writing and
-------
shall be delivered by personal service or by telex, facsimile, cable, telegram,
certified or registered mail, or return receipt express courier to the address
of the receiving party set forth on the signature page of this Agreement, or to
any other address of the receiving party designated by written notice in
accordance with this paragraph.
7.4 Waiver, Amendment and Modification. No waiver, amendment or
----------------------------------
modification of any provision hereof shall be effective unless in writing and
signed by the party against whom such waiver, amendment or modification is
sought to be enforced. No failure by either party to exercise and no delay by
either party in exercising any right, power or remedy with respect to the
obligations secured hereby shall operate as a subsequent waiver of any such
right, power or remedy.
7.5 Assignment. Each of the parties agrees that its rights and
----------
obligations under this Agreement may not be transferred or assigned directly or
indirectly without the prior written consent of the other party, provided,
--------
however, that such consent shall not be required for an assignment of this
- -------
contract pursuant to a merger, sale of substantially all of the assets, or sale
of all of the outstanding stock of either party. This Agreement shall be
binding upon and inure to the benefit of the parties hereto, their successors
and assigns.
7.6 Severability. In the event that any of the provisions of this
------------
Agreement shall be held by a court of competent jurisdiction to be
unenforceable, such provision will be enforced to the maximum extent permissible
and the remaining portions of this Agreement shall remain in full force and
effect. The parties agree to negotiate in good faith a substitute, valid and
enforceable provision that most nearly effects the parties' intent and to be
bound by the mutually agreed substitute provision.
7.7 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Delaware, without reference to conflict
of laws provisions thereof.
7.8 Force Majeure. Neither party shall be responsible for any failure to
-------------
perform due to unforeseen circumstances or to causes beyond its control,
including but not limited to acts of God, war, riot, embargoes, acts of civil or
military authorities, fire, floods, accidents, strikes, or shortages of
transportation facilities, fuel, energy, labor or materials. A party whose
performance is affected by a force
-8-
<PAGE>
CONFIDENTIAL
majeure condition shall be excused from such performance to the extent required
by the force majeure condition so long as such party takes all reasonable steps
to avoid or remove such causes of nonperformance and immediately continues
performance whenever and to the extent such causes are removed.
7.9 Entire Agreement; Amendment. This Agreement constitutes the final and
---------------------------
entire Agreement between the parties and may not be modified or amended except
in writing signed by both of the parties.
7.10 Headings. The headings and captions used in this Agreement are for
--------
convenience of reference only, and shall not in any way affect the
interpretation of the provisions of this Agreement.
7.11 Counterparts. This Agreement may be executed in counterparts, each
------------
of which shall be deemed an original and all of which together shall constitute
one instrument.
[SIGNATURE PAGE TO FOLLOW]
-9-
<PAGE>
CONFIDENTIAL
The parties have executed this Supply Agreement as of the date set forth
below.
NETCENTIVES INC.
ADDRESS:
690 Fifth Street
San Francisco, CA 94107
/s/ Perryman Maynard Facsimile: (415) 538-1889
- ----------------------------------------
Signature
Perryman Maynard
- ----------------------------------------
Print Name
VP, Relationship Marketing
- ----------------------------------------
Title
TRANS WORLD AIRLINES, INC.
ADDRESS:
Trans World Airlines, Inc.
-----------------------------------
515 N. 6th Street
-----------------------------------
/s/ Craig Andersen St. Louis, MO 63101
- --------------------------------------- -----------------------------------
Signature Facsimile: (314) 589-3387
Craig Andersen
- ---------------------------------------
Print Name
Director, Frequent Traveler Marketing
- ---------------------------------------
Title
-10-
<PAGE>
CONFIDENTIAL
EXHIBIT A1
TRADEMARKS OF NETCENTIVES
NETCENTIVES
CLICKREWARDS
CLICKMILES
[LOGO OF NETCENTIVES APPEARS HERE]
[LOGO OF CLICKREWARDS(TM) APPEARS HERE]
[LOGO OF CLICKREWARDS(TM) ONLINE INCENTIVES NETWORK APPEARS HERE]
[LOGO]
-A1-
<PAGE>
CONFIDENTIAL
EXHIBIT A2
TRADEMARKS OF TWA
TWA
AVIATORS PROGRAM
AVIATOR MILES
TRANS WORLD AIRLINES
AVIATORS (SM)
- -----------------
-A2-
<PAGE>
CONFIDENTIAL
EXHIBIT B
DIRECT COMPETITORS OF NETCENTIVES
[***]
****** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
-B1-
<PAGE>
EXHIBIT 10.15
SKYREWARDS
DELTA AIR LINES
AGREEMENT
This Agreement, effective the 24th day of July, 1997 and ending the 23rd
day of July, 1999, by and between Delta Air Lines, Inc., (hereinafter "Delta")
having its principal place of business at Hartsfield Atlanta International
Airport, Atlanta, Georgia 30320 and Netcentives Inc., (hereinafter
"Netcentives") having its principal place of business at 2121 El Camino Real,
Suite 615, San Mateo, CA 94403.
Whereas, Delta has developed the SkyMiles(R) Program, under which Members
are awarded mileage for travel on Delta and certain other SkyMiles Participants,
and for the purchase of goods or services from other SkyMiles Participants in
association with the SkyMiles Program, and can obtain bonus travel and other
SkyMiles Awards for such SkyMiles activity; and
Whereas, Netcentives desires to purchase mileage to provide to Members as
an incentive; and
Whereas, Delta is willing to sell mileage to Netcentives on the following
terms and conditions;
Now therefore, in consideration of the mutual covenants and promises in
this Agreement, the parties hereto agree as follows:
1. Definitions. For purposes of this Agreement, the following terms shall
-----------
have the following meanings:
"SkyMiles Awards": means the awards or benefits that Members can receive
from Delta, Delta Connection(R) and/or certain SkyMiles Participants pursuant to
the SkyMiles Program Rules in exchange for the redemption of accrued SkyMiles,
and, if applicable, other consideration.
"Delta SkyRewards" or "DSR" means the program established and governed by
Delta, as such program may be in effect from time to time, whereby Netcentives,
operating in the U.S., distributes SkyMiles Vouchers to qualified Participants
in an incentive program as defined in Section 3.
"SkyMiles Activity": means the points or miles accrued under the SkyMiles
Program Rules by members for (i) travel on Delta or Delta Connection, (ii)
travel on, and/or the purchase of goods or services from SkyMiles Participants,
or (iii) any other reason permitted by Delta.
"SkyRewards Vouchers" or "Vouchers" means the document or miles distributed
to a Member by Netcentives in a Netcentives incentive program that entitles such
Member to SkyMiles Awards based on the terms and conditions and the denomination
specified on such document or communicated to Delta on diskette or by other
agreed upon method.
Confidential treatment has been requested for portions of this exhibit. The copy
filed herewith omits the information subject to the confidentiality request.
Omissions are designated as *****. A complete version of this exhibit has been
filed seperately with the Securities and Exchange Commission.
<PAGE>
"SkyMiles Participant" means any Person that, pursuant to the SkyMiles
Program Rules and an agreement between Delta and such Person regarding such
Person's participation in the SkyMiles Program: (i) provides goods or services
to Members in exchange for the redemption of SkyMiles, or (ii) in connection
with the sale of goods or services by such Person to Member, offers SkyMiles to
such Member.
"SkyMiles Program" means the travel awards program established and governed
by Delta, as such program may be in effect from time to time, pursuant to which,
among other things, Members receive miles for (i) travel on Delta or Delta
Connection, (ii) travel on and/or the purchase of goods or services from
SkyMiles Participants, or (iii) any other reason permitted by Delta.
"SkyMiles Program Rules" means the rules, regulations, terms, and
conditions established or modified, from time to time, by Delta, in its sole
discretion, which shall govern the SkyMiles Program.
"Agreement" means this Delta SkyRewards Agreement, as it may, from time to
time, be amended or modified in writing.
"Delta" has the meaning assigned to such term in the preamble to this
Agreement.
"Customer" means an individual to whom Netcentives awards Netcentives
Points.
"Netcentives Employee" or "Employee" means an individual who is on
Netcentives' payroll.
"Marks" shall have the meaning set forth in Section 6.
"Member" means, as of any date, an individual who is a member in good
standing in the SkyMiles Program.
"Direct Competitor" means: [*****]
2. Netcentives is currently in the business of Internet and Online Service
Marketing. Netcentives will conduct an incentive program designed to form an
Internet and Online Service frequency program using Internet-only currency. Web
sites will award Netcentives points to Members as a form of incentive, loyalty,
or promotional currency for use by a consumer. Members may then redeem
Netcentives Points through Netcentives for Delta SkyMiles, or other awards
(including other airlines' frequent flyer miles) at the Member's option.
3. Netcentives agrees that it will sell Vouchers at no less than [*****]
per miles only to qualified Participants in Netcentives' incentive program, and
that the Vouchers must meet at least one of the following purposes: a)
Netcentives' Employee sales and/or job performance awards, recognition or
incentives; or b) Netcentives Customer awards, recognition or incentives.
Netcentives agrees that it will not distribute Vouchers to Employees for use in
Netcentives' business travel. Netcentives agrees that it will not award more
than [*****] miles to any one
****** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
-2-
<PAGE>
individual in any calendar year. Any awarding of more than [*****] miles to an
individual via Netcentives needs to be pre-approved via SkyRewards management.
[*****]
4. If Vouchers purchased by Netcentives hereunder are distributed or used
for purposes that are inconsistent with this Agreement, Delta may, at its
option, cancel, void, refuse to honor and/or confiscate such Vouchers an any
remaining Vouchers in the possession of Netcentives and pursue all other rights
and remedies that may be available. Netcentives acknowledges that distribution
or use of Vouchers for such inconsistent purposes will give rise to irreparable
injury to Delta inadequately compensable in damages. Accordingly, Netcentives
agrees that Delta shall be entitled to obtain injunctive relief to prevent such
unauthorized or improper distribution or use, to prevent any breach of this
Agreement, or to compel specific performance.
5. All advertising and promotional materials using "Delta Air Lines,"
"SkyRewards" or any other of Delta's marks or logos ("Marks") shall be subject
to Delta's prior written approval and the established guidelines for use of its
Marks which are detailed in Attachment D of this document. Delta will provide
approval of, or comments on, submitted materials by the next business day
following receipt of materials. Any materials that are substantially similar to
materials already approved do not need to be sent to Delta for approval; such
materials may be used by Netcentives based upon Delta's previous approval of
such substantially similar materials. Netcentives and its clients agree to
comply with these guidelines and Netcentives agrees to provide each client
copies of these guidelines. Netcentives will only use the Marks for the purpose
of identifying Delta and its programs as participants in the Netcentives
program. Any unauthorized use of such Marks shall constitute a material breach
of this Agreement and an infringement of Delta's rights in and to such Marks.
Netcentives will forward to Delta copies of communications using its Marks for
Delta's records. Nothing herein shall be construed as transferring to
Netcentives any ownership or interest in Delta's Marks.
6. Netcentives will indemnify, defend and hold harmless Delta, its parent
company, subsidiaries and affiliates, their officers, directors, agents and
employees from an against any and all claims, losses, damages, suits, judgments,
costs and expenses (including litigation costs and reasonable attorneys fees)
arising out of or relating to Netcentives' performance, nonperformance, or
improper performance of the provisions of this Agreement in connection with
Netcentives' incentive program, including without limitation any claim by a
program Participant of Netcentives' breach, violation or failure to comply with
Netcentives' incentive program.
Delta will indemnify, defend and hold harmless Netcentives, its parent
company, subsidiaries and affiliates, their officers, directors, agents and
employees from an against any and all claims, losses, damages, suits, judgments,
costs and expenses (including litigation costs and reasonable attorneys fees)
arising out of or relating to Delta's performance, nonperformance, or improper
performance of the provisions of this Agreement in connection with Netcentives'
****** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
-3-
<PAGE>
incentive program, including without limitation any claim by a program
Participant of Delta's breach, violation or failure to comply with Netcentives'
incentive program.
7. Netcentives will pay Delta in full in USD by company check, cashier's
check, certified check or money order prior to Delta's delivery of Vouchers to
Netcentives. No refunds will be given by Delta for Vouchers purchased by
Netcentives.
8. All taxes arising out of this Agreement and the purchase and
distribution of Vouchers by Netcentives hereunder, except for taxes on the net
income of Delta, shall be the responsibility of Netcentives.
9. Netcentives will retain records concerning distribution of Vouchers for
a minimum of one year from the last date of distribution, and will deliver such
records to Delta upon request. Netcentives will direct all inquiries about the
SkyMiles Program and the posting of miles to Delta at 1 800 323-2323.
10. Netcentives shall cooperate with all reasonable requests of Delta
concerning any investigation and/or prosecution of anyone engaging in or
suspected of engaging in SkyMiles Program abuse or fraud including, but not
limited to, assisting Delta in verifying an incentive program participant's
SkyMiles Program membership status and cooperating with any civil or criminal
prosecution of such program participant.
11. Neither party shall be liable for delays or failure in its performance
hereunder caused by any act of God, war, strike, labor dispute, work stoppage,
fire, act of government, or any other cause, whether similar or dissimilar
beyond the control of that party
12. Delta grants Netcentives limited exclusivity on the Internet by
agreeing not to sell SkyMiles to any Direct Competitor of Netcentives. The
parties agree that this exclusivity would not be violated by Delta entering into
an agreement with a company that creates brand loyalty programs for its clients
on the Internet, provided however, that the company and the programs created by
that party are restricted such that they do not become a Direct Competitor of
Netcentives. This exclusivity is limited in that except for sales to a Direct
Competitor of Netcentives, this exclusivity shall in no way prevent Delta from:
a) pursuing its own sale of mileage on the Internet; b) distributing SkyMiles to
any individual Web site or Web merchant for that site or merchant's promotional
or loyalty program; c) having SkyMiles partners offer SkyMiles on their Web
sites or as part of an Internet promotion; d) awarding SkyMiles on Delta's own
Web site; or e) selling mileage to an Internet company that in turn awards Delta
mileage as part of an incentive to another company provided that the company
receiving such mileage is not a Direct Competitor of Netcentives. Netcentives
grants Delta the right to cancel the limited exclusivity restrictions of this
Agreement at Delta's discretion at any time, upon 90 days notice.
It is understood that Delta is presently a participant in Partner Programs
and that Partner Programs are participants in Delta's SkyMiles program. The
parties agree that Delta's present partnerships do not violate the exclusivity
provisions of this Agreement. Delta will not endorse any change to Partner
Programs initiated by the partner that would infringe upon the limited
-4-
<PAGE>
exclusivity granted above. The parties agree that changes to the Partner
Programs are at the partner's discretion and that such changes if made, will not
be deemed to violate the limited exclusivity outlined above.
13. Netcentives agrees to purchase SkyMiles at the pricing structure on
Attachment B. Netcentives will pay Delta via a company check. Within 90 days of
the date of this Agreement, Netcentives agrees to grant Delta a warrant to
purchase [*****] shares of the Non-Voting Convertible Stock of Netcentives with
an exercise price per share equal to the fair market value of such shares as of
the date of grant, and on the terms and conditions as further set forth in the
form of Warrant Agreement attached hereto as Attachment C.
If Delta chooses to end limited exclusivity to Netcentives, [*****]
14. Netcentives may not assign or transfer this Agreement, or any right or
obligation under it, without the prior written consent of Delta.
15. Nothing contained herein shall be deemed to create an association,
partnership, joint venture, or relationship of principal and agent or master and
servant between the parties hereto or any affiliates or subsidiaries thereof, or
to provide wither party with the right, power, or authority whether expressed or
implied, to create any such duty or obligation on behalf of the other party.
16. "Delta's Confidential Information" shall mean any information
regarding Members that Delta chooses to give access to Netcentives and any
information identified orally or in writing by Delta as confidential immediately
prior to or immediately after disclosure by Delta to Netcentives. Netcentives
acknowledges that Delta's Confidential Information is the sole and exclusive
property of Delta. Netcentives shall reveal Confidential Information only to
such Netcentives Employees who have need to know such information in order to
carry out the terms, conditions and purposes of this Agreement. Netcentives
shall, and shall cause its Employees to, for a period of five years after the
date hereof, hold and maintain as confidential all of Delta's Confidential
Information and will not release or disclose same to any third party, including
affiliates. Information shall not be subject to the foregoing confidentiality
restrictions to the extent such information (i) was in possession of or known to
company prior to Netcentives' execution of this Agreement; (ii) is or becomes
public knowledge other than by means of a breach of confidentiality by
Netcentives; (iii) is received by Netcentives from a third party that is
lawfully in possession of such information and under no duty to keep it in
confidence; or (iv) is required by law or court order to be disclosed to
governmental or regulatory authorities. Netcentives will not use Delta's
Confidential Information for any purpose other than the purposes stated herein.
Notwithstanding the foregoing, Delta acknowledges and agrees that certain
Members are Netcentives Customers or Netcentives Employees and that Netcentives
will not be restricted hereunder from using or disclosing names, addresses or
other information regarding such Customers or Employees in connection with
Netcentives' business so long as (i) in the case of disclosure to third parties,
travel on Delta and/or the status of being a Member is not identified as a
factor or criteria in compiling such information, and (ii) in the case of use by
Netcentives, any promotions directed at such Customers or Employees by
Netcentives or by
****** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
-5-
<PAGE>
Netcentives jointly with others will not reference such Customers or Employees
as Members or travelers on Delta.
"Netcentives' Confidential Information" shall mean any information
regarding Members that Netcentives chooses to give access to Delta and any
information identified orally or in writing by Netcentives as confidential
immediately prior to or immediately after disclosure by Netcentives to Delta.
Delta acknowledges that Netcentives' Confidential Information is the sole and
exclusive property of Netcentives. Delta shall reveal Confidential Information
only to such Delta Employees who have need to know such information in order to
carry out the terms, conditions and purposes of this Agreement. Delta shall,
and shall cause its Employees to, for a period of five years after the date
hereof, hold and maintain as confidential all of Netcentives' Confidential
Information and will not release or disclose same to any third party, including
affiliates. Information shall not be subject to the foregoing confidentiality
restrictions to the extent such information (i) was in possession of or known to
company prior to Delta's execution of this Agreement; (ii) is or becomes public
knowledge other than by means of a breach of confidentiality by Delta; (iii) is
received by Delta from a third party that is lawfully in possession of such
information and under no duty to keep it in confidence; or (iv) is required by
law or court order to be disclosed to governmental or regulatory authorities.
Delta will not use Netcentives' Confidential Information for any purpose other
than the purposes stated herein. Notwithstanding the foregoing, Netcentives
acknowledges and agrees that certain Members are Delta Customers or Delta
Employees and that Delta will not be restricted hereunder from using or
disclosing names, addresses or other information regarding such Customers or
Employees in connection with Deltas' business so long as (i) in the case of
disclosure to third parties, travel on Delta and/or the status of being a Member
is not identified as a factor or criteria in compiling such information, and
(ii) in the case of use by Delta, any promotions directed at such Customers or
Employees by Delta or by Delta jointly with others will not reference such
Customers or Employees as Members or travelers on Delta.
17. This Agreement constitutes the entire agreement between Netcentives
and Delta with respect to the subject matter hereof and supersedes all prior or
contemporaneous agreements or understandings, if any, whether written or oral,
relating to such subject matter. No modifications, amendment or waiver of this
Agreement or any of its terms shall be effective or binding unless made in
writing and signed by authorized representatives of both parties.
18. Each Voucher is subject to all the terms and conditions stated
thereon, and cannot be modified or waived by Netcentives.
19. Delta may suspend or cancel the DSR program or Netcentives'
participation in the DSR program at any time upon advance written notification
to Netcentives. Upon such notice, A Winding Down period of six months will
begin, during which both Delta and Netcentives will let SkyMiles Members and
Netcentives Customers know the relationship will be ending. However,
Netcentives Points may continue to be redeemed for Vouchers during the Winding
Down period and use of the Marks and any other applicable terms during the
Winding Down period. At the end of such Winding Down period, Netcentives shall
promptly return to Delta all undistributed Vouchers, and if there shall be no
default by Netcentives hereunder, Delta shall, upon receipt of
-6-
<PAGE>
such Vouchers, reimburse Netcentives the amount paid by Netcentives to Delta for
such Vouchers.
21. Netcentives will abide by as well as state on Netcentives' web site
the following note and warning notice:
Warning Notice: The sale, purchase, or barter of mileage credit, vouchers,
award certificates and award tickets violates Delta's program rules, is illegal,
and subjects the violator to liability for damages and litigation and
transaction costs. Violators are subject to having their accounts terminated or
deductions of mileage from their accounts. Improperly obtained
certificates/tickets are VOID and will be confiscated. Persons trying to use
such tickets must pay applicable fare to Delta in order to travel.
Delta and its program partners reserve the right to change the program
rules, regulations, travel awards, mileage award levels and special offers at
any time without notice. This means that Delta may initiate changes, for
instance, impacting partner affiliations, rules for earning mileage credit,
continued availability of awards, blackout dates or limit the seats available
for award travel to any or all destinations. Such changes to Delta's frequent
flyer program may include modifications which (i) govern mileage credits earned
on or after the date of change, (ii) change the value of already accumulated
mileage credits or (iii) govern mileage credits earned on or after the date of
change and change the value of already accumulated mileage credits. Delta
reserves the right to terminate the Delta frequent flyer program with six months
notice. Unless otherwise stated, the terms and conditions of the program's
Awards, Rules & Conditions brochure and Membership Guide and Program Rules.
22. This Agreement shall be governed by and construed in accordance with
the laws of the State of Georgia.
-7-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement by their
undersigned duly authorized representatives.
NETCENTIVES INC.
By:
/s/ Eric W. Tilenius
- ---------------------------
(NAME)
Chairman
- ---------------------------
(TITLE)
DELTA AIR LINES, INC.
By:
/s/ Gayle Boch
- ---------------------------
(NAME)
___________________________
(TITLE)
-8-
<PAGE>
Attachment A
[*****]
****** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
-9-
<PAGE>
Attachment B
PAYMENT SCHEDULE
. One time up-front purchase of [*****] worth of miles at the time of signing
of the Agreement, to be credited towards the Netcentives First Stage purchase of
Delta SkyMiles.
. Each contract year, the following Payment Stages shall apply [*****]
[*****]
3. if Netcentives has bought greater than or equal to [*****] SkyMiles to
date, the[*****] cost/mile will be effective immediately for all future
SkyMiles purchased.
4. if Netcentives has bought fewer than [*****] SkyMiles to date, the number
of SkyMiles purchased to-date shall be applied toward [*****]
****** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
<PAGE>
Contract Addendum:
Attachment B:
In the event that Delta [*****]
.......
2. prior to Netcentives purchasing a total [*****] SkyMiles under Third
Stage, Netcentives will receive an additional credit per mile of [*****] for
each SkyMile purchased to date, representing the difference between the Third
Stage effective cost/mile [*****]and the effective cost/mile [*****]. This
credit will be net of any credits already paid to date, such as any of
the[*****] credits per mile rebated on the first 25,000 SkyMiles purchased.
****** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
<PAGE>
Exhibit 10.16
OFFICE LEASE SUMMARY
--------------------
475 Brannan Street, SF, CA
Prepared by:
Daron P. Craft
the CAC Group
(415) 291-1737
A. Date: May 5, 1999
B. Landlord: SKS Brannan Associates, LLC, a Delaware
limited Liability company
Landlord's address for
notices: (Paragraph 22 (k)) c/o SKS Investments
500 Treat Avenue
San Francisco, CA 94110
Attn: Paul Stein
C: Tenant: Netcentives, Inc.
Tenant's address for
notices: (Paragraph 22(k)) 690 Fifth Street
San Francisco, CA 94107
Attn: Legal Department
Tenant contact person: Jack Longinotti
D: Floor(s) on which Premises
are situated: (Paragraph 1(e)) 2nd and 3rd
E: Rentable area of Premises: 69,568 square feet
(Paragraph 1(i))
F: Tenant's Percentage Share:
(Paragraph 1(i))
Operating Expenses: 28.46
Real Property Taxes: 28.46
G: Term; Commencement &
Expiration dates:
(Paragraph 2)
H. Basic Monthly Rental: Years Basic Monthly Rental
----- --------------------
<PAGE>
[Paragraph 3(a)] Years 1 through 5 $220,298.67
Years 6 and 7 $240,589.33
In each instance, the Basic Monthly Rental
shall be proportionately adjusted in the
event the Premises as finally determined
are greater or less than 69,568 rentable
square feet, and further adjusted by adding
or subtracting 1/12th of the difference
between actual Base Year Operating Expenses
as finally determined and $6.55, multiplied
by the rentable area of the Premises as
finally determined.
Basic Annual Rental: Years Basic Annual Rental
----- -------------------
Years 1 through 5 $2,643,584.00
Years 6 and 7 $2,887,072.00
In each instance, the Basic Annual Rental
shall be proportionately adjusted in the
event the Premises as finally determined
are greater or less than 69,568 rentable
square feet, and further adjusted by adding
or subtracting the difference between
actual Base Year Operating Expenses as
finally determined and $6.55, multiplied by
the rentable area of the Premises as
finally determined.
I. Security Deposit: $2,367,250.00
[Paragraph 3(d)]
J. Broker(s): CAC Group
[Paragraph 23(q)]
K. Exhibits and addenda: Exhibit A - Floor Plan
[Paragraph 23(u)] Exhibit B - Building Rules and
Regulations
Exhibit C - Work Letter and Construction
Agreement for the Initial
Improvement of the Premises
Exhibit D - Commencement Date Memorandum
-2-
<PAGE>
The provisions of the Lease identified above in brackets are those provisions
where references to particular Lease Terms appear. Each such reference shall
incorporate the applicable Lease Terms. In the event of any conflict between
the Summary of Lease Terms and the Lease, the latter shall control.
LANDLORD:
--------
SKS BRANNAN ASSOCIATES, LLC, a Delaware limited
liability company, Member
By SKS Investments LLC, a Delaware limited
liability corn
By: /s/ Paul Stein
____________________________________
Paul Stein
______________, Member
TENANT:
------
NETCENTIVES INC., a California corporation
By: /s/ JF Longinotti
_______________________________________
Name: John F. Longinotti
_________________________________
Title: SVP/CFO
_________________________________
By: _______________________________________
Name: _________________________________
Title:_________________________________
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. DEFINITIONS.................................................................................. 7
2. TERM......................................................................................... 11
3. RENTAL; SECURITY DEPOSIT..................................................................... 11
4. TENANT'S SHARE OF OPERATING EXPENSES AND REAL PROPERTY TAXES; ADDITIONAL RENT................ 14
5. OTHER TAXES PAYABLE BY TENANT................................................................ 16
6. USE......................................................................................... 16
7. COMPLIANCE WITH LAWS/ENVIRONMENTAL MATTERS................................................... 17
8. ALTERATIONS; LIENS........................................................................... 19
9. MAINTENANCE AND REPAIR....................................................................... 20
10. SERVICES.................................................................................... 20
11. ACCESS CONTROL.............................................................................. 22
12. ASSIGNMENT AND SUBLETTING................................................................... 23
(a) Restriction on Transfers............................................................. 23
(b) Landlord's Right of First Offer; Termination Right................................... 24
(c) Landlord's approval Process.......................................................... 25
(d) Consideration for Transfer........................................................... 26
(e) Merger or Consolidation of Tenant, Major Changes..................................... 26
(f) Transfer of Partnership Interest or Corporate Stock.................................. 27
(g) Certain Exempt Transfers............................................................. 27
(h) Documentation........................................................................ 27
(i) Options Personal to Original Tenant.................................................. 27
(j) Encumbrance of Lease................................................................. 28
(k) No Merger............................................................................ 28
(l) Landlord's Costs..................................................................... 28
13. WAIVER; INDEMNIFICATION..................................................................... 28
14. INSURANCE................................................................................... 29
15. PROTECTION OF LENDERS....................................................................... 30
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
16. ENTRY BY LANDLORD............................................................................. 31
17. ABANDONMENT................................................................................... 31
18. DEFAULT AND REMEDIES.......................................................................... 32
19. DAMAGE BY FIRE OR OTHER CASUALTY.............................................................. 34
20. EMINENT DOMAIN................................................................................ 35
21. HOLDING OVER.................................................................................. 36
22. OMITTED....................................................................................... 37
23. MISCELLANEOUS................................................................................. 37
(a) Limitation of Landlord's Liability..................................................... 37
(b) Sale by Landlord....................................................................... 37
(c) Estoppel Letter........................................................................ 37
(d) Financial Statements................................................................... 38
(e) Right of Landlord To Perform........................................................... 38
(f) Rules and Regulations.................................................................. 39
(g) Attorneys' Fees........................................................................ 39
(h) Waiver of Jury Trial................................................................... 39
(i) Waiver................................................................................. 39
(j) Light, Air and View.................................................................... 39
(k) Notices................................................................................ 40
(l) Name................................................................................... 40
(m) Governing Law; Severability............................................................ 40
(n) Definitions and Paragraph Headings; Successors......................................... 40
(o) Time................................................................................... 40
(p) Examination of Lease................................................................... 40
(q) Brokerage.............................................................................. 41
(r) Directory Board........................................................................ 41
(s) Authority.............................................................................. 41
(t) Amendments............................................................................. 41
(u) Signage................................................................................ 41
(v) Exhibits and Addenda, Entire Agreement................................................. 41
24. OPTION TO EXTEND.............................................................................. 42
25. RIGHT OF FIRST OFFER.......................................................................... 43
26. PARKING....................................................................................... 45
27. QUIET ENJOYMENT............................................................................... 46
</TABLE>
-5-
<PAGE>
EXHIBIT A FLOOR PLAN
EXHIBIT B BUILDING RULES AND REGULATIONS
EXHIBIT C WORK LETTER AND CONSTRUCTION AGREEMENT FOR THE INITIAL IMPROVEMENT
OF THE PREMISES
EXHIBIT D COMMENCEMENT DATE MEMORANDUM
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<PAGE>
475 BRANNAN STREET
OFFICE LEASE
------------
THIS LEASE is dated for reference purposes only as of May 5, 1999, between
SKS BRANNAN ASSOCIATES, LLC ("Landlord"), and Netcentives Inc. ("Tenant").
WITNESSETH:
Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the
Premises described in Paragraph 1(f) below, for the term and subject to the
terms, covenants, agreements and conditions hereinafter set forth.
1. DEFINITIONS.
In addition to terms that are defined elsewhere in this Lease, unless
the context otherwise specifies or requires, the following terms shall have the
meanings herein specified:
(a) The term "Building" shall mean the office building located at 475
Brannan Street in San Francisco, California.
(b) The term "Base Building Improvements" shall mean those
improvements installed in the Premises at Landlord's expense pursuant to the
Work Letter and Construction Agreement for the Initial Improvement of the
Premises (the "Work Letter") attached hereto as Exhibit C.
---------
(c) The term "Base Year" shall mean calendar year 2000.
(d) The term "Land" means the parcel(s) of land on which the Building
and the adjacent below grade parking lot ("Parking Lot") are located.
(e) The term "Operating Expenses" shall mean the total costs and
expenses incurred by Landlord in connection with the management, operation,
maintenance, repair and ownership of the Real Property (as defined in Paragraph
1(g) hereof), including, without limitation, the following costs: (1) salaries,
wages, bonuses and other compensation (including hospitalization, medical,
surgical, retirement plan, pension plan, union dues, life insurance, including
group life insurance, welfare and other fringe benefits, and vacation, holidays
and other paid absence benefits) relating to employees of Landlord or its agents
engaged in the management, operation, repair, or maintenance of the Real
Property and costs of training such employees; (2) payroll, social security,
workers' compensation, unemployment and similar taxes with respect to such
employees of Landlord or its agents, and the cost of providing disability or
other benefits imposed by law or otherwise, with respect to such employees; (3)
uniforms (including the cleaning, replacement and pressing thereof) provided to
such employees; (4) premiums and other charges incurred by Landlord with respect
to fire, other casualty, boiler and machinery theft, rent interruption liability
insurance, any other insurance as is deemed necessary or advisable in the
reasonable judgment of Landlord, or any insurance required by the holder of any
Superior Interest (as defined in Paragraph 15), all in such amounts as Landlord
<PAGE>
determines to be appropriate, and the actual costs incurred in repairing an
insured casualty to the extent of the deductible amount under the applicable
insurance policy, provided such deductible amount shall be commercially
reasonable; (5) water charges and sewer rents or fees; (6) license, permit and
inspection fees and charges; (7) sales, use and excise taxes on goods and
services purchased by Landlord in connection with the operation, maintenance or
repair of the Real Property and building systems and equipment; (8) telephone,
telegraph, postage, stationery supplies and other expenses incurred in
connection with the operation, maintenance, or repair of the Real Property; (9)
management fees and expenses (including fees and expenses for accounting,
financial management, data processing and information services) (not to exceed
ten percent (10%) of all Operating Expenses) and costs of tenant service
programs; (10) repairs to and physical maintenance of the Real Property,
including building systems and appurtenances thereto and normal repair and
replacement of worn-out equipment, facilities and installations, but excluding
the replacement of major building systems (except to the extent otherwise
included as an Operating Expense pursuant to this Paragraph 1(d); (11)
janitorial, window cleaning, guard, extermination, water treatment, rubbish
removal, plumbing and other services and inspection or service contracts for
elevator, electrical, mechanical, sanitary, heating, ventilation and air
conditioning, and other building equipment and systems or as may otherwise be
necessary or proper for the operation or maintenance of the Real Property; (12)
supplies, tools, materials and equipment used in connection with the operation,
maintenance or repair of the Real Property; (13) accounting, legal and other
professional, consulting or service fees and expenses; (14) painting the
exterior or the public or common areas of the Building and the cost of
maintaining the sidewalks, landscaping and other common areas of the Real
Property; (15) all costs and expenses for electricity, chilled water, air
conditioning, water for heating, gas, fuel, steam, heat, lights, sewer service,
communications service, power and other energy related utilities required in
connection with the operation, maintenance and repair of the Real Property; (16)
the cost of any capital improvements made by Landlord to the Real Property or
capital assets acquired by Landlord during the term of this Lease required under
any governmental law, regulation or insurance requirement with which the Real
Property was not required to comply prior to the Commencement Date (as defined
in Paragraph 2(a)), such cost or allocable portion to be amortized over the
useful life thereof, together with interest on the unamortized balance at a rate
per annum equal to the Reference Rate (as defined in Paragraph 3(c)) charged at
the time such capital improvements or capital assets are constructed or acquired
or such higher rate as may have been paid by Landlord on funds borrowed for the
purpose of constructing or acquiring such capital improvements or capital
assets, but in either case not more than the maximum rate permitted by law at
the time such capital improvements or capital assets are constructed or
acquired; (17) the cost of any capital improvements made by Landlord to the
Building or capital assets acquired by Landlord during the term of this Lease
for the protection of the health and safety of the occupants of the Real
Property or that are designed to reduce other Operating Expenses, such cost or
allocable portion thereof to be amortized over the useful life thereof (except
that Landlord may include as an Operating Expense in any calendar year a portion
of the cost of such a capital improvement or capital asset equal to Landlord's
estimate of the amount of the reduction of other Operating Expenses in such year
resulting from such capital improvement or capital asset), together with
interest on the unamortized balance at a rate per annum equal to the Reference
Rate charged at the time such capital improvements or capital assets are
constructed or acquired or such higher rate as may have been paid by Landlord on
funds
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borrowed for the purpose of constructing or acquiring such capital improvements
or capital assets, but in either case not more than the maximum rate permitted
by law at the time such capital improvements or capital assets are constructed
or acquired; (18) the cost of furniture, window coverings, carpeting,
decorations, landscaping and other customary and ordinary items of personal
property provided by Landlord for use in common areas of the Real Property or in
the Building office (to the extent that such Building office is dedicated to the
operation and management of the Real Property), such costs to be amortized over
the useful life thereof; (19) the cost of any capital improvements made by
Landlord to the Real Property or capital assets acquired by Landlord during the
term of this Lease to the extent that the cost of any such improvement or asset
is less than five thousand dollars ($5,000); (20) the cost of any capital
improvements made by Landlord to the Real Property or capital assets acquired by
Landlord during the term of this Lease which have a useful life of five (5)
years or less (and the cost of which is not otherwise included in Operating
Costs pursuant to this Paragraph 1(d)), such cost to be amortized over the
useful life thereof, together with interest on the unamortized balance at a rate
per annum equal to the Reference Rate charged at the time such capital
improvements or capital assets are constructed or acquired or such higher rate
as may have been paid by Landlord on funds borrowed for the purpose of
constructing or acquiring such capital improvements or capital assets, but in
either case not more than the maximum rate permitted by law at the time such
capital improvements or capital assets are constructed or acquired; (21) any
such expenses and costs resulting from substitution of work, labor, material or
services in lieu of any of the above itemizations, or for any such additional
work, labor, services or material resulting from compliance with any
governmental laws, rules, regulations or orders applicable to the Real Property
or any part thereof; (22) property management office rent or rental value; and
(23) cost of operation, repair and maintenance of the parking lot serving the
Building, including resurfacing, restripping and cleaning, in excess of parking
lot revenues.
To the extent costs and expenses described above relate to both the
Real Property and other property, such costs and expenses shall, in determining
the amount of Operating Expenses, be allocated as Landlord may determine to be
appropriate.
Operating Expenses shall not include the following: (i) depreciation
on the Building; (ii) debt service; (iii) rental under any ground or underlying
lease; (iv) interest (except as expressly provided in this Paragraph 1(d)); (v)
Real Property Taxes; (vi) attorneys' fees and expenses incurred in connection
with lease negotiations with prospective Building tenants; (vii) the cost of any
improvements or equipment which would be properly classified as capital
expenditures (except for any capital expenditures expressly included in
Operating Expenses pursuant to this Paragraph 1(d)); (viii) the cost of
decorating, improving for tenant occupancy, painting or redecorating portions of
the Building to be demised to tenants; (ix) advertising expenses relating to
vacant space; (x) real estate brokers' or other leasing commissions; or (xii)
costs of utilities for tenants' premises; (xiii) costs for which Tenant is
otherwise responsible under other provisions of this Lease; (xiv) expenses for
which Landlord is otherwise reimbursed; and (xv) except as may be expressly
authorized in this Lease, the cost of remediation due to the presence of
hazardous substances (i) in or on the Real Property prior to the Commencement
Date or (ii) migrating onto the Real Property on or after the Commencement Date.
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(f) The term "Premises" shall mean the space in the Building
designated by cross-hatching on the floor plan(s) attached hereto as Exhibit A
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(exclusive of the areas, if any, shown by shading) and situated on the floor(s)
of the Building specified in Paragraph D of the Summary of Lease Terms, together
with the appurtenant right to the use, in common with others, of lobbies,
entrances, stairs, elevators and other public portions of the Building.
Landlord and Tenant agree that the Premises contain the number of square feet of
rentable area specified in Paragraph E of the Summary of Lease Terms. All the
outside walls and windows of the Premises and any space in the Premises used for
shafts, stacks, pipes, conduits, ducts, electric or other utilities, sinks or
other Building facilities, and the use thereof and access thereto through the
Premises for the purposes of operation, maintenance and repairs, are reserved to
Landlord.
(g) The term "Real Property" shall mean, collectively, the Land, the
Building, the Parking Lot, and the other improvements on the Land.
(h) The term "Real Property Taxes" shall mean all taxes, assessments
(whether general or special), excises, transit charges, housing fund assessments
or other housing charges, levies or fees, ordinary or extraordinary, unforeseen
as well as foreseen, of any kind, which are assessed, levied, charged, confirmed
or imposed on the Real Property or any part thereof, on the Landlord with
respect to the Real Property, on the act of entering into this Lease or any
other lease of space in the Real Property, on the use or occupancy of the Real
Property or any part thereof, with respect to services or utilities consumed in
the use, occupancy or operation of the Real Property, or on or measured by the
rent payable under this Lease or in connection with the business of renting
space in the Real Property, including, without limitation, any gross income tax
or excise tax levied with respect to the receipt of such rent, by the United
States of America, the State of California, the City and County of San
Francisco, any political subdivision, public corporation, district or other
political or public entity or public authority, and shall also include any other
tax, fee or other excise, however described, which may be levied or assessed in
lieu of, as a substitute (in whole or in part) for, or as an addition to, any
other Real Property Taxes. Real Property Taxes shall include reasonable
attorneys' fees, costs and disbursements incurred in connection with proceedings
to contest, determine or reduce Real Property Taxes.
Real Property Taxes shall not include penalties, interest or late
charges incurred by Landlord's failure to timely pay Real Property Taxes, nor
income, franchise, transfer, inheritance or capital stock taxes, unless, due to
a change in the method of taxation, any of such taxes is levied or assessed
against Landlord in lieu of, as a substitute (in whole or in part) for, or as an
addition to, any other charge which would otherwise constitute a part of Real
Property Taxes. Landlord and Tenant acknowledge and agree that certain other
buildings exist or encroach upon the Land, that Tenant shall have no liability
as to any item of Real Property Taxes attributable or allocable to, or assessed
against, buildings other than the Building and that Landlord's good faith
determination of the proper allocation of any item of Real Property Taxes
allocable to buildings other than the Building shall be binding on Landlord and
Tenant.
(i) The term "Rental" shall include the Basic Monthly Rental set forth
in Paragraph J of the Summary of Lease Terms, all additional rent, and any other
charges payable by Tenant to Landlord hereunder.
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(j) The term "Tenant's Percentage Share" shall mean the percentage
figures specified in Paragraph F of the Summary of Lease Terms with respect to
Operating Expenses and with respect to Real Property Taxes, as applicable
(subject to Landlord's right, from time to time, to adjust such percentages to
reflect accurate measurements of the Premises or other portions of the
Building).
2. TERM.
(a) The term of this Lease (the "Term") shall commence (the
"Commencement Date") on the first to occur of (i) the date the Tenant
Improvements are substantially complete, or (ii) one hundred twenty (120) days
after the date the Base Building Improvements are substantially complete. In no
event, however, shall the Commencement Date be earlier than January 15, 2000.
The Tenant Improvements shall be deemed "substantially complete" when all Tenant
Improvements have been constructed, except for minor details of construction,
decoration or mechanical adjustment that, individually or in the aggregate, do
not materially interfere with Tenant's use and enjoyment of the Premises. The
Base Building Improvements shall be deemed "substantially complete" when all
Base Building Improvements have been constructed, except for minor details of
construction or mechanical adjustment that, individually or in the aggregate, do
not materially interfere with the Contractor's ability to construct the Tenant
Improvements. Landlord anticipates that the Base Building Improvements will be
substantially complete on December 1, 1999. The Term shall expire (the
"Expiration Date") seven (7) years after the Commencement Date unless sooner
terminated as herein provided or unless extended pursuant to the provisions of
Paragraph 24 hereof. Landlord and Tenant hereby agree to confirm the actual
Commencement and Expiration Dates prior to the commencement of the Lease Term,
if those dates differ from the dates specified in Paragraph G of the Summary of
Lease Terms, by executing and delivering to each other counterparts of a
Commencement Date Memorandum in the form of Exhibit D attached hereto, but the
---------
Term of this Lease shall commence on the Commencement Date and end on the
Expiration Date whether or not such amendment is executed.
(b) Notwithstanding anything in the foregoing to the contrary, should
Landlord fail to complete the Base Building Improvements and deliver the
Premises to Tenant (subject to the provisions of Paragraph 29 hereof) by May 1,
2000, Tenant may elect to terminate this Lease by giving written notice thereof
to Landlord no later than ten (10) business days thereafter; provided such
notice shall be of no force or effect if Landlord completes the Base Building
Improvements and delivers the Premises to Tenant on or before the expiration of
such ten (10) business days.
3. RENTAL; SECURITY DEPOSIT.
(a) Tenant agrees to pay to Landlord as Basic Monthly Rental for the
Premises the sums specified in Paragraph H of the Summary of Lease Terms,
provided that Basic Monthly Rental for the initial forty-five (45) days of the
Term shall be abated. Such abatement shall not affect Tenant's obligation for
payment of utilities and janitorial charges pursuant to Paragraph 10 hereof.
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<PAGE>
(b) Basic Monthly Rental shall be paid to Landlord, in advance, on or
before the first day of each and every successive calendar month during the Term
hereof, provided, that Basic Monthly Rental for the third month of the Term
shall be due on the date Tenant first occupies the Premises. In the event the
Term commences on a day other than the first day of a calendar month, or ends on
a day other than the last day of a calendar month, then the Basic Monthly Rental
for the first and/or last fractional months of the Term shall be appropriately
prorated. All such prorations shall be made on the basis of a 360-day Year
consisting of twelve 30-day months.
(c) Rental shall be paid to Landlord without notice, demand,
deduction or offset in lawful money of the United States in immediately
available funds or by good check as described below at the office of Landlord at
Landlord's address for notices specified in the Summary of Lease Terms, or to
such other person or at such other place as Landlord from time to time may
designate in writing. Payments made by check must be drawn either on a
California financial institution or on a financial institution that is a member
of the federal reserve system. All amounts of Rental, if not paid when due,
shall bear interest from the due date until paid at an annual rate of interest
(the "Interest Rate") equal to the lesser of (i) the maximum annual interest
rate allowed by law on such due date for business loans (not primarily for
personal, family or household purposes) not exempt from the usury law, or (ii) a
rate equal to the sum of two (2) percentage points over the publicly announced
reference rate (the "Reference Rate") charged on such due date by the San
Francisco Main Office of Bank of America NT & SA (or any successor bank thereto)
(or if there is no such publicly announced rate, the rate quoted by such bank in
pricing ninety (90) day commercial loans to substantial commercial borrowers).
In addition, Tenant acknowledges that late payment by Tenant to Landlord of
Rental will cause Landlord to incur costs not contemplated by this Lease, the
exact amount of such costs being extremely difficult to fix. Such costs include,
without limitation, processing and accounting charges, and late charges that may
be imposed on Landlord by the terms of any encumbrance and/or note secured by an
encumbrance covering the Premises. Therefore, if any installment of Rental due
from Tenant is not received within ten (10) days of written notice that such
installment is due, Tenant shall pay to Landlord an additional sum of ten
percent (10%) of the overdue Rental as a late charge; provided that, if Rental
is not paid when due more than once during any calendar year during the Term,
and if Landlord shall have notified Tenant in writing that Tenant shall
thereafter be entitled to no further grace periods, then thereafter Tenant shall
not be entitled to such ten (10) day grace period, and such late charge shall be
assessed on any Rental not paid by 5:00 p.m. on the date due. The parties agree
that this late charge represents a fair and reasonable estimate of the costs
that Landlord will incur by reason of late payment of Rental by Tenant.
Acceptance of any late charge shall not constitute a waiver of Tenant's default
with respect to the overdue amount, or prevent Landlord from exercising any of
the other rights and remedies available to Landlord.
(d) (i) Upon execution of this Lease, Tenant shall deliver to
Landlord a clean, irrevocable, unconditional letter of credit ("Letter of
Credit") in the amount of Five Hundred Thousand Dollars ($500,000.00). Within
sixty (60) days thereafter, Tenant shall deliver to Landlord a clean,
irrevocable, unconditional replacement Letter of Credit in an amount equal to
the Security Deposit specified in Paragraph I of the Summary of Lease Terms and
Landlord shall forthwith return to Tenant the initial Letter of Credit. The
Letter of Credit shall be issued
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by and drawable upon any commercial bank, trust company, national banking
association or savings and loan association (hereinafter referred to as the
"Issuing Bank"), with offices for banking purposes in the City of San Francisco,
which shall have outstanding unsecured, uninsured and unguaranteed indebtedness,
or shall have issued a letter of credit or other credit facility that
constitutes the primary security for any outstanding indebtedness (which is
otherwise uninsured and unguaranteed), that is then rated, without regard to
qualification of such rating by symbols such as "+" or "-" or numerical
notation, "Aa" or better by Moody's Investors Service and "AA" or better by
Standard & Poor's Corporation, and has combined capital, surplus and undivided
profits of not less than Five Hundred Million Dollars ($500,000,000.00). It is
agreed that regardless of the foregoing requirements, Silicon Valley Bank is an
acceptable Issuing Bank. Letter of Credit shall name Landlord as beneficiary, be
in the amount of the Deposit, have a term of not less than one (1) year, permit
multiple drawings, be fully transferable by Landlord without the payment of any
fees or charges, and otherwise be in form and content reasonably satisfactory to
Landlord. If upon any transfer, any fees or charges shall be so imposed, then
such fees or charges shall be payable solely by Tenant and the Letter of Credit
shall so specify. Tenant shall not less than forty-five (45) days prior to its
expire date replace the Letter of Credit with a new Letter of Credit with a term
of not less than one (1) year and otherwise complying with the requirements of
this Paragraph 3(d). In lieu thereof, the Letter of Credit shall provide that it
shall be deemed automatically renewed, without amendment, for consecutive
periods of one (1) year thereafter during the Term of this Lease, unless the
Issuing Bank sends notice (the "Non-Renewal Notice") to Landlord by certified
mail, return receipt requested, not less than forty-five (45) days next
preceding the then expiration date of the Letter of Credit that it elects not to
have such Letter of Credit renewed. If Landlord has received a Non-Renewal
Notice, or not later than fifteen (15) days prior to the expire date of the
Letter of Credit Tenant fails to furnish to Landlord a replacement letter of
credit in accordance with the terms of this Paragraph 3(d), then Landlord shall
have the right to draw the full amount of the Letter of Credit, by sight draft
on the Issuing Bank, and shall hold the proceeds of the Letter of Credit
pursuant to the terms of this Paragraph 3(d) as a cash security deposit;
provided, however, should Tenant thereafter furnish to Landlord a Letter of
Credit meeting the requirements of this Paragraph 3(d), such cash proceeds, less
all expenses incurred by Landlord, shall be returned to Tenant. The Letter of
Credit or any cash security deposit held by Landlord from time to time (the
"Deposit") shall be held by Landlord as security for the faithful performance by
Tenant of all of the provisions of this Lease to be performed or observed by
Tenant. If Tenant fails to pay any Rental, or otherwise defaults with respect to
any provision of this Lease, Landlord may (but shall not be obligated to) use,
apply or retain all or any portion of the Letter of Credit and/or Deposit, as
the case may be, for the payment of any Rental in default or for the payment of
any other sum to which Landlord may become obligated by reason of Tenant's
default, or to compensate Landlord for any loss or damage which Landlord may
suffer thereby. If Landlord so uses or applies all or any portion of the Letter
of Credit and/or Deposit, Tenant shall within ten (10) days after demand
therefor deposit cash with Landlord in an amount sufficient to restore the
Letter of Credit and/or Deposit to the full amount (as adjusted below) thereof,
and Tenant's failure to do so shall, at Landlord's option, be an Event of
Default (as defined in Paragraph 18(a)) under this Lease.
(ii) Provided Tenant is not then in default under this Lease, the
amount of the Letter of Credit may be reduced annually on the second, third,
fourth and fifth anniversary
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of the Commencement Date by $394,541 (so that the amount of the Letter of Credit
is $1,972,709 during the third year of the Term, $1,578,168 during the fourth
year of the Term, $1,183,627 during the fifth year of the Term and $789,086
during the sixth and seventh year of the Term). Further, Tenant shall be
entitled to reduce the amount of the Letter of Credit to $789,086 at any time
following the second (2nd) anniversary of the Commencement Date upon delivery to
Landlord of Tenant's Financial Statements (in the form required by Paragraph
23(d) below) showing Tenant's net worth (defined as total assets minus total
liabilities), as of the end of Tenant's prior fiscal quarter, equal to at least
fifty million dollars ($50,000,000). Thereafter, so long as Tenant has furnished
Landlord with a reduced Letter of Credit pursuant to the preceding sentence,
Tenant shall furnish Landlord with Tenant's Financial Statements within sixty
(60) days following each successive fiscal quarter during the Term, showing
Tenant's net worth as of the end of such fiscal quarter. In the event that any
such quarterly Financial Statements show Tenant's net worth equal to less than
fifty million dollars ($50,000,000), Tenant shall furnish Landlord, concurrently
with its delivery to Landlord of such quarterly Financial Statements, with a
replacement Letter of Credit in the amount required pursuant to the first (1st)
sentence of this subparagraph 3(d)(ii) (i.e., $2,367,250 less annual reductions
of $394,541, as applicable). Tenant's failure to deliver any quarterly Financial
Statements to Landlord as required in this subparagraph shall constitute an
Event of Default under this Lease, and, without limiting Landlord's other rights
and remedies, shall entitle Landlord to draw the full amount of the Letter of
Credit and hold the proceeds thereof as a Deposit pursuant to the terms of
subparagraph 3(d)(i) above.
(iii) If Tenant exercises its option to extend the Term pursuant
to Paragraph 24, the Letter of Credit shall be further reduced to $300,000
throughout such option period. Landlord's return of the Letter of Credit or any
part thereof shall not be construed as an admission that Tenant has performed
all of its obligations under this Lease. No trust relationship is created herein
between Landlord and Tenant with respect to the Letter of Credit.
4. TENANT'S SHARE OF OPERATING EXPENSES AND REAL PROPERTY TAXES;
ADDITIONAL RENT.
(a) In addition to the Basic Monthly Rental payable during the term
of this Lease, Tenant shall pay to Landlord, as additional rent, the applicable
Tenant's Percentage Share specified in the Summary of Lease Terms of (i)
increases over the Base Year in Operating Expenses paid or incurred by Landlord
in any calendar year during the term of this Lease, and (ii) increases over the
Base Year in Real Property Taxes paid or incurred by Landlord in any tax year
(July 1 through June 30) during the term of this Lease. If it shall not be
lawful for Tenant to reimburse Landlord for any increase in Real Property Taxes
as defined herein, the Basic Monthly Rental payable to Landlord prior to the
imposition of such increases in Real Property Taxes shall be increased to net
Landlord the same net Basic Monthly Rental after imposition of such increases in
Real Property Taxes as would have been received by Landlord prior to the
imposition of such increases in Real Property Taxes.
(b) During December of each calendar year or as soon thereafter as
practicable, Landlord shall give Tenant notice of its estimate of the amounts
payable pursuant to Paragraph 4(a) above for the succeeding calendar year. On or
before the first day of each month
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during the succeeding calendar year, Tenant shall pay to Landlord, as additional
rent, one twelfth (1/12) of such estimated amounts. If Landlord fails to deliver
such notice to Tenant in December, Tenant shall continue to pay the applicable
Tenant's Percentage Share specified in the Summary of Lease Terms of Operating
Expenses and Real Property Taxes on the basis of the prior year's estimate until
the first day of the next calendar month after such notice is given, provided
that on such date Tenant shall pay to Landlord the amount of such estimated
adjustment payable to Landlord for prior months during the year in question,
less any portion thereof previously paid by Tenant. If at any time it reasonably
appears to Landlord that the amounts payable under this Paragraph 4(b) for the
current calendar year will vary from Landlord's estimate, Landlord may, by
giving written notice to Tenant, revise Landlord's estimate for such year, and
subsequent payments by Tenant for such year shall be based on such revised
estimate.
(c) Within ninety (90) days after the close of each calendar year or
as soon after such ninety (90) day period as practicable, Landlord shall deliver
to Tenant a statement of the amounts payable under Paragraph 4(a) above for such
calendar year and such statement shall be final and binding upon Landlord and
Tenant. If on the basis of such statement Tenant owes an amount that is more
than the estimated payments for such calendar year previously made by Tenant,
Tenant shall pay the deficiency to Landlord within fifteen (15) days after
delivery of the statement. If on the basis of such statement Tenant has paid to
Landlord an amount in excess of the amounts payable under Paragraph 4(a) above
for the preceding calendar year, then Landlord, at its option, shall either
promptly refund such excess to Tenant or credit the amount thereof to the Basic
Monthly Rental next becoming due from Tenant until such credit has been
exhausted.
(d) If this Lease terminates on a day other than the last day of a
calendar year, the amounts payable by Tenant under Paragraph 4(a) above with
respect to the calendar year in which such termination occurs shall be prorated
on the basis which the number of days from the commencement of such calendar
year, to and including such termination date, bears to 360. The termination of
this Lease shall not affect the obligations of Landlord and Tenant pursuant to
Paragraph 4(c) above to be performed after such termination.
(e) It is the intention of Landlord and Tenant that the Basic Monthly
Rental paid to Landlord throughout the term of this Lease shall be absolutely
net of Real Property Taxes and Operating Expenses, above the amounts incurred
during the Base Year, and the foregoing provisions of this Paragraph 4 are
intended to so provide.
(f) Tenant shall have the right to examine, to copy and to have an
audit conducted of all books and records of Landlord as shall pertain to
Operating Expenses and Real Property Taxes. Such audit shall be conducted by an
auditing firm retained by Tenant. All expenses of such audit shall be borne by
Tenant unless such audit discloses an overstatement of Operating Expenses or
Real Property Taxes of five percent (5%) or more, in which case all expenses of
such audit shall be borne by Landlord, and Tenant's Operating Expense Payment or
Real Property Tax Payment shall be adjusted accordingly. In the event Landlord
disputes the findings of said audit, then Landlord and Tenant agree to submit
any disputed items to a firm of real estate audit professionals mutually
acceptable to Landlord and Tenant ("Audit Professionals"). The determination of
the Audit Professionals shall be final and binding upon both Landlord and Tenant
and the Audit Professionals' expenses shall be borne by the party
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against whom the decision is rendered. If it is determined that Tenant has made
an underpayment, Tenant shall promptly reimburse Landlord for the amount of such
underpayment. If it is determined that Tenant has made an overpayment, Tenant
shall promptly receive, at Tenant's option, either (i) a credit against the Rent
next due and payable; or (ii) a lump sum payment from Landlord in such amount.
Landlord shall maintain all books and records for a period of not less than
three (3) years following the applicable Calendar Year.
(g) The Base Year Operating Expenses arc currently estimated to be
$6.55 per square foot of rentable area. Once Operating Expenses for the Base
Year have been finally determined, if such amount is greater than $6.55, the
Basic Monthly Rental shall be increased by an amount equal to one-twelfth (1/12)
of the difference between actual Base Year Operating Expenses and $6.55,
multiplied by the rentable area of the Premises; if such amount is less than
S6.55, the Basic Monthly Rental shall be decreased by an amount equal to one-
twelfth (1/12) of the difference between actual Base Year Operating Expenses and
$6.55, multiplied by the rentable area of the Premises.
5. OTHER TAXES PAYABLE BY TENANT
Tenant shall reimburse Landlord upon demand for any and all taxes, but not
including Real Property Taxes, payable by Landlord (other than net income taxes,
franchise, estate, succession, inheritance or transfer taxes) whether or not now
customary or within the contemplation of the parties hereto:
(a) imposed upon, measured by or reasonably attributable to the cost
or value of Tenant's equipment, furniture, fixtures and other personal property
located in the Premises or by the cost or value of any leasehold improvements
made in or to the Premises by or for Tenant, other than Base Building
Improvements made by Landlord, regardless of whether title to such improvements
shall be in Tenant or Landlord;
(b) imposed upon or measured by the Basic Monthly Rental payable
hereunder, including, without limitation, any gross income tax or excise tax
levied by the City and County of San Francisco, the State of California, the
federal government or any other governmental body with respect to the receipt of
such rental;
(c) imposed upon or with respect to the possession, leasing,
operation, management, maintenance, alteration, repair, use or occupancy by
Tenant of the Premises or any portion thereof; or
(d) imposed upon this transaction or any document to which Tenant is a
party creating or transferring an interest or an estate in the Premises.
In the event that it shall not be lawful for Tenant to so reimburse
Landlord, the Basic Monthly Rental payable to Landlord under this Lease shall be
revised to net Landlord the same income after imposition of any such tax upon
Landlord as would have been received by Landlord hereunder prior to the
imposition of any such tax.
6. USE.
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Tenant agrees to use the Premises for general office purposes and
agrees not to use nor permit the use of the Premises or any part thereof for any
other purpose. Tenant agrees not to do or permit to be done in or about the
Premises or the Building, nor to bring or keep or permit to be brought or kept
in or about the Premises or the Building, anything which is prohibited by or
will in any way conflict with any law, statute or governmental regulation now or
hereafter in effect, or which would subject Landlord or Landlord's agents to any
liability, or which is prohibited by the standard form of fire insurance policy,
or which will in any way increase the existing rate of (or otherwise affect)
fire or any other insurance on the Building or any of its contents. If any act
or omission of Tenant results in any such increase in premium rates, Tenant
shall pay to Landlord, as additional rent, upon demand the amount of such
increase. Tenant agrees not to do or permit to be done anything in, on or about
the Premises or the Building which will in any way obstruct or interfere with
the rights of other tenants or occupants of the Building, or injure or annoy
them, or use or allow the Premises to be used for any improper, immoral,
unlawful or objectionable purpose. Tenant agrees not to cause, maintain or
permit any nuisance in, on or about the Premises or the Building, nor to use or
permit to be used any loudspeaker or other device, system or apparatus which can
be heard outside the Premises without the prior written consent of Landlord nor
to permit any objectionable odors, bright lights or electrical or radio
interference which may annoy or interfere with the rights of other tenants of
the Building or the public. Tenant agrees not to commit or suffer to be
committed any waste in or upon the Premises. The provisions of this Paragraph 6
are for the benefit of Landlord only and shall not be construed to be for the
benefit of any tenant or occupant of the Building.
7. COMPLIANCE WITH LAWS/ENVIRONMENTAL MATTERS.
(a) Tenant agrees at its sole cost and expense to promptly comply with
all laws, statutes, ordinances and governmental rules, regulations or
requirements now or hereafter constituted; with any direction or occupancy
certificate issued pursuant to law by any public officer; and with the
provisions of all recorded documents affecting the Premises, insofar as any
thereof relates to or affects the condition, use or occupancy of the Premises,
excluding structural changes not related to or affected by Tenant's
improvements, acts or particular use of the Premises. The judgment of any court
of competent jurisdiction or the admission of Tenant in any action against
Tenant (whether Landlord be a party thereto or not) that Tenant has violated any
such law, statute, ordinance or governmental rule, regulation, requirement,
direction or provision, shall be conclusive of that fact as between Landlord and
Tenant. If Tenant's use or operation of the Premises or any of Tenant's
equipment therein requires a governmental permit, license or other authorization
or any notice to any governmental agency, Tenant shall promptly provide a copy
thereof to Landlord.
(b) Other than ordinary office and cleaning supplies used in
accordance with applicable law, Tenant shall not bring or keep, or permit to be
brought or kept, in the Premises or in or on the Real Property any "hazardous
substance" (as hereinafter defined). Tenant shall not manufacture, generate,
treat, handle, store or dispose of any hazardous substance in the Premises or in
or on the Real Property, or use the Premises for any such purpose, or emit,
release or discharge any hazardous substance into any air, soil, surface water
or groundwater comprising the Premises or the Real Property, or permit any
person using or occupying the Premises to do any of the foregoing. Tenant shall
comply, and shall cause all persons using or occupying the
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Premises to comply, with all "environmental laws" (as hereinafter defined)
applicable to the Premises, the use or occupancy of the Premises or any
operation or activity therein. As used in this Lease, "hazardous substance"
shall mean any substance or material that is described as a toxic, hazardous,
corrosive, ignitable, flammable or reactive substance, waste or material or a
pollutant or contaminant, or words of similar import, in any of the
environmental laws, and includes asbestos, petroleum products, polychlorinated
biphenyls, radon gas, radioactive matter, and chemicals which may cause cancer
or reproductive toxicity. As used in this Lease, "environmental laws" shall mean
all federal, state and local laws, ordinances, rules and regulations now or
hereafter in force, as amended from time to time, in any way relating to or
regulating human health or safety, or industrial hygiene or environmental
conditions, or protection of the environment, or pollution or contamination of
the air, soil, surface water or groundwater. Notwithstanding anything herein to
the contrary, Tenant's liabilities and obligations under this Paragraph 7(b)
shall not extend to hazardous substances existing in or on the Real Property
prior to the Commencement Date.
(c) Tenant shall immediately furnish Landlord with any (i) notices
received from any insurance company or governmental agency or inspection bureau
regarding any unsafe or unlawful conditions within the Premises, and (ii)
notices or other communications sent by or on behalf of Tenant to any person
relating to environmental laws or hazardous substances.
(d) California law requires landlords to disclose to tenants the
existence of certain hazardous substances. Accordingly, the existence of
gasoline and other automotive fluids, asbestos containing materials, maintenance
fluids, copying fluids and other office supplies and equipment, certain
construction and finish materials, tobacco smoke, cosmetics and other personal
items must be disclosed. Gasoline and other automotive fluids are found in the
parking area of the Real Property. Cleaning, lubricating and hydraulic fluids
used in the operation and maintenance of the Building are found in the utility
areas of the Building not generally accessible to Building occupants or the
public. Many Building occupants use copy machines and printers with associated
fluids and toners, and pens, markers, inks, and office equipment that may
contain hazardous substances. Certain adhesives, paints and other construction
materials and finishes used in portions of the Building may contain hazardous
substances. Although smoking is prohibited in the public areas or the Building,
these areas may from time to time be exposed to tobacco smoke. Building
occupants and other persons entering the Building from time to time may use or
carry prescription and non-prescription drugs, perfumes, cosmetics and other
toiletries, and foods and beverages, some of which may contain hazardous
substances.
(e) The provisions of this Paragraph 7 are for the benefit of Landlord
only and shall not be construed to be for the benefit of any tenant or occupant
of the Building.
(f) The City and County of San Francisco adopted a City-wide "First
Source Hiring Program" on August 3, 1998 by Ordinance No. 264-98, codified at
San Francisco Administrative Code Sections 83.1-83.18. The First Source Hiring
Program ("FSHP") is designed to identify entry level positions associated with
commercial activities and provide first interview opportunities to graduates of
City-sponsored training programs. Tenant acknowledges that its activities on the
Premises are or may be subject to FSHP. Although Landlord makes no
representation or warranty as to the interpretation or application of FSHP to
the Premises, or to
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Tenant's activities thereon, Tenant acknowledges that (i) FSHP may impose
obligations on Tenant, including good faith efforts to meet requirements and
goals regarding interviewing, recruiting, hiring and retention of individuals
for entry level positions; (ii) FSHP requirements could also apply to certain
contracts and subcontracts entered into by Tenant regarding the Premises,
including construction contracts; and (iii) FSHP requirements, if applicable,
may be imposed as a condition of permits, including building permits, issued for
construction or occupancy of the Premises.
8. ALTERATIONS; LIENS.
(a) Tenant agrees not to make or suffer to be made any alteration,
addition or improvement to or of the Premises (hereinafter referred to as
"Alterations"), or any part thereof, without the prior written consent of
Landlord, other than non-structural improvements of a decorative nature and for
which a building permit is not required. Any such Alterations made by Tenant,
including without limitation any partitions (movable or otherwise) or carpeting,
shall become a part of the Building and belong to Landlord; provided, however,
that equipment, trade fixtures and movable furniture shall remain the property
of Tenant. If Landlord consents to the making of any Alterations, the same shall
be designed and constructed or installed by Tenant at its expense (including
expenses incurred in complying with applicable laws, including laws relating to
the handling and disposal of ACM). Tenant shall use a general contractor,
subcontractors, engineers and architects which are on Landlord's approved list
of design and construction professionals. All Alterations shall be made in
accordance with plans and specifications approved in writing by Landlord and
shall be designed and constructed in compliance with all applicable codes, laws,
ordinances, rules and regulations. The design and construction of any
Alterations shall be performed in accordance with Landlord's applicable rules,
regulations and requirements, including the Asbestos Rules. Under no
circumstances shall Landlord be liable to Tenant for any damage, loss, cost or
expense incurred by Tenant on account of Tenant's plans and specifications,
Tenant's contractors or subcontractors, design of any work, construction of any
work, or delay in completion of any work. Tenant shall pay to Landlord a fee in
the amount of ten percent (10%) of the cost of the Alterations for Landlord's
review of plans and its management and supervision of the progress of the work.
All sums due to such contractors, if paid by Landlord due to Tenant's failure to
pay such sums when due, shall bear interest payable to Landlord at the Interest
Rate until fully paid. Upon the expiration or sooner termination of this Lease,
Tenant, at its expense, shall promptly remove any such Alterations (excluding
any improvements constructed pursuant to Exhibit C) made by Tenant and
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designated by Landlord so to be removed and repair any damage to the Premises
caused by such removal. Tenant shall use a contractor approved by Landlord for
such removal and repair.
(b) Tenant agrees to keep the Premises and the Real Property free from
any liens arising out of any work performed, materials furnished or obligations
incurred by Tenant. Tenant shall promptly and fully pay and discharge all claims
on which any such lien could be based. In the event that Tenant does not, within
ten (10) days following the recording of notice of any such lien or twenty (20)
days after the recording of such lien, whichever is first to occur, cause the
same to be released of record, Landlord shall have, in addition to all other
remedies provided herein and by law, the right, but not the obligation, to cause
the same to be released by such means as it shall deem proper, including payment
of the claim giving rise to such lien. All
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sums paid by Landlord for such purpose, and all expenses incurred by it in
connection therewith, shall be payable to Landlord by Tenant, as additional
rent, on demand, together with interest at the Interest Rate from the date such
expenses are incurred by Landlord to the date of the payment thereof by Tenant
to Landlord. Landlord shall have the right at all times to post and keep posted
on the Premises any notices permitted or required by law, or which Landlord
shall deem proper for the protection of Landlord, the Premises, the Building, or
the Real Property, from mechanic's and materialmen's and like liens. Tenant
shall give Landlord at least ten (10) days' prior written notice of the date of
commencement of any construction on the Premises in order to permit the posting
of such notices.
9. MAINTENANCE AND REPAIR.
(a) By taking possession of the Premises, Tenant accepts the Premises
as being in the condition in which Landlord is obligated to deliver the
Premises, subject to punch list items as provided in Paragraph 2(b). Subject to
Landlord's obligations under Paragraph 9(b) below, and to Paragraph 19, Tenant,
at its expense, shall at all times keep the Premises and every part thereof and
all equipment, fixtures and improvements therein in good and sanitary order,
condition and repair, damage thereto by fire, the perils of the extended
coverage endorsement, and earthquake excepted, and Tenant waives all rights
under, and benefits of; subsection I of Section 1932 and Sections 1941 and 1942
of the California Civil Code and under any similar law or ordinance now or
hereafter in effect. Upon the expiration or sooner termination of this Lease,
Tenant shall surrender the Premises and (unless designated by Landlord to be
removed in accordance with Paragraph 8 above) all Alterations thereto to
Landlord in the same condition as when received, ordinary wear and tear (except
such as Tenant is obligated to repair to keep the Premises in good condition and
repair) and damage thereto by fire, the perils of the extended coverage
endorsement, and earthquake excepted. It is agreed that Landlord has no
obligation, and has made no promises, to alter, add to, remodel, improve,
repair, decorate or paint the Premises or any part thereof and that no
representations respecting the condition of the Premises, the Building or the
Real Property have been made by Landlord to Tenant except as may be specifically
set forth herein. No representation or warranty, express or implied, is made
with respect to (i) the condition of the Premises or the Building, (ii) the
fitness of the Premises for Tenant's intended use, (iii) the degree of sound
transfer within the Building, (iv) the absence of electrical or radio
interference in the Premises or the Building, (v) the condition, capacity or
performance of electrical or communications systems or facilities, or (vi) the
absence of objectionable odors, bright lights or other conditions which may
affect Tenant's use and enjoyment of the Premises or the Building.
(b) Landlord agrees to make all necessary repairs to the structure,
the exterior, and the public and common areas of the Building and the building
systems therein, and to maintain the same in reasonably good order and
condition. Any uninsured damage arising from the acts of Tenant, its agents,
employees, contractors or invitees shall be repaired by Landlord at Tenant's
sole expense. Tenant shall pay Landlord on demand the cost of any such repair.
10. SERVICES.
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(a) Landlord, subject to the terms of this Paragraph 10 and the
Building Rules and Regulations attached hereto as Exhibit B and subject to
applicable laws, regulations and rules of public utilities, shall furnish to the
Premises water, electrical power and elevator service suitable for the use of
the Premises for ordinary office purposes; heating and air conditioning suitable
for the comfortable use and occupation of the Premises (assuming normal office
use thereof and subject to any restrictions on use as may be prescribed by any
applicable policies or regulations of any utility or governmental agency); and
basic janitorial service on weekdays (excluding union holidays). Tenant agrees
to pay, as additional rent, promptly on demand any and all costs incurred by
Landlord in connection with providing any additional utilities and services
Landlord may provide. Unless otherwise specifically provided in this Lease, all
means of distribution of all utilities within the Premises shall be supplied by
Tenant at its expense, and Tenant shall bear the cost of water, gas,
electricity, sewerage and other utilities. Landlord reserves the right to
install, at Tenant's expense, a separate meter in the Premises for electricity.
Tenant agrees that at all times it will cooperate fully with Landlord and abide
by all regulations and requirements that Landlord may prescribe for the proper
functioning and protection of the Building heating, ventilating and air
conditioning systems. Landlord shall not be liable for and Tenant shall not be
entitled to any abatement or reduction of Rental by reason of Landlord's failure
to furnish any of the foregoing or any other utilities or services when such
failure is caused by accident, breakage, repairs, strikes, lockouts or other
labor disturbances or disputes of any character, by the limitation, curtailment,
rationing or restrictions on use of electricity, gas or any form of energy, or
by any other cause, similar or dissimilar, beyond the reasonable control of
Landlord, but Landlord shall use reasonable efforts to restore such utilities or
services as soon as possible. No such failure and no interruption of utilities
or services from any cause whatsoever shall constitute an eviction of Tenant,
constructive or otherwise, or impose upon Landlord any liability whatsoever,
including, but not limited to, liability for consequential damages or loss of
business by Tenant. Tenant hereby waives the provisions of California Civil
Code Section 1932(1) or any other applicable existing or future law, ordinance
or governmental regulation permitting the termination of this Lease due to such
failure or interruption. Landlord shall not be liable under any circumstances
for injury to or death of any person or damage to or destruction of property,
however occurring, through or in connection with or incidental to the furnishing
of or the failure to furnish any of the foregoing utilities or services or any
other utilities or services.
(b) In the event that (i) Landlord, due to the fault or neglect of
Landlord, its agents, contractors or employees, fails to provide any service
required to be performed by Landlord pursuant to Paragraph 10(a), and (ii) such
failure; materially and adversely interferes with the conduct of Tenant's
business, and (iii) such failure is not remedied within three (3) days after
Tenant shall have given Landlord written notice of such failure, then Rent and
Additional Rent shall be abated as of the fourth (4th) day after such notice
until such failure is remedied.
(c) Landlord makes no representation to Tenant regarding the adequacy
or fitness of the heating, air conditioning or ventilation equipment in the
Building to maintain temperatures that may be required for, or because of, any
of Tenant's equipment which uses other than the fractional horsepower normally
required for office equipment, and Landlord shall have no liability for loss or
damage suffered by Tenant or others in connection therewith. If Tenant's use of
the heating, air conditioning or ventilation system exceeds normal office use
and thereby causes damages to any of the air conditioning units or other
equipment, the cost to repair or
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replace any such units or equipment due to such use shall be paid by Tenant to
Landlord, as additional rent, upon demand by Landlord. If the temperature
otherwise maintained in any portion of the Premises by the heating, air
conditioning or ventilation system is affected as a result of (i) any lights,
machines or equipment (including without limitation electronic data processing
machines) used by Tenant in the Premises, (ii) the occupancy of the Premises by
more than one person per two hundred (200) square feet of rentable area therein,
(iii) an electrical load for lighting or power in excess of the limits per
square foot of rentable area of the Premises specified in Paragraph 10(c) below,
or (iv) any rearrangement of partitioning or other improvements, Landlord shall
have the right to install supplementary air conditioning units or other
equipment Landlord deems appropriate in the Premises, and the cost thereof,
including the cost of installation, operation and maintenance thereof, shall be
paid by Tenant to Landlord, as additional rent, upon demand by Landlord.
(d) Tenant agrees it will not, without the written consent of
Landlord, which shall not be unreasonably withheld, use any equipment, apparatus
or device in the Premises (including, without limitation, electronic data
processing machines, computers or machines using current in excess of 110 volts)
which will, individually or in the aggregate, in any way cause the amount of
electricity, water or heating, ventilation or air conditioning supplied to the
Premises to exceed the amount usually furnished or supplied to premises being
used as general office space, or connect with electric current (except through
existing electrical outlets in the Premises) or with water pipes any equipment,
apparatus or device for the purposes of using electric current or water.
Landlord shall not, in any way, be liable or responsible to Tenant for any loss
or damage or expense which Tenant may incur or sustain if, for any reasons
beyond Landlord's reasonable control, either the quantity or character of
electric service is changed or is no longer available or suitable for Tenant's
requirements. Tenant covenants that at all times its use of electric current
shall never exceed the capacity of the feeders, risers or electrical
installations of the Building. If submetering of electricity in the Building
will not be permitted under future laws or regulations, the Basic Monthly Rental
will then be equitably adjusted to include an additional payment to Landlord
reflecting the cost to Landlord for furnishing electricity to the Premises.
(e) In the event any governmental authority having jurisdiction over
the Real Property or the Building promulgates or revises any law, ordinance or
regulation or building, fire or other code or imposes mandatory or voluntary
controls or guidelines on Landlord or the Real Property or the Building relating
to the use or conservation of energy or utilities or the reduction of automobile
or other emissions (collectively "Controls") or in the event Landlord is
required or elects to make alterations to the Real Property or the Building in
order to comply with such mandatory or voluntary Controls, Landlord may, in its
sole discretion, comply with such Controls or make such alterations to the Real
Property or the Building related thereto. Such compliance and the making of
such alterations shall not constitute an eviction of Tenant, constructive or
otherwise, or impose upon Landlord any liability whatsoever, including, but not
limited to, liability for consequential damages or loss of business by Tenant.
11. ACCESS CONTROL.
(a) Landlord shall have the right from time to time to adopt such
nondiscriminatory policies, procedures and programs as it shall, in Landlord's
reasonable
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discretion, deem necessary or appropriate for the security of the Building, and
Tenant shall cooperate with Landlord in the enforcement of, and shall comply
with, the policies, procedures and programs adopted by Landlord insofar as the
same pertain to Tenant, its agents, employees, contractors and invitees and
provided they are not in conflict with this Lease.
(b) In no event shall Landlord be liable for damages resulting from
any error with regard to the admission to or the exclusion from the Building of
any person. In the case of invasion, mob, riot, public demonstration or other
circumstances rendering such action advisable in Landlord's opinion, Landlord
reserves the right to prevent access to the Building during the continuance of
the same by such action as Landlord may deem appropriate, including closing
doors.
(c) In the event of any picketing, public demonstration or other
threat to the security of the Building that is attributable in whole or in part
to Tenant, Tenant shall reimburse Landlord for any costs incurred by Landlord in
connection with such picketing, demonstration or other threat in order to
protect the security of the Building, and Tenant shall indemnify and hold
Landlord harmless from and protect and defend Landlord against any and all
claims, demands, suits, liability, damage or loss and against all costs and
expenses, including reasonable attorneys' fees incurred in connection therewith,
arising out of or relating to any such picketing, demonstration or other threat.
Tenant agrees not to employ any person, entity or contractor for any work in the
Premises (including moving Tenant's equipment and furnishings in, out or around
the Premises) whose presence may give rise to a labor or other disturbance in
the Building and, if necessary to prevent such a disturbance in a particular
situation, Landlord may require Tenant to employ union labor for the work.
12 ASSIGNMENT AND SUBLETTING.
(a) Restriction on Transfers. Tenant shall not, either voluntarily
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or by operation of law, (i) assign or transfer this Lease or any interest
herein, (ii) sublet the Premises, or any part thereof, or (iii) enter into a
license agreement or other arrangement whereby the Premises, or any portion
thereof, are held or utilized by another party (each of the foregoing defined
herein as a "Transfer"), without the express prior written consent of Landlord,
which consent Landlord shall not unreasonably withhold, delay or deny. Any such
act (whether voluntary or involuntary, by operation of law or otherwise) without
the consent of Landlord pursuant to the provisions of this Paragraph 12 shall,
at Landlord's option, be void and/or constitute an Event of Default under this
Lease. Consent to any Transfer shall neither relieve Tenant of the necessity of
obtaining Landlord's consent to any future Transfer nor relieve Tenant from any
liability under this Lease.
By way of example and without limitation, the failure to satisfy any
of the following conditions or standards shall be deemed to constitute
sufficient grounds for Landlord to refuse to grant its consent to the proposed
Transfer.
(1) The proposed Transferee must expressly (a) assume all of the
provisions, covenants and conditions of this Lease on the part of Tenant to be
kept and
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performed, in the case of an assignment, or (b) agree not to violate the
provisions of this Lease, in the case of a sublease.
(2) The proposed Transferee must satisfy Landlord's then current
credit and other standards for tenants of the Building (taking into account
Tenant's continuing liability under this Lease and taking into account whether
or not Tenant is continuing in occupancy of a material portion of the Premises)
and, in Landlord's reasonable opinion, have the financial strength and stability
to perform all of the obligations of the Tenant under this Lease (as they apply
to the transferred space) as and when they fall due.
(3) The proposed Transferee must be reasonably satisfactory to
Landlord as to character and professional standing.
(4) The proposed use of the Premises by the proposed Transferee must
be, in Landlord's opinion: (a) lawful; (b) appropriate to the location and
configuration of the Premises; (c) unlikely to cause an increase in insurance
premiums for insurance policies applicable to the Building; (d) a use not
requiring any new tenant improvements that Landlord would be entitled to
disapprove pursuant to Paragraph 8 hereof; (e) unlikely to cause any material
increase in services to be provided to the Premises; (f) unlikely to create any
materially increased burden in the operation of the Building, or in the
operation of any of its facilities or equipment; and (g) unlikely to impair the
dignity, reputation or character of the Building.
(5) The proposed use of the Premises must not result in the division
of the Premises into more than two (2) parcels or tenant spaces.
(6) At the time of the proposed Transfer, an Event of Default (as
defined in paragraph 18(a) below) shall not have occurred and be continuing, and
no event may have occurred that with notice, the passage of time, or both, would
become an Event of Default.
(7) The proposed Transferee shall not be a governmental entity or hold
any exemption from the payment of ad valorem or other taxes which would prohibit
Landlord from collecting from such Transferee any amounts otherwise payable
under this Lease.
(8) The proposed Transferee shall not be a then present tenant or
affiliate or subsidiary of a then present tenant in the Building unless there is
no other suitable space available in the Building.
(9) Landlord shall not be negotiating with, and shall not have at any
time within the past thirty (30) days negotiated with, the proposed Transferee
for space in the Building (unless Landlord, in its reasonable judgment, believes
that it is unlikely that any further discussions between Tenant and such
proposed Transferee will lead to a lease transaction).
(b) Landlord's Right of First Offer; Termination Right. Except in the
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event of a proposed Transfer pursuant to Paragraphs 12(e), 12(f) or 12(g)
below, Landlord shall have no obligation to consent or consider granting its
consent to any proposed Transfer unless Tenant has first delivered to Landlord a
written offer to enter into such Transfer with Landlord, which offer shall
include the base rent and other economic terms of the proposed Transfer, the
date upon
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which Tenant desires to effect such Transfer and all of the other material terms
of the proposed Transfer ("Tenant's Offer"). Landlord shall have twenty (20)
days from receipt of Tenant's Offer within which to notify Tenant in writing of
its decision to accept or reject such Transfer on the terms Set forth in
Tenant's Offer. If Landlord does not accept Tenant's Offer within such period,
Tenant shall deliver to Landlord a second notice of such offer. If Landlord does
not accept Tenant's offer within five (5) days after receipt of such second
notice, Tenant may enter into such Transfer with any bona fide independent
third-party Transferee (as defined in Paragraph 12(c) below) within one hundred
twenty (120) days of the end of such twenty (20) day period, so long as such
Transfer is for the same base rent offered to Landlord in Tenant's Offer and
such Transfer otherwise contains terms not more than five percent (5%) more
favorable economically to the Transferee than the terms stated in Tenant's
Offer, taking into account all rent concessions, tenant improvements, and any
other terms which have an economic impact on the Transfer; provided, however,
that the prior written approval of Landlord for such Transfer must be obtained,
and the other provisions of this Paragraph 12 must be complied with, all in
accordance with this Paragraph 12. If Landlord accepts Tenant's Offer, Landlord
and Tenant shall enter into an agreement for such Transfer within thirty (30)
days of the date Landlord makes its election. If Landlord accepts Tenant's
Offer, then (i) Landlord may enter into a new lease, sublease or other agreement
covering the Premises or any portion thereof with the intended Transferee on
such terms as Landlord and such Transferee may agree, or enter into a new lease
or agreement covering the Premises or any portion thereof with any other person
or entity, and in any such event, Tenant shall not be entitled to any portion of
the profit, if any, which Landlord may realize on account of such new lease or
agreement, (ii) Landlord may, at Landlord's sole cost, construct improvements in
the subject space and, so long as the improvements are suitable for general
office purposes, Landlord shall have no obligation to restore the subject space
to its original condition following the termination of a sublease, and (iii)
Landlord shall not have any liability for any real estate brokerage
commission(s) or with respect to any of the costs and expenses that Tenant may
have incurred in connection with its proposed Transfer, and Tenant agrees to
indemnify, defend and hold harmless Landlord from and against any and all claims
(including, without limitation, claims for commissions) arising from such
proposed Transfer.
Except in the event of a proposed Transfer pursuant to Paragraphs
12(e) or 12(f) below, in the case of a proposed assignment of this Lease or a
sublease of substantially the entire Premises for substantially the balance of
the term of this Lease, then in addition to the foregoing rights of Landlord,
Landlord shall have the right, by notice to Tenant within fifteen (15) days
after receipt of Tenant's Offer, to terminate this Lease, which termination
shall be effective as of the date on which the intended assignment or sublease
would have been effective if Landlord had not exercised such termination right.
If Landlord elects to terminate this Lease, then from and after the date of such
termination, Landlord and Tenant each shall have no further obligation to the
other under this Lease with respect to the Premises except for matters occurring
or obligations arising hereunder prior to the date of such termination.
Landlord's foregoing rights and options shall continue throughout the
entire term of this Lease.
(c) Landlord's approval Process. Tenant shall, in each instance
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of a proposed Transfer, give written notice to Landlord at least thirty (30)
days prior to the effective date of any
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proposed Transfer, specifying in such notice (i) the nature of the proposed
Transfer, (ii) the portion of the Premises to be transferred, (iii) the intended
use of the transferred Premises, (iv) all economic terms of the proposed
Transfer, (v) the effective date thereof; (vi) the identity of the transferee
under the proposed Transfer (the "Transferee"), (vii) current financial
statements of the Transferee, and (viii) detailed documentation relating to the
business experience of the Transferee (collectively, "Tenant's Notice"). Tenant
shall also promptly furnish Landlord with any other information reasonably
requested by Landlord relating to the proposed Transfer or the proposed
Transferee. Within fifteen (15) days after receipt by Landlord of Tenant's
Notice and any additional information and data requested by Landlord, Landlord
shall notify Tenant of its determination to either (i) consent to the proposed
Transfer, or (ii) refuse to consent to such proposed Transfer.
(d) Consideration for Transfer. Fifty percent (50%) of all (i)
--------------------------
consideration paid or payable by Transferee to Tenant as consideration for any
such Transfer, and (ii) rents received in connection with the Transfer by Tenant
from Transferee in excess of the Rental payable by Tenant to Landlord under this
Lease after first deducting Tenant's reasonable out-of-pocket costs incurred for
brokerage commissions and tenant improvement costs and allowances, shall be paid
by Tenant to Landlord immediately upon receipt thereof by Tenant. If there is
more than one sublease under this Lease, the amounts (if any) to be paid by
Tenant to Landlord pursuant to the preceding sentence shall be separately
calculated for each sublease and amounts due Landlord with regard to any one
sublease may not be offset against rental and other consideration pertaining to
or due under any other sublease.
If this Lease is assigned, whether or not in violation of the terms of
this Lease, Landlord may collect rent from the assignee. If the Premises or any
part thereof is sublet, Landlord may, upon an Event of Default by Tenant
hereunder, collect rent from the subtenant. In either event, Landlord may apply
the amount collected from the assignee or subtenant to Tenant's monetary
obligations hereunder. Neither Landlord's collection of rent from a Transferee
nor any course of dealing between Landlord and any Transferee shall constitute
or be deemed to constitute Landlord's consent to any Transfer.
(e) Merger or Consolidation of Tenant; Major Changes. Any Major
------------------------------------------------
Change (as hereinafter defined) must be approved by Landlord in accordance with
Paragraph 12(c) above and, without such approval, shall at Landlord's election
be void and/or constitute an Event of Default. The term "controlled" as used
herein shall mean the ownership of (i) the voting stock of any corporation, or
(ii) the ownership interest in any other entity and, if any such entity is a
partnership, a general partner's interest in such partnership. The term "Major
Change" as used herein shall mean any reorganization, recapitalization,
refinancing or other transaction or series of transactions involving Tenant
which results in the net worth of Tenant and its consolidated subsidiaries
immediately after such transaction(s) being less than fifty percent (50%) of the
net worth of Tenant and its consolidated subsidiaries as of the end of the
fiscal year immediately preceding the date of this Lease. Notwithstanding
anything in this Paragraph 12 to the contrary, Tenant may assign this Lease or
sublet all or any portion of the Premises without obtaining Landlord's prior
consent thereto to an Affiliate, provided Tenant gives Landlord at least thirty
(30) days written notice thereafter and such Affiliate has a net worth at the
time of such assignment of not less than the net worth of Tenant as of the
effective date of such assignment.
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No such assignment shall release Tenant from liability under this Lease. As used
herein, "Affiliate" shall mean an entity which is under the control of,
controls, or is under common control with, Tenant. In addition to the above,
Tenant shall have the right, without Landlord's consent, to assign this Lease to
any entity resulting from a merger or consolidation with Tenant, or which
acquires all or substantially all Tenant's assets or stock, provided, however,
that Tenant remains liable under the terms of this Lease.
(f) Transfer of Partnership Interest or Corporate Stock. A sale,
---------------------------------------------------
transfer or assignment of a general partner's interest or any portion thereof in
Tenant, if Tenant is a partnership, or a sale, transfer or assignment of twenty-
five percent (25%) or more of the voting stock of Tenant if Tenant is a
corporation, whether such sale, transfer or assignment occurs in a single
transaction or a series of transactions, shall be deemed a Transfer and require
Landlord's consent in accordance with the procedures specified in Paragraph
12(c) above, unless such sale is pursuant to a public offering of Tenant's
stock, or involves the sale of Tenant's stock when such stock is publicly traded
on a nationally recognized stock exchange, in which case Landlord's consent
shall not be required.
(g) Certain Exempt Transfers. The following Transfers will not be
------------------------
subject to Landlord's rights under Paragraph 12(b): Prior to taking occupancy of
the Premises, Tenant may designate a portion of the Premises (not to exceed
thirty percent (30%) of the rentable area thereof which Tenant elects to
sublease to one or more subtenants for terms not to exceed two (2) years and six
(6) months from the Commencement Date. All such subleases shall be subject to
the requirements of the remainder of this Paragraph 12.
(h) Documentation. Tenant agrees that any instrument by which
-------------
Tenant assigns this Lease or any interest therein or sublets or otherwise
Transfers all or any portion of the Premises shall expressly provide that the
Transferee may not further assign this Lease or any interest therein or sublet
the sublet space without Landlord's prior written consent (which consent shall
be subject to the provisions of this Paragraph 12), and that the Transferee will
comply with all of the provisions of this Lease and that Landlord may enforce
the Lease provisions directly against such Transferee. No permitted subletting
by Tenant shall be effective until there has been delivered to Landlord a
counterpart of the sublease in which the subtenant agrees to be and remain
jointly and severally liable with Tenant for the payment of rent pertaining to
the sublet space and for the performance of all of the terms and provisions of
this Lease; provided, however, that the subtenant shall be liable to Landlord
for rent only in the amount set forth in the sublease. No permitted assignment
shall be effective unless and until there has been delivered to Landlord a
counterpart of the assignment in which the assignee assumes all of Tenant's
obligations under this Lease arising on or after the date of the assignment.
The failure or refusal of a subtenant or assignee to execute any such instrument
shall not release or discharge the subtenant or assignee from its liability as
set forth above.
(i) Options Personal to Original Tenant. If Landlord consents to a
-----------------------------------
Transfer hereunder and this Lease contains any renewal options, expansion
options, rights of first refusal, rights of first negotiation or any other
rights or options pertaining to additional space in the Building, such rights
and/or options shall not run to the Transferee except for a permitted Transferee
pursuant to Paragraph 12(e) or a public offering or stock sale for which
Landlord's
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consent is not required pursuant to Paragraph 12(f), it being agreed by the
parties hereto that any such rights and options are personal to the original
Tenant named herein and may not otherwise be transferred.
(j) Encumbrance of Lease. Notwithstanding any provision of this
--------------------
Lease to the contrary, Tenant shall not mortgage, encumber or hypothecate this
Lease or any interest herein without the prior written consent of Landlord,
which consent may be withheld in Landlord's sole and absolute discretion. Any
such act without the prior written consent of Landlord (whether voluntary or
involuntary, by operation of law or otherwise) shall, at Landlord's option, be
void and/or constitute an Event of Default under this Lease.
(k) No Merger. The voluntary or other surrender of this Lease or
---------
of the Premises by Tenant or a mutual cancellation of this Lease shall not work
a merger, and at the option of Landlord any existing subleases may be terminated
or be deemed assigned to Landlord in which latter event the subleases or
subtenants shall become tenants of Landlord.
(l) Landlord's Costs. Tenant shall pay to Landlord the amount of
----------------
Landlord's cost of processing each proposed Transfer (including, without
limitation, attorneys' and other professional fees, and the cost of Landlord's
administrative, accounting and clerical time; collectively "Processing Costs"),
and the amount of all direct and indirect expenses incurred by Landlord arising
from the assignee or sublessee taking occupancy of the subject space (including,
without limitation, costs of freight elevator operation for moving of
furnishings and trade fixtures, security service, janitorial and cleaning
service, and rubbish removal service). Notwithstanding anything to the contrary
herein, Landlord shall not be required to process any request for Landlord's
consent to a Transfer until Tenant has paid to Landlord the amount of Landlord's
estimate of the Processing Costs and all other direct and indirect costs and
expenses of Landlord and its agents arising from the assignee or subtenant
taking occupancy.
13. WAIVER; INDEMNIFICATION.
(a) Tenant shall defend and indemnify Landlord and save Landlord
harmless from and against any and all losses, claims, liability, expenses and
damages (other than consequential damages) which, either directly or indirectly,
and to the extent arise out of or result from (i) the negligence or willful
misconduct of Tenant, its agents, contractors or employees; (ii) any act or
occurrence in the Premises, except to the extent caused by the negligence or
willful misconduct of Landlord, its agents, contractors or employees; and (iii)
judgments, citations, fines or other penalties rendered or assessed against
Landlord (with the exception of any claims under any worker's compensation laws)
as a result of Tenant's failure to comply with all federal, state and local
laws, safety and health regulations relating to Tenant's specific use of the
Premises, provided that Landlord agrees to give Tenant prompt notice of any such
violation asserted by any government agency.
(b) Landlord shall defend and indemnify Tenant and save Tenant
harmless from and against any and all losses, claims, liability, expenses and
damages (other than consequential damages) which, either directly or indirectly,
and to the extent arise out of or result from (i) the negligence or willful
misconduct of Landlord, its agents, contractors or employees;
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(ii) any act or occurrence in the common areas of the Real Property, except to
the extent caused by the negligence or willful misconduct of Tenant, its agents,
contractors or employees; and (iii) judgments, citations, fines or other
penalties rendered or assessed against Tenant (with the exception of any claims
under any workers' compensation laws) as a result of Landlord's failure to
comply with all federal, state and local laws, safety and health regulations
relating to any portion of the Building or the common areas of the Real Property
which Landlord has assumed the duty to maintain pursuant to this Lease, provided
that Tenant agrees to give Landlord prompt notice of any such violation asserted
by any government agency.
(c) Nothing in these Paragraphs 13(a) and 13(b) is intended to require
indemnification for any property claim for which insurance is required to be
maintained under the terms of this Lease. The rights and obligations of
Landlord and Tenant under this Paragraph 13 shall survive the expiration or
earlier termination of this Lease.
14. INSURANCE.
(a) At Tenant's expense, Tenant shall procure, carry and maintain in
effect throughout the term of this Lease, in a form acceptable to Landlord and
with such insurance companies as are acceptable to Landlord (which companies
shall have a Best's rating of A-X or better), the following insurance coverage:
(i) Commercial general liability insurance on an occurrence
basis, with limits in an amount not less than $5,000,000 combined single limit
per occurrence, for claims or losses arising out of or resulting from personal
injury (including bodily injury), death and/or property damage sustained or
alleged to have been sustained by any person for any reason on the Premises, for
liability arising out of or resulting from Tenant's covenant in Paragraph 13 to
indemnify Landlord and all other Indemnities, its agents and employees, and for
contractual liability;
(ii) All Risk Replacement Cost insurance with an agreed amount
endorsement upon property of every description and kind owned by Tenant and
located in the Premises and for Tenant's Extra Improvements and Alterations in
an amount equal to 100% of the full replacement value thereof; and
(iii) Workers' compensation insurance, in accordance with
applicable law.
(b) Omitted.
(c) All policies of liability insurance so obtained and maintained
shall be carried in the name of Tenant, name Landlord and Landlord's designated
agents as additional insureds, and shall provide that the insurance policy so
endorsed will be the primary insurance providing coverage for Landlord, and
contain a cross-liability endorsement stating that the rights of insureds shall
not be prejudiced by one insured making a claim or commencing an action against
another insured. Any other liability insurance maintained by Landlord shall be
excess and non-contributing. At Landlord's election, such policies shall name
the holder of any
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Superior Interest or any other interested party as an insured party under a
standard mortgagee endorsement.
(d) All insurance policies required under this Lease shall provide
that the insurer shall not cancel, reduce, modify or fail to renew such coverage
without forty-five (45) days prior written notice to Landlord. Tenant shall
deliver certificates of all insurance required hereunder upon the commencement
of the term of this Lease. In the event Tenant does not comply with the
requirements of this Paragraph 14, Landlord may, at its option and at Tenant's
expense, purchase such insurance coverage to protect Landlord. The cost of such
insurance shall be paid to Landlord by Tenant, as additional rent, immediately
upon demand therefor, together with interest at the Interest Rate until paid.
(e) The parties release each other, and their respective authorized
representatives, from any claims for loss or damage that are caused by or result
from perils insured under any insurance policies carried by the parties in force
at the time of any such damage. Each party shall cause each insurance policy
obtained by it to provide that the insurer waives all right of recovery by way
of subrogation against either party in connection with any loss or damage
covered by the policy. Neither party shall be liable to the other for any loss
or damage caused by the insured risks under any insurance policy required by
this Lease.
15. PROTECTION OF LENDERS.
(a) This Lease shall be subject and subordinate at all times to all
ground or underlying leases which may now or hereafter exist affecting the
Building or the Real Property, or both, and to the lien of any mortgage or deed
of trust in any amount or amounts whatsoever now or hereafter placed on or
against the Building or the Real Property, or both, or on or against Landlord's
interest or estate therein (such mortgages, deeds of trust and leases are
referred to herein, collectively, as "Superior Interests"), provided that
Landlord shall deliver to Tenant a Subordination, Non-Disturbance and Attornment
Agreement reasonably protecting Tenant's interest in this Lease in the event of
the exercise of Holder's rights under the Superior Interest.
(b) Within ten (10) days after Landlord's written request, Tenant
shall deliver to Landlord, or to any actual or prospective holder of a Superior
Interest ("Holder") that Landlord designates, such financial statements as are
reasonably required by such Holder to verify the financial condition of Tenant
(or any assignee, subtenant or guarantor of Tenant). Tenant represents and
warrants to Landlord and such Holder that each financial statement delivered by
Tenant shall be accurate in all material respects as of the date of such
statement. All financial statements shall be confidential, and used only for
the purposes stated herein.
(c) If Landlord is in default, Tenant will accept cure of any default
by any Holder whose name and address shall have been furnished to Tenant in
writing. Tenant may not exercise any rights or remedies for Landlord's default
unless Tenant gives notice thereof to each such Holder and the default is not
cured within thirty (30) days thereafter or such greater time as may be
reasonably necessary to cure such default. A default which cannot reasonably be
cured within said 30-day period shall be deemed cured within said period if work
necessary to cure the
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default is commenced within such time and proceeds diligently thereafter until
the default is cured.
16. ENTRY BY LANDLORD.
(a) Landlord reserves, and shall at all times have, the right to
enter the Premises to inspect them; to supply janitorial service and any other
service to be provided by Landlord hereunder; to submit the Premises to
prospective purchasers, mortgagees or tenants; to post notices of
nonresponsibility; and to alter, improve or repair the Premises and any portion
of the Building as permitted or provided hereunder, all without abatement of
Rental; and may erect scaffolding and other necessary structures in or through
the Premises where reasonably required by the character of the work to be
performed; provided, however, that any such entrance or work shall not
unreasonably interfere with Tenant's use of the Premises. If such entry is made
as aforesaid, Tenant hereby waives any claim for damages for any injury or
inconvenience to or interference with Tenant's business, any loss of occupancy
or quiet enjoyment of the Premises, and any other loss occasioned by such entry.
For each of the foregoing purposes, Landlord shall at all times have and retain
a key and/or other access device with which to unlock all of the doors in, on
and about the Premises (excluding Tenant's vaults, safes and similar areas
designated in writing by Tenant in advance and approved by Landlord); and
Landlord shall have the right to use any and all means which Landlord may deem
proper to open said doors in an emergency in order to obtain entry to the
Premises, and any entry to the Premises obtained by Landlord by any of said
means, or otherwise, shall not under any circumstances be construed or deemed to
be a forcible or unlawful entry into or a detainer of the Premises, or any
portion thereof.
(b) Landlord shall also have the right at any time to change the
arrangement or location or times of access of entrances or passageways, doors
and doorways, and corridors, elevators, stairs, toilets or other public parts of
the Building, and to change the name, number or designation by which the
Building is commonly known, and none of the foregoing shall be deemed an actual
or constructive eviction of Tenant, nor shall it entitle Tenant to any reduction
of Rental hereunder or result in any liability of Landlord to Tenant.
17. ABANDONMENT.
Tenant shall not vacate or abandon the Premises or any part thereof at
any time during the term hereof. Tenant understands that if Tenant leaves the
Premises or any part thereof vacant, the risk of fire, other casualty and
vandalism to the Premises and the Building will be increased. Accordingly, such
action by Tenant shall constitute an Event of Default hereunder regardless of
whether Tenant continues to pay Basic Monthly Rental and other Rental under this
Lease. If Tenant abandons, vacates or surrenders all or any part of the
Premises or is dispossessed of the Premises by process of law, or otherwise, any
movable furniture, equipment, trade fixtures, or other personal property
belonging to Tenant and left on the Premises shall at the option of Landlord be
deemed to be abandoned and, whether or not the property is deemed abandoned,
Landlord shall have the right to remove such property from the Premises and
charge Tenant for the removal and any restoration of the Premises as provided in
Paragraph 8(a). Landlord may charge Tenant for the storage of Tenant's property
left on the Premises at such rates as Landlord may from time to time reasonably
determine, or, Landlord may, at its option,
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store Tenant's property in a public warehouse at Tenant's expense.
Notwithstanding the foregoing, neither the provisions of this Paragraph 17 nor
any other provision of this Lease shall impose upon Landlord any obligation to
care for or preserve any of Tenant's property left upon the Premises, and Tenant
hereby waives and releases Landlord from any claim or liability in connection
with the removal of such property from the Premises and the storage thereof and
specifically waives the provisions of California Civil Code Section 1542 with
respect to such release. Landlord's action or inaction with regard to the
provisions of this Paragraph 17 shall not be construed as a waiver of Landlord's
right to require Tenant to remove its property, restore any damage to the
Building caused by such removal, and make any restoration required pursuant to
Paragraph 8(a) hereof.
18. DEFAULT AND REMEDIES.
(a) The occurrence of any one or more of the following events (each
an "Event of Default") shall constitute a breach of this Lease by Tenant:
(i) Tenant fails to pay any Basic Monthly Rental or additional
monthly rent tinder Paragraph 4(b) hereof as and when such rent becomes due and
payable and such failure continues for more than five (5) days after Landlord
gives written notice thereof to Tenant; or
(ii) Tenant fails to pay any additional rent or other amount of
money or charge payable by Tenant hereunder as and when such additional rent or
amount or charge becomes due and payable and such failure continues for more
than fifteen (15) days after Landlord gives written notice thereof to Tenant; or
(iii) Tenant fails to perform or breaches any other agreement
or covenant of this Lease to be performed or observed by Tenant as and when
performance or observance is due and such failure or breach continues for more
than thirty (30) days after Landlord gives written notice thereof to Tenant;
provided, however, that if, by the nature of such agreement or covenant, such
failure or breach cannot reasonably be cured within such period of thirty (30)
days, an Event of Default shall not exist as long as Tenant commences with due
diligence and dispatch the curing of such failure or breach within such period
of ten (10) days and, having so commenced, thereafter prosecutes with diligence
and dispatch and completes the curing of such failure or breach within a
reasonable time; or
(iv) Tenant (A) is generally not paying its debts as they
become due, (B) files or consents by answer or otherwise to the filing against
it of, a petition for relief or reorganization or arrangement or any other
petition in bankruptcy or for liquidation or to take advantage of any
bankruptcy, insolvency or other debtors' relief law of any jurisdiction, (C)
makes an assignment for the benefit of its creditors, (D) consents to the
appointment of a custodian, receiver, trustee or other officer with similar
powers of Tenant or of any substantial part of Tenant's property, or (E) takes
action for the purpose of any of the foregoing; or
(v) Without consent by Tenant, a court or government authority
enters an order, and such order is not vacated within sixty (60) days, (A)
appointing a custodian,
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receiver, trustee or other officer with similar powers with respect to Tenant or
with respect to any substantial part of Tenant's property, or (B) constituting
an order for relief or approving a petition for relief or reorganization or
arrangement or any other petition in bankruptcy or for liquidation or to take
advantage of any bankruptcy, insolvency or other debtors' relief law of any
jurisdiction, or (C) ordering the dissolution, winding-up or liquidation of
Tenant; or
(vi) This Lease or any estate of Tenant hereunder is levied
upon under any attachment or execution and such attachment or execution is not
vacated within sixty (60) days.
(b) If an Event of Default occurs, Landlord shall have the right at
any time to give a written termination notice to Tenant and, on the date
specified in such notice, Tenant's right to possession shall terminate and this
Lease shall terminate. Upon such termination, Landlord shall have the right to
recover from Tenant:
(i) The worth at the time of award of all unpaid rent which
had been earned at the time of termination;
(ii) The worth at the time of award of the amount by which all
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that Tenant proves could have been
reasonably avoided;
(iii) The worth at the time of award of the amount by which all
unpaid rent for the balance of the term of this Lease after the time of award
exceeds the amount of such rental loss that Tenant proves could be reasonably
avoided; and
(iv) All other amounts necessary to compensate Landlord for all
the detriment proximately caused by Tenant's failure to perform all of Tenant's
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom.
The "worth at the time of award" of the amounts referred to in clauses (i) and
(ii) above shall be computed by allowing interest at the maximum annual interest
rate allowed by law for business loans (not primarily for personal, family or
household purposes) not exempt from the usury law at the time of termination or,
if there is no such maximum annual interest rate, at the rate of twelve percent
(12%) per annum. The "worth at the time of award" of the amount referred to in
clause (iii) above shall be computed by discounting such amount at the discount
rate of the Federal Reserve Bank of San Francisco at the time of award plus one
percent (1%). For the purpose of determining unpaid rent under clauses (i),
(ii) and (iii) above, the rent reserved in this Lease shall be deemed to be the
total rent payable by Tenant under Articles 3 and 4 hereof.
(c) Even though Tenant has breached this Lease, this Lease shall
continue in effect for so long as Landlord does not terminate Tenant's right to
possession, and Landlord shall have all of its rights and remedies, including
the right, pursuant to California Civil Code section 1951.4, to recover all rent
as it becomes due under this Lease. Acts of maintenance or preservation or
efforts to relet the Premises or the appointment of a receiver upon initiative
of
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Landlord to protect Landlord's interest under this Lease shall not constitute a
termination of Tenant's right to possession unless written notice of termination
is given by Landlord to Tenant.
(d) The remedies provided for in this Lease are in addition to all
other remedies available to Landlord at law or in equity by statute or
otherwise.
19. DAMAGE BY FIRE OR OTHER CASUALTY.
(a) If the Premises are partially destroyed or damaged by fire or
other casualty, Landlord shall, subject to Paragraph 19(b), 19(c), 19(d) and
19(e) below, promptly repair such damage if, in Landlord's judgment, such repair
can be completed within one hundred eighty (180) days under the laws and
regulations of the state, federal, county and municipal authorities having
jurisdiction, and this Lease shall remain in full force and effect, provided
that if there shall be damage to the Premises from any such cause and such
damage is not the result of the act, neglect, default or omission of Tenant, its
agents, employees, contractors or invitees, Tenant shall be entitled to a
reduction of Basic Monthly Rental while such repair is being made in the
proportion that the area of the Premises rendered untenantable by such damage
bears to the total area of the Premises. Tenant's right to a reduction of Basic
Monthly Rental under this Paragraph 19 shall be Tenant's sole remedy in
connection with any such damage.
(b) If such repairs cannot, in Landlord's judgment, be completed
within one hundred eighty (180) days, or if such damage occurs during the last
six (6) months of the term of this Lease, Landlord shall have the option either
(i) to repair such damage, this Lease continuing in full force and effect, but
with the Basic Monthly Rental proportionately reduced (subject to the condition
set forth in Paragraph 19(a) above), or (ii) to give notice to Tenant at any
time within thirty (30) days after the occurrence of such damage terminating
this Lease as of a date specified in such notice, which shall not be less than
thirty (30) nor more than sixty (60) days after the giving of such notice. If
such notice of termination is so given, the Lease and all interest of Tenant in
the Premises shall terminate on the date specified in such notice, and the Basic
Monthly Rental, reduced (subject to the condition set forth in Paragraph 19(a)
above) in proportion to the area of the Premises rendered untenantable by the
damage, shall be paid up to the date of such termination, Landlord hereby
agreeing to refund to Tenant any Rental theretofore paid for any period of time
subsequent to the termination date.
(c) If the Building is damaged by fire or other casualty to the
extent that (i) the repair cost would exceed twenty percent (20%) or more of its
replacement value, (ii) if more than twenty percent (20%) of the rentable area
of the Building is affected by fire or other casualty and repairs to the
Building cannot, in Landlord's judgment, be completed within one hundred eighty
(180) days, or (iii) if the uninsured or underinsured portion of such loss
exceeds ten percent (10%) of the Replacement Cost of the Building, then in any
such case, whether the Premises are damaged or not, Landlord shall have the
right, at its option, to terminate this Lease by giving Tenant notice thereof
within thirty (30) days of such casualty specifying the date of termination
which shall not be less than thirty (30) nor more than sixty (60) days after the
giving of such notice.
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(d) If the Premises are damaged by fire or other casualty not
resulting in whole or in part from the negligence or willful misconduct of
Tenant or its employees, agents, contractors or subtenants and the repair to the
Premises cannot, in Landlord's judgment, be completed within one hundred eighty
(180) days, assuming the availability of labor and materials; Tenant at its
option may terminate this Lease. Tenant's notice to Landlord of its election to
terminate the Lease under (i) or (ii) above must be delivered to Landlord within
thirty (30) days after the occurrence of such damage, and the termination shall
be as of a date specified in such notice which shall be no less than thirty (30)
nor more than sixty (60) days after the giving of such notice. In the event of
a termination of the Lease by Tenant under this Paragraph 19(d), the Basic
Monthly Rental shall be reduced in the same manner as provided under Paragraph
19(b) above. If Tenant shall notify Landlord as to Tenant's election to
terminate this Lease, Landlord shall have the right by giving Tenant notice
within twenty (20) days of Tenant's election, to relocate Tenant in
substantially similar office space in the Building or in another office building
in the general vicinity of the Building within thirty (30) days of the date of
Tenant's notice to Landlord and the Lease will then not be deemed to have been
terminated. If Landlord so elects to relocate Tenant, Landlord shall bear the
cost of moving Tenant to such other office space, and Tenant shall continue to
pay Basic Monthly Rental and other Rental to Landlord as provided herein and
Landlord shall bear the cost of any rental in excess thereof for such other
office space. Tenant's occupancy of such other office space shall not exceed
one (1) year from the commencement of such occupancy. In the event Landlord
cannot complete repairs to the Premises within one (1) year from the date of
Tenant's commencement of occupancy in such other office space, Landlord shall
notify Tenant in writing not later than sixty (60) days prior to the expiration
of such one-year period and upon expiration of such one-year period, this Lease
shall terminate. In the event Landlord can complete such repairs within such
one-year period, Landlord shall so notify Tenant in writing and shall move
Tenant back into the Premises as soon as practicable after such repairs have
been completed. The cost of moving Tenant back into the Premises shall be borne
by Landlord.
(e) Notwithstanding any of the provisions of this Lease, Landlord
shall in no event be required to repair any injury or damage by fire or other
cause whatsoever to, or to make any repairs or replacements of, any panelings,
decorations, partitions, railings, ceilings, floor coverings, trade or office
fixtures or any other property of, or improvements (including Tenant's Extra
Improvements and any Alterations) installed on the Premises by or at the
election of Tenant. Tenant hereby agrees to promptly repair any damage to
Tenant's Extra Improvements and any Alterations at its sole cost and expense in
the event that Landlord is required to, or elects to, repair the remainder of
the Premises pursuant to Paragraphs 19(a) and 19(b) above.
(f) Tenant hereby waives the provisions of subsection 2 of Section
1932, subsection 4 of Section 1933, and Sections 1941 and 1942 of the California
Civil Code.
20. EMINENT DOMAIN.
(a) If all or part of the Premises shall be taken by any public or
quasi-public authority under the power of eminent domain or conveyance in lieu
thereof, this Lease shall terminate as to any portion of the Premises so taken
or conveyed on the date when title or the right to possession vests in the
condemnor.
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(b) If (i) a part of the Premises shall be taken by any public or
quasi-public authority under the power of eminent domain or conveyance in lieu
thereof; and (ii) Tenant is reasonably able to continue the operation of
Tenant's business in that portion of the Premises remaining; and (iii) Landlord
elects to restore the Premises to an architectural whole, then this Lease shall
remain in effect as to said portion of the Premises remaining, and the Basic
Monthly Rental payable from the date of the taking shall be reduced in the same
proportion as the area of the Premises taken bears to the total area of the
Premises. If, after a partial taking, Tenant is not reasonably able to continue
the operation of its business in the Premises or Landlord elects not to restore
the Premises as hereinabove described, this Lease may be terminated by either
Landlord or Tenant by giving written notice to the other party within thirty
(30) days of the date of the taking. Such notice shall specify the date of
termination which shall be not less than thirty (30) nor more than sixty (60)
days after the date of said notice.
(c) If a portion of the Building is taken, whether any portion of the
Premises is taken or not, and Landlord determines that it is not economically
feasible to continue operating the portion of the Building remaining, then
Landlord shall have the option for a period of thirty (30) days after such
determination to terminate this Lease. If Landlord determines that it is
economically feasible to continue operating the portion of the Building
remaining after such taking, then this Lease shall remain in effect, with
Landlord, at Landlord's cost, restoring the Building to an architectural whole.
(d) Landlord shall be entitled to any and all payment, income, rent,
award, or any interest therein whatsoever which may be paid or made in
connection with such taking or conveyance, and Tenant shall have no claim
against Landlord or otherwise for the value of any unexpired term of this Lease
or for the value of any improvements in or to the Premises. Tenant hereby
assigns any such claim to the Landlord. Notwithstanding the foregoing, to the
extent that the same shall not diminish Landlord's recovery for such taking,
Tenant shall have the right to make a claim directly to the entity expressing
the power of eminent domain for moving expenses and for loss or damage to
Tenant's trade fixtures, equipment and movable furniture.
(e) Tenant hereby waives sections 1265.110 through 1265.160 of the
California Code of Civil Procedure.
21. HOLDING OVER.
Any holding over after the expiration or other termination of the term
of this Lease with the written consent of Landlord delivered to Tenant shall be
construed to be a tenancy from month to month at the Basic Monthly Rental in
effect on the date of such expiration or termination (subject to adjustment as
provided in Paragraph 3(c) hereof) on the terms, covenants and conditions herein
specified so far as applicable. Any holding over after the expiration or other
termination of the term of this Lease without the written consent of Landlord
shall be construed to be a tenancy at sufferance on all the terms set forth
herein, except that the Basic Monthly Rental shall be an amount equal to one
hundred fifty percent (150%) of the Basic Monthly Rental payable by Tenant
immediately prior to such holding over. Acceptance by Landlord of Rental after
the expiration or termination of this Lease shall not constitute a consent by
Landlord to any such tenancy from month to month or result in any other tenancy
or any
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renewal of the term hereof. The provisions of this Paragraph are in addition to,
and do not affect, Landlord's right to re-entry or other rights hereunder or
provided by law.
22. OMITTED.
23. MISCELLANEOUS.
(a) Limitation of Landlord's Liability. Any liability of Landlord
----------------------------------
(including without limitation Landlord's partners, shareholders, affiliates,
agents, and employees) to Tenant under this Lease shall be limited to the equity
interest of Landlord in the Building including Landlord's rights to rents from
and insurance proceeds for the Building, and Tenant agrees to look solely to
such interest for the recovery of any judgment, it being intended that Landlord
and such other persons shall not be personally liable for any deficiency or
judgment. Notwithstanding any other provision of this Lease, Landlord shall not
be liable for any consequential damages, nor shall Landlord be liable for loss
of or damage to artwork, currency, jewelry, bullion, unique or valuable
documents, securities or other valuables, or for other property not in the
nature of ordinary fixtures, furnishings and equipment used in general
administrative and executive office activities and functions. Wherever in this
Lease Tenant (a) releases Landlord from any claim or liability, (b) waives or
limits any right of Tenant to assert any claim against Landlord or to seek
recourse against any property of Landlord or (c) agrees to indemnify Landlord
against any matters, the relevant release, waiver, limitation or indemnity shall
run in favor of and apply to Landlord, its agents, the constituent shareholders,
partners or other owners of Landlord or its agents, and the directors, officers,
and employees of Landlord and its agents and each such constituent shareholder,
partner or other owner.
(b) Sale by Landlord. In the event of a sale or conveyance of the
----------------
Building by any owner of the reversion then constituting Landlord, the
transferor shall thereby be released from any liability accruing thereafter upon
any of the terms, covenants or conditions (express or implied) herein contained
in favor of Tenant, and in such event, insofar as such transferor is concerned,
Tenant agrees to look solely to the successor in interest of such transferor in
and to the Building and this Lease. Tenant agrees to attorn to the successor in
interest of such transferor. If Tenant provides Landlord with any security for
Tenant's performance of its obligations hereunder, and Landlord transfers, or
provides a credit with respect to, such security to the grantee or transferee of
Landlord's interest in the Real Property, Landlord shall be released from any
further responsibility or liability for such security.
(c) Estoppel Letter. Tenant shall, at any time and from time to time
---------------
within ten (10) days following request from Landlord, execute, acknowledge and
deliver to Landlord a statement in writing, (i) certifying that this Lease is
unmodified and in full force and effect (or, if modified, stating the nature of
such modification and certifying that this Lease as so modified is in full force
and effect), (ii) certifying that there are not, to Tenant's knowledge, any
uncured defaults on the part of the Landlord hereunder, and that Tenant has no
defenses to or offsets against its obligations under this Lease, or specifying
such defaults, defenses or offsets if any are claimed, (iii) certifying the date
that Tenant entered into occupancy of the Premises and that Tenant is open for
business in the Premises, (iv) certifying the amount of the Basic Monthly Rental
and the Rental payable under Paragraph 4(b) and the date to which Rental is paid
in
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<PAGE>
advance, if any, and certifying that Tenant is entitled to no rent abatement or
other economic concessions not specified in the Lease (v) evidencing the status
of this Lease as may be required either by a lender making a loan affecting, or
a purchaser of, the Premises, the Building, the Real Property or any interest
therein from Landlord, (vi) certifying the amount of the Deposit, if any, (vii)
certifying that all Improvements to be constructed in the Premises by Landlord
are completed (or specifying any obligations of Landlord respecting
Improvements), and (viii) certifying such other matters relating to this Lease
and/or the Premises as may be requested by a lender making a loan to Landlord or
a purchaser of the Premises, the Building, the Real Property or any interest
therein from Landlord. Any such statement may be relied upon by, and shall upon
Landlord's request be addressed to, any prospective purchaser or encumbrancer of
all or any portion of the Real Property or any interest therein. Tenant shall,
within ten (10) days following request of Landlord, deliver such other documents
including Tenant's financial statements as are reasonably requested in
connection with the sale of, or loan to be secured by, the Real Property or any
part thereof or interest therein. Tenant's failure to deliver said statement in
the time required shall be conclusive upon Tenant that: (i) the Lease is in full
force and effect, without modification except as may be represented by Landlord,
(ii) there are no uncured defaults in Landlord's performance and Tenant has no
right of offset, counterclaim or deduction against Rental under the Lease and
(iii) no more than one month's Basic Monthly Rental has been paid in advance.
(d) Financial Statements. On or before April 1 of each year
--------------------
throughout the Term, Tenant shall deliver to Landlord Tenant's financial
statements ("Financial Statements") for the fiscal year of Tenant ended on the
previous December 31, which Financial Statements shall include a combined
balance sheet of Tenant and its combined subsidiaries as at the end of such
fiscal year, a combined statement of operations of Tenant and its combined
subsidiaries for such fiscal year, and a certificate of Tenant's auditor (or, if
audited Financial Statements are not available, then a certificate of Tenant's
Chief Financial Officer) to the effect that such Financial Statements were
prepared in accordance with generally accepted accounting principles
consistently applied and fairly present the financial condition and operations
of Tenant and its combined subsidiaries for and as at the end of such fiscal
year.
(e) Right of Landlord To Perform. All terms and covenants of this
----------------------------
Lease to be performed or observed by Tenant shall be performed or observed by
Tenant at Tenant's expense and without any reduction of Rental. If Tenant fails
to pay any Rental hereunder or fails to perform any other term or covenant
hereunder on its part to be performed, and such failure shall continue beyond
any applicable cure period provided herein, (or such shorter period as may be
reasonable under emergency circumstances) after written notice thereof by
Landlord, Landlord, without waiving or releasing Tenant from any obligation of
Tenant hereunder, may make any such payment or perform any such other term or
covenant on Tenant's part to be performed but shall not be obligated to do so.
All sums so paid by Landlord and all necessary costs of such performance by
Landlord, together with interest thereon at the Interest Rate from the date of
such payment or performance by Landlord, shall be paid (and Tenant covenants to
make such payment) to Landlord on demand by Landlord, and Landlord shall have
(in addition to any other right or remedy of Landlord) the same rights and
remedies in the event of nonpayment thereof by Tenant as in the case of failure
by Tenant in the payment of Rental hereunder.
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(f) Rules and Regulations. Tenant agrees to faithfully observe and
---------------------
to comply with the Building Rules and Regulations attached hereto as Exhibit B
and incorporated herein by this reference, and all non-discriminatory
modifications of and additions thereto from time to time put into effect by
Landlord which are applicable to all tenants of the Building and of which Tenant
shall have notice, and which do not impose unreasonable additional costs upon
Tenant. Landlord shall not be responsible to Tenant for the non-performance by
any other tenant or occupant of the Building of any of said Building Rules and
Regulations. In the event any of the Building Rules and Regulations conflict
with any express provision of this Lease, the provisions of this Lease shall
govern.
(g) Attorneys' Fees. In case any suit or other proceeding shall be
---------------
brought for an unlawful detainer of the Premises or for the recovery of any
Rental due under the provisions of this Lease or because of the failure of
performance or observance of any other term or covenant herein contained on the
part of Landlord or Tenant, the unsuccessful party in such suit or proceeding
shall pay to the prevailing party therein reasonable attorneys' fees and costs
which shall include fees and costs of any appeal, all as fixed by the Court. If
Landlord or Tenant should be named as a defendant in any suit brought against
the other in connection with Tenant's occupancy of the Premises under this
Lease, the party defendant primarily responsible for the bringing of such suit
shall pay to the other party its costs and expenses incurred in such suit and
reasonable attorneys' fees.
(h) Waiver of Jury Trial. If any action or proceeding between
--------------------
Landlord and Tenant to enforce the provisions of this Lease (including an action
or proceeding between Landlord and the trustee or debtor in possession while
Tenant is a debtor in a proceeding under any bankruptcy law) proceeds to trial,
Landlord and Tenant hereby waive their respective rights to a jury in such
trial.
(i) Waiver. The failure of either party to object to or to assert
------
any remedy by reason of the other's failure to perform or observe any covenant
or term hereof or its failure to assert any rights by reason of the happening or
non-happening of any condition hereof shall not be deemed a waiver of its right
to assert and enforce any remedy it may have by reason of such failure on the
part of such party or the happening or non-happening of such condition or a
waiver of its rights to enforce any of its rights by reason of any subsequent
failure of such party to perform or observe the same or any other term or
covenant or by reason of the subsequent happening or non-happening of the same
or any other condition. No custom or practice which may develop between the
parties hereto during the term hereof shall be deemed a waiver of; or in any way
affect, the right of either party to insist upon performance and observance by
the other party in strict accordance with the terms hereof. The acceptance of
Rental hereunder by Landlord shall not be deemed to be a waiver of any preceding
failure of Tenant to perform or observe any term or covenant of this Lease,
other than the failure of Tenant to pay the particular Rental so accepted,
irrespective of any knowledge on the part of Landlord of such preceding failure
at the time of acceptance of such Rental.
(j) Light, Air and View. Tenant agrees that no diminution or
-------------------
shutting off of light, air or view by any structure which may be erected
(whether or not by Landlord) on property
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<PAGE>
adjacent to the Building shall in any way affect this Lease, entitle Tenant to
any reduction of Rental hereunder or result in any liability of Landlord to
Tenant.
(k) Notices. All notices, demands, requests, advices or designations
-------
("Notices") which may be or are required to be given by either party to the
other hereunder shall be in writing. All Notices by Landlord to Tenant shall be
sufficiently given, made or delivered if personally served on Tenant by leaving
the same at Tenant's address for notices, or if sent by United States certified
or registered mail, postage prepaid, addressed to Tenant at Tenant's address for
notices as set forth in the Summary of Lease Terms. All Notices by Tenant to
Landlord shall be sufficiently given, made or delivered if personally served on
Landlord, or sent by United States certified or registered mail, postage
prepaid, addressed to Landlord at Landlord's address for notices specified in
Paragraph B of the Summary of Lease Terms. Each Notice shall be deemed received
on the date of the personal service or three (3) days after the mailing thereof,
in the manner herein provided, as the case may be. Either party may change its
address for purposes of receiving notices by notifying the other party of such
change in writing, in accordance with the provisions of this Paragraph 23(k).
(l) Name. Tenant agrees that it shall not, without first obtaining
----
the written consent of Landlord (which consent may be withheld in Landlord's
sole and absolute discretion): (i) use the name of the Building for any purpose
other than as the address of the business conducted by Tenant in the Premises,
or (ii) use for any purpose any image of, rendering of, or design based on, the
exterior appearance or profile of the Building.
(m) Governing Law; Severability. This Lease shall in all respects be
---------------------------
governed by and construed in accordance with the laws of California. Any
provision of this Lease shall be invalid, unenforceable or ineffective for any
reason whatsoever, all other provisions hereof shall be and remain in effect.
(n) Definitions and Paragraph Headings; Successors. The words
----------------------------------------------
"include," "includes" and "including" shall be deemed to be followed by the
phrase "without limitation." The term "Landlord" or any pronoun used in place
thereof includes the plural as well as the singular and the successors and
assigns of Landlord. The term "Tenant" or any pronoun used in place thereof
includes the plural as well as the singular and individuals, firms,
associations, partnerships and corporations, and their and each of their
respective heirs, executors, administrators, successors and permitted assigns,
according to the context hereof. The provisions of this Lease shall inure to the
benefit of and bind Landlord and Tenant and their respective heirs, executors,
administrators, successors and permitted assigns. The term "person" includes the
plural as well as the singular and individuals, firms, associations,
partnerships and corporations. Words used in any gender include other genders.
If there be more than one Tenant the obligations of Tenant hereunder are joint
and several. The paragraph headings of this Lease are for convenience of
reference only and shall have no effect upon the construction or interpretation
of any provision hereof.
(o) Time. Time is of the essence of this Lease with respect to the
----
payment of Rental and the performance of all obligations.
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(p) Examination of Lease. Submission of this instrument for
--------------------
examination or signature by Tenant does not constitute a reservation of or
option for a lease, and this instrument is not effective as a lease or otherwise
until its execution and delivery by both Landlord and Tenant.
(q) Brokerage. Except for the Broker listed in Paragraph J of the
---------
Summary of Lease Terms, Tenant agrees to protect, defend, indemnify and hold
Landlord harmless from any and all claims, loss, cost, damage and/or expense
(including, without limitation, attorneys' fees and court costs) by any real
estate broker or salesperson or other entity or party for a commission or
finder's fee as a result of Tenant's entering into this Lease.
(r) Directory Board . Landlord agrees to list Tenant's name on the
---------------
directory board in the lobby of the Building, and on the Building standard
signage in the elevator lobby, at Landlord's cost and expense; provided,
however, any change to the initial listing or any additional listings shall be
at Tenant's cost and expense. Landlord's acceptance of any name for listing on
the directory board or the standard signage shall in no event be, or be deemed
to be, nor will it substitute for, Landlord's consent, as required by this
Lease, to any sublease, assignment, or other occupancy of the Premises.
(s) Authority. If Tenant is a corporation (or other business
---------
organization), Tenant and each person executing this Lease on behalf of Tenant
represents and warrants to Landlord that (a) Tenant is duly incorporated (or
organized) and validly existing under the laws of its state of incorporation (or
organization), (b) Tenant is qualified to do business in California, (c) Tenant
has full right, power and authority to enter into this Lease and to perform all
of Tenant's obligations hereunder, and (d) the execution, delivery and
performance of this Lease has been duly authorized by Tenant and each person
signing this Lease on behalf of the Tenant is duly and validly authorized to do
so. Concurrently with signing this Lease, Tenant shall deliver to Landlord a
true and correct copy of resolutions duly adopted by the board of directors or
constituent partners or members of Tenant, certified by the secretary of Tenant
to be true and correct, unmodified and in full force, which authorize and
approve this Lease and authorize each person signing this Lease on behalf of
Tenant to do so.
(t) Amendments. This Lease may not be amended or modified in any
----------
respect whatsoever except by an instrument in writing signed by Landlord and
Tenant.
(u) Signage. Tenant shall have the non-exclusive right to install
-------
exterior and lobby signage at its expense, subject to Landlord's prior approval
and all applicable laws.
(v) Exhibits and Addenda; Entire Agreement. The Exhibits and Addenda
--------------------------------------
referenced in the Summary of Lease Terms are a part of this Lease and are
incorporated herein by this reference. In the event of any discrepancy between
the Lease and any such Exhibit or Addendum, the Exhibit or Addendum shall
control. This Lease is the entire and integrated agreement between Landlord and
Tenant with respect to the subject matter of this Lease, the Premises and the
Building. There are no oral agreements between Landlord and Tenant affecting
this Lease, and this Lease supersedes and cancels any and all previous
negotiations, arrangements, brochures, offers, agreements and understandings,
oral or written, if any, between
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Landlord and Tenant or displayed by Landlord to Tenant with respect to the
subject matter of this Lease, the Premises or the Building. There are no
representations between Landlord and Tenant or between any real estate broker
and Tenant other than those expressly set forth in this Lease and all reliance
with respect to any representations is solely upon representations expressly set
forth in this Lease.
24 OPTION TO EXTEND.
Landlord hereby grants to Tenant one (1) option (the "Option") to
extend the term of the Lease for an additional period of five (5) years (the
"Option Term"), all on the following terms and conditions:
(a) The Option must be exercised, if at all, by written notice
irrevocably exercising the Option ("Option Notice") delivered by Tenant to
Landlord no later than twelve (12) months prior to the Expiration Date. Further,
the Option shall not be deemed to be properly exercised if, as of the date of
the Option Notice or at the Expiration Date (i) an Event of Default has occurred
and is continuing, (ii) Tenant has transferred this Lease or its interest
therein to a transferee and pursuant to Paragraph 12(i), the Option rights do
not run to such Transferee, or (iii) Tenant and/or its Affiliates is occupying
less than 50% of the square footage of the Premises. Provided Tenant has
properly and timely exercised the Option, the term of this Lease shall be
extended for the period of the Option Term and all terms, covenants and
conditions of this Lease shall remain unmodified and in full force and effect,
except that the Basic Monthly Rental shall be modified as set forth in
Paragraphs 24(b) below.
(b) The Basic Monthly Rental per rentable square foot ("RSF") payable
for the Option Term shall be equal to the then-current net rental rate per RSF
(as further defined below, "FMRR") being agreed to in new leases by the Landlord
or the owner ("Comparable Landlords") of office buildings in the South of Market
District of San Francisco which are comparable in quality, location and prestige
to the Building (the "Comparable Building") and tenants leasing space in the
Building or the Comparable Building or the monthly rental payable by Tenant
during the final month of the initial Term, whichever is greater. As used
herein, `FMRR" shall mean the net rental rate per RSF for which Landlord and
Comparable Landlords are entering into new leases within the time period of
fifteen (15) to nine (9) months prior to the Expiration Date ("Market
Determination Period"), with new tenants leasing from Landlord and/or Comparable
Landlords office space in the Building and/or the Comparable Building which
space is comparable to the Premises ("Comparative Transactions"). Landlord shall
provide its determination of the FMRR to Tenant on the later to occur of
fourteen (14) months prior to the Expiration Date or twenty (20) days after
Landlord receives the Option Notice. Tenant shall have fifteen (15) days
("Tenant's Review Period") after receipt of Landlord's notice of the FMRR within
which to accept such FMRR or to reasonably object thereto in writing. In the
event Tenant objects to the FMRR submitted by Landlord, Landlord and Tenant
shall attempt to agree upon such FMRR. If Landlord and Tenant fail to reach
agreement on such FMRR within fifteen (15) days following Tenant's Review Period
(the "Outside Agreement Date"), then each party shall place in a separate sealed
envelope its final proposal as to FMRR and such determination shall be submitted
to arbitration in accordance with Paragraph 24(c) below.
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(c) (1) Landlord and Tenant shall meet with each other within five
(5) business days of the Outside Agreement Date and exchange the sealed
envelopes and then open such envelopes in each other's presence. If Landlord and
Tenant do not mutually agree upon the FMRR within one (1) business day of the
exchange and opening of envelopes, then, within ten (10) business days of the
exchange and opening of envelopes, Landlord and Tenant shall agree upon and
jointly appoint one arbitrator who shall be by profession be a real estate
appraiser or broker who shall have been active over the five (5) year period
ending on the date of such appointment in the leasing of comparable commercial
properties in the vicinity of the Building. Neither Landlord nor Tenant shall
consult with such broker or appraiser as to his or her opinion as to FMRR prior
to the appointment. The determination of the arbitrator shall be limited solely
to the issue of whether Landlord's or Tenant's submitted FMRR for the Premises
is the closer to the actual net rental rate per RSF for new leases within the
Market Determination Period for Comparative Transactions. Such arbitrator may
hold such hearings and require such briefs as the arbitrator, in his or her sole
discretion, determines is necessary. In addition, Landlord or Tenant may submit
to the arbitrator with a copy to the other party within five (5) business days
after the appointment of the arbitrator any data and additional information that
such party deems relevant to the determination by the arbitrator ("Data") and
the other party may submit a reply in writing within five (5) business days
after receipt of such Data.
(2) The arbitrator shall, within thirty (30) days of his or her
appointment, reach a decision as to whether the parties shall use Landlord's or
Tenant's submitted FMRR, and shall notify Landlord and Tenant of such
determination.
(3) The decision of the arbitrator shall be binding upon Landlord and
Tenant.
(4) If Landlord and Tenant fail to agree upon and appoint such
arbitrator, then the appointment of the arbitrator shall be made by the
Presiding Judge of the Superior Court for the City and County of San Francisco,
or, if he or she refuses to act, by any judge having jurisdiction over the
parties.
(5) The cost of arbitration shall be paid by Landlord and Tenant
equally.
25. RIGHT OF FIRST OFFER.
(a) Subject to the conditions set forth in this Paragraph 25, Tenant
shall have a right of first offer to lease all or any portion of the south one-
half of the third floor of the Building, (the "First Offer Space"), in the event
the First Offer Space becomes available for lease to third parties during the
first twenty-four (24) months of the Term. Prior to leasing the First Offer
Space to a third party, Landlord will give notice to Tenant (an "Offering
Notice") specifying Landlord's good faith estimate of (i) the Basic Monthly Rent
which Landlord proposes to charge for the First Offer Space, (ii) the
approximate date upon which the First Offer Space is anticipated to be available
for delivery (which shall be not less than two (2) months after the date of the
Offering Notice), and (iii) any other material conditions or provisions relating
to the leasing of the First Offer Space which vary from the provisions of this
Lease including market concessions and allowances. If Tenant wishes to lease the
First Offer Space on the terms specified by Landlord in the Offering Notice,
Tenant shall so notify Landlord within five (5) days
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after receipt thereof, which notice shall be unconditional and irrevocable.
Tenant may exercise its right of first offer only with respect to all of the
First Offer Space identified in the Offering Notice. Tenant acknowledges that
the First Offer Space shall not be "available for lease" for purposes hereof so
long as Landlord is negotiating with the existing tenant of the First Offer
Space.
(b) If Tenant timely exercises its right to lease the First Offer
Space, and provided Landlord determines in its sole discretion that Tenant's
financial condition is satisfactory to it and the Holder of any Superior
Interest, then except as specified in this Paragraph or in the Offering Notice
(which shall govern to the extent of any conflict with this Lease), the First
Offer Space shall become a portion of the Premises on all of the terms and
conditions of this Lease for the remainder of the Term (including any Renewal
Term), provided that (i) Basic Monthly Rent for the First Offer Space shall be
determined as specified above, (ii) Tenant's Proportionate Share of Operating
Expenses and Real Property Taxes shall be adjusted to reflect the addition of
the First Offer Space, and (iii) the First Offer Space shall be delivered in its
then existing "as is" condition, without obligation on the part of Landlord to
make any repairs or construct any improvements to the First Offer Space in
connection with Tenant's contemplated use, or to demolish existing improvements
therein, and Tenant shall be responsible for the construction and installation
in accordance with the provisions of Article 6 hereof of any tenant improvements
it desires to install within the First Offer Space, at Tenant's sole cost and
expense. Tenant shall commence paying Basic Monthly Rent and all additional
Rental with respect to the First Offer Space on the date of delivery of the
First Offer Space to Tenant. Landlord shall promptly prepare and Landlord and
Tenant shall promptly execute an amendment to this Lease reflecting the addition
of the First Offer Space. Tenant's right of first offer under this Paragraph 26
shall be a one-time right as to the First Offer Space. If Tenant fails to timely
notify Landlord that it wishes to lease the First Offer Space, or if Tenant
fails to execute and deliver said lease amendment to Landlord within five (5)
days following receipt thereof by Tenant, Landlord may thereafter lease the
First Offer Space to any person on terms and conditions it may deem appropriate,
including terms and conditions up to ten percent (10%) more favorable than the
terms and conditions set forth in the Offering Notice, and Tenant shall have no
further rights with respect to the First Offer Space, either at such time or at
any future time, unless the terms become more than ten percent (10%) more
favorable in which case Landlord must again offer the space to Tenant.
(c) If Tenant timely exercises its right to lease the First Offer
Space, and Landlord fails to deliver possession of all or any portion of the
First Offer Space to Tenant on or before the scheduled date for delivery of
possession for any reason, this Lease shall not be void or voidable and except
as herein provided Landlord shall not be deemed in default or otherwise liable
to Tenant for any claims, damages, or liabilities in connection therewith or by
reason thereof, but Tenant shall have no obligation to pay Basic Monthly Rent or
Tenant's Share of Operating Expenses or Real Estate Taxes with respect to the
First Offer Space until possession of the First Offer Space has been delivered
to Tenant. Notwithstanding anything to the contrary set forth herein if Tenant
is in default under this Lease beyond applicable notice and cure periods at the
time an Offering Notice would otherwise be required to be sent under this
Paragraph 25, Landlord shall have, in addition to any other remedies, the right
to terminate Tenant's exercise of an option under this Paragraph 25, and in such
event for the duration of such Event of Default
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<PAGE>
until same is cured, Landlord shall not be required to deliver the Offering
Notice or to deliver possession of the First Offer Space to Tenant. If not
earlier terminated, the rights of Tenant pursuant to this Paragraph 25 shall
automatically terminate upon the Expiration Date.
26. PARKING.
(a) Upon payment of the parking rental being charged therefor from
time to time, which for the first twelve (12) months of the Term shall not
exceed $200.00 per month per stall, Tenant shall have the right to the
nonexclusive use of the number of parking spaces in the Building Parking Lot
("Parking Lot") which represents its pro rata share (based upon the rentable
area of the Premises) of the rentable area of the Building, but not less than
one parking space per 1,000 rentable square feet in the Premises. In the event
additional parking spaces become available during the term of this Lease,
Landlord will offer such spaces to Tenant on the same terms and conditions. The
use of such spaces shall be for the parking of motor vehicles used by Tenant,
its officers, employees and customers only, and shall be subject to all
reasonable, uniform and non-discriminatory applicable laws and the rules and
regulations adopted by Landlord from time to time for the use of the Parking
Lot. The parking rental payable by Tenant hereunder shall include all taxes
imposed on the use of the parking spaces by any governmental or quasi-
governmental authority, and such rental may be increased by Landlord at any time
and from time to time; provided, however, the monthly parking rental rates
charged to Tenant from time to time shall not exceed the prevailing monthly
rates being charged generally to comparable users of such parking facilities;
further provided, annual increases shall not exceed five percent (5%) per year.
Parking rentals shall be due and payable in advance, as additional rent, on the
first day of each month during which parking spaces are leased hereunder. Tenant
may decrease the number of parking spaces leased from time to time upon sixty
(60) days prior written notice to Landlord or Landlord's designated parking
operator, provided that any such decrease shall constitute an irrevocable
relinquishment of Tenant's rights to such parking spaces. Parking Spaces may not
be assigned or transferred separate and apart from this Lease, and upon the
expiration or earlier termination of this Lease, Tenant's rights with respect to
all leased parking spaces shall immediately terminate. Tenant and its agents,
employees, contractors, invitees or licensees shall not unreasonably interfere
with the rights of Landlord or others entitled to similar use of the Parking
Lot. Access to the Parking Lot will generally be available on a 24-hour per day
basis.
(b) The Parking Lot shall be subject to the reasonable control and
management of Landlord, who may, from time to time, establish, modify and
enforce reasonable, uniform and non-discriminatory rules and regulations with
respect thereto. Landlord reserves the right to change, reconfigure, or
rearrange the parking areas, to reconstruct or repair any portion thereof, and
to restrict the use of any parking areas and do such other acts in and to such
areas as Landlord deems necessary or desirable without such actions being deemed
an eviction of Tenant or a disturbance of Tenant's use of the Premises and
without Landlord being deemed in default hereunder; provided that Landlord shall
use commercially reasonable efforts to minimize (to the extent consistent with
Applicable Laws) the extent and duration of any resulting interference with
Tenant's parking rights and in no event shall Tenant pay any rent for such
parking stalls while its use of same is materially affected. Landlord may, in
its sole discretion, convert the
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<PAGE>
parking facilities to a reserved and/or controlled parking facility, or operate
the parking facility (or a portion thereof) as a tandem, attendant assisted
and/or valet parking facility.
(c) If parking spaces are not assigned pursuant to the terms of this
Lease, Landlord reserves the right at any time to assign parking spaces in a
reasonable manner, and Tenant shall thereafter be responsible to insure that its
employees park in the designated areas. Tenant shall, if requested by Landlord,
comply with all reasonable parking practices and otherwise furnish Landlord with
such information as Landlord reasonably requests. Landlord shall not be liable
for any damage of any nature to, or any theft of, vehicles, or contents thereof,
in or about the Parking Lot. At Landlord's request, Tenant shall cause its
employees and agents using Tenant's parking spaces to execute an agreement
confirming the foregoing.
27. QUIET ENJOYMENT.
Landlord represents that ii has fee simple title to the Property and
has full power and authority to make this Lease. Landlord hereby leases the
Premises to Tenant and Tenant hereby accepts the same from Landlord, in
accordance with the provisions of this Lease. Subject to the terms hereof,
Landlord covenants that Tenant shall have peaceful and quiet enjoyment of the
Premises during the Term of this Lease.
IN WITNESS WHEREOF, Landlord and Tenant have executed and delivered this
Lease as of the day and year first above written.
LANDLORD:
--------
SKS BRANNAN ASSOCIATES, LLC, a Delaware limited
liability company
By SKS Investments LLC, a Delaware limited
liability company, Member
By: /s/ Paul Stein
-----------------------------------
Paul Stein
-------------------, Member
TENANT:
------
NETCENTIVES INC., a California corporation
By: /s/ John F. Longinotti
----------------------------------------
Name: J F Longinotti
---------------------------------
Title: SVP, CFO
---------------------------------
By: ________________________________________
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<PAGE>
Name:___________________________________
Title:__________________________________
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<PAGE>
EXHIBIT B
BUILDING RULES AND REGULATIONS
1. Sidewalks, halls, passages, exits, entrances, elevators, escalators
and stairways shall not be obstructed by tenants or used by them for any purpose
other than for ingress to and egress from their respective premises. The halls,
passages, exits, entrances, elevators, escalators and stairways are not for the
use of the general public and Landlord shall in all cases retain the right to
control and prevent access thereto by all persons whose presence, in the
judgment of Landlord, would be prejudicial to the safety, character, reputation
and interests of the Building and its tenants.
2. No sign, placard, picture, name, advertisement or notice, visible from
the exterior of leased premises shall be inscribed, painted, affixed or
otherwise displayed by any tenant either on its premises or any part of the
Building without the prior written consent of Landlord, and Landlord shall have
the right to remove any such sign, placard, picture, name, advertisement, or
notice without notice to and at the expense of the tenant.
If Landlord shall have given such consent to any tenant at any time,
whether before or after the execution of the Lease, such consent shall in no way
operate as a waiver or release of any of the provisions hereof or of such Lease,
and shall be deemed to relate only to the particular sign, placard, picture,
name, advertisement or notice so consented to by Landlord and shall not be
construed as dispensing with the necessity of obtaining the specific written
consent of Landlord with respect to any other such sign, placard, picture, name,
advertisement or notice.
No signs will be permitted on any entry door unless the door is glass.
All glass door signs must be approved by Landlord. Signs or lettering shall be
printed, painted, affixed or inscribed at the expense of the tenant by a person
approved by Landlord.
3. The bulletin board or directory of the Building will be provided
exclusively for the display of the name and location of tenants only and
Landlord reserves the right to exclude any other names therefrom. Landlord
reserves the right to restrict the amount of directory space utilized by Tenant.
4. No curtains, draperies, blinds, shutters, shades, screens or other
coverings, hangings or decorations shall be attached to, hung or placed in, or
used in connection with, any window on any premises without the prior written
consent of Landlord. In any event, with the prior written consent of Landlord,
all such items shall be installed inside of Landlord's standard draperies and
shall in no way be visible from the exterior of the Building. No articles shall
be placed or kept on the window sills so as to be visible from the exterior of
the Building.
5. Landlord reserves the right to exclude from the Building between the
hours of 6 P.M. and 6 A.M. and at all hours on Saturdays, Sundays and holidays
all persons who do not present a pass to the Building signed by Landlord.
Landlord will furnish passes to persons for whom any tenant requests the same in
writing. Each tenant shall be responsible for all persons for whom it requests
passes and shall be liable to Landlord for all acts of such persons.
<PAGE>
Landlord shall in no case be liable for damages for any error with
regard to the admission to or exclusion from the Building of any person.
During any invasion, mob, riot, public excitement or other
circumstance rendering such action advisable in Landlord's opinion, Landlord
reserves the right to prevent access to the Building by closing the doors, or
otherwise, for the safety of tenants and protection of the Building and property
in the Building.
6. No tenant shall employ any person or persons other than the janitor of
Landlord for the purpose of cleaning the premises unless otherwise agreed to by
Landlord in writing. Except with the written consent of Landlord, no person or
persons other than those approved by Landlord shall be permitted to enter the
Building for the purpose of cleaning the same. No tenant shall cause any
unnecessary labor by reason of such tenant's carelessness or indifference in the
preservation of good order and cleanliness. Landlord shall in no way be
responsible to any tenant for any loss of property on the premises, however
occurring, or for any damage done to the property of any tenant by the janitor
or any other employee or any other person. Janitorial service shall include
ordinary dusting and cleaning by the janitor assigned to such work and shall not
include beating or cleaning of carpets or rugs or moving of furniture or other
special services. Janitorial service will not be furnished on nights when rooms
are occupied after 9:30 p.m. Window cleaning shall be done only by Landlord, and
at such intervals and such hours as Landlord shall deem appropriate.
7. No tenant shall obtain for use upon its premises ice, drinking water,
food, beverage, towel or other similar services, or accept barbering or
bootblacking services in its premises, except from persons authorized by
Landlord, and at hours and under regulations fixed by Landlord.
8. Each tenant shall see that the doors of its premises are closed and
securely locked and must observe strict care and caution that all water faucets
or water apparatus are entirely shut off before the tenant or its employees
leave such premises, and that all utilities shall likewise be carefully shut
off, so as to prevent waste or damage, and for any default or carelessness the
Tenant shall make good all injuries sustained by other tenants or occupants of
the Building or Landlord. On multiple-tenancy floors all tenants shall keep the
door or doors to the Building corridors closed at all times except for ingress
and egress.
9 No tenant shall alter any lock or install a new or additional lock or
any bolt on any door of its premises without the prior written consent of
Landlord. If Landlord shall give its consent, the tenant shall in each case
furnish Landlord with a key for any such lock.
10. Landlord will furnish Tenant without charge with two (2) keys to each
door lock provided in the Premises by Landlord. Landlord may make a reasonable
charge for any additional keys. Tenant shall not have any such keys copied or
any keys made. Each tenant, upon the termination of the tenancy, shall deliver
to Landlord all the keys of or to the Building, offices, rooms and toilet rooms
which shall have been furnished to the Tenant or which the Tenant shall have had
made. In the event of the loss of any keys so furnished by Landlord, Tenant
shall pay Landlord therefor.
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<PAGE>
11. The toilet rooms, toilets, urinals, wash bowls and other apparatus
shall not be used for any purpose other than that for which they were
constructed and no foreign substance of any kind whatsoever shall be thrown
therein, and the expense of any breakage, stoppage or damage resulting from the
violation of this rule shall be borne by the tenant who, or whose employees or
invitees, shall have caused it.
12. No tenant shall use or keep in its premises or the Building any
kerosene, gasoline or inflammable or combustible fluid or material or use any
method of heating or air conditioning other than that supplied by Landlord.
13. No tenant shall use, keep or permit to be used or kept in its premises
any foul or noxious gas or substance or permit or suffer such premises to be
occupied or used in a manner offensive or objectionable to Landlord or other
occupants of the Building by reason of noise, odors and/or vibrations or
interfere in any way with other tenants or those having business therein, nor
shall any animals or birds be brought or kept in or about any premises or the
Building.
14. No cooking shall be done or permitted by any tenant on its premises,
except that the preparation of coffee, tea, hot chocolate and similar items for
tenants and their employees shall be permitted, nor shall such premises be used
for lodging.
15. Except with the prior written consent of Landlord, no tenant shall
sell, or permit the sale, at retail of newspapers, magazines, periodicals,
theater tickets or any other goods or merchandise in or on any premises, nor
shall any tenant carry on, or permit or allow any employee or other person to
carry on, the business of stenography, typewriting or any similar business in or
from any premises for the service or accommodation of occupants of any other
portion of the Building, nor shall the premises of any tenant be used for the
storage of merchandise or for manufacturing of any kind, or the business of a
public barber shop, beauty parlor, or any business or activity other than that
specifically provided for in such tenant's lease.
16. Landlord will direct electricians as to where and how telephone,
telegraph and electrical wires are to be introduced or installed. No boring or
cutting for wires will be allowed without the prior written consent of Landlord.
The location of telephones, call boxes and other office equipment affixed to all
premises shall be subject to the written approval of Landlord. All electrical
appliances must be grounded and must meet UL Label Standards.
17. No tenant shall install any radio or television antenna, loudspeaker
or any other device on the exterior walls of the Building.
18. No tenant shall lay linoleum, tile, carpet or any other floor covering
so that the same shall be affixed to the floor of its premises in any manner
except as approved in writing by Landlord. The expense of repairing any damage
resulting from a violation of this rule or the removal of any floor covering
shall be borne by the tenant by whom, or by whose contractors, employees or
invitees, the damage shall have been caused.
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<PAGE>
19. No furniture, freight, equipment, packages or merchandise will be
received in the Building or carried up or down the elevators, except between
such hours, through such entrances and in such elevators as shall be designated
by Landlord. Landlord reserves the right to require that moves be scheduled and
carried out during nonbusiness hours of the Building. Landlord shall have the
right to prescribe the weight, size and position of all safes and other heavy
equipment brought into the Building. Safes or other heavy objects shall, if
considered necessary by Landlord, stand on wood strips of such thickness as is
necessary to properly distribute the weight thereof. Landlord will not be
responsible for loss of or damage to any such safe or property from any cause,
and all damage done to the Building by moving or maintaining any such safe or
other property shall be repaired at the expense of the Tenant.
20. No tenant shall overload the floor of its premises or mark, or drive
nails, screw or drill into, the partitions, woodwork or plaster or in any way
deface such premises or any part thereof.
21. There shall not be used in any space, or in the public areas of the
Building, either by any tenant or others, any hand trucks except those equipped
with rubber tires and side guards. No other vehicles of any kind shall be
brought by any tenant into or kept in or about any premises in the Building.
22. Each tenant shall store all its trash and garbage within the interior
of its premises. No material shall be placed in the trash boxes or receptacles
if such material is of such nature that it may not be disposed of in the
ordinary and customary manner of removing and disposing of trash and garbage in
the City of San Francisco without violation of any law or ordinance governing
such disposal. All trash, garbage and refuse disposal shall be made only through
entryways and elevators provided for such purposes and at such times as Landlord
shall designate.
23. Canvassing, soliciting, distribution of handbills and other written
materials and peddling in the Building are prohibited and each tenant shall
cooperate to prevent the same.
24. Landlord shall have the right, exercisable without notice and without
liability to any tenant, to change the name and address of the Building.
25. The requirements of tenants will be attended to only upon application
at the office of the Building. Employees of Landlord shall not perform any work
or do anything outside of their regular duties unless under special instructions
from Landlord, and no employee will admit any person (tenant or otherwise) to
any office without specific instructions from Landlord.
26. Landlord may waive any one or more of these Rules and Regulations for
the benefit of any particular tenant or tenants, but no such waiver by Landlord
shall be construed as a waiver of such Rules and Regulations in favor of any
other tenant or tenants, nor prevent Landlord from thereafter enforcing any such
Rules and Regulations against any or all tenants of the Building.
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<PAGE>
27. These Rules and Regulations may be changed from time to time, as
Landlord may deem appropriate, and are in addition to, and shall not be
construed to in any way modify, alter or amend, in whole or in part, the terms,
covenants and conditions of the Lease.
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<PAGE>
EXHIBIT C
---------
WORK LETTER AND CONSTRUCTION AGREEMENT FOR INITIAL
--------------------------------------------------
IMPROVEMENT OF THE PREMISES
---------------------------
1. Improvements. The Base Building Improvements described in Paragraph 2
------------
shall be furnished and installed within the Premises substantially in accordance
with the plans and specifications for the Building without cost or expense to
Tenant. Any work in addition to Base Building Improvements is referred to herein
as Tenant Improvements and shall be furnished and installed within the Premises
substantially in accordance with plans and specifications to be prepared by
Tenant and reasonably approved by Landlord in accordance with this Work Letter
and Construction Agreement for the Initial Improvement of the Premises (the
"Work Letter") and shall be furnished and installed at the expense of Tenant,
except for the amount of the Landlord's Contribution ("Landlord's Contribution")
described in Paragraph 12. For purposes hereof; the cost of the Tenant
Improvements shall include all costs associated with the design and construction
of the Tenant Improvements, including, without limitation, all building permit
fees, payments to design consultants for services and disbursements, all
demolition and other preparatory work premiums for insurance and bonds, if any,
general conditions, such inspection fees as Landlord may incur, reimbursement to
Landlord for permit and other fees Landlord may incur that are fairly
attributable to the Tenant Improvement work and the cost of installing any
additional electrical capacity or telecommunications capacity required by
Tenant.
2. Base Building Improvements. Base Building Improvements shall consist
--------------------------
of those items listed on the attached Schedule I.
3. Tenant's Architect Engineers and Contractors. Tenant shall select its
--------------------------------------------
own architects, subject to the consent of Landlord. Tenant shall use Swinerton &
Walberg as its general contractor ("Contractor"), Mazzetti & Associates as its
mechanical engineer and F.W. Associates as its electrical engineer. In the event
Tenant is unable to reach agreement with Swinerton & Walberg on a commercially
reasonable fee and its agreement to obtain at least three bids for subcontract
work, Tenant shall have the right to retain another general contractor subject
to Landlord's good faith approval. In the event Swinerton & Walberg is not the
Contractor, Landlord shall be entitled to receive a fee for the supervision of
contractor in an amount to three percent (3%) of the cost of constructing the
Tenant Improvement in the Premises, and the Commencement Date shall not be
extended beyond the date provided in the Lease even though Tenant's occupancy
date may be delayed. The cost of preparing all plans and specifications for the
Tenant Improvements (including without limitation the Conceptual Plans referred
to in Paragraph 4 of this Work Letter and the Working Drawings referred to in
Paragraph 5 of this Work Letter), and the cost of preparing any changes thereto
shall be paid by Tenant, although Tenant may apply the Landlord's Contribution
to the payment of such costs not to exceed $3.50 times the Rentable Area of the
Premises, in accordance with the provisions of Paragraph 12 of this Work Letter.
4. Submittal of Conceptual Plans. Tenant shall submit to Landlord
-----------------------------
conceptual plans for the Tenant Improvements (the "Conceptual Plans"), including
architectural, electrical and reflected ceiling drawings by July 15, 1999. Such
Conceptual Plans shall be for the general
<PAGE>
information of Landlord, and to assist in the coordination of the design and
construction of the Tenant Improvements, but receipt of such Conceptual Plans by
Landlord shall not constitute an approval by Landlord of the design or
specifications shown thereon. Landlord shall within seven (7) business days
following receipt by Landlord of such plans from Tenant, review, comment on and
return the Conceptual Plans to Tenant, marked "Approved," "Approved as Noted" or
"Disapproved as Noted, Revise and Resubmit." If the Conceptual Plans are
returned to Tenant marked "Approved," the Conceptual Plans shall be deemed
approved by Landlord and the procedure set forth in Paragraph 5 below shall be
followed. If the Conceptual Plans are returned to Tenant marked "Approved as
Noted," the Conceptual Plans so submitted shall be deemed approved by Landlord
and the procedure set forth in Paragraph 5 below shall be followed; provided
however, in preparing the Working Drawings, Tenant shall cause Tenant's
Architect to incorporate Landlord's noted items into the Working Drawings. If
the Conceptual Plans are returned to Tenant marked "Disapproved as Noted, Revise
and Resubmit," Tenant shall cause such plans to be revised, taking into account
the reasons for Landlord's disapproval, and shall resubmit revised plans to
Landlord for review within five (5) days after return of the Conceptual Plans to
Tenant by Landlord. The same procedure shall be repeated until Landlord fully
approves the Conceptual Plans.
5. Submittal of Working Drawings. By September 30, 1999, Tenant shall
-----------------------------
deliver to Landlord one (I) set of reproducible sepia and three (3) sets of
bluelined prints of working drawings and specifications, which drawings and
specifications shall include the architectural, mechanical, electrical and
plumbing components of the design (hereinafter referred to collectively as the
"Working Drawings") for the Tenant Improvements prepared at Tenant's sole cost
and expense (although Tenant may apply the Landlord's Contribution to the
payment of such cost in accordance with the provisions of Paragraph 12 of this
Work Letter) by an architect ("Tenant's Architect") licensed in the State of
California and approved in writing by Landlord. If the draft of the Working
Drawings was prepared on a computer-assisted design ("CAD") system, Tenant shall
also deliver to Landlord a diskette containing the Working Drawings in the
AutoCAD format. Within five (5) business days of the receipt by Landlord of a
draft of Working Drawings from Tenant, Landlord shall return to Tenant one (1)
sepia set of the Working Drawings marked "Approved," "Approved as Noted" or
"Disapproved as Noted, Revise and Resubmit." If the Working Drawings are
returned to Tenant marked "Approved," the Working Drawings, as so submitted,
shall be deemed approved by Landlord. If the Working Drawings are returned to
Tenant marked "Approved as Noted," the draft of the Working Drawings shall be
deemed approved by Landlord; provided however, in preparing the final approved
Working Drawings, Tenant shall cause Tenant's Architect to incorporate
Landlord's noted items into the Working Drawings. If the Working Drawings are
returned to Tenant marked "Disapproved as Noted, Revise and Resubmit," within
ten (10) business days Tenant shall cause such Working Drawings to be revised,
taking into account the reasons for Landlord's disapproval and shall resubmit
revised plans to Landlord for review. The same procedure shall be repeated until
Landlord fully approves the Working Drawings. The Working Drawings shall be
consistent with, and a logical extension of, the Conceptual Plans approved by
Landlord in accordance with Paragraph 4 of this Work Letter. Tenant shall be
solely responsible for: (i) the completeness of the Working Drawings; (ii) the
conformity of the Working Drawings with the existing conditions in the Building
and the Premises; (iii) the compatibility of the Working Drawings with the shell
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<PAGE>
or the core or the mechanical, plumbing, life safety or electrical systems of
the Building; and (iv) the compliance of the Working Drawings with all
applicable regulations, laws, ordinances, codes and rules, including, without
limitation, the Americans With Disabilities Act. When the Working Drawings are
approved by Landlord and Tenant, they shall be acknowledged as such by Landlord
and Tenant signing each sheet of the Working Drawings. If the Working Drawings
were prepared on a computer-assisted design ("CAD") system, Tenant shall also
deliver to Landlord a diskette containing the approved Working Drawings in the
AutoCAD format. Tenant shall cause the Conceptual Plans and Working Drawings to
be prepared, submitted to Landlord and, where required, revised so as to obtain
the approval of the Working Drawings by Landlord within the time frames required
by Paragraphs 4 and 5 hereof ("Tenant's Plan Delivery Date").
6. Landlord's Review Responsibilities. Tenant acknowledges and agrees
----------------------------------
that Landlord's review and approval, if granted, of all Conceptual Plans and
Working Drawings by Landlord is solely for the benefit of Landlord and to
protect the interests of Landlord in the Building and the Premises, and Landlord
shall not be the guarantor of; nor in any way or to any extent responsible for:
(i) the correctness or accuracy of any Conceptual Plans or Working Drawings;
(ii) the compliance of the Conceptual Plans or Working Drawings with applicable
regulations, laws, ordinances, codes and rules; (iii) the conformance or
compatibility of the Conceptual Plans or Working Drawings with existing
conditions in the Building or Premises or with the shell or the core or the
mechanical, plumbing, life safety or electrical systems of the Building; or (iv)
the suitability for Tenant's needs and business of the design and function of
all Tenant Improvements. Tenant shall require and be solely responsible for
insuring that its architects, engineers and contractors verify all existing
conditions in the Building, insofar as they are relevant to, or may affect, the
design and construction of the Tenant Improvements, and Landlord shall have no
liability to Tenant for any inaccuracy or incorrectness in any of the
information supplied by Landlord with regard to existing conditions. Tenant
shall be solely responsible for, and Landlord specifically reserves the right to
require Tenant to make at any time and from time to time during the construction
of the Tenant Improvements, any changes to the Conceptual Plans and the Working
Drawings necessary to obtain any permit or to comply with all applicable
regulations, laws, ordinances, codes and rules or to achieve the compatibility,
as reasonably determined by Landlord, of the Conceptual Plans and Working
Drawings with the shell and the core and the mechanical, plumbing, life safety
and electrical systems of the Building and any third-party warranties.
7. Pricing The Work; Landlord's supervision Fee. Upon completion of the
--------------------------------------------
Working Drawings for the Tenant Improvements, Contractor shall solicit bids from
at least three subcontractors for all major trades for the Tenant Improvements.
Upon Tenant agreeing on a price, Tenant shall deliver a copy of the construction
contract (or other documentation verifying the final bid and work to be
performed) to Landlord, such delivery to occur no later than fifteen (15) days
after Landlord's approval of the Working Drawings. Landlord shall not charge a
fee for the supervision of Contractor .
8. Administration of Work.
----------------------
(a) After acceptance of bids, Contractor shall administer the
construction of Tenant Improvements in accordance with the Working Drawings. If
Tenant requests the
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<PAGE>
installation of any Tenant Improvements that do not conform to the approved
Working Drawings or conflict with elements of the approved Working Drawings
after such administration begins, such request shall be deemed a change and
shall be subject to the provisions of Paragraph 13 below. Tenant Improvements
shall comply with all applicable regulations, laws, ordinances, codes and rules,
such compliance being the obligation of Tenant.
(b) Contractor and its subcontractors and materialmen shall maintain
commercial general liability insurance in an amount of not less than Three
Million Dollars ($3,000,000) for Contractor and Two Million Dollars ($2,000.00)
for subcontractors on a combined single limit basis and all worker's
compensation insurance required by law.
(c) Landlord shall provide access and entry to the Premises to Tenant
at times consistent with Landlord's schedule for the installation of the Tenant
Improvements, subject to all the terms and conditions of the Lease and this Work
Letter. Upon and following any entry into the Premises by Tenant prior to the
commencement of the Lease Term, Tenant shall perform all of the obligations of
Tenant applicable under the Lease during the Term (except the obligation to pay
Base Rent and Tenant's Proportionate Share of Basic Operation Cost), including,
without limitation, obligations pertaining to insurance, indemnity, compliance
with laws and hazardous materials. In addition to the indemnity obligations of
Tenant under the Lease, Tenant shall indemnify, defend and protect Landlord and
hold Landlord harmless from any and all claims, proceedings, loss, cost, damage,
causes of action, liabilities, injury or expense arising out of or related to
claims of injury to or death of persons or damage to property occurring or
resulting directly or indirectly from the presence in the Premises or the
Building of Tenant or its representatives in or about the Premises or Building
during the construction period, such indemnity to include, but without
limitation, the obligation to provide all costs of defense against any such
claims. This indemnity shall survive the expiration or sooner termination of the
Lease.
9. Obligation of Tenant To Provide As-Built Plans. Within sixty (60)
----------------------------------------------
days of Substantial Completion, Tenant shall cause Tenant's Architect to provide
Landlord with a complete set of plans on mylar and specifications reflecting the
actual conditions of the Tenant Improvements as constructed in the Premises,
together with a copy of such plans on diskette in the AutoCAD format or such
other format as may then be in common use for computer assisted design purposes.
10. Reimbursement and Compensation. Tenant shall reimburse Landlord for
------------------------------
all actual costs incurred by Landlord in connection with the design and review
of the Conceptual Plans and Working Drawings, not to exceed $10,000.00. Landlord
may obtain any reimbursement, payment or compensation required to be paid by
Tenant hereunder by deducting the amount of such reimbursement, payment or
compensation from Landlord's Contribution.
11. Contractor Payments. Tenant shall be responsible for payment of the
-------------------
difference between (a) the sum of the Landlord's Contribution (as defined in
Paragraph 12) ("Landlord's Total Contribution") and (b) the total cost for the
construction of the Tenant Improvements (such difference to be referred to
herein as the "Tenant's Contribution"). Landlord shall make progress payments on
a pro rata basis from Landlord's Contribution (in the proportion that the
Landlord's Contribution bears to the total cost for the construction of the
Tenant Improvements) from time
-4-
<PAGE>
to time as the Tenant Improvements are constructed, based upon statements and
invoices submitted from Contractor and provided Tenant makes a proportionate
payment from Tenant's Contribution. Landlord shall pay the balance of Landlord's
Contribution upon receipt of properly executed mechanics lien releases in
compliance with California Civil Code Section 3262(d)(4) unconditional Waiver
and Release Upon Final Payment) and upon Landlord's determination that no
substandard work exists which adversely affects the mechanical, electrical,
plumbing, heating, ventilating and air conditioning, life-safety or other
systems of the Building, the curtain wall of the Building, the structure or
exterior appearance of the Building, or any other tenant's use of such other
tenant's premises in the Building. Tenant shall pay the balance due on any
invoice or statement to the extent Landlord's payments do not fully cover such
amount. Landlord shall be entitled to suspend or terminate construction of the
Tenant Improvements and to declare Tenant in default in accordance with the
terms of the Lease if payment by Tenant of any amounts required to be paid by
Tenant under this Paragraph 11 are not received by Contractor when due.
Suspended payments shall be restored upon payment to Contractor of all amounts
due it, provided all such amounts are paid, or any disputes between Tenant and
Contractor are otherwise resolved, within sixty (60) days.
12. Landlord's Contribution. Landlord shall provide a total of $1,739,200
-----------------------
(which is based on a Landlord Contribution of $25.00 per rentable square foot)
("Landlord's Contribution"), as provided in this Paragraph 12 toward the payment
for the design and construction of the Tenant Improvements in the Premises.
Landlord shall in accordance with this Work Letter apply Landlord's Contribution
to the cost of constructing the Tenant Improvements. Any balance of Landlord's
Contribution remaining after Contractor has been paid in full may be used for
payment of the cost of preparing the plans and specifications for the Tenant
Improvements and for the other purposes specifically provided in this Work
Letter. The obligation of Landlord to make any one or more payments pursuant to
the provisions of this Paragraph 12 or to proceed with the construction of the
Tenant Improvements shall be suspended without further act of the parties during
any such time as there exists an event of default under the Lease or my event or
condition which, with the passage of time or the giving of notice or both would
constitute such an event of default. Nothing in this Paragraph 12 shall affect
the obligations of Tenant under the Lease with respect to any alterations,
additions and improvements within the Premises, including, without limitation,
any obligation to obtain the prior written consent of Landlord hereto.
13. Miscellaneous.
-------------
(a) Tenant's Representative. Tenant hereby designates Mara Gourvitz
-----------------------
as its sole representative with respect to the matters set forth in this Work
Letter, who shall have full authority and responsibility to act on behalf of the
Tenant as required in this Work Letter, and Landlord shall be entitled to rely
upon the decisions and agreements made by such representative as binding upon
Tenant.
(b) Landlord's Representative. Landlord hereby designates Drew
-------------------------
Gordon as its sole representatives with respect to the matters set forth in this
Work Letter, who, until further notice to Tenant, shall have full authority and
responsibility to act on behalf of the Landlord as required in this Work Letter.
-5-
<PAGE>
(c) Tenant's Lease Default. Notwithstanding any provision to the
----------------------
contrary contained in this Lease, if an Event of Default as described in
Paragraph 18 of the Lease or a default by Tenant under this Work Letter has
occurred at any time on or before the Term Commencement Date, then (i) in
addition to all other rights and remedies granted to Landlord pursuant to the
Lease, Landlord shall have the right to withhold payment of all or any portion
of the Landlord's Allowance until such Event of Default is cured, and (ii) all
other obligations of Landlord under the terms of this Work Letter shall be
suspended until such time as such Event of Default is cured pursuant to the
terms of this Lease (in which case, Tenant shall be responsible for any delay in
the substantial completion of the Premises or other damages caused by such
inaction by Landlord).
(d) Completion of Building. The Premises may be deemed substantially
----------------------
complete even though improvements in certain portions of the Building have not
been fully completed (so long as such does not interfere with Tenant's efficient
conduct of its business), and even though Tenant's personal property may have
not been installed.
(e) Merger. Except as expressly set forth in this Work Letter,
------
Landlord has no other agreement with Tenant and has no other obligation to do
any work or pay any amounts with respect to the Premises. Any other work in the
Premises which may be permitted by Landlord pursuant to the terms and conditions
of the Lease shall be done at Tenant's sole cost and expense and in accordance
with the terms and conditions of the Lease.
(f) Applicability of Work Letter. This Work Letter shall not be
----------------------------
deemed applicable to any additional space added to the original Premises at any
time or from time to time, whether by any options under the Lease or otherwise,
or to any portion of the original Premises or any additions thereto in the event
of damage or destruction of the Premises, condemnation of the Premises, or
renewal or extension of the initial term of the Lease, whether by any options
under the Lease or otherwise, unless expressly so provided in the Lease or any
amendment or supplement thereto.
-6-
<PAGE>
SCHEDULE 1 TO WORK LETTER
Base Building Improvements
1) All common areas including elevator lobbies and, if required, any multi-
tenant corridors finished on corridor side only and in compliance with all
local, state and federal code requirements including the Americans with
Disabilities Act.
2) Vertical floor deflection not to exceed 3/4" over 20' under total loads,
non-cumulative, on the 3rd and 4th floors. 1st and 2nd floors are existing
floors and will receive 3/4" gypcrete on the 1st floor and 1-1/2" gypcrete
on the 2nd floor.
3) Floors shall be designed to accommodate no less than 50 pounds per square
foot (psf) live load plus 20 psf partition loads for a total of 70 psf
Egress corridors up to 6 feet in width with a 100 psf live load may be
located anywhere on the floor.
4) Supply air delivered to floor shall be no lower than one CFM per USF and
temperature no higher than fifty-five degrees at discharge shaft, on
floor.
5) Floors shall include a fire sprinkler system, including a main loop,
branch mains and upright heads installed to provide full coverage for an
unoccupied floor.
6) Operational freight elevator.
7) Public area water fountains as required by code and ADA for unoccupied
floors.
8) Building electrical service rated at 277/480 volt, 3-phase, 4-wire system,
8.0 watts psf of connected load provided to tenant zones, exclusive of
HVAC. Meter sockets and main disconnects will originate in main electrical
room in basement and in electrical closet on each floor with one (1) 3-
inch conduit stubbed to each tenant zone.
9) A telephone terminal room will be located on each floor with one (1) 4-
inch conduit stubbed to each tenant zone.
10) Two (2) 20-amperes, 277 volt circuits for emergency egress lighting and
exit signs stubbed to each tenant zone. A "tenant zone" is one-quarter of
a floor.
11) A main building fire alarm system complete with control panels, LED
annunciator panel, manual pull stations, smoke detectors, magnetic door
holders, horns and strobes provided on every floor. Fire alarm circuits
provided in each tenant zones will be sized at a ratio of 5 amps of fire
alarm current per 200 amps of power.
12) Finished men's and women's restrooms on each floor of the Premises.
13) Finished fire stairs designed to meet current governmental codes.
14) Abatement of all asbestos in the Premises.
<PAGE>
15) Fireproofing on structural steel members as required by code.
16) All core walls and perimeter walls to be insulated and drywall led, taped,
sanded and ready to accept tenant's finishes on the 3rd and 4th floors.
1st and 2nd floor walls are existing masonry and will not be drywalled.
17) Main HVAC loop.
-2-
<PAGE>
EXHIBIT D
COMMENCEMENT DATE MEMORANDUM
THIS MEMORANDUM is entered into as of _____________ ____ by and between SKS
BRANNAN ASSOCIATES, LLC, a Delaware limited liability company ("Landlord"), and
______________________________ ("Tenant"), with respect to that certain Office
Lease dated as of ___________________ 1998 (the "Lease") respecting certain
premises (the "Premises") located in the building known as 475 Brannan Street,
San Francisco, California.
Pursuant to Paragraph 2(a) of the Lease, Landlord and Tenant hereby confirm
and agree that the Commencement Date (as defined in the Lease) is
___________________ 199__ and that the Expiration Date (as defined in the Lease)
is __________________, 20__.
This Memorandum supplements, and shall be a part of the Lease.
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have executed and delivered this
Memorandum as of the day and year first above written
LANDLORD:
--------
SKS BRANNAN ASSOCIATES, LLC, a Delaware
limited liability company
By SKS Investments LLC, a Delaware limited
liability corn
By:______________________________________
____________, Member
TENANT:
------
NETCENTIVES INC., a California corporation
By:__________________________________________
Name:___________________________________
Title:__________________________________
By:__________________________________________
Name:___________________________________
Title:__________________________________
<PAGE>
EXHIBIT 10.17
NETCENTIVES INC.
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement (the "Agreement") is dated as of June 26, 1997,
---------
by and between West Shell, III ("Employee") and Netcentives Inc., a California
--------
corporation (the "Company").
-------
1. TERM OF AGREEMENT. This Agreement shall commence on the date hereof
-----------------
and shall have a term of one (1) year the ("Original Term"). This Agreement may
-------------
be terminated by either party, with or without cause, on thirty (30) days'
written notice to the other party. This Agreement may be extended for an
additional one (1) year after the end of the Original Term if the parties hereto
mutually agree in writing to such extension.
2. DUTIES.
------
(a) POSITION. Employee shall be employed as President and Chief
--------
Executive Officer, and will report to the Company's Board of Directors.
(b) OBLIGATIONS TO THE COMPANY. Employee agrees to the best of his
--------------------------
ability and experience that he will at all times loyally and conscientiously
perform all of the duties and obligations required of and from Employee pursuant
to the express and implicit terms hereof, and to the reasonable satisfaction of
the Company. During the term of Employee's employment relationship with the
Company, Employee further agrees that (i) he will devote all of his business
time and attention to the business of the Company, (ii) the Company will be
entitled to all of the benefits and profits arising from or incident to all such
work services and advice, and (iii) Employee will not render commercial or
professional services of any nature to any person or organization, whether or
not for compensation, without the prior written consent of the Company's Board
of Directors, which will not be unreasonably withheld provided that the Company
--------
acknowledges Employee's membership on the Boards of Directors of California
Canoe and Kayak, Inc., and Cook Express, Inc. and hereby consents to his
continued participation with such organizations. So long as Employee is employed
by the Company, Employee will not directly or indirectly engage or participate
in any business that is competitive in any manner with the business of the
Company. Subject to the foregoing restrictions, Employee may accept speaking or
presentation engagements in exchange for honoraria, serve on boards of
charitable organizations, and own no more than five percent (5%) of the
outstanding equity securities of a private or public corporation. Employee will
comply with and be bound by the Company's operating policies, procedures and
practices from time to time in effect during the term of Employee's employment.
3. TERMS OF EMPLOYMENT. The Company and Employee acknowledge that
-------------------
Employee's employment with the Company may be terminated by either party at any
time for any or no reason. If Employee's employment terminates for any reason,
Employee shall not be entitled to any payments, benefits, damages, award or
compensation other than as provided in this Agreement. The rights and duties
created by this Section 3 may not be modified in any way
<PAGE>
except by a written agreement executed by the Chairman of the Board of
Directors of the Company.
4. COMPENSATION. For the duties and services to be performed by Employee
------------
hereunder, the Company shall pay Employee, and Employee agrees to accept, the
salary, stock options, bonuses and other benefits described below in this
Section 4.
(a) SALARY. Employee shall receive a monthly salary of $16,666.67,
------
which is equivalent to $200,000.00 on an annualized basis. Employee's monthly
salary will be payable in two equal payments per month pursuant to the Company's
normal payroll practices. In the event this Agreement is extended beyond the
Original Term, the base salary shall be reviewed at the time of such extension
by the Board or its Compensation Committee, and any increase will be effective
as of the date determined appropriate by the Board or its Compensation
Committee.
(b) EQUITY OWNERSHIP. The Board of Directors has approved the
----------------
purchase by Employee of 500,000 shares of the Company's Common Stock (the
"Shares") on the terms and conditions of the Common Stock Purchase Agreement in
------
the form attached hereto as Exhibit B. In addition, upon the consummation of
---------
the Company's next round of equity financing, in which the Company raises at
least $2,000,000 (the "Financing"), the Board of Directors will authorize the
---------
purchase by Employee of a number of shares of Common Stock sufficient to give
Employee a ten percent (10%) interest in the Company (exclusive of Employee's
right to purchase fifty thousand (50,000) shares of the Company's common stock
pursuant to options granted prior to his employment hereunder) on a fully-
diluted basis (including option plans and supplier pools) at the then fair
market value of the Company's Common Stock and on substantially similar terms
and conditions to those on which the Shares are being purchased. Such shares
will be subject to a right of repurchase which will lapse in the same pattern as
that set forth for the Shares with the same Vesting Commencement Date.
Notwithstanding any portion of the foregoing to the contrary, in the event that
the Company raises in excess of $10,000,000 in the Financing, then for purposes
of the calculation of the additional purchase rights due hereunder, the Company
shall be deemed to have issued only that number of shares in the Financing as
would have been necessary to raise $10,000,000 in the Financing.
(c) BONUSES. Employee's entitlement to incentive bonuses from the
-------
Company is discretionary and shall be determined by the Board, its Compensation
Committee or the Chief Executive Officer of the Company in good faith based upon
the extent to which Employee's individual performance objectives and the
Company's profitability objectives and other financial and nonfinancial
objectives are achieved during the applicable bonus period.
(d) ADDITIONAL BENEFITS. Employee will be eligible to participate in
-------------------
the Company's employee benefit plans of general application, including without
limitation, those plans covering medical, disability and life insurance in
accordance with the rules established for individual participation in any such
plan and under applicable law. During the term of this Agreement, the Company
shall make all premium payments under (i) Employee's currently existing life
insurance policies, sufficient to maintain the current level of coverage of
$1,500,000 and (ii) Employee's currently existing disability insurance policies,
sufficient to maintain the
-2-
<PAGE>
current level of disability payments to Employee of $7,000 per month. The
current premium payments under the policies described in clauses (i) and (ii) of
the previous sentence do not exceed $5,000 per year, in the aggregate. Employee
will be eligible for vacation and sick leave in accordance with the policies in
effect during the term of this Agreement and will receive such other benefits as
the Company generally provides to its other employees of comparable position and
experience, provided however, that Employee shall be entitled to no less than
----------------
four (4) weeks paid vacation per year.
(e) REIMBURSEMENT OF EXPENSES. Employee shall be authorized to incur
-------------------------
on behalf and for the benefit of, and shall be reimbursed by, the Company for
reasonable expenses, provided that such expenses are substantiated in accordance
with Company policies.
5. TERMINATION OF EMPLOYMENT AND SEVERANCE BENEFITS.
------------------------------------------------
(a) TERMINATION OF EMPLOYMENT. This Agreement may be terminated
-------------------------
during its Original Term (or any extension thereof) upon the occurrence of any
of the following events:
(i) The Company's determination in good faith that it is
terminating Employee for Cause (as defined in Section 6 below) ("Termination for
---------------
Cause");
- -----
(ii) Employee's termination other than by reason of Employee's
Voluntary Termination and other than by reason of a Termination for Cause by the
Company, (an "Involuntary Termination"), which determination may be made by the
-----------------------
Company at any time at the Company's sole discretion, for any or no reason (an
"Involuntary Termination"); or
- ------------------------
(iii) The effective date of a written notice sent to the Company
from Employee stating that Employee is electing to terminate his or her
employment with the Company ("Voluntary Termination").
---------------------
(b) SEVERANCE BENEFITS. Employee shall be entitled to receive
------------------
severance benefits upon termination of employment only as set forth in this
Section 5(b):
(i) VOLUNTARY TERMINATION. If Employee's employment terminates
---------------------
by Voluntary Termination, then Employee shall not be entitled to receive payment
of any severance benefits. Employee will receive payment(s) for all salary and
unpaid vacation accrued as of the date of Employee's termination of employment
and Employee's benefits will be continued under the Company's then existing
benefit plans and policies in accordance with such plans and policies in effect
on the date of termination and in accordance with applicable law.
(ii) INVOLUNTARY TERMINATION. If Employee's employment is
-----------------------
terminated by an Involuntary Termination, Employee will be entitled to receive
payment of severance benefits equal to Employee's regular monthly salary for six
(6) months (the "Severance Period"). In accordance with the terms of the
----------------
Purchase Agreement (and any additional agreement related to shares issued as a
result of the Financing), the repurchase option with respect to the shares of
Common Stock held by Employee shall lapse with respect to one-fourth (1/4) of
such shares in addition to any shares which have already been released from such
-3-
<PAGE>
Repurchase Option. Such payments shall be made ratably over the Severance Period
according to the Company's standard payroll schedule. Employee will also be
entitled to receive payment on the date of termination of any bonus payable
under Section 4(c). Health insurance benefits with the same coverage provided to
Employee prior to the termination (e.g. medical, dental, optical, mental health)
and in all other respects significantly comparable to those in place immediately
prior to the termination will be provided at the Company's cost over the
Severance Period.
(iii) TERMINATION FOR CAUSE. If Employee's employment is
---------------------
terminated for Cause, then Employee shall not be entitled to receive payment of
any severance benefits. Employee will receive payment(s) for all salary and
unpaid vacation accrued as of the date of Employee's termination of employment
and Employee's benefits will be continued under the Company's then existing
benefit plans and policies in accordance with such plans and policies in effect
on the date of termination and in accordance with applicable law.
6. DEFINITION OF CAUSE. For purposes of this Agreement, "Cause" for
------------------- -----
Employee's termination will exist at any time after the happening of one or more
of the following events:
(a) Employee's willful misconduct or gross negligence in performance
of his or her duties hereunder, including Employee's refusal to comply in any
material respect with the legal directives of the Company's Board of Directors
so long as such directives are not inconsistent with the Employee's position and
duties, and such refusal to comply is not remedied within ten (10) working days
after written notice from the Board of Directors, which written notice shall
state that failure to remedy such conduct may result in Termination for Cause;
(b) Conviction of a felony, a deliberate attempt to do an injury to
the Company, or conduct that materially discredits the Company or is materially
detrimental to the reputation of the Company; or
(c) Employee's incurable material breach of any element of the
Company's Confidentiality Agreement (as defined in Section 7 hereof), including
without limitation, Employee's theft or other misappropriation of the Company's
proprietary information.
7. CONFIDENTIALITY AGREEMENT. Employee shall sign, or has signed, a
-------------------------
Confidential Information and Invention Assignment Agreement (the
"Confidentiality Agreement") substantially in the form attached hereto as
- --------------------------
Exhibit A. Employee hereby represents and warrants to the Company that he or she
- ---------
has complied with all obligations under the Confidentiality Agreement and agrees
to continue to abide by the terms of the Confidentiality Agreement and further
agrees that the provisions of the Confidentiality Agreement shall survive any
termination of this Agreement or of Employee's employment relationship with the
Company.
8. NONCOMPETITION COVENANT. Employee hereby agrees that he or she shall
-----------------------
not, during the term of his or her employment pursuant to this Agreement or the
Severance Period, do any of the following without the prior written consent of
the Company's Board of Directors:
-4-
<PAGE>
(a) COMPETE. Carry on any business or activity (whether directly or
-------
indirectly, as a partner, shareholder, principal, agent, director, affiliate,
employee or consultant) which is competitive with the business conducted by the
Company (as conducted now or during the term of Employee's employment), nor
engage in any other activities that conflict with Employee's obligations to the
Company.
(b) SOLICIT BUSINESS. Solicit or influence or attempt to influence
----------------
any client, customer or other person either directly or indirectly, to direct
his or its purchase of the Company's products and/or services to any person,
firm, corporation, institution or other entity in competition with the business
of the Company.
(c) SOLICIT PERSONNEL. During the term of this Agreement and for a
-----------------
period of one (1) year thereafter, solicit or influence or attempt to influence
any person employed by the Company to terminate or otherwise cease his
employment with the Company or become an employee of any competitor of the
Company. This Section 8(c) is to be read in conjunction with Section 6 of the
Confidential Information and Invention Assignment Agreement executed by
Employee.
9. CONFLICTS. Employee represents that his or her performance of all the
---------
terms of this Agreement will not breach any other agreement to which Employee is
a party. Employee has not, and will not during the term of this Agreement,
enter into any oral or written agreement in conflict with any of the provisions
of this Agreement. Employee further represents that he or she is entering into
or has entered into an employment relationship with the Company of his or her
own free will and that he or she has not been solicited as an employee in any
way by the Company.
10. SUCCESSORS. Any successor to the Company (whether direct or indirect
----------
and whether by purchase, lease, merger, consolidation, liquidation or otherwise)
to all or substantially all of the Company's business and/or assets shall assume
the obligations under this Agreement and agree expressly to perform the
obligations under this Agreement in the same manner and to the same extent as
the Company would be required to perform such obligations in the absence of a
succession. The terms of this Agreement and all of Employee's rights hereunder
shall inure to the benefit of, and be enforceable by, Employee's personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees.
11. MISCELLANEOUS PROVISIONS.
------------------------
(a) NO DUTY TO MITIGATE. Employee shall not be required to mitigate
-------------------
the amount of any payment contemplated by this Agreement (whether by seeking new
employment or in any other manner), nor, except as otherwise provided in this
Agreement, shall any such payment be reduced by any earnings that Employee may
receive from any other source.
(b) AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended
----------------------
or waived only with the written consent of the parties.
-5-
<PAGE>
(c) SOLE AGREEMENT. This Agreement, including any Exhibits hereto,
--------------
constitutes the sole agreement of the parties and supersedes all oral
negotiations and prior writings with respect to the subject matter hereof.
(d) NOTICES. Any notice required or permitted by this Agreement shall
-------
be in writing and shall be deemed sufficient upon receipt, when delivered
personally or by a nationally-recognized delivery service (such as Federal
Express or UPS), or forty-eight (48) hours after being deposited in the U.S.
mail as certified or registered mail with postage prepaid, if such notice is
addressed to the party to be notified at such party's address as set forth below
or as subsequently modified by written notice.
(e) CHOICE OF LAW. The validity, interpretation, construction and
-------------
performance of this Agreement shall be governed by the laws of the State of
California, without giving effect to the principles of conflict of laws.
(f) SEVERABILITY. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of the Agreement shall be enforceable in accordance with its terms.
(g) COUNTERPARTS. This Agreement may be executed in counterparts,
------------
each of which shall be deemed an original, but all of which together will
constitute one and the same instrument.
(h) ARBITRATION. Any dispute or claim arising out of or in connection
-----------
with this Agreement will be finally settled by binding arbitration in San
Francisco, California in accordance with the rules of the American Arbitration
Association by one arbitrator appointed in accordance with said rules. The
arbitrator shall apply California law, without reference to rules of conflicts
of law or rules of statutory arbitration, to the resolution of any dispute.
Judgment on the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. Notwithstanding the foregoing, the parties may
apply to any court of competent jurisdiction for preliminary or interim
equitable relief, or to compel arbitration in accordance with this paragraph,
without breach of this arbitration provision. The prevailing party in any such
arbitration shall be entitled to an award of attorneys' fees and costs of the
arbitration against the other party. This Section 11(h) shall not apply to the
Confidentiality Agreement.
(i) ADVICE OF COUNSEL. EACH PARTY TO THIS AGREEMENT ACKNOWLEDGES
-----------------
THAT, IN EXECUTING THIS AGREEMENT, SUCH PARTY HAS HAD THE OPPORTUNITY TO SEEK
THE ADVICE OF INDEPENDENT LEGAL COUNSEL, AND HAS READ AND UNDERSTOOD ALL OF THE
TERMS AND PROVISIONS OF THIS AGREEMENT. THIS AGREEMENT SHALL NOT BE CONSTRUED
AGAINST ANY PARTY BY REASON OF THE DRAFTING OR PREPARATION HEREOF.
[Signature Page Follows]
-6-
<PAGE>
The parties have executed this Agreement the date first written above.
NETCENTIVES INC.
By: /s/ Eric W. Tilenius
--------------------
Title: President
---------
Address: 2121 S. El Camino Real, Suite 615
San Mateo, CA 94403
WEST SHELL, III
Signature: /s/ West Shell, III
-------------------
Address: 2765 Union Street
San Francisco, CA 94123
-7-
<PAGE>
EXHIBIT A
---------
CONFIDENTIAL INFORMATION AND
INVENTION ASSIGNMENT AGREEMENT
-8-
<PAGE>
NETCENTIVES INC.
CONFIDENTIALITY AND INVENTIONS ASSIGNMENT AGREEMENT
In exchange for my becoming employed (or my employment being continued) by
or retained as a consultant (or my consulting relationship being continued) by
Netcentives Inc., or its subsidiaries, affiliates, or successors (hereinafter
referred to collectively as the "Company"), I hereby agree as follows:
1. I will perform for the Company such duties as may be designated by the
Company from time to time. During my period of employment or consulting
relationship with the Company, I will devote my best efforts to the interests of
the Company and will not engage in other employment or in any activities
detrimental to the best interests of the Company without the prior written
consent of the Company. During my period of employment or consulting
relationship with the Company, I will not engage, directly or indirectly, in any
business that is competitive with the Company or its subsidiaries, nor solicit,
or in any other manner work for or assist, any business that is competitive with
the Company or its subsidiaries. During the period of my employment or
consulting relationship with the Company, I will undertake no planning for, or
organization of, any business activity competitive with the work I perform for
the Company. I agree, that during the period of my employment or consulting
relationship with the Company, I will not, directly or indirectly, induce or
entice any employee of the Company or its subsidiaries to leave such employment.
Unless approved in writing by the President of the Company, at no time shall I
permit a conflict of interest to occur, which shall be deemed to include:
a. Any substantial direct or indirect financial interest whether by
ownership, management, control or performance of services, by myself or any
member of my family, in any outside concern that does business with the Company
or its subsidiaries; or
b. Acceptance by myself or by any member of my immediate family of
any gifts of more than token value, loans other than from established banking or
financial institutions, excessive entertainment or other substantial favors from
any outside concern or any individual which does or is seeking to do business
with, or is a competitor of the Company or its subsidiaries.
2. As used in this Agreement, the term "Inventions" means designs,
trademarks, discoveries, formulae, processes, manufacturing techniques, trade
secrets, inventions, improvements, ideas or copyrightable works, including all
rights to obtain, register, perfect and enforce these proprietary interests.
3. As used in this Agreement, the term "Confidential Information" means
information pertaining to any aspects of the Company's business which is either
information not known by actual or potential competitors of the Company or is
proprietary information of the Company or its customers or suppliers, whether of
a technical nature or otherwise.
4. Without further compensation, I hereby agree promptly to disclose to
the Company, and I hereby assign and agree to assign to the Company or its
designee, my entire right, title, and interest in and to all Inventions which I
may solely or jointly develop or reduce to practice during the
<PAGE>
period of my employment or consulting relationship with the Company (a) which
pertain to any line of business activity of the Company, (b) which are aided by
the use of time, material or facilities of the Company, whether or not during
working hours, or (c) which relate to any of my work during the period of my
employment or consulting relationship with the Company, whether or not during
normal working hours. No rights are hereby conveyed in Inventions, if any, made
by me prior to my employment or consulting relationship with the Company which
are identified in a sheet attached to and made a part of this Agreement, if any
(which attachment contains no confidential information).
5. I agree to perform, during and after my employment or consulting
relationship, all acts deemed necessary or desirable by the Company to permit
and assist it, at its expense, in obtaining and enforcing the full benefits,
enjoyment, rights and title throughout the world in the Inventions hereby
assigned to the Company as set forth in paragraph 4 above. Such acts may
include, but are not limited to, execution of documents and assistance or
cooperation in legal proceedings. However, the Company agrees to limit such
necessary or desirable acts (and the time needed to perform such acts) to permit
and assist it in obtaining and enforcing the full benefits, enjoyment, rights
and title throughout the world in the Inventions. Further, the timing and
scheduling of such acts shall be mutually acceptable to me and the Company.
6. If the Company is unable for any reason to secure my signature to
apply for or to pursue any application for any United States or foreign letters
patent or mask work or copyright registration covering inventions, mask works or
original works of authorship assigned to the Company as above, then I hereby
irrevocably designate and appoint the Company and its duly authorized officers
and agents as my agent and attorney in fact, to act for and in my behalf and
stead to execute and file any such applications and to do all other lawfully
permitted acts to further the prosecution and issuance of letters patent or mask
work or copyright registrations thereon with the same legal force and effect as
if executed by me. I hereby waive and quitclaim to the Company any and all
claims, of any nature whatsoever, which I now or may hereafter have for
infringement of any patents, mask works or copyrights resulting from any such
application for letters patent or mask work or copyright registrations assigned
hereunder to the Company.
7. I agree to hold in confidence and not directly or indirectly use or
disclose, either during or after termination of my employment or consulting
relationship with the Company, any Confidential Information I obtain or create
during the period of my employment or consulting relationship, whether or not
during working hours, except to the extent authorized by the Company, until such
Confidential Information becomes generally known. I agree not to make copies
of such Confidential Information except as authorized by the Company. Upon
termination of my employment or consulting relationship or upon an earlier
request of the Company, I will return or deliver to the Company all tangible
forms of such Confidential Information in my possession or control, including
but not limited to drawings, specifications, documents, records, devices, models
or any other material and copies or reproductions thereof.
8. I represent that my performance of all the terms of this Agreement and
as an employee of or consultant to the Company does not and will not breach any
agreement to keep in confidence proprietary information, knowledge or data
acquired by me in confidence or in trust prior to my becoming an employee or
consultant of the Company, and I will not disclose to the Company, or induce the
Company to use, any confidential or proprietary information or material
belonging to
<PAGE>
any previous employer or others. I agree not to enter into any agreement either
written or oral in conflict with the provisions of this Agreement.
9. I represent that I am joining the Company as an employee or consultant
of my own free will and that I have not been solicited as an employee or
consultant in any way by the Company.
10. I recognize that the Company has received and in the future may
receive from third parties their confidential or proprietary information subject
to a duty on the Company's part to maintain the confidentiality of such
information and to use it only for certain limited purposes. I agree that I owe
the Company and such third parties, during the term of my employment or
consulting relationship with the Company and thereafter, a duty to hold all such
confidential or proprietary information in the strictest confidence and not to
disclose such information (except as necessary in carrying out my work for the
Company consistent with the Company's agreement with such third party) or to use
such information for the benefit of anyone other than the Company or such third
party (consistent with the Company's agreement with such third party) without
the prior written consent of the Company.
11. During the period of my employment or consulting relationship with the
Company and for one year thereafter, I will not encourage or solicit any
employee or consultant of the Company to terminate their relationship with the
Company for any or no reason. Further, for a period of one year after my
employment or consulting relationship with the Company, I will not solicit any
licensor to or customer of the Company or licensee of the Company's products, in
each case that are known to me, with respect to any business, products or
services that are competitive to the products or services offered by the Company
or under development as of the last date of my employment or consulting
relationship with the Company.
12. This Agreement (a) shall survive my employment by or consulting
relationship with the Company, (b) does not in any way restrict my right or the
right of the Company to terminate my employment or consulting relationship, (c)
inures to the benefit of successors and assigns of the Company, and (d) is
binding upon my heirs and legal representatives.
13. This Agreement does not apply to an Invention which qualifies fully
under the provisions of Section 2870 of the Labor Code, a copy of which is
attached hereto as Exhibit A. I agree to disclose all Inventions made by me in
confidence to the Company to permit a determination as to whether or not the
Inventions should be the property of the Company.
14. I certify that, to the best of my information and belief, I am not a
party to any other agreement which will interfere with my full compliance with
this Agreement.
15. I certify and acknowledge that I have carefully read all of the
provisions of this Agreement and that I understand and will fully and faithfully
comply with such provisions.
NETCENTIVES INC. EMPLOYEE
<PAGE>
By: /s/ Eric W. Tilenius West Shell, III
-------------------- --------------------------------
(Type or Print Name)
Title: President /s/ West Shell III
------------------ ------------------------------
(Signature)
Dated: 6/26, 1997
------------------
<PAGE>
ATTACHMENT
List of Inventions
------------------
<PAGE>
EXHIBIT A
Section 2870 of the California Labor Code is as follows:
(a) Any provision in an employment agreement which provides that an
employee shall assign, or offer to assign, any of his or her rights in an
invention to his or her employer shall not apply to an invention that the
employee developed entirely on his or her own time without using the employer's
equipment, supplies, facilities, or trade secret information except for those
inventions that either:
(1) Relate at the time of conception or reduction to practice of the
invention to the employer's business, or actual or demonstrably anticipated
research or development of the employer.
(2) Result from any work performed by the employee for the employer.
(b) To the extent a provision in an employment agreement purports to
require an employee to assign an invention otherwise excluded from being
required to be assigned under subdivision (a), the provision is against the
public policy of this state and is unenforceable.
<PAGE>
EXHIBIT B
---------
COMMON STOCK PURCHASE AGREEMENT
-9-
<PAGE>
NETCENTIVES INC.
COMMON STOCK PURCHASE AGREEMENT
-------------------------------
This Common Stock Purchase Agreement (the "Agreement") is made as of August
---------
29, 1997 by and between Netcentives Inc., a California corporation (the
"Company"), and West Shell, III ("Purchaser").
------- ---------
1. SALE OF STOCK. Subject to the terms and conditions of this Agreement,
-------------
on the Purchase Date (as defined below) the Company will issue and sell to
Purchaser, and Purchaser agrees to purchase from the Company, 500,000 shares of
the Company's Common Stock (the "Shares") at a purchase price of $0.12 per Share
------
for a total purchase price of $60,000. The term "Shares" refers to the
purchased Shares and all securities received in replacement of or in connection
with the Shares pursuant to stock dividends or splits, all securities received
in replacement of the Shares in a recapitalization, merger, reorganization,
exchange or the like, and all new, substituted or additional securities or other
properties to which Purchaser is entitled by reason of Purchaser's ownership of
the Shares.
2. PURCHASE. The purchase and sale of the Shares under this Agreement
--------
shall occur at the principal office of the Company simultaneously with the
execution of this Agreement by the parties, or on such other date as the Company
and Purchaser shall agree (the "Purchase Date"). On the Purchase Date, the
-------------
Company will deliver to Purchaser a certificate representing the Shares to be
purchased by Purchaser (which shall be issued in Purchaser's name) against
payment of the purchase price therefor by Purchaser by delivery of a promissory
note in the form attached as Exhibit A to this Agreement and a Pledge and
---------
Security Agreement in the form attached as Exhibit B to this Agreement.
---------
3. LIMITATIONS ON TRANSFER. In addition to any other limitation on
-----------------------
transfer created by applicable securities laws, Purchaser shall not assign,
encumber or dispose of any interest in the Shares while the Shares are subject
to the Company's Repurchase Option (as defined below), except as provided below.
After any Shares have been released from the Repurchase Option, Purchaser shall
not assign, encumber or dispose of any interest in such Shares except in
compliance with the provisions below and applicable securities laws.
(a) REPURCHASE OPTION.
-----------------
(i) In the event of the voluntary or involuntary termination of
Purchaser's employment or consulting relationship with the Company for any
reason (including death or disability), with or without cause, the Company shall
upon the date of such termination (the "Termination Date") have an irrevocable,
----------------
exclusive option (the "Repurchase Option") for a period of 60 days from such
-----------------
date to repurchase all or any portion of the Shares held by Purchaser as of the
Termination Date which have not yet been released from the Company's Repurchase
Option at the original purchase price per Share specified in Section 1 (adjusted
for any stock splits, stock dividends and the like); provided, however, that the
-------- -------
Repurchase Option shall continue for a period of up to one year from the
Termination Date to the extent that the Company reasonably determines that such
an extension of time is necessary to prevent the repurchase of
<PAGE>
Purchaser's Shares from causing other capital stock of the Company to not
qualify as "small business stock" under Section 1202 of the Internal Revenue
Code of 1986, as amended.
(ii) The Repurchase Option shall be exercised by the Company by
written notice to Purchaser or Purchaser's executor and, at the Company's
option, (A) by delivery to Purchaser or Purchaser's executor with such notice of
a check in the amount of the purchase price for the Shares being purchased, or
(B) in the event Purchaser is indebted to the Company, by cancellation by the
Company of an amount of such indebtedness equal to the purchase price for the
Shares being repurchased, or (C) by a combination of (A) and (B) so that the
combined payment and cancellation of indebtedness equals such purchase price.
Upon delivery of such notice and payment of the purchase price in any of the
ways described above, the Company shall become the legal and beneficial owner of
the Shares being repurchased and all rights and interest therein or related
thereto, and the Company shall have the right to transfer to its own name the
number of Shares being repurchased by the Company, without further action by
Purchaser.
(iii) One hundred percent (100%) of the Shares shall initially be
subject to the Repurchase Option. 1/8th of the Shares shall be released from
the Repurchase Option on the date that is six (6) months after the Vesting
Commencement Date (as set forth on the signature page of this Agreement), and
1/48th of the total number of Shares shall be release from the Repurchase Option
at the end of each month thereafter, until all Shares are released from the
Repurchase Option (provided in each case that Purchaser's employment or
consulting relationship with the Company has not been terminated prior to the
date of any such release); provided, however, that in the event that the Company
-----------------
is merged or acquired or substantially all of the Company's assets are sold in a
transaction in which the Company's shareholders immediately prior to such
transaction hold less than 50% of the outstanding capital stock of the surviving
entity immediately after such transaction, all of the Shares will be released
from such Repurchase Option. Notwithstanding anything herein to the contrary,
in the event that during the term of the Employment Agreement between the
Company and the Purchaser dated June 26, 1997 (the "Employment Agreement"),
--------------------
Purchaser's employment with the Company is terminated pursuant to an Involuntary
Termination (as defined in the Employment Agreement) such Repurchase Option
shall immediately lapse on the date of such Involuntary Termination with respect
to 1/4th of the Shares, in addition to any Shares which have already been
released from such Repurchase Option. Fractional shares shall be rounded to the
nearest whole share.
(b) RIGHT OF FIRST REFUSAL. Before any Shares held by Purchaser or
----------------------
any transferee of Purchaser (either being sometimes referred to herein as the
"Holder") may be sold or otherwise transferred (including transfer by gift or
- -------
operation of law), the Company or its assignee(s) shall have a right of first
refusal to purchase the Shares on the terms and conditions set forth in this
Section 3(b) (the "Right of First Refusal").
----------------------
(i) NOTICE OF PROPOSED TRANSFER. The Holder of the Shares shall
---------------------------
deliver to the Company a written notice (the "Notice") stating: (A) the
------
Holder's bona fide intention to sell or otherwise transfer such Shares; (B) the
name of each proposed purchaser or other transferee ("Proposed Transferee"); (C)
-------------------
the number of Shares to be transferred to each
-2-
<PAGE>
Proposed Transferee; and (D) the terms and conditions of each proposed sale or
transfer. The Holder shall offer the Shares at the same price (the "Offered
-------
Price") and upon the same terms (or terms as similar as reasonably possible) to
- -----
the Company or its assignee(s).
(ii) EXERCISE OF RIGHT OF FIRST REFUSAL. At any time within thirty
----------------------------------
(30) days after receipt of the Notice, the Company and/or its assignee(s) may,
by giving written notice to the Holder, elect to purchase all, but not less than
all, of the Shares proposed to be transferred to any one or more of the Proposed
Transferees, at the purchase price determined in accordance with subsection
(iii) below.
(iii) PURCHASE PRICE. The purchase price ("Purchase Price") for the
-------------- --------------
Shares purchased by the Company or its assignee(s) under this Section 3(b) shall
be the Offered Price. If the Offered Price includes consideration other than
cash, the cash equivalent value of the non-cash consideration shall be
determined by the Board of Directors of the Company in good faith.
(iv) PAYMENT. Payment of the Purchase Price shall be made, at the
-------
option of the Company or its assignee(s), in cash (by check), by cancellation of
all or a portion of any outstanding indebtedness of the Holder to the Company
(or, in the case of repurchase by an assignee, to the assignee), or by any
combination thereof within thirty (30) days after receipt of the Notice or in
the manner and at the times set forth in the Notice.
(v) HOLDER'S RIGHT TO TRANSFER. If all of the Shares proposed in the
--------------------------
Notice to be transferred to a given Proposed Transferee are not purchased by the
Company and/or its assignee(s) as provided in this Section 3(b), then the Holder
may sell or otherwise transfer such Shares to that Proposed Transferee at the
Offered Price or at a higher price, provided that such sale or other transfer is
consummated within sixty (60) days after the date of the Notice and provided
further that any such sale or other transfer is effected in accordance with any
applicable securities laws and the Proposed Transferee agrees in writing that
the provisions of this Section 3 shall continue to apply to the Shares in the
hands of such Proposed Transferee. If the Shares described in the Notice are not
transferred to the Proposed Transferee within such period, or if the Holder
proposes to change the price or other terms to make them more favorable to the
Proposed Transferee, a new Notice shall be given to the Company, and the Company
and/or its assignees shall again be offered the Right of First Refusal before
any Shares held by the Holder may be sold or otherwise transferred.
(vi) EXCEPTION FOR CERTAIN FAMILY TRANSFERS. Anything to the contrary
--------------------------------------
contained in this Section 3(b) notwithstanding, the transfer of any or all of
the Shares during Purchaser's lifetime or on Purchaser's death by will or
intestacy to Purchaser's Immediate Family or a trust for the benefit of
Purchaser's Immediate Family shall be exempt from the provisions of this Section
3(b). "Immediate Family" as used herein shall mean spouse, lineal descendant or
----------------
antecedent, father, mother, brother or sister. In such case, the transferee or
other recipient shall receive and hold the Shares so transferred subject to the
provisions of this Section, and there shall be no further transfer of such
Shares except in accordance with the terms of this Section 3.
-3-
<PAGE>
(c) INVOLUNTARY TRANSFER.
--------------------
(i) COMPANY'S RIGHT TO PURCHASE UPON INVOLUNTARY TRANSFER. In
-----------------------------------------------------
the event, at any time after the date of this Agreement, of any transfer by
operation of law or other involuntary transfer (including death or divorce, but
excluding a transfer to Immediate Family as set forth in Section 3(b)(vi) above)
of all or a portion of the Shares by the record holder thereof, the Company
shall have an option to purchase all of the Shares transferred at the greater of
the purchase price paid by Purchaser pursuant to this Agreement or the fair
market value of the Shares on the date of transfer. Upon such a transfer, the
person acquiring the Shares shall promptly notify the Secretary of the Company
of such transfer. The right to purchase such Shares shall be provided to the
Company for a period of thirty (30) days following receipt by the Company of
written notice by the person acquiring the Shares.
(ii) PRICE FOR INVOLUNTARY TRANSFER. With respect to any stock to
------------------------------
be transferred pursuant to Section 3(c)(i), the price per Share shall be a price
set by the Board of Directors of the Company that will reflect the current value
of the stock in terms of present earnings and future prospects of the Company,
without any minority discount. The Company shall notify Purchaser or his or her
executor of the price so determined within thirty (30) days after receipt by it
of written notice of the transfer or proposed transfer of Shares. However, if
the Purchaser does not agree with the valuation as determined by the Board of
Directors of the Company, the Purchaser shall be entitled to have the valuation
determined by an independent appraiser to be mutually agreed upon by the Company
and the Purchaser and whose fees shall be borne equally by the Company and the
Purchaser.
(d) ASSIGNMENT. The right of the Company to purchase any part of the
----------
Shares may be assigned in whole or in part to any shareholder or shareholders of
the Company or other persons or organizations; provided, however, that an
-----------------
assignee, other than a corporation that is the parent or a 100% owned subsidiary
of the Company, must pay the Company, upon assignment of such right, cash equal
to the difference between the original purchase price and fair market value, if
the original purchase price is less than the fair market value of the Shares
subject to the assignment.
(e) RESTRICTIONS BINDING ON TRANSFEREES. All transferees of Shares or
-----------------------------------
any interest therein will receive and hold such Shares or interest subject to
the provisions of this Agreement, including, insofar as applicable, the
Repurchase Option. Any sale or transfer of the Company's Shares shall be void
unless the provisions of this Agreement are met.
(f) TERMINATION OF RIGHTS. The right of first refusal granted the
---------------------
Company by Section 3(b) above and the option to repurchase the Shares in the
event of an involuntary transfer granted the Company by Section 3(c) above shall
terminate upon the first sale of Common Stock of the Company to the general
public pursuant to a registration statement filed with and declared effective by
the Securities and Exchange Commission under the Securities Act of 1933, as
amended (the "Securities Act"). Upon termination of the right of first refusal
--------------
described in Section 3(b) and the expiration or exercise of the Repurchase
Option, a new certificate or
-4-
<PAGE>
certificates representing the Shares not repurchased shall be issued, on
request, without the legend referred to in Section 6(a)(ii) below and delivered
to Purchaser.
4. ESCROW OF UNVESTED SHARES. For purposes of facilitating the
-------------------------
enforcement of the provisions of Section 3 above, Purchaser agrees, immediately
upon receipt of the certificate(s) for the Shares subject to the Repurchase
Option, to deliver such certificate(s), together with an Assignment Separate
from Certificate in the form attached to this Agreement as Exhibit C executed by
---------
Purchaser and by Purchaser's spouse (if required for transfer), in blank, to the
Secretary of the Company, or the Secretary's designee, to hold such
certificate(s) and Assignment Separate from Certificate in escrow and to take
all such actions and to effectuate all such transfers and/or releases as are in
accordance with the terms of this Agreement. Purchaser hereby acknowledges that
the Secretary of the Company, or the Secretary's designee, is so appointed as
the escrow holder with the foregoing authorities as a material inducement to
make this Agreement and that said appointment is coupled with an interest and is
accordingly irrevocable. Purchaser agrees that said escrow holder shall not be
liable to any party hereof (or to any other party), except for any acts of
willful misconduct by said escrow holder. The escrow holder may rely upon any
letter, notice or other document executed by any signature purported to be
genuine and may resign at any time. Purchaser agrees that if the Secretary of
the Company, or the Secretary's designee, resigns as escrow holder for any or no
reason, the Board of Directors of the Company shall have the power to appoint a
successor to serve as escrow holder pursuant to the terms of this Agreement.
5. INVESTMENT AND TAXATION REPRESENTATIONS. In connection with the
---------------------------------------
purchase of the Shares, Purchaser represents to the Company the following:
(a) Purchaser is aware of the Company's business affairs and financial
condition and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the Shares. Purchaser is
purchasing the Shares for investment for his or her own account only and not
with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act.
(b) Purchaser understands that the Shares have not been registered
under the Securities Act by reason of a specific exemption therefrom, which
exemption depends upon, among other things, the bona fide nature of Purchaser's
investment intent as expressed herein.
(c) Purchaser understands that the Shares are "restricted securities"
under applicable U.S. federal and state securities laws and that, pursuant to
these laws, Purchaser must hold the Shares indefinitely unless they are
registered with the Securities and Exchange Commission and qualified by state
authorities, or an exemption from such registration and qualification
requirements is available. Purchaser acknowledges that the Company has no
obligation to register or qualify the Shares for resale. Purchaser further
acknowledges that if an exemption from registration or qualification is
available, it may be conditioned on various requirements including, but not
limited to, the time and manner of sale, the holding period for the Shares, and
requirements relating to the Company which are outside of the Purchaser's
control, and which the Company is under no obligation and may not be able to
satisfy.
-5-
<PAGE>
(d) Purchaser understands that Purchaser may suffer adverse tax
consequences as a result of Purchaser's purchase or disposition of the Shares.
Purchaser represents that Purchaser has consulted any tax consultants Purchaser
deems advisable in connection the purchase or disposition of the Shares and that
Purchaser is not relying on the Company for any tax advice.
6. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS.
--------------------------------------------
(a) LEGENDS. The certificate or certificates representing the Shares
-------
shall bear the following legends (as well as any legends required by applicable
state and federal corporate and securities laws):
(i) THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN
CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH
SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF
COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF
1933.
(ii) THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE
TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF AN
AGREEMENT BETWEEN THE COMPANY AND THE SHAREHOLDER, A COPY
OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.
(iii) Any legend required to be placed thereon by the California
Commissioner of Corporations.
(b) STOP-TRANSFER NOTICES. Purchaser agrees that, in order to ensure
---------------------
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) REFUSAL TO TRANSFER. The Company shall not be required (i) to
-------------------
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
-6-
<PAGE>
7. NO EMPLOYMENT RIGHTS. Nothing in this Agreement shall affect in any
--------------------
manner whatsoever the right or power of the Company, or a parent or subsidiary
of the Company, to terminate Purchaser's employment, for any reason, with or
without cause.
8. SECTION 83(B) ELECTION. Purchaser understands that Section 83(a) of
----------------------
the Internal Revenue Code of 1986, as amended (the "Code"), taxes as ordinary
----
income the difference between the amount paid for the Shares and the fair market
value of the Shares as of the date any restrictions on the Shares lapse. In
this context, "restriction" means the right of the Company to buy back the
-----------
Shares pursuant to the Repurchase Option set forth in Section 3(a) of this
Agreement. Purchaser understands that Purchaser may elect to be taxed at the
time the Shares are purchased, rather than when and as the Repurchase Option
expires, by filing an election under Section 83(b) (an "83(b) Election") of the
--------------
Code with the Internal Revenue Service within 30 days from the date of purchase.
Even if the fair market value of the Shares at the time of the execution of this
Agreement equals the amount paid for the Shares, the election must be made to
avoid income under Section 83(a) in the future. Purchaser understands that
failure to file such an election in a timely manner may result in adverse tax
consequences for Purchaser. Purchaser further understands that an additional
copy of such election form should be filed with his or her federal income tax
return for the calendar year in which the date of this Agreement falls.
Purchaser acknowledges that the foregoing is only a summary of the effect of
United States federal income taxation with respect to purchase of the Shares
hereunder, and does not purport to be complete. Purchaser further acknowledges
that the Company has directed Purchaser to seek independent advice regarding the
applicable provisions of the Code, the income tax laws of any municipality,
state or foreign country in which Purchaser may reside, and the tax consequences
of Purchaser's death.
Purchaser agrees that he will execute and deliver to the Company with
this executed Agreement a copy of the Acknowledgment and Statement of Decision
Regarding Section 83(b) Election (the "Acknowledgment"), attached hereto as
--------------
Exhibit D. Purchaser further agrees that Purchaser will execute and submit with
- ---------
the Acknowledgment a copy of the 83(b) Election, attached hereto as Exhibit E,
---------
if Purchaser has indicated in the Acknowledgment his or her decision to make
such an election.
9. MARKET STANDOFF AGREEMENT. In connection with the initial public
-------------------------
offering of the Company's securities and upon request of the Company or the
underwriters managing any underwritten offering of the Company's securities,
Purchaser agrees not to sell, make any short sale of, loan, grant any option for
the purchase of, or otherwise dispose of any Shares (other than those included
in the registration) without the prior written consent of the Company or such
underwriters, as the case may be, for such period of time (not to exceed 180
days) from the effective date of such registration as may be requested by the
Company or such managing underwriters and to execute an agreement reflecting the
foregoing as may be requested by the underwriters at the time of the public
offering.
-7-
<PAGE>
10. MISCELLANEOUS.
-------------
(a) GOVERNING LAW. This Agreement and all acts and transactions
-------------
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
California, without giving effect to principles of conflicts of law.
(b) ENTIRE AGREEMENT; ENFORCEMENT OF RIGHTS. This Agreement sets
---------------------------------------
forth the entire agreement and understanding of the parties relating to the
subject matter herein and merges all prior discussions between them. No
modification of or amendment to this Agreement, nor any waiver of any rights
under this Agreement, shall be effective unless in writing signed by the parties
to this Agreement. The failure by either party to enforce any rights under this
Agreement shall not be construed as a waiver of any rights of such party.
(c) SEVERABILITY. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of the Agreement shall be enforceable in accordance with its terms.
(d) CONSTRUCTION. This Agreement is the result of negotiations
------------
between and has been reviewed by each of the parties hereto and their respective
counsel, if any; accordingly, this Agreement shall be deemed to be the product
of all of the parties hereto, and no ambiguity shall be construed in favor of or
against any one of the parties hereto.
(e) NOTICES. Any notice required or permitted by this Agreement shall
-------
be in writing and shall be deemed sufficient when delivered personally or sent
by telegram or fax or forty-eight (48) hours after being deposited in the U.S.
mail, as certified or registered mail, with postage prepaid, and addressed to
the party to be notified at such party's address as set forth below or as
subsequently modified by written notice.
(f) COUNTERPARTS. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(g) SUCCESSORS AND ASSIGNS. The rights and benefits of this Agreement
----------------------
shall inure to the benefit of, and be enforceable by the Company's successors
and assigns. The rights and obligations of Purchaser under this Agreement may
only be assigned with the prior written consent of the Company.
(h) CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES
-----------------------------------
WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF THE
SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR
PRIOR TO THE
-8-
<PAGE>
QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT
FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON THE QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
[SIGNATURE PAGE FOLLOWS]
-9-
<PAGE>
The parties have executed this Agreement as of the date first set forth
above.
NETCENTIVES, INC.
/s/ Elliot Ng
----------------------------------------
Elliott S. Ng, Vice President
Address: 2121 El Camino Real, Suite 615
San Mateo, CA 94403
PURCHASER ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO
SECTION 3 HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS AN EMPLOYEE AT THE WILL
OF THE COMPANY. PURCHASER FURTHER ACKNOWLEDGES AND AGREES THAT ALL OF
PURCHASER'S RIGHTS WITH RESPECT TO EMPLOYMENT WITH THE COMPANY ARE SET FORTH IN
THE EMPLOYMENT AGREEMENT, AND NOTHING IN THIS AGREEMENT SHALL INTERFERE IN ANY
WAY WITH PURCHASER'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE PURCHASER'S
EMPLOYMENT RELATIONSHIP AT ANY TIME, WITH OR WITHOUT CAUSE IN ACCORDANCE WITH
THE EMPLOYMENT AGREEMENT.
PURCHASER:
WEST SHELL, III
/s/ West Shell, III
----------------------------------------
(Signature)
Address: 2765 Union Street
San Francisco, CA 94123
Vesting Commencement
Date: June 26, 1997
I, Sarah S. Ward, spouse of West Shell, III, have read and hereby approve the
-------------
foregoing Agreement. In consideration of the Company's granting my spouse the
right to purchase the Shares as set forth in the Agreement, I hereby agree to be
irrevocably bound by the Agreement and further agree that any community property
or other such interest shall be similarly bound by the Agreement. I hereby
appoint my spouse as my attorney-in-fact with respect to any amendment or
exercise of any rights under the Agreement.
/s/ Sarah S. Ward
-------------------------
Spouse of West Shell, III
-10-
<PAGE>
EXHIBIT A
---------
PROMISSORY NOTE
---------------
$60,000.00 San Mateo, California
August 29, 1997
For value received, the undersigned promises to pay Netcentives Inc., a
California corporation (the "Company"), at its principal office the principal
-------
sum of $60,000.00 with interest from the date hereof at a rate of 6.29% per
annum, compounded semiannually, on the unpaid balance of such principal sum.
Such principal and interest shall be due and payable on August 29, 2001.
If the undersigned's employment or consulting relationship with the Company
is terminated prior to payment in full of this Note, this Note shall be due and
payable sixty (60) days after the date of such termination.
Principal and interest are payable in lawful money of the United States of
America. AMOUNTS DUE UNDER THIS NOTE MAY BE PREPAID AT ANY TIME WITHOUT
INTEREST OR PENALTY.
Should suit be commenced to collect any sums due under this Note, such sum
as the Court may deem reasonable shall be added hereto as attorneys' fees. The
makers and endorsers have severally waived presentment for payment, protest,
notice of protest, and notice of nonpayment of this Note.
This Note, which is full recourse, is secured by a pledge of certain shares
of Common Stock of the Company and is subject to the terms of a Pledge and
Security Agreement between the undersigned and the Company of even date
herewith.
/s/ West Shell III
--------------------------------
West Shell, III
<PAGE>
EXHIBIT B
---------
PLEDGE AND SECURITY AGREEMENT
-----------------------------
This Pledge and Security Agreement (the "Agreement") is entered into this
---------
29 day of August, 1997 by and between Netcentives Inc., a California corporation
(the "Company") and West Shell III ("Purchaser").
------- ---------
RECITALS
--------
In connection with Purchaser's purchase of certain shares of the Company's
Common Stock (the "Shares") pursuant to a Common Stock Purchase Agreement of
------
even date herewith between Purchaser and the Company, Purchaser is delivering a
promissory note of even date herewith (the "Note") in full or partial payment of
----
the exercise price for the Shares. The company requires that the Note be
secured by a pledge of the Shares on the terms set forth below.
AGREEMENT
---------
In consideration of the Company's acceptance of the Note as full or partial
payment of the exercise price of the Shares, and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties hereto
agree as follows:
1. The Note shall become payable in full upon the voluntary or involuntary
termination or cessation of employment of Purchaser with the Company, for any
reason, with or without cause (including death or disability).
2. Purchaser shall deliver to the Secretary of the Company, or his or her
designee (hereinafter referred to as the "Pledge Holder"), all certificates
-------------
representing the Shares, together with an Assignment Separate from Certificate
in the form attached to this Agreement as Attachment A executed by Purchaser and
------------
by Purchaser's spouse (if required for transfer), in blank, for use in
transferring all or a portion of the Shares to the Company if, as and when
required pursuant to this Agreement. In addition, if Purchaser is married,
Purchaser's spouse shall execute the signature page attached to this Agreement.
3. As security for the payment of the Note and any renewal, extension or
modification of the Note, Purchaser hereby grants to the Company a security
interest in and pledges with and delivers to the Company Purchaser's Shares
(sometimes referred to herein as the "Collateral").
----------
4. In the event that Purchaser prepays all or a portion of the Note, in
accordance with the provisions thereof, Purchaser intends, unless written notice
to the contrary is delivered to the Pledge Holder, that the Shares represented
by the portion of the Note so repaid, including annual interest thereon, shall
continue to be so held by the Pledge Holder, to serve as independent collateral
for the outstanding portion of the Note for the purpose of commencing the
holding
<PAGE>
period set forth in Rule 144(d) promulgated under the Securities Act of 1933, as
amended (the "Securities Act").
--------------
5. In the event of any foreclosure of the security interest created by
this Agreement, the Company may sell the Shares at a private sale or may
repurchase the Shares itself. The parties agree that, prior to the
establishment of a public market for the Shares of the Company, the securities
laws affecting sale of the Shares make a public sale of the Shares commercially
unreasonable. The parties further agree that the repurchasing of such Shares by
the Company, or by any person to whom the Company may have assigned its rights
under this Agreement, is commercially reasonable if made at a price determined
by the Board of Directors in its discretion, fairly exercised, representing what
would be the fair market value of the Shares reduced by any limitation on
transferability, whether due to the size of the block of shares or the
restrictions of applicable securities laws.
6. In the event of default in payment when due of any indebtedness under
the Note, the Company may elect then, or at any time thereafter, to exercise all
rights available to a secured party under the California Commercial Code
including the right to sell the Collateral at a private or public sale or
repurchase the Shares as provided above. The proceeds of any sale shall be
applied in the following order:
(a) To the extent necessary, proceeds shall be used to pay all
reasonable expenses of the Company in enforcing this Agreement and the Note,
including, without limitation, reasonable attorney's fees and legal expenses
incurred by the Company.
(b) To the extent necessary, proceeds shall be used to satisfy any
remaining indebtedness under Purchaser's Note.
(c) Any remaining proceeds shall be delivered to Purchaser.
7. Upon full payment by Purchaser of all amounts due under the Note,
Pledge Holder shall deliver to Purchaser all Shares in Pledge Holder's
possession belonging to Purchaser, and Pledge Holder shall thereupon be
discharged of all further obligations under this Agreement; provided, however,
-------- -------
that Pledge Holder shall nevertheless retain the Shares as escrow agent if at
the time of full payment by Purchaser said Shares are still subject to a
Repurchase Option in favor of the Company.
-2-
<PAGE>
The parties have executed this Pledge and Security Agreement as of the date
first set forth above.
COMPANY:
NETCENTIVES INC.
/s/ Elliott Ng
-------------------------------------
Elliott S. Ng, Vice President
Address:
2121 El Camino Real, Suite 615
San Mateo, CA 94403
PURCHASER:
WEST SHELL, III
/s/ West Shell III
-------------------------------------
(Signature)
Address:
2765 Union Street
San Francisco, CA 94123
-3-
<PAGE>
ATTACHMENT A
------------
ASSIGNMENT SEPARATE FROM CERTIFICATE
------------------------------------
FOR VALUE RECEIVED and pursuant to that certain Pledge and Security
Agreement between the undersigned ("Purchaser") and Netcentives Inc. (the
--------
"Company") dated August ___, 1997 (the "Agreement"), Purchaser hereby sells,
- -------- ---------
assigns and transfers unto the Company _______________________________
(________) shares of the Common Stock of the Company standing in Purchaser's
name on the Company's books and represented by Certificate No. _____, and hereby
irrevocably appoints _______________________ to transfer said stock on the books
of the Company with full power of substitution in the premises. THIS ASSIGNMENT
MAY ONLY BE USED AS AUTHORIZED BY THE AGREEMENT.
Dated: ____________
Signature:
/s/ West Shell III
-------------------------------------------
West Shell, III
/s/ S. Ward
-------------------------------------------
Spouse of West Shell, III (if applicable)
Instruction: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to perfect the security interest of the
Company pursuant to the Agreement.
<PAGE>
EXHIBIT C
---------
ASSIGNMENT SEPARATE FROM CERTIFICATE
------------------------------------
FOR VALUE RECEIVED and pursuant to that certain Common Stock Purchase
Agreement between the undersigned ("Purchaser") and Netcentives Inc. (the
---------
"Company") dated _______________ (the "Agreement"), Purchaser hereby sells,
- -------- ---------
assigns and transfers unto the Company _________________________________
(________) shares of the Common Stock of the Company standing in Purchaser's
name on the Company's books and represented by Certificate No. ______, and does
hereby irrevocably constitute and appoint _____________________________ to
transfer said stock on the books of the Company with full power of substitution
in the premises. THIS ASSIGNMENT MAY ONLY BE USED AS AUTHORIZED BY THE
AGREEMENT AND THE EXHIBITS THERETO.
Dated: ______________________
Signature:
/s/ West Shell III
--------------------------------
West Shell, III
/s/ S. Ward
-----------------------------------------
Spouse of West Shell, III (if applicable)
Instruction: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to enable the Company to exercise its
repurchase option set forth in the Agreement without requiring additional
signatures on the part of Purchaser.
<PAGE>
EXHIBIT D
---------
ACKNOWLEDGMENT AND STATEMENT OF DECISION
-----------------------------------------
REGARDING SECTION 83(B) ELECTION
--------------------------------
The undersigned has entered a stock purchase agreement with Netcentives
Inc., a California corporation (the "Company"), pursuant to which the
-------
undersigned is purchasing 500,000 shares of Common Stock of the Company (the
"Shares"). In connection with the purchase of the Shares, the undersigned
- -------
hereby represents as follows:
1. The undersigned has carefully reviewed the stock purchase agreement
pursuant to which the undersigned is purchasing the Shares.
2. The undersigned either [check and complete as applicable]:
(a) ____ has consulted, and has been fully advised by, the undersigned's
own tax advisor, __________________________, whose business address is
_____________________________, regarding the federal, state and local
tax consequences of purchasing the Shares, and particularly regarding
the advisability of making elections pursuant to Section 83(b) of the
Internal Revenue Code of 1986, as amended (the "Code") and pursuant to
----
the corresponding provisions, if any, of applicable state law; or
(b) ____ has knowingly chosen not to consult such a tax advisor.
3. The undersigned hereby states that the undersigned has decided [check
as applicable]:
(a) ____ to make an election pursuant to Section 83(b) of the Code, and is
submitting to the Company, together with the undersigned's executed
Common Stock Purchase Agreement, an executed form entitled "Election
Under Section 83(b) of the Internal Revenue Code of 1986;" or
(b) ____ not to make an election pursuant to Section 83(b) of the Code.
4. Neither the Company nor any subsidiary or representative of the
Company has made any warranty or representation to the undersigned with respect
to the tax consequences of the undersigned's purchase of the Shares or of the
making or failure to make an election pursuant to Section 83(b) of the Code or
the corresponding provisions, if any, of applicable state law.
Date:___________________ ______________________________
West Shell, III
Date:___________________ ______________________________
Spouse of West Shell, III
<PAGE>
ELECTION UNDER SECTION 83(B)
----------------------------
OF THE INTERNAL REVENUE CODE OF 1986
------------------------------------
The undersigned taxpayer hereby elects, pursuant to Section 83(b) of the
Internal Revenue Code, to include in taxpayer's gross income for the current
taxable year, the amount of any compensation taxable to taxpayer in connection
with taxpayer's receipt of the property described below:
1. The name, address, taxpayer identification number and taxable year of the
undersigned are as follows:
NAME OF TAXPAYER: West Shell, III
NAME OF SPOUSE: ______________________
ADDRESS: 2765 Union Street
San Francisco, CA 94123
IDENTIFICATION NO. OF TAXPAYER: ________________
IDENTIFICATION NO. OF SPOUSE: ___________________
TAXABLE YEAR: 1997
2. The property with respect to which the election is made is described as
follows:
500,000 shares of the Common Stock $0.001 par value, of Netcentives Inc., a
California corporation (the "Company").
3. The date on which the property was transferred is: August ___, 1997
4. The property is subject to the following restrictions:
Repurchase option at cost in favor of the Company upon termination of
taxpayer's employment or consulting relationship.
5. The fair market value at the time of transfer, determined without regard to
any restriction other than a restriction which by its terms will never
lapse, of such property is: $60,000.00.
6. The amount (if any) paid for such property: $60,000.00
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
The undersigned understands that the foregoing election may not be revoked
- --------------------------------------------------------------------------
except with the consent of the Commissioner.
- -------------------------------------------
Dated: ______________________ _________________________________
Taxpayer
Dated: ______________________ _________________________________
Spouse of Taxpayer
<PAGE>
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment to Employment Agreement (the "Amendment") is entered into by
---------
and between West Shell, III ("Employee") and Netcentives Inc., a California
--------
corporation (the "Company") effective for all purposes as of October 29, 1998.
-------
RECITALS
The Company and Employee have entered into an Employment Agreement dated
June 26, 1997 (the "Employment Agreement"). In consideration for Employee's
--------------------
past service to the Company, the Company wishes to continue to employ Employee
and Employee wishes to continue to be employed by the Company, with certain
modifications to their existing relationship.
AGREEMENT
In consideration for the mutual promises contained herein, and for other
good and valuable consideration, the Employment Agreement is hereby amended as
follows:
1. Section 1. The parties hereby mutually agree to extend the term of the
---------
Employment Agreement to two (2) years from the date hereof such that the
Employment Agreement shall terminate on October 29, 2000, unless extended in
accordance with the terms of Section 1 of the Employment Agreement, in writing.
2. Section 4(a). In accordance with the terms of the Employment
------------
Agreement, and in connection with the extension of the term of the Employment
Agreement described in Section 1 hereof, effective on January 1, 1999,
Employee's monthly salary shall be $20,833.33, which is equivalent to
$250,000.00 on an annualized basis. In all other respects Section 4(a) of the
Employment Agreement shall remain unchanged.
3. Section 4(b). Employee acknowledges that the Company has satisfied all
------------
of its obligations to Employee pursuant to Section 4(b) of the Employment
Agreement and that the Company has no further obligation to the Employee
thereunder. Notwithstanding the foregoing, following the date of this Amendment,
the Company will sell to the Employee 200,000 shares of its Common Stock on the
terms and conditions of the Common Stock Purchase Agreement attached hereto as
Exhibit A.
- ---------
4. Section 4(c). In consideration for Employee's performance, the Board
------------
of Directors of the Company has approved, and the Company shall pay to Employee
a bonus of $50,000, payable during January 1999. Such amount shall be subject to
standard withholding and shall be payable in accordance with the Company's
standard payroll practices. Subsequent bonuses, if any, shall be granted in
accordance with the terms of Section 4(c) of the Employment Agreement.
5. Section 4(f). The following Section 4(f) shall be added to the
------------
Employment Agreement:
-10-
<PAGE>
(f) COMPANY LOAN. Employee shall be entitled to borrow up to $100,000
------------
from the Company, secured by shares of the Company's Common Stock
owned by Employee, pursuant to a promissory note and Security
Agreement in a mutually agreeable form.
6. Effect of Amendment. Except as expressly set forth herein, the
-------------------
Employment Agreement shall remain in full force and effect. Section 11 of the
Employment Agreement shall apply to this Amendment.
The parties have executed this Amendment to Employment Agreement as of the
date first set forth above.
WEST SHELL, III NETCENTIVES INC.
/s/ West Shell, III By: /s/ John F. Longinotti
- ---------------------- ----------------------------------
John F. Longinotti, Vice President
Address: 2765 Union Street Address: 690 Fifth Street
San Francisco, CA 94123 San Francisco, CA 94107
-11-
<PAGE>
EXHIBIT 10.18
NETCENTIVES INC.
CHANGE OF CONTROL AGREEMENT
This Change of Control Agreement (the "Agreement") is made and entered into
by and between John F. Longinotti (the "Employee") and Netcentives Inc., a
California corporation (the "Company"), effective as of January 15, 1998 (the
"Effective Date").
RECITALS
A. It is expected that the Company from time to time will consider the
possibility of an acquisition by another company or other change of control.
The Board of Directors of the Company (the "Board") recognizes that such
consideration can cause the Employee to consider alternative employment
opportunities and that a precondition of Employee's employment with the Company
is that he become entitled to certain benefits in the event of a change of
control.
B. Certain capitalized terms used in the Agreement are defined in Section
6 below.
The parties hereto agree as follows:
1. TERM OF AGREEMENT. This Agreement shall terminate upon the date that
all obligations of the parties hereto with respect to this Agreement have been
satisfied.
2. AT-WILL EMPLOYMENT. The Company and the Employee acknowledge that the
Employee's employment is and shall continue to be at-will, as defined under
applicable law. If the Employee's employment terminates for any reason,
including (without limitation) any termination prior to a Change of Control, the
Employee shall not be entitled to any benefits, damages, awards or compensation
other than as may otherwise be available in accordance with the Company's
established employee plans and practices or pursuant to other agreements with
the Company.
3. SEVERANCE BENEFITS.
(A) TERMINATION FOLLOWING A CHANGE OF CONTROL. If the Employee's
employment or consulting relationship with the Company is terminated as a result
of Involuntary Termination at any time within twelve (12) months following a
Change of Control, then, subject to Section 5, the vesting of any stock option
or restricted stock then held by the Employee shall automatically be accelerated
to the extent that such stock option or restricted stock shall become fully
vested as of the Termination Date.
(B) VOLUNTARY RESIGNATION; TERMINATION FOR CAUSE. If the Employee's
employment or consulting relationship is terminated at any time other than as a
result of an Involuntary Termination (including, without limitation, as a result
of Employee's death or disability), then the Employee shall not be entitled to
receive any benefits except for those (if
<PAGE>
any) as may then be established under the Company's then existing severance and
benefits plans and practices or pursuant to other agreements with the Company.
(C) TERMINATION APART FROM CHANGE OF CONTROL. In the event the
Employee's employment is terminated for any reason, either prior to the
occurrence of a Change of Control or after the twelve-month period following a
Change of Control, then the Employee shall not be entitled to receive any
benefits except for those (if any) as may then be established under the
Company's then existing severance and benefits plans and practices or pursuant
to other agreements with the Company.
4. ATTORNEY FEES, COSTS AND EXPENSES. The Company shall promptly
reimburse Employee, on a monthly basis, for the reasonable attorney fees, costs
and expenses incurred by the Employee in connection with any action brought by
Employee to enforce his or her rights hereunder. In the event Employee is not
the prevailing party, determined without regard to whether or not the action
results in a final judgment, Employee shall repay such reimbursements.
5. LIMITATION ON PAYMENTS. In the event that the benefits provided for in
this Agreement or otherwise payable to the Employee (i) constitute "parachute
payments" within the meaning of Section 280G of the Internal Revenue Code of
1986, as amended (the "Code"), and (ii) but for this Section 5, would be subject
to the excise tax imposed by Section 4999 of the Code (or any corresponding
provisions of state income tax law), then the Employee's severance benefits
under Section 3(a) shall be either
(a) delivered in full, or
(b) delivered as to such lesser extent which would result in no
portion of such severance benefits being subject to excise tax under Section
4999 of the Code, whichever of the foregoing amounts, taking into account the
applicable federal, state and local income taxes and the excise tax imposed by
Section 4999, results in the receipt by the Employee on an after-tax-basis, of
the greater amount of severance benefits, notwithstanding that all or some
portion of such severance benefits may be taxable under Section 4999 of the
Code. Unless the Company and the Employee otherwise agree in writing, any
determination required under this Section 5 shall be made in writing by the
Company's independent accounts (the "Accountants"), whose determination shall be
conclusive and binding upon the Employee and the Company for all purposes. For
purposes of making the calculations required by this Section 5, the Accountants
may make reasonable assumptions and approximations concerning applicable taxes
and may rely on reasonable, good faith interpretations concerning the
application of Sections 280G and 4999 of the Code. The Company and the Employee
shall furnish to the Accountants such information and documents as the
Accountants may reasonably request in order to make a determination under this
Section. The Company shall bear all costs the Accountants may reasonably incur
in connection with any calculations contemplated by this Section 5. In the
event that subsection (a) above applies, then Employee shall be responsible for
any excise taxes imposed with respect to such severance and other benefits. In
the event that subsection (b) above applies, then each
-2-
<PAGE>
benefit provided hereunder shall be proportionately reduced to the extent
necessary to avoid imposition of such excise taxes.
6. DEFINITION OF TERMS. The following terms used in this Agreement shall
have the following meanings:
(A) CAUSE. "Cause" shall mean (i) Employee's gross negligence or
willful misconduct in the performance of the Employee's duties to the Company
which misconduct is not corrected after thirty (30) days prior written notice,
which notice specifies that the failure to cure such misconduct will result in
termination for cause; (ii) Employee's repeated unexplained or unjustified
absence from the Company; (iii) Employee's commission of any act of fraud with
respect to the Company; (iv) Employee's conviction of a felony or a crime
involving moral turpitude causing material harm to the standing and reputation
of the Company; or (v) Employee's inability to perform his duties as a result of
his death or Disability.
(B) CHANGE OF CONTROL. "Change of Control" means the occurrence of
any of the following events:
(i) The shareholders of the Company approve an agreement for
the sale of all or substantially all of the assets of the Company; or
(ii) The shareholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least fifty percent (50%) of the total voting power
represented by the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation; or
(iii) Completion of a tender or exchange offer or other
transaction or series of transactions resulting in less than a majority of the
outstanding voting stock of the surviving corporation being held, immediately
after such transaction or series of transactions, by the holders of the voting
stock of the Company outstanding immediately prior to such transaction or series
of transactions.
(C) DISABILITY. "Disability" shall mean that the Employee has been
unable to perform his or her Company duties as the result of his or her
incapacity due to physical or mental illness, and such inability, at least 26
weeks after its commencement, is determined to be total and permanent by a
physician selected by the Employee or the Employee's legal representative and
acceptable to the Company or its insurers (such Agreement as to acceptability
not to be unreasonably withheld). Termination resulting from Disability may
only be effected after at least 30 days' written notice by the Company of its
intention to terminate the Employee's employment. In the event that the
Employee resumes the performance of substantially all of his or her duties
hereunder before the termination of his or her employment becomes effective, the
notice of intent to terminate shall automatically be deemed to have been
revoked.
-3-
<PAGE>
(D) INVOLUNTARY TERMINATION. "Involuntary Termination" shall mean (A)
the termination by the Company of the Employee's employment for any reason other
than for Cause, or (B) the termination by Employee of his employment with the
Company as a result of, and within thirty (30) days of: (i) the significant
reduction of the Employee's duties, authority or responsibilities, relative to
the Employee's duties, authority or responsibilities as in effect immediately
prior to such reduction, or the assignment to Employee of such reduced duties,
authority or responsibilities; (ii) a reduction of the facilities and
perquisites (including office space and location) available to the Employee
immediately prior to such reduction; (iii) a reduction by the Company in the
base salary of the Employee as in effect immediately prior to such reduction;
(iv) a material reduction by the Company in the kind or level of employee
benefits, including bonuses, to which the Employee was entitled immediately
prior to such reduction with the result that the Employee's overall benefits
package is significantly reduced; (v) the relocation of the Employee to a
facility or a location outside of the San Francisco Bay Area; (vi) any purported
termination of the Employee by the Company which is not effected for Cause, or
any purported termination for which the grounds relied upon are not valid; (vii)
the failure of the Company to obtain the assumption of this Agreement by any
successors contemplated in Section 7(a) below; or (viii) any act or set of facts
or circumstances which would, under California case law or statute, constitute a
constructive termination of the Employee.
(E) TERMINATION DATE. "Termination Date" shall mean (i) if this
Agreement is terminated by the Company for Disability, thirty (30) days after
notice of termination is given to the Employee (provided that the Employee shall
not have returned to the performance of the Employee's duties on a full-time
basis during such thirty (30)-day period), (ii) if the Employee's employment is
terminated by the Company for any other reason, the date on which a notice of
termination is given, provided that if within thirty (30) days after the Company
gives the Employee notice of termination, the Employee notifies the Company that
a dispute exists concerning the termination or the benefits due pursuant to this
Agreement, then the Termination Date shall be the date on which such dispute is
finally determined, either by mutual written agreement of the parties, or by a
final judgment, order or decree of a court of competent jurisdiction (the time
for appeal therefrom having expired and no appeal having been perfected), or
(iii) if the Agreement is terminated by the Employee, the date on which the
Employee delivers the notice of termination to the Company.
7. SUCCESSORS.
(a) COMPANY'S SUCCESSORS. Any successor to the Company (whether
direct or indirect and whether by purchase, merger, consolidation, liquidation
or otherwise) to all or substantially all of the Company's business and/or
assets shall assume the obligations under this Agreement and agree expressly to
perform the obligations under this Agreement in the same manner and to the same
extent as the Company would be required to perform such obligations in the
absence of a succession. For all purposes under this Agreement, the term
"Company" shall include any successor to the Company's business and/or assets
which executes and delivers the assumption agreement described in this Section
7(a) or which becomes bound by the terms of this Agreement by operation of law.
-4-
<PAGE>
(B) EMPLOYEE'S SUCCESSORS. The terms of this Agreement and all rights
of the Employee hereunder shall inure to the benefit of, and be enforceable by,
the Employee's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees.
8. NOTICE.
(A) GENERAL. Notices and all other communications contemplated by
this Agreement shall be in writing and shall be deemed to have been duly given
when personally delivered or five (5) days after being mailed by U.S.
registered or certified mail, return receipt requested and postage prepaid. In
the case of the Employee, mailed notices shall be addressed to him or her at the
home address which he or she most recently communicated to the Company in
writing. In the case of the Company, mailed notices shall be addressed to its
corporate headquarters, and all notices shall be directed to the attention of
its Secretary.
(B) NOTICE OF TERMINATION. Any termination by the Company for Cause
or by the Employee as a result of a voluntary resignation and any Involuntary
Termination shall be communicated by a notice of termination to the other party
hereto given in accordance with Section 8(a) of this Agreement. Such notice
shall indicate the specific termination provision in this Agreement relied upon,
shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination under the provision so indicated, and shall
specify the termination date (which shall be not more than 30 days after the
giving of such notice). The failure by the Employee to include in the notice
any fact or circumstance which contributes to a showing of Involuntary
Termination shall not waive any right of the Employee hereunder or preclude the
Employee from asserting such fact or circumstance in enforcing his or her rights
hereunder.
9. MISCELLANEOUS PROVISIONS.
(A) NO DUTY TO MITIGATE. The Employee shall not be required to
mitigate the amount of any payment contemplated by this Agreement, nor shall any
such payment be reduced by any earnings that the Employee may receive from any
other source.
(B) WAIVER. No provision of this Agreement shall be modified, waived
or discharged unless the modification, waiver or discharge is agreed to in
writing and signed by the Employee and by an authorized officer of the Company
(other than the Employee). No waiver by either party of any breach of, or of
compliance with, any condition or provision of this Agreement by the other party
shall be considered a waiver of any other condition or provision or of the same
condition or provision at another time.
(C) WHOLE AGREEMENT. This Agreement represents the entire agreement
between the Employee and the Company with respect to the matters set forth
herein. No agreements, representations or understandings (whether oral or
written and whether express or implied) which are not expressly set forth in
this Agreement have been made or entered into by either party with respect to
the subject matter hereof.
-5-
<PAGE>
(D) CHOICE OF LAW. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
California as applied to agreements entered into and performed within California
solely by residents of that state.
(E) SEVERABILITY. The invalidity or unenforceability of any provision
or provisions of this Agreement shall not affect the validity or enforceability
of any other provision hereof, which shall remain in full force and effect.
(F) WITHHOLDING. All payments made pursuant to this Agreement will be
subject to withholding of applicable income and employment taxes, if applicable.
(G) COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together will
constitute one and the same instrument.
-6-
<PAGE>
IN WITNESS WHEREOF, each of the parties has executed this Agreement,
in the case of the Company by its duly authorized officer, as of the date set
forth above.
COMPANY: NETCENTIVES INC.
By: /s/ West Shell, III
--------------------------------
Name: West Shell, III
--------------------------------
Title: CEO
--------------------------------
EMPLOYEE: JOHN F. LONGINOTTI
/s/ John F. Longinotti
-----------------------------------------
(Signature)
-7-
<PAGE>
EXHIBIT 10.19
NETCENTIVES, INC.
- --------------------------------------------------------------------------------
AMENDED AND RESTATED RIGHTS AGREEMENT
March 19, 1999
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1 - Restrictions on Transferability; Registration Rights.................................... 1
1.1 Certain Definitions.................................................................... 1
1.2 Restrictions........................................................................... 3
1.3 Restrictive Legend..................................................................... 3
1.4 Notice of Proposed Transfers........................................................... 3
1.5 Requested Registration................................................................. 4
1.6 Company Registration................................................................... 6
1.7 Registration on Form S-3............................................................... 7
1.8 Limitations on Subsequent Registration Rights.......................................... 8
1.9 Expenses of Registration............................................................... 8
1.10 Registration Procedures............................................................... 8
1.11 Indemnification....................................................................... 9
1.12 Information by Holder................................................................. 10
1.13 Rule 144 Reporting.................................................................... 10
1.14 Transfer of Registration Rights....................................................... 11
1.15 Standoff Agreement.................................................................... 11
1.16 Termination of Rights................................................................. 11
SECTION 2 - Right of Participation.................................................................. 12
2.1 Purchasers'Right of Participation...................................................... 12
2.2 Termination of Participation Right..................................................... 13
2.3 Termination of Prior Right............................................................. 14
SECTION 3 - Miscellaneous........................................................................... 14
3.1 Assignment............................................................................. 14
3.2 Third Parties.......................................................................... 14
3.3 Governing Law.......................................................................... 14
3.4 Counterparts........................................................................... 14
3.5 Notices................................................................................ 14
3.6 Severability........................................................................... 14
3.7 Amendment and Waiver................................................................... 15
3.8 Effect of Amendment or Waiver.......................................................... 15
3.9 Rights of Holders...................................................................... 15
3.10 Delays or Omissions................................................................... 15
3.11 Additional Parties.................................................................... 15
</TABLE>
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<PAGE>
AMENDED AND RESTATED RIGHTS AGREEMENT
This Amended and Restated Rights Agreement (the "Agreement") is entered
into as of the 19th day of March, 1999, by and among Netcentives Inc., a
California corporation (the "Company") and the investors listed on Exhibit A
---------
hereto (the "Purchasers").
RECITALS
WHEREAS, pursuant to an Amended and Restated Rights Agreement dated August
14, 1998 (the "Prior Rights Agreement"), certain of the Purchasers (the "Prior
Purchasers") received certain rights with respect to registration and pro-rata
participation.
WHEREAS, the Company and certain of the Purchasers (the "Series E
Purchasers") are entering into a Series E Preferred Stock Purchase Agreement of
even date herewith (the "Purchase Agreement"), pursuant to which the Company
shall sell, and the Series E Purchasers shall acquire, shares of the Company's
Series E Preferred Stock.
WHEREAS, in order to induce the Company to enter into the Purchase
Agreement and to induce the Series E Purchasers to invest funds in the Company,
the parties desire that the Series E Purchasers be granted registration rights
and rights of participation with respect to the Series E Preferred Stock being
purchased by them, and that the rights of the Prior Purchasers be amended and
restated in their entirety as set forth herein.
WHEREAS, pursuant to Section 3.7 of the Prior Rights Agreement provides
that the Prior Rights Agreement may be amended by written consent of the holders
of a majority of the outstanding shares of the Registrable Securities and the
Company.
NOW, THEREFORE, the parties hereby agree that the Prior Rights Agreement is
amended and restated in its entirety as follows:
SECTION 1
Restrictions on Transferability; Registration Rights
----------------------------------------------------
1.1 Certain Definitions. As used in this Agreement, the following terms
-------------------
shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission or any
----------
other federal agency at the time administering the Securities Act.
"Conversion Shares" means the Common Stock issued or issuable upon
-----------------
conversion of the Preferred Shares as defined herein.
"Holder" shall mean any Purchaser holding Registrable Securities and
------
any person holding Registrable Securities to whom the rights under this
Agreement have been transferred in accordance with Section 1.14 hereof.
<PAGE>
"Initiating Holders" shall mean Holders in the aggregate of not less
------------------
than fifty percent (50%) of the Registrable Securities as defined for purposes
of that particular section.
"Preferred Shares" shall mean (i) the 1,452,613 shares of Series A
----------------
Preferred Stock of the Company outstanding as of the date hereof, issued
pursuant to Subscription Agreements dated September 16, 1996 and September 23,
1996, (ii) the 560,000 shares of Series B Preferred Stock of the Company
outstanding as of the date hereof, issued pursuant to Subscription Agreements
dated November 7, 1996 and November 21, 1996 and pursuant to the exercise of
warrants dated June 30, 1997, (iii) the 46,891 shares of Series B Preferred
Stock subject to warrants issued in connection with the issuance of promissory
notes by the Company on June 30, 1997 and August 20, 1997, (iv) the 31,000
shares of Series B Preferred Stock subject to warrants held by Silicon Valley
Bank and Phoenix Leasing dated January 14, 1997 and May 5, 1997, respectively,
(v) the 18,462 shares of Series C Preferred Stock subject to warrants held by
Phoenix Leasing dated May 31, 1998, (vi) the 7,754,847 shares of Series C
Preferred Stock issued pursuant to the Series C Preferred Stock Purchase
Agreement dated September 16, 1997, (vii) the 5,476,192 shares of Series D
Preferred Stock issued pursuant to the Series D Preferred Stock Purchase
Agreement dated August 14, 1998 and (viii) the shares of Series E Preferred
Stock issued pursuant to the Purchase Agreement.
The terms "register," "registered" and "registration" refer to a
-------- ---------- ------------
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"Registration Expenses" shall mean all expenses incurred by the
---------------------
Company in complying with Sections 1.5, 1.6 and 1.7 of this Agreement,
including, without limitation, all registration, qualification and filing fees,
printing expenses, escrow fees, fees and disbursements of counsel for the
Company, blue sky fees and expenses, and the expense of any special audits
incident to or required by any such registration (but excluding the compensation
of regular employees of the Company which shall be paid in any event by the
Company).
"Registrable Securities" means (i) the Conversion Shares; and (ii) any
----------------------
Common Stock of the Company issued or issuable in respect of the Preferred
Shares or Conversion Shares or other securities issued or issuable with respect
to the Preferred Shares or Conversion Shares upon any stock split, stock
dividend, recapitalization, or similar event, or any Common Stock otherwise
issued or issuable with respect to the Conversion Shares or Preferred Shares;
provided, however, that shares of Common Stock or other securities shall only be
- -------- -------
treated as Registrable Securities if and so long as they have not been (A) sold
to or through a broker or dealer or underwriter in a public distribution or a
public securities transaction, or (B) sold in a transaction exempt from the
registration and prospectus delivery requirements of the Securities Act under
Section 4(1) thereof so that all transfer restrictions and restrictive legends
with respect thereto are removed upon the consummation of such sale.
"Restricted Securities" shall mean the securities of the Company
---------------------
required to bear the legend set forth in Section 1.3 of this Agreement.
-2-
<PAGE>
"Securities Act" shall mean the Securities Act of 1933, as amended, or
--------------
any similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean all underwriting discounts, selling
----------------
commissions and stock transfer taxes applicable to the securities registered by
the Holders and all fees and disbursements of counsel for the Holders (except as
provided by Section 1.9).
1.2 Restrictions. The Preferred Shares and the Conversion Shares shall
------------
not be sold, assigned, transferred or pledged except upon the conditions
specified in this Agreement, which conditions are intended to ensure compliance
with the provisions of the Securities Act. The Purchasers will cause any
proposed purchaser, assignee, transferee or pledgee of the Preferred Shares or
the Conversion Shares to agree to take and hold such securities subject to the
provisions and upon the conditions specified in this Agreement.
1.3 Restrictive Legend. Each certificate representing (i) the Preferred
------------------
Shares, (ii) the Conversion Shares, and (iii) any other securities issued in
respect of the securities referenced in clauses (i), (ii) and (iii) upon any
stock split, stock dividend, recapitalization, merger, consolidation or similar
event, shall (unless otherwise permitted by the provisions of Section 1.4 below)
be stamped or otherwise imprinted with legends in the following form (in
addition to any legend required under applicable state securities laws):
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933. SUCH SHARES MAY NOT BE SOLD, TRANSFERRED OR PLEDGED
IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS THE COMPANY
RECEIVES AN OPINION OF COUNSEL (WHICH MAY BE COUNSEL FOR THE
COMPANY) REASONABLY ACCEPTABLE TO IT STATING THAT SUCH SALE OR
TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF SAID ACT."
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED
ONLY IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE
COMPANY AND THE SHAREHOLDER, A COPY OF WHICH IS ON FILE WITH THE
SECRETARY OF THE COMPANY."
Each Purchaser and Holder consents to the Company making a notation on
its records and giving instructions to any transfer agent of the Restricted
Securities in order to implement the restrictions on transfer established in
this Section 1.
1.4 Notice of Proposed Transfers. The holder of each certificate
----------------------------
representing Restricted Securities, by acceptance thereof, agrees to comply in
all respects with the provisions of this Section 1. Prior to any proposed sale,
assignment, transfer or pledge of any Restricted Securities, unless there is in
effect a registration statement under the Securities Act covering the
-3-
<PAGE>
proposed transfer, the holder thereof shall give written notice to the Company
of such holder's intention to effect such transfer, sale, assignment or pledge.
Each such notice shall describe the manner and circumstances of the proposed
transfer, sale, assignment or pledge in sufficient detail, and shall be
accompanied at such holder's expense by either (i) an unqualified written
opinion of legal counsel who shall, and whose legal opinion shall be, reasonably
satisfactory to the Company, addressed to the Company, to the effect that the
proposed transfer of the Restricted Securities may be effected without
registration under the Securities Act, or (ii) a "no action" letter from the
Commission to the effect that the transfer of such securities without
registration will not result in a recommendation by the staff of the Commission
that action be taken with respect thereto, whereupon the holder of such
Restricted Securities shall be entitled to transfer such Restricted Securities
in accordance with the terms of the notice delivered by the holder to the
Company. The Company will not require such a legal opinion or "no action" letter
(a) in any transaction in compliance with Rule 144, (b) in any transaction in
which a Purchaser which is a corporation distributes Restricted Securities after
six (6) months after the purchase thereof solely to its majority-owned
subsidiaries or affiliates for no consideration, or (c) in any transaction in
which a Purchaser which is a partnership distributes Restricted Securities after
six (6) months after the purchase thereof solely to partners thereof for no
consideration, provided that each transferee agrees in writing to be subject to
the terms of this Section 1.4. Each certificate evidencing the Restricted
Securities transferred as above provided shall bear, except if such transfer is
made pursuant to Rule 144, the appropriate restrictive legend set forth in
Section 1.3 above, except that such certificate shall not bear such restrictive
legend if, in the opinion of counsel for such holder and the Company, such
legend is not required in order to establish compliance with any provisions of
the Securities Act.
1.5 Requested Registration.
----------------------
(a) Request for Registration. In case the Company shall receive from
------------------------
Initiating Holders a written request that the Company effect any qualification,
compliance or registration the reasonably anticipated aggregate price to the
public of which net of underwriting discounts and commissions, would exceed
$10,000,000:
(i) promptly give written notice of the proposed registration,
qualification or compliance to all other Holders; and
(ii) as soon as practicable, use its best efforts to effect such
registration, qualification or compliance (including, without limitation, the
execution of an undertaking to file post-effective amendments, appropriate
qualification under applicable blue sky or other state securities laws and
appropriate compliance with applicable regulations issued under the Securities
Act and any other governmental requirements or regulations) as may be so
requested and as would permit or facilitate the sale and distribution of all or
such portion of such Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any Holder or
Holders joining in such request as are specified in a written request received
by the Company within twenty (20) days after receipt of such written notice from
the Company; provided, however, that the Company shall not be obligated to take
-------- -------
-4-
<PAGE>
any action to effect any such registration, qualification or compliance pursuant
to this Section 1.5:
(1) In any particular jurisdiction in which the Company would be
required to execute a general consent to service of process in effecting such
registration, qualification or compliance unless the Company is already subject
to service in such jurisdiction and except as may be required by the Securities
Act;
(2) Prior to the earlier of (i) six (6) months following the
Company's initial public offering or (ii) March 19, 2001;
(3) During the period ending on the date three (3) months immediately
following the effective date of, any registration statement pertaining to
securities of the Company (other than a registration of securities in a Rule 145
transaction or with respect to an employee benefit plan);
(4) After the Company has effected two (2) such registrations
pursuant to this subparagraph 1.5(a), such registrations have been declared or
ordered effective and the securities offered pursuant to such registrations have
been sold; or
(5) If the Company shall furnish to such Holders a certificate,
signed by the President of the Company, stating that in the good faith judgment
of the Board of Directors it would be seriously detrimental to the Company or
its shareholders for a registration statement to be filed in the near future,
then the Company's obligation to use its best efforts to register, qualify or
comply under this Section 1.5 shall be deferred for a single period not to
exceed one hundred-twenty (120) days from the date of receipt of written request
from the Initiating Holders.
Subject to the foregoing clauses (1) through (5), the Company shall file a
registration statement covering the Registrable Securities so requested to be
registered as soon as practicable after receipt of the request or requests of
the Initiating Holders.
(b) Underwriting. In the event that a registration pursuant to
------------
Section 1.5 is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as part of the notice given pursuant to
Section l.5(a)(i). The right of any Holder to registration pursuant to Section
1.5 shall be conditioned upon such Holder's participation in the underwriting
arrangements required by this Section 1.5 and the inclusion of such Holder's
Registrable Securities in the underwriting, to the extent requested, to the
extent provided in this Agreement.
The Company shall (together with all Holders proposing to distribute their
securities through such underwriting) enter into an underwriting agreement in
customary form with the managing underwriter selected for such underwriting by a
majority in interest of the Initiating Holders (which managing underwriter shall
be reasonably acceptable to the Company). Notwithstanding any other provision
of this Section 1.5, if the managing underwriter advises the Initiating Holders
in writing that marketing factors require a limitation of the number of shares
to be underwritten, then the Company shall so advise all Holders of Registrable
Securities and the
-5-
<PAGE>
number of shares of Registrable Securities that may be included in the
registration and underwriting shall be allocated among all Holders thereof in
proportion, as nearly as practicable, to the respective amounts of Registrable
Securities held by such Holders at the time of filing the registration
statement. No Registrable Securities excluded from the underwriting by reason of
the underwriter's marketing limitation shall be included in such registration.
To facilitate the allocation of shares in accordance with the above provisions,
the Company or the underwriters may round the number of shares allocated to any
Holder to the nearest 100 shares.
If any Holder of Registrable Securities disapproves of the terms of the
underwriting, such person may elect to withdraw therefrom by written notice to
the Company, the managing underwriter and the Initiating Holders. The
Registrable Securities and/or other securities so withdrawn shall also be
withdrawn from registration, and such Registrable Securities shall not be
transferred in a public distribution prior to one hundred eighty (180) days
after the effective date of such registration.
1.6 Company Registration.
--------------------
(a) Notice of Registration. If at any time or from time to time, the
-----------------------
Company shall determine to register any of its securities, either for its own
account or the account of a security holder or holders other than (i) a
registration relating solely to employee benefit plans, or (ii) a registration
relating solely to a Commission Rule 145 transaction, the Company will:
(i) promptly give to each Holder written notice thereof; and
(ii) include in such registration (and any related qualification
under blue sky laws or other compliance), and in any underwriting involved in
such registration, all the Registrable Securities specified in a written request
or requests received within twenty (20) days after receipt of such written
notice from the Company by any Holder, but only to the extent that such
inclusion will not diminish the number of securities included by the Company or
by holders of the Company's securities who have demanded such registration.
(b) Underwriting. If the registration of which the Company gives
------------
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 1.6(a)(i). In such event, the right of any Holder to
registration pursuant to Section 1.6 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of Registrable Securities
in the underwriting to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall (together with the
Company and the other holders distributing their securities through such
underwriting) enter into an underwriting agreement in customary form with the
managing underwriter selected for such underwriting by the Company (or by the
holders who have demanded such registration). Notwithstanding any other
provision of this Section 1.6, if the managing underwriter determines that
marketing factors require a limitation of the number of shares to be
underwritten, the managing underwriter may limit the Registrable Securities to
be included in such registration to a minimum of 30% of the total shares to be
included in such underwriting or exclude them entirely in the case of the
Company's initial public offering. The Company shall so advise all Holders and
the other holders distributing their securities through
-6-
<PAGE>
such underwriting pursuant to piggyback registration rights similar to this
Section 1.6, and the number of shares of Registrable Securities and other
securities that may be included in the registration and underwriting shall be
allocated among all Preferred Purchasers in proportion, as nearly as
practicable, to the respective amounts of Registrable Securities held by such
Preferred Purchasers at the time of filing the registration statement. To
facilitate the allocation of shares in accordance with the above provisions, the
Company or the underwriters may round the number of shares allocated to any
Holder or other holder to the nearest 100 shares. If any Holder or other holder
disapproves of the terms of any such underwriting, he or she may elect to
withdraw therefrom by written notice to the Company and the managing
underwriter. Any securities excluded or withdrawn from such underwriting shall
be withdrawn from such registration, and shall not be transferred in a public
distribution prior to one hundred eighty (180) days after the effective date of
the registration statement relating thereto (the "Lock-Up Period"); provided,
however, that if such registration is not the Company's initial public offering
such Lock-Up Period shall be one hundred twenty (120) days unless the managing
underwriter determines that marketing factors require a longer period in which
case the Lock-Up Period shall be specified by the managing underwriter but shall
not exceed one hundred eighty (180) days.
(c) Right to Terminate Registration. The Company shall have the right
-------------------------------
to terminate or withdraw any registration initiated by it under this Section 1.6
prior to the effectiveness of such registration, whether or not any Holder has
elected to include securities in such registration.
1.7 Registration on Form S-3.
--------------------------
(a) If the Initiating Holder requests that the Company file a
registration statement on Form S-3 (or any successor form to Form S-3) for a
public offering of shares of the Registrable Securities, the reasonably
anticipated aggregate price to the public of which, net of underwriting
discounts and commissions, would exceed $500,000, and the Company is a
registrant entitled to use Form S-3 to register the Registrable Securities for
such an offering, the Company shall use its best efforts to cause such
Registrable Securities to be registered for the offering on such form; provided,
--------
however, that the Company shall not be required to effect more than two
- -------
registrations pursuant to this Section 1.7 in any twelve (12) month period. The
Company will (i) promptly give written notice of the proposed registration to
all other Holders, and (ii) as soon as practicable, use its best efforts to
effect such registration (including, without limitation, the execution of an
undertaking to file post-effective amendments, appropriate qualification under
applicable blue sky or other state securities laws and appropriate compliance
with applicable regulations issued under the Securities Act and any other
governmental requirements or regulations) as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion of such
Registrable Securities as are specified in such request, together with all or
such portion of the Registrable Securities of any Holder or Holders joining in
such request as are specified in a written request received by the Company
within twenty (20) days after receipt of such written notice from the Company.
The substantive provisions of Section 1.5(b) shall be applicable to each
registration initiated under this Section 1.7.
-7-
<PAGE>
(b) Notwithstanding the foregoing, the Company shall not be obligated
to take any action pursuant to this Section 1.7: (i) in any particular
jurisdiction in which the Company would be required to execute a general consent
to service of process in effecting such registration, qualification or
compliance unless the Company is already subject to service in such jurisdiction
and except as may be required by the Securities Act, (ii) during the period
ending on a date three (3) months following the effective date of, a
registration statement (other than with respect to a registration statement
relating to a Rule 145 transaction, an offering solely to employees or any other
registration which is not appropriate for the registration of Registrable
Securities), or (iii) if the Company shall furnish to such Holder a certificate
signed by the President of the Company stating that, in the good faith judgment
of the Board of Directors, it would be seriously detrimental to the Company or
its shareholders for registration statements to be filed in the near future,
then the Company's obligation to use its best efforts to file a registration
statement shall be deferred for a single period not to exceed one hundred twenty
(120) days from the receipt of the request to file such registration by such
Holder or Holders.
1.8 Limitations on Subsequent Registration Rights. From and after the
---------------------------------------------
date of this Agreement, the Company shall not enter into any agreement granting
any holder or prospective holder of any securities of the Company registration
rights with respect to such securities unless such holder derives its rights as
an additional Holder hereunder, or such shares or securities are entitled to be
included in registrations only to the extent that the inclusion of such
securities will not diminish the amount of Registrable Securities that are
included.
1.9 Expenses of Registration. All Registration Expenses incurred in
------------------------
connection with any registration pursuant Sections 1.5, 1.6 or 1.7 and the
reasonable cost of one special legal counsel to represent all of the Holders
together in any such registration shall be borne by the Company, provided that
the Company shall not be required to pay the Registration Expenses of any
registration proceeding begun pursuant to Section 1.5, the request of which has
been subsequently withdrawn by the Initiating Holders. In such case, the Holders
of Registrable Securities to have been registered shall bear all such
Registration Expenses pro rata on the basis of the number of shares to have been
registered unless the Holders of a majority of the Registrable Securities agree
to forfeit their right to one demand registration pursuant to Section 1.5.
Notwithstanding the foregoing, however, if at the time of the withdrawal, the
Holders have learned of a material adverse change in the condition, business or
prospects of the Company from that known to the Holders at the time of their
request, of which the Company had knowledge at the time of the request, then the
Holders shall not be required to pay any of said Registration Expenses or to
forfeit the right to one demand registration.
1.10 Registration Procedures. In the case of each registration,
-----------------------
qualification or compliance effected by the Company pursuant to this Section 1,
the Company will keep each Holder advised in writing as to the initiation of
each registration, qualification and compliance and as to the completion
thereof. At its expense the Company will:
(a) Prepare and file with the Commission a registration statement
with respect to such securities and use its best efforts to cause such
registration statement to become and remain effective for at least one hundred
eighty (120); and
-8-
<PAGE>
(b) Furnish to the Holders participating in such registration and to
the underwriters of the securities being registered such reasonable number of
copies of the registration statement, preliminary prospectus, final prospectus
and such other documents as such underwriters may reasonably request in order to
facilitate the public offering of such securities.
1.11 Indemnification.
----------------
(a) The Company will indemnify each Holder, each of its officers and
directors and partners, and each person controlling such Holder within the
meaning of Section 15 of the Securities Act, with respect to which registration,
qualification or compliance has been effected pursuant to this Section 1, and
each underwriter, if any, and each person who controls any underwriter within
the meaning of Section 15 of the Securities Act, against all expenses, claims,
losses, damages or liabilities (or actions in respect thereof), including any of
the foregoing incurred in settlement of any litigation, commenced or threatened,
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any registration statement, prospectus, offering
circular or other document, or any amendment or supplement thereto, incident to
any such registration, qualification or compliance, or based on any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading, or any violation by the Company of any
rule or regulation promulgated under the Securities Act applicable to the
Company in connection with any such registration, qualification or compliance,
and the Company will reimburse each such Holder, each of its officers and
directors, and each person controlling such Holder, each such underwriter and
each person who controls any such underwriter, for any legal and any other
expenses reasonably incurred in connection with investigating, preparing or
defending any such claim, loss, damage, liability or action, provided that the
Company will not be liable in any such case to the extent that any such claim,
loss, damage, liability or expense arises out of or is based on any untrue
statement or omission or alleged untrue statement or omission, made in reliance
upon and in conformity with written information furnished to the Company by an
instrument duly executed by such Holder, controlling person or underwriter and
stated to be specifically for use therein.
(b) Each Holder will, if Registrable Securities held by such Holder
are included in the securities as to which such registration, qualification or
compliance is being effected, indemnify the Company, each of its directors and
officers, each underwriter, if any, of the Company's securities covered by such
a registration statement, each person who controls the Company or such
underwriter within the meaning of Section 15 of the Securities Act, and each
other such Holder, each of its officers and directors and each person
controlling such Holder within the meaning of Section 15 of the Securities Act,
against all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any such registration statement,
prospectus, offering circular or other document, or any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse the
Company, such Holders, such directors, officers, persons, underwriters or
control persons for any legal or any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action, in
-9-
<PAGE>
each case to the extent, but only to the extent, that such untrue statement (or
alleged untrue statement) or omission (or alleged omission) is made in such
registration statement, prospectus, offering circular or other document in
reliance upon and in conformity with written information furnished to the
Company by an instrument duly executed by such Holder and stated to be
specifically for use therein; provided, however, that the liability of a Holder
for indemnification under this Section 1.11(b) shall not exceed the gross
proceeds from the offering received by such Holder.
(c) Each party entitled to indemnification under this Section 1.11
(the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld), and the Indemnified Party may participate in such defense at such
party's expense, and provided further that the failure of any Indemnified Party
to give notice as provided herein shall not relieve the Indemnifying Party of
its obligations under this Section 1 unless the failure to give such notice is
materially prejudicial to an Indemnifying Party's ability to defend such action.
No Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such Indemnified Party
of a release from all liability in respect to such claim or litigation.
1.12 Information by Holder. The Holder or Holders of Registrable
---------------------
Securities included in any registration shall furnish to the Company such
information regarding such Holder or Holders, the Registrable Securities held by
them and the distribution proposed by such Holder or Holders as the Company may
request in writing and as shall be required in connection with any registration,
qualification or compliance referred to in this Section 1.
1.13 Rule 144 Reporting. With a view to making available the benefits
------------------
of certain rules and regulations of the Commission which may at any time permit
the sale of the Restricted Securities to the public without registration, after
such time as a public market exists for the Common Stock of the Company, the
Company agrees to use its best efforts to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, at all times after
the effective date that the Company becomes subject to the reporting
requirements of the Securities Act or the Securities Exchange Act of 1934, as
amended (the "Exchange Act");
(b) File with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act (at any time after it has become subject to such reporting
requirements); and
(c) So long as a Purchaser owns any Restricted Securities, to
furnish to the Purchaser forthwith upon request a written statement by the
Company as to its compliance with
-10-
<PAGE>
the reporting requirements of said Rule 144 (at any time after ninety (90) days
after the effective date of the first registration statement filed by the
Company for an offering of its securities to the general public), and of the
Securities Act and the Exchange Act (at any time after it has become subject to
such reporting requirements), a copy of the most recent annual or quarterly
report of the Company, and such other reports and documents of the Company and
other information in the possession of or reasonably obtainable by the Company
as a Purchaser may reasonably request in availing itself of any rule or
regulation of the Commission allowing a Purchaser to sell any such securities
without registration.
1.14 Transfer of Registration Rights. The rights to cause the Company
-------------------------------
to register securities granted Purchasers under Sections 1.5, 1.6 and 1.7 may be
assigned to a transferee or assignee reasonably acceptable to the Company in
connection with any transfer or assignment of Registrable Securities by a
Purchaser (together with any affiliate); provided, that (a) such transfer may
--------
otherwise be effected in accordance with applicable securities laws, (b) notice
of such assignment is given to the Company, and (c) such transferee or assignee
(i) is a wholly-owned subsidiary, affiliated investment fund or constituent
partner (including limited partners) of such Purchaser, or (ii) acquires from
such Purchaser the lesser of (a) 150,829 more shares of Restricted Securities
(as appropriately adjusted for stock splits and the like) or (b) all of the
Restricted Securities then owned by such Purchaser.
1.15 Standoff Agreement. Each Holder agrees in connection with the
------------------
initial registration of the Company's securities that, upon request of the
Company or the underwriters managing any underwritten initial public offering of
the Company's securities, not to sell, make any short sale of, loan, grant any
option for the purchase of, or otherwise dispose of any Registrable Securities
(other than those included in the registration) without the prior written
consent of the Company or such underwriters, as the case may be, for such period
of time (not to exceed one hundred eighty (180) days from the effective date of
such registration) as may be requested by the Company or such managing
underwriters; provided, however, that the officers and directors of the Company
who own stock of the Company also agree to such restrictions.
1.16 Termination of Rights. No Holder shall be entitled to exercise any
---------------------
right provided for in this Section 1:
(a) after three (3) years following the consummation of the sale of
securities pursuant to a registration statement filed by the Company under the
Act in connection with the initial firm commitment underwritten offering of its
securities to the general public, or
(b) on or after the closing of a public offering of the Common Stock
of the Company, initiated by the Company, when all shares of the Holder's
Registrable Securities may be sold under Rule 144 during any 90-day period;
provided, however, that the provisions of this subsection (b) shall not apply
where the Holder owns more than two percent (2%) of the Company's outstanding
stock until such time as such Holder owns less than two percent (2%) of the
outstanding stock.
-11-
<PAGE>
SECTION 2
Right of Participation
----------------------
2.1 Purchasers' Right of Participation.
----------------------------------
(a) Right of Participation. Subject to the terms and conditions
----------------------
contained in this Section 2.1, the Company hereby grants to each Holder the
right of participation to purchase its Pro Rata Portion of any New Securities
(as defined in subsection 2.1(b)) which the Company may, from time to time,
propose to sell and issue. A Holder's "Pro Rata Portion" for purposes of this
Section 2.1 is the ratio that (x) the sum of the number of shares of the
Company's Common Stock then held by such Holder and the number of shares of the
Company's Common Stock issuable upon conversion of the Preferred Stock then held
by such Holder, bears to (y) the sum of the total number of shares of the
Company's Common Stock then outstanding, the number of shares of the Company's
Common Stock issuable upon the exercise of any issued and outstanding rights,
options or warrants, and the number of shares of the Company's Common Stock
issuable upon conversion of the then outstanding Preferred Stock.
(b) Definition of New Securities. Except as set forth below, "New
----------------------------
Securities" shall mean any shares of capital stock of the Company, including
Common Stock and Preferred Stock, whether authorized or not, and rights, options
or warrants to purchase said shares of Common Stock or Preferred Stock, and
securities of any type whatsoever that are, or may become, convertible into said
shares of Common Stock or Preferred Stock. Notwithstanding the foregoing, "New
Securities" does not include (i) the Preferred Shares or the Conversion Shares,
(ii) securities offered to the public generally pursuant to a registration
statement under the Securities Act, (iii) securities issued pursuant to the
acquisition of another corporation by the Company by merger, purchase of
substantially all of the assets or shares or other reorganization whereby the
Company or its shareholders own not less than a majority of the voting power of
the surviving or successor corporation, (iv) shares of the Company's Common
Stock or related options or warrants convertible into or exercisable for such
Common Stock issued to employees, officers and directors of, and consultants to,
the Company, pursuant to any arrangement approved by the Board of Directors of
the Company, (v) shares of the Company's Non-Voting Convertible Stock or related
options or warrants convertible into or exercisable for such Non-Voting
Convertible Stock issued to customers and vendors of the Company pursuant to any
arrangement unanimously approved by the Board of Directors of the Company; (vi)
shares of the Company's Common Stock or related options convertible into or
exercisable for such Common Stock issued to banks, commercial lenders, lessors
and other financial institutions in connection with the borrowing of money or
the leasing of equipment by the Company, (vii) stock issued pursuant to any
rights or agreements, including, without limitation, convertible securities,
options and warrants, provided that the Company shall have complied with the
rights of participation established by this Section 2.1 with respect to the
initial sale or grant by the Company of such rights or agreements, or (viii)
stock issued in connection with any stock split, stock dividend or
recapitalization by the Company.
-12-
<PAGE>
(c) Notice of Right. In the event the Company proposes to undertake
---------------
an issuance of New Securities, it shall give each Purchaser written notice of
its intention, describing the type of New Securities and the price and terms
upon which the Company proposes to issue the same. Each Purchaser shall have
twenty (20) days from the date of receipt of any such notice to agree to
purchase shares of such New Securities (up to the amount referred to in
subsection 2.1(a)), for the price and upon the terms specified in the notice, by
giving written notice to the Company and stating therein the quantity of New
Securities to be purchased.
(d) Exercise of Right. If any Purchaser exercises its right of
-----------------
participation under this Agreement, the closing of the purchase of the New
Securities with respect to which such right has been exercised shall take place
within ninety (90) calendar days after the Purchaser gives notice of such
exercise, which period of time shall be extended in order to comply with
applicable laws and regulations. Upon exercise of such right of participation,
the Company and the Purchaser shall be legally obligated to consummate the
purchase contemplated thereby and shall use their best efforts to secure any
approvals required in connection therewith.
(e) Lapse and Reinstatement of Right. In the event a Purchaser fails
--------------------------------
to exercise the right of participation provided in this Section 2.1 within said
twenty (20) day period, the Company shall have ninety (90) days thereafter to
sell or enter into an agreement (pursuant to which the sale of New Securities
covered thereby shall be closed, if at all, within sixty (60) days from the date
of said agreement) to sell the New Securities not elected to be purchased by
such Purchaser at the price and upon the terms no more favorable to the
purchasers of such securities than specified in the Company's notice. In the
event the Company has not sold the New Securities or entered into an agreement
to sell the New Securities within said ninety (90) day period (or sold and
issued New Securities in accordance with the foregoing within sixty (60) days
from the date of said agreement), the Company shall not thereafter issue or sell
any New Securities without first offering such securities to the Purchasers in
the manner provided above.
(f) Assignment. The right of the Purchasers to purchase any part of
----------
the New Securities may be assigned in whole or in part to any partner,
subsidiary, affiliate or shareholder of a Purchaser, or other persons or
organizations who acquire the lesser of (i) 250,000 or more shares of Restricted
Securities (as adjusted for stock splits and the like) or (ii) all of the
Restricted Securities then owned by such Purchaser.
2.2 Termination of Participation Right. The rights of participation
----------------------------------
granted under Section 2.1 of this Agreement shall terminate on and be of no
further force or effect upon the earlier of (i) the consummation of the
Company's sale of its Common Stock in an underwritten public offering pursuant
to an effective registration statement filed under the Securities Act
immediately subsequent to which the Company shall be obligated to file annual
and quarterly reports with the Commission pursuant to Section 13 or 15(d) of the
Exchange Act or (ii) the registration by the Company of a class of its equity
securities under Section 12(b) or 12(g) of the Exchange Act.
2.3 Termination of Prior Right. By executing this Agreement, the Prior
--------------------------
Investors hereby waive any right of first offer accruing to them under the
Prior Agreement (and notice
-13-
<PAGE>
provisions related thereto) or relating to any issuance of securities by the
Company prior to and including the date hereof, including without limitation,
the issuance of Series E Preferred Stock under the Purchase Agreement.
SECTION 3
Miscellaneous
-------------
3.1 Assignment. Except as otherwise provided in this Agreement, the
----------
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties to this
Agreement.
3.2 Third Parties. Nothing in this Agreement, express or implied, is
-------------
intended to confer upon any party, other than the parties to this Agreement, and
their respective successors and assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
3.3 Governing Law. This Agreement shall be governed by and construed
-------------
under the laws of the State of California in the United States of America
without giving effect to the conflicts of laws principles thereof.
3.4 Counterparts. This Agreement may be executed in counterparts, each
------------
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
3.5 Notices. Any notice required or permitted by this Agreement shall
-------
be in writing and shall be sent by prepaid registered or certified mail, return
receipt requested, or otherwise delivered by hand or by messenger addressed to
the other party at the address shown below or at such other address for which
such party gives notice under this Agreement. Such notice shall be deemed to
have been given when delivered if delivered personally, or, if sent by mail, at
the earlier of its receipt or three (3) days after deposit in the mail.
3.6 Severability. If one or more provisions of this Agreement are held
------------
to be unenforceable under applicable law, portions of such provisions, or such
provisions in their entirety, to the extent necessary, shall be severed from
this Agreement, and the balance of this Agreement shall be enforceable in
accordance with its terms.
3.7 Amendment and Waiver. Any provision of this Agreement may be
--------------------
amended or waived with the written consent of the Company and the Holders of at
least a majority of the outstanding shares of the Registrable Securities, so
long as the effect is to treat all Holders equally. Any amendment or waiver
effected in accordance with this paragraph shall be binding upon each Holder of
Registrable Securities and the Company. In addition, the Company may waive
performance of any obligation owing to it, as to some or all of the Holders of
Registrable Securities, or agree to accept alternatives to such performance,
without obtaining the consent of any Holder of Registrable Securities. In the
event that an underwriting agreement is entered into between the Company and any
Holder, and such underwriting agreement contains terms differing
-14-
<PAGE>
from this Agreement, as to any such Holder the terms of such underwriting
agreement shall govern.
3.8 Effect of Amendment or Waiver. The Purchasers and their successors
-----------------------------
and assigns acknowledge that by the operation of Section 3.7 of this Agreement
the holders of a majority of the outstanding Registrable Securities, acting in
conjunction with the Company, will have the right and power to diminish or
eliminate any or all rights or increase any or all obligations pursuant to this
Agreement.
3.9 Rights of Holders. Each holder of Registrable Securities shall have
-----------------
the absolute right to exercise or refrain from exercising any right or rights
that such holder may have by reason of this Agreement, including, without
limitation, the right to consent to the waiver or modification of any obligation
under this Agreement, and such holder shall not incur any liability to any other
holder of any securities of the Company as a result of exercising or refraining
from exercising any such right or rights.
3.10 Delays or Omissions. No delay or omission to exercise any right,
-------------------
power or remedy accruing to any party to this Agreement, upon any breach or
default of the other party, shall impair any such right, power or remedy of such
non-breaching party nor shall it be construed to be a waiver of any such breach
or default, or an acquiescence therein, or of or in any similar breach or
default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any party of any breach or default under this
Agreement, or any waiver on the part of any party of any provisions or
conditions of this Agreement, must be made in writing and shall be effective
only to the extent specifically set forth in such writing. All remedies, either
under this Agreement, or by law or otherwise afforded to any holder, shall be
cumulative and not alternative.
3.11 Additional Parties. The Purchasers agree that any person who
------------------
becomes a "Purchaser" in a Subsequent Closing (as such term is defined in the
Purchase Agreement) under the Purchase Agreement at any time after the date
hereof shall become a Purchaser under this Agreement upon their execution hereof
without further action by any other Purchaser.
[Signature Pages Follow]
-15-
<PAGE>
The parties hereto have executed this Agreement as of the day and year
first above written.
"COMPANY" "PURCHASERS"
NETCENTIVES INC. _______________________________________
a California corporation (Print Name of Purchaser)
By: /s/ John Longinotti By:____________________________________
---------------------------
John F. (Jack) Longinotti
Senior Vice President and Title:_________________________________
Chief Financial Officer
"PRIOR PURCHASERS"
_______________________________________
(Print Name of Purchaser)
By:____________________________________
Title:_________________________________
[Signature Page to Amended and Restated Rights Agreement]
<PAGE>
MAYFIELD VIII,
A California Limited Partnership
By: Mayfield VIII Management, L.L.C.
A Delaware Limited Liability Company,
Its General Partner
By: /s/ George A. Pavlov
---------------------------------
George A. Pavlov
Authorized Signatory
MAYFIELD ASSOCIATES FUND III,
A California Limited Partnership
By: Mayfield VIII Management, L.L.C.
A Delaware Limited Liability Company,
Its General Partner
By: /s/ George A. Pavlov
---------------------------------
George A. Pavlov
Authorized Signatory
AFFINITY TRUST
By: /s/ George A. Pavlov
---------------------------------
George A. Pavlov
Authorized Signatory
WENDELL G. & ETHEL S. VAN AUKEN, TTEE, THE
WENDELL G. & ETHEL S. VAN AUKEN TRUST U/D/T
9/17/75
By: /s/ Wendell G. Van Auken
---------------------------------
Wendell G. Van Auken, trustee
_____________________________________
Ethel S. Van Auken, trustee
[Signature Page to Amended and Restated Rights Agreement]
<PAGE>
MARI BAKER
/s/ MARI BAKER
------------------------------------
[Signature Page to Amended and Restated Rights Agreement]
<PAGE>
SS VENTURES, LLC.
By: /s/ K.B. Chandrasekhar
---------------------------------
K.B. Chandrasekhar
Title: Managing Member
------------------------------
[Signature Page to Amended and Restated Rights Agreement]
<PAGE>
CITICORP STRATEGIC TECHNOLOGY CORP.
By: /s/ Gail Hoffman
---------------------------------
Title: VICE PRESIDENT
------------------------------
[Signature Page to Amended and Restated Rights Agreement]
<PAGE>
MARGARET L. TAYLOR
/s/ Margret L. Taylor
-------------------------------------
DAVID A. DUFFIELD TRUST DATED JULY 14, 1998
By: /s/ DAVID A. DUFFIELD
---------------------------------
Title: Trustee
------------------------------
HURET FAMILY PARTNERS, L.P.
By: /s/ Robert Huret
---------------------------------
Title: G.P
------------------------------
[Signature Page to Amended and Restated Rights Agreement]
<PAGE>
DRAPER RICHARDS L.P.
By: Draper Richards Management Company
By: /s/ Robin Richards Donohoe
---------------------------------
Robin Richards Donohoe
Title: Vice President
[Signature Page to Amended and Restated Rights Agreement]
<PAGE>
DRAPER ASSOCIATES, L.P.
By: /s/ Timothy H. Draper
---------------------
Title:___________________
[Signature Page to Amended and Restated Rights Agreement]
<PAGE>
DRAPER FISHER ASSOCIATES FUND IV, L.P.
By: /s/ Timothy H. Draper
---------------------
Title: __________________
[Signature Page to Amended and Restated Rights Agreement]
<PAGE>
DRAPER FISHER PARTNERS IV, LLC
By: /s/ Timothy H. Draper
---------------------
Title: __________________
[Signature Page to Amended and Restated Rights Agreement]
<PAGE>
WASATCH VENTURE CORPORATION
By: /s/ Talde J. Stevens
---------------------------------
Title: Secretary / Treasurer
------------------------------
[Signature Page to Amended and Restated Rights Agreement]
<PAGE>
INTEGRAL CAPITAL PARTNERS IV, L.P.
By: Integral Capital Management IV, LLC
Its General Partner
By: /s/ Pamela K. Hagenah
---------------------------------
Pamela K. Hagenah
Manager
INTEGRAL CAPITAL PARTNERS IV MS SIDE FUND,
L.P.
By: ICP MS Management, LLC
Its General Partner
By: /s/ Pamela K. Hagenah
---------------------------------
Pamela K. Hagenah
Manager
[Signature Page to Amended and Restated Rights Agreement]
<PAGE>
MINDFUL PARTNERS
By: /s/ Stuart L. Rudick
---------------------------------
Title: GENERAL PARTNER
------------------------------
STUART L. RUDICK
/s/ Stuart L. Rudick
-------------------------------------
[Signature Page to Amended and Restated Rights Agreement]
<PAGE>
NEW ENTERPRISE ASSOCIATES VII, LIMITED
PARTNERSHIP
By: NEA Partners VII, Limited Partnership
Its General Partner
By: /s/ Ronald A. Kose
---------------------------------
Title: General Partner
------------------------------
INFORMATION TECHNOLOGY VENTURES, L.P.
a California limited partnership
By: ITV MANAGEMENT, LLC
a California limited liability company
By: /s/ Virginia M. Turezyn
---------------------------------
Virginia M. Turezyn
Title: Principal Member
ITV AFFILIATES FUND, L.P.
a California limited partnership
By: ITV MANAGEMENT, LLC
a California limited liability company
By: /s/ Virginia M. Turezyn
---------------------------------
Virginia M. Turezyn
Title: Principal Member
NEA Presidents Fund, L.P.
By: NEA General Partners, L.P.
By: General Partner
By: /s/ Ronald A. Kose
---------------------------------
General Partner
[Signature Page to Amended and Restated Rights Agreement]
<PAGE>
P. WILLIAM PARRISH
/s/ P. WILLIAM PARRISH
-------------------------------------
[Signature Page to Amended and Restated Rights Agreement]
<PAGE>
RRE INVESTORS, L.P.
By: /s/ Andrew L. Zalasin
---------------------------------
Title: Member, General Partner
------------------------------
RRE INVESTORS FUND, L.P.
By: /s/ Andrew L. Zalasin
---------------------------------
Title: Member, General Partner
------------------------------
[Signature Page to Amended and Restated Rights Agreement]
<PAGE>
MINDFUL PARTNERS
By: /s/ Stuart L. Rudick
---------------------------------
Title: GENERAL PARTNER
------------------------------
STUART L. RUDICK
/s/ Stuart L. Rudick
-------------------------------------
[Signature Page to Amended and Restated Rights Agreement]
<PAGE>
MSD Portfolio L.P.
C/O MSD CAPITAL, L.P.
By: /s/ John Phelan
---------------------------------
Title: MANAGER
------------------------------
[Signature Page to Amended and Restated Rights Agreement]
<PAGE>
BLACK MARLIN INVESTMENTS, LLC
C/O MSD CAPITAL, L.P.
By: /s/ Glenn Fuhrman
---------------------------------
Title: MANAGER
------------------------------
[Signature Page to Amended and Restated Rights Agreement]
<PAGE>
VERMEER INVESTMENTS, LLC
C/O MSD CAPITAL, L.P.
By: /s/ Glenn Fuhrman
---------------------------------
Title: MANAGER
------------------------------
[Signature Page to Amended and Restated Rights Agreement]
<PAGE>
SPINNAKER CLIPPER FUND, L.P.,
By Bowman Capital Management, L.L.C., its general
partner
By /s/ William Haggerty
----------------------------------------
William Haggerty
Chief Operating Officer
SPINNAKER FOUNDERS FUND, L.P.,
By Bowman Capital Management, L.L.C., its general
partner
By /s/ William Haggerty
----------------------------------------
William Haggerty
Chief Operating Officer
SPINNAKER OFFSHORE FOUNDERS FUND CAYMAN LIMITED
By Bowman Capital Management, L.L.C., its
Investment Adviser and attorney-in-fact
By /s/ William Haggerty
----------------------------------------
William Haggerty
Chief Operating Officer
[Signature Page to Amended and Restated Rights Agreement]
<PAGE>
GLYNN VENTURES IV, L.P..
By: /s/ John W. Glynn, Jr.
---------------------------------
Title: General Partner
------------------------------
[Signature Page to Amended and Restated Rights Agreement]
<PAGE>
CHANCELLOR PRIVATE CAPITAL PARTNERS III,
L.P.
By CPCP Associates, L.P., its General
By INVESCO Private Capital, Inc., its
General Partner
By: /s/ Johnston L. Evans
---------------------------------
Title: Managing Director
------------------------------
CITIVENTURE 96 PARTNERSHIP, L.P.
By INVESCO Private Capital, Inc. as
Investment advisor
By: /s/ Johnston L. Evans
---------------------------------
Title: Managing Director
------------------------------
CHANCELLOR PRIVATE CAPITAL OFFSHORE PARTNERS
II, L.P.
By Associates, L.P., its Investment
General Partner
By INVESCO Private Capital, Inc., its
General Partner
By: /s/ Johnston L. Evans
---------------------------------
Title: Managing Director
------------------------------
[Signature Page to Amended and Restated Rights Agreement]
<PAGE>
CHANCELLOR PRIVATE CAPITAL OFFSHORE PARTNERS
I, C.V.
By Chancellor KME IV Partner, L.P., its
Investment General Partner
By INVESCO Private Capital, Inc., its
General Partner
By: /s/ Johnston L. Evans
---------------------------------
Title: Managing Director
------------------------------
DRAKE & CO for the Account CITIVENTURE III
By: /s/ Michael Guing
----------------------------------
Title: Drake & Co. Nominee
-------------------------------
[Signature Page to Amended and Restated Rights Agreement]
<PAGE>
TWP NETCENTIVES INVESTORS
By: /s/ David Baylor
---------------------------------
Title: General Partner
-------------------------------
AMERICAN EXPRESS TRAVEL
RELATED SERVICES COMPANY, INC.
By: /s/ Anne Busquet
---------------------------------
Title: President, AERS
-------------------------------
SPINNAKER TECHNOLOGY FUND, L.P.
By: /s/ Eric Moore
---------------------------------
Title: Controller
-------------------------------
SPINNAKER TECHNOLOGY OFFSHORE FUND, Ltd.
By: /s/ Eric Moore
---------------------------------
Title: Controller
-------------------------------
SPINNAKER CLIPPER FUND, L.P.
By: /s/ Eric Moore
---------------------------------
Title: Controller
-------------------------------
STARWOOD HOTELS & RESORTS WORLDWIDE
By: /s/ Russell Sternlicht
---------------------------------
Title:
-------------------------------
<PAGE>
EXHIBIT A
401(k) Retirement Savings Plan FBO Elias Blawie
5S Ventures, LLC
Affinity Trust
American Express Travel Related Services Company, Inc.
Ms. Mari Baker
Black Marlin Investments, LLC
Broderbund Software, Inc.
Carreker Family Trust
Chancellor Private Capital Offshore Partners I, C.V.
Chancellor Private Capital Offshore Partners II, L.P.
Chancellor Private Capital Partners III, L.P.
K.B. Chandrasekhar
Citicorp
Citicorp Strategic Technology Corp.
CNATrust, TTEE FBO Venture Law Group 401(k) Plan Elias
David A. Duffield Trust Dated July 14, 1988
Drake & Co for the account of Citiventure 96
Drake & Co for the account of Citiventure III
Draper Associates, L.P.
Draper Fisher Associates Fund IV, L.P.
Draper Fisher Partners IV, L.P.
Draper Richards, L.P.
FSD 1997 Investment Partners
Glynn Ventures IV, L.P.
Huret Family Partners, L.P.
Information Technology Ventures, L.P.
Integral Capital Partners IV MS Side Fund, L.P.
Integral Capital Partners IV, L.P
ITV Affiliates Fund, L.P.
Mr. Craig W. Johnson
Mayfield Associates Fund III
Mayfield VIII
Merco Ventures
Mindful Partners
MSD Portfolio L.P.-Investments
NEA President's Fund, L.P.
NEA Ventures 1997
New Enterprise Associates VII, L.P.
New Enterprise Associates VII, Limited Partnership
Phoenix Leasing
RRE Investors Fund, L.P.
RRE Investors, LP
Stuart L. Rudick
Silicon Valley Bank
Spinnaker Clipper Fund, LP
Spinnaker Founders Fund, LP
Spinnaker Offshore Founders Fund, Cayman Limited
Spinnaker Technology Fund, L.P.
Spinnaker Technology Offshore Fund, Ltd.
Starwood Hotels and Resorts Worldwide
<PAGE>
Ms. Margaret L. Taylor
Peggy Taylor
TWP Netcentives Investors
Wendell G. Van Auken
Vermeer Investments, LLC
VLG Investments 1996
Wasatch Venture Corporation
Wasatch Venture Fund
<PAGE>
EXHIBIT 21.1
Netcentives Inc. has the following subsidiaries:
-Netcentives Services, Inc.
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Netcentives Inc. on
Form S-1 of our report dated July 14, 1999 relating to Netcentives Inc. and of
our report dated March 12, 1999 relating to Panttaja Consulting Group, Inc.,
appearing in the Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the headings "Selected
Consolidated Financial Data" and "Experts" in such Prospectus.
/S/ DELOITTE & TOUCHE LLP
San Jose, California
July 16, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM S-1 FOR THE
YEAR ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998 MAR-31-1999
<PERIOD-START> JAN-01-1997 JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1997 DEC-31-1998 MAR-31-1999
<CASH> 6,608 13,651 31,994
<SECURITIES> 0 0 0
<RECEIVABLES> 23 893 862
<ALLOWANCES> 0 0 0
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 942 1,747 1,844
<PP&E> 1,091 2,560 4,034
<DEPRECIATION> 158 702 1,489
<TOTAL-ASSETS> 8,549 21,935 40,606
<CURRENT-LIABILITIES> 1,225 6,368 9,423
<BONDS> 0 0 0
0 0 0
10 15 19
<COMMON> 4 5 5
<OTHER-SE> 7,114 14,314 30,272
<TOTAL-LIABILITY-AND-EQUITY> 8,549 21,935 40,606
<SALES> 9 647 1,656
<TOTAL-REVENUES> 9 647 1,656
<CGS> 1,496 7,352 5,428
<TOTAL-COSTS> 4,274 15,055 9,967
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 36 144 43
<INCOME-PRETAX> (4,180) (14,111) (8,208)
<INCOME-TAX> 0 0 0
<INCOME-CONTINUING> 0 0 0
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (4,180) (14,111) (8,208)
<EPS-BASIC> (5.70) (8.58) (2.73)
<EPS-DILUTED> (5.70) (8.58) (2.73)
</TABLE>
