<PAGE>
As filed with the Securities and Exchange Commission on June 11, 1999
Registration No. 333-78015
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
AMENDMENT NO.1
to
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
ENGAGE TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
---------------
Delaware 7372 04-3281378
(State or other
jurisdiction of
incorporation or
organization)
(Primary Standard Industrial Classification
(I.R.S. Employer
Code Number) Identification Number)
---------------
Engage Technologies, Inc.
100 Brickstone Square
Andover, MA 01810 (978) 684-3884
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
---------------
Paul L. Schaut
President and Chief Executive Officer
Engage Technologies, Inc.
100 Brickstone Square
Andover, MA 01810 (978) 684-3884
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
Copies to:
MARK G. BORDEN, ESQ. KEITH F. HIGGINS, ESQ.
THOMAS S. WARD, ESQ. ROPES & GRAY
HALE AND DORR LLP One International Place
60 State Street Boston, MA 02110
Boston, MA 02109 (617) 951-7000
(617) 526-6000
---------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date hereof.
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, 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,
check the following box. [_]
---------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Proposed Proposed
Maximum Maximum
Title of each Class Offering Aggregate Amount of
of Securities to be Amount to be Price Per Offering Registration
Registered Registered(1) Unit(2) Price(2) Fee
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value
per share................... 6,900,000 $11.00 $75,900,000 $21,100(3)
</TABLE>
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- -------------------------------------------------------------------------------
(1) Includes 900,000 shares that the Underwriters have the option to purchase
from the Company to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) The Company previously paid $20,850 in connection with the initial filing
of this Registration Statement.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this preliminary prospectus is not complete and may be +
+changed. These securities may not be sold until the registration statement +
+filed with the Securities and Exchange Commission is effective. This +
+preliminary prospectus is not an offer to sell nor does it seek an offer to +
+buy these securities in any jurisdiction where the offer or sale is not +
+permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion. Dated , 1999.
6,000,000 Shares
Engage Technologies, Inc.
[LOGO OF ENGAGE TECHNOLOGIES APPEARS HERE]
Common Stock
-----------
This is an initial public offering of shares of Engage Technologies, Inc. All
of the 6,000,000 shares of common stock are being sold by Engage.
At the request of Engage, the underwriters have reserved at the initial
public offering price up to 600,000 shares of common stock for sale to
employees, customers, resellers and other business associates of Engage.
Prior to this offering, there has been no public market for the common stock.
It is currently estimated that the initial public offering price per share will
be between $9.00 and $11.00. Application has been made for quotation of the
common stock on the Nasdaq National Market under the symbol "ENGA".
Upon completion of this offering, CMGI, Inc. will directly own approximately
83% of the outstanding shares of Engage common stock and will continue to
control Engage.
Please see "Risk Factors" beginning on page 7 to read about factors you
should consider before buying shares of the common stock.
-----------
Neither the Securities and Exchange Commission nor any other regulatory body
has approved or disapproved of these securities or passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
-----------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Initial public offering price................................. $ $
Underwriting discount......................................... $ $
Proceeds, before expenses, to Engage.......................... $ $
</TABLE>
The underwriters may, subject to the terms of the underwriting agreement,
purchase up to an additional 900,000 shares from Engage at the initial public
offering price less the underwriting discount.
-----------
The underwriters expect to deliver the shares against payment in New York,
New York on , 1999.
Goldman, Sachs & Co.
Hambrecht & Quist
Bear, Stearns & Co. Inc.
-----------
Prospectus dated , 1999.
<PAGE>
The inside front cover contains the following:
[Graphical description of the product families offered by Engage. The page
contains an image of three smaller circles surrounding and overlapping a
larger circle. One small circle is labelled, "Targeted Delivery of Content and
Commerce Offerings". One small circle is labelled, "Targeted Delivery of
Advertising". One small circle is labelled, "Web Site Traffic Measurement,
Auditing and Analysis". The larger circle is labelled, "Engage Profiling
Products and Services".]
[Graphical depiction of how a profile is created and used. The page
contains an image of a person sitting before a computer screen; next to the
person is a box containing sample scores within a user profile. The same image
is repeated three times, with the scores in the profile box changed beneath
each of the images. The same image is again repeated at the bottom of the
page, adjacent to which are groups of three banner advertisements, three e-
commerce promotions and three types of editorial content. Arrows point from
these groups to a graphic of a computer screen that has one box labelled "Ad
Banner", another "Dynamic Content" and another "Promo".]
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information and Engage's financial statements and the notes to those statements
appearing elsewhere in this prospectus.
This prospectus contains forward-looking statements based on our current
expectations, assumptions, estimates and projections about Engage and our
industry. These forward-looking statements involve risks and uncertainties.
Engage's actual results could differ materially from those anticipated in these
forward-looking statements as a result of various factors, as more fully
described in the "Risk Factors" section and elsewhere in this prospectus.
Engage Technologies, Inc.
Our Business
Engage provides products and services that enable customers to create and
use profiles of individual Web visitors to target advertisements, content and
e-commerce offerings. An Engage profile is an anonymous collection of
information about an individual Web user's consumer interests, demographic
characteristics and geographic location. These profiles are developed through a
combination of a user's browsing behavior on participating sites on the
Internet and information the user has voluntarily declared at those sites, such
as information provided on an online registration form. Each anonymous profile
omits information that would permit the personal identification of the user,
such as name, address and e-mail address.
Based on its proprietary technology, Engage has built a database currently
containing more than 30 million anonymous consumer profiles, which it has
created using data drawn from multiple, diverse Web sites. When a user visits a
Web site of any customer subscribing to the Engage Knowledge data service,
Engage matches that visitor with his or her profile in the profile database.
The Web site can then use that profile to target offerings to the visitor based
on his or her particular preferences, demographic characteristics and
geographic location.
Each Engage profile contains numerical scores that rank a Web user's
preference level in hundreds of standard categories and subcategories, such as
books, business, computers, fashion, sports and travel. Categories can be
further customized to meet the needs of a specific customer or market. These
profiles are continuously updated and refined based on a visitor's browsing
behavior across multiple Web sites, including pages selected by the user, the
duration of the user's visits and the responses of the user to specific
advertisements and promotions.
Engage's products and services include:
. Engage Knowledge, a service that is currently being tested with customers
and will allow real-time access to Engage's centralized database of
anonymous profiles of Web users;
. Engage ProfileServer, a software product used by customers to create and
deliver site-specific profiles of Web users;
. Accipiter AdManager, an online advertising management system that
automates the scheduling, targeting and delivery of ads on Web sites and
the reporting of advertising campaign results;
. Accipiter AdBureau, an outsourced online advertising management service
using AdManager technology;
. I/PRO services, which provide outsourced Web site traffic analysis and
audits; and
. Engage DecisionSupportServer, a software product that allows customers
3
<PAGE>
to perform sophisticated analyses of the behavior and interests of their
Web site visitors.
As of April 30, 1999, Engage had sold its products and services to
approximately 300 customers.
Our Market Opportunity
The Internet is capable of transforming the way businesses market and sell
products. The interactive nature of the Web offers the potential for businesses
to market to individuals on a one-to-one basis in real-time. Businesses are
seeking to improve the effectiveness of their marketing campaigns by directing
their advertisements and promotions toward the Web users they most want to
reach. By targeting advertisements and promotions to the most relevant users,
Internet marketers seek to improve their response rates and brand awareness and
reduce costs by eliminating spending that is not directed to their desired
audience.
While the growth and interactive nature of the Internet are generating a
large volume of consumer data useful for targeted marketing, Web users are
increasingly concerned about the potential for loss or abuse of their privacy.
To balance the desires of Internet marketers and consumers, there is a need for
a solution that enables marketers to tailor their offerings effectively to
individual users, while also preserving the privacy and anonymity available to
individuals on the Internet.
Our Strategy
Engage's strategy includes a number of elements designed to enhance its
position as a provider of profile-driven Internet marketing products and
services:
Exploit position as innovator in profiling technology. We believe we have the
opportunity to establish Engage as the recognized brand for audience
targeting on the Internet by developing a family of "Engage-enabled"
products and services that use our proprietary profiling technology.
Offer multiple products based on open standards. To promote broad acceptance
of Engage profiles, we plan to continue to design our products based on open
standards that enable our products to work both with our own applications
and third-party applications.
Continue to enhance profiles. We intend to continue to improve the quality
and usefulness of Engage Knowledge profiles by increasing our installed base
of subscribers to the Engage Knowledge data service, improving our profiling
algorithms and technology and refining our profile categories to provide
broader, more detailed and market-specific information.
Focus on specific markets. We plan to tailor our profiling products for
specific markets, including Web publishers and advertising networks and
industry-specific markets such as the automotive and retail markets.
Cross-sell family of Engage products and services. We intend to cross-sell
our products and services to our existing installed base of customers.
Maintain position as trusted leader in Internet privacy. We plan to maintain
our commitment and leadership regarding issues of consumer privacy on the
Internet.
4
<PAGE>
Our History
Engage was incorporated in Delaware on July 18, 1995. Although Engage
expects that a significant portion of its future growth will be attributable to
sales of subscriptions to its Engage Knowledge data service and other products
and services that will be based upon Engage's profiling technology, Engage has
generated most of its revenue to date through sales of its advertising
management software and outsourced services, as well as its services for
measuring and analyzing Web site traffic. Engage has incurred aggregate net
losses of approximately $47.2 million since inception in
1995 and expects to continue to incur significant losses for the foreseeable
future. Engage operates in a highly competitive market and it may not achieve
profitability. A material portion of Engage's revenue to date has derived from
sales of products and services to affiliates of CMGI.
Our principal executive offices are located at 100 Brickstone Square,
Andover, MA 01810. Our telephone number at that location is 978-684-3884. Our
Internet address is www.engage.com. The information contained on our Web site
is not incorporated by reference in this prospectus.
The Offering
<TABLE>
<C> <S>
Shares offered by Engage...................... 6,000,000 shares
Shares to be outstanding after this offering.. 45,973,798 shares(1)
Proposed Nasdaq National Market symbol........ ENGA
Use of proceeds............................... For general corporate purposes,
including working capital
</TABLE>
- --------
(1) Based on 1,225,324 shares of common stock outstanding as of April 30, 1999,
plus 38,748,474 shares of common stock issuable upon conversion of
outstanding convertible notes and convertible preferred stock as of that
date. Excludes 6,467,794 shares issuable upon the exercise of outstanding
stock options as of April 30, 1999.
Engage, the Engage logo, Accipiter, AdBureau, AdManager, ProfileServer,
DSServer, Engage Knowledge, GeoKnowledge Engage Technologies, I/AUDIT and I/PRO
are trademarks of Engage. All other trademarks and service marks are the
property of their respective owners.
Unless otherwise specifically stated, information throughout this prospectus
assumes:
. the underwriters' over-allotment option is not exercised;
. the conversion of $37,446,850 of indebtedness to CMGI into shares of
convertible preferred stock prior to the closing of this offering;
. the conversion of all outstanding shares of our convertible preferred
stock into shares of common stock upon the closing of this offering;
. the effectiveness of a two-for-one stock split immediately prior to the
date of this prospectus;
. all stock splits of CMGI common stock with a record date prior to the
date of this prospectus; and
. an initial public offering price of $10.00 per share.
5
<PAGE>
Summary Financial Data
The following table summarizes our statement of operations data. This
financial information reflects the results of operations of Accipiter since
April 8, 1998 and the results of operations of I/PRO since April 7, 1999.
<TABLE>
<CAPTION>
Nine Months Ended
July 18, 1995 Year Ended July 31, April 30,
(inception) -------------------- --------------------
to July 31, 1996 1997 1998 1998 1999
---------------- --------- --------- ----------- --------
(unaudited)
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenue................. $ -- $ 25 $ 2,217 $ 613 $ 8,997
Cost of revenue......... -- 31 2,242 1,190 5,635
------- --------- --------- -------- --------
Gross (loss) profit... -- (6) (25) (577) 3,362
Operating expenses:
In-process research and
development........... -- -- 9,200 9,200 4,500
Research and
development........... 1,796 7,261 5,925 4,703 5,951
Selling and marketing.. 155 1,566 4,031 2,528 6,650
General and
administrative........ 428 1,429 2,333 1,062 2,817
Amortization of
goodwill and other
intangibles........... -- -- 1,273 318 3,239
------- --------- --------- -------- --------
Total operating
expenses............. 2,379 10,256 22,762 17,811 23,157
------- --------- --------- -------- --------
Loss from operations.... (2,379) (10,262) (22,787) (18,388) (19,795)
Gain on sale of product
rights................. -- -- 9,240 9,240 --
Equity in loss of joint
venture................ -- -- -- -- (417)
Loss on disposal of
property and
equipment.............. -- -- -- -- (174)
Interest expense, net... -- -- (172) (60) (411)
------- --------- --------- -------- --------
Net (loss) income....... $(2,379) $ (10,262) $ (13,719) $ (9,208) $(20,797)
======= ========= ========= ======== ========
Pro forma basic and
diluted net loss per
share.................. $ (.82) $ (.61)
========= ========
Weighted average shares
of common stock used in
computing pro forma
basic and diluted net
loss per share......... 16,750 34,210
========= ========
</TABLE>
The following table is a summary of our balance sheet at April 30, 1999 (1)
on an actual basis, (2) on a pro forma basis after giving effect to the
conversion of all debt to CMGI into shares of convertible preferred stock and
the conversion of all outstanding convertible preferred stock into common stock
and (3) on a pro forma as adjusted basis to reflect the sale of 6,000,000
shares of common stock at an assumed initial public offering price of $10.00
per share, after deducting the underwriting discount and estimated offering
expenses.
<TABLE>
<CAPTION>
April 30, 1999
-------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(in thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Cash and equivalents............................ $ 661 $ 661 $ 55,461
Working capital (deficit)....................... (40,204) (2,757) 52,043
Total assets.................................... 51,241 51,241 106,041
Debt to CMGI.................................... 37,447 -- --
Stockholders' equity............................ 1,372 38,819 93,619
</TABLE>
6
<PAGE>
RISK FACTORS
This offering involves a high degree of risk. You should carefully consider
the risks described below before you decide to buy our common stock. If any of
the following risks were to occur, our business, financial condition or results
of operations would likely suffer. In that event, the trading price of our
common stock could decline, and you may lose all or part of your investment.
We have incurred substantial losses and anticipate continued losses
We have never been profitable. We have incurred net losses totalling $47.2
million from inception to April 30, 1999. We expect to increase our spending
significantly and therefore expect to continue to incur significant losses for
the foreseeable future.
We will need to generate significant additional revenue to achieve
profitability. We may not achieve profitability. If our revenue grows more
slowly than we anticipate or if our operating expenses either increase more
than we expect or cannot be reduced in light of lower revenue, our business,
financial condition and results of operations will be materially and adversely
affected.
We have recently begun to introduce our Engage Knowledge data service, and it
is uncertain whether it will achieve widespread customer acceptance
We have implemented our Engage Knowledge data service with customers on a
test basis and have not yet realized any revenue from sales of this service.
While we expect to implement this service on a commercial basis in July 1999,
we may encounter delays or difficulties in this commercial introduction. The
profiling capabilities used to create and maintain the Engage Knowledge data
service serve as the platform for most of our current and planned profile-based
products and services. We expect that a significant portion of our future
revenue will depend on sales of the Engage Knowledge data service and other
products and services incorporating our profile technology. There can be no
assurance that our Engage Knowledge data service, or our profiling approach for
the creation of anonymous profiles, will achieve widespread customer
acceptance, and any failure to do so would have a material adverse effect on
our business, financial condition and results of operations.
Profile-based targeting may not achieve its intended benefits and our revenue
therefore may not grow as expected
Our products and services are designed to enable Web publishers, advertisers
and merchants to target their intended audiences more effectively. Because
Engage profiling technology is new, we cannot be sure that the use of our
anonymous profiles will result in more effective targeting of advertisements or
other marketing and promotional activities. Our revenue would be adversely
affected if advertisers and merchants do not perceive that the use of profiles
will improve the effectiveness of their marketing campaigns or if our customers
are otherwise unable to generate a sufficient return on investment from the use
of our profiles. If the use of our profile-based products and services does not
demonstrably improve the responsiveness of Web visitors, Engage's business,
financial condition and results of operations will be materially adversely
affected.
The value of the Engage Knowledge service depends on continued contributions of
data from customers subscribing to this service
The anonymous user profiles currently in the Engage Knowledge database have
been created from data generated by customers that are testing the Engage
Knowledge data service. Organizations subscribing to the Engage Knowledge data
service currently can elect not to contribute user data to the Engage profile
database. These organizations may elect not to contribute data due to concerns
relating to sharing proprietary information about their users and perceived
privacy concerns. Decisions by our major customers not to contribute their data
would hinder the quality and growth of the Engage Knowledge database and could
severely impair the effectiveness and value of the Engage Knowledge data
service and our other planned profile-based products. Although
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<PAGE>
customers that do not contribute their data generally are required to pay
significantly higher subscription fees for use of the Engage Knowledge data
service, the impact of these higher fees may be insufficient to cause customers
to contribute data to the Engage Knowledge database.
Our business may be seriously harmed if we do not successfully develop profile-
based products and services for industry-specific markets
We plan to develop Engage Knowledge data services that are tailored for the
requirements of specific markets, such as the automotive, retail and other
industry-specific markets. Our success in introducing these services will
depend on our ability to obtain access to the consumer information necessary to
create a meaningful database of market-specific interests and preferences, as
well as the ability to enter into marketing relationships with partners having
expertise in these markets. There can be no assurance that we will be
successful in obtaining this data or the necessary marketing relationships, and
any failure to do so would impair our ability to introduce our planned products
and services for these markets.
Our quarterly operating results are subject to significant fluctuations and
you should not rely on them as an indication of our future results
Our revenue and operating results may vary significantly from quarter to
quarter due to a number of factors, not all of which are in our control. Future
revenue is difficult to forecast and for the foreseeable future will be
influenced by the timing and amount of sales to new customers, as well as user
traffic levels and advertising and electronic commerce activity on our
customers' Web sites.
The market for profile-based marketing products and services is new. As a
result, we must educate potential customers on the use and benefits of our
products and services. In addition, the implementation of the Engage Knowledge
data service requires a significant commitment of resources by our customers.
It can, in some cases, take our sales organization several months to finalize a
sale. This makes it difficult to predict the quarter in which a sale may occur.
Many of our expenses, particularly personnel costs and rent, are relatively
fixed, and are incurred in part based on expectations of future revenue. We may
be unable to adjust spending quickly enough to offset any unexpected revenue
shortfall. Accordingly, any shortfall in revenue may cause significant
variation in operating results in any quarter.
Because of these factors, you should not rely on quarter-to-quarter
comparisons of our results of operations as an indication of our future
performance. It is possible that, in future periods, our results of operations
may be below the expectations of public market analysts and investors. This
could cause the trading price of our common stock to decline.
We have only been in business for a short period of time and your basis for
evaluating us is limited
We began commercial shipments of our first software products in early 1998.
You must consider the risks, expenses and uncertainties that an early stage
company like ours faces, particularly in the new and rapidly evolving Internet
market. Because we have only recently commenced commercial sales, our past
results and rates of growth may not be meaningful and you should not rely on
them as an indication of our future performance.
We will continue to be controlled by CMGI, Inc., whose interests may differ
from other stockholders
CMGI, Inc. currently beneficially owns approximately 96% of the outstanding
shares of our common stock, and after the offering will own approximately 83%
of the outstanding shares of our common stock. Accordingly, CMGI will continue
to have the power to elect our entire board of directors and to approve or
disapprove any corporate transaction or other matter submitted to our
stockholders for approval, including the approval of mergers or other
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<PAGE>
significant corporate transactions. The interests of CMGI may differ from the
interests of the other stockholders. Future decisions by CMGI as to the
disposition of any or all of its ownership position in Engage could be
influenced by the possible need of CMGI to maintain control of Engage in order
for CMGI to avoid becoming a registered investment company. Registration as an
investment company would subject CMGI to numerous regulatory requirements with
which CMGI would have difficulty complying. As a result, CMGI may be motivated
to maintain at least a majority ownership position of Engage, even if other
stockholders of Engage might consider a sale of control of Engage to be in
their best interests. As long as it is a majority stockholder, CMGI has
contractual rights to purchase shares in any financing of Engage sufficient to
maintain its majority ownership position. CMGI's ownership may have the effect
of delaying or preventing a change in control of us or discouraging a potential
acquiror from attempting to obtain control of us, which in turn could adversely
affect the market price of our common stock.
A material portion of our growth to date has been attributable to sales to CMGI
affiliates
Eleven of our customers are affiliates of CMGI. In fiscal 1998 and the first
nine months of fiscal 1999, sales of products and services to affiliates of
CMGI accounted for $235,000 and $1.4 million, respectively, of Engage's total
revenue. To the extent that our growth in revenue has been attributable to
sales of products and services to these affiliates, there can be no assurance
that our historical rate of growth is an indication of our future prospects.
While Engage believes that the transactions between it and other affiliates of
CMGI have been on arms'-length terms, it is possible that Engage might have
received more favorable terms than it would have if it were not an affiliate of
CMGI. CMGI has been and continues to be instrumental in introducing Engage to
customers and other business partners. If the relationship between Engage and
CMGI ended or was fundamentally altered, our business, financial condition and
results of operations could be materially adversely affected.
Growing concerns about the use of "cookies" may limit our ability to develop
user profiles
Web sites typically place small files of information commonly known as
"cookies" on a user's hard drive, generally without the user's knowledge or
consent. Cookie information is passed to the Web site through the Internet
user's browser software. Our technology currently uses cookies to collect
information about an Internet user's movement through the Internet. Most
currently available Internet browsers allow users to modify their browser
settings to prevent cookies from being stored on their hard drive, and a small
minority of users are currently choosing to do so. Users can also delete
cookies from their hard drive at any time.
Some Internet commentators and privacy advocates have suggested limiting or
eliminating the use of cookies. The effectiveness of our technology could be
limited by any reduction or limitation in the use of cookies.
If the use or effectiveness of cookies is limited, we would likely have to
switch to other technology that allows us to gather demographic and behavioral
information. While such technology currently exists, it is substantially less
effective than cookies. Replacement of cookies could require significant
reengineering time and resources, might not be completed in time to avoid
negative consequences to our business, financial condition or results of
operations, and might not be commercially feasible.
Legislation or regulations may be adopted that could affect our ability to
generate or use information for profiles and may hinder our ability to conduct
business
The legal and regulatory environment governing the Internet and the use of
information about Web users is uncertain and may change. United States
legislators in the past have introduced a number of bills aimed at regulating
the collection and use of personal data from Internet users and additional
similar bills are being considered during the current congressional session.
The European Union has recently adopted a directive addressing
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<PAGE>
data privacy that may result in limitations on the collection and use of
specific personal information regarding Internet users. In addition, Germany
has imposed its own laws protecting data that can become personally
identifiable through subsequent processing. Other countries may also enact
limitations on the use of personal data.
To date, these regulations have not materially restricted the use of our
products. However, legislation or regulations may in the future be adopted
which may limit our ability to target advertising or collect and use
information in one or more countries. Further, a number of laws and regulations
have been and may be adopted covering issues such as pricing, acceptable
content, taxation and quality of products and services on the Internet. Such
legislation could dampen the growth in use of the Internet generally and
decrease the acceptance of the Internet as a communications and commercial
medium. In addition, due to the global nature of the Internet, it is possible
that multiple federal, state or foreign jurisdictions might inconsistently
regulate our activities and our customers. Any of the foregoing developments
could have a material adverse effect on our business, financial condition and
results of operations.
We may have difficulty managing our expanding operations
We have recently experienced a period of rapid growth. Our total revenue
increased from $25,000 in the fiscal year ended July 31, 1997 to $2.2 million
in the fiscal year ended July 31, 1998, and the number of our employees
increased from 67 as of July 31, 1997 to 209 as of April 30, 1999. A number of
our senior managers have been with us for less than a year. This growth has
placed a significant strain on our managerial, operational and financial
resources. To accommodate this growth, we must implement new or upgraded
operating and financial systems, procedures and controls throughout many
different locations. We may not succeed in these efforts. Our failure to expand
and integrate these areas in an efficient manner could have a material adverse
effect on our business, financial condition and results of operations. If we
continue to grow, we will need to recruit, train and retain a significant
number of employees, particularly employees with technical, marketing and sales
backgrounds. These individuals are in high demand. We may not be able to
attract the staff we need.
The acceptance and effectiveness of Internet advertising is not yet fully
established
Our future success is dependent in part on an increase in the use of the
Internet as an advertising medium. The Internet advertising market is new and
rapidly evolving, and it cannot yet be compared with traditional advertising
media to gauge its effectiveness. As a result, demand for and market acceptance
of Internet advertising solutions are uncertain. In addition, there are
software programs that limit or prevent advertising from being delivered to a
user's computer. Web users' widespread adoption of such software would
significantly undermine the commercial viability of Internet advertising. If
the market for Internet advertising fails to develop or develops more slowly
than we expect, our business, financial condition and results of operations
could be materially and adversely affected.
There are currently no generally accepted standards for the measurement of
the effectiveness of Internet advertising and standard measurements may need to
be developed to support and promote Internet advertising as a significant
advertising medium. Our advertising customers may challenge or refuse to accept
our or third-party measurements of advertisement delivery requests from the Web
sites of Web publishers using our solutions.
The acceptance and effectiveness of the Internet as a medium for consumer
transactions is not yet fully established
Our future success is dependent in part on an increase in the use of the
Internet for business transactions with consumers. The electronic commerce
market is new and rapidly evolving and the extent of consumer acceptance of the
Internet is uncertain. If a sufficiently broad base of consumers do not accept
the use of the Internet for transacting business, our business, financial
condition and
10
<PAGE>
results of operations could be materially and adversely affected.
We have many competitors and may not be able to compete effectively
The markets for Internet advertising, user targeting and Web site assessment
tools are intensely competitive. We compete directly with providers of
profiling technology, such as Personify, and indirectly with applications that
include more limited profiling capability integrated into their solutions, such
as BroadVision and Vignette. In addition, NetGravity, in concert with Aptex and
MatchLogic, and businesses that offer cash or other incentives to users to
voluntarily provide profile data, are expected to compete in the profiling
solutions market. The primary competitors to our advertising management
software are systems provided by NetGravity and Real Media. In the outsourced
ad serving market, we compete with providers of ad serving services, including
AdForce and DoubleClick. Our traffic measurement and analysis services and
software compete with software offered by Accrue, Andromedia, net.Genesis and
WebTrends, and our audit services compete with ABC Interactive, BPA and
PricewaterhouseCoopers. We also encounter competition from a number of other
sources, including content aggregation companies, companies operating
advertising sales networks, advertising agencies and other companies that
facilitate Internet advertising and electronic commerce.
Many of our existing competitors, as well as a number of potential new
competitors, have longer operating histories, greater name recognition, larger
customer bases and significantly greater financial, technical and marketing
resources than we do. Such competitors may also engage in more extensive
research and development, undertake more far-reaching marketing campaigns,
adopt more aggressive pricing policies and make more attractive offers to
existing and potential employees, strategic partners, advertisers and Web
publishers. We cannot assure you that our competitors will not develop products
or services that are equal or superior to our solutions or that achieve greater
market acceptance than our solutions. In addition, current and potential
competitors have established or may establish cooperative relationships among
themselves or with third parties. Increased competition is likely to result in
price reductions, reduced gross margins and loss of market share. We cannot
assure you that we will be able to compete successfully or that competitive
pressures will not materially and adversely affect our business, financial
condition and results of operations.
Companies doing business on the Internet, including ours, must also compete
with television, radio, cable and print media for a share of advertisers' total
advertising budgets.
Our systems may fail or experience slowdowns and we could lose key data used in
our user profiles
Substantially all of our communications hardware and other data center
operations are located at NaviSite Inc.'s facilities in Andover, Massachusetts.
Fire, floods, earthquakes, power loss, telecommunications failures, break-ins
and similar events could damage these systems, including loss of data used to
create our user profiles. Our business, financial condition and results of
operations could be materially and adversely affected if our systems were
affected by any of these occurrences or if any data used in our Engage
Knowledge database were lost. Our insurance policies may not adequately
compensate us for any losses that may occur due to any failures or
interruptions in our systems or loss of data.
We may need additional financing which could be difficult to obtain
We intend to grow our business rapidly and expect to incur significant
operating losses for the foreseeable future. Therefore, we may require
significant external financing in the future. Obtaining additional financing
will be subject to a number of factors, including:
. market conditions;
. our operating performance; and
. investor sentiment, particularly for Internet-related companies.
11
<PAGE>
These factors may make the timing, amount, terms and conditions of
additional financing unattractive for us. If we are unable to raise capital to
fund our growth, our business, financial condition and results of operations
would be materially and adversely affected.
Technological change may render our products and services obsolete
The Internet market is characterized by rapidly changing technology,
evolving industry standards, frequent new product announcements and
enhancements and changing customer demands. The introduction of new products
and services embodying new technologies and the emergence of new industry
standards can render existing products and services obsolete. Our success
depends on our ability to adapt to rapidly changing technologies and to improve
the performance, features and reliability of our services and products in
response to changing customer and industry demands. Furthermore, we may
experience difficulties that could delay or prevent the successful design,
development, testing, introduction or marketing of services. New services or
enhancements to existing services may not adequately meet the requirements of
our current and prospective customers or achieve any degree of significant
market acceptance.
We face risks associated with our international operations
and plans for expansion
We have operations in a number of international markets. We intend to
continue to expand our international operations and international sales and
marketing efforts. To date, we have limited experience in developing localized
versions of our solutions and in marketing, selling and distributing our
solutions internationally. We have established a direct sales office in the
United Kingdom and a joint venture with Sumitomo to conduct operations in
Japan. We intend to enter other international markets primarily by partnering
with locally based third parties, including entering into joint ventures and
distribution arrangements. Our success in such markets is directly dependent on
the success of our business partners and our and their dedication of sufficient
resources to our relationship.
International operations are subject to other inherent risks, including:
. compliance with the laws and regulations of different countries;
. difficulties in enforcing contractual obligations and intellectual
property rights in some countries;
. difficulties and costs of staffing and managing foreign operations; and
. fluctuations in currency exchange rates.
These risks may materially and adversely affect our business, results of
operations and financial condition.
We may not be successful in acquiring and integrating new technologies or
businesses
We have acquired two companies and intend in the future to continue to
acquire or make investments in complementary businesses, products, services or
technologies. We cannot assure you that we will be able to identify additional
acquisition or investment candidates. Even if we do identify suitable
candidates, we cannot assure you that we will be able to make such acquisitions
or investments on commercially acceptable terms. We recently purchased I/PRO
and may not be successful in managing its operations. In addition, the key
personnel of I/PRO or other acquired companies may decide not to work for us.
If we make other types of acquisitions, we could have difficulty in
assimilating the acquired products, services or technologies into our
operations. These difficulties could disrupt our ongoing business, distract our
management and employees, increase our expenses and adversely affect our
results of operations. 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.
We depend on the continued viability of the Internet infrastructure
Our success depends upon the development and maintenance of a viable
12
<PAGE>
Internet infrastructure. The current Internet infrastructure may be unable to
support an increased number of users. The timely development of products such
as high-speed modems and communications equipment will be necessary to continue
reliable Web access. Furthermore, the Web has experienced outages and delays as
a result of damage to portions of its infrastructure. Such outages and delays,
including those resulting from Year 2000 problems, could adversely affect Web
sites and the level of traffic on our customers' sites. The effectiveness of
the Web may decline due to delays in the development or adoption of new
standards and protocols designed to support increased levels of activity. If
such new infrastructure, standards or protocols are developed, we may be
required to incur substantial expenditures to adapt our products to the new
technologies.
Our business may suffer if we cannot protect our intellectual property
Our success and ability to compete are substantially dependent on our
internally developed technologies and trademarks, which we seek to protect
through a combination of patent, copyright, trade secret and trademark law. In
February 1998, we filed two patent applications in the United States. We cannot
assure you that any of our patent applications or trademark registrations will
be approved, or even if approved, would not be successfully challenged by
others or invalidated. In addition, we cannot assure you that we will be able
to prevent misappropriation of our solutions or technologies, particularly in
foreign countries where laws or law enforcement practices may not protect our
proprietary rights as fully as in the United States.
Our profiling technology collects and utilizes data derived from user
activity on our customers' Web sites. This data is used for advertising and
content targeting. Although we believe that we have the right to use such data
and the compilation of such data in our database, we cannot assure you that any
trade secret, copyright or other protection will be available for such
information. In addition, others may claim rights to such information.
Our business will suffer if we are unable to retain key personnel
We depend on the services of our senior management and key technical
personnel. In particular, our success depends on the continued efforts of our
Chief Executive Officer, Paul L. Schaut; our Chief Operating Officer, David A.
Fish; and our Chief Technology Officer, Daniel J. Jaye, with whom we do not
have employment agreements. The loss of the services of any key employee could
have a material adverse effect on our business, financial condition and results
of operations.
Year 2000 problems may disrupt our business
Many currently installed computer systems and software products only accept
two digits to identify the year in any date. Therefore, the year 2000 will
appear as "00", which the system might consider to be the year 1900 rather than
the year 2000. This could result in system failures, delays or miscalculations
causing disruptions to our operations.
The failure of any of our systems or systems maintained by third parties to
be Year 2000 compliant could:
. cause us to incur significant expenses to remedy any problems;
. affect the availability and performance of our network; or
. otherwise seriously damage our business.
A significant Year 2000-related disruption to our network could cause our
users, advertisers or electronic commerce partners to be dissatisfied with our
network or could impose an unmanageable burden on our technical support staff.
Our failure to correct a material Year 2000 problem could have a material
adverse effect on our business, financial condition and results of operations.
Engage will continue to rely on CMGI for various administrative services, and
conflicts of interest could arise in the provision of such services
Upon the closing of this offering, CMGI and Engage will enter into a
facilities and administrative support agreement under which
13
<PAGE>
CMGI will continue to make available space at its headquarters in Massachusetts
and will provide various services to Engage, including tax and administration,
computer and information systems, telecommunications, utilities and employee
benefits administration. Under this agreement, CMGI has agreed to make
available to Engage at least ,000 square feet of space at its headquarters
facilities in Andover, Massachusetts, subject to termination upon at least 12
months' notice by CMGI. The fees payable by Engage for the availability of
space and other services are typically determined through an allocation of
CMGI's costs based upon the proportion of Engage's employee headcount to the
total headcount of CMGI and other CMGI-related companies located in the same
facility or using the same services. This agreement may be amended by agreement
of CMGI and Engage. It is possible that personnel of CMGI providing these
services may encounter conflicts of interests such as demands on their time by
CMGI that might detract from their level of availability or service to Engage.
In addition, Engage's reliance on these services could result in higher costs
than would be incurred if Engage were to obtain such services from an unrelated
third party.
We will have discretion as to the use of the proceeds of this offering
We currently have no specific uses planned for the net proceeds of this
offering. As a result, our management will have broad discretion in applying
the net proceeds of this offering, and could include uses with which
stockholders may disagree. The failure of management to apply such funds
effectively could have a material adverse effect on our business, financial
condition and results of operations. See "Use of Proceeds".
Our stock price is likely to be highly volatile
Following this offering, an active trading market may not develop or be
sustained for our common stock. The price at which our common stock will trade
after this offering is likely to be highly volatile and may fluctuate
substantially due to a number of factors, including:
. actual or anticipated fluctuations in our results of operations;
. changes in or our failure to meet securities analysts' expectations;
. technological innovations;
. increased competition;
. conditions and trends in the Internet and other technology industries;
and
. general market conditions.
In addition, the stock market has from time to time experienced significant
price and volume fluctuations that have affected the market prices for the
securities of technology companies, particularly Internet companies. These
broad market fluctuations may result in a material decline in the market price
of our common stock, regardless of our operating performance. In the past,
following periods of volatility in the market price of a particular company's
securities, securities class action litigation has often been brought against
that company. We may become involved in this type of litigation in the future.
Litigation is often expensive and diverts management's attention and resources,
which could have a material adverse effect upon our business, financial
condition and results of operations.
Shares eligible for public sale after this offering could adversely affect
our stock price
After this offering, there will be outstanding 45,973,798 shares of our
common stock, or 46,873,798 shares if the underwriters' over-allotment option
is exercised in full. Of these shares, the 6,000,000 shares sold in this
offering will be freely tradeable except for any shares purchased by our
"affiliates" as defined in Rule 144 under the Securities Act. Of the remaining
39,973,798 shares of common stock held by existing stockholders, 39,281,464 are
subject to 180-day lock-up agreements and are eligible for sale only if
registered or if they qualify for an exemption from registration under Rules
144, 144(k) or 701 under the Securities Act. Subject to the provisions of Rules
144, 144(k) and 701, at least 30,477,194 shares will be available for sale in
the public market 180
14
<PAGE>
days after the date of this prospectus, subject in the case of shares held by
affiliates to compliance with applicable volume restrictions. Sales of a large
number of shares could have an adverse effect on the market price of our common
stock.
You will suffer immediate and substantial dilution
The initial public offering price per share will significantly exceed the
net tangible book value per share. Investors purchasing shares in this offering
will suffer dilution of $8.84 per share from their investment.
15
<PAGE>
USE OF PROCEEDS
Engage estimates that the net proceeds from its sale of 6,000,000 shares of
common stock will be $54.8 million, after deducting the underwriting discount
and estimated offering expenses payable by Engage. If the underwriters' over-
allotment option is exercised in full, Engage estimates that the net proceeds
will be $63.2 million.
Engage presently intends to use a portion of the net proceeds from this
offering for general corporate purposes, including working capital, product
development, increasing sales and marketing capabilities and expanding
international operations. Engage may also use a portion of the net proceeds to
acquire or invest in complementary businesses or products or to obtain the
right to use complementary technologies. Engage has no specific understandings,
commitments or agreements with respect to any such acquisition or investment.
Pending these uses, the net proceeds of this offering will be invested in
short-term, interest-bearing, investment-grade securities.
DIVIDEND POLICY
Engage has never declared or paid any cash dividends on its capital stock.
Engage presently intends to retain future earnings, if any, to finance the
expansion of its business and does not expect to pay any cash dividends in the
foreseeable future. Payment of future cash dividends, if any, will be at the
discretion of Engage's board of directors after taking into account various
factors, including Engage's financial condition, operating results, current and
anticipated cash needs and plans for expansion.
16
<PAGE>
CAPITALIZATION
The following table sets forth Engage's capitalization as of April 30,
1999:
. on an actual basis after giving effect to the two-for-one common stock
split;
. on a pro forma basis to reflect the conversion of Engage's debt to CMGI
into convertible preferred stock and the conversion of all of Engage's
convertible preferred stock into common stock; and
. on a pro forma as adjusted basis to reflect the conversion of Engage's
debt to CMGI into convertible preferred stock, the conversion of all of
Engage's convertible preferred stock into common stock and the
application of the estimated net proceeds from the sale of common stock
in this offering, assuming an initial public offering price of $10.00 per
share, after deducting the underwriting discount and estimated offering
expenses payable by Engage.
Historically, CMGI has funded Engage's operations as needed, with a
corresponding increase in Engage's debt to CMGI. Customer and other receipts
are transferred to CMGI and are applied to reduce Engage's obligations to
CMGI. Engage expects that it will continue to borrow funds from CMGI under
this arrangement until the closing of this offering and that the net
obligations incurred after the end of the fiscal quarter preceding the
closing, to the extent outstanding, will be converted into additional shares
of Engage common stock at the initial public offering price.
<TABLE>
<CAPTION>
April 30, 1999
----------------------------------------
Pro Forma
Actual Pro Forma As Adjusted
----------- ----------- -------------
(in thousands, except share data)
<S> <C> <C> <C>
Debt to CMGI........................... $ 37,447 $ -- $ --
=========== =========== ===========
Stockholders' equity:
Series A convertible preferred stock,
par value $0.01; 1,500,000 shares
authorized, issued and outstanding
(actual); no shares authorized,
issued or outstanding (pro forma and
pro forma as adjusted)............... $ 15 $ -- $ --
Series B convertible preferred stock,
par value $0.01; 238,597 shares
authorized, issued and outstanding
(actual); no shares authorized,
issued or outstanding (pro forma and
pro forma as adjusted)............... 2 -- --
Common stock, par value $0.01;
60,000,000 shares authorized
(actual); 150,000,000 shares
authorized (pro forma and pro forma
as adjusted); 1,225,324 shares issued
and outstanding (actual); 39,973,798
and 45,973,798 shares issued and
outstanding (pro forma and pro forma
as adjusted)(1)...................... 12 399 459
Additional paid-in capital............. 49,639 86,716 141,456
Deferred compensation.................. (717) (717) (717)
Accumulated other comprehensive
income................................ (422) (422) (422)
Accumulated deficit.................... (47,157) (47,157) (47,157)
----------- ----------- -----------
Total stockholders' equity............. 1,372 38,819 93,619
----------- ----------- -----------
Total capitalization.................. $ 1,372 $ 38,819 $ 93,619
=========== =========== ===========
</TABLE>
- --------
(1) Excludes 6,467,794 shares of common stock issuable upon exercise of
outstanding options, as of April 30, 1999, at a weighted average exercise
price of $2.16 per share.
17
<PAGE>
DILUTION
The pro forma net tangible book value (deficit) of Engage as of April 30,
1999 was approximately ($1.4) million, or approximately $(.03) per share of
common stock. Pro forma net tangible book value (deficit) per share represents
the amount of Engage's total tangible assets less total liabilities, divided by
the pro forma number of shares of common stock outstanding, after giving effect
to the conversion of Engage's debt to CMGI into convertible preferred stock and
the conversion of all of Engage's convertible preferrred stock into common
stock and the two-for-one stock split. After giving effect to the sale of the
common stock offered by Engage in this offering at an assumed initial public
offering price of $10.00 per share, after deducting the underwriting discount
and estimated offering expenses payable by Engage, the pro forma net tangible
book value of Engage, as adjusted, as of April 30, 1999 would have been
approximately $53.4 million or approximately $1.16 per pro forma share of
common stock. This represents an immediate increase in net tangible book value
of $1.19 per share to Engage's existing stockholders and an immediate dilution
in net tangible book value of $8.84 per share to new investors of common stock
in this offering. If the initial public offering price is higher or lower, the
dilution to the new investors will be greater or less, respectively. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price............................. $10.00
Pro forma net tangible book deficit per share at April 30,
1999........................................................... $(.03)
Increase per share attributable to this offering................ 1.19
-----
Pro forma net tangible book value per share after this offering... 1.16
------
Dilution per share to new investors............................... $ 8.84
======
</TABLE>
The following table summarizes, on a pro forma basis, as of April 30, 1999,
the number of shares of common stock purchased from Engage, the total
consideration provided to Engage and the average price per share provided by
existing stockholders and giving effect to the shares to be issued in
connection with this offering. The calculation below is based on an assumed
initial public offering price of $10.00 per share, before deducting the
underwriting discount and estimated offering expenses payable by Engage.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
--------------------- ----------------------- Price Per
Number Percentage Amount Percentage Share
---------- ---------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders.. 39,973,798 87% $ 87,585,000 59% $2.19
New investors.......... 6,000,000 13 60,000,000 41 10.00
---------- --- ------------ ---
Total................ 45,973,798 100% $147,585,000 100%
========== === ============ ===
</TABLE>
This discussion and table assume no exercise of options outstanding under
Engage's 1995 Equity Incentive Plan. As of April 30, 1999, there were options
outstanding to purchase a total of 6,467,794 shares of common stock at a
weighted average exercise price of $2.16 per share. To the extent that any of
these options are exercised, there will be further dilution to new investors.
18
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Engage's consolidated financial statements and notes to those
statements and other financial information included elsewhere in this
prospectus. The statement of operations data for the period from July 18, 1995
(inception) to July 31, 1996, the years ended July 31, 1997 and 1998 and the
nine months ended April 30, 1999 and the balance sheet data as of July 31, 1997
and 1998 and April 30, 1999 are derived from the audited financial statements
of Engage that have been audited by KPMG LLP, and are included elsewhere in
this prospectus. The statement of operations data for the nine month period
ended April 30, 1998 is derived from the unaudited financial statements of
Engage included in this prospectus. The balance sheet data as of July 31, 1996
is derived from unaudited financial statements of Engage not included in this
prospectus. In the opinion of management, the unaudited consolidated financial
statements have been prepared on a basis consistent with the audited
consolidated financial statements which appear elsewhere in this prospectus and
include all adjustments, which are only normal recurring adjustments, necessary
for a fair statement of the financial position and results of operations for
the unaudited periods. The historical results presented herein are not
necessarily indicative of future results.
<TABLE>
<CAPTION>
Nine Months Ended
July 18, 1995 Year Ended July 31, April 30,
(inception) -------------------- --------------------
to July 31, 1996 1997 1998 1998 1999
---------------- --------- --------- ----------- --------
(unaudited)
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenue:
Product revenue........ $ -- $ 25 $ 1,742 $ 379 $ 6,520
Product revenue,
related parties....... -- -- 203 143 1,274
Services and support
revenue............... -- -- 240 82 1,113
Services and support
revenue, related
parties............... -- -- 32 9 90
------- --------- --------- ------- --------
Total revenue.......... -- 25 2,217 613 8,997
Cost of revenue......... -- 31 2,242 1,190 5,635
------- --------- --------- ------- --------
Gross (loss) profit.... -- (6) (25) (577) 3,362
Operating expenses:
In-process research and
development........... -- -- 9,200 9,200 4,500
Research and
development........... 1,796 7,261 5,925 4,703 5,951
Selling and marketing.. 155 1,566 4,031 2,528 6,650
General and
administrative........ 428 1,429 2,333 1,062 2,817
Amortization of
goodwill and other
intangibles........... -- -- 1,273 318 3,239
------- --------- --------- ------- --------
Total operating
expenses.............. 2,379 10,256 22,762 17,811 23,157
------- --------- --------- ------- --------
Loss from operations.... (2,379) (10,262) (22,787) (18,388) (19,795)
Gain on sale of product
rights................. -- -- 9,240 9,240 --
Equity in loss of joint
venture................ -- -- -- -- (417)
Loss on disposal of
property and
equipment.............. -- -- -- -- (174)
Interest expense, net... -- -- (172) (60) (411)
------- --------- --------- ------- --------
Net loss................ $(2,379) $ (10,262) $ (13,719) $(9,208) $(20,797)
======= ========= ========= ======= ========
Unaudited pro forma
basic and diluted net
loss per share......... $ (.82) $ (.61)
========= ========
Weighted average shares
of common stock used in
computing pro forma
basic and diluted net
loss per share......... 16,750 34,210
========= ========
</TABLE>
<TABLE>
<CAPTION>
July 31,
-------------------------- April 30,
1996 1997 1998 1999
------- -------- ------- ---------
(In thousands)
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash and equivalents..................... $ -- $ -- $ 96 $ 661
Working deficit.......................... (4,427) (14,209) (8,609) (40,204)
Total assets............................. 2,403 1,782 22,400 51,241
Debt to CMGI............................. 3,507 14,018 7,753 37,447
Stockholders' (deficit) equity........... (2,299) (12,539) 11,074 1,372
</TABLE>
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with Engage's
financial statements and notes to those statements and other financial
information appearing elsewhere in this prospectus. In addition to historical
information, the following discussion and other parts of this prospectus
contain forward-looking information that involves risks and uncertainties.
Engage's actual results could differ materially from those anticipated by such
forward-looking information due to various factors, including, but not limited
to, those set forth under "Risk Factors" and elsewhere in this prospectus.
References to fiscal 1996, fiscal 1997 and fiscal 1998 mean the fiscal years
ended July 31, 1996, 1997 and 1998, respectively.
Overview
Engage offers a range of software products and services that enable Web
publishers, advertisers and merchants to target and deliver advertisements,
content and e-commerce offerings to their audiences and to measure their
effectiveness.
Engage commenced operations in September 1995 as a wholly-owned subsidiary
of CMGI. As of April 30, 1999, CMGI owned approximately 96% of the outstanding
common stock of Engage.
Engage derives its revenues from product revenue and service and support
revenue. Product revenue consists of revenue from: (1) licenses of its software
products, AdManager, ProfileServer and DecisionSupportServer, and (2)
subscriptions to its service offerings, AdBureau, I/PRO and the Engage
Knowledge data service.
Product licenses are typically perpetual, although some have a one to three
year term. The fees for licenses of AdManager vary based on the volume of
advertisements served, and the fees for licenses of ProfileServer and
DecisionSupportServer vary based on the volume of activity on the customer's
site. Engage recognizes revenue from product licenses when a signed, non-
cancellable license exists, delivery of the product has occurred and Engage's
fees are fixed and determinable and collection is probable. Engage typically
recognizes revenue from perpetual product licenses in the quarter in which the
software is shipped and recognizes revenue from periodic licenses ratably over
the period of the license.
Subscriptions to Engage's services typically have a one year term, although
some are on a quarterly basis. The subscription fees for the Engage Knowledge
data service vary based on traffic to the customer's site, contributions of
data by the customer and the application with which the service is used. In the
future, fees may also vary based on the number of profiles used. The fees for
AdBureau vary based on the number of advertisements served. Revenue is
recognized ratably over the period of the subscription or, in the case of
usage-based subscriptions, monthly based on actual usage. Subscription
agreements typically include terms for automatic renewal unless the customer
provides notice of termination.
Engage's support and service revenue derives from its software maintenance
and other professional services, including consulting, installation and
training. Engage recognizes revenue from these services upon the delivery of
these services or, in the case of maintenance agreements, over the term of the
agreement. To date, substantially all of Engage's customers have entered into
maintenance contracts.
Engage began commercial shipments of its first software products,
ProfileServer and DecisionSupportServer, in the early part of fiscal 1998.
Effective April 1998, Engage acquired Accipiter, Inc., and began to sell the
Accipiter AdManager system and subscriptions to the Accipiter AdBureau service.
In April 1999, Engage acquired Internet Profiles Corporation (I/PRO) and began
to sell the I/PRO line of analysis and audit products and services. As of April
30, 1999, Engage had implemented its Engage Knowledge data service with
customers on a test basis.
20
<PAGE>
Engage has not recognized any revenue from the Engage Knowledge data service
through April 30, 1999. However, Engage expects that a significant portion of
its future revenue will be attributable to the Engage Knowledge data service
and other products and services based on its profiling technology that enable
its customers to create and use profiles that categorize information about a
Web user's consumer and demographic characteristics and geographic location.
Engage expects that it will begin to implement this service on a commercial
basis in July 1999. Any failure of the Engage Knowledge data service, or
Engage's global profiling technology, to achieve widespread customer acceptance
would have a material adverse effect on Engage's business, financial condition
and results of operation.
Engage's revenue from sales to related parties consists of sales of products
and services to customers that are affiliates of CMGI. In the nine months ended
April 30, 1999, Engage sold products and services to 11 affiliates of CMGI.
Engage believes that the terms and conditions of those sales are not materially
different than the terms and conditions of sales to unrelated third parties.
In August 1997, Engage sold rights to some of its data warehouse products to
Red Brick Systems, Inc. for $9.5 million in cash and 238,160 shares of Red
Brick common stock, recording a pretax gain of $9.2 million on the sale. In
January 1999, the Red Brick shares were exchanged for 142,896 shares of
Informix Corp. due to Informix's acquisition of Red Brick.
In April 1998, CMGI acquired Accipiter, which sells Internet advertising
management solutions, in exchange for 10,109,536 shares of CMGI common stock.
In August 1998, Accipiter was merged with Engage in a stock-for-stock merger in
which 700,000 shares of Engage's Series A convertible preferred stock were
issued to CMGI. Engage has reflected the acquisition of Accipiter in its
consolidated financial statements as if it occurred in April 1998. The total
purchase price for Accipiter was valued at $29.5 million. Upon consummation of
the Accipiter acquisition, CMGI, in its consolidated financial statements,
reported an expense of approximately $18.0 million representing acquired in-
process research and development that had not yet reached technological
feasibility and had no alternative future use. On May 7, 1999, CMGI announced a
voluntary restatement of the in-process research and development charge related
to the Accipiter acquisition to address valuation methodologies suggested by
the Securities and Exchange Commission in a letter dated September 9, 1998 to
the American Institute of Certified Public Accountants SEC Regulations
Committee and as clarified through subsequent practice. Upon consideration of
this guidance and additional practice that has developed since the Commission's
letter was first made public, the $18.0 million charge as previously reported
by CMGI has been reduced to $9.2 million and amounts allocated to goodwill and
other intangible assets have been increased from $11.5 million to $20.3
million. Engage has reflected the Accipiter acquisition accounting in its
consolidated financial statements as adjusted for the current Commission
methodologies.
Approximately $1.7 million of deferred compensation was recorded during
fiscal 1998 relating to approximately 173,080 shares of CMGI common stock held
in escrow to be issued to employee stockholders of Accipiter who satisfy a two-
year employment continuation provision. Compensation expense is being
recognized over the two-year service period beginning April 1, 1998. The
acquisition has been accounted for using the purchase method, and, accordingly,
the purchase price has been allocated to the assets purchased and liabilities
assumed based upon their fair values at the date of acquisition. The portion of
the purchase price allocated to goodwill and developed technology is being
amortized on a straight-line basis over five years. Amounts allocated to the
employee workforce and the Accipiter trade name are being amortized on a
straight-line basis over two years.
In August 1998, Engage acquired, for $1.5 million in cash, 49% of the shares
of Engage Technologies Japan, a joint venture with Sumitomo Corporation in
Japan. The joint venture was established to sell Engage's products and services
in Japan. This investment is being accounted for under the
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equity method of accounting. Engage's share of the joint venture's foreign
currency translation adjustments is reflected in both the investment account
and in shareholders' equity as a component of comprehensive income on the
consolidated balance sheet. Under a separate license agreement, Engage licensed
its Engage Knowledge technology to the joint venture in consideration for a
non-refundable $3.0 million prepaid royalty and future royalties of 11.11% of
future revenue. The initial lump sum royalty has been deferred and is being
recognized as income over three years beginning in December 1998, the estimated
period over which Engage expects to provide maintenance and support. In
addition, Engage and the joint venture entered into a reseller agreement under
which Engage granted the joint venture an exclusive right to resell its
products to end users in Japan. Under the terms of the reseller agreement, the
joint venture is entitled to purchase Engage's products for resale to end-users
in Japan, excluding Japanese distribution rights granted to Red Brick.
In April 1999, Engage acquired I/PRO, which provides Web site traffic
measurement and audit services, for approximately $30.3 million, consisting of
$1.6 million in net cash, $20.9 million in CMGI shares and $7.8 million in
Engage shares and options. The acquisition has been accounted for using the
purchase method, and, accordingly, the purchase price has been allocated to the
assets purchased and liabilities assumed based upon their fair values at the
dates of acquisition. Engage has recorded an expense of $4.5 million in the
third quarter of fiscal 1999 representing acquired in-process research and
development that had not yet reached technological feasibility and had no
alternative future use. Goodwill and other intangibles, totaling $24.8 million,
were recorded and are being amortized on a straight-line basis over two or five
years, depending on the asset class. In addition, CMGI must pay up to $3.0
million to I/PRO stockholders if performance goals are met relating to the
gross revenue of I/PRO for the year ended March 31, 2000; data contributed to
the Engage knowledge database as of March 31, 2000; and various employees of
I/PRO continuing employment with Engage. Engage must reimburse CMGI for any
such payments, at CMGI's election, in cash or by issuance of shares of Engage
common stock at its then fair market value. Any additional payment will be
treated as additional purchase price and amortized over the balance of the two
or five year period.
Engage's corporate headquarters are shared with CMGI and several other CMGI
affiliates. CMGI allocates facility and services costs among these affiliates
based upon headcount within each affiliate and within each department of each
affiliate. Services provided by CMGI include support for human resources,
systems, business development and marketing. Actual expenses could have varied
had Engage been operating on a stand-alone basis. Costs allocated to Engage are
considered to equal fair market value for the facilities used and services
provided.
Engage has incurred significant net losses and negative cash flows from
operations since its inception, and as of April 30, 1999, had an accumulated
deficit of approximately $47.2 million. These losses have been funded primarily
through the issuance of preferred stock and from funds advanced by CMGI. Engage
intends to continue to invest heavily in sales, marketing and promotion,
technology and infrastructure development. As a result, Engage believes that it
will continue to incur operating losses and negative cash flows from operations
for the foreseeable future and that the rate at which such losses will be
incurred may increase from current levels.
Results of Operations
Comparison of the Nine Months Ended April 30, 1998 and April 30, 1999
Revenue
Total revenue increased from $613,000 in the nine months ended April 30,
1998 to $9.0 million in the nine months ended April 30, 1999, primarily as a
result of the commencement of sales of Accipiter AdManager and AdBureau due to
the acquisition of Accipiter as well as the introduction of ProfileServer and
DecisionSupportServer. In addition, a portion of
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this increase is the result of the acquisition of I/PRO and the inclusion of
I/PRO's April 1999 revenue in product revenues for the nine months ended April
30, 1999. Revenue from product licenses accounted for approximately 85% of
total revenue during the nine-month period ended April 30, 1998, compared to
approximately 87% during the nine-month period ended April 30, 1999. Revenue
from one customer accounted for approximately 10% of total revenue during the
nine months ended April 30, 1999.
Cost of Revenue
Cost of product revenue includes royalties paid to various parties for the
incorporation of their technology into Engage's products, as well as fees paid
for outsourced data center operations and the amortization of developed
technology acquired in the Accipiter and I/PRO acquisitions. Cost of support
and services revenue is primarily comprised of payroll and benefits, and
allocated overhead costs associated with Engage's customer support,
installation and training staff.
Cost of product revenue increased from $36,000 in the nine months ended
April 30, 1998 to $1.3 million in the nine months ended April 30, 1999. The
increase was due primarily to an increase in operational costs associated with
the introduction of Engage's AdBureau services. In addition, a portion of the
increase is the result of costs associated with the resale of a third-party
vendor's products in conjunction with Engage's product offerings. The costs
associated with such arrangements typically provide for lower margins than
Engage's other product offerings. Finally, a portion of the increase is the
result of increased amortization costs resulting from the amortization of
developed technology acquired in the Accipiter and I/PRO acquisitions.
Cost of service and support revenue increased from $1.2 million in the nine
months ended April 30, 1998 to $4.3 million in the nine months ended April 30,
1999. Costs in both periods exceeded the related revenue due to Engage's
continued investment in service and support staff in advance of anticipated
product sales. Engage's service and support staff increased from 30 at April
30, 1998 to 63 at April 30, 1999.
Operating Expenses
In-Process Research and Development. In-process research and development
expense was $9.2 million during the nine months ended April 30, 1998 due to the
completion of the Accipiter transaction, compared to $4.5 million during the
nine months ended April 30, 1999 which resulted from the I/PRO acquisition.
Research and Development. Research and development expenses consist
primarily of payroll and related costs, consulting and contractor fees,
facility-related costs (such as rent and computer and network services) and
depreciation expenses. Research and development expenses increased from
$4.7 million in the nine months ended April 30, 1998 to $6.0 million in the
nine months ended April 30, 1999. The increases were the result of the growth
of Engage's research and development activities and the inclusion of
Accipiter's operations for the entire nine-month period ended April 30, 1999,
and the inclusion of I/PRO's operations for one month in the nine-month period
ended April 30, 1999. These increases in costs were partially offset by a
decrease in facility and related costs that resulted from lower allocated costs
from CMGI due to higher utilization rates of corporate facilities and increased
staffing at other entities within CMGI.
Selling and Marketing. Selling and marketing expenses consist primarily of
payroll and related costs, consulting and professional fees and advertising
expenses. Selling and marketing expenses increased from $2.5 million in the
nine months ended April 30, 1998 to $6.7 million in the nine months ended April
30, 1999. The increase in costs was primarily due to the continuing expansion
of Engage's sales force and the inclusion of Accipiter's and I/PRO's
operations. Engage's sales and marketing staff increased from 27 at April 30,
1998 to 66 at April 30, 1999. In addition, a portion of the increase was
related to increases in product advertising costs resulting from the release of
new products.
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General and Administrative. General and administrative costs consist
principally of payroll and related costs, consulting and professional fees,
facility and related costs and depreciation expense. General and administrative
expenses increased from $1.1 million in the nine months ended April 30, 1998 to
$2.8 million in the nine months ended April 30, 1999. The increase was
primarily due to an increase in payroll and related costs associated with the
support of growing operations as well as the inclusion of Accipiter's and
I/PRO's operations. In addition, a portion of this increase was the result of
increased professional fees incurred in connection with increased contract
activity and the formation of Engage's Japanese joint venture.
Amortization of Goodwill and other Intangibles. Amortization of intangible
assets increased from $318,000 in the nine months ended April 30, 1998 to $3.2
million during the nine months ended April 30, 1999. The increase was primarily
due to the acquisition of Accipiter in April 1998, and to a lesser extent, the
acquisition of I/PRO in April 1999.
Gain on Sale of Product Rights
Gain on sale of product rights was approximately $9.2 million during the
nine months ended April 30, 1998 as a result of Engage's sale of some rights to
its data warehouse products to Red Brick during the first quarter of fiscal
1998.
Equity in Loss of Joint Venture
Equity in loss of joint venture was a loss of approximately $417,000 during
the nine months ended April 30, 1999. In August 1998, Engage acquired 49% of
the shares of Engage Technologies Japan, a joint venture with Sumitomo
Corporation in Japan. The joint venture was established to sell Engage's
products and services in Japan. This investment is being accounted for under
the equity method of accounting, and as such, Engage's portion of the joint
venture's losses during the nine months ended April 30, 1999 are included in
Engage's results of operations.
Interest Expense, Net
Interest expense, net was approximately $60,000 for the nine months ended
April 30, 1998, compared to $411,000 for the nine months ended April 30, 1999.
No interest expense was recorded during the first six months of the nine months
ended April 30, 1998. In the second half of fiscal 1998, Engage entered into an
arrangement with CMGI which requires Engage to accrue interest on intercompany
debt at a rate of 7% per annum.
Comparison of Fiscal Years Ended July 31, 1996, 1997 and 1998
Revenue
Total revenue increased from zero in fiscal 1996 to $25,000 in fiscal 1997
and $2.2 million in fiscal 1998. The increase in fiscal 1998 resulted from the
acquisition of Accipiter in April 1998, which added Accipiter's AdManager and
AdBureau products and services to Engage's product portfolio, as well as the
introduction of Engage's ProfileServer and DecisionSupportServer products. All
revenue during fiscal 1997 was derived from one customer, while revenue from
three customers accounted for 20%, 12% and 11% of revenue during fiscal 1998.
Cost of Revenue
Cost of product revenue was 10% of product revenue in fiscal 1998. Cost of
service and support revenue exceeded services and support revenue in fiscal
1998 as Engage hired additional services and support staff throughout the year
in anticipation of increased product sales. In addition, Engage's release of
several new products during the year resulted in additional support costs to
diagnose and correct customer-specific product issues that typically occur with
the release of a new software product.
Operating Expenses
In-Process Research and Development. In-process research and development
expense in fiscal 1998 was $9.2 million, resulting from the acquisition of
Accipiter.
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Research and Development. Research and development expenses increased from
$1.8 million in fiscal 1996 to $7.3 million in fiscal 1997 and decreased to
$5.9 million in fiscal 1998. The increase in fiscal 1997 was due to significant
increases in personnel costs associated with the continued development of new
products. The decrease in fiscal 1998 was primarily due to a decrease in
staffing that occurred when Engage sold some rights to its data warehouse
products to Red Brick at the beginning of fiscal 1998. In addition, a portion
of the decrease was the result of reassigning employees from research and
development to product support, consulting and training upon the release of
several of Engage's products in fiscal 1998.
Selling and Marketing. Selling and marketing expenses increased from
$155,000 in fiscal 1996 to $1.6 million in fiscal 1997 and $4.0 million in
fiscal 1998. The increases were the result of significant growth in Engage's
sales force during this period, as well as increased advertising expenditures
in fiscal 1998.
General and Administrative. General and administrative expenses increased
from $428,000 in fiscal 1996 to $1.4 million in fiscal 1997 and $2.3 million in
fiscal 1998. The increase was the result of increased payroll and related
costs, as well as increased facilities costs required to support growing
operations.
Amortization of Goodwill and Other Intangibles. Amortization of goodwill and
other intangibles assets was $1.3 million in fiscal 1998, resulting from the
acquisition of Accipiter in April 1998.
Gain on Sale of Product Rights
Gain on sale of product rights was $9.2 million in fiscal 1998, as a result
of the sale of rights to data warehouse products to Red Brick.
Interest Expense, Net
Interest expense, net was $172,000 in fiscal 1998. In the second half of
fiscal 1998, Engage entered into an arrangement with CMGI which requires Engage
to accrue interest on intercompany debt at a rate of 7% per annum. No interest
expense was recorded in fiscal 1997.
Combined Historical Quarterly Revenue
The following table sets forth unaudited combined historical revenue for the
six quarters ended April 30, 1999. Total revenue has been derived by adding the
quarterly historical revenue of Engage, Accipiter and I/PRO as if Engage had
acquired Accipiter and I/PRO on August 1, 1997. Engage acquired Accipiter in
April 1998 and I/PRO in April 1999. This data has been derived from unaudited
financial statements of Engage, Accipter and I/PRO and does not necessarily
reflect the total revenue that would have been achieved if Engage had acquired
Accipiter and I/PRO as of August 1, 1997. This data is not necessarily
indicative of the future quarterly revenue of Engage.
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------------------------------
January 31, April 30, July 31, October 31, January 31, April 30,
1998 1998 1998 1998 1999 1999
----------- --------- -------- ----------- ----------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Total
revenue...... $1,352 $1,827 $2,716 $2,873 $4,090 $5,937
</TABLE>
Liquidity and Capital Resources
Since its inception, Engage has financed its operations primarily through
funds advanced from CMGI. In addition, Engage has funded its investing
activities, specifically its acquisition of Accipiter and I/PRO, through the
issuance of its convertible preferred stock.
Net cash used in operating activities amounted to approximately $2.0
million, $9.0 million, $10.5 million for fiscal 1996, fiscal 1997 and fiscal
1998, respectively, and amounted to approximately $7.9 million and $7.2 million
for the nine months ended April 30, 1998 and 1999, respectively. The increase
in cash used in operations has primarily been caused by
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increasing net operating losses, which are partially offset by non-cash
depreciation and amortization charges included in the applicable net income or
loss. In addition, net cash used in operating activities in fiscal 1998 and the
nine months ended April 30, 1998 included a non-cash gain on sale of product
rights of $9.2 million, partially offset by the non-cash write-off of in-
process research and development costs. Net cash used in operations during the
nine months ended April 30, 1999 included approximately $2.8 million from the
increase in accrued expenses during the period, as well as $3.2 million from
the increase in deferred revenue during the period. The increase in deferred
revenue is the result of advance payments received from customers for Engage's
products.
Net cash used in investing activities amounted to approximately $1.6
million, $490,000 and $1.2 million during fiscal 1996, fiscal 1997 and the nine
months ended April 30, 1999, respectively, while investing activities provided
$473,000 and $536,000 of cash during fiscal 1998 and the nine months ended
April 30, 1998, respectively. Investing activities used $1.6 million, $490,000,
$216,000, $153,000 and $165,000 during fiscal 1996, fiscal 1997 and fiscal 1998
and the nine months ended April 30, 1998 and 1999 to acquire property and
equipment required to support the growth of the business. Investing activities
during fiscal 1998 and the nine months ended April 30, 1998 included $689,000
of net cash acquired from the acquisition of Accipiter. Investing activities
during the nine months ended April 30, 1999 used approximately $1.4 million in
Engage's investment in a Japanese joint venture, which was partially offset by
$347,000 of net cash acquired from the acquisition of I/PRO.
Net cash provided by financing activities amounted to approximately $3.6
million, $9.5 million, $10.1 million for fiscal 1996, fiscal 1997 and fiscal
1998, respectively and amounted to $7.9 million and $9.0 million for the nine
months ended April 30, 1998 and 1999, respectively. Cash provided in each
period was primarily related to funds advanced from CMGI to fund Engage's
operations. Cash provided by financing activities during fiscal 1997 was
partially offset by the repayment of debt of $1.0 million. Cash provided by
financing activities during the nine months ended April 30, 1999 includes net
proceeds of $1.9 million from the issuance of Series B convertible preferred
stock.
Under an informal arrangement with CMGI, Engage has maintained a zero
balance cash account. CMGI has funded Engage's operations as needed, with a
corresponding increase in Engage's obligations to CMGI. Customer and other
receipts have been remitted to CMGI and have been applied to reduce Engage's
obligations to CMGI. The outstanding balance of Engage's obligations to CMGI at
the end of each fiscal quarter, commencing with the quarter ended January 31,
1998, have been evidenced by demand promissory notes bearing interest at an
annual rate of 7% and convertible into shares of Engage convertible preferred
stock at the fair market value of such stock as of the end of the applicable
quarter. As of April 30, 1999, there were outstanding $37.4 million in
principal amount of these notes to CMGI of which $22.1 million in principal
amount was attributable to the acquisition of I/PRO. Engage expects that it
will continue to borrow funds from CMGI under this arrangement until the
closing of this offering and that the net obligations incurred after the end of
the fiscal quarter preceding the closing, to the extent outstanding, will be
converted into Engage common stock at the initial public offering price.
Engage has experienced a substantial increase in its expenditures since
inception consistent with its growth in operations and staffing. Engage
anticipates that expenditures will continue to increase for the foreseeable
future as Engage accelerates the growth of its business. Additionally, Engage
will continue to evaluate investment opportunities in businesses that
management believes will complement its technologies and market strategies.
Engage currently anticipates that its available cash resources, together
with the net proceeds from this offering, will be sufficient to meet its
anticipated needs for working capital and capital expenditures on both a short-
term and a long-term basis for at least the 12 months following the date of
this prospectus. However, Engage may need to raise additional
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funds in order to fund more rapid expansion, to develop new or enhance existing
services or products, to respond to competitive pressures or to acquire
complementary products, businesses or technologies. If additional funds are
raised through the issuance of equity or convertible debt securities, the
percentage ownership of Engage's stockholders will be reduced and its
stockholders may experience additional dilution. Engage cannot assure you that
additional financing will be available on terms favorable to Engage, or at all.
If adequate funds are not available or are not available on acceptable terms,
Engage's ability to fund its expansion, take advantage of unanticipated
opportunities, develop or enhance services or products or otherwise respond to
competitive pressures would be significantly limited.
In-Process Research and Development
Accipiter
CMGI acquired Accipiter on April 8, 1998 for total purchase consideration of
$29.5 million. In August 1998, Accipiter merged with Engage in a stock-for-
stock merger in which consideration of 700,000 shares of Engage Series A
Convertible Preferred Stock were issued to CMGI. The portion of the purchase
price allocated to in-process research and development was $9.2 million, or
approximately 31% of the total purchase price. At the acquisition date,
Accipiter's major in-process project was the development of AdManager version
4.0, which was intended to provide the ad serving functionality that customers
were requiring as the use of the Internet rapidly increased and customer Web
sites became more complex. In general, previous AdManager releases did not
provide for the fault tolerance, redundancy and scalability that customers
began to seek after AdManager versions 1.0 and 2.0 were released. Accordingly,
customers' long-term product needs required Accipiter to substantially redesign
the AdManager architecture (later released as version 4.0) to develop new
technologies in the areas of: (1) fault tolerance (the ability to operate
during a system failure) and scalability (the ability to expand capacity), (2)
an object-oriented user interface (a screen display that enables users to
easily operate a computer program), (3) application programming interfaces
(which enable a program to exchange data with other programs) and (4) a new
report engine (which is a component that generates reports).
At the date of the acquisition, management estimated that completion of the
AdManager version 4.0 technology would be accomplished by June 1998. Engage
began testing AdManager version 4.0 at a customer site (beta testing) in June
1998 and commercially released the product in August 1998. The initial
development effort had commenced in late 1997. At the acquisition date, the new
AdManager technology had not reached a completed prototype stage and beta
testing had not yet commenced. At the time of the Accipiter purchase, the
AdManager version 4.0 project was approximately 71% complete.
The value of in-process research and development was determined using an
income approach. This approach takes into consideration earnings remaining
after deducting from cash flows related to the in-process technology, the
market rates of return on contributory assets, including developed technology,
assembled workforce, working capital and fixed assets. The cash flows are then
discounted to present value at an appropriate rate. Discount rates are
determined by an analysis of the risks associated with each of the identified
intangible assets. The discount rate used for in-process research and
development was 24.5%, a slight premium over the estimated weighted-average
cost of capital of 24%, and the discount rate used for developed technology was
21%.
The resulting net cash flows to which the discount rate was applied are
based on Engage management's estimates of revenues, cost of revenues, research
and development costs, selling and marketing costs, general and administrative
costs, and income taxes from such acquired technology. These estimates are
based on the assumptions set forth below.
Accipiter recorded revenue in 1997 of less than $1 million. Because of the
absence of meaningful historical revenue of Accipiter, management projected
revenue for the initial year of the forecast period based on its assessment of
future market potential and the ability of Accipiter to successfully launch its
new product offering. After the initial year of the
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users and online activity and the impact such growth would have on Internet
advertising. These projections are based on Engage management's estimates of
the significant growth in the number of companies engaged in e-commerce (which
is supported by independent market data), the need for e-commerce companies to
serve ads over the Internet, expected trends in technology (such as increased
speed of the Internet, reduced hardware costs and the resulting increase in new
Internet users to whom ads will be served) and the nature and expected timing
of new product introductions by Engage and its competitors. These estimates
also include growth related to the use of Accipiter technologies in conjunction
with Engage's products, the marketing and distribution of the resulting
products through Engage's sales force and the benefits of Engage's incremental
financial support and stability.
Engage's estimated cost of sales as a percentage of revenue is expected to
be slightly lower than Accipiter's (classified as support and royalties by
Accipiter) on a stand-alone basis (16% in 1997), as fixed costs included in
cost of sales are spread over a larger revenue base and provide for the
realization of efficiencies due to economies of scale through combined
operations. Due to these savings, the estimated cost of sales as a percentage
of revenue is expected to decrease by 1% each year from Accipiter's historical
percentage, to a low of 11% in the fifth forecast year.
Engage's selling, general and administrative costs are expected to be higher
than Accipiter's on an absolute basis, but lower as a percentage of revenue.
Due to the small revenue base in 1997 and the impact of significant costs
associated with building a corporate infrastructure and building a workforce
for future operations, Accipiter's selling, general and administrative costs in
1997, as a percent of revenue, are not representative of the expected costs for
the combined operations of Engage and Accipiter. Efficiencies due to economies
of scale through combined operations, such as consolidated marketing and
advertising programs, are expected to be realized immediately.
I/PRO
Engage acquired I/PRO on April 7, 1999 for total purchase consideration of
$30.3 million. The portion of the purchase price allocated to in-process
research and development was $4.5 million, or approximately 15% of the total
purchase price. At the acquisition date, I/PRO's major in-process project was
the development of a new data processing system, project name Normandy, which
is intended to provide improved functionality. In general, the existing data
processing system does not provide for the fault tolerance, scalability and
data processing efficiency that may be required to meet future customer needs.
Accordingly, customers' long-term product needs required I/PRO to substantially
redesign the data processing system to develop new technologies in the areas
of: (1) fault tolerance and scalability, (2) system management, (3) data
capture and (4) path analysis functionality (the ability to track movement of
Web visitors across Web pages).
At the date of the acquisition, management estimated that completion of the
Normandy technology would be accomplished by August 1999. The initial
development effort had commenced in late 1998. At the acquisition date, the new
Normandy technology had not reached a completed prototype stage and beta
testing had not yet commenced. At the time of the I/PRO purchase, the Normandy
project was approximately 64% complete.
The value of in-process research and development was determined using an
income approach. This approach takes into consideration earnings remaining
after deducting from cash flows related to the in-process technology, the
market rates of return on contributory assets, including core developed
technology, assembled workforce, working capital and fixed assets. The cash
flows are then discounted to present value at an appropriate rate. Discount
rates are determined by an analysis of the risks associated with each of the
identified intangible assets. The discount rate used for in-process research
and development was 30%, a premium over the estimated weighted-average
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forecast period, revenue was predicted to grow at rates comparable to the
growth of Internet cost of capital of 25%, and the discount rate used for core
developed technology was 22%.
The resulting net cash flows to which the discount rate was applied are
based on Engage management's estimates of revenues, cost of revenues, research
and development costs, selling and marketing costs, general and administrative
costs, and income taxes from such acquired technology. These estimates are
based on the assumptions set forth below.
Management projected average annual revenue increases for the forecast
period based on its assessment of future market potential and the ability of
I/PRO to successfully implement the Normandy technology. Revenue was predicted
to grow at rates comparable to the growth of Internet users and online activity
and the impact such growth would have on Internet service companies. Revenue
related to the Normandy project were separately identified.
These projections are based on Engage management's estimates of the
significant growth in the number of companies engaged in e-commerce (which is
supported by independent market data), the need for e-commerce companies to
utilize independent audit, verification and analysis services, expected trends
in technology (such as increased speed of the Internet, reduced hardware costs
and the resulting increase in new Internet users) and the nature and expected
timing of new product introductions by its competitors. These estimates also
include growth related to the use of certain I/PRO technologies in conjunction
with Engage's products and the benefits of Engage's incremental financial
support and stability.
I/PRO's estimated cost of sales as a percentage of revenue is expected to
significantly decrease on a stand-alone basis (85% in 1998), as certain fixed
costs included in cost of sales are spread over a larger revenue base and
provide for the realization of efficiencies due to economies of scale. The
Normandy technology is expected to greatly increase the automation of data
processing, allowing significant labor cost savings per revenue dollar.
Increases in hardware utilization are also expected. Due to these savings, the
estimated cost of sales as a percentage of revenue is expected to decrease to a
low of 20% in the fifth forecast year.
I/PRO's operating expenses are expected to increase on an absolute basis,
but to significantly decrease as a percentage of revenue over the term of the
forecast (192% in 1998). Certain fixed expenses are spread over a larger
revenue base and provide for the realization of efficiencies due to economies
of scale. Due to these savings, the estimated cost of sales as a percentage of
revenue is expected to decrease to a low of 49% in the fifth forecast year.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information". SFAS No.
131 establishes standards for the way that public business enterprises report
selected information about operating segments in annual and interim financial
statements. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. SFAS No. 131
requires the use of the "management approach" in disclosing segment
information, based largely on how senior management generally analyzes the
business operations. SFAS No. 131 has been adopted by Engage effective August
1, 1998.
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants, issued Statement of Position 98-1,
"Accounting for the Cost of Computer Software Developed or Obtained for
Internal Use". SOP 98-1 requires the capitalization of various internal costs
related to the implementation of computer software obtained for internal use.
Engage is required to adopt this standard in the first quarter of fiscal year
2000, and expects that the adoption of SOP 98-1 will not have a material impact
on its financial position or its results of operations.
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In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 98-5,
"Reporting Costs of Start-Up Activities". Under SOP 98-5, the cost of start-up
activities should be expended as incurred. Start-up activities are broadly
defined as those one-time activities related to opening a new facility,
introducing a new product or service, conducting business in a new territory,
conducting business with a new class of customer, commencing some new operation
or organizing a new entity. SOP 98-5 is effective for Engage's fiscal 1999
financial statements. Engage does not expect its adoption to have a material
impact on its financial position or results of operations.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
including some derivative instruments embedded in other contracts (collectively
referred to as derivatives) and for hedging activities. SFAS No. 133 requires
the recognition of all derivatives as either assets or liabilities in the
statement of financial position and the measurement of those instruments at
fair value. Engage is required to adopt this standard in the first quarter of
fiscal year 2000, and expects that the adoption of SFAS No. 133 will not have a
material impact on its financial position or its results of operations.
Year 2000 Compliance
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. These date code fields
will need to accept four digit entries to distinguish 21st century dates from
20th century dates. As a result, many companies' software and computer systems
may need to be upgraded or replaced in order to comply with these "Year 2000"
requirements or risk system failure or miscalculations causing disruptions of
normal business activities. Engage is in the process of evaluating and
correcting the Year 2000 compliance of its proprietary products and services
and third party equipment and software that it uses, as well as its non-
information technology systems, such as building security, voice mail and other
systems.
State of Readiness
Engage has made an assessment of the Year 2000 readiness of its operating,
financial and administrative systems, including the hardware and software that
support Engage's systems. Engage's Year 2000 compliance efforts consist of the
following:
. identification of all software products, information technology systems
and non-information technology systems that may be affected by Year 2000
issues;
. assessment of repair or replacement requirements;
. repair or replacement;
. testing;
. implementation; and
. creation of contingency plans in the event of Year 2000 failures.
For its currently marketed software products, Engage has substantially
completed its Year 2000 compliance testing efforts and believes that its
products are Year 2000 compliant in all material respects. Engage also has
conducted less extensive testing of older versions of its products. While
Engage is not aware of any material respect in which its older products are not
Year 2000 compliant, it intends to offer customers using older products the
option to upgrade to current versions at no additional charge. Engage also has
tested and continues to test its internal and third-party provided systems that
are used to deliver customer services. Engage has received assurances from
NaviSite, a major third-party vendor, that NaviSite will be responsible for
ensuring that its system is Year 2000 ready.
For all other systems, Engage's Year 2000 task force is currently conducting
an inventory of and developing testing procedures for all software and related
systems that it believes may be affected by Year 2000 issues. Since third
parties developed and currently support many of the systems that Engage uses, a
significant part of this effort will be to ensure that these third-party
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systems are Year 2000 compliant. To date the internal evaluation has resulted
in the identification of a small number of desktop computers whose operating
systems are not Year 2000 compliant; these computers were replaced by Engage in
the third quarter of fiscal 1999. Until such testing is completed and such
vendors and providers are contacted, Engage will not be able to completely
evaluate whether its systems will need to be revised or replaced. The testing
and implementation phases are expected to be completed by the end of June 1999.
Costs
Through April 1999, Engage has spent approximately $374,000 on Year 2000
compliance issues and expects to incur an additional $550,000 in connection
with identifying, evaluating and addressing Year 2000 compliance issues and
replacing non-compliant computer hardware. Most of Engage's expenses have
related to, and are expected to continue to relate to, the operating costs
associated with time spent by employees and consultants in the evaluation
process and Year 2000 compliance matters generally. Such expenses, if higher
than anticipated, could have a material adverse effect on Engage's business,
financial condition and results of operations.
Risks
Engage is not currently aware of any Year 2000 compliance problems relating
to its products or systems that would have a material adverse effect on its
business, financial condition and results of operations, without taking into
account Engage's efforts to avoid or fix such problems. There can be no
assurance that Engage will not discover Year 2000 compliance problems in its
products or systems that will require substantial revision. In addition, there
can be no assurance that third-party software, hardware or services
incorporated into Engage's material systems will not need to be revised or
replaced, all of which could be time-consuming and expensive. The failure of
Engage to fix or replace its internally developed proprietary software or
third-party software, hardware or services on a timely basis could result in
lost revenue, increased operating costs, the loss of customers and other
business interruptions, any of which could have a material adverse effect on
Engage's business, financial condition and results of operations. Moreover, the
failure to adequately address Year 2000 compliance issues in its internally
developed proprietary software could result in claims of mismanagement,
misrepresentation or breach of contract and related litigation, which could be
costly and time-consuming to defend.
Engage is heavily dependent on NaviSite to provide outsourced data services.
A significant Year 2000 related disruption of the outsourced data services that
NaviSite provides to Engage could cause customers to consider canceling
services with Engage or cause an unmanageable burden on Engage's technical
support, which in turn could materially and adversely affect Engage's business,
financial condition and results of operations.
In addition, there can be no assurance that governmental agencies, utility
companies, Internet access companies, third-party service providers and others
outside of Engage's control will be Year 2000 compliant. The failure by such
entities to be Year 2000 compliant could result in a systemic failure beyond
the control of Engage, such as a prolonged Internet, telecommunications or
electrical failure, which could also prevent Engage from delivering its
services to its customers, decrease the use of the Internet or prevent users
from accessing its Web sites which could have a material adverse effect on
Engage's business, financial condition and results of operations.
Contingency Plan
As discussed above, Engage is engaged in an ongoing Year 2000 assessment and
is in the process of developing contingency plans. The results of Engage's Year
2000 simulation testing and the responses received from third-party vendors and
service providers will be taken into account in adopting final contingency
plans.
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BUSINESS
Engage
Engage offers a range of products and services that enable Web publishers,
advertisers and merchants to target the delivery of advertisements, content and
e-commerce offerings to their audiences and to measure their effectiveness.
Engage has generated most of its revenue to date through sales of its
advertising management software and outsourced services, as well as its
services for measuring and analyzing Web site traffic. Engage is currently
testing its Engage Knowledge data service with customers, and plans to
implement this service on a commercial basis in July 1999. Engage Knowledge
will provide real-time access to Engage's database of more than 30 million
anonymous profiles of Web users for more effective targeting of online
advertising, promotions and content. Engage expects that a significant portion
of its future growth will be attributable to sales of subscriptions to the
Engage Knowledge data service and other products and services that will be
based upon Engage's profiling technology.
Industry Background
Growth of the Internet and Internet Marketing, Commerce and Analysis
The Internet has emerged as a significant global communications medium. The
growth in the number of Web users is expected to continue as Internet access
becomes more widely available, bandwidth increases and Internet content
improves and incorporates more multimedia capabilities. International Data
Corporation (IDC) has estimated that the number of Web users worldwide will
increase from approximately 97 million at the end of 1998 to approximately 320
million by the end of 2002, representing a compound annual growth rate of 35%.
As the Internet grows, advertisers and marketers have the opportunity to
reach broad, global audiences. Jupiter Communications has estimated that
spending for advertising on the Internet in the United States will increase
from approximately $1.9 billion in 1998 to $7.7 billion by 2002, representing a
compound annual growth rate of 42%. The Direct Marketing Association has
estimated that spending on Internet direct marketing to consumers will grow
from an estimated $224 million in 1998 to $2.0 billion in 2003, representing a
compound annual growth rate of 55%. Due to the growth in the number of Web
users, the interactive nature of the Web and the Web's global reach,
advertisers and marketers are increasing their use of the Internet to promote
their products, services and brands. In particular, the Web allows advertisers
and marketers to target an advertisement or offering to each user in real-time
and receive direct user feedback.
The Internet also has emerged as a significant global medium for the
electronic transaction of business, or e-commerce. Forrester Research has
estimated that consumer purchases of goods and services over the Internet in
the United States will increase from approximately $8 billion in 1998 to
approximately $76 billion in 2002, representing a compound annual growth rate
of 76%. Consumers can benefit from the faster, more convenient and potentially
less expensive transactions that e-commerce can provide, while merchants can
cost-effectively reach a global audience. The Internet is also playing an
increasingly important role in facilitating offline transactions by providing
more and better information to consumers. For example, although very few
automobiles are actually sold online, Forrester Research has estimated that in
1998 approximately 2.0 million Web households, representing 13% of all new car
purchases, used the Internet to research and select a vehicle before visiting
the dealer and that 6.4 million households, representing 41% of all new car
purchases, will use the Internet prior to purchasing a vehicle by 2002. As
electronic commerce expands, traditional and Internet merchants are turning to
the Web to locate customers, advertise and market their products and facilitate
transactions.
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By knowing more about their customers and their customers' preferences, Web
publishers and merchants can improve their sites to address the interests of
their audience. The interactive nature of the Web allows businesses to gather a
wealth of information. However, there are few tools currently available that
effectively use that data to measure and analyze the activities and behavior of
Web site visitors to facilitate strategic decision making.
Increasing Demand for Targeting Capabilities
Early Internet marketing efforts were directed primarily at placing
advertisements on the most frequently visited Web sites and pages within those
sites. As the Internet has matured, businesses have sought to improve the
effectiveness of their marketing campaigns by directing their advertisements
and promotions toward the Web users they most want to reach. By targeting
advertisements and offerings to the most relevant users, Internet marketers
seek to improve their response rates and brand awareness and reduce costs by
eliminating spending that is not directed at their intended audience.
As marketers have become more sophisticated in their approach to marketing
over the Internet, an increasing number of advertising-supported sites have
been established, increasing the number of competitors offering advertising
impressions and exerting downward pressure on advertising prices. In March
1999, Jupiter Communications estimated that between 70% and 80% of the
advertising inventory on Web sites was unsold. Web publishers are seeking to
sell more inventory at higher rates by offering advertisers the ability to
target advertisements based on the interests and demographic characteristics of
the visitor, rather than simply the content of the page being viewed.
Increasingly, Internet marketers are demanding a better return on
investment. Return on investment is favorably affected by either increasing
response rate or brand awareness (return) or reducing costs of advertisements
or transactions (investment). Because the response rate for Internet
advertising is typically very low, businesses that can attain even a small
absolute increase in the advertising response rate can increase their return on
investment substantially. In addition, the large number of Web users and the
global nature of the Internet can lead to inefficient spending when merchants
deliver untargeted advertisements or promotional offerings to Web users. These
merchants expect to improve their return on investment by targeting their
advertising and offerings to those Web users who meet their desired criteria.
Although marketers can indirectly target their messages by delivering
advertisements to a specific Web site or Web page, many businesses desire to
improve their return on investment further by directly targeting
advertisements, e-commerce offerings and other content using detailed data
about a visitor's preferences and demographic characteristics.
In addition, Web publishers and merchants are seeking to increase the
frequency and duration of Web user visits to their sites to enable them to sell
more advertising inventory and increase e-commerce revenue. By customizing the
content of Web pages to reflect users' interests and preferences, Web
publishers and merchants are seeking to attract more traffic to their Web
sites, increase visitor loyalty and improve the appeal of their e-commerce
offerings.
The Need for Solutions to Distinguish Web Users While Respecting Their Privacy
The Web offers the potential for Web publishers, advertisers and merchants
to better understand their respective audiences and to capitalize on the
individual targeting capability, real-time feedback and other marketing
advantages offered by the Internet. Significant information about Web site
visitors can be derived from an analysis of:
. the Web sites and page views selected by users;
. the pattern in which users move from one site or page to another;
. the duration of a user's visit to a site or page;
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. the purchasing and other activities of users while at a Web site; and
. the responses of visitors to specific advertisements and promotions.
While the Internet offers the opportunity to collect a wide variety of
information that could be used to improve audience targeting, Web users are
increasingly concerned about the potential for loss or abuse of their privacy.
Although Web site visitors can obtain significant benefits from a Web
publisher's or merchant's ability to personalize content and target e-commerce
offerings based on the user's tastes and preferences, many consumers do not
want specific identifiable information about themselves, such as their name,
home or e-mail address, made available to third parties.
To balance the desires of marketers and consumers, there is a need for a
solution that will enable Internet marketers to tailor offerings effectively to
each user while at the same time preserving the privacy and anonymity available
to individuals on the Internet.
The Engage Solution
Engage provides products and services that enable customers to create and
use profiles of individual Web visitors to target advertisements, content and
e-commerce offerings. An Engage profile is an anonymous collection of
information about an individual Web user's consumer interests, demographic
characteristics and geographic location. These profiles are developed through a
combination of a user's browsing behavior on participating sites on the
Internet and information the user has voluntarily declared at these sites, such
as information provided on an online registration form. Each anonymous profile
omits information that would permit the personal identification of the user,
such as name, address and e-mail address.
Based on its proprietary technology, Engage has built a database containing
more than 30 million anonymous consumer profiles, which it has created from
data drawn from multiple, diverse Web sites. Customers can use these profiles
to target relevant advertisements, content and e-commerce offerings to
individual Web users based on each user's particular preferences, demographic
characteristics and geographic location.
Engage's profiling technology can create local and global user profiles.
Local profiles, which are created and maintained by Engage's customers, contain
data derived from the customer's own Web site and typically map preferences
based on particular interest categories designed by the customer and
demographic characteristics. Global profiles, which are compiled from data
contributed to the centralized Engage Knowledge database from the Web sites of
all participating Engage customers, are provided to customers on a subscription
basis and provide a broader and more detailed description of users' interests.
These global profiles do not contain personally identifiable information of
individual users, such as name, home or e-mail address, IP address or domain
name.
Each Engage global profile contains a series of numerical scores reflecting
each Web user's inferred preference level in hundreds of standard categories
and subcategories, such as books, business, computers, fashion, sports and
travel as well as demographic and geographic information. Categories can be
further customized to meet the needs of a specific customer or market. Engage
software uses sophisticated proprietary algorithims and methodologies to
continuously update and refine these global profiles based on a visitor's
browsing behavior across multiple Web sites, including pages selected by the
user, the duration of the user's visits and the responses of the user to
specific advertisements and promotions. Engage global profiles also incorporate
anonymous demographic and geographic information reported voluntarily by a
visitor, such as data from an onsite registration form.
When a user visits a Web site of any customer subscribing to the Engage
Knowledge data service, Engage matches that visitor with his or her profile in
the global profile database. The profile is transmitted in real-time to the
subscribing Engage Knowledge customer site, which can then use the profile to
target advertisements, content and e-commerce
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The following is an example of what a portion of an anonymous user profile
might contain:
Anonymous Web User Profile--ID#: 23987CKF87E99
<TABLE>
<CAPTION>
Interest Categories Score(1)
------------------- --------
<S> <C>
Automobile........................................................... .75
Automobile--Auto Types--Sport Utility Vehicle....................... .73
Automobile--Type of Need--Accessories............................... .23
Entertainment........................................................ .35
Entertainment--Music................................................ .35
Entertainment--Music--Classical..................................... .21
Fashion.............................................................. .39
Fashion--Footwear................................................... .26
Fashion--Business Clothing.......................................... .38
Major Events......................................................... .44
Major Events--Move within State..................................... .44
Money & Finance...................................................... .64
Money & Finance--Type of Need--Online Banking....................... .59
Money & Finance--Investment Types--IRA/401K......................... .34
Response Tendency.................................................... .81
Response Tendency--Commerce......................................... .60
Response Tendency--Commerce--Online Purchases....................... .76
Demographic Data ....................................................
Gender--Female...................................................... .91
Age--35-44 years.................................................... .75
Geographic Data .....................................................
Metro Statistical Areas (MSA)--Atlanta, GA.......................... .97
</TABLE>
- --------------------------------------------------------------------------------
(1)Interest level, based on a scale from 0 to 1.00.
offerings to that visitor. Based on past user behavior at other Web sites, an
Engage customer can determine the interests and tailor the experience of even
first-time visitors to its Web site.
Engage believes that its profiling technology provides a significantly more
meaningful picture of Web user preferences than other available targeting
solutions because:
. Engage builds and constantly updates its profiles based on a user's Web
browsing behavior, resulting in more detailed and current profiles than
could be created with registration or other declared data only;
. Engage profiles classify visitor information across hundreds of interest
categories and subcategories, allowing Web publishers, advertisers and
merchants to identify more precisely their target audience;
. Engage global profiles are developed from data gathered from many diverse
Web sites, generating more detailed and comprehensive information about
Web users than could be gathered from any single site; and
. The Engage Knowledge database currently contains more than 30 million
user profiles, enabling the use of targeting applications for a
significant proportion of Web site visitors.
Engage believes, based on preliminary results of a study conducted for
Engage by a market research organization, that the use of Engage profiles to
target advertisements can achieve click-through rates (the proportion of users
who click on an advertisement) greater than those achieved by untargeted
advertisements. Engage also believes, based on this study, that the use of
Engage profiles to target advertisements on Web pages whose content is
unrelated to the advertisement can achieve click-through rates equal to or
greater than those achieved by the targeting of advertisements based on the
content of the Web page.
Engage profiles are designed to work with other Engage applications, third-
party software
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or customers' internally developed solutions, allowing customers flexibility as
the uses of profiling and related applications develop and evolve.
Building upon its profiling capabilities, Engage offers the following
profile-based marketing solutions:
Targeted Delivery of Advertising
Engage's advertising management software and services allow Web publishers
and advertising networks to target advertising campaigns using either local
profiles or global profiles from the Engage Knowledge data service. Engage also
offers a turnkey outsourced advertising management service that allows Web
sites to gain the advantage of profile-based advertising without making a
significant upfront investment of cash and personnel. By allowing advertisers
to target advertisements based not only on the content of the Web page being
viewed, but also on the visitor's profile, these advertising solutions are
designed to enable Web publishers and advertising networks to sell more of
their advertising inventory and to allow advertisers to improve their return on
investment. Engage's advertising management products, when used in conjunction
with its profiling products and services, can schedule and serve advertisements
in real-time while simultaneously optimizing the impact of a message by, for
example, showing a minivan advertisement to a visitor interested in family
subjects and a sport utility vehicle advertisement to an outdoor enthusiast. In
addition, if it is known that a user is a likely minivan buyer, specific ads
can be served when the visitor is in an unrelated site or section of a site.
Targeted Delivery of Content and Commerce Offerings
Engage's profiling software and global profiles allow Web publishers and
merchants to customize the content of Web pages and target e-commerce offerings
and promotions based on each individual user's interests. By providing Web site
visitors information that is more relevant to them, Web publishers and
merchants can strengthen visitor loyalty and increase the likelihood that a
visitor will stay at the site and make a purchase. A Web site focusing on music
can dynamically alter a Web page to present, for example, a special offer on a
jazz CD only to those visitors whose profiles indicate strong interests in jazz
and offer a different promotion to visitors with classical music interests.
Web Site Traffic Measurement, Auditing and Analysis
Engage's analysis and traffic measurement products and services allow Web
publishers and merchants to collect, manage and analyze data about visitors and
their behavior. By analyzing how users behave and react to specific
advertising, pages or specific content areas, Web publishers can better
understand their visitors and improve the effectiveness of their Web sites.
Engage offers a range of solutions, from a basic outsourced reporting service
to sophisticated software enabling analysis of large amounts of data. Engage
also offers a comprehensive range of auditing services, including total site
traffic audits and internal reporting verification. Engage's auditing services
allow Web publishers to provide advertising buyers with the standardized
verification from an independent third party that these buyers increasingly
require before they will purchase Internet advertising inventory.
Strategy
Our objective is to enhance our position as a leading provider of profile-
based Internet marketing solutions for Web publishers, advertisers and
merchants. Our strategy to achieve this objective includes the following key
elements:
Exploit Position as Innovator in Profiling Technology
We believe that we have the opportunity to establish Engage as the
recognized brand for profile-based marketing solutions on the Internet. To
capitalize on this opportunity, we are creating a family of "Engage-enabled"
products and services that incorporate our profiling technology to serve a
broad array of customer targeting needs on the Internet. Expanding from the
initial use of our profiling technology in targeting the delivery of
advertisements through our Accipiter
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advertisement management software, we plan to integrate our profiling
technology with our I/PRO market intelligence services so that customers can
better measure and analyze audience behavior at their Web sites. We also plan
to develop solutions that will allow Web publishers, advertisers and merchants
to more effectively reach customers in specific markets, such as automotive and
retail and other industry-specific markets. By implementing our solutions
across a broad spectrum of customers and customer applications, we will seek to
establish our profiling technology as the most widely-used platform for the
targeting of advertisements, content and e-commerce offerings on the Web.
Offer Multiple Products Based on Open Standards
We offer multiple products and services based on open standards that
facilitate the use of Engage's solutions with third-party applications. For
example, our customers can use Engage Knowledge to target advertisements in
conjunction with either our own Accipiter products or advertising management
software provided by other vendors. By enabling customers to choose
applications from third-party vendors, we believe we will be able to broaden
the market for Engage-enabled solutions and increase the quantity and quality
of the profiles compiled in the Engage Knowledge database.
[Graphic consists of a box at bottom labelled "Engage Profiles" with arrows
immediately above it pointing upward at a box labelled "Engage or Third-Party
Applications" and within this box are subheadings labelled "Advertising
Delivery", "Content Publishing" and "E-Commerce Server". This box has arrows
immediately above it pointing toward three boxes labelled "Targeted Ad",
"Personalized Content" and "Customized Offer".]
Continue to Enhance Engage Global Profile Database
Each user visit to the Web site of a participating subscriber to the Engage
Knowledge data service contributes to the depth of the global profile database
and enhances its value to all customers. We will continue to increase the
quality and usefulness of Engage Knowledge profiles by:
. expanding the number of consumer profiles through an increase in our
installed base of subscribers and contributors to the Engage Knowledge
data service;
. developing new profiling algorithms to glean additional knowledge about
Web users from data compiled for each profile; and
. refining our interest categories and subcategories to provide more
detailed and market-specific user profiles.
Focus on Specific Markets
We plan to develop and sell specific Internet marketing solutions for
different markets. We are initially focusing on Web publishers and advertising
networks that derive revenue from advertising on the Web. For this market, we
are enhancing our Accipiter advertising management software and services to
allow Web publishers and advertising networks to use global profiles to
optimize utilization of their advertising space. In addition, we will seek to
increase our customers' advertising revenue by allowing them to offer a new
program to advertisers in which an advertiser will pay for the delivery of
advertising impressions only to those Web site visitors whose Engage profile
matches designated criteria. Our fees for this program will consist of a
portion of the advertising revenue generated when one of our profiles is used.
We also plan to focus on specific markets, such as automotive and retail and
other industry-specific markets. For each market, we plan to develop and market
tailored versions of our Engage Knowledge database that will measure interest
levels in categories specific to those markets. For the automobile market, we
will work with key automotive sites to capture specific and detailed
information about automotive users
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presently in the purchase cycle and to provide manufacturers the ability to
study consumer preferences for specific automobiles or features. For the retail
market, we will continue to refine geographic-targeting capabilities so that
national retailers can address specific needs and preferences within each local
audience through the Internet.
We also will aggressively pursue distribution arrangements with companies
that install and integrate hardware and software systems for third parties and
with independent software vendors who can deploy our profiling technologies for
specific markets. Through these indirect channels, we will seek to extend the
deployment of Engage technology and expand our customer base.
Cross-sell Family of Engage Products and Services
We will seek to increase our sales to our installed base of customers by
offering a range of software and services that utilize common Engage profiling
technology. For example, if a customer uses Accipiter AdManager software to
deliver Web advertisements, we will seek to sell a subscription to the Engage
Knowledge data service to enable the customer to improve advertising response
rates and brand awareness. We may also offer the customer a subscription to our
I/PRO services to measure and better understand visitor behavior. Using our
complementary line of software and services, a customer can rely upon Engage
Knowledge profiles to perform a wide range of functions and thus avoid the time
and expense otherwise required to collect, process and store large volumes of
user data multiple times for multiple functions.
Maintain Position as Trusted Leader in Internet Privacy
We believe that concerns about loss of privacy are increasingly important to
Internet users and therefore have designed the Engage Knowledge database with
the goal of being a leader in the protection of the privacy of individuals. We
have been an active participant in the establishment of technology, industry
and regulatory frameworks for Internet privacy and plan to continue to be
aggressive in promoting our commitment to privacy.
Expand into International Markets
We currently market our products and services worldwide through a sales
office in London, our U.S. headquarters and through a joint venture in Japan
established with Sumitomo in July 1998. In addition, we plan to open an office
in Germany in 1999. As of April 30, 1999, we had 22 customers in Europe and
seven elsewhere outside the United States. We plan to expand our penetration of
the international market primarily through joint ventures with partners abroad.
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Products and Services
Engage offers a range of software and services that enable Web publishers,
advertisers and merchants to target and deliver advertisements, content and e-
commerce offerings to their audiences and to measure their effectiveness.
The following table shows the products and services offered by Engage:
<TABLE>
<CAPTION>
Products and
Services Description Benefits
- ------------------------------------------------------------------------------------------------
<C> <S> <C>
Profiling
Engage Knowledge Service providing real- Allows targeted online advertising, content
Data Service(1) time access to database and e-commerce offerings, which can improve
of anonymous global response rates, brand awareness and
profiles of Web users customer loyalty and reduce marketing costs
Engage ProfileServer Software to create and Permits customization of interest
deliver site-specific categories to track preferences specific to
local profiles of Web the customer's business. Can be used alone
users or together with profiles delivered as part
of the Engage Knowledge data service
- ------------------------------------------------------------------------------------------------
Advertising Management
Accipiter AdManager Automated online Automates online advertising management for
advertising delivery and Web sites, including scheduling, targeting
management software and serving of ads and reporting of
campaign results
Accipiter AdBureau Outsourced online Delivers the capabilities of Accipiter
advertising management Admanager without requiring the customer to
service using AdManager make the investment needed to create an
technology advertising management infrastructure
- ------------------------------------------------------------------------------------------------
Web Site Traffic
Measurement, Auditing
and Analysis
I/PRO NetLine Service Outsourced Web site Enables Web sites to better understand user
traffic measurement and traffic and behavior and thereby improve
analysis service their Web sites
Nielsen I/PRO I/Audit Outsourced service Allows media sellers to prove Web site
Services providing audits of site traffic volume and campaign results to
traffic and ad campaign media buyers
results
I/PRO Research Services Custom consulting Provides customized analysis and
services providing interpretation of visitor behavior to help
audience behavior customers formulate their Web strategies
analysis
Engage Site-based data Allows customers to perform sophisticated
DecisionSupportServer warehouse software for analysis of the behavior and profiles of
audience analysis their Web site visitors
Engage Knowledge Consulting services Allows customers to gain valuable market
Research Services(2) based on global profile research by analyzing Web-wide user
database behavior, interest trends and patterns
across the Engage Knowledge data service
</TABLE>
- --------------------------------------------------------------------------------
(1) Currently being tested with customers and expected to be implemented on a
commercial basis in July 1999.
(2) Expected to be introduced in July 1999.
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Engage Knowledge Data Service
The Engage Knowledge data service uses a database which contains user
profiles collected from participating sites across the Web. Engage's database
has been designed to create, refine and deliver millions of profiles in real-
time to meet the demands of multiple Web sites. The global profiles used in the
delivery of the Engage Knowledge data service omit personally identifiable
information of individual users such as name, home or e-mail address, IP
address or domain name. The database assigns a computer-generated identifier
(currently stored as a browser cookie on the Web user's computer) to
distinguish each Web visitor. This Engage Knowledge identifier is correlated
with site-specific identifiers using a proprietary technique called "dual
blind" identification. This technique protects the privacy of the individual
because the participating Web site cannot access the Engage Knowledge
identifier and Engage does not maintain any personally identifiable information
that may have been gathered at the Web site.
Engage Knowledge global profiles contain a series of numerical ranking
codes, as well as demographic and geographic information, with scores that
indicate the level of the consumer's interest in a category or the accuracy of
a demographic or geographic attribute. The categories are hierarchical, with
the top level representing a broad interest area such as "Books", and lower
levels representing increased specificity, such as "Children's Books". Engage
also maintains demographic and geographic information for each profile by using
computer algorithms that infer demographic characteristics or geographic
locations based on Web browsing behavior at participating sites and by using
declared information reported voluntarily by the visitor, such as data provided
by a user on an online registration form. Engage does not retain any of the
personally identifiable information that may have been provided on the
registration form, and therefore the identity of the Web user cannot be derived
from the information contained in the global profile. Each Web page at a
customer site is classified to indicate the interest categories that will be
attributed to visitors to that page.
When a user visits a Web site of any customer subscribing to the Engage
Knowledge data service, Engage matches that visitor to his or her profile in
the global profile database. The profile is then transmitted in real-time to
the subscribing Engage Knowledge customer site, which can then use the profile
to target advertisements, content and e-commerce offerings to that visitor.
As a Web visitor browses through any Engage-enabled Web site, Engage's
software dynamically updates and refines the profile of that visitor based on
the recency, frequency and duration of the consumer's browsing behavior in each
interest category. The Engage Knowledge database can be integrated with third-
party data sources, such as geographic databases, to further enhance the
consumer profiles. Unlike profiles based solely on static registration data,
Engage Knowledge profiles are constantly changing to more accurately reflect
the current interests of an individual.
Engage Knowledge profiles can be used to enhance third-party software
applications by providing targeting capabilities. These applications include
advertising management, content delivery and e-commerce offerings. Engage
provides software tools and services to facilitate the integration of Engage
Knowledge profiles with these third-party applications.
An Engage Knowledge subscription is combined with a license to the Engage
software modules necessary to identify visitors, collect and transfer behavior
records and access profile information. Periodic subscriptions are usually
offered on a quarterly basis and the fees vary depending on traffic to the
customer's site and the application with which the service is used. Engage
expects that fees in the future will also vary based on the number of profiles
used. Engage believes that most customers will contribute their clickstream
data to the Engage Knowledge data service in exchange for reduced subscription
rates and to enhance the quality of future global profiles. Although data
contribution is not required, customers who do not contribute their site
clickstream data to
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Engage Knowledge are required to pay significantly higher fees for use of the
Engage Knowledge profiles. Monthly fees can range from a few thousand dollars
for a low volume Web site to hundreds of thousands of dollars for a large
customer with multiple Web sites.
In March 1999, Engage introduced GeoKnowledge, a data service that features
multiple types of geographic data combined with profiles from the Engage
Knowledge database.
As of April 30, 1999, Engage had implemented the Engage Knowledge data
service with customers on a test basis. Engage expects to implement the Engage
Knowledge data service on a commercial basis in July 1999.
Engage ProfileServer
Engage ProfileServer software collects Web visitor behavior data at the
customer's Web site and declared user information reported voluntarily by a
visitor to create and deliver profiles of individual Web site visitors. The
system enables customers to create their own local profile database, which is
maintained at the customer's site, and to use these local profiles to target
advertisements, content and e-commerce offerings. The ProfileServer system
permits customers to customize the interest categories in the local profiles so
that they track preferences specific to the customer's market. For example, a
clothing retailer could create size and style subcategories. Customers can also
use the system to collect proprietary user data, including identifying
information supplied voluntarily by visitors to their sites. The local
databases created with ProfileServer, which do not become part of the Engage
Knowledge database, can be used by customers either alone or in conjunction
with the Engage Knowledge data service.
ProfileServer is offered to customers under perpetual or annual subscription
licenses with fees that vary based on the volume of visitor activity on the
customer's sites. ProfileServer software typically ranges in price from $12,000
for a basic configuration at a small Web site to up to $100,000 for a complete
feature installation at a high volume site.
Online Advertising Systems and Services
Engage's Accipiter ad management systems and services are designed to manage
and deliver advertising and direct marketing promotions on individual Web sites
and networks of Web sites.
Accipiter AdManager. Accipiter AdManager automates online advertising
management for Web sites by scheduling and targeting ads, automatically
rotating ad inventory and generating up-to-the-minute, customized reports.
AdManager tracks all active advertising campaigns and Web site visitors and
optimizes scheduling of advertisements in real-time to ensure that each
campaign is delivered on schedule to qualified visitors or to the specified
content areas of a site.
AdManager allows sites to deliver relevant advertising to individual
visitors using a wide range of targeting criteria, including:
. Engage global and local profiles;
. area of content that a visitor is viewing;
. geographic location of users;
. key-word or key-phrase searches; and
. time of day or day of week.
AdManager provides versatile easy-to-use scheduling features. Advertisements
within a campaign can be scheduled by the total number of impressions or
clicks, by specific time frames specified by the advertiser or any combination
of counts and date ranges. The campaign reservation system can lock in portions
of available inventory for upcoming campaigns.
Customers can access a variety of reports to see how well a campaign is
performing. Reports can detail, for example, how many impressions and clicks
were generated both from the entire site and by each ad and advertiser.
AdManager also enables customers to securely assign access privileges for
specific functions or information to a variety of users at different levels
from different organizations. For example, a single system can provide
different levels of access to advertising agencies, web site advertising sales
representatives, and third party advertising sales representatives.
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AdManager can be distributed across multiple servers to expand ad serving
capacity and provide high availability to handle the volume requirements of the
largest Web sites.
AdManager is offered to customers under perpetual licenses or annual
subscription licenses, with fees that vary based on the number of
advertisements served. A typical AdManager installation ranges in cost from
$12,000 to more than $100,000, with an additional monthly fee for access to the
Engage Knowledge database.
Accipiter AdBureau. Accipiter AdBureau is Engage's turnkey, outsourced
advertisement management service based on AdManager technology. By subscribing
to AdBureau, a customer can obtain the advertisement management capabilities of
AdManager without the need to invest in on-site and management hardware, server
and administrative software or databases.
AdBureau is marketed primarily to start-up and mid-sized Web sites, as well
as advertising networks. AdBureau is offered to customers under an annual
agreement providing for fees based on the number of advertisements served, with
a $3,500 one-time set up fee and monthly fees based on the number of
advertisments served, ranging from $1,000 per month for the smallest Web sites
to more than $15,000 per month for high volume sites.
Web Site Traffic Measurement, Auditing and Analysis
Engage offers products and services that provide Web site traffic
measurement and analysis and verification of site traffic and advertising
results. Through its I/PRO services, Engage currently measures over seven
billion page views per month across over 350 Web sites.
I/PRO NetLine. I/PRO NetLine is an outsourced traffic measurement service
that continuously measures Web site traffic and delivers results on a daily
basis to the customer. This service enables customers to access reports
immediately, combine data from multiple sites and standardize information for
meaningful comparisons. I/PRO provides a wide range of standard reports and
enables users to customize their reports and the data to be tracked. I/PRO
provides standard reports that contain key data about traffic at a Web site,
including information about the number of users to visit a Web site, the
duration of user visits and the most frequently visited pages of the site.
Customized reports can include information regarding specific pages,
directories and clicks and other in depth data. I/PRO NetLine is priced based
on the volume of traffic at the sites being measured and the number of reports
that are requested, and fees typically range from $2,500 to $5,000 per month.
I/PRO also offers extensive support by professional service account managers
and custom research capabilities.
Engage plans to offer I/PRO NetLine in conjunction with Engage Knowledge
services for global audience analysis. Using profile information from the
Engage Knowledge database, customers of I/PRO NetLine will be able to customize
reports to include more detailed and comprehensive user information, which will
enhance the I/PRO NetLine traffic measurement service.
Nielsen I/PRO I/Audit. Nielsen I/PRO I/Audit outsourced services include
audits of circulation on total audience, specific advertisements or advertising
campaigns, internal management systems and co-operative marketing arrangements.
Nielsen I/PRO I/Audit verifies information directly at the specific Web site
rather than relying on a sample from a panel or other indirect methods. Engage
believes that I/PRO was the first company to offer Web site specific audits of
Web site traffic and advertising campaigns. Engage believes that over 70% of
the 50 most visited sites currently use Nielsen I/PRO I/Audit. Nielsen I/PRO
I/Audit reports are guaranteed to be delivered within ten days of I/PRO's
receipt of the necessary data. Nielsen I/PRO I/Audit services are priced based
on the volume of traffic at the sites being audited and fees typically range
from $2,000 to $4,000 per month. I/PRO has a co-branding and reselling
agreement with Nielsen Media Research and pays royalties to Nielsen on sales of
I/PRO services.
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I/PRO Research Services. I/PRO offers custom consulting services to help
clients meet their Web marketing goals. These services combine analysis of Web
audience data with customized research. Consultants produce in-depth reports
and detailed analyses that allow customers to measure audience behavior,
monitor results against strategic objectives and more effectively manage their
Web strategies. Clients contract for research services on a project basis or at
a stated daily rate.
Engage DecisionSupportServer. Engage DecisionSupportServer is a data
warehouse management and analysis solution that is implemented at the
customer's site. DecisionSupportServer supports a complex, visitor-focused
marketing analysis of Web site usage details and profiles. Web marketers can
monitor standard Web site usage and visitor reports or use Engage's Web
marketing analysis application to answer critical and sophisticated business
questions about visitors, their behavior and their profiles. For example, a
marketer could configure DecisionSupportServer to determine the percentage of a
Web site's repeat visitors who initially visited the Web site from the major
portal sites and who have an interest in sports. DecisionSupportServer can be
used in conjunction with a variety of decision support applications from
Business Objects and other data warehousing vendors. In addition, customers
with unique requirements can retain professional services from Engage or one of
its system integration partners to customize the data warehouse.
Engage DecisionSupportServer is offered to customers under perpetual
licenses or annual subscriptions with fees that vary based on the volume of
visitor activity on the customer's sites. Engage customizes and operates
DecisionSupportServer in-house for specific market segments and customer-
specific analytic consulting engagements. The license fee for
DecisionSupportServer typically ranges from $40,000 to more than $100,000.
Engage Knowledge Research Services. Engage plans to offer Engage Knowledge
Research Services, consisting of custom analysis, research and consulting
services that use information contained in Engage's profile database. Using
this service, customers can obtain analysis of Web-wide user behavior to
identify emerging trends.
Consulting, Maintenance and Support Services
Engage offers comprehensive services and product support to its customers.
Engage's service and support organization, consisting of 46 service
professionals as of April 30, 1999, assists customers in implementing,
administering and maintaining Engage products and services.
Professional Services. Engage's team of service professionals provides
customers with consulting services, project implementation and integration
services and training. Engage's service professionals assist customers with
strategic site assessments and deployment planning in order to optimize each
customer's use of Engage products. These professionals also help customers
implement Engage products and integrate them into the customer's existing
technology infrastructure. Engage's professional services are generally billed
at a daily rate for each consultant employed on a project.
Maintenance and Support Services. Engage provides maintenance and support
services to customers pursuant to annual maintenance agreements. These services
include software version updates and maintenance, as well as telephone and on-
site support. Engage provides regular functional releases to its customers, as
well as maintenance releases as needed. Engage offers a variety of support
services, including "help desk" telephone support on a 14 hours per day, five
days per week basis and a dedicated technical support Web site on a 24 hours
per day, seven days per week basis. Engage's maintenance and support activities
are supplemented by training programs for customers, including introductory
training courses for new users and custom designed seminars for experienced
users of Engage products.
Engage's annual fees for maintenance and support services are based on a
percentage of the list price for the customer's software license fee, typically
ranging from 18% to 25%. To date, substantially all of Engage's customers have
entered into maintenance contracts.
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Customers
Engage licenses its software products to Web publishers and merchants for
use at their Web sites. Engage also offers customers outsourced services
through its AdBureau advertising management service and its I/PRO NetLine
traffic measurement service. Engage had approximately 300 customers as of
April 30, 1999, including the following representative customers, each of which
has accounted for at least $25,000 of revenue to Engage:
Advertising
Management Solutions Profiling Solutions Web Site Traffic
ADSmart Measurement, Auditing
and Analysis
Advertising Age Chicago Tribune
Dell
AdValue InfoSpace
beeb.com (BBC Ancestry.com MediaOne
Worldwide) Carlton Online News Corporation (Fox)
CNET Gallop + Gallop Quokka Sports
Cyberian Outpost Lycos Sportsline USA
E!Online Magnitude Network Wall Street Journal
LookSmart NetNoir Online
Microsoft Planet Direct Weather.com
NBC Videoseeker Ticketmaster 24/7 Media
Sony Online
Entertainment
WebTV Networks
Customer Case Studies
The following customer case studies illustrate the selection, use and
implementation of Engage products and services by three customers that Engage
believes represent typical customers for its products.
Ancestry.com -- Profile Based Advertising and Analysis
Ancestry.com, an affiliate of CMGI, is a comprehensive genealogy resource on
the Web, providing users with a large online repository of family and historic
data. Site visitors have free access to genealogical records online. For a
nominal fee, subscribers have complete access to the site's 1,500 databases.
Ancestry.com needed a set of integrated tools for the analysis of Web
traffic collected at its site, user profiling and ad management to enhance the
online experience for site visitors and to increase the effectiveness of
promotions and advertising at its site. Specifically, the site wanted to
understand more about its visitors, convert unregistered visitors to registered
visitors and deliver personalized advertising to its online audience.
Ancestry.com installed Engage Accipiter AdManager advertising management
software to serve online ads and intends to deliver personalized offers through
Engage ProfileServer. To expand its targeting capabilities beyond site-specific
customer information, the site has also subscribed to the
Engage Knowledge data service. In addition, Ancestry.com is installing Engage
DecisionSupportServer, Engage's strategic market intelligence tool, to analyze
the collected local profile data, and uses the Nielsen I/PRO I/Audit services
for third-party verification of its site traffic data.
Through the use of Engage products and services, Ancestry.com will own a
growing proprietary database of local user profiles which it expects will
enable it to better understand the behavioral patterns of its online visitors.
Ancestry.com plans to use the Engage Knowledge data service to deliver targeted
advertising to its online audience.
Ticketmaster -- Profile Based Targeting of Electronic Commerce and Content
Ticketmaster Online is an automated ticketing services company. Ticketmaster
uses Engage ProfileServer to personalize online retailing based on declared
profiles and to target advertising based on both declared and observed behavior
online. In July 1998, Ticketmaster was seeking to address the personalization
requirements of its MyTicketmaster site, and needed a solution that
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permitted profiles to drive other vendors' personalization applications.
Ticketmaster selected Engage because it offered application-independent
profiling technology that could meet its targeting requirements. Engage worked
with Ticketmaster to integrate a third party's content management application
with Engage's ProfileServer software. Ticketmaster currently has plans to
integrate another third party's advertising managment system. Engage
ProfileServer software captures registration details at the MyTicketmaster area
of the site and the clickstream behavior of visitors throughout its site.
Engage ProfileServer creates user profiles based on declared and behavior data
and maintains them in a centralized proprietary repository for visitor data. In
addition, Ticketmaster installed Engage's DecisionSupportServer strategic
market intelligence tool to analyze the collected data.
With its growing proprietary database of local user profiles, Ticketmaster
expects to be able to enhance the online experience of its repeat site visitors
by recommending events and providing customized offers that appeal to them
individually, thereby increasing the revenue potential of its site.
Weather.com -- Web Site Traffic Measurement, Auditing and Analysis
Weather.com is the online arm of The Weather Channel. Weather.com uses I/PRO
NetLine to increase advertising revenue, to make resource allocation decisions
and to drive strategic partnerships. By understanding the total circulation of
different areas of the site, weather.com is able to charge a premium for high
traffic areas. I/PRO/NetLine reports user requests for weather information by
zip codes allowing weather.com to sell these impressions as highly targeted
advertising opportunities at a premium. I/PRO NetLine's ability to report
activity at the most detailed level facilitates resource allocation decisions
by allowing weather.com to understand the resources required to maintain
different parts of its site and the revenue each part generates. Weather.com
also uses I/PRO NetLine to help assess the opportunities for marketing
relationships that will increase traffic at its site and to monitor the
performance of these arrangements on an ongoing basis.
Weather.com also subscribes to the monthly Nielsen I/PRO I/Audit. The audit
report is used in sales presentations to existing and new advertisers to prove
traffic volumes and campaign results.
Sales and Marketing
United States
Our sales and marketing strategy in the United States is to sell:
. directly to prominent Web publishers, large advertisers and Web site
networks;
. through original equipment manufacturer, reseller and co-marketing
arrangements to reach other customers; and
. through Web design and systems integration firms.
As of April 30, 1999, our sales and marketing organization consisted of 66
employees. Our field sales organization is supported by sales representatives
and systems engineers located throughout the United States. Sales
representatives handle incoming calls, help generate qualified leads and
generally advance the sales process. Systems engineers provide comprehensive
pre-sales technical services and support (including creating and delivering
technical and architectural presentations, product demonstrations and product
training) as well as post-sales telephone support, problem escalation
management, patch distribution and publication of technical notes. Our sales
and marketing employees are located in Andover Massachusetts; Raleigh, North
Carolina; Redwood City, California; and San Francisco, California.
The sales teams for our Accipiter ad management systems and I/PRO services
are organized as dedicated groups focused on sales in specific geographic
regions. A subset of the sales force for Engage Knowledge and Engage profiling
products are targeted to specific industry groups, thereby enabling them to
develop an in-depth understanding of the evolving needs of a particular
industry and the
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Web publishers, advertising networks and Web sites focused on that industry.
In addition, each sales force identifies cross-selling opportunities for other
Engage products.
An important element of our sales strategy is to form business
relationships with third parties to assist us in marketing and selling our
products. We will seek to enter into original equipment manufacturer
relationships that permit us to embed our software products within products
sold by other vendors, such as e-commerce and Web serving software and
hardware systems. In addition, some of our indirect sales channels will
consist of either reseller arrangements, in which our partner resells and
possibly customizes our products, or co-marketing arrangements, in which we
will work together with our partner to promote and generate sales referrals
for each others' respective products. We also expect to develop relationships
with Internet systems integrators who often recommend advertising and
marketing management and other Internet solutions to their clients as part of
their design, procurement and deployment work.
To support our sales efforts and actively promote the Engage brand, we
conduct comprehensive marketing programs, including public relations, print
advertisements, online advertisements, seminars, trade shows and ongoing
customer communications programs.
International
We maintain a sales office in London and expect to open an additional
office in Germany in 1999. We intend to expand our operations outside the
United States primarily by partnering with locally-based third parties,
including entering into joint ventures and distribution arrangements. We have
formed a joint venture for the Japanese market with Sumitomo Corporation. As
part of this joint venture, Sumitomo markets a Japanese language version of
Engage software products and the Engage Knowledge data service throughout
Japan.
Privacy
The Web offers the potential for privacy by allowing parties to communicate
one-to-one without knowing each others' identity. However, Web users are
increasingly concerned about privacy and the ability of third parties to
gather personal data about them from their activities on the Web. For this
reason, the Engage Knowledge global database of profiles has been designed to
operate anonymously and does not store personal information of individual
users such as name, home or e-mail address, IP address or domain name.
We maintain this level of privacy through a proprietary methodology known
as "dual blind" identification. We assign an anonymous numerical identifier
(currently stored as a browser cookie on the Web user's computer) to each Web
visitor and match this "blind" identifier only with information relating to
online usage of a specific computer and do not store or otherwise use any
personally identifying information. Each Web visitor also is assigned a
different identifier for each Engage-enabled Web site visited. This technique
is known as "dual blind" identification because a Web site does not have
access to the Engage Knowledge identifier and cannot correlate the information
it may have with information from other Web sites. Conversely, we do not
maintain any information identifying particular users that a Web site may have
correlated with a visitor's local Web site identifier.
We also protect Web user privacy by contractually prohibiting Web sites
subscribing to Engage Knowledge from using global profiles other than for the
purpose of tailoring the experience of the visitor. Customers may not store
the information, correlate it to personal information or use it to try to
infer the physical identity of the visitor. In addition, since October 1998,
Engage has required all contributors to Engage Knowledge to post a privacy
policy statement on their Web sites disclosing that the site provides non-
personally identifiable information to Engage. The policy statement must
include a link to the Engage Web site where a Web user may opt out of the
Engage Knowledge database by clicking on a link that automatically replaces
the Engage Knowledge identifier on the user's computer. We believe that these
protections and our dual blind identification technology are essential to
allow sites to responsibly use global anonymous profiles for their own
enterprise applications.
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We actively participate in the development of privacy standards for the
Internet and are a key contributor to industry groups that are developing
industry standards for privacy. For example, we are a co-author of several of
the specifications of the World Wide Web Consortium's Platform for Privacy
Preferences Project, (supported by AOL/Netscape, AT&T, IBM, Microsoft and
others), which seeks to develop an industry standard that will allow Web users
to express their privacy preferences about the type and amount of information
they are willing to share with Web applications. We believe our products will
support the standards that are ultimately produced by this project. We have
also authored a proposed protocol for the distribution of privacy labels for
Web cookies as part of privacy standards developed by the Internet Engineering
Task Force. We are a participant on the board of advisors of TRUSTe, of which
we are a corporate sponsor. TRUSTe is a non-profit organization with the goal
of promoting the adoption of fair information practices on the Web through a
program which permits Web sites to display a seal representing compliance with
TRUSTe privacy guidelines. Engage is also a member of the Online Privacy
Alliance, which is an organization dedicated to improving the protection of
individuals' privacy online through self regulatory efforts. We actively
monitor proposed privacy laws and regulations and seek to comply with all
applicable privacy requirements, both in the United States and throughout the
world.
Operating Infrastructure
Engage's operating infrastructure has been designed to support the combined
volumes of its largest Web site customers. Engage's data center operations are
provided by NaviSite, an affiliate of CMGI, and are located in Andover,
Massachusetts. Engage's infrastructure is designed for maximum reliability,
including redundant network access, backup power pools and advanced network
security. NaviSite provides comprehensive facilities management services,
including monitoring and support 24 hours per day, seven days per week.
Engage operations are run by a variety of Sun Enterprise servers of various
sizes to support its AdBureau and Engage Knowledge operations. All of Engage's
production data is archived nightly to offline, offsite storage.
NaviSite's facilities are powered by multiple uninterruptible power supplies
and contain smoke and heat detection, fire suppression, fluid detection and
other disaster protection systems. Engage's data center operations are
controlled using strict password management and physical security measures.
Intellectual Property
We have filed for patents covering our profiling algorithm and our dual-
blind methodology for protecting end-user privacy. The profiling algorithm
patent application covers the process and algorithm for creating user interest
profiles from behavioral data. The dual-blind methodology patent application
covers the process of identifying visitors uniquely at each Web site while
maintaining a central database of cross-referenceable identifiers and allowing
Web sites to access globally-derived data only via their local identifier.
There can be no assurance that any of our patent applications will be granted.
Even if they are granted, these patents may be successfully challenged by
others or invalidated.
The Engage Knowledge database contains detailed information about millions
of Web users. We believe we have rights to this database's entire data content,
all records and all derived information from the database as a whole, all
updating routines and quality assurance processes and all underlying data
warehousing technology. However, there can be no assurance that any patent,
trade secret or other intellectual property protection will be available for
such information.
We rely upon a combination of patent, trade secret, copyright and trademark
laws to protect our intellectual property. We also limit access to and
distribution of our proprietary information. However, the steps we take to
protect our intellectual property may not be adequate to deter misappropriation
of our proprietary information. In addition, we may be unable to detect
unauthorized uses of and take appropriate steps to enforce our intellectual
property rights.
Although we believe that our services and products do not infringe on the
intellectual
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property rights of others, we are subject to the risk that such a claim may be
asserted against us in the future.
Competition
The market for Internet marketing solutions, including consumer profiling,
online advertising services and systems, and Web site traffic analysis is new,
rapidly evolving and intensely competitive. Engage expects competition to
increase both from existing competitors and new market entrants for various
components of its services. Engage competes primarily on the basis of its
product features and performance, such as its scalable, application-independent
technology and the anonymity and quality of its global database of profiles,
level of service and, to a lesser extent, on price.
Profiling Solutions
Engage competes directly with providers of profiling technology, such as
Personify, and indirectly with applications that include more limited profiling
capability integrated into their solution, such as BroadVision and Vignette.
NetGravity, through a partnership with Aptex and MatchLogic, and businesses
that offer cash or other incentives to users to voluntarily provide profile
data have indicated their intent to compete in the global profiling solutions
market. Engage also competes with companies such as DoubleClick and MatchLogic
that have the ability to aggregate large quantities of customer behavior data
across the Web.
Online Advertising Systems and Services
The primary competitors to Engage's Accipiter AdManager software are
providers of ad serving systems, such as NetGravity and Real Media. In the
outsourced ad serving market, Engage's Accipiter AdBureau service competes with
providers of ad serving services, such as those offered by Adforce and
DoubleClick.
Web Site Traffic Measurement, Auditing and Analysis
The primary competitors for I/PRO's NetLine Web measurement service and the
Engage DecisionSupportServer product are companies offering outsourced
solutions or software solutions, such as Accrue, Andromedia, net.Genesis and
WebTrends. Nielsen I/PRO I/Audit service competes with auditing services from
ABC Interactive, BPA and PricewaterhouseCoopers.
Many of Engage's current competitors, as well as a number of potential new
competitors, have longer operating histories, greater name recognition and
substantially greater financial, technical and marketing resources than Engage.
Engage's current and potential competitors also may have more extensive
customer bases and larger proprietary databases. In addition, current and
potential competitors have established or may establish cooperative
relationships among themselves or with third parties to more effectively
distribute their products or to enhance their product and service offerings.
In addition to these current and potential commercial competitors, Engage
also faces competition from the internal capabilities of some potential
customers. Some of the largest Web publishers use internally developed
interactive marketing solutions rather than the commercial solutions offered by
Engage and its competitors. There can be no assurance that Engage will be able
to compete successfully with these internally developed solutions.
Increased competition may result in price reductions, reduced gross margins
and loss of market share, any of which could have a material adverse effect on
Engage's business, financial condition and results of operations. There can be
no assurance that Engage will be able to compete successfully against existing
or potential competitors or that competitive pressures will not have a material
adverse effect on Engage's business, financial condition and results of
operations.
Employees
As of April 30, 1999, Engage had 209 employees and 40 contractors. Employees
included 57 in development, 63 in customer support and operations, 66 in
selling and marketing, and 23 in administration. Of these,
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203 employees were located in the United States and 6 in Europe. Included in
the 40 contractors are 11 offshore contract developers in India.
Engage believes that its future success is dependent on attracting and
retaining highly skilled engineering, sales and marketing, and senior
management personnel. Competition for such personnel is intense, and there can
be no assurance that Engage will continue to be able to attract and retain
high-caliber employees. Engage believes that the use of offshore developers
gives it access to scarce technical talent at a favorable cost.
Engage is not subject to any collective bargaining agreements and believes
that its relationship with its employees is good.
Facilities
Engage's principal executive offices are located in Andover, Massachusetts,
with an engineering center in Raleigh, North Carolina, and offices in Redwood
City and San Francisco, California and a sales office in London. Consisting of
an aggregate of approximately 55,000 square feet, these facilities are
currently leased to the Company under leases which are allocated to Engage from
CMGI on a headcount basis or expire in 1999, 2002 and 2004, respectively.
Engage also leases space for its sales and marketing efforts in New York and
the United Kingdom. Engage believes that suitable additional space to
accommodate the anticipated growth will be available in the future on
commercially reasonable terms.
Legal Proceedings
Engage is not a party to any material legal proceedings.
49
<PAGE>
MANAGEMENT
Directors and Executive Officers
The following table sets forth the directors and executive officers of
Engage, their ages and their positions with Engage as of April 30, 1999.
<TABLE>
<CAPTION>
Name Age Position
- --------------------------- --- -----------------------------------------------
<S> <C> <C>
Paul L. Schaut............. 39 Chief Executive Officer, President and Director
David A. Fish.............. 44 Chief Operating Officer
Daniel J. Jaye............. 34 Chief Technology Officer
Stephen A. Royal........... 43 Chief Financial Officer and Treasurer
David S. Wetherell......... 44 Chairman of the Board of Directors
Edward A. Bennett.......... 52 Director
Christopher A. Evans....... 33 Director
Craig D. Goldman........... 55 Director
Andrew J. Hajducky III..... 45 Director
</TABLE>
Paul L. Schaut has served as Chief Executive Officer, President and a
director of Engage since December 1997. Prior to joining Engage, Mr. Schaut was
Vice President of Strategic Partnering for Open Market, Inc., a provider of
electronic commerce software, from January 1997 until November 1997. Prior to
joining Open Market, Mr. Schaut served as Vice President of Sales and Marketing
for ONTOS, Inc., a software company, from March 1995 until December 1996 and as
Managing Director of InterSystems Corporation, a software database company,
from April 1988 until March 1995.
David A. Fish has served as Chief Operating Officer of Engage since January
1999 and served as Vice President of Marketing from April 1998 until December
1998. Mr. Fish is the founder of Rocket Science Software, Inc. and served as
its full time President from October 1997 until April 1998. Prior to that, Mr.
Fish was Division Manager of Knowledge Services at Context Media, LLC, a
knowledge management consulting and software company, from June 1996 until
September 1997. From August 1993 until May 1996, Mr. Fish served as President
and Chief Executive Officer of Narrowcast Technologies Inc., an electronic
publishing and multimedia consulting company, which he founded. Prior to that,
from October 1990 until July 1993, he was Engineering Director of the One
Source Division at Lotus Development Corporation, a software company. Mr. Fish
was Vice President of Marketing of Articulate Systems, Inc., a voice
recognition start-up company, from March 1989 until September 1990. From June
1980 until February 1989, he occupied various positions at Epsilon Data
Management, Inc., a provider of marketing database services.
Daniel J. Jaye has served as Engage's Chief Technology Officer since
September 1995. Prior to joining Engage, Mr. Jaye was Director of High
Performance Computing for Fidelity Investments, a financial services firm, from
February 1993 until September 1995. Prior to joining Fidelity Investments, Mr.
Jaye was a technical manager for Epsilon Data Management, a provider of
marketing database services, from 1991 until 1993 and a Senior Consultant for
Andersen Consulting from 1987 until 1991.
Stephen A. Royal has served as Chief Financial Officer and Treasurer of
Engage since March 1998. Prior to joining Engage, Mr. Royal was Senior Vice
President and Chief Financial Officer and later Chief Administrative Officer of
Omega Performance Corporation, an interactive multimedia training software and
consulting company, from January 1992 until March 1998.
David S. Wetherell has served as a director and Chairman of the Board of
Engage since July 1995. Mr. Wetherell has served as Chairman of the Board,
President, Chief Executive Officer and Secretary of CMGI since 1986 and as a
member of CMG@Ventures I, LLC, a venture capital firm subsidiary of CMGI,
50
<PAGE>
and President of CMG@Ventures, Inc., the managing partner of CMG@Ventures I,
LLC, since January 1995. He is also a managing member of CMG@Ventures II, LLC,
CMG@Ventures III, LLC and @Ventures Management, LLC, which are also strategic
investment and development venture capital subsidiaries or affiliates of CMGI.
From 1982 until joining CMGI in 1986, Mr. Wetherell was a co-founder and
President of Softrend, Inc., a microcomputer software publisher. Mr. Wetherell
is also the founder of BookLink Technologies, Inc., a CMGI subsidiary that was
sold to America Online in 1994.
Edward A. Bennett has served as a director of Engage since January 1999 and
as President of Bennett Media Collaborative, a media consulting company, from
January 1997 until the present. From April 1995 until July 1996, Mr. Bennett
was Chief Executive Officer of Prodigy, Inc., an online service provider.
Prior to joining Prodigy, he served as President and Chief Executive Officer
of VH-1 cable music channel, a division of Viacom, Inc., from 1989 until 1993
and as Executive Vice President and Chief Operating Officer of Viacom Cable, a
division of Viacom from 1979 until 1989.
Christopher A. Evans has served as a director of Engage since January 1999.
Since May 1999 Mr. Evans has served as a private consultant to Engage. From
April 1998 to May 1999, Mr. Evans managed Engage's Accipiter business unit.
From October 1992 until June 1996, Mr. Evans was the principal owner of
Hotlinx, LLC, a printing and online publishing company. Prior to that, from
1985 until 1992, Mr. Evans served as Executive Vice President of DaVinci
Systems, a software company, which he co-founded.
Craig D. Goldman has served as a director of Engage since March 1998 and as
a director of CMGI since June 1997. Mr. Goldman has served as President and
Chief Executive Officer of Cyber Consulting Services Corp. since March 1996.
Prior to that, Mr. Goldman held various positions at The Chase Manhattan Bank,
including Chief Information Officer from 1991 until February 1998.
Andrew J. Hajducky, III has served as a director of Engage since December
1995. Mr. Hajducky has served as Chief Financial Officer and Treasurer of CMGI
since October 1995 and as a member of CMG@Ventures I, LLC, a venture capital
firm subsidiary of CMGI, since January 1995. He is also a managing member of
CMG@Ventures II, LLC, CMG@Ventures III, LLC and @Ventures Management, LLC,
which are strategic investment and development venture capital subsidiaries or
affiliates of CMGI. From April 1984 to October 1995, Mr. Hajducky was the
Entrepreneurial Services Partner of the Merger and Acquisition division of
Ernst & Young LLP. Previously, Mr. Hajducky was the Chief Financial Officer of
Mountain International Company/AccuTel, Inc., a telecommunications and
software company.
----------------
Each executive officer is elected by, and serves at the discretion of, the
board of directors. Each of Engage's executive officers and directors, other
than nonemployee directors, devotes his full time to the affairs of Engage.
There are no family relationships among any of the directors or executive
officers of Engage.
Board Committees
Engage has an audit committee and compensation committee of the board of
directors. The audit committee reviews the results and scope of audits and
other services provided by Engage's independent accountants. The audit
committee also reviews Engage's system of internal accounting and financial
controls. The audit committee consists of Messrs. Bennett, Goldman and
Hajducky.
The compensation committee of the board of directors reviews and recommends
to the Board the compensation and benefits of all executive officers of
Engage, administers Engage's stock option plans and establishes and reviews
general policies relating to compensation and benefits of employees of Engage.
The compensation committee consists of Messrs. Bennett, Goldman and Wetherell.
Except as set forth in "Transactions and Relationship Between Engage and
CMGI", no interlocking relationships exist between Engage's board of directors
or compensation committee and the board of directors or compensation committee
of any other company.
51
<PAGE>
Director Compensation
Non-employee directors are reimbursed for their reasonable out-of-pocket
expenses incurred in attending meetings of the board of directors or of any
committee thereof. Engage intends to grant Mr. Evans an option to purchase
50,000 shares of its common stock, to vest over a five-year period, at an
exercise price of $2.38 per share. Mr. Goldman has been granted an option to
purchase 100,000 shares of Engage common stock, vesting over a four-year
period, at an exercise price of $0.24 per share. Mr. Bennett has been granted
an option to purchase 50,000 shares of Engage common stock, vesting over a
four-year period, at an exercise price of $4.19 per share.
In May 1999, Engage and Mr. Evans entered into a consulting, invention and
non-disclosure agreement under which Mr. Evans provides programming and other
technical services to Engage. This agreement may be terminated at any time upon
90 days notice by Mr. Evans or Engage.
No director who is an employee of Engage receives separate compensation for
services rendered as a director.
Executive Compensation
The following table sets forth the total compensation paid or accrued for
the fiscal year ended July 31, 1998 for Messrs. Schaut and Jaye, who were the
only Engage executive officers whose salary and bonus for such fiscal year were
in excess of $100,000.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-term
Annual Compensation Compensation
------------------- --------------------- All other
Name and Principal Position Salary Bonus Awards compensation
- --------------------------- ------------------- --------------------- ------------
Securities Underlying
Options(1)
<S> <C> <C> <C> <C>
Paul L. Schaut
Chief Executive Offi-
cer................... $ 109,375 $ 25,000 600,000(ENGA) $ --
80,000(CMGI)
Daniel J. Jaye
Chief Technology Offi-
cer................... 118,295 115,500(2) -- 3,529(3)
</TABLE>
- ---------------------
(1) Mr. Schaut received options to purchase Engage common stock (designated in
the table as ENGA) and CMGI common stock (designated in the table as CMGI).
(2) Includes $100,000 bonus paid to Mr. Jaye for his contribution in the sale
of some of Engage's technology to Red Brick Systems, Inc.
(3) Represents the amount of matching contributions made by Engage under the
CMGI 401(k) plan.
52
<PAGE>
Option Grants In Last Fiscal Year
The following table sets forth grants of stock options to Mr. Schaut for the
fiscal year ended July 31, 1998. The exercise price per share of each option
was equal to the fair market value of the common stock on the date of grant as
determined by the board of directors. The potential realizable value is
calculated based on the term of the option at its time of grant (five years).
It is calculated assuming that the fair market value of common stock on the
date of grant appreciates at the indicated annual rate compounded annually for
the entire term of the option, and that the option is exercised and sold on the
last day of its term for the appreciated stock price. These numbers are
calculated based on the requirements of the Securities and Exchange Commission
and do not reflect Engage's estimate of future stock price growth. Mr. Jaye
received no options to purchase either Engage common stock or CMGI common stock
in fiscal 1998.
Option Grants In Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants
--------------------------------------------------
Potential Realizable
Value at Assumed
Number of Percent of Total Annual Rates of
Securities Options Stock Price Appreciation
Underlying Granted to Exercise for Option Term
Options Employees Price Expiration ------------------------
Name Granted in Fiscal Year Per Share Date 5% 10%
- ------------------------ ---------- ---------------- --------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Paul L. Schaut.......... 600,000(1) 18.2% $0.19 11/09/02 $ 30,669 $ 67,766
80,000(2) 2.9 2.32 10/26/02 51,116 112,943
</TABLE>
- ---------------------
(1) Represents grants of options to purchase Engage common stock, exercisable
as to 25% of the shares after the first year and the remaining 75% vesting
monthly for the next 36 months thereafter.
(2) Represents grants of options to purchase CMGI common stock, exercisable as
to 25% of the shares after the first year and the remaining 75% vesting
monthly for the next 36 months thereafter.
In fiscal 1998, Engage granted to Mr. Fish an option to purchase 200,000
shares of common stock at an exercise price of $0.24 per share and to Mr. Royal
an option to purchase 100,000 shares of common stock at an exercise price of
$0.24 per share and an option to purchase 50,000 shares of common stock at an
exercise price of $2.38 per share.
53
<PAGE>
Aggregate Option Exercises and Fiscal Year End Option Values
The following table sets forth information regarding exercisable and
unexercisable stock options held as of July 31, 1998 by Messrs. Schaut and
Jaye. There was no public trading market for our common stock as of July 31,
1998. Accordingly, the value of Engage options has been calculated by
determining the difference between the exercise price per share and an assumed
initial public offering price of $10.00 per share.
Aggregate Option Exercises and Fiscal Year End Option Values
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Shares Options at In-the-Money Options at
Acquired Fiscal Year-End Fiscal Year-End
on Value ------------------------- ---------------------------
Name Company Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ------------------------ ------- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Paul L. Schaut.......... Engage -- $ -- 0 600,000 $ -- $5,886,000
CMGI -- -- 0 80,000 -- 1,777,500(1)
Daniel J. Jaye.......... Engage -- -- 383,330 216,670 3,796,913 2,131,087
CMGI 8,000 43,625(2) 13,998 10,002 215,875(1) 154,249(1)
</TABLE>
- ---------------------
(1) Based on the difference between the option exercise price and $17.03, which
was the closing price of the CMGI common stock on July 31, 1998.
(2) Based on the closing price of the CMGI common stock on the date of exercise
less the option exercise price.
54
<PAGE>
Stock Plans
1995 Equity Incentive Plan
The 1995 Equity Incentive Plan provides for the issuance of a maximum of
shares of common stock. Under the 1995 Equity Incentive Plan, Engage is
authorized to grant incentive stock options, non-qualified stock options, stock
appreciation rights and restricted stock awards to employees, consultants and
directors. In general, options granted pursuant to the 1995 Equity Incentive
Plan expire within five years after the original grant date. The board of
directors or an appropriate committee of the Board has the right, at its
discretion, to accelerate the vesting of unexercisable options upon a change of
control of Engage. Options are not assignable or transferable except by will or
the laws of descent or distribution. As of April 30, 1999, an aggregate of
6,467,794 shares of common stock at a weighted average price of $2.16 per share
were outstanding under the 1995 Equity Incentive Plan.
1999 Employee Stock Purchase Plan
The 1999 Employee Stock Purchase Plan was adopted by our board of directors
in June 1999. The 1999 Employee Stock Purchase Plan provides for the issuance
of a maximum of shares of common stock.
The 1999 Employee Stock Purchase Plan will be administered by the
compensation committee. All employees of Engage whose customary employment is
for more than 20 hours per week and for more than 6 months in any calendar year
are eligible to participate in the 1999 Employee Stock Purchase Plan. Employees
who would own 5% or more of the total combined voting power or value of
Engage's stock immediately after the grant of the option may not participate in
the 1999 Employee Stock Purchase Plan. To participate in the 1999 Employee
Stock Purchase Plan, an employee must authorize us to deduct an amount (not
less than one percent nor more than 10 percent of a participant's total cash
compensation) from his or her pay during three month plan periods. The exercise
price for the option granted in each payment period is 85% of the lesser of the
last reported sale price of the common stock on the first or last business day
of the plan period.
1999 Stock Option Plan for Non-Employee Directors
The 1999 Stock Option Plan for Non-Employee Directors was adopted by our
board of directors in June 1999. Under the terms of the 1999 Stock Option Plan
for Non-Employee Directors, directors who are not employees of Engage or any
subsidiary of Engage and not affiliates of an institutional investor that owns
shares of Engage's common stock receive nonstatutory options to purchase shares
of Engage's common stock. A total of shares of common stock may be issued
upon exercise of options granted under the plan. The board of directors has
discretion to establish the terms of options granted under the plan. All
options must have an exercise price equal to the fair market value of the
common stock on the date of grant.
55
<PAGE>
TRANSACTIONS AND RELATIONSHIP BETWEEN
ENGAGE AND CMGI
Engage was incorporated in July 1995 as a wholly owned subsidiary of CMGI.
CMGI currently owns approximately 96% of Engage's common stock (assuming the
conversion of the convertible note and shares of convertible preferred stock
held by CMGI as of April 30, 1999) and will own 83% upon the closing of this
offering.
CMGI has the power to elect the entire board of directors of Engage and to
approve or disapprove any corporate transactions or other matters submitted to
Engage stockholders for approval, including the approval of mergers or other
significant corporate transactions. CMGI also holds a majority ownership
position in many of Engage's customers and in NaviSite, which provides data
center operations to Engage.
Upon the completion of this offering, Engage and CMGI will enter into the
agreements described below for the purpose of defining various present and
prospective arrangements and transactions between them. These agreements were
negotiated between a parent and its subsidiary and therefore are not the result
of negotiations between independent parties. Engage and CMGI intend that these
agreements and the transactions provided for in such agreements, taken as a
whole, accommodate their respective interests in a manner that is fair to both
Engage and CMGI. However, because of the complex nature of the various
relationships between Engage, CMGI and various CMGI subsidiaries and
affiliates, there can be no assurance that each of the agreements described
below, or the transactions provided for in the agreements, were effected on
terms at least as favorable to Engage as Engage could have obtained from
unaffiliated third parties.
Engage, CMGI and their respective subsidiaries may enter into additional or
modified arrangements and transactions in the future. Engage, CMGI or their
respective subsidiaries, as the case may be, will negotiate the terms of such
arrangements and transactions. Engage expects to adopt a policy that all future
arrangements between Engage and CMGI and their respective subsidiaries will be
on terms that Engage believes are no less favorable to Engage than the terms
Engage believes would be available from unaffiliated parties and must be
approved by a majority of Engage's directors who are not employees of CMGI
(even though such directors may be less than a quorum).
The following is a summary of the material arrangements and transactions
between Engage and CMGI.
Debt Conversion
In July 1998, Engage issued 800,000 shares of its Series A convertible
preferred stock to CMGI in exchange for (i) cancellation of $8.0 million of
intercompany debt and (ii) shares of common stock of Engage previously held by
CMGI. In July 1998, Engage issued 700,000 shares of its Series A convertible
preferred stock to CMGI pursuant to the merger agreement between Engage and
Accipiter. CMGI currently owns 1,500,000 shares of Engage's Series A
convertible preferred stock at an average purchase price of $2.67 per share.
Each share of Series A convertible preferred stock will convert into 20 shares
of common stock upon the consummation of this offering.
Engage has issued a secured convertible demand note to CMGI in exchange for
the cancellation of all intercompany debt incurred by Engage to CMGI prior to
February 1, 1999. This note provides that CMGI may elect to convert amounts
payable under the note into Series C convertible preferred stock at any time.
The amount of each borrowing represented by the note is convertible into shares
of Series C convertible preferred stock at the fair market value of such shares
as of the end of the fiscal quarter in which the borrowing was made. In April
1999, Engage borrowed $22,086,307 from CMGI in connection with the acquisition
of I/PRO. Such borrowings are convertible into Series C convertible preferred
stock at a common equivalent price of $5.06 per share. Additional intercompany
debt incurred after February 1, 1999 accrues interest at a rate of 7% per year
compounded monthly until the day CMGI elects to convert the debt into shares of
Series C convertible preferred stock.
56
<PAGE>
All notes held by CMGI were converted into Series C convertible preferred stock
in May 1999. Each share of Series C convertible preferred stock will convert
into twenty shares of common stock upon the completion of this offering.
The following table illustrates the amount of indebtedness of Engage to CMGI
as of April 30, 1999 and the terms on which it has been converted into Series C
convertible preferred stock:
<TABLE>
<CAPTION>
Number of Shares of Series C Per Share Common
Preferred Stock Issued Equivalent
Date of Incurrence Amount of Indebtedness Upon Conversion Conversion Price
- ------------------------ ---------------------- ---------------------------- ----------------
<S> <C> <C> <C>
April 30, 1998.......... $ 5,334,605 112,307 $2.38
July 31, 1998........... 2,418,456 34,798 3.48
October 31, 1998........ 598,117 7,037 4.25
January 31, 1999........ 996,273 10,229 4.87
April 7, 1999........... 22,086,307 218,460 5.06
April 30, 1999.......... 5,531,871 30,733 9.00
</TABLE>
Engage expects to borrow additional amounts from CMGI to fund its operations
prior to the closing of this offering, and such borrowings and accrued
interest, net of any repayments, will be converted into additional shares of
common stock at the initial public offering price upon the closing of this
offering.
Facilities and Administrative Support Agreement
Upon the closing of this offering, CMGI and Engage will enter a facilities
and administrative support agreement under which CMGI will continue to make
available space at its headquarters in Andover, Massachusetts and will provide
various services to Engage, including tax and administrative, computer and
information systems, telecommunications, utilities and employee benefits
administration. Under this agreement, CMGI has also agreed to make available to
Engage at least ,000 square feet of space at its headquarters facilities,
subject to termination upon at least 12 months' notice by CMGI. The fees
payable by Engage for the availability of space and other services are
typically determined through an allocation of CMGI's costs based upon the
proportion of Engage's employee headcount to the total headcount of CMGI and
other CMGI-related companies located in the same facility or using the same
services.
In fiscal 1998 and the nine months ended April 30, 1999, Engage paid CMGI
$339,000 and $365,000 or services similar to those provided under the
administrative support agreement.
Tax Allocation Agreement
Upon the closing of this offering, Engage will enter into a tax allocation
agreement with CMGI to allocate responsibilities, liabilities and benefits
relating to taxes. Engage will be required to pay its share of income taxes
shown as due on any consolidated, combined, or unitary tax returns filed by
CMGI for tax periods ending on or before or including the date on which date
Engage will no longer be a member of CMGI's group for federal, state, or local
tax purposes, as the case may be. CMGI will indemnify Engage against liability
for all taxes in respect of consolidated, combined, or unitary tax returns for
such periods. Accordingly, any redetermined tax liabilities for such periods
will be the responsibility of CMGI, and any refunds or credits of taxes
attributable to Engage or its subsidiaries in respect of consolidated,
combined, or unitary tax returns for such periods will be for the account of
CMGI. Engage will be responsible for filing any separate tax returns for any
taxable period and will be responsible for any tax liabilities (and entitled to
any refunds or credits of taxes) in respect of such returns. Engage will
indemnify CMGI against liability for such taxes.
Neither CMGI nor Engage will have any obligation to make any payment to the
other party for the use of such other party's tax attributes (such as net
operating losses). However, if one party realizes a windfall tax benefit
because of an adjustment to items on the other party's tax return, the party
that realizes the windfall tax benefit will be required
57
<PAGE>
to pay to the other party the actual incremental tax savings it has realized.
For example, if an expense deducted by CMGI for a period prior to the closing
date were disallowed and required to be capitalized by Engage for a period
after the closing date, thereby generating future depreciation deductions to
Engage, Engage would be required to pay to CMGI any incremental tax savings as
a result of such depreciation deductions when such tax savings are actually
realized by Engage.
Each of Engage and CMGI has control of any audit, appeal, litigation or
settlement of any issue raised with respect to a tax return for which it has
filing responsibility. Payments of claims under the agreement must be made
within 30 days of the date that a written demand for the claim is delivered.
Interest accrues on payments that are not made within 10 days of the final due
date at the rate applicable to under payments of the applicable tax. Any
dispute concerning the calculation or basis of determination of any payment
provided under the tax allocation agreement will be resolved by a law firm or
"big five" accounting firm selected and paid for jointly by the parties.
Investor Rights Agreement
Upon the closing of the offering, Engage and CMGI will enter into an
investor rights agreement under which Engage will grant CMGI registration
rights and rights to purchase shares to maintain its majority ownership. Under
this agreement, CMGI and its assignees will have the right to demand, on up to
seven occasions, that Engage register under the Securities Act the sale of all
or part of their shares of Engage common stock. CMGI and its assignees are also
entitled to include shares of Engage common stock in a registered offering of
securities by Engage for its own account, subject to the underwriters' right to
reduce the number of included shares. Engage will pay all costs associated with
such registration of shares pursuant to this agreement, other than underwriting
discounts and commissions and various other expenses. Also under this
agreement, until such time as CMGI, or any permitted transferee, owns less than
a majority of voting power of the outstanding shares of capital stock of
Engage, Engage will permit CMGI, or the transferee, to purchase a portion in
any shares that it may in the future issue so that CMGI or the transferee may
maintain its majority ownership position. Any such purchases will be at the
same price as is paid by third parties for the shares. This right is
transferable by CMGI to any party that acquires directly from CMGI shares of
common stock representing at least a majority of the outstanding shares of
common stock of Engage.
Other Transactions with CMGI Affiliates
Engage outsources its data center operations for Engage Knowledge and its
AdBureau advertising management service to NaviSite, a CMGI affiliate. For
Engage Knowledge, Engage leases computer equipment and space for equipment from
NaviSite. Engage pays NaviSite fees based on the amount of space and amount of
telecommunications services used by NaviSite to support Engage Knowledge. For
AdBureau, NaviSite provides comprehensive operational and facilities support.
Engage pays NaviSite a percentage of AdBureau revenue. Engage also leases
office computer equipment from NaviSite. Engage expects to continue to
outsource its data center operations to NaviSite and to lease computer
equipment and space for such equipment from NaviSite. Engage paid a total of
$1.2 million, $889,000 and $1.6 million to NaviSite for these services in
fiscal 1997, fiscal 1998 and the nine months ended April 30, 1999.
Engage sells its products and services to customers affiliated with CMGI. In
fiscal 1998 and the nine months ended April 30, 1999, revenue of Engage from
sales to these affiliated companies totalled $235,000 and $1.4 million.
58
<PAGE>
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDER AND MANAGEMENT
Principal Stockholder
The following table sets forth information with respect to beneficial
ownership of Engage common stock by CMGI as of April 30, 1999, and as adjusted
to reflect the sale of the shares of common stock offered by Engage in this
offering. CMGI is the only person or entity that owns beneficially more than 5%
of the outstanding shares of common stock. The shares of common stock shown as
held by CMGI include shares issuable upon conversion of convertible preferred
stock and convertible notes held by CMGI as of April 30, 1999. See
"Transactions and Relationship Between Engage and CMGI --Debt Conversion".
<TABLE>
<CAPTION>
Percentage of
Outstanding Shares
Beneficially Owned
Name and Address of Shares of Common Stock ------------------------------
Beneficial Owner Beneficially Owned Before Offering After Offering
- ------------------------ ---------------------- --------------- --------------
<S> <C> <C> <C>
CMGI, Inc. ............. 38,271,280 95.7% 83.2%
100 Brickstone Square
Andover, MA 01810
</TABLE>
Management
The following table sets forth information with respect to beneficial
ownership of the common stock of Engage and CMGI, as of April 30, 1999, for (i)
each director of Engage; (ii) each executive officer named in the Summary
Compensation Table; and (iii) all directors and executive officers of Engage as
a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting or investment power with
respect to the securities. Except as indicated by footnote, and subject to
applicable community property laws, 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. The number of shares of common stock outstanding
used in calculating the percentage for each listed person includes the shares
of common stock underlying options held by such person that are exercisable
within 60 days of April 30, 1999, but excludes shares of common stock
underlying options held by any other person. Percentage of beneficial ownership
is based on 39,973,798 shares of common stock outstanding as of April 30, 1999,
after giving effect to the conversion of outstanding convertible notes and
convertible preferred stock.
<TABLE>
<CAPTION>
Percentage Percentage
Shares of Engage Ownership Shares of CMGI Ownership
Name Common Stock of Engage Common Stock of CMGI
- ------------------------ ---------------- ---------- -------------- ----------
<S> <C> <C> <C> <C>
Paul L. Schaut.......... 237,500(1) * 5,000(1) *
Daniel J. Jaye.......... 516,666(1) 1.3% 5,332(1) *
David S. Wetherell...... 38,271,280(2) 95.7 10,772,224(3) 11.2%
Edward A. Bennett....... 0 * 0 *
Christopher A. Evans.... 70,000(1) * 0 *
Craig D. Goldman........ 31,250(1) * 195,200(1) *
Andrew J. Hajducky,
III.................... 38,271,280(2) 95.7 68,742(4) *
All directors and
executive officers as a
group (9 persons)...... 39,228,780(5) 95.8% 11,046,498(6) 11.3%
</TABLE>
- ---------------------
* Denotes less than 1% beneficial ownership.
(1) Consists of shares issuable upon the exercise of options exercisable within
60 days of April 30, 1999.
59
<PAGE>
(2) Consists of shares owned by CMGI on an as converted basis. Messrs.
Wetherell and Hajducky disclaim beneficial ownership of all 38,271,280
shares.
(3) Includes 2,305,888 shares issuable upon the exercise of outstanding options
that are exercisable within 60 days of April 30, 1999. Includes 1,701,732
shares held in trust for the benefit of Mr. Wetherell's minor children and
23,372 shares held by Mr. Wetherell and his wife as trustees for the David
S. Wetherell Charitable Trusts, for which 1,725,104 shares Mr. Wetherell
disclaims beneficial ownership.
(4) Includes 47,990 shares issuable upon the exercise of outstanding options
that are exercisable within 60 days of April 30, 1999.
(5) Includes 957,500 shares issuable upon the exercise of outstanding options
that are exercisable within 60 days of April 30, 1999.
(6) Includes 2,439,410 shares issuable upon the exercise of outstanding options
that are exercisable within 60 days of April 30, 1999.
60
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Effective upon the closing of this offering and the filing of Engage's
amended and restated certificate of incorporation, the authorized capital
stock of Engage will consist of 150,000,000 shares of common stock, par value
$.01 per share, and 5,000,000 shares of preferred stock, par value $.01 per
share.
The following summary description of Engage's capital stock, as of the
closing of this offering, is not intended to be complete and is qualified by
reference to the provisions of applicable law and to Engage's amended and
restated certificate of incorporation and amended and restated by-laws filed
as exhibits to the registration statement of which this prospectus is a part.
Common Stock
As of April 30, 1999, there were 39,973,798 shares of common stock
outstanding and held of record by 82 stockholders, after giving effect to the
conversion of all convertible demand notes held by CMGI into convertible
preferred stock and outstanding shares of convertible preferred stock into
common stock upon the closing of this offering. Based upon the number of
shares outstanding as of April 30, 1999 and giving effect to the issuance of
the shares of common stock offered by Engage hereby, there will be shares
of common stock outstanding upon the closing of this offering. In addition, as
of April 30, 1999, there were outstanding stock options for the purchase of a
total of 6,467,794 shares of common stock.
Holders of common stock are entitled to one vote per share for each share
held of record on all matters submitted to a vote of stockholders and do not
have cumulative voting rights. Directors are elected by a plurality of the
votes of the shares present in person or by proxy at the meeting. The holders
of common stock are entitled to receive ratably such lawful dividends as may
be declared by the board of directors. However, such dividends are subject to
preferences that may be applicable to the holders of any outstanding shares of
preferred stock. In the event of a liquidation, dissolution or winding up of
the affairs of Engage, whether voluntarily or involuntarily, the holders of
common stock will be entitled to receive pro rata all of the remaining assets
of Engage available for distribution to its stockholders. Any such pro rata
distribution would be subject to the rights of the holders of any outstanding
shares of preferred stock. The common stock has no preemptive, redemption,
conversion or subscription rights. All outstanding shares of common stock are
fully paid and non-assessable. The shares of common stock to be issued by
Engage in this offering will be fully paid and non-assessable. The rights,
powers, preferences and privileges of holders of common stock are subject to,
and may be adversely affected by, the rights of the holders of shares of any
series of preferred stock that Engage may designate and issue in the future.
Upon the closing of this offering, there will be no shares of preferred stock
outstanding.
Preferred Stock
The board of directors will be authorized, subject to any limitations
prescribed by Delaware law, without further stockholder approval, to issue
from time to time up to an aggregate of 5,000,000 shares of preferred stock,
in one or more series. The board of directors is also authorized, subject to
the limitations prescribed by Delaware law, to establish the number of shares
to be included in each series and to fix the voting powers, preferences,
qualifications and special or relative rights or privileges of each series.
The board of directors is authorized to issue preferred stock with voting,
conversion and other rights and preferences that could adversely affect the
voting power or other rights of the holders of common stock.
Engage has no current plans to issue any preferred stock. However, the
issuance of preferred stock or of rights to purchase preferred stock could
have the effect of making it more difficult for a third party to acquire, or
of discouraging a third party from attemping to acquire, a majority of the
outstanding common stock of Engage.
Registration Rights
The Series B Convertible Preferred Stock Purchase Agreement dated as of
July 31, 1998
61
<PAGE>
provides that the holders of 238,597 shares are entitled to rights with respect
to the registration of such shares under the Securities Act. If Engage proposes
to register any of its securities under the Securities Act, either for its own
account or for the account of another securityholder, the holders are entitled
to notice of such registration and to include their registrable shares in such
registration. However, in the event of a registration pursuant to an
underwritten public offering of common stock, the underwriters shall have the
right to limit the number of shares included in such registration. These rights
terminate for a holder at such time as such holder could sell all of its shares
under Rule 144(k) under the Securities Act. See "Transactions and Relationship
Between Engage and CMGI -- Investor Rights Agreement" for information
concerning registration rights granted to CMGI.
Section 203 of Delaware General Corporation Law
The certificate of incorporation of Engage contains a provision expressly
electing not to be governed by Section 203 of the Delaware General Corporation
Law. In general, Section 203 restricts some business combinations involving
interested stockholders (defined as any person or entity that is the beneficial
owner of at least 15% of a corporation's voting stock or is an affiliate or
associate of the corporation or the owner of 15% or more of the outstanding
voting stock of the corporation at any time in the past three years) or their
affiliates. Because of such election, Section 203 will not apply to Engage.
Limitation of Liability and Indemnification
The certificate of incorporation provides that no director of Engage shall
be personally liable to Engage or to its stockholders for monetary damages for
breach of fiduciary duty as a director, except that the limitation shall not
eliminate or limit liability to the extent that the elimination or limitation
of such liability is not permitted by the Delaware General Corporation Law as
it exists or may later be amended.
The certificate of incorporation further provides for the indemnification of
Engage's directors and officers to the fullest extent permitted by Section 145
of the Delaware General Corporation Law, including circumstances in which
indemnification is otherwise discretionary. In addition, Engage plans to enter
into indemnification agreements with its directors containing provisions which
may require Engage, among other things, to indemnify its directors against
various liabilities that may arise by virtue of their status or service as
directors, and to advance their expenses incurred as a result of any proceeding
against them as to which they could be indemnified.
Stock Transfer Agent
The transfer agent and registrar for the common stock is EquiServe L.P.
62
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of our common stock in the public market could
adversely affect prevailing market prices of our common stock. Furthermore,
since some shares of common stock will not be available for sale shortly after
this offering because of the contractual and legal restrictions on resale
described below, sales of substantial amounts of common stock in the public
market after these restrictions lapse could adversely affect the prevailing
market price and our ability to raise equity capital in the future.
Upon completion of this offering, we will have outstanding an aggregate of
45,973,798 shares of our common stock assuming no exercise of outstanding
options. Of these shares, all of the shares sold in this offering will be
freely tradable without restriction or further registration under the
Securities Act, unless such shares are purchased by "affiliates" as that term
is defined in Rule 144 under the Securities Act. Of the remaining 39,973,798
shares, all shares are "restricted securities" as that term is defined in Rule
144 under the Securities Act. Restricted securities may be sold in the public
market only if registered or if they qualify for an exemption from registration
under Rule 144 or 701 under the Securities Act, which rules are summarized
below.
Lock-Up Agreements
Stockholders holding an aggregate of 39,281,464 shares of common stock,
including all of our officers and directors, have signed lock-up agreements
with the underwriters under which they agreed not to transfer or dispose of,
directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for shares of common stock, for
a period of 180 days after the date of this prospectus. Transfers or
dispositions can be made sooner:
. with the prior written consent of Goldman, Sachs & Co.;
. in the case of transfers to affiliates;
. as a bona fide gift; or
. to any trust.
Upon expiration of the lock-up period, 180 days after the date of this
prospectus, shares will be available for resale to the public in accordance
with Rule 144.
In addition, stockholders holding an aggregate of 1,010,184 shares have
signed lock-up agreements with CMGI under which they agreed not to transfer or
dispose of, directly or indirectly, any shares of common stock or any
securities convertible into or exercisable or exchangeable for shares of common
stock until April 7, 2000. CMGI has agreed not to waive these restrictions for
a period of 180 days after the date of this prospectus, without the consent of
Goldman Sachs & Co.
Rule 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year would be entitled to sell within any three-
month period a number of shares that does not exceed the greater of:
. 1% of the number of shares of common stock then outstanding, which will
equal approximately 460,000 shares immediately after this offering; or
. the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to such sale.
Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
us.
Rule 144(k)
Under Rule 144(k), a person who is not one of our affiliates at any time
during the three months 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 other than an affiliate, is entitled to sell such shares
without complying with the manner of sale, public information, volume
limitation or notice provisions of
63
<PAGE>
Rule 144. Therefore, unless otherwise restricted, "144(k) shares" may be sold
immediately upon the completion of this offering.
Rule 701
In general, under Rule 701 of the Securities Act as currently in effect, any
of our employees, consultants or advisors who purchases shares from us in
connection with a compensatory stock plan or other written agreement is
eligible to resell such shares 90 days after the effective date of this
offering in reliance on Rule 144, but without compliance with various
restrictions, including the holding period, contained in Rule 144.
Registration Rights
Upon completion of this offering, the holders of 38,748,474 shares of our
common stock or their transferees, including CMGI, will be entitled to various
rights with respect to the registration of such shares under the Securities
Act. See "Description of Capital Stock --Registration Rights" and "Transactions
and Relationship Between Engage and CMGI --Investor Rights Agreement".
Stock Options
Ninety days after this offering, Engage intends to file a registration
statement under the Securities Act covering shares of common stock reserved
for issuance under our 1995 Equity Incentive Plan, 1999 Employee Stock Purchase
Plan and 1999 Stock Option Plan for Non-Employee Directors. Such registration
statement is expected to be filed and become effective 90 days after the
effective date of this offering. Accordingly, shares registered under such
registration statement will, subject to vesting provisions, Rule 144 volume
limitations applicable to our affiliates and any applicable lock-up agreements,
be available for sale in the open market 90 days after the effective date of
this offering.
As of April 30, 1999, options to purchase 6,467,794 shares of common stock
were issued and outstanding. Upon the expiration of the lock-up agreements
described above, at least shares of common stock will be subject to vested
options, based on options outstanding as of April 30, 1999.
VALIDITY OF COMMON STOCK
The validity of the common stock offered hereby will be passed upon for
Engage by Hale and Dorr LLP, Boston, Massachusetts and for the underwriters by
Ropes & Gray, Boston, Massachusetts.
EXPERTS
The consolidated balance sheets of Engage Technologies, Inc. and
subsidiaries as of July 31, 1997 and 1998, and as of April 30, 1999, and the
statements of operations, changes in stockholders' equity (deficit) and cash
flows for the three years in the period ended July 31, 1998 and the nine month
period ended April 30, 1999 have been included in reliance on the reports of
KPMG LLP, Engage's independent accountants, given on the authority of that
firm as experts in accounting and auditing.
The balance sheets of Accipiter Inc. as of December 31, 1997 and 1996 and
the statements of operations, stockholders' deficit and cash flows for the year
ended December 31, 1997 and for the period from April 14, 1996 (inception) to
December 31, 1996 have been included in reliance on the reports of KPMG LLP,
Accipiter's independent accountants, given on the authority of that firm as
experts in accounting and auditing.
The balance sheets of Internet Profiles Corporation as of December 31, 1997
and 1998 and the statements of operations, changes in stockholders' equity and
cash flows for the two years ended December 31, 1998 have been included in this
prospectus in reliance on the reports of PricewaterhouseCoopers LLP, Internet
Profiles Corporation's independent accountants, given on the authority of that
firm as experts in accounting and auditing.
64
<PAGE>
AVAILABLE INFORMATION
Engage has filed with the Securities and Exchange Commission, a registration
statement on Form S-1 (including the exhibits and schedules to the registration
statement) under the Securities Act with respect to the shares to be sold in
this offering. This prospectus does not contain all the information set forth
in the registration statement. For further information with respect to Engage
and the shares to be sold in this offering, reference is made to the
registration statement. Statements contained in this prospectus as to the
contents of any contract, agreement or other document referred to, are not
necessarily complete, and in each instance reference is made to the copy of
each contract, agreement or other document filed as an exhibit to the
registration statement.
You may read and copy all or any portion of the registration statement or
any reports, statements or other information Engage files at the Commission's
public reference room at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the regional offices of the Commission located at
Seven World Trade Center, 13th Floor, New York, New York 10048 and 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. You can request copies of
these documents upon payment of a duplicating fee, by writing to the
Commission. Please call the Commission at 1-800-SEC-0330 for further
information on the operation of the public reference rooms. Engage's Commission
filings, including the registration statement will also be available to you on
the Commission's Internet site (http://www.sec.gov).
65
<PAGE>
Index to Financial Statements
<TABLE>
<S> <C>
Engage Technologies, Inc. Page
Independent Auditors' Report............................................. F-2
Consolidated Balance Sheets as of July 31, 1997 and 1998, and April 30,
1999.................................................................... F-3
Consolidated Statements of Operations for the three years ended July 31,
1998
and for the nine months ended April 30, 1998 (unaudited) and 1999....... F-4
Consolidated Statements of Changes in Stockholders' Equity for the three
years ended
July 31, 1998 and for the nine months ended April 30, 1999.............. F-5
Consolidated Statements of Cash Flows for the three years ended July 31,
1998
and for the nine months ended April 30, 1998 (unaudited) and 1999....... F-6
Notes to Consolidated Financial Statements............................... F-7
Accipiter, Inc.
Independent Auditors' Report............................................. F-27
Balance Sheets as of December 31, 1996 and 1997, and March 31, 1998 (un-
audited)................................................................ F-28
Statements of Operations for the period from April 14, 1996 to December
31, 1996,
for the year ended December 31, 1997 and for the three months ended
March 31, 1997 and 1998 (unaudited)..................................... F-29
Statements of Stockholders' Deficit for the two years ended December 31,
1997
and for the three months ended March 31, 1998 (unaudited)............... F-30
Statements of Cash Flows for the period from April 14, 1996 to December
31, 1996,
for the year ended December 31, 1997 and for the three months ended
March 31, 1997 and 1998 (unaudited)..................................... F-31
Notes to Financial Statements............................................ F-32
Internet Profiles Corporation
Report of Independent Accountants........................................ F-37
Balance Sheets as of December 31, 1997 and 1998 and March 31, 1999
(unaudited)............................................................. F-38
Statements of Operations for the two years ended December 31, 1998 and
the three months ended March 31, 1999 (unaudited)....................... F-39
Statements of Stockholders' Equity (Deficit) for the two years ended
December 31, 1998
and the three months ended March 31, 1999 (unaudited)................... F-40
Statements of Cash Flows for the two years ended December 31, 1998
and the three months ended March 31, 1999 (unaudited)................... F-41
Notes to Financial Statements............................................ F-42
Unaudited Pro Forma Combined Condensed Financial Data for Engage
Technologies, Inc., Accipiter, Inc. and Internet Profiles Corporation
Unaudited Pro Forma Condensed Consolidated Statements of Operations for
the year ended
July 31, 1998 and for the nine months ended April 30, 1999.............. F-53
</TABLE>
F-1
<PAGE>
When the transactions referred to in note 16 of the notes to the consolidated
financial statements have been consummated, we will be in a position to render
the following report:
Independent Auditors' Report
The Board of Directors
Engage Technologies, Inc.:
We have audited the accompanying consolidated balance sheets of Engage
Technologies, Inc. and subsidiaries as of July 31, 1997 and 1998, and April 30,
1999, and the related consolidated statements of operations, changes in
stockholders' equity (deficit), and cash flows for each of the years in the
three-year period ended July 31, 1998 and the nine months ended April 30, 1999.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Engage
Technologies, Inc. and subsidiaries as of July 31, 1997 and 1998 and April 30,
1999, and the results of their operations and their cash flows for each of the
years in the three-year period ended July 31, 1998 and the nine months ended
April 30, 1999, in conformity with generally accepted accounting principles.
KPMG LLP
June 4, 1999, except as to note 16 which is as of June 11, 1999
Boston, Massachusetts
F-2
<PAGE>
ENGAGE TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
July 31, Pro forma
------------------ April 30, April 30,
1997 1998 1999 1999
-------- -------- --------- -----------
(unaudited)
(In thousands, except par value)
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash................................ $ -- $ 96 $ 661
Available-for-sale securities....... -- 567 1,036
Accounts receivable, less allowance
for doubtful accounts of $0, $360
and $940 at July 31, 1997 and 1998
and April 30, 1999, respectively... 30 1,824 5,016
Prepaid expenses.................... 82 230 654
-------- -------- --------
Total current assets................ 112 2,717 7,367
-------- -------- --------
Property and equipment, net.......... 1,670 789 2,012
Investment in joint venture.......... -- -- 1,303
Intangible assets, net of accumulated
amortization of $1,380 and $4,963 at
July 31, 1998 and April 30, 1999,
respectively........................ -- 18,894 40,190
Other assets......................... -- -- 369
-------- -------- --------
Total assets ....................... $ 1,782 $ 22,400 $ 51,241
======== ======== ========
Liabilities and Stockholders' Equity
(Deficit)
Current liabilities:
Debt to CMGI........................ $ 14,018 $ 7,753 $ 37,447
Obligation under capital lease...... -- -- 364
Accounts payable.................... -- 499 1,590
Accrued expenses.................... 288 1,614 5,342
Deferred revenue.................... 15 1,460 2,828
-------- -------- --------
Total current liabilities........... 14,321 11,326 47,571
-------- -------- --------
Deferred revenue..................... -- -- 1,856
-------- -------- --------
Obligation under capital lease, net
of current portion.................. -- -- 442
-------- -------- --------
Commitments and contingencies
Stockholders' equity
Series A Preferred Stock, $.01 par
value, 1,500 shares authorized,
1,500, 1,500 and 0 shares issued
and outstanding at July 31, 1998,
April 30, 1999 and April 30, 1999
(pro forma), respectively
(liquidating preference of
$16,340)........................... -- 15 15 --
Series B Preferred Stock, $.01 par
value, 239 shares authorized,
239 and 0 shares issued and
outstanding at April 30, 1999 and
April 30, 1999 (pro forma),
respectively (liquidating
preference of $2,000).............. -- -- 2 --
Common Stock, $.01 par value,
150,000 shares authorized, 16,188,
190, 1,226 and 39,974 shares issued
and outstanding at July 31, 1997
and 1998, April 30, 1999, and April
30, 1999 (pro forma),
respectively....................... 162 2 12 $ 399
Additional paid-in capital.......... (60) 39,915 49,639 86,716
Deferred compensation............... -- (1,305) (717) (717)
Accumulated other comprehensive
(loss)............................. -- (1,193) (422) (422)
Accumulated deficit................. (12,641) (26,360) (47,157) (47,157)
-------- -------- -------- --------
Total stockholders' equity
(deficit).......................... (12,539) 11,074 1,372 $ 38,819
-------- -------- -------- ========
Total liabilities and stockholders'
equity (deficit)................... $ 1,782 $ 22,400 $ 51,241
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
ENGAGE TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine months ended
Year ended July 31, April 30,
--------------------------- --------------------
1996 1997 1998 1998 1999
------- -------- -------- ----------- --------
(unaudited)
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Revenue:
Product revenue........... $ -- $ 25 $ 1,742 $ 379 $ 6,520
Product revenue, related
parties.................. -- -- 203 143 1,274
Services and support
revenue.................. -- -- 240 82 1,113
Services and support reve-
nue, related
parties.................. -- -- 32 9 90
------- -------- -------- -------- --------
Total revenue........... -- 25 2,217 613 8,997
------- -------- -------- -------- --------
Cost of revenue:
Cost of product revenue... -- 31 185 36 1,327
Cost of services and
support revenue.......... -- -- 2,057 1,154 4,308
------- -------- -------- -------- --------
Total cost of revenue... -- 31 2,242 1,190 5,635
------- -------- -------- -------- --------
Gross (loss) profit... -- (6) (25) (577) 3,362
------- -------- -------- -------- --------
Operating expenses:
In-process research and
development.............. -- -- 9,200 9,200 4,500
Research and development.. 1,796 7,261 5,925 4,703 5,951
Selling and marketing..... 155 1,566 4,031 2,528 6,650
General and
administrative........... 428 1,429 2,333 1,062 2,817
Amortization of goodwill
and other
intangibles.............. -- -- 1,273 318 3,239
------- -------- -------- -------- --------
Total operating
expenses............... 2,379 10,256 22,762 17,811 23,157
------- -------- -------- -------- --------
Loss from operations........ (2,379) (10,262) (22,787) (18,388) (19,795)
Other income (expense):
Gain on sale of product
rights................... -- -- 9,240 9,240 --
Equity in loss of joint
venture.................. -- -- -- -- (417)
Loss on disposal of
property and equipment... -- -- -- -- (174)
Interest expense, net..... -- -- (172) (60) (411)
------- -------- -------- -------- --------
Net loss.................... $(2,379) $(10,262) $(13,719) $ (9,208) $(20,797)
======= ======== ======== ======== ========
Unaudited pro forma basic
and diluted net loss per
share...................... $ (.82) $ (.61)
======== ========
Pro forma weighted average
number of basic and diluted
shares outstanding......... 16,750 34,210
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
ENGAGE TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Series A Series B Accumulated
Preferred Stock Preferred Stock Common Stock Additional Other
---------------- ----------------- --------------- Paid-in Deferred Comprehensive Accumulated
Shares Amount Shares Amount Shares Amount Capital Compensation Income (Loss) Deficit
------- ------- ------- -------- ------- ------ ---------- ------------ ------------- -----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at July
31, 1995......... -- $ -- -- $ -- -- $ -- $ -- $ -- $ -- $ --
Issuance of
common stock.... -- -- -- -- 16,000 160 (80) -- -- --
Net loss........ -- -- -- -- -- -- -- -- -- (2,379)
------- ------- ------ -------- ------- ----- ------- ------- ------- --------
Balance at July
31, 1996......... -- -- -- -- 16,000 160 (80) -- -- (2,379)
Exercise of
stock options... -- -- -- -- 188 2 20 -- -- --
Net loss........ -- -- -- -- -- -- -- -- -- (10,262)
------- ------- ------ -------- ------- ----- ------- ------- ------- --------
Balance at July
31, 1997......... -- -- -- -- 16,188 162 (60) -- -- (12,641)
Reorganization.. 800 8 -- -- (16,000) (160) 8,072 -- -- --
Acquisition of
Accipiter....... 700 7 -- -- -- -- 31,903 (1,731) -- --
Deferred
compensation
related to the
acquisition of
Accipiter....... -- -- -- -- -- -- -- 426 -- --
Exercise of
stock options... -- -- -- -- 2 -- -- -- -- --
Unrealized loss
on available-
for-sale
securities...... -- -- -- -- -- -- -- -- (1,193) --
Net loss........ -- -- -- -- -- -- -- -- -- (13,719)
------- ------- ------ -------- ------- ----- ------- ------- ------- --------
Balance at July
31, 1998......... 1,500 15 -- -- 190 2 39,915 (1,305) (1,193) (26,360)
Issuance of pre-
ferred stock,
net of
issuance costs
of $66 ......... -- -- 239 2 -- -- 1,932 -- -- --
Acquisition of
I/PRO........... -- -- -- -- 1,010 10 7,784 -- -- --
Foreign currency
translation
adjustment...... -- -- -- -- -- -- -- -- 302 --
Deferred compen-
sation related
to the acquisi-
tion of Accipi-
ter............. -- -- -- -- -- -- -- 588 -- --
Exercise of
stock options .. -- -- -- -- 26 -- 8 -- -- --
Unrealized gain
on available-
for-sale
securities...... -- -- -- -- -- -- -- -- 469 --
Net loss........ -- -- -- -- -- -- -- -- -- (20,797)
------- ------- ------ -------- ------- ----- ------- ------- ------- --------
Balance at April
30, 1999 ........ 1,500 $ 15 239 $ 2 1,226 $ 12 $49,639 $ (717) $ (422) $(47,157)
======= ======= ====== ======== ======= ===== ======= ======= ======= ========
<CAPTION>
Total
---------
<S> <C>
Balance at July
31, 1995......... $ --
Issuance of
common stock.... 80
Net loss........ (2,379)
---------
Balance at July
31, 1996......... (2,299)
Exercise of
stock options... 22
Net loss........ (10,262)
---------
Balance at July
31, 1997......... (12,539)
Reorganization.. 7,920
Acquisition of
Accipiter....... 30,179
Deferred
compensation
related to the
acquisition of
Accipiter....... 426
Exercise of
stock options... --
Unrealized loss
on available-
for-sale
securities...... (1,193)
Net loss........ (13,719)
---------
Balance at July
31, 1998......... 11,074
Issuance of pre-
ferred stock,
net of
issuance costs
of $66 ......... 1,934
Acquisition of
I/PRO........... 7,794
Foreign currency
translation
adjustment...... 302
Deferred compen-
sation related
to the acquisi-
tion of Accipi-
ter............. 588
Exercise of
stock options .. 8
Unrealized gain
on available-
for-sale
securities...... 469
Net loss........ (20,797)
---------
Balance at April
30, 1999 ........ $ 1,372
=========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
ENGAGE TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine months ended
Years ended July 31, April 30,
--------------------------- --------------------
1996 1997 1998 1998 1999
------- -------- -------- ----------- --------
(unaudited)
(In thousands)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss................... $(2,379) $(10,262) $(13,719) $(9,208) $(20,797)
Adjustments to reconcile
net loss to net cash used
for operating activities:
Depreciation and
amortization............. 530 947 1,745 632 3,974
Equity in loss of joint
venture.................. -- -- -- -- 417
Provision for bad debts... -- -- 240 -- 175
Deferred compensation..... -- -- 426 72 587
Gain on sale of product
rights................... -- -- (9,240) (9,240) --
Loss on disposal of
property and equipment... -- -- -- -- 174
In-process research and
development.............. -- -- 9,200 9,200 4,500
Changes in operating
assets and liabilities,
net of impact of
acquisitions:
Accounts receivable...... -- (30) (1,438) (97) (2,398)
Prepaid expenses......... (276) 194 (147) 29 (245)
Accounts payable......... -- -- 475 637 356
Accrued expenses......... 151 137 835 17 2,837
Deferred revenue......... -- 15 1,117 56 3,207
------- -------- -------- ------- --------
Net cash used for
operating activities... (1,974) (8,999) (10,506) (7,902) (7,213)
------- -------- -------- ------- --------
Cash flows from investing
activities:
Investment in joint
venture................... -- -- -- -- (1,424)
Net cash acquired on
acquisition of
subsidiaries.............. -- -- 689 689 347
Purchases of property and
equipment................. (1,613) (490) (216) (153) (165)
------- -------- -------- ------- --------
Net cash (used for)
provided by investing
activities............. (1,613) (490) 473 536 (1,242)
------- -------- -------- ------- --------
Cash flows from financing
activities:
Net change in debt to
CMGI...................... 3,587 10,511 10,129 7,852 7,119
Proceeds from stock option
exercises................. -- 22 -- -- 8
Issuance of preferred
stock, net of issuance
costs..................... -- -- -- -- 1,934
Repayment of capital lease
obligations............... -- -- -- -- (47)
Principal payments on
notes..................... -- (1,044) -- -- --
------- -------- -------- ------- --------
Net cash provided by
financing activities... 3,587 9,489 10,129 7,852 9,014
------- -------- -------- ------- --------
Effect of exchange rate
changes on cash............ -- -- -- -- 6
------- -------- -------- ------- --------
Net increase in cash........ -- -- 96 486 565
Cash, beginning of period... -- -- -- -- 96
------- -------- -------- ------- --------
Cash, end of period......... $ -- $ -- $ 96 $ 486 $ 661
======= ======== ======== ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
ENGAGE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
All information included in these footnotes as of and for
the nine months ended April 30, 1998 is unaudited
(1) Description of Business
Engage provides products and services that enable customers to create and
use profiles of individual Web visitors to target advertisements, content and
e-commerce offerings.
(2) Summary of Significant Accounting Policies
Basis of Presentation
The Company is a majority owned subsidiary of CMGI, Inc. ("CMGI"). The
accompanying consolidated financial statements, which have been prepared as if
the Company had operated as a separate stand-alone entity for all periods
presented, include only revenue and expenses attributable to the Company since
it commenced operations in September 1995.
The consolidated financial statements include certain allocations based on
headcount from CMGI for certain general and administrative expenses such as
rent, legal services, insurance and employee benefits. Management believes that
the method used to allocate the costs and expenses is reasonable; however, such
allocated amounts may or may not necessarily be indicative of what actual
expenses would have been incurred had the Company operated independently of
CMGI.
Principles of Consolidation
The accompanying financial statements include the accounts of the Company
and its wholly-owned subsidiaries, Internet Profiles Corporations ("I/PRO") and
Engage Technologies Limited, after elimination of all significant intercompany
balances and transactions.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
Revenue Recognition
Prior to August 1, 1998, revenue from sales of product licenses to customers
were generally recognized when the product was shipped, provided no significant
obligations remain and collectibility is probable, in accordance with Statement
of Position ("SOP") 91-1, Software Revenue Recognition. Effective August 1,
1998, the Company adopted the provisions of SOP 97-2, Software Revenue
Recognition. For transactions after August 1, 1998, revenues from software
product licenses and web-site traffic audit reports are generally recognized
when (i) a signed noncancelable software license exists, (ii) delivery has
occurred, (iii) the Company's fee is fixed or determinable, and (iv)
collectibility is probable. Revenue from license agreements that have
significant customizations and modifications of the software product is
deferred and recognized using the percentage of completion method. There was no
material change to the Company's accounting for revenue as a result of the
adoption of SOP 97-2.
F-7
<PAGE>
ENGAGE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Revenue from periodic subscriptions is recognized ratably over the
subscription term, typically twelve months. Revenue from usage based
subscriptions is recognized monthly based on actual usage.
Service and support revenue includes software maintenance and other
professional services revenues, primarily from consulting, implementation and
training. Revenue from software maintenance is deferred and recognized ratably
over the term of each maintenance agreement, typically twelve months. Revenue
from professional services is recognized as the services are performed,
collectibility is probable and such revenues are contractually non-refundable.
Amounts collected prior to satisfying the above revenue recognition criteria
are classified as deferred revenue.
Cash
Under an arrangement with CMGI, the Company maintains a zero balance cash
account. Cash required by the Company for the funding of its operations is
provided as needed with a corresponding increase in the "Debt to CMGI" account.
Customer receipts and other cash receipts of the Company are remitted to CMGI
upon receipt by the Company and serve to reduce the "Debt to CMGI" account.
Cash on hand at July 31, 1998 and April 30, 1999 is held by the Company's
subsidiaries.
During fiscal 1998, non-cash investing activities included the sale of data
warehouse product rights in exchange for available-for-sale securities and the
repayment of approximately $8,400,000 of debt due to CMGI. In addition, non-
cash investing activities also include the Company's acquisition of Accipiter
(see note 7) in exchange for 700,000 shares of the Company's Series A
Convertible Preferred Stock.
During fiscal 1998, non-cash financing activities included the issuance of
800,000 shares of the Company's Series A Convertible Preferred Stock in
exchange for 16,000,000 shares of the Company's common stock and an $8,000,000
reduction in the debt to CMGI (see note 10).
During fiscal 1999, non-cash investing activities include the acquisition of
I/PRO (see note 7) in exchange for 1,010,184 shares of the Company's common
stock, and additional debt to CMGI totaling $22,086,000.
Marketable Securities
The appropriate classification of marketable securities is determined at the
time of acquisition and reevaluated at each balance sheet date. Marketable
securities have been classified as available-for-sale and are carried at fair
value, based on quoted market prices, with unrealized gains and losses included
in accumulated other comprehensive income (loss) on the consolidated balance
sheets.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets.
Leasehold improvements and assets under capital leases are amortized using the
straight-line method over the shorter of the lease term or estimated useful
life of the asset. Expenditures for maintenance and repairs are charged to
expense as incurred.
F-8
<PAGE>
ENGAGE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Investment in Joint Venture
The Company's investment in the common stock of a Japanese joint venture is
accounted for by the equity method.
Intangibles
Intangibles relate to the Company's purchase of Accipiter, Inc. in April
1998 and I/PRO in April 1999 (see note 7). Such costs are being amortized on a
straight-line basis over either two or five years, depending on the periods
expected to be benefited.
Accounting for Impairment of Long-Lived Assets
The Company assesses the need to record impairment losses on long-lived
assets used in operations when indicators of impairment are present. On an on-
going basis, management reviews the value and period of amortization or
depreciation of long-lived assets, including costs in excess of net assets of
companies acquired. During this review, the significant assumptions used in
determining the original cost of long-lived assets are reevaluated. Although
the assumptions may vary from transaction to transaction, they generally
include revenue growth, operating results, cash flows and other indicators of
value. Management then determines whether there has been a permanent impairment
of the value of long-lived assets by comparing future estimated undiscounted
cash flows to the asset's carrying value. If the estimated future undiscounted
cash flows exceed the carrying value of the asset, a loss is recorded as the
excess of the asset's carrying value over fair value.
Research and Development Costs and Software Costs
Expenditures related to the development of new products and processes,
including significant improvements and refinements to existing products and the
development of software, are expensed as incurred, unless they are required to
be capitalized. Software development costs are required to be capitalized when
a product's technological feasibility has been established by completion of a
detailed program design or working model of the product, and ending when a
product is available for general release to customers. To date, the
establishment of technological feasibility and general release have
substantially coincided. As a result, there have been no capitalized software
development costs to date. Additionally, at the date of acquisition or
investment, the components of the purchase price of each acquisition or
investment are evaluated to identify amounts allocated to in-process research
and development. Upon completion of acquisition accounting and valuation, such
amounts are charged to expense if technological feasibility had not been
reached at the acquisition date.
Foreign Currency Translation
The functional currency for the Company's foreign subsidiary and its
investment in joint venture is its local currency. The financial statements of
this subsidiary and the joint venture are translated into United States dollars
using period-end exchange rates for assets and liabilities and average exchange
rates during the period for revenues and expenses. The resulting translation
adjustments are included in accumulated other comprehensive income (loss) on
the consolidated balance sheets. Net gains and losses resulting from foreign
currency transactions arising from exchange rate fluctuations on transactions
denominated in currencies other than the functional currencies are included in
the consolidated statements of operations and were immaterial for all periods
presented.
F-9
<PAGE>
ENGAGE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Income Taxes
The Company accounts for income taxes under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date. The Company is currently greater than 80% owned by CMGI, and as
such, CMGI realizes the full benefit of all federal and part of the state net
operating losses that have been incurred by the Company. Therefore, such net
operating losses incurred by the Company will have no future benefit to the
Company. The tax sharing agreement between the Company and CMGI requires the
Company to reimburse CMGI to the extent it contributes to the consolidated tax
liability of the CMGI group; however, under the policy, CMGI is not obligated
to reimburse the Company for any losses utilized in the consolidated CMGI
group.
Advertising Costs
The Company expenses advertising costs as incurred. The Company did not
incur any advertising costs during the year ended July 31, 1996. Advertising
expense was approximately $40,000, $175,000 and $564,000 for the fiscal years
ended July 31, 1997 and 1998 and the nine months ended April 30, 1999,
respectively.
Stock-Based Compensation Plans
The Company has adopted SFAS No. 123, Accounting for Stock-Based
Compensation ("SFAS 123"). As permitted by SFAS 123, the Company measures
compensation cost in accordance with Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees ("APB No. 25"), and related
interpretations. Accordingly, no accounting recognition is given to stock
options granted at fair market value until they are exercised. Upon exercise,
net proceeds, including income tax benefits realized, are credited to equity.
Therefore, the adoption of SFAS 123 was not material to the Company's financial
condition or results of operations; however, the pro forma impact on earnings
has been disclosed in the notes to the consolidated financial statements as
required by SFAS 123 (see note 11).
Segment Reporting
The Company has adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 131 establishes
standards for the way that public business enterprises report selected
information about operating segments in annual and interim financial
statements. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. SFAS 131 requires
the use of the "management approach" in disclosing segment information, based
largely on how senior management generally analyzes the business operations.
SFAS 131 has been adopted effective August 1, 1998. The Company currently
operates in only one segment, and as such, no additional disclosures are
required.
Unaudited Pro Forma Basic and Diluted Net Loss per Share
Unaudited pro forma basic earnings (loss) per share is based upon the
weighted average number of common shares outstanding during the period.
Unaudited pro forma diluted earnings (loss)
F-10
<PAGE>
ENGAGE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
per share is based upon the weighted average number of common shares
outstanding during the period plus additional weighted average common
equivalent shares outstanding during the period, computed using the "if-
converted method". Common equivalent shares have been excluded from the
computation of diluted loss per share in each period, as their effect would
have been anti-dilutive in each period presented.
As described in note 16, conversion of all preferred stock and amounts due
to CMGI will occur upon the completion of a qualified public offering of the
Company's common stock. The unaudited pro forma basic and diluted net loss per
share information included in the accompanying statements of operations for the
year ended July 31, 1998 and the nine months ended April 30, 1999 reflects the
impact on unaudited pro forma basic and diluted net loss per share of such
conversion as of the beginning of each period or date of issuance, if later,
using the if-converted method.
Historical basic and diluted net loss per share have not been presented
because they are irrelevant due to the significant change in the Company's
capital structure and resultant basic and diluted loss per share that will
result upon conversion of the convertible preferred stock and debt to CMGI.
The reconciliation of the numerators and denominators of the unaudited pro
forma basic and unaudited pro forma diluted loss per share computation for the
Company's reported net loss is as follows:
PRO FORMA BASIC AND DILUTED LOSS PER SHARE
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
July 31, 1998 April 30, 1999
------------- -----------------
(In thousands,
except per share data)
<S> <C> <C>
Numerator:
Loss..................................... $(13,719) $(20,797)
-------- --------
Denominator:
Weighted average shares outstanding...... 15,398 296
Assumed conversion of preferred stock.... 790 30,444
Assumed conversion of debt to CMGI....... 562 3,470
-------- --------
Weighted average number of diluted shares
outstanding............................. 16,750 34,210
-------- --------
Basic and diluted loss per share .......... $ (.82) $ (.61)
======== ========
</TABLE>
See note 16.
New Accounting Pronouncements
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants ("AcSEC"), issued Statement of
Position 98-1, "Accounting for the Cost of Computer Software Developed or
Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 requires the capitalization
of certain internal costs related to the implementation of computer software
obtained for internal use. The Company is required to adopt this standard in
the first quarter of fiscal 2000, and expects that the adoption of SOP 98-1
will not have a material impact on its financial position or its results of
operations.
F-11
<PAGE>
ENGAGE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In April 1998, the AcSEC issued Statement of Position 98-5, "Reporting Costs
of Start-Up Activities" ("SOP 98-5"). Under SOP 98-5, the cost of start-up
activities should be expensed as incurred. Start-up activities are broadly
defined as those one-time activities related to opening a new facility,
introducing a new product or service, conducting business in a new territory,
conducting business with a new class of customer, commencing some new operation
or organizing a new entity. SOP 98-5 is effective for the Company's fiscal 2000
financial statements. The Company does not expect its adoption to have a
material impact on its financial position or results of operations.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133").
SFAS 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives) and for hedging activities.
SFAS 133 requires the recognition of all derivatives as either assets or
liabilities in the statement of financial position and the measurement of those
instruments at fair value. The Company is required to adopt this standard in
the first quarter of fiscal 2000, and expects that the adoption of SFAS 133
will not have a material impact on the its financial position or its results of
operations. On May 20, 1999, a proposed Statement of Financial Accounting
Standards was issued for public comment in which the proposal, if approved,
will delay implementation until the first quarter of the Company's fiscal year
2000.
Unaudited Interim Financial Information
The consolidated financial statements for the nine months ended April 30,
1998 are unaudited; however, in the opinion of management, all adjustments
(consisting of normal recurring adjustments) necessary for a fair presentation
of the financial statements for the interim period have been included. Results
of operations for the interim periods presented are not necessarily indicative
of the results that may be expected for the full fiscal year or any other
future period.
(3) Sale of Product Rights
In August 1997, the Company sold rights to some of its data warehouse
software products to Red Brick Systems, Inc. ("Red Brick") for $9,500,000 in
cash and 238,160 shares of Red Brick common stock, recording a pretax gain of
$9,240,000 on the sale. The cash component was received directly by CMGI and
Debt to CMGI was reduced by a corresponding amount. In January 1999, the Red
Brick shares were exchanged for 142,896 shares of Informix Corp. due to
Informix's acquisition of Red Brick.
(4) Available-for-Sale Securities
Available-for-sale securities at July 31, 1998 consists of 238,160 shares of
Red Brick common stock received as part of the Company's sale of product rights
to Red Brick. Available-for-sale securities at April 30, 1999 consists of
142,896 shares of Informix Corp. (see note 3). These securities are carried at
fair value based on quoted market prices. A $1,193,000 and $724,000 unrealized
holding loss was recorded on the Red Brick shares at July 31, 1998 and April
30, 1999, respectively, based on the change in market value since the date of
acquisition. The unrealized holding loss is presented in the equity section of
the Company's consolidated balance sheet as a component of accumulated other
comprehensive loss.
F-12
<PAGE>
ENGAGE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(5) Property and Equipment
<TABLE>
<CAPTION>
July 31,
Estimated -------------- April 30,
Useful Life 1997 1998 1999
------------------------ ------- ----- ---------
(In
thousands)
<S> <C> <C> <C> <C>
Office furniture and
computer equipment..... 3-5 years $ 911 $ 940 $2,327
Software licenses....... 3 years 2,131 273 305
Leasehold improvements.. 4 years or life-of-lease 105 105 429
------- ----- ------
3,147 1,318 2,862
Less: Accumulated
depreciation and
amortization........... (1,477) (529) (849)
------- ----- ------
$ 1,670 $ 789 $2,012
======= ===== ======
</TABLE>
Property and equipment recorded under capital leases amounted to
approximately $735,000 at April 30, 1999. Total accumulated amortization
related to these assets amounted to approximately $49,000 at April 30, 1999.
The Company had no assets under capital lease at July 31, 1997 or 1998.
(6) Investment in Joint Venture
In August 1998, the Company acquired for $1.47 million in cash, 49 percent
of the shares of Engage Technologies Japan (the "Joint Venture"), a joint
venture with Sumitomo Corporation in Japan. The Company's ownership interest
was reduced to 46.3% in March 1999 as a result of the Joint Venture's selling
an ownership interest to an additional investor. The Joint Venture was
established to sell the Company's products and services in Japan. The Joint
Venture is authorized to solicit additional investors so long as the new
investors' ownership interests do not exceed 30% on a fully diluted, aggregate
ownership basis. If the Joint Venture requires funds in excess of $4 million
(excluding the parties' initial capital contributions) for its operations, the
Company is required to provide a bank guarantee in an amount proportionate to
its ownership interest. This investment is being accounted for under the equity
method of accounting. The Company's share of the Joint Venture's foreign
currency translation adjustments is reflected in both the investment account
and shareholders' equity on the consolidated balance sheet as a component of
accumulated other comprehensive income (loss).
Under a separate license agreement, the Company licensed its Engage
Knowledge technology to the Joint Venture in consideration for a non-refundable
$3 million prepaid royalty and royalties of 11.11% of all future revenues. The
initial prepaid royalty has been recorded as deferred revenue and is being
recognized as income over three years, the estimated period over which the
Company expects to provide maintenance and support. In addition, the Company
and the Joint Venture entered into a reseller agreement under which the Company
granted the Joint Venture an exclusive right to resell its products to end
users in Japan, excluding certain Japanese distribution rights granted to Red
Brick (see Note 3).
(7) Acquisitions
Accipiter
In April 1998, CMGI acquired Accipiter, Inc. ("Accipiter"), a company
specializing in Internet advertising management solutions, in exchange for
10,109,536 shares of CMGI Common Stock
F-13
<PAGE>
ENGAGE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(which number reflects three CMGI two-for-one stock splits between April 1998
and the date of these financial statements). In August 1998, Accipiter was
legally merged with the Company in a stock-for-stock merger in which
consideration of 700,000 shares of the Company's Series A Convertible Preferred
Stock was issued to CMGI. The Company has reflected in its consolidated
financial statements and the acquisition of Accipiter as if they occurred in
April 1998. The total purchase price for Accipiter was valued at $29,489,000,
including acquisition costs of $198,000. The value of the CMGI shares included
in the purchase price was recorded net of a weighted average 15% market value
discount to reflect the restrictions on transferability.
Management is primarily responsible for estimating the fair value of
purchased in-process research and development. The portion of the purchase
price allocated to in-process research and development was $9.2 million, or
approximately 31% of the total purchase price. At the acquisition date,
Accipiter's major in-process project was the development of AdManager version
4.0, which was intended to provide the ad serving functionality that customers
were requiring as the use of the Internet rapidly increased and customer Web
sites became more complex. In general, previous AdManager releases did not
provide for the fault tolerance, redundancy and scalability that customers
began to seek after AdManager versions 1.0 and 2.0 were released. Accordingly,
customers' long-term product needs required Accipiter to substantially redesign
the AdManager architecture (later released as version 4.0) to develop new
technologies in the areas of: (1) fault tolerance and scalability, (2) an
object-oriented user interface, (3) application programming interfaces and (4)
a new report engine.
At the date of the acquisition, management estimated that completion of the
AdManager version 4.0 technology would be accomplished by June 1998. Engage
began testing AdManager version 4.0 at a customer's site (beta testing) in June
1998 and commercially released the product in August 1998. The initial
development effort had commenced in late 1997. At the acquisition date, the new
AdManager technology had not reached a completed prototype stage and beta
testing had not yet commenced. At the time of the Accipiter purchase, the
AdManager version 4.0 project was approximately 71% complete.
The value of in-process research and development was determined using an
income approach. This approach takes into consideration earnings remaining
after deducting from cash flows related to the in-process technology, the
market rates of return on contributory assets, including developed technology,
assembled workforce, working capital and fixed assets. The cash flows are then
discounted to present value at an appropriate rate. Discount rates are
determined by an analysis of the risks associated with each of the identified
intangible assets. The discount rate used for in-process research and
development was 24.5%, a slight premium over the estimated weighted-average
cost of capital of 24%, and the discount rate used for developed technology was
21%.
The resulting net cash flows to which the discount rate was applied are
based on Engage management's estimates of revenues, cost of revenues, research
and development costs, selling and marketing costs, general and administrative
costs, and income taxes from such acquired technology. These estimates are
based on the assumptions set forth below.
Accipiter recorded revenue in 1997 of less than $1 million. Because of the
absence of meaningful historical revenue of Accipiter, management projected
revenue for the initial year of the forecast period based on its assessment of
future market potential and the ability of Accipiter to successfully launch its
new product offering. After the initial year of the forecast period, revenue
was predicted to grow at rates comparable to the growth of Internet users and
online activity and the impact such growth would have on Internet advertising.
F-14
<PAGE>
ENGAGE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
These projections are based on Engage management's estimates of the
significant growth in the number of companies engaged in e-commerce (which is
supported by independent market data), the need for e-commerce companies to
serve ads over the Internet, expected trends in technology (such as increased
speed of the Internet, reduced hardware costs and the resulting increase in new
Internet users to whom ads will be served) and the nature and expected timing
of new product introductions by Engage and its competitors. These estimates
also include growth related to the use of certain Accipiter technologies in
conjunction with Engage's products, the marketing and distribution of the
resulting products through Engage's sales force and the benefits of Engage's
incremental financial support and stability.
Engage's estimated cost of sales as a percentage of revenue is expected to
be slightly lower than Accipiter's (classified as support and royalties by
Accipiter) on a stand-alone basis (16% in 1997), as certain fixed costs
included in cost of sales are spread over a larger revenue base and provide for
the realization of efficiencies due to economies of scale through combined
operations. Due to these savings, the estimated cost of sales as a percentage
of revenue is expected to decrease by 1% each year from Accipiter's historical
percentage, to a low of 11% in the fifth forecast year.
Engage's selling, general and administrative costs are expected to be higher
than Accipiter's on an absolute basis, but lower as a percentage of revenue.
Due to the small revenue base in 1997 and the impact of significant costs
associated with building a corporate infrastructure and building a workforce
for future operations, Accipiter's selling, general and administrative costs in
1997, as a percent of revenue, are not representative of the expected costs for
the combined operations of Engage and Accipiter. Efficiencies due to economies
of scale through combined operations, such as consolidated marketing and
advertising programs, are expected to be realized immediately.
Approximately $1,700,000 of deferred compensation was recorded during fiscal
1998 relating to approximately 173,080 shares of CMGI common stock issued to
the then employee stockholders of Accipiter, which are being held in escrow.
These shares are subject to forfeiture upon termination of employment over a
two-year period. Compensation expense is being recognized over the two-year
service period beginning August 1, 1998.
I/PRO
In April 1999, Engage acquired I/PRO, a provider of Web-site traffic
measurement and audit services, for approximately $30,264,000, including
acquisition costs of $244,000. The purchase price consisted of $1,563,000 in
net cash, $20,907,000 in CMGI common shares and $7,794,000 in Engage common
shares and options. The per share value of the CMGI shares included in the
purchase price was $57.99, net of a 9% weighted average market value discount
to reflect the restriction on transferability. The per share value of the
Engage shares included in the purchase price was $5.06 per share. In addition,
CMGI must pay up to $3,000,000 to the former I/PRO stockholders if stated
performance goals are met by I/PRO one year after the closing. Engage must
reimburse CMGI for any payments, due under stated performance goals, in cash or
by issuance of shares of Engage's Series C convertible preferred stock at its
then fair market value, at CMGI's election. Any additional payments will be
treated as additional purchase price.
F-15
<PAGE>
ENGAGE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
I/PRO's major in-process project was the development of a new data
processing system, project name Normandy, which is intended to provide the
improved functionality required as the use of the Internet rapidly increases
and customer Web site activity increases in volume and complexity. In general,
the existing data processing system does not provide for the fault tolerance,
scalability, and data processing efficiency that will be required to meet
future customer needs. Accordingly, customer's long-term product needs required
I/PRO to substantially redesign the data processing system to develop new
technologies in the areas of: (1) fault tolerance and scalability, (2) system
management, (3) data capture and (4) path analysis functionality.
At the date of the acquisition, management estimated that completion of the
Normandy technology would be accomplished by August, 1999. The initial
development effort had commenced in late 1998. At the acquisition date, the new
Normandy technology had not reached a completed prototype stage and beta
testing had not yet commenced. At the time of the I/PRO purchase, the Normandy
project was approximately 64% complete.
The value of in-process research and development was determined using an
income approach. This approach takes into consideration earnings remaining
after deducting from cash flows related to the in-process technology, the
market rates of returns on contributory assets, including core developed
technology, assembled workforce, working capital and fixed assets. The cash
flows are then discounted to present value at an appropriate rate. Discount
rates are determined by an analysis of the risks associated with each of the
identified intangible assets. The discount rate used for in-process research
and development was 30%, a premium over the estimated weighted-average cost of
capital of 25%, and the discount rate used for core developed technology was
22%.
The resulting net cash flows to which the discount rate was applied are
based on Engage management's estimates of revenues, cost of revenues, research
and development costs, selling and marketing costs, general and administrative
costs, and income taxes from such acquired technology. These estimates are
based on the assumptions set forth below.
Management projected average annual revenues increases for the forecast
period based on its assessment of future market potential and the ability of
I/PRO to successfully implement the Normandy technology. Revenue was predicted
to grow at rates comparable to the growth of Internet users and online activity
and the impact such growth would have on Internet service companies. Revenues
related to the Normandy project were identified.
These projections are based on Engage management's estimates of the
significant growth in the number of companies engaged in e-commerce (which is
supported by independent market data), the need for e-commerce companies to
utilize independent audit, verification and analysis services, expected trends
in technology (such as increased speed of the Internet, reduced hardware costs
and the resulting increase in new Internet users) and the nature and expected
timing of new product introductions by Engage and its competitors. These
estimates also include growth related to the use of certain I/PRO technologies
in conjunction with Engage's products and the benefits of Engage's incremental
financial support and stability.
I/PRO's estimated cost of sales as a percentage of revenue is expected to
significantly decrease on a stand-alone basis (85% in 1998), as certain fixed
costs included in cost of sales are spread over a larger revenue base and
provide for the realization of efficiencies due to economies of scale. Normandy
technology is expected to greatly increase the automation of data processing
allowing significant labor cost savings per revenue dollar. Increases in
hardware utilization are also expected.
F-16
<PAGE>
ENGAGE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Due to these savings, the estimated cost of sales as a percentage of revenue is
expected to decrease to a low of 20% in the fifth forecast year.
The acquisitions of Accipiter and I/PRO have been accounted for using the
purchase method, and, accordingly, the purchase prices have been allocated to
the assets purchased and liabilities assumed based upon their fair values at
the dates of acquisition. The amount of the purchase prices allocated to
goodwill and developed technology is being amortized on a straight-line basis
over five years. The amount of the purchase price allocated to other
identifiable intangible assets is being amortized on a straight line basis over
the following periods; Accipiter and I/PRO work force over two years, Accipiter
trade name over two years, and I/PRO tradename over five years. Amortization of
developed technology is charged to cost of product revenue while both goodwill
and other identifiable intangible assets are reflected as separate components
within operating expenses.
The purchase price of the Accipiter and I/PRO acquisitions was allocated as
follows:
<TABLE>
<CAPTION>
Accipiter I/PRO
--------- -------
(In thousands)
<S> <C> <C>
Working capital deficit, net of cash acquired of
$689 for Accipiter and $347 for I/PRO................. $ (249) $ (497)
Property and equipment................................. 262 1,676
Other assets........................................... 2 230
In-process research and development.................... 9,200 4,500
Long-term obligations.................................. -- (465)
Goodwill............................................... 18,394 19,900
Developed technology................................... 1,600 3,000
Other identifiable intangible assets................... 280 1,920
------- -------
Purchase price, net of cash acquired................... $29,489 $30,264
======= =======
</TABLE>
The following table represents the unaudited pro forma results of operations
of the Company for the years ended July 31, 1997 and 1998, and the nine months
ended April 30, 1999, as if the Accipiter and I/PRO acquisitions had occurred
at the beginning of each of the respective periods. These pro forma results
include adjustments for the amortization of goodwill and other intangibles and
deferred compensation. They have been prepared for comparative purposes only
and do not purport to be indicative of what would have occurred had the
acquisition been made at the beginning of the respective periods or of results
that may occur in the future.
<TABLE>
<CAPTION>
July 31,
-------------------------- April 30,
1997 1998 1999
------------ ------------ ---------------
(In thousands, except per share data)
<S> <C> <C> <C>
Net revenues.................... $ 3,316 $ 7,032 $ 15,477
Net loss........................ (25,726) (33,932) (26,874)
Net loss per share.............. (.73) (.94) (.69)
</TABLE>
(8) Leases
The Company leases certain computer equipment under capital leases which
expire at various dates through November 2002.
F-17
<PAGE>
ENGAGE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In addition to leasing computer equipment under various capital leases, the
Company has entered into noncancelable operating leases covering certain of its
office facilities and equipment which expire through 2004. In addition, the
Company pays CMGI for office facilities used as the Company's headquarters for
which it is charged based upon an allocation of the total costs for the
facilities at market rates.
The Company leases certain property and equipment from a subsidiary of CMGI.
Under the arrangement, the related party negotiates the terms and conditions of
the lease and obtains the assets to be leased. The related party bears all
liability for payment, and the Company is not financially obligated under the
leases. The Company is charged the actual lease fees paid by the related party,
plus an additional administrative charge that approximates the fair value of
the services received.
Total rent expense amounted to $36,000, $305,000, $483,000 and $758,000 for
the years ended July 31, 1996, 1997 and 1998 and the nine months ended April
30, 1999, respectively. Rent expense for office facilities paid to CMGI
amounted to approximately $35,000, $274,000, $258,000 and $214,000 for the
years ended July 31, 1996, 1997 and 1998 and the nine months ended April 30,
1999, respectively. Rent expense for equipment paid to a subsidiary of CMGI
amounted to approximately $1,000, $31,000, $125,000 and $231,000 for the years
ended July 31, 1996, 1997 and 1998 and the nine months ended April 30, 1999,
respectively.
Minimum annual rental commitments are as follows at April 30, 1999:
<TABLE>
<CAPTION>
Operating Capital
Leases Leases
--------- -------
(in thousands)
<S> <C> <C>
1999 (three months)...................................... $ 254 $ 152
2000..................................................... 828 331
2001..................................................... 715 309
2002..................................................... 643 78
2003..................................................... 206 4
2004..................................................... 154 --
------- -----
$ 2,800 874
=======
Less: amount representing interest....................... 68
-----
Present value of capital lease obligations............... $ 806
=====
Comprised of:
Current portion........................................ $ 364
Non-current portion.................................... 442
-----
$ 806
=====
</TABLE>
(9) Income Taxes
No provision for federal or state income taxes has been recorded as the
Company incurred net operating losses for all periods presented. At April 30,
1999, the Company had no significant net operating loss carryforwards available
to offset future federal taxable income as the Company's parent, CMGI, has
utilized substantially all of the Company's net operating losses through April
30, 1999. The Company has recorded a full valuation allowance against its
deferred tax assets since management believes that, after considering all the
available objective evidence, both positive and
F-18
<PAGE>
ENGAGE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
negative, historical and prospective, with greater weight given to historical
evidence, it is not more likely than not that these assets will be realized. No
income tax benefit has been recorded for all periods presented because of the
valuation allowance.
Temporary differences between the financial statement carrying amounts and
tax bases of assets and liabilities that give rise to significant portions of
federal deferred tax assets (liabilities) are comprised of the following:
<TABLE>
<CAPTION>
July 31, April
---------------- 30,
1997 1998 1999
------- ------- --------
(In thousands)
<S> <C> <C> <C>
Deferred tax assets:
Research credits............................. $ 212 $ 72 $ 72
Deferred revenue............................. -- 288 175
Accruals and other reserves.................. 84 377 1,164
Loss carryforwards........................... 692 1,862 12,142
Depreciation and amortization................ 31 345 --
Basis difference in available for sale securi-
ties.......................................... -- 821 627
------- ------- --------
1,019 3,765 14,180
Less: Valuation allowance...................... (1,019) (3,765) (12,828)
------- ------- --------
Net deferred tax assets........................ -- -- 1,352
------- ------- --------
Deferred tax liabilities:
Amortization................................. -- -- (1,352)
------- ------- --------
$ -- $ -- $ --
======= ======= ========
</TABLE>
Subsequently reported tax benefits relating to the valuation allowance for
deferred tax assets as of July 31, 1997 and 1998 and April 30, 1999 will be
allocated as follows:
<TABLE>
<CAPTION>
July 31,
--------------- April 30,
1997 1998 1999
------- ------- ---------
(In thousands)
<S> <C> <C> <C>
Income tax benefit that would be recognized in
the consolidated statements of operations...... $ 1,019 $ 2,085 $ 2,299
Goodwill and other non-current intangible as-
sets........................................... -- 1,189 10,231
Accumulated other comprehensive income (loss)... -- 491 298
------- ------- --------
$ 1,019 $ 3,765 $ 12,828
======= ======= ========
</TABLE>
The Company has net operating loss carryforwards for Massachusetts tax
purposes of approximately $10,700,000 and $10,700,000 as of July 31, 1998 and
April 30, 1999, respectively. The net operating loss carryforwards will expire
from 2001 through 2003. In addition, the Company has net operating loss
carryforwards for North Carolina tax purposes of approximately $4,400,000 and
$8,600,000 as of July 31, 1998 and April 30, 1999, respectively, which will
expire from 2001 through 2003, of which $2,700,000 is related to losses
incurred by Accipiter, Inc. prior to its acquisition by the Company and the
related tax benefit will be recorded, if realized, as a decrease in goodwill
and other non-current intangible assets. The Company also has net operating
loss carryforwards for California tax purposes of $15,100,000 as of April 30,
1999, of which, $15,000,000 is related to the pre-acquisition period of I/PRO.
The Company also has $2,700,000 of federal net operating loss carryforwards,
which will expire from 2011 through 2012, related to losses incurred by
Accipiter, Inc. prior to its acquisition. The tax benefits related to net
operating loss carryforwards from the pre-acquisition periods of Accipiter and
I/PRO, when realized, will be recorded as a decrease in
F-19
<PAGE>
ENGAGE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
goodwill and other non-current intangible assets. The utilization of these net
operating losses may be limited pursuant to Internal Revenue Code Section 382
as a result of prior and future ownership changes.
(10) Stockholders' Equity
In July 1998, the Company's shareholders authorized 5,000,000 shares of
preferred stock, of which 1,500,000 have been designated as Series A
convertible preferred stock ("Series A Preferred Stock") and 238,597 shares
have been designated as Series B convertible preferred stock ("Series B
Preferred Stock"). In May 1999, the Board of Directors approved the designation
of 2,000,000 shares of the Company's preferred stock as Series C Convertible
Preferred Stock ("Series C Preferred Stock").
Series A Preferred Stock
In July 1998, the Board of Directors authorized and issued 800,000 shares of
Series A Preferred Stock in exchange for 16,000,000 shares of common stock and
$8,000,000 in principal amount of debt to CMGI. The Series A Preferred Stock is
entitled to receive annual dividends at 7%, as and if declared. As of and prior
to July 31, 1998, no dividends had been declared or paid by the Company. Each
share of Series A Convertible Preferred Stock votes on an as-converted basis
and is convertible into twenty shares of common stock under certain conditions
and subject to certain adjustments. In the event of any liquidation,
dissolution or winding up of the Company, the Series A Preferred Stock has a
liquidation preference of $5 per share, plus cumulative dividends of 7%
compounded annually beginning on February 1, 1998. The Series A Preferred Stock
is convertible into common stock immediately at the option of the holder, and
automatically converts into common stock upon the completion of a qualifying
initial public offering, as defined. See note 16.
In July 1998, the Board of Directors authorized the issuance of an
additional 700,000 shares of Series A Preferred Stock to CMGI in connection
with the Company's acquisition of Accipiter, Inc.
At April 30, 1999, 15,000,000 shares of common stock have been reserved for
issuance upon the conversion of the Series A Preferred Stock.
Series B Preferred Stock
In August 1998, the Board of Directors designated and issued 238,597 shares
of Series B Preferred Stock. Proceeds from the sale were $1,934,000, net of
issuance costs of $6,000. Each share of Series B Preferred Stock votes on an
as-converted basis and is convertible into two shares of common stock under
certain conditions and subject to certain adjustments. In the event of any
liquidation, dissolution or winding up of the Company, the Series B Preferred
Stock has a liquidation preference of $8.38 per share, subject to the prior
payment of the liquidation preference on Series A Preferred Stock. The Series B
Preferred Stock is convertible into common stock immediately at the option of
the holder, and automatically converts into common stock upon the completion of
a qualifying initial public offering, as defined in the stock purchase
agreement. See note 16.
Unaudited Pro Forma Balance Sheet
Upon the closing of a qualifying initial public offering, debt to CMGI will
convert to Series C Preferred Stock, and all of the outstanding shares of
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock
will convert to 38,748,474 shares of the Company's common stock. This
conversion has been reflected in the unaudited pro forma balance sheet as of
April 30, 1999. See note 16.
F-20
<PAGE>
ENGAGE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(11) Stock Option Plans
Engage 1995 Equity Incentive Plan
In August 1995, the Company's Board of Directors and Stockholders approved
the 1995 Equity Incentive Plan (the "1995 Plan"). Under the 1995 Plan, non-
qualified stock options or incentive stock options may be granted to the
Company's or its affiliates' employees, as defined. The Board of Directors
administers this plan, selects the individuals to whom options will be granted,
and determines the number of shares and exercise price of each option. Options
granted under the 1995 Plan typically vest over a four year period, with 25% of
options granted becoming exercisable one year from the date of grant and the
remaining 75% vesting monthly for the next thirty-six (36) months. The
following table reflects activity and historical prices of stock options under
the Company's 1995 Plan for the three years ended July 31, 1998 and the nine
months ended April 30, 1999:
<TABLE>
<CAPTION>
Year Ended July 31,
----------------------------------------------------------- Nine Months Ended
1996 1997 1998 April 30, 1999
------------------ ------------------- -------------------- -------------------
Weighted Weighted Weighted Weighted
Number Average Number Average Number Average Number Average
of Exercise of Exercise of Exercise of Exercise
Shares Price Shares Price Shares Price Shares Price
--------- -------- --------- -------- ---------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Options outstanding,
beginning of period.... -- $ -- 2,575,500 $0.15 2,391,000 $0.24 4,148,054 $1.09
Granted................. 2,575,500 0.15 903,500 0.60 3,290,500 1.46 2,508,710 3.80
Exercised............... -- -- (187,500) 0.12 (1,600) 0.43 (26,040) 0.35
Cancelled............... -- -- (900,500) 0.38 (1,531,846) 0.57 (162,930) 0.46
--------- --------- ---------- ---------
Options outstanding, end
of period.............. 2,575,500 $0.15 2,391,000 $0.24 4,148,054 $1.09 6,467,794 $2.16
========= ===== ========= ===== ========== ===== ========= =====
Options exercisable, end
of period.............. -- $ -- 606,178 $0.12 639,444 $0.30 1,704,888 $0.79
========= ===== ========= ===== ========== ===== ========= =====
Options available for
grant, end of period... 1,424,500 1,421,500 1,452,320 470,146
========= ========= ========== =========
</TABLE>
The following table summarizes information about stock options under the
Company's 1995 Plan outstanding at April 30, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------- --------------------------
Weighted
Average
Remaining Weighted Weighted
Range of Number Contractual Average Number Average
Exercise Prices Outstanding Life (years) Exercise Price Outstanding Exercise Price
--------------- ----------- ------------ -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 0.01-$ 0.42 2,834,860 3.3 $ 0.23 1,249,216 $ 0.19
$ 0.43-$ 0.84 81,000 2.4 0.71 51,788 0.71
$ 0.85-$ 1.68 45,674 2.9 1.03 28,282 1.03
$ 2.10-$ 2.94 1,693,478 3.4 2.56 345,206 2.56
$ 2.95-$ 4.19 314,000 4.5 4.19 13,540 4.19
$ 4.20-$ 5.05 1,419,738 4.8 4.95 -- 0.00
$ 5.06-$14.91 79,044 4.9 6.70 16,856 9.18
--------- ---------
6,467,794 3.8 $ 2.16 1,704,888 $ 0.79
========= =========
</TABLE>
F-21
<PAGE>
ENGAGE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CMGI 1986 Stock Option Plan
Certain Engage employees have been granted stock options under the CMGI 1986
Stock Option Plan (the "1986 Plan"). Options under the 1986 Plan are granted at
fair market value on the date of the grant and are generally exercisable in
equal cumulative installments over a four-to-ten year period beginning one year
after the date of grant. Outstanding options under the 1986 Plan expire through
2007. Under the 1986 Plan, non-qualified stock options or incentive stock
options may be granted to CMGI's or its subsidiaries' employees, as defined.
The Board of Directors of CMGI administers this plan, selects the individuals
to whom options will be granted, and determines the number of shares and
exercise price of each option. The following table reflects activity and
historical prices of stock options granted to Company employees under CMGI's
1986 Plan for the three years ended July 31, 1998 and the nine months ended
April 30, 1999:
<TABLE>
<CAPTION>
Year Ended July 31,
--------------------------------------------------------- Nine Months Ended
1996 1997 1998 April 30, 1999
------------------ ------------------ ------------------- ------------------
Weighted Weighted Weighted Weighted
Average Average Average Average
Number of Exercise Number of Exercise Number of Exercise Number of Exercise
Shares Price Shares Price Shares Price Shares Price
--------- -------- --------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Options outstanding,
beginning of period.... 105,360 $0.08 160,320 $0.91 181,240 $1.25 140,780 $ 2.11
Granted................. 76,000 1.84 48,800 1.95 80,000 2.32 296,400 10.00
Exercised............... (21,040) 0.08 (21,880) 0.15 (106,292) 0.84 (57,264) 2.03
Cancelled............... -- -- (6,000) 1.77 (14,168) 1.85 -- --
------- ------- -------- -------
Options outstanding, end
of period.............. 160,320 $0.91 181,240 $1.25 140,780 $2.11 379,916 8.28
======= ===== ======= ===== ======== ===== ======= ======
Options exercisable, end
of period.............. 42,346 $0.22 83,598 $0.81 18,602 $1.76 10,766 $ 2.02
======= ===== ======= ===== ======== ===== ======= ======
</TABLE>
The following table summarizes information about stock options under the
CMGI 1986 Stock Plan outstanding at April 30, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------- --------------------------
Weighted
Average
Remaining Weighted Weighted
Range of Number Contractual Average Number Average
Exercise Prices Outstanding Life (years) Exercise Price Outstanding Exercise Price
--------------- ----------- ------------ -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$3.22-$ 3.89 14,840 2.13 $ 3.62 8,846 $3.31
$ 4.63 25,834 3.49 4.63 -- --
$ 7.53 1,084 1.58 7.53 453 7.53
$20.00 148,200 4.38 20.00 -- --
------- -----
189,958 4.07 $16.56 9,299 $3.52
======= =====
</TABLE>
SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), sets
forth a fair-value based method of recognizing stock-based compensation
expense. As permitted by SFAS No. 123, the Company has elected to continue to
apply APB No. 25 to account for its stock-based compensation plans. Had
compensation cost for awards in fiscal 1996, 1997 and 1998 under the Company's
stock-based compensation plans been determined based on the fair value method
set forth under SFAS 123, the pro forma effect on the Company's net loss would
have been as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended
July 31, 1996 July 31, 1997 July 31, 1998 April 30, 1999
--------------------- --------------------- --------------------- ---------------------
As Reported Pro Forma As Reported Pro Forma As Reported Pro Forma As Reported Pro Forma
----------- --------- ----------- --------- ----------- --------- ----------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net loss................ $(2,379) $(2,402) $(10,262) $(10,385) $(13,719) $(14,077) $(20,797) $(22,817)
</TABLE>
F-22
<PAGE>
ENGAGE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The fair value of each stock option grant has been estimated on the date of
grant using the Black-Scholes option pricing model with the following weighted
average assumptions for fiscal 1996, 1997 and 1998, and the nine moneths ended
April 30, 1999, respectively: volatility of 80.30%, 66.69%, 90.07% and 100.00%;
risk-free interest rate of 5.81%, 6.19%, 5.48% and 5.16%; expected life of
options of 4.0, 4.0, 3.4 and 2.5 years; and 0% dividend yield for all years.
The weighted average fair value per share of options granted during fiscal
1996, 1997 and 1998 and the nine months ended April 30, 1999 was $0.10, $0.34,
$0.86 and $1.42, respectively.
The fair value of each stock option granted under the CMGI 1986 Plan has
been estimated on the date of grant using the Black-Scholes option pricing
model with the following weighted average assumptions for fiscal 1996, 1997 and
1998, and the nine months ended April 30, 1999, respectively: volatility of
80.30%, 66.69%, 90.07% and 100.00%; risk-free interest rate of 5.81%, 6.19%,
5.50% and 5.16%; expected life of options of 4.0, 6.2, 4.2 and 2.5 years; and
0% dividend yield for all years. The weighted average fair value per share of
options granted during fiscal 1996, 1997 and 1998 and the nine months ended
April 30, 1999 was $2.02, $2.60, $3.16 and $11.96, respectively.
(12) Comprehensive Income
Effective August 1, 1998, the Company adopted Statement of Financial
Accounting Standard ("SFAS") No. 130, "Reporting Comprehensive Income." This
statement requires that all components of comprehensive income be reported in
the financial statements in the period in which they are recognized. The
components of comprehensive loss for the Company include net loss, the net
change in foreign currency translation adjustments and unrealized holding gains
and losses on available-for-sale securities. The financial statements of prior
periods have been reclassified for comparative purposes.
The components of comprehensive loss, net of income taxes, are as follows:
<TABLE>
<CAPTION>
Nine Months
Year Ended July 31, Ended
------------------------------ April 30,
1996 1997 1998 1999
-------- --------- --------- -----------
(In thousands)
<S> <C> <C> <C> <C>
Net loss....................... $ (2,379) $ (10,262) $ (13,719) $ (20,797)
Foreign currency adjustments... -- -- -- 302
Net unrealized holding gain
(loss) arising during the
period........................ -- -- (1,193) 469
-------- --------- --------- ---------
Comprehensive loss............. $ (2,379) $ (10,262) $ (14,912) $ (20,026)
======== ========= ========= =========
</TABLE>
The components of accumulated comprehensive income (loss) are as follows:
<TABLE>
<CAPTION>
Accumulated
Foreign Unrealized Other
Currency Gains (Losses) Comprehensive
Adjustments on Securities Income
----------- -------------- -------------
(In thousands)
<S> <C> <C> <C>
Balance, July 31, 1997............ $-- $ -- $ --
Activity, fiscal 1998............. -- (1,193) (1,193)
---- ------- -------
Balance, July 31, 1998............ -- (1,193) (1,193)
Activity, nine months ended April
30, 1999......................... 302 469 771
---- ------- -------
Balance, April 30, 1999........... $302 $ (724) $ (422)
==== ======= =======
</TABLE>
F-23
<PAGE>
ENGAGE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(13) Concentration of Credit Risk
Amounts included in the consolidated balance sheets for accounts receivable,
debt to CMGI, accounts payable and accrued expenses approximate their fair
value due to their short maturities. Financial instruments that potentially
subject the Company to credit risk consist primarily of accounts receivable.
The Company performs periodic credit evaluations of its customers' financial
condition and generally does not require collateral or other security against
trade receivable balances; however, it does maintain reserves for potential
credit losses and such losses have been within management's expectations. The
Company's revenue for the year ended July 31, 1997 was derived from one
customer. Sales to three customers accounted for 20%, 12% and 11% of total
revenues for the year ended July 31, 1998. Sales to two customers accounted for
17% and 16% of total revenues for the nine months ended April 30, 1998 and
sales to one customer accounted for 10% of total revenues for the nine months
ended April 30, 1999. Accounts receivable at July 31, 1997 was due from one
customer. Accounts receivable due from three customers approximated 23%, 12%
and 12% of total accounts receivable at July 31, 1998. Accounts receivable from
two customers approximated 20% and 13% of total accounts receivable at April
30, 1999. The Company's customer base consists of geographically diverse
customers across many industries.
(14) Related Party Transactions
CMGI has provided the Company with systems and related services ("enterprise
services") at amounts that approximated the fair value of services received in
each of the periods presented in these financial statements. The Company also
occupies facilities that are leased by CMGI, whereby CMGI charges the Company
for its share of rent and related facility costs through an allocation based
upon the company's headcount in relation to total headcount for all CMGI
companies located in the premises. The Company has also purchased certain
employee benefits (including 401(k) plan participation by employees of the
Company) and insurance (including property and casualty insurance) through CMGI
and CMGI has guaranteed the Company's obligations under a lease for office
space used for research and development, sales and service operations. Amounts
due CMGI are included in "Debt to CMGI" on the consolidated balance sheets. See
note 16. The following summarizes the expenses allocated to the Company by CMGI
for enterprise services, rent and facilities, and human resources:
<TABLE>
<CAPTION>
Year Ended July 31, Nine Months
-------------------- Ended
1996 1997 1998 April 30, 1999
------ ------ ------ --------------
(In thousands)
<S> <C> <C> <C> <C>
Enterprise services...................... $ -- $ 129 $ 201 $173
Rent and facilities...................... $ 35 $ 312 $ 366 $303
Human resources.......................... $ -- $ 11 $ 30 $102
</TABLE>
In addition, beginning in fiscal 1997, the Company outsources data center
operations and management information services from CMGI and one of its
affiliates, for which fees were charged at estimated fair value of $1,162,000,
$889,000 and $1,633,000 during the years ended July 31, 1997 and 1998 and the
nine months ended April 30, 1999, respectively.
The Company leases certain property and equipment from a subsidiary of CMGI.
Under the arrangement, the related party negotiates the terms and conditions of
the lease and obtains the assets to be leased. The related party bears all
liability for payment, and the Company is not financially obligated under the
leases. The Company is charged the actual lease fees paid by the related party,
plus an additional administrative charge that approximates the fair value of
the services received (see note 8).
F-24
<PAGE>
ENGAGE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company sells its products and services to companies that CMGI has an
investment interest or a significant ownership interest. The Company sold no
products to related parties in fiscal 1996 and 1997. Total revenue realized
from sales to related parties were $235,000 and $1,364,000 for the fiscal year
ended July 31, 1998 and the nine months ended April 30, 1999. The related cost
of revenue is consistent with the costs incurred on similar transactions with
unrelated parties.
(15) Geographic Information
The Company currently has offices in the United States and the United
Kingdom. The Company markets its products worldwide. Revenues are grouped into
three main geographic areas; United States, Europe and Rest of world. Revenue
was distributed by geography as follows:
<TABLE>
<CAPTION>
Year Ended July 31, Nine Months
------------------- Ended
1996 1997 1998 April 30, 1999
------ ---- ------- --------------
(In thousands)
<S> <C> <C> <C> <C>
United States........................... $ -- $ 25 $ 1,584 $ 7,457
Europe.................................. -- -- 71 577
Rest of world........................... -- -- 562 963
------ ---- ------- -------
$ -- $ 25 $ 2,217 $ 8,997
====== ==== ======= =======
</TABLE>
(16) Subsequent Events
Designation of Series C Convertible Preferred Stock
In May 1999, the Board of Directors approved the designation of 2,000,000
shares of the Company's preferred stock as Series C Convertible Preferred Stock
("Series C Preferred Stock"). The Series C Preferred Stock is entitled to
receive noncumulative annual dividends, payable when, as and if declared at the
rate of 7% per annum. In the event of any liquidation, dissolution or winding
up of the Company, the Series C Preferred Stock ranks senior to the Series B
Preferred Stock and pari passu with the Series A Preferred Stock, and has a
liquidation preference equal to its purchase price plus dividends computed at
7% per share per annum. Each share of Series C Preferred Stock votes on an as-
converted basis and is convertible at the option of the holder into twenty
shares of common stock, subject to certain adjustments. Upon the closing of a
qualifying initial public offering, all outstanding shares of Series C
Preferred Stock will convert into common stock.
Debt to CMGI
In May 1999, the Company formalized its borrowing arrangement with CMGI and
executed a secured convertible demand note with CMGI dated February 1, 1999.
Advances accrue interest at the annual rate of 7%, and advances and accrued
interest may be prepaid without penalty. Advances outstanding under this note
are secured by substantially all assets and intellectual property of the
Company and principal, and accrued interest may be converted at the option of
CMGI into shares of Series C Preferred Stock. The number of Series C Preferred
shares to be issued upon conversion of each borrowing represented by the note
is based on the estimated fair value of the Company at the end of the quarter
in which such borrowing was made.
In accordance with this arrangement, CMGI elected to convert advances and
accrued interest outstanding at April 30, 1999 in the amount of $37,447,000
into 3,413,564 shares of Series C Preferred Stock.
F-25
<PAGE>
ENGAGE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Authorized Share Increase and Stock Split
In June 1999, the Board of Directors approved an increase in the number of
authorized common shares from 30,000,000 to 150,000,000. Upon approval of the
share increase, a two-for-one stock split was declared. All share data shown in
the accompanying consolidated financial statements have been retroactively
restated to reflect this split.
1999 Employee Stock Purchase Plan
The 1999 Employee Stock Purchase Plan was adopted by our board of directors
in June 1999, The 1999 Employee Stock Purchase Plan will be administered by the
compensation committee. All employees of Engage whose customary employment is
for more than 20 hours per week and for more than 6 months in any calendar year
are eligible to participate in the 1999 Employee Stock Purchase Plan.
1999 Stock Option Plan for Non-Employee Directors
The 1999 Stock Option Plan for Non-Employee Directors was adopted by our
board of directors in June 1999. Under the terms of the 1999 Stock Option Plan
for Non-Employee Directors, directors who are not employees of Engage or any
subsidiary of Engage and not affiliates of an institutional investor that owns
shares of Engage's common stock receive nonstatutory options to purchase shares
of Engage's common stock. The board of directors has discretion to establish
the terms of options granted under the plan. All options must have an exercise
price equal to the fair market value of the common stock on the date of grant.
F-26
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Accipiter, Inc.:
We have audited the accompanying balance sheets of Accipiter, Inc. as of
December 31, 1997 and 1996 and the related statements of operations,
stockholders' deficit, and cash flows for the year ended December 31, 1997 and
the period from April 4, 1996 (inception) to December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Accipiter, Inc. as of December
31, 1997 and 1996 and the results of its operations and its cash flows for the
year ended December 31, 1997 and the period from April 4, 1996 (inception) to
December 31, 1996 in conformity with generally accepted accounting principles.
KPMG LLP
Raleigh, North Carolina
March 26, 1998
F-27
<PAGE>
ACCIPITER, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
--------------------
March 31,
1998 1997 1996
----------- ---------- --------
(Unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents.................. $ 689,332 $1,225,245 $ 95,392
Accounts receivable, net of allowance for
doubtful accounts of $19,120 at March 31,
1998 and December 31, 1997................ 711,944 436,744 4,290
Other current assets....................... 2,383 19,935 --
---------- ---------- --------
Total current assets..................... 1,403,659 1,681,924 99,682
Property and equipment, at cost.............. 327,255 282,216 83,262
Less accumulated depreciation................ 65,441 50,440 8,625
---------- ---------- --------
Net property and equipment............... 261,814 231,776 74,637
---------- ---------- --------
Other assets, net............................ 1,648 1,648 1,067
---------- ---------- --------
Total assets............................. $1,667,121 $1,915,348 $175,386
========== ========== ========
Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable and accrued expenses...... $ 228,291 $ 79,222 $ 36,383
Payroll and sales taxes payable............ 137 605 24,500
Deferred revenues.......................... 247,766 -- --
---------- ---------- --------
Total current liabilities................ 476,194 79,827 60,883
---------- ---------- --------
Notes payable................................ -- -- 250,000
---------- ---------- --------
Total liabilities........................ 476,194 79,827 310,883
---------- ---------- --------
Preferred stock, $.001 par value, 4,250,000
shares authorized:
Series A convertible redeemable preferred
stock 1,735,299 shares designated,
1,424,940, 1,424,940 and 999,999 shares
issued and outstanding at March 31, 1998
and December 31, 1997 and 1996,
respectively.............................. 1,000,000 1,000,000 500,000
Series B convertible preferred stock
2,514,701 shares designated, 2,189,383
and 2,173,883 shares issued and
outstanding at March 31, 1998 and
December 31, 1997, respectively........... 3,000,414 2,979,132 --
Stockholders' deficit:
Common stock $.01 par value, 8,000,000
shares authorized, 1,950,380, 1,950,000
and 1,950,000 shares issued and
outstanding at March 31, 1998, December
31, 1997 and 1996, respectively........... 19,504 19,500 19,500
Additional paid in capital................. 47 -- --
Accumulated deficit........................ (2,829,038) (2,163,111) (654,997)
---------- ---------- --------
Total stockholders' deficit.............. (2,809,487) (2,143,611) (635,497)
---------- ---------- --------
Commitments, contingencies and subsequent
event
Total liabilities and stockholders' defi-
cit..................................... $1,667,121 $1,915,348 $175,386
========== ========== ========
</TABLE>
See accompanying notes to financial statements.
F-28
<PAGE>
ACCIPITER, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended Period from
March 31, Year ended April 14, 1996
--------------------- December 31, to December 31,
1998 1997 1997 1996
---------- --------- ------------ ---------------
(Unaudited)
<S> <C> <C> <C> <C>
Revenues:
License fees............. $ 491,068 $ 85,050 $ 771,710 $ --
Support fees............. 54,181 3,642 122,356 --
Consulting fees.......... 24,770 -- 93,639 4,290
---------- --------- ----------- ---------
Total revenues......... 570,019 88,692 987,705 4,290
---------- --------- ----------- ---------
Operating expenses:
Development.............. 235,421 130,805 649,209 203,092
Support.................. 125,110 17,000 138,300 --
Marketing................ 150,522 89,282 506,709 170,403
General and
administrative expenses
........................ 392,701 90,591 672,761 168,221
Executive................ 108,708 26,985 179,152 66,224
Selling.................. 220,358 58,081 348,773 45,979
Royalties................ 12,620 -- 23,600 --
Other.................... -- -- 280 268
---------- --------- ----------- ---------
Total operating ex-
penses................ 1,245,440 412,744 2,518,784 654,187
---------- --------- ----------- ---------
Operating loss......... (675,421) (324,052) (1,531,079) (649,897)
---------- --------- ----------- ---------
Other income, net:
Interest income, net..... 11,094 9 19,220 --
Other income (expense),
net..................... (1,600) 3,242 3,745 --
---------- --------- ----------- ---------
Other income, net.......... 9,494 3,251 22,965 --
Income tax benefit......... -- -- -- --
---------- --------- ----------- ---------
Net loss............... $ (665,927) $(320,801) $(1,508,114) $(649,897)
========== ========= =========== =========
</TABLE>
See accompanying notes to financial statements.
F-29
<PAGE>
ACCIPITER, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
Common Stock Additional
----------------- paid in Accumulated
Shares Amount capital Deficit Total
--------- ------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Issuance of common stock
to founders............ 650,000 $ 6,500 $7,900 $ -- $ 14,400
Issuance of shares
pursuant to 2 for 1
stock dividend......... 1,300,000 13,000 (7,900) (5,100) --
Net loss................ -- -- -- (649,897) (649,897)
--------- ------- ------ ----------- -----------
December 31, 1996....... 1,950,000 19,500 -- (654,997) (635,497)
Net loss................ -- -- -- (1,508,114) (1,508,114)
--------- ------- ------ ----------- -----------
December 31, 1997....... 1,950,000 19,500 -- (2,163,111) (2,143,611)
Exercise of stock
options (unaudited).... 380 4 47 -- 51
Net loss (unaudited).... -- -- -- (665,927) (665,927)
--------- ------- ------ ----------- -----------
March 31, 1998
(unaudited)............ 1,950,380 $19,504 $ 47 $(2,829,038) $(2,809,487)
========= ======= ====== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-30
<PAGE>
ACCIPITER, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three months ended Period from
March 31, Year ended April 14, 1996
--------------------- December 31, to December 31,
1998 1997 1997 1996
---------- --------- ------------ ---------------
(Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss................ $ (665,927) $(320,801) $(1,508,114) $(649,897)
Adjustments to reconcile
net loss to net cash
used in operating
activities:
Depreciation and
amortization
expense.............. 15,001 -- 41,815 8,735
Bad debt expense...... -- -- 19,120 --
Increase in accounts
receivable........... (275,200) (30,745) (451,574) (4,290)
Increase (decrease) in
other current
assets............... 17,552 (1,000) (19,935) --
Increase in other
assets............... -- -- (581) (1,177)
Increase in accounts
payable and accrued
expenses............. 149,069 59,943 42,839 36,383
Increase (decrease) in
payroll and sales
taxes payable........ (468) (17,467) (23,895) 24,500
Increase in deferred
revenues............. 247,766 -- -- --
---------- --------- ----------- ---------
Net cash used in
operating
activities......... (512,207) (310,070) (1,900,325) (585,746)
---------- --------- ----------- ---------
Cash flows from investing
activities -- purchase of
equipment................ (45,039) (11,467) (198,954) (83,262)
---------- --------- ----------- ---------
Cash flows from financing
activities:
Proceeds from notes
payable................ -- 250,000 550,000 250,000
Proceeds from issuance
of preferred stock..... 21,282 -- 2,679,132 500,000
Proceeds from issuance
of common stock........ 51 -- -- 14,400
---------- --------- ----------- ---------
Net cash provided by
financing
activities......... 21,333 250,000 3,229,132 764,400
---------- --------- ----------- ---------
Net increase
(decrease) in cash
and cash
equivalents........ (535,913) (71,537) 1,129,853 95,392
Cash and cash equivalents
at beginning of period... 1,225,245 95,392 95,392 --
---------- --------- ----------- ---------
Cash and cash equivalents
at end of period......... $ 689,332 $ 23,855 $ 1,225,245 $ 95,392
========== ========= =========== =========
</TABLE>
See accompanying notes to financial statements.
F-31
<PAGE>
ACCIPITER, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996
(1) Company Operations and Summary of Significant Accounting Policies
(a) Nature of Business and Presentation
Accipiter, Inc. (the "Company") develops and markets Internet application
software that enables web sites to deliver targeted advertising based on
specific demographic profiles and to track individual visitors on a web site.
Most of the Company's efforts since incorporation have been devoted to
obtaining capital and developing and testing products. Accipiter's clients are
both domestic and international organizations with web sites on the Internet.
The Company was accounted for as a development stage enterprise in
accordance with Statement of Financial Accounting Standards No. 7, "Accounting
and Reporting by Development Stage Enterprises" in 1996. Operations commenced
in 1997.
Interim Financial Statements
The financial statements of Accipiter, Inc. as of March 31, 1998 and for the
three months ended March 31, 1997 and 1998 are unaudited. All adjustments and
accruals (consisting only of normal recurring adjustments) have been recorded
that, in the opinion of management, are necessary for a fair presentation.
Results of operations for the interim periods are not necessarily indicative of
the results for the full year.
(b) Revenue Recognition
The Company's revenue, which consists of license fees, software support and
consulting fees, is recognized in accordance with AICPA Statement of Position
91-1, "Software Revenue Recognition" (AICPA SOP 91-1). Revenue from license
fees is recognized upon shipment of the product and fulfillment of acceptance
terms, if any. Revenue from software support and consulting services is
recognized as services are provided.
(c) Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
(d) Property and Equipment
Property and equipment, consist of computer and office equipment which is
being depreciated using the straight-line method over its estimated useful life
of five years for furniture and three years for office equipment.
(e) Research and Development
Research and development expenditures are expensed as incurred. Software
development costs are required to be capitalized when a product's technological
feasibility has been established either by completion of a detail program
design or a working model of the product and ending when a product is available
for general release to consumers. To date, attainment of technological
feasibility
F-32
<PAGE>
ACCIPITER, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
of the Company's products and general release to customers have substantially
coincided. As a result, the Company has not capitalized any software
development costs since such costs have not been significant.
(f) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(2) Income Taxes
There was no income tax benefit for the year ended December 31, 1997 and the
period from April 4, 1996 (inception) to December 31, 1996. The difference
between the actual tax and the expected benefit is as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Computed "expected" tax benefit........................ $(512,800) $(220,900)
Increase benefit in income taxes resulting from:
Increase in valuation reserve........................ 511,700 220,900
Nondeductible meals and entertainment................ 1,100 --
--------- ---------
$ -- $ --
========= =========
</TABLE>
At December 31, 1997, the Company has net operating loss carryforwards
(NOL's) for federal income tax purposes of approximately $1,895,000 which
expire in varying amounts between 2011 and 2012. The Company has NOL's for
state tax purposes of approximately $1,895,000 which expire in varying amounts
between 2001 and 2002. Additionally, the Company has research and development
credits of approximately $23,000 which expire in varying amounts between 2009
and 2010. Due to the uncertainty regarding the ultimate realizability of the
Company's NOL's, a full valuation allowance has been provided such that
deferred tax assets are not recognized.
The components of deferred tax assets and deferred tax liabilities as of
December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Tax loss carryforwards................................ $ 644,300 $114,000
Miscellaneous reserves and credits.................... 6,700 200
Start-up costs........................................ 85,700 108,000
--------- --------
Total............................................... 736,700 222,200
Valuation allowance................................... (732,600) (220,900)
--------- --------
Net deferred asset.................................. $ 4,100 $ 1,300
========= ========
Deferred tax liabilities:
Fixed assets.......................................... $ 4,100 $ 1,300
Deferred tax liability................................ 4,100 1,300
--------- --------
Net deferred tax assets and (liability)............. $ -- $ --
========= ========
</TABLE>
F-33
<PAGE>
ACCIPITER, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The Tax Reform Act of 1986 contains provisions which limit the ability to
utilize net operating loss carryforwards in the case of certain events
including significant changes in ownership interests. If the Company's NOL's
are limited, and the Company has taxable income which exceeds the permissible
yearly NOL, the Company would incur federal income tax liability even though
NOL's would be available in future years.
(3) Note payable
During December 1996, the holder of the preferred stock ("Investor")
advanced $250,000 in the form of a convertible note that accrued interest at
10%. The Investor advanced an additional $250,000 in 1997. The advances
totaling $500,000 were converted to 422,000 shares of Series A preferred stock
in 1997. Accrued interest of $3,485 was converted to 2,941 shares of Series A
preferred stock in 1997.
During May 1997, the Investor advanced the Company $300,000 in the form of a
convertible note that accrued interest at 10% and which was subsequently
converted to 218,500 shares of Series B preferred stock. Accrued interest of
$5,610 was converted to 4,086 shares of Series B preferred stock in 1997.
(4) Capital Structure
The Company is authorized to issue up 8,000,000 shares of $.01 par value
common stock and 4,250,000 shares of $.001 par value preferred stock, of which
1,735,299 shares have been designated as Series A convertible preferred stock
and 2,514,701 shares have been designated as Series B convertible preferred
stock.
Series A and B preferred stock ("preferred stock")
The significant terms of the preferred stock are as follows:
Dividends--The holders of the preferred stock are eligible to receive
dividends if and when declared by the Board of Directors of the Company. The
preferred stockholders' right to receive dividends is senior to that of common
stockholders.
Liquidation Preference--The holders of preferred stock are senior to the
common shareholders in the event of liquidation. The Series A preferred
stockholders are entitled to receive a liquidation preference of $0.50 per
preferred share. The Series B preferred stockholders are entitled to receive a
liquidation preference of $1.373 per preferred share.
Redemption and Conversion--Each share of preferred stock is convertible into
common stock at the rate of one common share to one preferred share. The
preferred stock is convertible upon the occurrence of an initial public
offering or at the option of the preferred stockholders. In the event the
preferred stock has not been redeemed or converted prior to July 1, 2002, the
shares are redeemable at the option of the stockholders, with one-third payable
on July 1, 2002, one-third payable on July 1, 2003, and one-third payable on
July 1, 2004, from legally available funds on a pro rata basis at the
liquidation preference.
Voting Rights--The holders of the preferred stock are generally entitled to
vote based on the number of common shares they would receive upon conversion.
Stock Options
On May 30, 1996, the Board of Directors adopted a stock option plan to
create an additional incentive for key employees, directors and consultants or
advisors. At December 31, 1997, 1,050,000 common shares were authorized for
issuance to be granted within 10 years of plan adoption. The
F-34
<PAGE>
ACCIPITER, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Company issued incentive stock options to acquire 796,250 shares of common
stock to employees and nonqualified options to acquire 71,864 common shares to
a director during the period from adoption of the plan to December 31, 1997.
The exercise price for options issued through February 1997 was set at
$0.0667. The exercise price for options issued after February 1997 was set at
$0.1373. Exercise prices were estimated to approximate the market value of the
common stock on the date of issuance. Generally, the options provide that
after a six month waiting period, vesting occurs ratably each month over
forty-two months. At December 31, 1997, options for 143,481 shares were
vested. No options have been exercised as of December 31, 1997.
The Company accounts for its stock option plan in accordance with the
provisions of Accounting Principles Board ("APB") Opinion No. 25, Accounting
for Stock Issued to Employees, and related interpretations. As such,
compensation expense is recorded on the date of grant only if the current
market price of the underlying stock exceeds the exercise price.
SFAS No. 123, Accounting for Stock-Based Compensation, permits entities to
recognize compensation expense over the vesting period using the fair value of
all stock-based awards on the date of grant. Alternatively, SFAS No. 123 also
allows entities to continue to apply the provisions of APB Opinion No. 25 and
provide pro forma net income and earnings per share disclosures for employee
stock option grants made in 1996 and future years as if the fair-value-based
method defined in SFAS No. 123 had been applied. The Company has elected to
apply the provisions of APB Opinion No. 25.
The fair value of each option granted is estimated on the date of the grant
using the Black-Scholes option pricing model with the following assumptions
used for the grants in 1997 and 1996; dividend yield of 0%; expected
volatility of 0%; risk-free interest rate of 5.0% to 6.0%; and expected lives
of 10 years for each option. The pro forma disclosures have not been included
as the fair value of options granted for the year ended December 31, 1997 are
immaterial.
A summary of the status of the Company's stock plan as of December 1997 and
1996 and changes during the years then ended is presented below:
<TABLE>
<CAPTION>
Weighted Weighted
Average Average
1997 Exercise 1996 Exercise
Shares Price Shares Price
------- -------- ------- --------
<S> <C> <C> <C> <C>
At the beginning of the year......... 362,750 $ 0.0667 -- $ --
Granted.............................. 505,000 0.1273 362,750 0.0667
Exercised............................ -- -- -- --
Terminated........................... (12,000) 0.0667 -- --
------- -------- ------- --------
At the end of year................... 856,114 0.1024 362,750 0.0667
======= =======
Options exercisable at year-end...... 143,481 47
Weighted-average fair value of
options granted during the year..... $ 0.1273 $ 0.0667
</TABLE>
The following table summarizes the information about stock options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding
---------------------------- Number of
Number Remaining options
Exercise price outstanding contractual life exercisable
-------------- ----------- ---------------- -----------
<S> <C> <C> <C>
$0.0667............................ 423,250 8.5--9.2 years 120,966
$0.1373............................ 432,864 9.2--10 years 22,515
------- -------
Total.............................. 856,114 143,481
======= =======
</TABLE>
F-35
<PAGE>
ACCIPITER, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Stock Warrants
In May 1996, the Company issued warrants to Investor for 63,300 shares of
Series A preferred stock at an initial exercise price of $1.184834 per share.
The warrants vested on May 31, 1997 and expire five years after the vesting
date, on May 31, 2002.
In December 1996, the Company issued warrants to Investor for 250,000
shares of Series A preferred stock at an initial exercise price of $.50 per
share. The warrants vested immediately and expire on December 6, 2006.
In February 1997, the Company entered into a license agreement with CNET, a
customer. In connection with this agreement, the Company issued warrants to
purchase 181,862 shares of common stock at an initial exercise price of $2.50
per share. Such warrants vest during the two years after the date of the
agreement pursuant to certain conditions. The warrants are exercisable for two
years after the vesting period. If the license agreement between the Company
and CNET is terminated, the right to exercise these warrants will terminate
after 60 days.
In June 1997, the Company entered into a consulting agreement with a
director of the Company. Pursuant to this agreement, the Company issued
warrants to purchase 60,000 shares of common stock at an initial exercise
price of $0.1373 per share. This warrant expires on June 12, 2002.
(5) Leases
The Company has operating leases for office facilities, equipment, and
furniture. Rent expense under these leases and other month-to-month
arrangements totaled $163,407 and $14,311 in 1997 and 1996, respectively.
The future minimum lease payments under the noncancellable lease agreements
are as follows:
<TABLE>
<S> <C>
1998.......................................................... $217,043
1999.......................................................... 125,693
2000.......................................................... 76,836
2001.......................................................... 16,429
--------
Total minimum lease payments.................................... $436,001
========
</TABLE>
(6) Subsequent Event
On March 11, the Company and CMGI entered into a letter agreement,
providing for the acquisition of the Company by CMGI. The transaction closed
on April 8, 1998. The agreement provides that the Company will be merged with
a newly created wholly-owned subsidiary of CMGI. It also provides that each
common share of the Company and stock equivalents determined on a fully-
diluted as-converted basis will be converted into the right to receive
$35,000,000 worth of CMGI common stock, price determined on March 2, 1998 as
$55.50 per share. If the price of common stock of CMGI fluctuates according to
the agreement at the acquisition date, the number of shares may vary
accordingly. The letter agreement provides that the acquisition is subject to
the execution of a definitive agreement and to the occurrence or waiver of
certain conditions.
(7) Related Party Transactions
As noted in note 4, the Company entered into a consulting agreement with a
director in June 1997. Payments under this agreement in 1997 totaled $42,000.
The agreement ended in early 1998.
F-36
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Internet Profiles Corporation:
In our opinion, the accompanying balance sheets and the related statements of
operations, of stockholders' equity (deficit) and of cash flows present fairly,
in all material respects, the financial position of Internet Profiles
Corporation at December 31, 1998 and 1997 and the results of its operations and
cash flows for the years then ended, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has incurred recurring losses from operations
and has an accumulated deficit of $27,768,378 at December 31, 1998 that raise
substantial doubt as to its ability to continue as a going concern.
Management's plans in regard to those matters are also described in Note 1. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
PricewaterhouseCoopers LLP
San Jose, California
March 1, 1999
F-37
<PAGE>
INTERNET PROFILES CORPORATION
BALANCE SHEETS
December 31, 1998 and 1997 and March 31, 1999
<TABLE>
<CAPTION>
December 31,
------------------------ March 31,
1997 1998 1999
----------- ----------- -----------
(unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents.............. $ 5,641,857 $ 1,191,604 $ 410,578
Accounts receivable, net of allowance
of $232,655 and $308,586 as of
December 31, 1997 and 1998, and
$434,002 as of March 31, 1999,
respectively.......................... 680,785 778,693 799,417
Accounts receivable from corporate
partner and investor, net of allowance
of $47,074 and $50,000 as of December
31, 1997 and 1998, and $50,000 as of
March 31, 1999, respectively.......... 222,209 268,090 168,934
Prepaid expenses and other current
assets................................ 210,840 376,999 322,834
----------- ----------- -----------
Total current assets................... 6,755,691 2,615,386 1,701,763
Property and equipment, net............. 2,365,613 1,875,951 1,675,660
Other assets, net....................... 230,606 254,403 255,068
----------- ----------- -----------
Total assets........................... $9,351,910 $4,745,740 $3,632,491
=========== =========== ===========
Liabilities and Stockholders' Equity
(Deficit)
Current liabilities:
Current portion of capital lease and
loan obligation....................... $ 913,071 $ 3,065,221 $ 2,867,989
Accounts payable....................... 492,083 60,913 540,122
Accrued expenses....................... 513,589 821,799 1,044,659
Commission payable to corporate partner
and investor (Note 6)................. 259,688 236,454 97,926
Deferred revenue....................... 37,973 15,525 17,325
Current portion of license accrual..... 58,334 175,000 --
----------- ----------- -----------
Total current liabilities.............. 2,274,738 4,374,912 4,568,021
Capital lease and loan obligation, less
current portion........................ 884,973 533,762 465,318
License accrual, less current portion... 116,666 -- --
----------- ----------- -----------
Total liabilities...................... 3,276,377 4,908,674 5,033,339
Commitments (Note 6)
Stockholders' equity (deficit):
Convertible preferred stock, $0.001 par
value:
Authorized: 27,628,134 shares
Series A (liquidation value: $68,737):
Issued and outstanding: 1,140,350
shares as of December 31, 1997 and
1998, and March 31, 1999.............. 1,140 1,140 1,140
Series B (liquidation value: $679,542):
Issued and outstanding: 2,788,289
shares as of December 31, 1997 and
1998, and 2,889,639 shares as of March
31, 1999.............................. 2,788 2,788 2,889
Series C (liquidation value:
$4,113,184): Issued and outstanding:
2,168,586 shares as of December 31,
1997, and 21,174,535 shares as of
December 31, 1997 and 1998, and March
31, 1999.............................. 2,169 2,169 2,169
Series D (liquidation value:
$7,178,167): Issued and outstanding:
18,303,009 shares as of December 31,
1997, and 21,174,535 shares as of
December 31, 1998 and March 31, 1999.. 18,303 21,175 21,175
Common stock, $0.001 par value:
Authorized: 75,000,000 shares Issued
and outstanding: 2,383,475 shares as
of December 31, 1997, 4,553,463 shares
as of December 31, 1998, and 8,010,206
shares as of March 31, 1999........... 2,384 4,554 8,011
Notes receivable from stockholders (Note
7)..................................... -- (69,468) (206,338)
Additional paid-in capital.............. 25,899,443 27,643,086 27,895,046
Accumulated deficit..................... (19,850,694) (27,768,378) (29,124,940)
----------- ----------- -----------
Total stockholders' equity (deficit)... 6,075,533 (162,934) (1,400,848)
----------- ----------- -----------
Total liabilities and stockholder's
equity (deficit)...................... $ 9,351,910 $ 4,745,740 $ 3,632,491
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-38
<PAGE>
INTERNET PROFILES CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the years ended For three months ended
December 31, March 31,
------------------------ ------------------------
1997 1998 1998 1999
----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C>
Revenues.................. $ 3,050,244 $ 4,557,754 $ 911,880 $ 1,701,312
Cost of revenues.......... 3,502,485 3,889,330 971,225 1,133,099
----------- ----------- ----------- -----------
Gross margin (loss)... (452,241) 668,424 (59,345) 568,213
Operating expenses:
Research and
development............ 2,631,864 2,890,819 519,486 639,063
General and
administrative......... 1,751,975 2,766,812 569,582 594,911
Sales and marketing..... 1,882,742 3,112,174 569,080 962,911
----------- ----------- ----------- -----------
Loss from operations.. (6,718,822) (8,101,381) (1,717,493) (1,628,672)
Interest income........... 78,043 125,935 62,125 3,562
Interest expense.......... (186,930) (127,238) (42,570) (26,916)
Other income (Note 9)..... -- 185,000 -- 295,464
----------- ----------- ----------- -----------
Net loss.............. $(6,827,709) $(7,917,684) $(1,697,938) $(1,356,562)
=========== =========== =========== ===========
Net loss per share--basic
and diluted.............. $ (3.38) $ (2.70) $ (0.17) $ (0.06)
=========== =========== =========== ===========
Shares used in computing
per share calculation--
basic and diluted........ 2,022,536 2,933,689 9,704,000 21,756,211
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-39
<PAGE>
INTERNET PROFILES CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
for the years ended December 31, 1996 and 1997 and for the three months ended
March 31, 1998
<TABLE>
<CAPTION>
Convertible Prefered Stock
---------------------------------------------------------------------
Series A Series B Series C Series D Common Stock
---------------- ---------------- ---------------- ------------------ ----------------
Additional
Notes Paid-In
Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Receivable Capital
--------- ------ --------- ------ --------- ------ ---------- ------- --------- ------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances,
December 31,
1996............. 1,140,350 $1,140 2,788,289 $2,788 2,168,586 $2,169 -- -- 1,634,417 $1,635 -- $19,464,091
Issuance of
Series D
preferred stock
for cash at
$0.339 per share
net of issuance
costs of
$59,921......... -- -- -- -- -- -- 18,303,009 $18,303 -- -- -- 6,126,496
Exercise of
options in
exchange for
cash............ -- -- -- -- -- -- -- -- 421,844 422 -- 63,772
Issuance of
common stock in
exchange for
technologies.... -- -- -- -- -- -- -- -- 327,214 327 -- 245,084
Net loss........ -- -- -- -- -- -- -- -- -- -- -- --
--------- ------ --------- ------ --------- ------ ---------- ------- --------- ------ --------- -----------
Balances,
December 31,
1997............. 1,140,350 1,140 2,788,289 2,788 2,168,586 2,169 18,303,009 18,303 2,383,475 2,384 -- 25,899,443
Issuance of
Series D
preferred stock
for cash at
$0.339 per share
net of issuance
costs of
$14,473......... -- -- -- -- -- -- 2,871,526 2,872 -- -- -- 956,103
Exercise of
options in
exchange for
cash............ -- -- -- -- -- -- -- -- 111,293 111 -- 8,148
Issuance of non-
statutory
options &
employees....... -- -- -- -- -- -- -- -- -- -- -- 690,000
Issuance of
common stock in
connection with
exercise of
security........ -- -- -- -- -- -- -- -- 322,030 322 -- 2,898
Exercise of
options in
exchange for
promissory
notes........... -- -- -- -- -- -- -- -- 1,736,693 1,737 (69,468) 67,731
Issuance of
common stock
warrant......... -- -- -- -- -- -- -- -- -- -- -- 18,763
Net loss........ -- -- -- -- -- -- -- -- -- -- -- --
--------- ------ --------- ------ --------- ------ ---------- ------- --------- ------ --------- -----------
Balances,
December
31,1998.......... 1,140,350 1,140 2,788,289 2,788 2,168,586 2,169 21,174,535 21,175 4,553,463 4,554 (69,468) 27,643,086
Issuance of
preferred stock
in connection
with exercise of
warrants........ -- -- 101,350 101 -- -- -- -- -- -- -- 112,397
Exercise of
options in
exchange for
cash............ -- -- -- -- -- -- -- -- 35,000 35 -- 1,365
Exercise of
options in
exchange for
promissory
notes........... -- -- -- -- -- -- -- -- 3,421,743 3,422 (136,870) 133,448
Issuance of
common stock
warrants........ -- -- -- -- -- -- -- -- -- -- -- 4,750
Net loss........ -- -- -- -- -- -- -- -- -- -- -- --
--------- ------ --------- ------ --------- ------ ---------- ------- --------- ------ --------- -----------
Balances, March
31, 1999
(unaudited)...... 1,140,350 $1,140 2,889,639 $2,889 2,168,586 $2,169 21,174,535 $21,175 8,010,206 $8,011 $(206,338) $27,895,046
========= ====== ========= ====== ========= ====== ========== ======= ========= ====== ========= ===========
<CAPTION>
Accumulated
Deficit Total
------------- ------------
<S> <C> <C>
Balances,
December 31,
1996............. $(13,022,985) $ 6,448,838
Issuance of
Series D
preferred stock
for cash at
$0.339 per share
net of issuance
costs of
$59,921......... -- 6,144,799
Exercise of
options in
exchange for
cash............ -- 64,194
Issuance of
common stock in
exchange for
technologies.... -- 245,411
Net loss........ (6,827,709) (6,827,709)
------------- ------------
Balances,
December 31,
1997............. (19,850,694) 6,075,533
Issuance of
Series D
preferred stock
for cash at
$0.339 per share
net of issuance
costs of
$14,473......... -- 958,975
Exercise of
options in
exchange for
cash............ -- 8,259
Issuance of non-
statutory
options &
employees....... -- 690,000
Issuance of
common stock in
connection with
exercise of
security........ -- 3,220
Exercise of
options in
exchange for
promissory
notes........... -- --
Issuance of
common stock
warrant......... -- 18,763
Net loss........ (7,917,684) (7,917,684)
------------- ------------
Balances,
December
31,1998.......... (27,768,378) (162,934)
Issuance of
preferred stock
in connection
with exercise of
warrants........ 1 112,498
Exercise of
options in
exchange for
cash............ 8 1,400
Exercise of
options in
exchange for
promissory
notes........... -- --
Issuance of
common stock
warrants........ -- 4,750
Net loss........ (1,356,562) (1,356,562)
------------- ------------
Balances, March
31, 1999
(unaudited)...... $(29,124,940) $(1,400,848)
============= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-40
<PAGE>
INTERNET PROFILES CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the years ended For the three months
December 31, ended March 31,
------------------------ ------------------------
1997 1998 1998 1999
----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss.................. $(6,827,709) $(7,917,684) $(1,697,938) $(1,356,562)
Adjustments to reconcile
net loss to net cash used
in operating activities:
Depreciation and
amortization............. 1,356,235 1,608,217 354,528 355,940
Fair value of common
stock warrants issued.... -- 18,763 -- 4,750
Common stock issued in
exchange for technology
or services.............. 245,411 -- -- --
Non-statutory stock
options issued to
employees................ -- 690,000 -- --
Provision for doubtful
accounts................. (2,271) 78,857 31,647 125,416
Changes in assets and
liabilities:
Accounts receivable...... (88,617) (176,765) (31,847) (146,140)
Accounts receivable from
corporate partner and
investor................ (106,430) (45,881) (96,712) 99,156
Prepaid expenses and
other current assets.... (68,399) (166,159) (118,600) 54,165
Other assets............. (222,606) (23,797) -- (5,667)
Accounts payable......... 141,104 (431,170) (131,132) 479,209
Accrued expenses......... (24,511) 308,210 285,376 222,860
Commission payable to
corporate partner and
investor................ 204,188 (23,234) 12,129 (138,528)
Deferred revenue......... 9,635 (22,448) (12,885) 1,800
License accrual.......... 175,000 -- -- (175,000)
----------- ----------- ----------- -----------
Net cash used in
operating activities... (5,208,970) (6,103,091) (1,405,434) (478,601)
----------- ----------- ----------- -----------
Cash flows from investing
activities:
Purchases of property and
equipment................ (532,073) (987,737) (207,932) (156,006)
Proceeds from disposal of
property and equipment... -- -- -- 5,359
----------- ----------- ----------- -----------
Net cash used in
investing activities... (532,073) (987,737) (207,932) (150,647)
----------- ----------- ----------- -----------
Cash flows from financing
activities:
Proceeds from issuance of
convertible debt......... -- 1,999,721 -- --
Proceeds from issuance of
Series D preferred
stock.................... 6,144,799 958,975 958,975 --
Proceeds from exercise of
options.................. 64,194 8,259 4,085 1,400
Proceeds from issuance of
common stock in
connection with the
exercise of warrants..... -- 3,220 -- 112,498
Principal borrowings on
capital lease............ -- 748,495 -- --
Payments on capital lease
and loan obligations..... (715,986) (1,078,095) (210,537) (265,676)
----------- ----------- ----------- -----------
Net cash provided by
financing activities... 5,493,007 2,640,575 752,523 (151,778)
----------- ----------- ----------- -----------
Net decrease in cash and
cash equivalents.......... (248,036) (4,450,253) (860,843) (781,026)
Cash and cash equivalents,
beginning of year......... 5,889,893 5,641,857 5,641,857 1,191,604
----------- ----------- ----------- -----------
Cash and cash equivalents,
end of year............... $ 5,641,857 $ 1,191,604 $ 4,781,014 $ 410,578
=========== =========== =========== ===========
Supplemental disclosure of
cash flow information:
Cash payments for
interest................. $ 189,430 $ 127,238 42,570 $ 26,916
Taxes paid................ $ 2,500 $ 2,138 $ -- $ 1,677
Proceeds from sale of
intellectual property.... $ -- $ 300,000
Supplemental schedule of
noncash financing
activities:
Acquisition of property
and equipment under
capital lease and loan... $ 309,472 $130,818 $ 119,538 $ --
Notes receivable from
stockholders............. $ -- $ 69,468 $ -- $ 136,870
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-41
<PAGE>
INTERNET PROFILES CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. Formation and Business of the Company and Basis of Presentation of the
Financial Statements
Internet Profiles Corporation (the "Company") was incorporated in California
on August 4, 1994 as a provider of software and services that help customers
analyze and obtain independent verification of Web site activity. The Nielsen
I/PRO Netline service provides an outsourced solution for comprehensive site
analysis and reporting directly to the customer's desktop. Nielsen I/PRO
I/Audit provides third party verification of web site traffic, validating a web
site as an advertising vehicle for media buyers. Customized measurement
services are also available, which provide a comprehensive and customized array
of measurement and analysis for E-Commerce, ad-supported and corporate
web sites.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has suffered recurring
losses from operations and at December 31, 1998, the Company had an accumulated
deficit of $27,768,378. The Company expects to incur further losses related to
its operations. The Company's operations are currently funded by proceeds from
the sale of convertible debt. In order to fund continuing operations, the
Company entered into a definitive purchase agreement as of March 1, 1999,
whereby the Company will be acquired by CMGI, Inc. (see Note 11).
2. Summary of Significant Accounting Policies
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and cash equivalents
The Company considers all highly liquid investments purchased with an
original or remaining maturity of less than three months at the date of
purchase to be cash equivalents. Substantially all of its cash and cash
equivalents are custodied with one major financial institution.
Fair value of financial instruments
Carrying amounts of certain of the Company's financial instruments including
cash and cash equivalents, accounts receivable, accounts payable, accrued
expenses and other liabilities approximate fair value due to their short
maturities. Based upon borrowing rates currently available to the Company for
loans with similar terms, the carrying value of capital lease obligations
approximate fair value.
Revenue recognition
The Company generally recognizes revenue on its Netline product ratably over
the subscription period as the services are provided. The Company recognizes
revenue on its I/Audit product upon delivery of its Web site audit reports. The
Company provides an allowance for sales returns and doubtful accounts
receivable, where appropriate.
F-42
<PAGE>
INTERNET PROFILES CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
Depreciation and amortization
Property and equipment are stated at cost and are depreciated on a
straight-line basis over the estimated useful lives, which are generally three
years. Software and marketing database licenses are carried at cost, which is
amortized on a straight-line basis over their estimated useful lives,
generally four years. Upon disposal, the assets and related accumulated
depreciation or amortization are removed from the Company's accounts and the
resulting gains or losses are reflected in the current operations.
Research and development costs
Research and development costs are charged to operations as incurred.
Software development costs are capitalized beginning when a product's
technological feasibility has been established and ending when a product is
available for general release to customers. To date, the establishment of
technological feasibility of the Company's products and general release have
substantially coincided, and as a result, the Company has not capitalized any
software development costs.
Reclassifications
Certain prior-year amounts have been reclassified to conform with the
current-year presentation.
Income taxes
The Company accounts for income taxes under Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." Under
this method, deferred tax assets and liabilities are determined based on the
differences between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred taxes to the amounts expected to
be realized.
Concentration of credit risk
Financial instruments which potentially subject the Company to
concentration of credit risk consist principally of cash and cash equivalents
and accounts receivable. Substantially all of its cash and cash equivalents
are custodied with one major financial institution. Deposits held with banks
may exceed the amount of insurance provided on such deposits. Generally these
deposits may be redeemed upon demand and therefore, bear minimal risk.
The Company performs Web site audit services to customers throughout the
United States. One customer, a corporate partner and investor, accounted for
23% of accounts receivable as of December 31, 1998 and 1997.
Certain risks and uncertainties
The Company's products and services are concentrated in a single segment in
the internet industry which is characterized by rapid technological advances,
changes in customer requirements and evolving regulatory requirements and
industry standards. The success of the Company depends on the management's
ability to anticipate or to respond quickly and adequately to technological
developments in its industry, changes in customer requirements or changes in
regulatory requirements or industry standards. Any significant delays in the
development or introduction of products or services could have a material
adverse effect on the Company's business and operating results.
F-43
<PAGE>
INTERNET PROFILES CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
3. Property and Equipment
Property and equipment at December 31, 1997 and 1998 and March 31, 1999
consist of the following:
<TABLE>
<CAPTION>
December 31,
------------------------ March 31,
1997 1998 1999
----------- ----------- -----------
(unaudited)
<S> <C> <C> <C>
Computer and office equipment.......... $ 4,496,479 $ 4,381,655 $ 4,532,303
Furniture and fixtures................. 201,360 268,205 268,205
Leasehold improvements................. 13,507 299,020 299,020
----------- ----------- -----------
4,711,346 4,948,880 5,099,528
Less accumulated depreciation and
amortization.......................... (2,345,733) (3,072,929) (3,423,868)
----------- ----------- -----------
$ 2,365,613 $ 1,875,951 $ 1,675,660
=========== =========== ===========
</TABLE>
At December 31, 1997 and 1998 and March 31, 1999, equipment on capital
leases accounted for $2,339,710, $3,088,206 and $3,088,206, respectively, of
the computer and office equipment, and $1,258,313, $2,090,899 and $2,289,310,
respectively, of the accumulated depreciation and amortization.
4. Accrued Expenses
Accrued expenses at December 31, 1997 and 1998 and March 31, 1999 consist
of the following:
<TABLE>
<CAPTION>
December 31,
----------------- March 31,
1997 1998 1999
-------- -------- -----------
(unaudited)
<S> <C> <C> <C>
Accrued payroll and related expenses.............. $ 50,974 $ 50,635 $ 54,414
Accrued vacation.................................. 100,000 110,213 133,617
Professional fees payable......................... 96,102 89,490 77,236
Accrued bonuses................................... 103,000 269,558 365,058
Other accrued liabilities......................... 163,513 301,903 414,334
-------- -------- ----------
$513,589 $821,799 $1,044,659
======== ======== ==========
</TABLE>
F-44
<PAGE>
INTERNET PROFILES CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
5. Capital Lease and Loan Obligations
The Company leases certain property and equipment under capital leases
which expire at various dates through November 2002. Future minimum lease
payments under these capital lease agreements are as follows:
<TABLE>
<CAPTION>
1998
---------
<S> <C>
1999............................................................ $ 584,481
2000............................................................ 312,917
2001............................................................ 239,112
2002............................................................ 21,362
---------
Total minimum lease payments.................................... 1,157,872
Less amount representing interest............................... 100,763
---------
Present value of minimum lease payments......................... 1,057,109
Less current portion............................................ 523,347
---------
$ 533,762
=========
</TABLE>
The Company also entered into a loan and security agreement for equipment
purchases with a financial institution under which the Company borrowed an
aggregate amount of $768,050. The equipment line consists of advances for the
acquisition of equipment through October 1997. The equipment loan bears
interest at the bank's prime rate plus 0.5% (9.00% and 8.25% at December 31,
1997 and 1998, respectively) and is payable in monthly installments ending
December 2000. The loan is secured by substantially all assets of the Company.
Future minimum payments under this loan agreement are as follows:
Year ended December 31,
<TABLE>
<S> <C>
1999............................................................ $ 306,013
2000............................................................ 283,341
---------
Minimum payments................................................ 589,354
Less amount representing interest............................... 47,201
---------
Present value of minimum payments............................... $ 542,153
=========
</TABLE>
The agreement in respect of the loan contains certain covenants related to
the Company's quick ratio, liquidity and profitability. Default on any
covenant may affect the commitment by the bank to continue to lend under the
agreement and, if not corrected, could accelerate the maturity of any
borrowings outstanding under the agreement. At December 31, 1998, and at
various dates throughout the year, the Company was not in compliance with
certain covenants. The Company has obtained waivers in respect of non-
compliance as of December 31, 1998. The Company was in default of certain
covenants subsequent to December 31, 1998, which if not corrected, could
accelerate the maturity of borrowings still outstanding. Therefore, all
balances outstanding at December 31, 1998 have been classified as current.
In November and December 1998, the Company obtained a series of bridge
loans totaling approximately $1,999,721 from a group of existing preferred
shareholders. The notes bear interest at an annual rate of 6% which accrues
daily and is added to the principal balance, with principal and
F-45
<PAGE>
INTERNET PROFILES CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
interest to be repaid, in total, six months after the commencement of the note
term. On the sale or merger of the Company, the loans would have certain
repayment preferences involving either conversion of the notes to a new series
of preferred stock, or repayment of the loans prior to distribution of any
funds to holders of any class of Company preferred or common stock.
6. Commitments
The Company leases three facilities under noncancelable operating leases
expiring in September 1999 and July 2002. The Company is responsible for
certain taxes, maintenance costs and insurance under these leases. Future
minimum lease payments under the noncancelable operating leases are as follows:
<TABLE>
<S> <C>
1999........................................................... $ 547,603
2000........................................................... 435,612
2001........................................................... 435,612
2002........................................................... 254,107
----------
$1,672,934
==========
</TABLE>
Rent expense for the years ended December 31, 1997 and 1998, and for the
three months ended March 31, 1998 and 1999 was $702,434, $578,839, $251,555 and
$271,693 respectively.
In 1995 the Company entered into an agreement with a corporate partner and
investor for the sale and marketing of existing internet usage measurement and
analysis products and services developed by the Company. Under this agreement,
the Company is required to pay commissions on net revenues from products sold
in the US primarily through the efforts of this corporate partner, as well as
on products sold through the efforts of the Company. Revenues related to this
agreement from products sold primarily through the efforts of this corporate
partner for the years ended December 31, 1997 and 1998 totaled $390,995 and
$363,508, respectively. Commissions incurred relative to this agreement on
products sold through the efforts of the Company for the years ended December
31, 1997 and 1998 totaled $146,188 and $236,454 respectively. The agreement
expired in September 1998 and was extended for an additional year, and may
continue to be extended by the mutual agreement of the parties. As of December
31, 1997 and 1998 under this agreement, amounts payable to the corporate
partner totaled $259,688 and $236,454 respectively, and amounts receivable from
the corporate partner totaled $222,209 and $268,090, respectively.
In October 1997, the Company agreed to pay $175,000 to a software vendor for
a software license, payable in six monthly installments of $29,167 per month,
with the first such payment being due and payable upon the earlier of ten days
following the date upon which the vendor files a petition in bankruptcy, or 390
days from October 31, 1997. No payments related to this agreement were made
during the year ended December 31, 1998. During January 1999, the balance
outstanding on this agreement was paid in full to the software vendor.
7. Stockholders' Equity
Convertible Preferred Stock
Dividends
The holders of Series A, B, C and D preferred stock are entitled to
preferential noncumulative dividends at the rate of $0.0285, $0.111, $0.739 and
$0.0339 per share, respectively, if and when declared by the Board of
Directors. No dividends have been declared as of December 31, 1998 or 1997.
F-46
<PAGE>
INTERNET PROFILES CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
Liquidation
Series D preferred stock will be entitled to receive in preference to the
holders of the Series A, B and C preferred stock and the common stock an amount
per share equal to $0.339. The maximum aggregate amount the holders of the
Series A, B and C preferred stock will be entitled to receive is $4,861,463.
The respective liquidation preferences of the Series A, B and C preferred stock
adjust annually on May of each year to provide the Series C preferred with an
annual increase in its liquidation preference amount of five percent. Any
assets remaining after the distribution to the Series A, B, C and D preferred
stock will be distributed pro-rata to the holders of the common stock.
Mergers
A merger, reorganization or sale of all or substantially all of the assets
of the Company in which more than 50% of the outstanding stock of the Company
is exchanged, shall be deemed to be a liquidation, dissolution or winding up.
Voting
The holders of each share of Series A, B, C and D preferred stock shall have
the right to one vote for each share of common stock into which such 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.
Conversion
Each share of Series A, B, C and D preferred stock, at the option of the
holder, may be converted into the number of fully paid and nonassessable shares
of common stock as is determined by dividing the conversion price per share in
effect for the preferred stock at the time of conversion into the per share
conversion value of such shares. The initial conversion price per share and the
per share conversion value of Series A, B, C and D preferred stock are $0.285,
$0.57, $2.47 and $0.339 per share, respectively. The initial conversion price
of preferred stock is subject to adjustment from time to time. The number of
shares into which a share of preferred stock is convertible is referred to as
the conversion rate of such series.
Conversion is automatic at its then effective conversion rate immediately
upon a closing of a firm commitment underwritten public offering pursuant to an
effective registration statement under the Securities Act of 1933, as amended,
covering the offer and sale of equity securities.
Common stock
The Company issued 1,000,000 shares of its common stock to the founders
under a stock purchase agreement. Each share of common stock is entitled to one
vote. The holders of common stock are also entitled to receive dividends
whenever funds are legally available and when declared by the Board of
Directors, subject to the prior rights of holders of all classes of stock
outstanding. As of December 31, 1998 and 1997, no dividends have been declared.
Stock issued in exchange for in-process technologies
In November 1997, the Company acquired the rights to certain technologies
which were previously held by two unrelated companies. In connection with the
purchase of these in-process technologies, the Company issued 216,000 and
111,214 shares of common stock at fair value of $162,000 and $83,411,
respectively. These amounts were immediately expensed to the statement of
operations as part of the expenses for research and development.
F-47
<PAGE>
INTERNET PROFILES CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
Notes Receivable from Stockholders
Notes receivable from stockholders consist of the exercise of stock options
for notes. For a portion of the shares, exercise of the underlying option was
permitted before vesting under the related option plan had occurred. The notes
are full recourse promissory notes bearing interest at 6%, and are
collateralized by the stock issued upon exercise of the stock options. Interest
is payable in arrears, with both interest and principle being due and payable
on the fourth anniversary of the date of the making of the note. Should certain
circumstances occur, the Company has the right to repurchase any of the shares
related to the early exercise of unvested options described above.
Warrants
In November 1994, in connection with a sales and marketing agreement, the
Company issued a warrant valued at $97,229, to purchase 120,000 shares of
common stock with an exercise price of $1.67 per share. The warrant expired
during 1997.
In December 1995, in connection with a sales and marketing agreement, the
Company issued a warrant valued at $3,764, to purchase 644,000 shares of common
stock. Of the 644,000 shares, 322,000 of the shares have an exercise price of
$0.01 per share and 322,000 have an exercise price of $2.22 per share. The
warrants were exercisable immediately upon grant. During the year ended
December 31, 1998, 322,000 of the warrants were exercised at the exercise price
of $0.01 per share, and the remaining 322,000 expired.
In August 1995 and January 1996, in connection with a financing arrangement,
the Company issued warrants valued at $32,491 and $22,962, to purchase 60,810
and 40,540 shares of Series B preferred stock at an exercise price of $1.11 per
share. The warrants were exercisable immediately upon grant and will expire on
the earlier August 2005 and January 2006, respectively, or the fifth
anniversary of the closing date of the Company's initial public offering.
In March 1996, in connection with a financing arrangement, the Company
issued a warrant valued at $15,560, to purchase 4,330 shares of Series C
preferred stock at an exercise price of $7.39 per share. The warrant was
exercisable immediately upon grant and the warrant will expire in March 2001.
In April 1996, in connection with a financing arrangement, the Company
issued a warrant valued at $33,599, to purchase 9,472 shares of Series C
preferred stock at an exercise price of $7.39 per share. The warrant was
exercisable immediately upon grant and will expire at the earlier of April 2006
or the fifth anniversary of the closing date of the Company's initial public
offering.
In October 1996, in connection with a sales agreement, the Company issued a
warrant valued at $72,776, to purchase 75,000 shares of common stock at an
exercise price of $2.00 per share. The warrant was exercisable immediately upon
grant and will expire at the earlier of October 1999 or the closing date of the
Company's initial public offering.
In February, 1998, in connection with a financing arrangement, the company
issued a warrant valued at $41,000, to purchase 240,000 shares of Series D
preferred stock at an exercise price of $0.339 per share. The warrant was
exercisable immediately upon grant and will expire in February 2004.
In August 1998, in connection with a financing arrangement, the Company
issued a warrant valued at $28,033, to purchase 162,242 shares of Series D
preferred stock at an exercise price of $0.339 per share. The warrant was
exercisable immediately upon grant and will expire in August 2004.
F-48
<PAGE>
INTERNET PROFILES CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
In connection with consulting agreements in September 1998, the Company
issued warrants valued at $2,648, to purchase 125,000 shares of common stock
with an exercise price of $0.04 per share. The warrant was exercisable
immediately upon grant and will expire in September 2004.
Stock Options
The Company has adopted the 1995 Stock Option Plan (the "Plan") under which
incentive stock options may be granted to employees and nonstatutory stock
options may be granted to employees and consultants. In December 1997, the
Company's Board of Directors increased the number of common stock shares
reserved for issuance under the 1995 Stock Option Plan to 10,030,095.
The Board of Directors may issue incentive stock options to employees and
nonstatutory stock options to consultants or employees. The Board of Directors
has the authority to determine to whom options will be granted, the number of
shares, the term and exercise price (which cannot be less than fair market
value at date of grant for incentive stock options or 85% of fair market value
for nonstatutory stock options). If an employee or person owns stock
representing more than 10% of the outstanding voting shares, the price of each
share shall be at least 110% of fair market value, as determined by the Board
of Directors. Stock options generally expire ten years from the date of grant.
Options granted under the Plan generally become exercisable starting one year
after the date of grant, with 25% of the shares subject to the option becoming
exercisable at that time and an additional 1/16 of such shares becoming
exercisable each quarter thereafter.
Activity under the Plan is as follows:
<TABLE>
<CAPTION>
Outstanding Options
--------------------------------------------
Weighted
Average
Number of Exercise Aggregate Exercise
Shares Price Price Price
---------- ----------- ---------- --------
<S> <C> <C> <C> <C>
Balances, January 1, 1997......... 2,056,210 $0.01-$1.50 $1,161,874 $0.57
Additional shares reserved
Options granted................ 1,286,311 $0.04-$1.50 992,518 $0.77
Options exercised............... (421,844) $0.01-$1.50 (65,329) $0.15
Options canceled................ (1,203,503) $0.01-$1.50 (815,664) $0.68
---------- ----------
Balances, December 31, 1997....... 1,717,174 $0.01-$1.50 1,273,399 $0.74
Options granted................. 10,134,031 $0.04 405,361 $0.04
Options exercised............... (1,847,988) $0.04-$0.75 (77,727) $0.04
Options canceled................ (2,047,672) $0.04-$1.50 (811,712) $0.40
---------- ----------
Balances, December 31, 1998....... 7,955,545 $0.01-$1.50 789,321 $0.11
Options granted................. 46,500 $0.04 1,860 $0.04
Options exercised............... (3,456,743) $0.04-$0.75 (138,270) $0.04
Options canceled................ (460,416) $0.04-$1.50 (89,146) $0.20
---------- ----------
Balances, March 31, 1999
(unaudited)...................... 4,084,886 $0.01-$1.50 $ 563,765 $0.20
========== ==========
</TABLE>
F-49
<PAGE>
INTERNET PROFILES CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
The following table summarizes information with respect to stock options
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
December 31, 1998
----------------------------------------------------------------------------------
Options
Options Outstanding Exercisable
-------------------------------------------- -----------
Weighted
Average
Remaining
Exercise Number Contractual Number
Prices Outstanding Life (years) Exercisable
-------- ----------- ----------- -----------
<S> <C> <C> <C>
$0.01 60,000 6.3 55,624
$0.04 7,322,575 9.7 5,073,020
$0.11 81,500 7.0 60,717
$0.75 314,470 8.4 128,868
$1.00 29,000 7.4 18,125
$1.50 148,000 8.0 128,873
--------- --- ---------
7,955,545 9.4 5,465,227
========= === =========
</TABLE>
Pro forma stock-based compensation
During October 1995, the Financial Accounting Standards Board issued
Statement No. 123 ("SFAS No. 123"), "Accounting for Stock-Based Compensation,"
which establishes a fair value based method of accounting for stock-based
compensation plans. The Company has chosen to continue to account for employee
stock options under APB Opinion No. 25, "Accounting for Stock Issued to
Employees" with disclosure of pro forma information concerning its stock option
plan in accordance with SFAS No. 123. The following disclosures are provided
pursuant to SFAS No. 123:
Fair value of each option grant is estimated on the date of the grant using
the Black-Scholes option pricing model with the following weighted average
assumptions used for grants in 1997 and 1998.
<TABLE>
<CAPTION>
1997 1998
-------------------- --------------------
Weighted Weighted
Shares average Shares average
outstanding years outstanding years
----------- -------- ----------- --------
<S> <C> <C> <C> <C>
Options granted at $0.01 per share... 60,000 7.27 60,000 6.27
Options granted at $0.04 per share... 66,500 9.93 7,322,575 9.70
Options granted at $0.11 per share... 100,000 8.02 81,500 7.03
Options granted at $0.75 per share... 1,283,011 9.29 314,470 8.38
Options granted at $1.00 per share... 44,000 8.35 29,000 7.35
Options granted at $1.50 per share... 169,000 8.95 148,000 8.03
</TABLE>
The risk free interest rate for 1997 and 1998 were 6.36% and 5.42%,
respectively. The weighted average fair value of those options granted in 1997
and 1998 was $0.77 and $0.04, respectively.
F-50
<PAGE>
INTERNET PROFILES CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
The following pro forma loss information has been prepared following the
provisions of SFAS No. 123:
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------
1997 1998
------------ ------------
<S> <C> <C>
Net loss--pro
forma............ $ 6,880,503 $ 7,948,894
</TABLE>
The above pro forma effects on income may not be representative of the effects
on net income for future years as option grants typically vest over several
years and additional options are generally granted each year.
8. Income Taxes
The primary components of the net deferred tax asset as of December 31,
1997 and 1998 are:
<TABLE>
<CAPTION>
December 31,
-----------------------
1997 1998
---------- -----------
<S> <C> <C>
Net operating loss carryforwards -fe................... $7,658,836 $10,105,689
Depreciable assets..................................... 194,836 229,659
Reserves and allowances................................ 476,021 390,858
Other temporary differences, net....................... (569,511) (565,662)
---------- -----------
7,760,182 10,160,544
Valuation allowance.................................... (7,760,182) (10,160,544)
---------- -----------
Net deferred tax asset............................... $ -- $ --
========== ===========
</TABLE>
Due to the uncertainty surrounding the realization of the favorable tax
attributes in future tax returns, the Company has placed a valuation allowance
against its otherwise recognizable net deferred tax asset. The valuation
allowance increased by $2,616,592 in 1997 and $2,400,362 in 1998.
As of December 31, 1998, the Company has net operating loss carryforwards
of approximately $25,071,000 and $17,891,000 for federal and California state
tax purposes, respectively. Such carryforwards expire in varying amounts
through the year 2018 if not used before such time to offset future taxable
income or tax liabilities.
Due to changes in the Company's ownership, the amount of net operating loss
carryforwards available to offset future federal and state taxable income or
tax may be limited by Internal Revenue Code (IRC) Section 382. The amount of
such limitation, if any, has not been determined.
9. Sale of Technology
In October 1998, the Company sold the rights to one of its internet
properties in exchange for cash proceeds of $160,000 and certain limited
future advertising rights valued at $25,000, resulting in a gain of $185,000.
10. Employee Benefit Plan
Essentially all Company employees are covered by a Company-sponsored 401(k)
plan, which qualifies under Section 401(k) of the Internal Revenue Code of
1986, as amended. Each eligible
F-51
<PAGE>
INTERNET PROFILES CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
employee may elect to contribute to the plan, through payroll deductions, up to
15% of compensation, subject to certain limitations. The Company, at its
discretion, may make additional contributions. No such additional contributions
were made during the years ended December 31, 1997 or 1998.
11. Subsequent Events
In February 1999, the Company transferred its rights to certain technologies
used in measuring and reporting the results of advertising campaigns in
exchange for cash proceeds of $300,000. This amount is subject to increase if
certain performance goals are met during 1999. The entire purchase price was
recorded as a gain, as, in compliance with its normal accounting policies, the
Company had previously expensed all costs associated with the development of
this technology.
On March 1, 1999, the Company signed a binding letter of intent to be
acquired by CMGI, Inc. and Engage Technologies, Inc. Upon signing of a
definitive purchase agreement, the Company will become a wholly owned
subsidiary of Engage Technologies, Inc., which is in turn a majority owned
subsidiary of CMGI, Inc. A portion of the purchase price will be used to retire
certain liabilities, including the outstanding balance on a loan and security
agreement with a financial institution, attorney and broker fees related to the
transaction, and certain other commitments. Approximately 10% of the remaining
purchase price will be used to retire a portion of the outstanding common stock
of the Company. The remainder, in the form of various forms of equity vehicles
available to CMGI, Inc., will be used to retire the balance of the Company's
common and preferred stock.
F-52
<PAGE>
ENGAGE TECHNOLOGIES, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The unaudited pro forma combined condensed statements of operations of the
Company for the year ended July 31, 1998 and the nine months ended April 30,
1999 give pro forma effect to:
. the Accipiter acquisition;
. the I/PRO acquisition; and
. the related financing of the acquisitions above as if each had occurred
as of August 1, 1997.
The results of operations of the Company for the fiscal year ended July 31,
1998 have been combined with the results of operations of Accipiter, Inc. for
the period August 1, 1997 through March 31, 1998 (the results of operations of
Accipiter for the period April 1, 1998 through July 31, 1998 are included in
the consolidated statement of operations of the Company), and the results of
operations of I/PRO for the twelve months ended September 30, 1998. In
addition, the results of operations for the Company for the nine months ended
April 30, 1999 have been combined with the results of operations of I/PRO for
the six months ended December 31, 1998. The results of operations of I/PRO for
July 1998 through September 1998 have been included in both unaudited pro forma
combined condensed statements of operations presented.
The Company has accounted for their acquisitions under the purchase method of
accounting. The total cost of businesses acquired including related fees and
expenses is allocated to the underlying tangible and intangible assets acquired
and liabilities assumed based on their respective fair values. The purchase
price allocations for the I/PRO acquisition included in the unaudited pro forma
data are preliminary. However, the Company does not expect that the final
allocation of the purchase price will be materially different from its
preliminary allocation.
The unaudited pro forma financial data are not necessarily indicative of the
results of operations or financial position of the Company had the transactions
assumed therein occurred, nor are they necessarily indicative of the results of
operations which may be expected to occur in the future. Furthermore, the
unaudited pro forma financial data are based upon assumptions that the Company
believes are reasonable and should be read in conjunction with the financial
statements and the accompanying notes included elsewhere in this prospectus.
F-53
<PAGE>
ENGAGE TECHNOLOGIES, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the year ended July 31, 1998 and the nine months ended April 30, 1999
<TABLE>
<CAPTION>
Year Ended July 31, 1998 Nine Months Ended April 30, 1999
--------------------------------------------------- -----------------------------------------
Pro Forma Pro Forma
---------------------- ----------------------
Engage I/PRO Accipiter Adjustments Total Engage I/PRO Adjustments Total
-------- ------- --------- ----------- -------- -------- ------- ----------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Product revenue........ $ 1,945 $ 3,973 $ 965 $ -- $ 6,883 $ 7,794 $ 3,902 $ -- $ 11,696
Services and support
revenue............... 272 -- 193 -- 465 1,203 -- -- 1,203
-------- ------- ------- ------ -------- -------- ------- ------ --------
Total revenue........... 2,217 3,973 1,158 -- 7,348 8,997 3,902 -- 12,899
-------- ------- ------- ------ -------- -------- ------- ------ --------
Cost of revenue:
Cost of product
revenue............... 185 3,849 36 813(c) 4,883 1,327 2,658 400(c) 4,385
Cost of services and
support revenue....... 2,057 -- 215 8 2,280 4,308 -- -- 4,308
-------- ------- ------- ------ -------- -------- ------- ------ --------
Total cost of revenue... 2,242 3,849 251 821 7,163 5,635 2,658 400 8,693
-------- ------- ------- ------ -------- -------- ------- ------ --------
Gross (loss) margin..... (25) 124 907 (821) (185) 3,362 1,244 (400) 4,206
-------- ------- ------- ------ -------- -------- ------- ------ --------
Operating expenses:
In-process research and
development........... 9,200 -- -- (9,200)(a) -- 4,500 -- (4,500)(a) --
Research and
development........... 5,925 3,565 534 120 10,144 5,951 1,775 -- 7,726
Selling and marketing.. 4,031 2,694 796 32 7,553 6,650 2,499 -- 9,149
General and
administrative........ 2,333 1,959 1,164 360 5,816 2,817 2,323 -- 5,140
Amortization of
goodwill and other
intangibles........... 1,273 -- -- 7,036(b) 8,309 3,239 -- 2,993(b) 6,232
-------- ------- ------- ------ -------- -------- ------- ------ --------
Total operating
expenses............... 22,762 8,218 2,494 (1,652) 31,822 23,157 6,597 (1,507) 28,247
-------- ------- ------- ------ -------- -------- ------- ------ --------
Loss from operations.... (22,787) (8,094) (1,587) 831 (31,637) (19,795) (5,353) 1,107 (24,041)
Gain on sale of product
rights................. 9,240 185 -- -- 9,425 -- -- -- --
Equity in loss of joint
venture................ -- -- -- -- -- (417) -- -- (417)
Other income (expense),
net.................... (172) (32) 30 67(d) (107) (585) 428 33(d) (124)
-------- ------- ------- ------ -------- -------- ------- ------ --------
Net (loss) income....... $(13,719) $(7,941) $(1,557) $ 898 $(22,319) $(20,797) $(4,925) $1,140 $(24,582)
======== ======= ======= ====== ======== ======== ======= ====== ========
Pro forma basic and
diluted net loss per
share.................. $ (.82) $ (.62) $ (.61) $ (.63)
======== ======== ======== ========
Pro forma weighted
average number of basic
and diluted shares
outstanding............ 16,750 36,128 34,210 39,134
======== ======== ======== ========
</TABLE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended July 31, 1998 and the nine months ended April 30, 1999
(a) Adjustment to in-process research and development reflects the elimination
of $9,200 expensed to in-process research and development related to the
acquisition of Accipiter in April, 1998 and $4,500 related to the
acquisition of I/PRO in April 1999.
(b) Reflects additional goodwill and other intangible asset amortization
expense related to the acquisition of Accipiter and I/PRO. For both
Accipiter and I/PRO, goodwill is being amortized over five years, employee
workforce is being amortized over two years and the tradename is being
amortized over two years for Accipiter and five years for I/PRO, all using
the straight-line method.
(c) Reflects additional amortization expense of developed technology acquired
in the purchase of Accipiter and I/PRO. Developed technology is being
amortized over five years using the straight-line method.
(d) Reflects a reduction in interest expense related to I/PRO borrowings that
would have been settled by I/PRO had the acquisition been consummated at
the beginning of the periods presented. This calculation was made based on
actual amounts expensed by I/PRO in the related periods.
F-54
<PAGE>
UNDERWRITING
Engage and the underwriters named below have entered into an underwriting
agreement with respect to the shares being offered. Subject to the conditions
in the underwriting agreement, each underwriter has severally agreed to
purchase the number of shares indicated in the following table. Goldman, Sachs
& Co., Hambrecht & Quist LLC and Bear, Stearns & Co. Inc. are the
representatives of the underwriters.
<TABLE>
<CAPTION>
Underwriters Number of Shares
------------ ----------------
<S> <C>
Goldman, Sachs & Co......................................
Hambrecht & Quist LLC....................................
Bear, Stearns & Co. Inc..................................
---------
Total..................................................
=========
</TABLE>
---------------------
If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have an option to buy up to an additional 900,000
shares from Engage to cover such sales. They may exercise that option for 30
days. If any shares are purchased pursuant to this option, the underwriters
will severally purchase shares in approximately the same proportion as set
forth in the table above.
The following table shows the per share and total underwriting discounts and
commissions to be paid to the underwriters by Engage. Such amounts are shown
assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares.
Paid by Engage
----------------
<TABLE>
<CAPTION>
No Exercise Full Exercise
----------- -------------
<S> <C> <C>
Per Share............................................. $ $
Total................................................. $ $
</TABLE>
Shares sold by the underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this prospectus.
Any shares sold by the underwriters to securities dealers may be sold at a
discount of up to $ per share from the initial public offering price. Any
such securities dealers may resell any shares purchased from the underwriters
to other brokers or dealers at a discount of up to $ per share from the
initial public offering price. If all the shares are not sold at the initial
public offering price, the representatives may change the offering price and
the other selling terms.
Engage and its directors, officers and substantially all of its stockholders
have agreed with the underwriters not to dispose of or hedge any of their
common stock or securities convertible into or exchangeable for shares of
common stock during the period from the date of this prospectus continuing
through the date 180 days after the date of this prospectus, except with the
prior written consent of the representatives. This agreement does not apply to
gifts or transfers to affiliates or transactions under any existing employee
benefit plans. Please see "Shares Eligible for Future Sale" for a discussion of
various transfer restrictions.
An aggregate of 300,000 shares of common stock offered by this prospectus
have been reserved for purchase from the underwriters through a directed share
program by customers, resellers and other parties having business relationships
with Engage. An aggregate of 300,000 shares of common stock offered by this
prospectus have been reserved for purchase from the underwriters through a
directed shares program by employees of Engage. Such sales will be at the
initial public offering price. There can be no assurance that any of the
reserved shares will be so purchased. The number of shares available for sale
to the general public in the offering will be reduced by the number of reserved
shares sold. Any reserved shares not purchased will be offered to the general
public on the same basis as the other shares offered by this prospectus.
U-1
<PAGE>
Prior to this offering, there has been no public market for the shares. The
initial public offering price will be negotiated among Engage and the
representatives. Among the factors to be considered in determining the initial
public offering price of the shares, in addition to prevailing market
conditions, will be Engage's historical performance, estimates of the business
potential and earnings prospects of Engage, an assessment of Engage's
management and the consideration of the above factors in relation to market
valuation of companies in related businesses.
Engage has applied to list the common stock on the Nasdaq National Market
under the symbol "ENGA".
In connection with this offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in this offering.
Stabilizing transactions consist of certain bids or purchases made for the
purpose of preventing or retarding a decline in the market price of the common
stock while this offering is in progress.
The underwriters also may impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares
sold by or for the account of such underwriter in stabilizing or short covering
transactions.
These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the common stock. As a result, the price of the
common stock may be higher than the price that otherwise might exist in the
open market. If these activities are commenced, they may be discontinued by the
underwriters at any time. These transactions may be effected on the Nasdaq
National Market, in the over-the-counter market or otherwise.
The underwriters do not expect sales to discretionary accounts to exceed
five percent of the total number of shares offered.
Engage estimates that its share of the total expenses of this offering,
excluding underwriting discounts and commissions, will be approximately
$1,000,000.
Engage has agreed to indemnify the several underwriters against liabilities,
including liabilities under the Securities Act of 1933.
U-2
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this prospectus. You
must not rely on any unauthorized information or representations. This
prospectus is an offer to sell only the shares offered hereby, but only under
circumstances and in jurisdictions where it is lawful to do so. The
information contained in this prospectus is current only as of its date.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 7
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................................................................. 32
Management............................................................... 50
Transactions and Relationship Between Engage and CMGI.................... 56
Security Ownership of Principal Stockholder and Management............... 59
Description of Capital Stock............................................. 61
Shares Eligible for Future Sale.......................................... 64
Validity of Common Stock................................................. 65
Experts.................................................................. 65
Available Information.................................................... 66
Index to Financial Statements............................................ F-1
Underwriting............................................................. U-1
</TABLE>
--------------
Through and including , 1999 (the 25th day after the date of this
prospectus), all dealers effecting transactions in these securities, whether
or not participating in this offering, may be required to deliver a
prospectus. This is in addition to a dealer's obligation to deliver a
prospectus when acting as an underwriter and with respect to an unsold
allotment or subscription.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
6,000,000 Shares
Engage Technologies, Inc.
Common Stock
--------------
[ENGAGE LOGO APPEARS HERE]
--------------
Goldman, Sachs & Co.
Hambrecht & Quist
Bear, Stearns & Co. Inc.
Representatives of the Underwriters
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
Estimated expenses (other than underwriting discounts and commissions) payable
in connection with the sale of the Common Stock offered hereby are as follows:
<TABLE>
<S> <C>
SEC registration fee............................................. $ 21,100
NASD filing fee.................................................. 8,090
Nasdaq National Market listing fee............................... 75,000
Printing and engraving expenses.................................. 200,000
Legal fees and expenses.......................................... 400,000
Accounting fees and expenses..................................... 200,000
Blue Sky fees and expenses (including legal fees)................ 15,000
Transfer agent and registrar fees and expenses................... 17,000
Miscellaneous.................................................... 63,810
----------
Total.......................................................... $1,000,000
==========
</TABLE>
Engage will bear all expenses shown above.
Item 14. Indemnification of Directors and Officers.
The Delaware General Corporation Law and Engage's charter and by-laws provide
for indemnification of Engage's directors and officers for liabilities and
expenses that they may incur in such capacities. In general, directors and
officers are indemnified with respect to actions taken in good faith in a
manner reasonably believed to be in, or not opposed to, the best interests of
Engage and, with respect to any criminal action or proceeding, actions that the
indemnitee had no reasonable cause to believe were unlawful. Reference is made
to Engage's charter and by-laws filed as Exhibits 3.1 and 3.4 hereto,
respectively.
The Underwriting Agreement provides that the underwriters are obligated, under
some circumstances, to indemnify directors, officers and controlling persons of
Engage against some liabilities, including liabilities under the Securities Act
of 1933, as amended (the "Securities Act"). Reference is made to the form of
Underwriting Agreement filed as Exhibit 1.1 hereto.
Item 15. Recent Sales of Unregistered Securities.
In the three fiscal years preceding the filing of this registration statement,
Engage has issued the following securities that were not registered under the
Securities Act:
(a) Issuance of Capital Stock.
In July 1998, Engage issued 700,000 shares of its Series A convertible
preferred stock to CMGI pursuant to the Merger Agreement between Engage and
Accipiter. In April 1998, Engage issued 800,000 shares of its Series A
convertible preferred stock to CMGI in exchange for (i) cancellation of
$8,000,000 of intercompany debt and (ii) shares of common stock of Engage
previously held by CMGI. CMGI currently owns 1,500,000 shares of Engage's
Series A convertible preferred stock at an average purchase price of $2.67 per
share. Every one share of Series A Preferred Stock will convert into 20 shares
of common stock upon the consummation of this offering. These shares were
issued pursuant to Section 4(2) under the Securities Act.
II-1
<PAGE>
In August 1998, Engage issued 238,597 shares of its Series B convertible
preferred stock to Sumitomo Corporation and Sumitomo Corporation of America at
a purchase price of $8.38 per share, for an aggregate consideration of
$2,000,000. Upon closing of the offering, the 238,597 outstanding shares of
Series B preferred stock will convert into 477,194 shares of common stock.
These shares were issued pursuant to Rule 506 under the Securities Act.
Engage issued a secured demand note to CMGI, dated February 1, 1999, in the
aggregate amount of $9,347,451, which is convertible into 164,371 shares of
Engage's Series C convertible preferred stock. Every one share of Series C
convertible preferred stock will convert into 20 shares of common stock upon
the consummation of this offering. These shares were issued pursuant to Section
4(2) under the Securities Act.
In April 1999, Engage acquired I/PRO. As part of the acquisition, Engage issued
to I/PRO stockholders 1,010,184 shares of Engage common stock in exchange for
I/PRO common stock. These shares were issued pursuant to Rule 50(b) under the
Securities Act.
In April 1999, Engage agreed to issue to CMGI, in cancellation of $22,086,307
of indebtedness incurred by Engage to acquire I/PRO, 218,460 shares of Series C
convertible preferred stock. These shares were issued pursuant to Section 4(2)
under the Securities Act.
(b) Grants and Exercises of Stock Options.
As of April 30, 1999, Engage had granted options to purchase an aggregate of
6,467,794 shares of common stock under the 1995 Equity Incentive Plan
exercisable at a weighted average exercise price of $2.11 per share. From
August 1, 1995 to April 30, 1998, Engage issued 215,140 shares of common stock
for an aggregate purchase price of $31,682 pursuant to exercise of employee
options. These options and shares were issued pursuant to Rule 701 under the
Securities Act.
No underwriters were involved in the foregoing sales of securities. Such sales
were made in reliance upon an exemption from the registration provisions of the
Securities Act set forth in Section 4(2) thereof relative to sales by an issuer
not involving any public offering or the rules and regulations thereunder, or,
in the case of options to purchase Common Stock, Rule 701 under the Securities
Act. All of the foregoing securities are deemed restricted securities for
purposes of the Securities Act.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit No. Exhibit
----------- -------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1** Amended and Restated Certificate of Incorporation.
3.2* Form of Second Amended and Restated Certificate of Incorporation.
3.4++ By-laws.
3.5* Form of Amended and Restated By-laws.
4.1* Specimen Certificate for shares of Common Stock.
4.2++ Description of Capital Stock (contained in the Certificate of
Incorporation filed as Exhibit 3.1).
5.1* Opinion of Hale and Dorr LLP.
10.1++ 1995 Equity Incentive Plan.
10.2 Form of 1999 Employee Stock Purchase Plan.
10.3* Form of 1999 Stock Option Plan for Non-Employee Directors.
10.4+ Letter Agreement by and among Engage, CMGI and Red Brick Systems,
Inc., dated October 6, 1998.
10.5+ Letter Agreement by and among Engage, NaviSite Internet Services
Corporation and ServerCast Communications, L.L.C., dated September
16, 1998.
10.6++ Series B Convertible Preferred Stock Purchase Agreement by and
among Engage, Sumitomo Corporation and Sumitomo Corporation of
America, dated July 31, 1998.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Exhibit
----------- -------
<C> <S>
10.7+ License Agreement between Engage and Engage Technologies Japan,
Inc., dated July 31, 1998.
10.8+ International Reseller Agreement between Engage and Engage
Technologies Japan, Inc., dated July 31, 1998.
10.9+ Amended and Restated Software License Agreement by and between Red
Brick Systems, Inc. and Engage, dated July 31, 1998.
10.10+ DSS Server Software License Agreement by and between Engage,
including its parent company CMGI and CMGI's majority-owned
subsidiaries, dated July 31, 1998.
10.11+ Exclusive Strategic Alliance Agreement between Engage and AdSmart
Corporation and Cross Beam Networks Corporation, dated January 7,
1998.
10.12+ Services and License Agreement between Lycos, Inc. and Engage,
dated October 29, 1997.
10.13+ Sales and Marketing Agreement by and between Internet Profiles
Corporation and the Nielsen Media Research division of A. C.
Nielsen Company, dated September 5, 1995.
10.14 Capital & Counties plc and Engage Technologies Limited underlease,
dated April 27, 1999.
10.15++ Anthony & Co. Office Lease between Milkson Associates, LLC and
Accipiter, Inc., dated April 9, 1997.
10.16++ Amendment to Lease Agreement between Milkson Associates, LLC and
Accipiter, Inc., dated November 5, 1997.
10.17 Form of Director Indemnification Agreement.
10.18 Form of Investor Rights Agreement by and among Engage and CMGI.
10.19* Form of Facilities and Administrative Support Agreement between
Engage and CMGI.
10.20 Separation Agreement by and between CMGI and Chris Evans, dated
May 3, 1999.
10.21 Consulting, Invention and Non-Disclosure Agreement between Engage
and Chris Evans, dated May 3, 1999 (filed as Exhibit A to Exhibit
10.20).
10.22 Inter-Company Agreement between CMGI and Engage, dated April 7,
1999.
10.23 Secured Convertible Demand Note issued by Engage to CMGI, dated as
of
February 1, 1999.
10.24 Security Agreement by and between Engage and CMGI, dated as of May
3, 1999.
10.25 Intellectual Property Security Agreement by and between Engage and
CMGI, dated as of May 3, 1999.
10.26 Stock Purchase Agreement among, Engage, CMGI, Internet Profiles
Corporation and the stockholders of Internet Profiles Corporation
listed on Schedule 1 attached thereto, dated April 7, 1999.
10.27 Form of Tax Allocation Agreement by and among CMGI and Engage.
21.1++ Subsidiaries.
23.1* Consent of Hale and Dorr LLP (contained in Exhibit 5.1).
23.2 Consent of KPMG LLP.
23.3 Consent of KPMG LLP (Accipiter).
23.4 Consent of PricewaterhouseCoopers LLP.
24.1++ Power of Attorney (contained on page II-5).
27.1** Financial Data Schedule.
</TABLE>
- --------
*To be filed by amendment.
**Supercedes previously filed exhibit.
+ Confidential materials omitted and filed separately with the Securities and
Exchange Commission.
++Previously filed.
(b) Financial Statement Schedules.
Schedule II--Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable, and therefore have been omitted.
II-3
<PAGE>
Item 17. Undertakings.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the registrant
pursuant to the provisions described in Item 14 above, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes (1) 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; (2) that 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 a form of prospectus filed by the registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be
deemed to be part of this registration statement as of the time it was declared
effective; and (3) that 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 the 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, as amended, the
registrant has duly caused this Amendment No.1 to the Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in
Andover, Massachusetts on June 11, 1999.
Engage Technologies, Inc.
*
By: _________________________________
Paul L. Schaut
Chief Executive Officer,
President and Director
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No.1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title(s) Date
--------- -------- ----
<S> <C> <C>
* Chief Executive Officer, June 11, 1999
______________________________________ President and Director
Paul L. Schaut (Principal Executive
Officer)
/s/ Stephen A. Royal Chief Financial Officer June 11, 1999
______________________________________ and Treasurer (Principal
Stephen A. Royal Financial and Accounting
Officer)
* Chairman of the Board of June 11, 1999
______________________________________ Directors
David S. Wetherell
* Director June 11, 1999
______________________________________
Edward A. Bennett
* Director June 11, 1999
______________________________________
Christopher A. Evans
* Director June 11, 1999
______________________________________
Andrew J. Hajducky, III
* Director June 11, 1999
______________________________________
Craig D. Goldman
</TABLE>
*By: /s/ Stephen A. Royal
-----------------------------
Stephen A. Royal
Attorney-in-Fact
II-5
<PAGE>
Schedule II
ENGAGE TECHNOLOGIES
VALUATION AND QUALIFYING ACCOUNTS
for the years ended July 31, 1996, 1997 and 1998 and
the nine months ended April 30, 1999
(in thousands)
<TABLE>
<CAPTION>
Additions
--------------------
Balance at Charged to Deductions Balance
Beginning Costs and From at End
Description of Year Expenses Other (1) Reserves of Year
- ----------- ---------- ---------- --------- ---------- -------
<S> <C> <C> <C> <C> <C>
Year ended July 31, 1996:
Allowance for doubtful ac-
counts................... $ -- -- -- -- $ --
Year ended July 31, 1997:
Allowance for doubtful ac-
counts................... $ -- -- -- -- $ --
Year ended July 31, 1998:
Allowance for doubtful ac-
counts................... $ -- 240 120 -- $360
Nine months ended April 30,
1999:
Allowance for doubtful ac-
counts................... $360 175 454 (49) $940
</TABLE>
- --------
(1) Represents allowance for doubtful accounts of Accipiter, Inc. as of
April 1, 1998.
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Exhibit
----------- -------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1** Amended and Restated Certificate of Incorporation.
3.2* Form of Second Amended and Restated Certificate of Incorporation.
3.4++ By-laws.
3.5* Form of Amended and Restated By-laws.
4.1* Specimen Certificate for shares of Common Stock.
4.2++ Description of Capital Stock (contained in the Certificate of
Incorporation filed as Exhibit 3.1).
5.1* Opinion of Hale and Dorr LLP.
10.1++ 1995 Equity Incentive Plan.
10.2 Form of 1999 Employee Stock Purchase Plan.
10.3* Form of 1999 Stock Option Plan for Non-Employee Directors.
10.4+ Letter Agreement by and among Engage, CMGI and Red Brick Systems,
Inc., dated October 6, 1998.
10.5+ Letter Agreement by and among Engage, NaviSite Internet Services
Corporation and ServerCast Communications, L.L.C., dated September
16, 1998.
10.6++ Series B Convertible Preferred Stock Purchase Agreement by and
among Engage, Sumitomo Corporation and Sumitomo Corporation of
America, dated July 31, 1998.
10.7+ License Agreement between Engage and Engage Technologies Japan,
Inc., dated July 31, 1998.
10.8+ International Reseller Agreement between Engage and Engage
Technologies Japan, Inc., dated July 31, 1998.
10.9+ Amended and Restated Software License Agreement by and between Red
Brick Systems, Inc. and Engage, dated July 31, 1998.
10.10+ DSS Server Software License Agreement by and between Engage,
including its parent company CMGI and CMGI's majority-owned
subsidiaries, dated July 31, 1998.
10.11+ Exclusive Strategic Alliance Agreement between Engage and AdSmart
Corporation and Cross Beam Networks Corporation, dated January 7,
1998.
10.12+ Services and License Agreement between Lycos, Inc. and Engage,
dated October 29, 1997.
10.13+ Sales and Marketing Agreement by and between Internet Profiles
Corporation and the Nielsen Media Research division of A. C.
Nielsen Company, dated September 5, 1995.
10.14 Capital & Counties plc and Engage Technologies Limited underlease,
dated April 27, 1999.
10.15++ Anthony & Co. Office Lease between Milkson Associates, LLC and
Accipiter, Inc., dated April 9, 1997.
10.16++ Amendment to Lease Agreement between Milkson Associates, LLC and
Accipiter, Inc., dated November 5, 1997.
10.17 Form of Director Indemnification Agreement.
10.18 Form of Investor Rights Agreement by and among Engage and CMGI.
10.19* Form of Facilities and Administrative Support Agreement between
Engage and CMGI.
10.20 Separation Agreement by and between CMGI and Chris Evans, dated
May 3, 1999.
10.21 Consulting, Invention and Non-Disclosure Agreement between Engage
and Chris Evans, dated May 3, 1999 (filed as Exhibit A to Exhibit
10.20).
10.22 Inter-Company Agreement between CMGI and Engage, dated April 7,
1999.
10.23 Secured Convertible Demand Note issued by Engage to CMGI, dated as
of
February 1, 1999.
10.24 Security Agreement by and between Engage and CMGI, dated as of May
3, 1999.
10.25 Intellectual Property Security Agreement by and between Engage and
CMGI, dated as of May 3, 1999.
10.26 Stock Purchase Agreement among, Engage, CMGI, Internet Profiles
Corporation and the stockholders of Internet Profiles Corporation
listed on Schedule 1 attached thereto, dated April 7, 1999.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Exhibit
----------- -------
<C> <S>
10.27 Form of Tax Allocation Agreement by and among CMGI and Engage.
21.1++ Subsidiaries.
23.1* Consent of Hale and Dorr LLP (contained in Exhibit 5.1).
23.2 Consent of KPMG LLP.
23.3 Consent of KPMG LLP (Accipiter).
23.4 Consent of PricewaterhouseCoopers LLP.
24.1++ Power of Attorney (contained on page II-5).
27.1** Financial Data Schedule.
</TABLE>
- --------
*To be filed by amendment.
**Supercedes previously filed exhibit.
+ Confidential materials omitted and filed separately with the Securities and
Exchange Commission.
++Previously filed.
<PAGE>
Exhibit 1.1
ENGAGE TECHNOLOGIES, INC.
Common Stock
(par value $0.01 per share)
Underwriting Agreement
----------------------
_____________, 1999
Goldman, Sachs & Co.,
Hambrecht & Quist
Bear, Stearns & Co., Inc.
As representatives of the several Underwriters
named in Schedule I hereto,
85 Broad Street,
New York, New York 10004.
Ladies and Gentlemen:
Engage Technologies, Inc., a Delaware corporation (the "Company"),
proposes, subject to the terms and conditions stated herein, to issue and sell
to the Underwriters named in Schedule I hereto (the "Underwriters") an aggregate
of ........ shares (the "Firm Shares") and, at the election of the Underwriters,
up to ........ additional shares (the "Optional Shares") of Common Stock (par
value $0.01 per share) ("Stock") of the Company (the Firm Shares and the
Optional Shares that the Underwriters elect to purchase pursuant to Section 2
hereof being collectively called the "Shares").
1. The Company represents and warrants to, and agrees with, each of the
Underwriters that:
(a) A registration statement on Form S-1 (File No. 333-....) (the
"Initial Registration Statement") in respect of the Shares has been filed with
the Securities and Exchange Commission (the "Commission"); the Initial
Registration Statement and any post-effective amendment thereto, each in the
form heretofore delivered to you, and, excluding exhibits thereto, to you for
each of the other Underwriters, have been declared effective by the Commission
in such form; other than a registration statement, if any, increasing the size
of the offering (a "Rule 462(b) Registration Statement"), filed pursuant to Rule
462(b) under the Securities Act of 1933, as amended (the "Act"), which became
effective upon filing, no other document with respect to the Initial
Registration Statement has heretofore been filed with the Commission; and no
stop order suspending the effectiveness of the Initial Registration Statement,
any post-effective amendment thereto or the Rule 462(b) Registration Statement,
if any, has been issued and no proceeding for that purpose has been initiated or
threatened by the Commission (any preliminary prospectus included in the Initial
<PAGE>
Registration Statement or filed with the Commission pursuant to Rule 424(a) of
the rules and regulations of the Commission under the Act is hereinafter called
a "Preliminary Prospectus"; the various parts of the Initial Registration
Statement and the Rule 462(b) Registration Statement, if any, including all
exhibits thereto and including the information contained in the form of final
prospectus filed with the Commission pursuant to Rule 424(b) under the Act in
accordance with Section 5(a) hereof and deemed by virtue of Rule 430A under the
Act to be part of the Initial Registration Statement at the time it was declared
effective, each as amended at the time such part of the Initial Registration
Statement became effective or such part of the Rule 462(b) Registration
Statement, if any, became or hereafter becomes effective, are hereinafter
collectively called the "Registration Statement"; and such final prospectus, in
the form first filed pursuant to Rule 424(b) under the Act, is hereinafter
called the "Prospectus";
(b) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary Prospectus,
at the time of filing thereof, conformed in all material respects to the
requirements of the Act and the rules and regulations of the Commission
thereunder, and did not contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that this representation and warranty
shall not apply to any statements or omissions made in reliance upon and in
conformity with information furnished in writing to the Company by an
Underwriter through Goldman, Sachs & Co. expressly for use therein;
(c) The Registration Statement conforms, and the Prospectus and any
further amendments or supplements to the Registration Statement or the
Prospectus will conform, in all material respects to the requirements of the Act
and the rules and regulations of the Commission thereunder and do not and will
not, as of the applicable effective date as to the Registration Statement and
any amendment thereto, and as of the applicable filing date as to the Prospectus
and any amendment or supplement thereto, contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided, however, that
this representation and warranty shall not apply to any statements or omissions
made in reliance upon and in conformity with information furnished in writing to
the Company by an Underwriter through Goldman, Sachs & Co. expressly for use
therein;
(d) Neither the Company nor any of its subsidiaries has sustained
since the date of the latest audited financial statements included in the
Prospectus any material loss or interference with its business from fire,
explosion, flood or other calamity, whether or not covered by insurance, or from
any labor dispute or court or governmental action, order or decree, otherwise
than as set forth or contemplated in the Prospectus; and, since the respective
dates as of which information is given in the Registration Statement and the
Prospectus, there has not been any change in the capital stock (other than
pursuant to the grant or exercise of options, or as a result of advances from
CMGI, Inc. (the "Parent") described in the Prospectus) or long-term debt of the
Company or any of its subsidiaries or any material adverse change, or any
development involving a prospective material adverse change, in or affecting the
general affairs, management, financial position, stockholders' equity or results
of operations of the Company and its subsidiaries, otherwise than as set forth
or contemplated in the Prospectus;
-2-
<PAGE>
(e) The Company and its subsidiaries do not own any real property and
have good and marketable title to all personal property owned by them, free and
clear of all liens, encumbrances and defects except such as are described in the
Prospectus or such as do not materially affect the value of such property and do
not interfere with the use made and proposed to be made of such property by the
Company and its subsidiaries; and any real property and buildings held under
lease by the Company and its subsidiaries are held by them under valid,
subsisting and enforceable leases with such exceptions as are not material and
do not interfere with the use made and proposed to be made of such property and
buildings by the Company and its subsidiaries;
(f) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Delaware, with
power and authority (corporate and other) to own its properties and conduct its
business as described in the Prospectus, and has been duly qualified as a
foreign corporation for the transaction of business and is in good standing
under the laws of each other jurisdiction in which it owns or leases properties
or conducts any business so as to require such qualification, except where the
failure to be so qualified would not be reasonably likely to have a material
adverse effect on the business, financial condition, prospects or results of
operations of the Company and its subsidiaries, as a whole (a "Material Adverse
Effect); and each subsidiary of the Company has been duly incorporated and is
validly existing as a corporation in good standing under the laws of its
jurisdiction of incorporation;
(g) The Company has an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock of the Company have
been duly and validly authorized and issued, are fully paid and non-assessable
and conform to the description of the Stock contained in the Prospectus; and all
of the issued shares of capital stock of each subsidiary of the Company have
been duly and validly authorized and issued, are fully paid and non-assessable
and (except for directors' qualifying shares [and except as set forth in the
Prospectus]) are owned directly or indirectly by the Company, free and clear of
all liens, encumbrances, equities or claims;
(h) The unissued Shares to be issued and sold by the Company to the
Underwriters hereunder have been duly and validly authorized and, when issued
and delivered against payment therefor as provided herein, will be duly and
validly issued and fully paid and non-assessable and will conform to the
description of the Stock contained in the Prospectus;
(i) The issue and sale of the Shares by the Company and the
compliance by the Company with all of the provisions of this Agreement and the
consummation of the transactions herein contemplated will not conflict with or
result in a breach or violation of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument to which the Company or any of its
subsidiaries is a party or by which the Company or any of its subsidiaries is
bound or to which any of the property or assets of the Company or any of its
subsidiaries is subject, other than breaches or defaults that would not be
reasonably likely to have a Material Adverse Effect, nor will such action result
in any violation of the provisions of the Certificate of Incorporation or By-
laws of the Company or any statute or any order, rule or regulation of any court
or governmental agency or body having jurisdiction over the Company or any of
its subsidiaries or any of their properties; and no consent, approval,
authorization, order, registration or qualification of or with any such court or
governmental agency or body is required for the issue and sale of the Shares or
the consummation by the Company of the transactions contemplated by this
Agreement, except the registration under the Act of the Shares and such
-3-
<PAGE>
consents, approvals, authorizations, registrations or qualifications as may be
required under state securities or Blue Sky laws in connection with the purchase
and distribution of the Shares by the Underwriters;
(j) Neither the Company nor any of its subsidiaries is (1) in
violation of its Certificate of Incorporation or By-laws or (2) in default in
the performance or observance of any obligation, agreement, covenant or
condition contained in any indenture, mortgage, deed of trust, loan agreement,
lease or other agreement or instrument to which it is a party or by which it or
any of its properties may be bound, except, in the case of clause (2), for such
defaults as are not reasonably likely to have a Material Adverse Effect;
(k) The statements set forth in the Prospectus under the caption
"Description of Capital Stock", insofar as they purport to constitute a summary
of the terms of the Stock and under the caption "Underwriting", insofar as they
purport to describe the provisions of the laws and documents referred to
therein, are accurate, complete and fair;
(l) Other than as set forth in the Prospectus, there are no legal or
governmental proceedings pending to which the Company or any of its subsidiaries
is a party or of which any property of the Company or any of its subsidiaries is
the subject which, if determined adversely to the Company or any of its
subsidiaries, would individually or in the aggregate be reasonably likely to
have a Material Adverse Effect; and, to the best of the Company's knowledge, no
such proceedings are threatened or contemplated by governmental authorities or
threatened by others;
(m) Other than as set forth in the Prospectus, the Company and its
subsidiaries own or have the right to use pursuant to license, sublicense,
agreement, or permission all patents, patent applications, trademarks, service
marks, trade names, copyrights, trade secrets, confidential information,
proprietary rights and processes ("Intellectual Property") necessary for the
operation of the business of the Company and its subsidiaries as described in
the Prospectus and have taken all steps reasonably necessary to secure
assignments of such Intellectual Property from its employees and contractors; to
the knowledge of the Company none of the technology employed by the Company or
its subsidiaries has been obtained or is being used by the Company or its
subsidiaries in violation of any contractual or fiduciary obligation binding on
the Company, its subsidiaries or any of their respective directors or executive
officers or, to the Company's knowledge, any of their respective employees or
consultants; and the Company and its subsidiaries have taken and will maintain
reasonable measures to prevent the unauthorized dissemination or publication of
its confidential information.
To the Company's knowledge, neither the Company nor any of its subsidiaries
have interfered with, infringed upon, misappropriated, or otherwise come into
conflict with any Intellectual Property rights of third parties, and the Company
and its subsidiaries have not received any charge, complaint, claim, demand, or
notice alleging any such interference, infringement, misappropriation, or
violation (including any claim that the Company or any of its subsidiaries must
license or refrain from using any intellectual property rights of any third
party) which, if the subject of any unfavorable decision, ruling or finding
would, individually or in the aggregate, be reasonably likely to have a Material
Adverse Effect;
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To the Company's knowledge, neither the Registration Statement nor the
Prospectus (A) contains any untrue statement of material fact with respect to
trademarks, trade names patents, mask works, copyrights, licenses, trade secrets
or other intellectual property rights owned by the Company or any of its
subsidiaries or (B) omits to state any material fact relating to trademarks,
trade names, patents, mask works, copyrights, licenses, trade secrets or other
intellectual property rights owned by the Company or any of its subsidiaries or
any allegation that is necessary to make the statement in the Registration
Statement or the Prospectus not misleading as to any such intellectual property
rights owned by the Company or any of its subsidiaries.
To the Company's knowledge, there are no legal or governmental proceedings
pending relating to trademarks, trade names, patent rights, mask works, copy
rights, licenses, trade secrets or other intellectual property rights of the
Company or any of its subsidiaries other than the prosecution by the Company and
it subsidiaries of their patent applications before the United States Patent
Office and appropriate foreign government agencies, and no proceedings are
threatened or contemplated by governmental authorities or others relating to
trademarks, trade names, patent rights, mask works, copyrights, licenses or
other intellectual property rights of the Company or its subsidiaries.
(n) The Company is not and, after giving effect to the offering and
sale of the Shares, will not be an "investment company", as such term is defined
in the Investment Company Act of 1940, as amended (the "Investment Company
Act");
(o) Neither the Company nor any of its affiliates does business with
the government of Cuba or with any person or affiliate located in Cuba within
the meaning of Section 517.075, Florida Statutes;
(p) KPMG Peat Marwick LLP, who have certified certain financial
statements of the Company and its subsidiaries, are independent public
accountants as required by the Act and the rules and regulations of the
Commission thereunder; and
(q) The Company is in the process of reviewing its operations and
that of its subsidiaries and any third parties with which the Company or any of
its subsidiaries has a material relationship to evaluate the extent to which the
business or operations of the Company or any of its subsidiaries will be
affected by the Year 2000 Problem. As a result of such review, the Company has
no reason to believe, and does not believe, that the Year 2000 Problem will have
a Material Adverse Effect or result in any material loss or interference with
the Company's business or operations. The "Year 2000 Problem" as used herein
means any significant risk that computer hardware or software used in the
receipt, transmission, processing, manipulation, storage, retrieval,
retransmission or other utilization of data or in the operation of mechanical or
electrical systems of any kind will not, in the case of dates or time periods
occurring after December 31, 1999, function at least as effectively as in the
case of dates or time periods occurring prior to January 1, 2000.
2. Subject to the terms and conditions herein set forth, (a) the
Company agrees to issue and sell to each of the Underwriters, and each of the
Underwriters agrees, severally and not jointly, to purchase from the Company, at
a purchase price per share of $................, the number of Firm Shares set
forth opposite the name of such Underwriter in Schedule I hereto and (b) in the
event and to the extent that the Underwriters shall exercise the election to
purchase Optional Shares as
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provided below, the Company agrees to issue and sell to each of the
Underwriters, and each of the Underwriters agrees, severally and not jointly, to
purchase from the Company, at the purchase price per share set forth in clause
(a) of this Section 2, that portion of the number of Optional Shares as to which
such election shall have been exercised (to be adjusted by you so as to
eliminate fractional shares) determined by multiplying such number of Optional
Shares by a fraction, the numerator of which is the maximum number of Optional
Shares which such Underwriter is entitled to purchase as set forth opposite the
name of such Underwriter in Schedule I hereto and the denominator of which is
the maximum number of Optional Shares that all of the Underwriters are entitled
to purchase hereunder.
The Company hereby grants to the Underwriters the right to purchase at
their election up to ................... Optional Shares, at the purchase price
per share set forth in the paragraph above, for the sole purpose of covering
overallotments in the sale of the Firm Shares. Any such election to purchase
Optional Shares may be exercised only by written notice from you to the Company,
given within a period of 30 calendar days after the date of this Agreement,
setting forth the aggregate number of Optional Shares to be purchased and the
date on which such Optional Shares are to be delivered, as determined by you but
in no event earlier than the First Time of Delivery (as defined in Section 4
hereof) or, unless you and the Company otherwise agree in writing, earlier than
two or later than ten business days after the date of such notice.
3. Upon the authorization by you of the release of the Firm Shares, the
several Underwriters propose to offer the Firm Shares for sale upon the terms
and conditions set forth in the Prospectus.
4. (a) The Shares to be purchased by each Underwriter hereunder, in
definitive form, and in such authorized denominations and registered in such
names as Goldman, Sachs & Co. may request upon at least forty-eight hours' prior
notice to the Company shall be delivered by or on behalf of the Company to
Goldman, Sachs & Co., through the facilities of the Depository Trust Company
("DTC"), for the account of such Underwriter, against payment by or on behalf of
such Underwriter of the purchase price therefor by wire transfer of Federal
(same-day) funds to the account specified by the Company to Goldman, Sachs & Co.
at least forty-eight hours in advance. The Company will cause the certificates
representing the Shares to be made available for checking and packaging at least
twenty-four hours prior to the Time of Delivery (as defined below) with respect
thereto at the office of DTC or its designated custodian (the "Designated
Office"). The time and date of such delivery and payment shall be, with respect
to the Firm Shares, 9:30 a.m., New York City time, on ............., 1999 or
such other time and date as Goldman, Sachs & Co. and the Company may agree upon
in writing, and, with respect to the Optional Shares, 9:30 a.m., New York time,
on the date specified by Goldman, Sachs & Co. in the written notice given by
Goldman, Sachs & Co. of the Underwriters' election to purchase such Optional
Shares, or such other time and date as Goldman, Sachs & Co. and the Company may
agree upon in writing. Such time and date for delivery of the Firm Shares is
herein called the "First Time of Delivery", such time and date for delivery of
the Optional Shares, if not the First Time of Delivery, is herein called the
"Second Time of Delivery", and each such time and date for delivery is herein
called a "Time of Delivery".
(b) The documents to be delivered at each Time of Delivery by or on
behalf of the parties hereto pursuant to Section 7 hereof, including the cross
receipt for the Shares and any additional documents requested by the
Underwriters pursuant to Section 7 hereof, will be delivered at the
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offices of Hale and Dorr LLP, 60 State Street, Boston, Massachusetts 02109 (the
"Closing Location"), and the Shares will be delivered at the Designated Office,
all at such Time of Delivery. A meeting will be held at the Closing Location at
4:00 p.m., New York City time, on the New York Business Day next preceding such
Time of Delivery, at which meeting the final drafts of the documents to be
delivered pursuant to the preceding sentence will be available for review by the
parties hereto. For the purposes of this Section 4, "New York Business Day"
shall mean each Monday, Tuesday, Wednesday, Thursday and Friday which is not a
day on which banking institutions in New York are generally authorized or
obligated by law or executive order to close.
5. The Company and the Parent agrees with each of the Underwriters:
(a) To prepare the Prospectus in a form approved by you and to file
such Prospectus pursuant to Rule 424(b) under the Act not later than the
Commission's close of business on the second business day following the
execution and delivery of this Agreement, or, if applicable, such earlier time
as may be required by Rule 430A(a)(3) under the Act; to make no further
amendment or any supplement to the Registration Statement or Prospectus which
shall be disapproved by you promptly after reasonable notice thereof; to advise
you, promptly after it receives notice thereof, of the time when any amendment
to the Registration Statement has been filed or becomes effective or any
supplement to the Prospectus or any amended Prospectus has been filed and to
furnish you with copies thereof; to advise you, promptly after it receives
notice thereof, of the issuance by the Commission of any stop order or of any
order preventing or suspending the use of any Preliminary Prospectus or
prospectus, of the suspension of the qualification of the Shares for offering or
sale in any jurisdiction, of the initiation or threatening of any proceeding for
any such purpose, or of any request by the Commission for the amending or
supplementing of the Registration Statement or Prospectus or for additional
information; and, in the event of the issuance of any stop order or of any order
preventing or suspending the use of any Preliminary Prospectus or prospectus or
suspending any such qualification, promptly to use its best efforts to obtain
the withdrawal of such order;
(b) Promptly from time to time to take such action as you may
reasonably request to qualify the Shares for offering and sale under the
securities laws of such jurisdictions as you may request and to comply with such
laws so as to permit the continuance of sales and dealings therein in such
jurisdictions for as long as may be necessary to complete the distribution of
the Shares, provided that in connection therewith the Company shall not be
required to qualify as a foreign corporation or to file a general consent to
service of process in any jurisdiction;
(c) Prior to 10:00 A.M., New York City time, on the New York Business
Day next succeeding the date of this Agreement and from time to time, to furnish
the Underwriters with copies of the Prospectus in New York City in such
quantities as you may reasonably request, and, if the delivery of a prospectus
is required at any time prior to the expiration of nine months after the time of
issue of the Prospectus in connection with the offering or sale of the Shares
and if at such time any event shall have occurred as a result of which the
Prospectus as then amended or supplemented would include an untrue statement of
a material fact or omit to state any material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were
made when such Prospectus is delivered, not misleading, or, if for any other
reason it shall be necessary during such period to amend or supplement the
Prospectus in order to comply with the Act, to notify you and upon your request
to prepare and furnish without charge to each Underwriter and to any dealer in
securities as many copies as you may from time to time reasonably
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<PAGE>
request of an amended Prospectus or a supplement to the Prospectus which will
correct such statement or omission or effect such compliance, and in case any
Underwriter is required to deliver a prospectus in connection with sales of any
of the Shares at any time nine months or more after the time of issue of the
Prospectus, upon your request but at the expense of such Underwriter, to prepare
and deliver to such Underwriter as many copies as you may request of an amended
or supplemented Prospectus complying with Section 10(a)(3) of the Act;
(d) To make generally available to its security holders as soon as
practicable, but in any event not later than eighteen months after the effective
date of the Registration Statement (as defined in Rule 158(c) under the Act), an
earnings statement of the Company and its subsidiaries (which need not be
audited) complying with Section 11(a) of the Act and the rules and regulations
thereunder (including, at the option of the Company, Rule 158);
(e) During the period beginning from the date hereof and continuing
to and including the date 180 days after the date of the Prospectus, not to
offer, sell, contract to sell or otherwise dispose of, except as provided
hereunder any securities of the Company that are substantially similar to the
Shares, including but not limited to any securities that are convertible into or
exchangeable for, or that represent the right to receive, Stock or any such
substantially similar securities (other than pursuant to employee stock option
plans existing on, or upon the conversion or exchange of convertible or
exchangeable securities outstanding as of, the date of this Agreement), other
than to the Parent upon conversion of notes held by Parent and other than to
purchasers who agree to be subject to an agreement covering the matters
addressed in this paragraph (e) for the balance of such 180 period, without your
prior written consent;
(f) To furnish to its stockholders as soon as practicable after the
end of each fiscal year an annual report (including a balance sheet and
statements of income, stockholders' equity and cash flows of the Company and its
consolidated subsidiaries certified by independent public accountants) and, as
soon as practicable after the end of each of the first three quarters of each
fiscal year (beginning with the fiscal quarter ending after the effective date
of the Registration Statement), to make available to its stockholders
consolidated summary financial information of the Company and its subsidiaries
for such quarter in reasonable detail;
(g) During a period of five years from the effective date of the
Registration Statement, to furnish to you copies of all reports or other
communications (financial or other) furnished to stockholders, and to deliver to
you (i) as soon as they are available, copies of any reports and financial
statements furnished to or filed with the Commission or any national securities
exchange on which any class of securities of the Company is listed; and (ii)
such additional information concerning the business and financial condition of
the Company as you may from time to time reasonably request (such financial
statements to be on a consolidated basis to the extent the accounts of the
Company and its subsidiaries are consolidated in reports furnished to its
stockholders generally or to the Commission);
(h) To use the net proceeds received by it from the sale of the
Shares pursuant to this Agreement in the manner specified in the Prospectus
under the caption "Use of Proceeds";
(i) To use its best efforts to list for quotation the Shares on the
National Association of Securities Dealers Automated Quotations National Market
System ("NASDAQ");
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<PAGE>
(j) To file with the Commission such information on Form 10-Q or Form
10-K as may be required by Rule 463 under the Act;
(k) If the Company elects to rely upon Rule 462(b), the Company shall
file a Rule 462(b) Registration Statement with the Commission in compliance with
Rule 462(b) by 10:00 P.M., Washington, D.C. time, on the date of this Agreement,
and the Company shall at the time of filing either pay to the Commission the
filing fee for the Rule 462(b) Registration Statement or give irrevocable
instructions for the payment of such fee pursuant to Rule 111(b) under the Act;
(l) During a period beginning from the date hereof and continuing to
and including the date 90 days after the date of the Prospectus, not to file a
registration statement on Form S-8 registering shares of Company Stock issued or
reserved for issuance pursuant to any Company stock option plan, stock purchase
plan or other equity incentive plan; and
(m) Not to release any stockholder of the Company from their
obligations not to sell or dispose of any Company Stock pursuant to the various
Investment Representation and Lockup Agreements entered into between the Parent
and certain of the Company's stockholders who acquired Company Stock in
connection with the acquisition of Internet Profiles Corporation by CMGI and the
Company.
6. The Company covenants and agrees with the several Underwriters that
the Company will pay or cause to be paid the following: (i) the fees,
disbursements and expenses of the Company's counsel and accountants in
connection with the registration of the Shares under the Act and all other
expenses in connection with the preparation, printing and filing of the
Registration Statement, any Preliminary Prospectus and the Prospectus and
amendments and supplements thereto and the mailing and delivering of copies
thereof to the Underwriters and dealers; (ii) the cost of printing or producing
any Agreement among Underwriters, this Agreement, the Blue Sky Memorandum,
closing documents (including any compilations thereof) and any other documents
in connection with the offering, purchase, sale and delivery of the Shares;
(iii) all expenses in connection with the qualification of the Shares for
offering and sale under state securities laws as provided in Section 5(b)
hereof, including the fees and disbursements of counsel for the Underwriters in
connection with such qualification and in connection with the Blue Sky survey
(iv) all fees and expenses in connection with listing the Shares on the NASDAQ;
(v) the filing fees incident to, and the fees and disbursements of counsel for
the Underwriters in connection with, securing any required review by the
National Association of Securities Dealers, Inc. of the terms of the sale of the
Shares; (vi) the cost of preparing stock certificates; (vii) the cost and
charges of any transfer agent or registrar; and (viii) all other costs and
expenses incident to the performance of its obligations hereunder which are not
otherwise specifically provided for in this Section. It is understood, however,
that, except as provided in this Section, and Sections 8 and 11 hereof, the
Underwriters will pay all of their own costs and expenses, including the fees of
their counsel, stock transfer taxes on resale of any of the Shares by them, and
any advertising expenses connected with any offers they may make.
7. The obligations of the Underwriters hereunder, as to the Shares to be
delivered at each Time of Delivery, shall be subject, in their discretion, to
the condition that all representations and warranties and other statements of
the Company herein are, at and as of such Time of Delivery,
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true and correct, the condition that the Company shall have performed all of its
obligations hereunder theretofore to be performed, and the following additional
conditions:
(a) The Prospectus shall have been filed with the Commission pursuant
to Rule 424(b) within the applicable time period prescribed for such filing by
the rules and regulations under the Act and in accordance with Section 5(a)
hereof; if the Company has elected to rely upon Rule 462(b), the Rule 462(b)
Registration Statement shall have become effective by 10:00 P.M., Washington,
D.C. time, on the date of this Agreement; no stop order suspending the
effectiveness of the Registration Statement or any part thereof shall have been
issued and no proceeding for that purpose shall have been initiated or
threatened by the Commission; and all requests for additional information on the
part of the Commission shall have been complied with to your reasonable
satisfaction;
(b) Ropes & Gray, counsel for the Underwriters, shall have furnished
to you such written opinion or opinions (a draft of each such opinion is
attached as Annex II(a) hereto), dated such Time of Delivery, with respect to
the matters covered in paragraphs (i), (ii), (v), (viii) and (x) of subsection
(c) below as well as such other related matters as you may reasonably request,
and such counsel shall have received such papers and information as they may
reasonably request to enable them to pass upon such matters;
(c) Hale and Dorr LLP, counsel for the Company, shall have furnished
to you their written opinion (a draft of such opinion is attached as Annex II(b)
hereto), dated such Time of Delivery, in form and substance satisfactory to you,
to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Delaware, with power and authority (corporate and other) to own its
properties and conduct its business as described in the Prospectus;
(ii) The Company has an authorized capitalization as set forth
in the Prospectus, and all of the issued shares of capital stock of the
Company (including the Shares being delivered at such Time of Delivery have
been duly and validly authorized and issued and are fully paid and non-
assessable; and the Shares conform to the description of the Stock
contained in the Prospectus;
(iii) The Company has been duly qualified as a foreign
corporation for the transaction of business and is in good standing under
the laws of Massachusetts;
(iv) To such counsel's knowledge and other than as set forth in
the Prospectus, there are no legal or governmental proceedings pending to
which the Company or any of its subsidiaries is a party or of which any
property of the Company or any of its subsidiaries is the subject which, if
determined adversely to the Company or any of its subsidiaries, would
individually or in the aggregate be reasonably likely to have a Material
Adverse Effect; and, to such counsel's knowledge, no such proceedings are
threatened by governmental authorities or others;
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<PAGE>
(v) This Agreement has been duly authorized, executed and
delivered by the Company;
(vi) The issue and sale of the Shares being delivered at such
Time of Delivery by the Company and the compliance by the Company with all
of the provisions of this Agreement and the consummation of the
transactions herein contemplated will not conflict with or result in a
breach or violation of any of the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, loan agreement or
other agreement or instrument which is filed as an exhibit to the
Registration Statement, nor will such action result in any violation of the
provisions of the Certificate of Incorporation or By-laws of the Company or
any statute or any order, rule or regulation known to such counsel of any
court or governmental agency or body having jurisdiction over the Company
or any of its subsidiaries or any of their properties;
(vii) No consent, approval, authorization, order, registration
or qualification of or with any such court or governmental agency or body
is required for the issue and sale of the Shares or the consummation by the
Company of the transactions contemplated by this Agreement, except the
registration under the Act of the Shares, and such consents, approvals,
authorizations, registrations or qualifications as may be required under
state securities or Blue Sky laws in connection with the purchase and
distribution of the Shares by the Underwriters;
(viii) The statements set forth in the Prospectus under the
caption "Description of Capital Stock", insofar as they purport to
constitute a summary of the terms of the Stock and under the caption
"Underwriting", insofar as they purport to describe the provisions of the
laws and documents referred to therein, are accurate, complete and fair;
(ix) The Company is not an "investment company", as such term
is defined in the Investment Company Act; and
(x) The Registration Statement and the Prospectus and any
further amendments and supplements thereto made by the Company prior to
such Time of Delivery (other than the financial statements and related
schedules therein, and the other financial data included in the Prospectus,
as to which such counsel need express no opinion) comply as to form in all
material respects with the requirements of the Act and the rules and
regulations thereunder; although they do not assume any responsibility for
the accuracy, completeness or fairness of the statements contained in the
Registration Statement or the Prospectus, except for those referred to in
the opinion in subsection (xi) of this section 7(c), nothing has come to
their attention that has caused them to believe that, as of its effective
date, the Registration Statement or any further amendment thereto made by
the Company prior to such Time of Delivery (other than the financial
statements and related schedules therein, and the other financial data
included in the
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Prospectus, as to which such counsel need express no opinion) contained an
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading or that, as of its date, the Prospectus or any further
amendment or supplement thereto made by the Company prior to such Time of
Delivery (other than the financial statements and related schedules
therein, and the other financial data included in the Prospectus, as to
which such counsel need express no opinion) contained an untrue statement
of a material fact or omitted to state a material fact necessary to make
the statements therein, in the light of the circumstances under which they
were made, not misleading or that, as of such Time of Delivery, either the
Registration Statement or the Prospectus or any further amendment or
supplement thereto made by the Company prior to such Time of Delivery
(other than the financial statements and related schedules therein, and the
other financial data included in the Prospectus, as to which such counsel
need express no opinion) contains an untrue statement of a material fact or
omits to state a material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading;
and they do not know of any amendment to the Registration Statement
required to be filed or of any contracts or other documents of a character
required to be filed as an exhibit to the Registration Statement or
required to be described in the Registration Statement or the Prospectus
which are not filed or described as required;
(d) Michael Baker, Esq., general counsel to the Company, shall have
furnished to you his written opinion, dated such Time of Delivery, in form and
substance satisfactory to you, to the effect that:
(i) Each subsidiary of the Company has been duly incorporated
and is validly existing as a corporation in good standing under the laws of
its jurisdiction of incorporation; and all of the issued shares of capital
stock of each such subsidiary have been duly and validly authorized and
issued, are fully paid and non-assessable, and (except for directors'
qualifying shares and except as otherwise set forth in the Prospectus) are
owned directly or indirectly by the Company, free and clear of all liens,
encumbrances, equities or claims known to such counsel (such counsel being
entitled to rely in respect of the opinion in this clause upon opinions of
local counsel and in respect to matters of fact upon certificates of
officers of the Company or its subsidiaries, provided that such counsel
shall state that they believe that both you and they are justified in
relying upon such opinions and certificates);
(ii) Any material real property and buildings held under lease
by the Company and its subsidiaries are held by them under valid,
subsisting and enforceable leases with such exceptions as are not material
and do not interfere with the use made and proposed to be made of such
property and buildings by the Company and its subsidiaries (in giving the
opinion in this clause, such counsel may state that no examination of
record titles for the purpose of such opinion has been made, and that they
are relying upon a general review of the titles of the Company and its
subsidiaries, upon opinions of local counsel and abstracts, reports and
policies of title companies rendered or issued at or subsequent to the time
of acquisition of such property by the Company or its subsidiaries, upon
opinions of counsel to the lessors of such property and, in respect to
matters of fact, upon certificates of officers of the Company or its
subsidiaries, provided that such counsel shall state that they believe that
both you and they are justified in relying upon such opinions, abstracts,
reports, policies and certificates;
(iii) The issue and sale of the Shares being delivered at such
Time of Delivery by the Company and the compliance by the Company with all
of the provisions of this Agreement and the consummation of the
transactions herein contemplated will not conflict
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with or result in a breach or violation of any of the terms or provisions
of, or constitute a default under, any indenture, mortgage, deed of trust,
loan agreement or other agreement or instrument known to such counsel to
which the Company or any of its subsidiaries is a party or by which the
Company or any of its subsidiaries is bound or to which any of the property
or assets of the Company or any of its subsidiaries is subject, nor will
such action result in any violation of the provisions of the Certificate of
Incorporation or By-laws of the Company or any statute or any order, rule
or regulation known to such counsel of any court or governmental agency or
body having jurisdiction over the Company or any of its subsidiaries or any
of their properties;
(e) On the date of the Prospectus at a time prior to the execution of
this Agreement, at 9:30 a.m., New York City time, on the effective date of any
post-effective amendment to the Registration Statement filed subsequent to the
date of this Agreement and also at each Time of Delivery, KPMG Peat Marwick LLP
shall have furnished to you a letter or letters, dated the respective dates of
delivery thereof, in form and substance satisfactory to you, to the effect set
forth in Annex I hereto (the executed copy of the letter delivered prior to the
execution of this Agreement is attached as Annex I(a) hereto and a draft of the
form of letter to be delivered on the effective date of any post-effective
amendment to the Registration Statement and as of each Time of Delivery is
attached as Annex I(b) hereto);
(f) (i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements included in
the Prospectus any loss or interference with its business from fire, explosion,
flood or other calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree, otherwise than as set
forth or contemplated in the Prospectus, and (ii) since the respective dates as
of which information is given in the Prospectus there shall not have been any
change in the capital stock or long-term debt of the Company or any of its
subsidiaries or any change, or any development involving a prospective change,
in or affecting the general affairs, management, financial position,
stockholders' equity or results of operations of the Company and its
subsidiaries, otherwise than as set forth or contemplated in the Prospectus, the
effect of which, in any such case described in Clause (i) or (ii), is in the
judgment of the Representatives so material and adverse as to make it
impracticable or inadvisable to proceed with the public offering or the delivery
of the Shares being delivered at such Time of Delivery on the terms and in the
manner contemplated in the Prospectus;
(g) On or after the date hereof (i) no downgrading shall have
occurred in the rating accorded the Company's debt securities by any "nationally
recognized statistical rating organization", as that term is defined by the
Commission for purposes of Rule 436(g)(2) under the Act, and (ii) no such
organization shall have publicly announced that it has under surveillance or
review, with possible negative implications, its rating of any of the Company's
debt securities;
(h) On or after the date hereof there shall not have occurred any of
the following: (i) a suspension or material limitation in trading in securities
generally on the New York Stock Exchange or on NASDAQ; (ii) a suspension or
material limitation in trading in the Company's securities on NASDAQ; (iii) a
general moratorium on commercial banking activities declared by either Federal
or New York or Massachusetts State authorities; or (iv) the outbreak or
escalation of hostilities involving the United States or the declaration by the
United States of a national emergency or war, if the effect of any such event
specified in this Clause (iv) in the judgment of the Representatives
-13-
<PAGE>
makes it impracticable or inadvisable to proceed with the public offering or the
delivery of the Shares being delivered at such Time of Delivery on the terms and
in the manner contemplated in the Prospectus;
(i) The Shares to be sold at such Time of Delivery shall have been
duly listed for quotation on NASDAQ;
(j) The Company has obtained and delivered to the Underwriters
executed copies of an agreement from stockholders of the Company holding in
aggregate in excess of [95%] of the shares outstanding on the date of this
Agreement, substantially to the effect set forth in Subsection 5(e) hereof in
form and substance satisfactory to you;
(k) The Company shall have complied with the provisions of Section
5(c) hereof with respect to the furnishing of prospectuses on the New York
Business Day next succeeding the date of this Agreement; and
(l) The Company shall have furnished or caused to be furnished to you
at such Time of Delivery certificates of officers of the Company satisfactory to
you as to the accuracy of the representations and warranties of the Company
herein at and as of such Time of Delivery, as to the performance by the Company
of all of its obligations hereunder to be performed at or prior to such Time of
Delivery, as to the matters set forth in subsections (a) and (f) of this Section
and as to such other matters as you may reasonably request.
8. (a) The Company will indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to which
such Underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon an untrue statement or alleged untrue statement of a
material fact contained in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or any amendment or supplement thereto, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse each Underwriter for any legal or
other expenses reasonably incurred by such Underwriter in connection with
investigating or defending any such action or claim as such expenses are
incurred; provided, however, that the Company shall not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in any Preliminary Prospectus, the Registration Statement
or the Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by any Underwriter
through Goldman, Sachs & Co. expressly for use therein.
(b) Each Underwriter will indemnify and hold harmless the Company
against any losses, claims, damages or liabilities to which the Company may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon an untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus, the Registration Statement or the
Prospectus, or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the
-14-
<PAGE>
statements therein not misleading, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was made in any Preliminary Prospectus, the Registration
Statement or the Prospectus or any such amendment or supplement in reliance upon
and in conformity with written information furnished to the Company by such
Underwriter through Goldman, Sachs & Co. expressly for use therein; and will
reimburse the Company for any legal or other expenses reasonably incurred by the
Company in connection with investigating or defending any such action or claim
as such expenses are incurred.
(c) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party otherwise than under such subsection. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party (who shall not,
except with the consent of the indemnified party, be counsel to the indemnifying
party), and, after notice from the indemnifying party to such indemnified party
of its election so to assume the defense thereof, the indemnifying party shall
not be liable to such indemnified party under such subsection for any legal
expenses of other counsel or any other expenses, in each case subsequently
incurred by such indemnified party, in connection with the defense thereof other
than reasonable costs of investigation. No indemnifying party shall, without the
written consent of the indemnified party, effect the settlement or compromise
of, or consent to the entry of any judgment with respect to, any pending or
threatened action or claim in respect of which indemnification or contribution
may be sought hereunder (whether or not the indemnified party is an actual or
potential party to such action or claim) unless such settlement, compromise or
judgment (i) includes an unconditional release of the indemnified party from all
liability arising out of such action or claim and (ii) does not include a
statement as to or an admission of fault, culpability or a failure to act, by or
on behalf of any indemnified party.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the Underwriters
on the other from the offering of the Shares. If, however, the allocation
provided by the immediately preceding sentence is not permitted by applicable
law or if the indemnified party failed to give the notice required under
subsection (c) above, then each indemnifying party shall contribute to such
amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities (or actions in respect thereof), as well as any
other relevant equitable considerations. The relative benefits received by the
Company on the one hand and the Underwriters on the other shall be deemed to be
in the same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company bear to the
-15-
<PAGE>
total underwriting discounts and commissions received by the Underwriters, in
each case as set forth in the table on the cover page of the Prospectus. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company on the one hand or the Underwriters on the other and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company and the Underwriters agree that
it would not be just and equitable if contributions pursuant to this subsection
(d) were determined by pro rata allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of allocation
which does not take account of the equitable considerations referred to above in
this subsection (d). The amount paid or payable by an indemnified party as a
result of the losses, claims, damages or liabilities (or actions in respect
thereof) referred to above in this subsection (d) shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subsection (d), no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which such Underwriter
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this subsection (d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) The obligations of the Company under this Section 8 shall be in
addition to any liability which the Company may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls any
Underwriter within the meaning of the Act; and the obligations of the
Underwriters under this Section 8 shall be in addition to any liability which
the respective Underwriters may otherwise have and shall extend, upon the same
terms and conditions, to each officer and director of the Company (including any
person who, with his or her consent, is named in the Registration Statement as
about to become a director of the Company) and to each person, if any, who
controls the Company within the meaning of the Act.
9. (a) If any Underwriter shall default in its obligation to purchase
the Shares which it has agreed to purchase hereunder at a Time of Delivery, you
may in your discretion arrange for you or another party or other parties to
purchase such Shares on the terms contained herein. If within thirty-six hours
after such default by any Underwriter you do not arrange for the purchase of
such Shares, then the Company shall be entitled to a further period of thirty-
six hours within which to procure another party or other parties satisfactory to
you to purchase such Shares on such terms. In the event that, within the
respective prescribed periods, you notify the Company that you have so arranged
for the purchase of such Shares, or the Company notifies you that it has so
arranged for the purchase of such Shares, you or the Company shall have the
right to postpone such Time of Delivery for a period of not more than seven
days, in order to effect whatever changes may thereby be made necessary in the
Registration Statement or the Prospectus, or in any other documents or
arrangements, and the Company agrees to file promptly any amendments to the
Registration Statement or the Prospectus which in your opinion may thereby be
made necessary. The term "Underwriter" as used in this Agreement shall include
any person substituted under this
-16-
<PAGE>
Section with like effect as if such person had originally been a party to this
Agreement with respect to such Shares.
(b) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters by you and the Company as
provided in subsection (a) above, the aggregate number of such Shares which
remains unpurchased does not exceed one-eleventh of the aggregate number of all
the Shares to be purchased at such Time of Delivery, then the Company shall have
the right to require each non-defaulting Underwriter to purchase the number of
shares which such Underwriter agreed to purchase hereunder at such Time of
Delivery and, in addition, to require each non-defaulting Underwriter to
purchase its pro rata share (based on the number of Shares which such
Underwriter agreed to purchase hereunder) of the Shares of such defaulting
Underwriter or Underwriters for which such arrangements have not been made; but
nothing herein shall relieve a defaulting Underwriter from liability for its
default.
(c) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters by you and the Company as
provided in subsection (a) above, the aggregate number of such Shares which
remains unpurchased exceeds one-eleventh of the aggregate number of all the
Shares to be purchased at such Time of Delivery, or if the Company shall not
exercise the right described in subsection (b) above to require non-defaulting
Underwriters to purchase Shares of a defaulting Underwriter or Underwriters,
then this Agreement (or, with respect to the Second Time of Delivery, the
obligations of the Underwriters to purchase and of the Company to sell the
Optional Shares) shall thereupon terminate, without liability on the part of any
non-defaulting Underwriter or the Company, except for the expenses to be borne
by the Company and the Underwriters as provided in Section 6 hereof and the
indemnity and contribution agreements in Section 8 hereof; but nothing herein
shall relieve a defaulting Underwriter from liability for its default.
10. The respective indemnities, agreements, representations,
warranties and other statements of the Company and the several Underwriters, as
set forth in this Agreement or made by or on behalf of them, respectively,
pursuant to this Agreement, shall remain in full force and effect, regardless of
any investigation (or any statement as to the results thereof) made by or on
behalf of any Underwriter or any controlling person of any Underwriter, or the
Company, or any officer or director or controlling person of the Company, and
shall survive delivery of and payment for the Shares.
11. If this Agreement shall be terminated pursuant to Section 9
hereof, the Company shall not then be under any liability to any Underwriter
except as provided in Sections 6 and 8 hereof; but, if for any other reason, any
Shares are not delivered by or on behalf of the Company as provided herein, the
Company will reimburse the Underwriters through you for all out-of-pocket
expenses approved in writing by you, including fees and disbursements of
counsel, reasonably incurred by the Underwriters in making preparations for the
purchase, sale and delivery of the Shares not so delivered, but the Company
shall then be under no further liability to any Underwriter except as provided
in Sections 6 and 8 hereof.
12. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement
-17-
<PAGE>
on behalf of any Underwriter made or given by you jointly or by Goldman, Sachs &
Co. on behalf of you as the representatives.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to you as the representatives in care of Goldman, Sachs &
Co., 32 Old Slip, 9/th/ Floor, New York, New York 10005, Attention: Registration
Department; and if to the Company shall be delivered or sent by mail to the
address of the Company set forth in the Registration Statement, Attention:
Secretary; provided, however, that any notice to an Underwriter pursuant to
Section 8(c) hereof shall be delivered or sent by mail, telex or facsimile
transmission to such Underwriter at its address set forth in its Underwriters'
Questionnaire, or telex constituting such Questionnaire, which address will be
supplied to the Company by you upon request. Any such statements, requests,
notices or agreements shall take effect upon receipt thereof.
13. This Agreement shall be binding upon, and inure solely to the
benefit of, the Underwriters, the Company and, to the extent provided in
Sections 8 and 10 hereof, the officers and directors of the Company and each
person who controls the Company or any Underwriter, and their respective heirs,
executors, administrators, successors and assigns, and no other person shall
acquire or have any right under or by virtue of this Agreement. No purchaser of
any of the Shares from any Underwriter shall be deemed a successor or assign by
reason merely of such purchase.
14. Time shall be of the essence of this Agreement. As used herein,
the term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
15. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York.
16. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument.
-18-
<PAGE>
If the foregoing is in accordance with your understanding, please sign and
return to us seven counterparts hereof, and upon the acceptance hereof by you,
on behalf of each of the Underwriters, this letter and such acceptance hereof
shall constitute a binding agreement between each of the Underwriters and the
Company. It is understood that your acceptance of this letter on behalf of each
of the Underwriters is pursuant to the authority set forth in a form of
Agreement among Underwriters, the form of which shall be submitted to the
Company for examination upon request, but without warranty on your part as to
the authority of the signers thereof.
Very truly yours,
Engage Technologies, Inc.
By:______________________________
Name:
Title:
Accepted as of the date hereof:
Goldman, Sachs & Co.
Hambrecht & Quist
Bear, Stearns & Co., Inc.
By:________________________________
(Goldman, Sachs & Co.)
On behalf of each of the Underwriters
-19-
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
[Number of Optional
Shares to be
Total Number of Purchased if
Firm Shares Maximum Option
Underwriter to be Purchased Exercised
----------- --------------- -------------------
<S> <C> <C>
Goldman, Sachs & Co..............
Hambrecht & Quist................
Bear, Stearn & Co., Inc..........
[Names of other Underwriters]....
--------------- -------------------
Total..................
--------------- -------------------
</TABLE>
-20-
<PAGE>
ANNEX I
Pursuant to Section 7(d) of the Underwriting Agreement, the accountants
shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants with
respect to the Company and its subsidiaries within the meaning of the Act and
the applicable published rules and regulations thereunder;
(ii) In their opinion, the financial statements and any
supplementary financial information and schedules (and, if applicable, financial
forecasts and/or pro forma financial information) examined by them and included
in the Prospectus or the Registration Statement comply as to form in all
material respects with the applicable accounting requirements of the Act and the
related published rules and regulations thereunder; and, if applicable, they
have made a review in accordance with standards established by the American
Institute of Certified Public Accountants of the unaudited consolidated interim
financial statements, selected financial data, pro forma financial information,
financial forecasts and/or condensed financial statements derived from audited
financial statements of the Company for the periods specified in such letter, as
indicated in their reports thereon, copies of which have been furnished to the
representatives of the Underwriters (the "Representatives") and are attached
hereto;
(iii) They have made a review in accordance with standards
established by the American Institute of Certified Public Accountants of the
unaudited condensed consolidated statements of income, consolidated balance
sheets and consolidated statements of cash flows included in the Prospectus as
indicated in their reports thereon copies of which are attached hereto and on
the basis of specified procedures including inquiries of officials of the
Company who have responsibility for financial and accounting matters regarding
whether the unaudited condensed consolidated financial statements referred to in
paragraph (vi)(A)(i) below comply as to form in all material respects with the
applicable accounting requirements of the Act and the related published rules
and regulations, nothing came to their attention that cause them to believe that
the unaudited condensed consolidated financial statements do not comply as to
form in all material respects with the applicable accounting requirements of the
Act and the related published rules and regulations;
(iv) They have compared the information in the Prospectus under
selected captions with the disclosure requirements of Regulation S-K and on the
basis of limited procedures specified in such letter nothing came to their
attention as a result of the foregoing procedures that caused them to believe
that this information does not conform in all material respects with the
disclosure requirements of Items 301, 302, 402 and 503(d), respectively, of
Regulation S-K;
(v) On the basis of limited procedures, not constituting an
examination in accordance with generally accepted auditing standards, consisting
of a reading of the unaudited financial statements and other information
referred to below, a reading of the latest available interim financial
statements of the Company and its subsidiaries, inspection of the minute books
of the Company and its subsidiaries since the date of the latest audited
financial statements included in the Prospectus, inquiries of officials of the
Company and its subsidiaries responsible for financial and accounting matters
and such other inquiries and procedures as may be specified in such letter,
nothing came to their attention that caused them to believe that:
(A) (i) the unaudited consolidated statements of income,
consolidated balance sheets and consolidated statements of cash flows
included in the Prospectus do not comply as to form in all material
respects with the applicable accounting requirements of the Act and the
related published rules and regulations, or (ii) any material modifications
should be made to the unaudited condensed consolidated statements of
income, consolidated balance sheets and consolidated statements of
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<PAGE>
cash flows included in the Prospectus for them to be in conformity with
generally accepted accounting principles;
(B) any other unaudited income statement data and balance sheet items
included in the Prospectus do not agree with the corresponding items in the
unaudited consolidated financial statements from which such data and items
were derived, and any such unaudited data and items were not determined on
a basis substantially consistent with the basis for the corresponding
amounts in the audited consolidated financial statements included in the
Prospectus;
(C) the unaudited financial statements which were not included in the
Prospectus but from which were derived any unaudited condensed financial
statements referred to in Clause (A) and any unaudited income statement
data and balance sheet items included in the Prospectus and referred to in
Clause (B) were not determined on a basis substantially consistent with the
basis for the audited consolidated financial statements included in the
Prospectus;
(D) any unaudited pro forma consolidated condensed financial
statements included in the Prospectus do not comply as to form in all
material respects with the applicable accounting requirements of the Act
and the published rules and regulations thereunder or the pro forma
adjustments have not been properly applied to the historical amounts in the
compilation of those statements;
(E) as of a specified date not more than five days prior to the date
of such letter, there have been any changes in the consolidated capital
stock (other than issuances of capital stock upon exercise of options and
stock appreciation rights, upon earn-outs of performance shares and upon
conversions of convertible securities, in each case which were outstanding
on the date of the latest financial statements included in the Prospectus)
or any increase in the consolidated long-term debt of the Company and its
subsidiaries, or any decreases in consolidated net current assets or
stockholders' equity or other items specified by the Representatives, or
any increases in any items specified by the Representatives, in each case
as compared with amounts shown in the latest balance sheet included in the
Prospectus, except in each case for changes, increases or decreases which
the Prospectus discloses have occurred or may occur or which are described
in such letter; and
(F) for the period from the date of the latest financial statements
included in the Prospectus to the specified date referred to in Clause (E)
there were any decreases in consolidated net revenues or operating profit
or the total or per share amounts of consolidated net income or other items
specified by the Representatives, or any increases in any items specified
by the Representatives, in each case as compared with the comparable period
of the preceding year and with any other period of corresponding length
specified by the Representatives, except in each case for decreases or
increases which the Prospectus discloses have occurred or may occur or
which are described in such letter; and
(vii) In addition to the examination referred to in their report(s)
included in the Prospectus and the limited procedures, inspection of minute
books, inquiries and other procedures referred to in paragraphs (iii) and (vi)
above, they have carried out certain specified procedures, not constituting an
examination in accordance with generally accepted auditing standards, with
respect to certain amounts, percentages and financial information specified by
the Representatives, which are derived from the general accounting records of
the Company and its subsidiaries, which appear in the Prospectus, or in Part II
of, or in exhibits and schedules to, the Registration Statement specified by the
Representatives, and have compared certain of such amounts, percentages and
financial information with the accounting records of the Company and its
subsidiaries and have found them to be in agreement.
-22-
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
ENGAGE TECHNOLOGIES, INC.
ENGAGE TECHNOLOGIES, INC. (the "Corporation" or the "Company") a
corporation organized and existing under and by virtue of the Delaware General
Corporation Law, does hereby certify that the board of Directors of the
Corporation, by unanimous written consent of all of the Directors of the
Corporation dated April 3, 1998, approved and adopted, pursuant to Section 242
of the Delaware General Corporation Law, this Amended and Restated Certificate
of Incorporation, which restates, integrates and amends the Certificate of
Incorporation of the Corporation in its entirety pursuant to Section 245 of the
Delaware General Corporation Law. The Corporation further certifies that the
stockholders of the Corporation, by written consent dated April 3, 1998,
approved and adopted this Amended and Restated Certificate of Incorporation,
pursuant to Sections 242 and 245 of the Delaware General Corporation Law.
Written notice of the adoption of this Amended and Restated Certificate of
Incorporation has been given as provided by Section 228 of the General
Corporation Law of the State of Delaware to every stockholder entitled to such
notice. The Certificate of Incorporation of the Corporation, as amended to
date, was originally filed with the Secretary of State of Delaware on July 18,
1995 under the name CMG Direct Interactive, Inc. The full text of the Amended
and Restated Certificate of Incorporation is set forth below.
FIRST: the name of the Corporation is Engage Technologies, Inc.
------
SECOND: The address of the Corporation's registered office in the State of
-------
Delaware is 1013 Center Road, Wilmington, Delaware 19805, Country of New Castle,
State of Delaware. The name of its registered agent at such address is The
Prentice-Hall Corporation System, Inc.
THIRD: The purpose of the Corporation is to engage in any lawful act or
------
activity for which corporations may be organized under the General Corporation
Law of the Sate of Delaware.
FOURTH: The aggregate number of shares of all classes of stock which the
-------
Corporation is authorized to issue is twenty five million (25,000,000) shares,
of which five million (5,000,000) shall be shares of Preferred Stock, par value
$0.01 per share (the "Preferred Stock"), and twenty million (20,000,000) shall
be shares of Common Stock, par value $0.01 per share (the "Common Stock").
<PAGE>
Any and all such shares issued for which the full consideration has been
paid or delivered shall be deemed fully paid stock and the holder of such shares
shall not be liable for any further call or assessment or any other payment
thereon.
No holder of any of the shares of any class of stock of the Corporation,
whether now or hereafter authorized or issued, shall be entitled as of right to
purchase or subscribe for (i) any unissued stock of any class whatsoever of
stock of the Corporation, or (ii) any new or additional shares of any class
whatsoever of stock of the Corporation to be issued by reason of any increase of
the authorized stock of the Corporation, or of any class of such stock, or (iii)
bonds, certificates of indebtedness, debentures or other securities convertible
into stock of any class of the Corporation or carrying any right to purchase
stock of any class of the Corporation, but any such unissued stock, or
additionally authorized issue of any stock, or other securities convertible into
stock of the Corporation may be issued and disposed of pursuant to a resolution
or resolutions of the Board of Directors to such persons, firms, corporations,
associations or other entities and upon such terms as may be deemed advisable by
the Board of Directors in the exercise of its sole discretion.
Section 1. Common Stock.
-------------
The powers, preferences, rights, qualifications, limitations and
restrictions relating to the Common Stock are as follows:
(a) The Common Stock is junior to the Preferred Stock and is subject to all
the powers, rights, privileges, preferences and priorities of the Preferred
Stock designated herein or in any resolution or resolutions adopted by the Board
of Directors pursuant to authority expressly vested in it by the provisions of
Section 2 of this Article FOURTH.
(b) The Common Stock shall have voting rights for the election of directors
and for all other purposes (subject to the powers, rights, privileges,
preferences and priorities of the Preferred Stock as provided above), each
holder of Common Stock being entitled to one vote for each share thereof held by
such holder, except as otherwise required by law.
Section 2. Preferred Stock
---------------
The Board of Directors is expressly authorized to provide for the issuance
of all or any part of the shares of the Preferred Stock in one or more classes
or series, and to fix for each such class or series such voting powers, full or
limited or fractional, or no voting powers, and such distinctive designations,
preferences and relative, participating, optional or other special rights, and
such qualifications, limitations or restrictions thereof, as shall be stated and
expressed in the resolution or resolutions adopted by the Board of Directors in
its sole discretion providing for the
- 2 -
<PAGE>
issuance of such class or series and as may be permitted by the Delaware General
Corporation Law, including, without limitation, the authority to determine with
respect to the shares of any such class or series (i) whether such shares shall
be redeemable, and, if so, the terms and conditions of such redemption, whether
for cash, property or rights, including securities of any other corporation, and
whether at the option of either the Corporation or the holder or both, including
the date or dates or the event or events upon or after which they shall be
redeemable, and the amount per share payable in case of redemption, which amount
may vary under different conditions and at different redemption dates; (ii)
whether such shares shall be entitled to receive dividends (which maybe
cumulative or noncumulative) at such rates, on such conditions, and at such
times, and payable in preference to, or in such relation to, the dividends
payable on any other class or classes or any other series; (iii) the rights of
such shares in the event of voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, and the relative rights of priority, if any, of
payment of such shares; (iv) whether such shares shall be convertible into, or
exchangeable for, shares of any other class or classes of stock, or of any other
series of the same or any other class or classes of stock, whether at the option
either of the Corporation or the holder or both, and, if so, the terms and
conditions of such conversion, including provision for adjustment of the
conversion rate in such events as the Board of Directors shall determine; (v)
whether the class or series shall have a sinking fund for the redemption or
purchase of such shares, and, if so, the terms and amount of each sinking fund;
(vi) provisions as to any other voting, optional, and/or special or relative
rights, powers, priorities, preferences, limitations, or restrictions; and (vii)
the number of shares and designation of such class or series.
FIFTH: The Corporation is to have perpetual existence.
------
SIXTH: Election of Directors need not be by written ballot unless the by-
------
laws of the Corporation so provide.
SEVENTH: The Board of Directors of the corporation is expressly authorized
--------
to adopt, amend or repeal the by-laws of the Corporation.
EIGHTH: A director shall not be personally liable to the Corporation or
-------
its stockholders for monetary damages for breach of fiduciary duty as a
director, except to the extent that the elimination or limitation of liability
is not permitted under the Delaware General Corporation Law as in effect when
such liability is determined. No amendment or repeal of this provision shall
deprive a director of the benefits hereof with respect to any act or omission
occurring prior to such amendment or repeal.
NINTH: The Corporation reserved the right to amend, alter, change or
------
repeal any provision contained in this Amended and Restated Certificate of
Incorporation, in
- 3 -
<PAGE>
the manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
This Amended and Restated Certificate of Incorporation was duly adopted in
accordance with the applicable provisions of Sections 242, 245 and 228 of the
Delaware General Corporation Law.
IN WITNESS WHEREOF, Engage Technologies, Inc. has caused its corporation
seal to be affixed hereto and this Certificate to be signed by Paul L. Schaut,
its President, and attested by William Williams II, its Assistant Secretary,
this 3rd day of April, 1998.
ENGAGE TECHNOLOGIES, INC.
By: /s/ Paul L. Schaut
--------------------------
Paul L. Schaut
President
ATTEST
By: /s/ William Williams
--------------------
William Williams II
Assistant Secretary
[Corporate Seal]
- 4 -
<PAGE>
CERTIFICATE OF DESIGNATION OF
SERIES A CONVERTIBLE PREFERRED STOCK
Engage Technologies, Inc., a Delaware corporation (the "Corporation" or the
"Company"), pursuant to authority conferred on the Board of Directors of the
Corporation by the Amended and Restated Certificate of Incorporation of the
corporation and in accordance with the provisions of Section 151 of the General
Corporation Law of the Sate of Delaware, certifies that the Board of Directors
of the corporation, by unanimous consent dated April 3, 1998, has duly adopted
the following resolution providing for the establishment and issuance of a
series of Preferred Stock to be designated "Series A Convertible Preferred
Stock" and to consist of eight hundred thousand (800,000) shares as follows:
RESOLVED: That, pursuant to the authority expressly granted and vested in
the Board of Directors of this Corporation in accordance with
the provisions of its Amended and Restated Certificate of
Incorporation, a series of Preferred Stock of the Corporation
hereby is established, consisting of eight hundred thousand
(8000,000) shares, to be designated "Series A Convertible
Preferred Stock" (hereafter "Series A Preferred Stock"), the
Board of Directors be and hereby is authorized to issue such
shares of Series A Preferred Stock from time to time and for
such consideration and on such terms as the Board of Directors
shall determine; and subject to the limitations provided by law
and by the Corporation's Amended and Restate Certificate of
Incorporation, the powers, designations, preferences and
relative, participating, optional or other special rights,
powers or priorities of, and the qualifications, limitations or
restrictions upon, the Series A Preferred Stock shall be as
follows:
1. Designation. This series of Preferred Stock par value $0.01 per
-----------
share, shall be designated the "Series A Convertible Preferred Stock"
(hereinafter "Series A Preferred Stock").
2. Dividends.
---------
(a) The holders of shares of Series A Preferred Stock shall be
entitled to receive, out of funds legally available therefor, dividends computed
at a rate of 7% or $0.70 per share per annum (or a proportional part thereof for
a portion of a year and all subject to appropriate adjustment in the event of
any stock dividend, stock split, combination or other similar recapitalization
affecting such shares) commencing as of February 1, 1998, payable when, as and
if declared by the Board of Directors of the Corporation. The right to receive
dividends on Series A Preferred Stock shall be
<PAGE>
noncumulative, and no right to receive dividends shall accrue by reason for the
fact that no dividends have been declared on the Series A Preferred Stock in any
or every prior year.
(b) The Corporation shall not declare or pay any distributions on
shares of Common Stock until the holders of shares of Series A Preferred Stock
then outstanding shall have first received a distribution at the rate specified
in paragraph (a) of this Section 2 calculated on a cumulative basis from the
date of issuance of said stock compounded annually as of any anniversary of the
date of issuance of such shares.
(c) For purposes of this Section 2, unless the context requires
otherwise, "distribution" shall mean the transfer of cash or property without
consideration, whether by way of dividend or otherwise, payable other than in
Common Stock or other securities of the Corporation, or the purchase or
redemption of shares of the Corporation (other than repurchases of Common Stock
help by employees or directors of, or consultants to, the Corporation pursuant
to agreements providing for such repurchase and other than redemptions in
liquidation or dissolution of the Corporation) for cash or property, including
any such transfer, purchase or redemption by a subsidiary of the Corporation.
3. Liquidation, Dissolution or Winding Up.
--------------------------------------
(a) In the event of any liquidation, dissolution or winding up of the
Company, and provided that the amount available for distribution to holders of
the Series A Preferred Stock pursuant to this Section 3 is less than $10.00 per
share plus a dividend computed at a rate of 7% or $0.70 per share per annum,
compounded annually as of February 1, 1998 (such amount to be equitably adjusted
whenever there shall occur a stock split, combination, reclassification or other
similar event as provided in Section 5(e)(ii) hereof), whether voluntary or
involuntary, the entire assets of the Company available for such distribution
shall be distributed ratably among the holders of the Series A Preferred Stock.
(b) In the event of any liquidation, dissolution or winding up of the
Company, and provided that the amount available for distribution to holders of
the Series A Preferred Stock pursuant to this Section 3 is at least $10.00 per
share plus a dividend computed at a rate of 7% or $0.70 per share per annum,
compounded annually as of February 1, 1998 (such amount to be equitably adjusted
whenever there shall occur a stock split, combination, reclassification or other
similar event as provided in Section 5(e)(ii) hereof), whether voluntary or
involuntary, holders of each share of Series A Preferred Stock shall be entitled
to be paid first out of the assets of the Company available for distribution to
holders of the Company's capital stock of all classes, whether such assets are
capital, surplus, or earnings, before any sums shall be paid or any assets
distributed among the holders of any other class of capital
- 2 -
<PAGE>
stock, an amount equal to $10.00 per share of Series A Preferred Stock plus a
dividend computed at a rate of 7% or $0.70 per share per annum, compounded
annually as of February 1, 1998. After the payment of the preferential amount
required to be paid to the holders of the Series A Preferred Stock, upon the
liquidation, dissolution or winding up of the Corporation, the holders of shares
of the Corporation's Common Stock shall be entitled to receive the remaining
assets and funds of the Corporation available for distribution to its
stockholders.
(c) A consolidation or merger of the Company or a sale of all or
substantially all of the assets of the Company shall be regarded as a
liquidation, dissolution or winding up of the affairs of the Company within the
meaning of this Section 3; provided, however, that each holder of Series A
Preferred Stock shall have the right to elect the benefits of the provisions of
Section 5(h) hereof in lieu of receiving payment in liquidation, dissolution or
winding up of the Company pursuant to this Section 3. Each holder of Series A
Preferred Stock shall notify the Company in advance of its election to obtain
the benefits of this Section 3(c) or of Section 5(b), which notification shall
be given not later than a date specified in writing to each holder by the
Company to be at least five (5) days prior to the effective date of such
consolidation, merger or sale. If a holder fails to make any election, he shall
be deemed to have elected the benefits of this Section 3(c).
(d) Whenever the distribution provided for herein shall be paid in
property other than cash, the value of such distribution shall be the fair
market value of such property as determined in good faith by the Board of
Directors of the Company.
4. Voting Power. Except as otherwise expressly provided in Section 8
------------
hereof, or as required by law, each holder of Series A Preferred Stock shall be
entitled to vote on all matters and shall be entitled to that number of votes
equal to the largest number of whole shares of Common Stock into which such
holder's shares of Series A Preferred Stock could be converted, pursuant to the
provisions of Section 5 hereof (taking into account all accrued and unpaid
dividends, if any, with respect to such Series A Preferred Stock), at the record
date for the determination of shareholders entitled to vote on such matter or,
if no such record date is established, at the date such vote is taken or any
written consent of shareholders is solicited. Except as otherwise expressly
provided herein or as required by law, the holders of shares of Series A
Preferred Stock and of Common Stock shall be entitled to vote together as a
class on all matters.
5. Conversion Rights. The holders of the Series A Preferred Stock shall
-----------------
have the following conversion rights:
(a) General. Subject to and in compliance with the provisions of this
-------
Section 5, any shares of the Series A Preferred Stock, may, at the option of the
holder,
- 3 -
<PAGE>
be converted at any time or from time to time into fully-paid and non-
assessable shares (calculated as to each conversion to the largest whole share)
of Common Stock. The number of shares of Common Stock to which a holder of
Series A Preferred Stock shall be entitled upon conversion shall be the product
obtained by multiplying the Applicable Conversion Rate (determined as provided
in Section 5(c) by the number of shares of Series A Preferred Stock being
converted. Upon conversion of their shares of Series A Preferred Stock into
shares of Common Stock, holders of shares of Series A Preferred Stock shall also
have the option to have all declared but unpaid dividends on such shares of
Series A Preferred Stock converted into shares of Common Stock. the number of
shares of Common Stock to be received upon the conversion of such declared but
unpaid dividends shall be computed by multiplying the number of shares of Series
A Preferred Stock which could have been purchased with such declared but unpaid
dividends, assuming a Series A Preferred Stock purchase price of $10.00 per
share, by the Applicable Conversion Rate in effect at the time of such
conversion.
(b) Conversion Following Underwritten Public Offering.
-------------------------------------------------
(i) All outstanding shares of Series A Preferred Stock shall, upon the
closing of an underwritten public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended, covering the offering
and sale of Common Stock for the account of the Company in which the Common
Stock is sold at a price to the public of not less than the amount per share
which would be equal to $10.00 per share plus a dividend computed at a rate of
7% or $0.70 per share per annum, compounded annually as of February 1, 1998
(such amount to be equitably adjusted whenever there shall occur a stock split,
combination, reclassification or other similar event affecting the Common Stock)
and in which the aggregate gross proceeds (before deduction of any underwriting
discounts, commissions or expenses) received by the Company from such public
offering, shall equal or exceed Fifteen Million Dollars ($15,0000,000), be
converted automatically into the number of shares of Common Stock to which a
holder of Series A Preferred Stock shall be entitled upon conversion pursuant to
Section 5(a) hereof without any further action by such holders and whether or
not the certificates representing such shares are surrendered to the Company or
its transfer agent for the Common Stock.
(ii) Upon the occurrence of the conversion specified in Section
5(b)(i), the holders of such Series A Preferred Stock shall surrender the
certificates representing such shares at the office of the Company or of its
transfer agent for the Common Stock. Thereupon, there shall be issued and
delivered to each such holder a certificate or certificates for the number of
shares of Common Stock into which the shares of the Series A Preferred Stock
surrendered were convertible on the date on which such conversion occurred. The
Company shall not be obligated to issue certificates evidencing the shares of
Common Stock issuable upon such
- 4 -
<PAGE>
conversion unless certificates evidencing such shares of the Series A Preferred
Stock being converted are either delivered to the Company or any such transfer
agent or the holder notifies the Company or any such transfer agent that such
certificates have been lost, stolen or destroyed and executes an agreement
satisfactory to the Company to indemnify the Company from any loss incurred by
it in connection therewith. In addition, the Company may, if the Board of
Directors deems it reasonably necessary, require the holder to post a bond in
connection with such indemnity agreement.
(c) Applicable Conversion Rate. The conversion rate in effect at any
--------------------------
time (the "Applicable Conversion Rate") shall be the quotient obtained by
dividing (i) $10.00 by (ii) the Applicable Conversion Value, calculated as
provided in Section 5(d).
(d) Applicable Conversion Value. The Applicable Conversion Value in
---------------------------
effect from time to time, except as adjusted in accordance with Section 5(e)
hereof, shall be $1.00 as of the date of this Certificate of Series A
Convertible Preferred Stock.
(e) Adjustments to Applicable Conversion Value.
------------------------------------------
(i) Upon Sales of Common Stock. If the Company shall, while
--------------------------
there are any shares of Series A Preferred Stock outstanding, issue or sell
shares of its Common Stock without consideration or at a price per share less
than the Applicable Conversion Value in effect immediately prior to such
issuance or sale, then in each such case such Applicable Conversion Value upon
each such issuance or sale, except as hereinafter provided, shall be adjusted to
an amount determined by multiplying such Applicable Conversion Value by a
fraction:
(A) the numerator of which shall be (a) the number of
shares of Common Stock outstanding immediately prior to the issuance of
such additional shares of Common Stock, calculated on a fully diluted basis
assuming exercise or conversion of all securities exercisable for or
convertible into Common Stock, whether or not such exercise or conversion
is unvested or otherwise conditional, plus (b) the number of shares of
Common Stock which the net aggregate consideration received by the
Corporation for the total number of such additional shares of Common Stock
so issued would purchase at the Applicable conversion Value, and
(B) the denominator of which shall be (a) the number of
shares of Common Stock outstanding immediately prior to the issuance of
such additional shares of Common Stock, calculated on a fully diluted basis
assuming exercise or
- 5 -
<PAGE>
conversion of all securities exercisable for or convertible into Common
Stock, whether or not such exercise or conversion is unvested or otherwise
conditional, plus (b) the number of such additional shares of Common Stock
so issued or deemed issued.
The Corporation's issuance of up to an aggregate of two million (2,000,000)
shares of Common Stock (such amount to be equitably adjusted whenever there
shall occur a stock split, combination, reclassification or other similar event
affecting the Common Stock), or options exercisable therefor, pursuant to any
stock purchase or stock option plan or other individual or group incentive
program of any kind approved by the Board of Directors to the Corporation's
officers, directors, employees or consultants shall not be deemed an issuance of
additional shares of Common Stock and shall have no effect on the calculations
contemplated by this Section 5(e).
For the purposes of this Section 5(e), the issuance of any warrants,
options, subscriptions or purchase rights with respect to shares of Common Stock
and the issuance of any securities convertible into or exchangeable for shares
of Common Stock (or the issuance of any warrants, options or any rights with
respect to such convertible or exchangeable securities) whether or not such
conversion or exchange is conditional, shall be deemed an issuance at such time
of such Common Stock if the Net Consideration Per Share (as hereinafter
determined) which may be received by the Company for such Common Stock shall be
less than the Applicable Conversion Value at the time of such issuance. Any
obligation, agreement or undertaking to issue warrants, options, subscriptions
or purchase rights at any time in the future shall be deemed to be an issuance
at any time such obligation, agreement or undertaking is made or arises. No
adjustment of the Applicable Conversion Value shall be made under this Section
5(e) upon the issuance of any shares of Common Stock which are issued pursuant
to the exercise of any warrants, options, subscriptions or purchase rights or
pursuant to the exercise of any conversion or exchange rights in any convertible
securities if any adjustment shall previously have been made upon the issuance
of any such warrants, options or subscriptions or purchase rights or upon the
issuance of any convertible securities (or upon the issuance of any warrants,
options or any rights therefor) as above provided. Any adjustment of the
Applicable Conversion Value with respect to this paragraph which relates to
warrants, potions, subscriptions or purchase rights with respect to shares of
Common Stock shall be disregarded if, as, and when all of such warrants,
options, subscriptions or purchase rights expire or are cancelled without being
exercised, so that the Applicable Conversion Value effective immediately upon
such cancellation or expiration shall be equal to the Applicable Conversion
Value in effect at the time of the issuance of the expired or cancelled
warrants, options, subscriptions or purchase rights, with such additional
adjustments as would have been made to that Applicable Conversion Value had the
expired or cancelled warrants, options, subscriptions or purchase rights not
been issued. For purposes of this paragraph, the "Net
- 6 -
<PAGE>
Consideration Per Share" which may be received by the Company shall be
determined as follows:
(A) The "Net Consideration Per Share" shall mean the
amount equal to the total amount of consideration, if any, received by the
Company for the issuance of such warrants, options, subscriptions or other
purchase rights or convertible or exchangeable securities, plus the minimum
amount of consideration, if any, payable to the Company upon exercise,
conversion or exchange thereof, divided by the aggregate number of shares
of Common Stock that would be issued if all such warrants, options,
subscriptions or other purchase rights or convertible or exchangeable
securities were exercised, exchanged or converted.
(B) The "Net Consideration Per Share" which may be
received by the Company shall be determined in each instance as of the date
of issuance of warrants, options, subscriptions or other purchase rights or
convertible or exchangeable securities without giving effect to any
possible future price adjustments or rate adjustments which may be
applicable with respect to such warrants, options, subscriptions or other
purchase rights or convertible or exchangeable securities.
For purposes of this Section 5(e), if a part or all of the consideration
received by the Company in connection with the issuance of shares of the Common
Stock or the issuance of any of the securities described in this Section 5(e)
consists of property other than cash, the Company at its expense will promptly
cause independent public accountants of recognized standing selected by the
Company to value such property, whereupon such value shall be given to such
consideration and shall be recorded on the books of the Company with respect to
receipt of such property.
This Section 5(e)(i) shall not apply under any of the circumstances which
would constitute an Extraordinary Common Stock Event (as hereinafter defined in
Section 5(e)(ii)).
(ii) Upon an Extraordinary Common Stock Event. Upon the
----------------------------------------
happening of an Extraordinary Common Stock Event (as hereinafter defined), the
Applicable Conversion Value shall, simultaneously with the happening of such
Extraordinary Common Stock Event, be adjusted by multiplying the then effective
Applicable Conversion Value by a fraction, the numerator of which shall be the
number of shares of Common Stock outstanding immediately prior to such
Extraordinary Common Stock Event and the denominator of which shall be the
- 7 -
<PAGE>
number of shares of Common Stock outstanding immediately after such
Extraordinary Common Stock event, and the product so obtained shall thereafter
be the Applicable Conversion Value. The Applicable Conversion value, as so
adjusted, shall be readjusted in the same manner upon the happening of any
successive Extraordinary Common Stock Event or Events.
"Extraordinary Common Stock Event" shall mean (i) the issue of additional
shares of Common Stock as a dividend or other distribution on outstanding shares
of Common Stock, (ii) the subdivision of outstanding shares of Common Stock into
a greater number of shares of Common Stock, or (iii) the combination of
outstanding shares of the Common Stock into a smaller number of shares of Common
Stock.
(f) Dividends. In the event the Company shall make or issue, or fix a
---------
record date for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in securities of the Company
other than shares of Common Stock or in assets (excluding cash dividends or
distributions), then and in each such event provisions shall be made so that the
holders of Series A Preferred Stock shall receive upon conversion thereof in
addition to the number of shares of Common Stock receivable thereupon, the
number of securities or such other assets of the Company which they would have
received had their Series A Preferred Stock been converted into Common Stock on
the date of such event and had they thereafter, during the period from the date
of such event to and including the Conversion Date (as that term is hereafter
defined in Section 5(j)), retained such securities or such other assets
receivable by them as aforesaid during such period, giving application to all
adjustments called for during such period under this Section 5 with respect to
the rights of the holders of the Series A Preferred Stock.
(g) Recapitalization or Reclassification. If the Common Stock
------------------------------------
issuable upon the conversion of the Series A Preferred Stock shall be changed
into the same or a different number of shares of any class or classes of stock
of the Corporation, whether by recapitalization, reclassification or otherwise
(other than a subdivision or combination of shares or stock dividend provided
for elsewhere in this Section 5, or a reorganization, merger, consolidation or
sale of assets provided for elsewhere in this Section 5), then and in each such
event the holder of each share of Series A Preferred Stock shall have the right
thereafter to convert such share into the kind and amount of shares of stock and
other securities and property receivable upon such reorganization,
reclassification or other change by holders of the number of shares of Common
Stock into which such share of Series A Preferred Stock might have been
converted (taking into account all accrued and unpaid dividends and interest
with respect to such Series A Preferred Stock) immediately prior to such
reorganization, reclassification or change, all subject to further adjustment as
provided herein.
- 8 -
<PAGE>
(h) Capitalization Reorganization, Merger or Sale of Assets. If at
-------------------------------------------------------
any time or from time to time there shall be a capital reorganization of the
Common Stock (other than a subdivision, combination, reclassification or
exchange of shares provided for elsewhere in this Section 5) or a merger or
consolidation of the Company with or into another corporation or entity, or the
sale of all or substantially all of the Company's properties and assets to any
other person or persons, then, as a part of such reorganization, merger,
consolidation or sale, provision shall be made so that the holders of the Series
A Preferred Stock shall thereafter be entitled to receive upon conversion of the
Series A Preferred Stock, the number of shares of stock or other securities or
property of the Company, or of the successor corporation or entity resulting
from such merger, consolidation or sale, to which a holder of Common Stock
issuable upon conversion would have been entitled on such capital
reorganization, merger, consolidation, or sale. In any such case, appropriate
adjustment shall be made in the application of the provisions of this Section 5
with respect to the rights of the holders of the Series A Preferred Stock after
the reorganization, merger, consolidation or sale to the end that the provisions
of this Section 5 (including adjustment of the Applicable Conversion Value then
in effect and the number of shares purchasable upon conversion of the Series A
Preferred Stock) shall be applicable after that event in as nearly equivalent a
manner as may be practicable.
Each holder of Series A Preferred Stock upon the occurrence of a capital
reorganization, merger or consolidation of the Company, or the sale of all or
substantially all its assets and properties as such events are more fully set
forth in the first paragraph of this Section 5(h), shall have the option of
electing treatment of his shares of Series A Preferred Stock under either this
Section 5(h) or Section 3(b) hereof, notice of which election shall be submitted
in writing to the Company at its principal offices no later than five (5) days
before the effective date of such event.
(i) Accountant's Certificate as to Adjustments. In each case of an
------------------------------------------
adjustment or readjustment of the Applicable Conversion Rate, the Company will
furnish each holder of Series A Preferred Stock with a certificate, prepared by
its chief financial officer showing such adjustment or readjustment, and stating
in detail the facts upon which such adjustment or readjustment is based. Upon
the request of any holder, the Company will cause its independent public
accountants to confirm the accuracy of such adjustment or readjustment.
(j) Exercise of Conversion Privilege. To exercise his conversion
--------------------------------
privilege, a holder of Series A Preferred Stock shall surrender the certificate
or certificates representing the shares being converted to the Company at its
principal office, and shall give written notice to the Company at that office
that such holder elects to convert such shares. Such notice shall also state
the name or names (with address or addresses) in which the certificate or
certificates for shares of Common Stock issuable upon such conversion shall be
issued. The certificate or certificates for
- 9 -
<PAGE>
shares of Series A Preferred Stock surrendered for conversion shall be
accompanied by proper assignment thereof to the Company or in blank. The date
when such written notice is received by the Company, together with the
certificate or certificates representing the shares of Series A Preferred Stock
being converted, shall be the "Conversion Date." As promptly as practicable
after the conversion Date, the Company shall issue and shall deliver to the
holder of the shares of Series A Preferred Stock being converted, or on its
written order, such certificate or certificates as it may request for the number
of whole shares of Common Stock issuable upon the conversion of such shares of
Series A Preferred Stock in accordance with the provisions of this Section 5,
cash in the amount of all unpaid dividends on such shares of Series A Preferred
Stock, up to and including the Conversion Date, unless conversion of such unpaid
dividends into Common Stock has been elected, and cash, as provided in Section
5(k), in respect of any fraction of a share of Common Stock issuable upon such
conversion. Such conversion shall be deemed to have been effected immediately
prior to the close of business on the Conversion Date, and at such time the
rights of the holder as holder of the converted shares of Series A Preferred
Stock shall cease and the person or persons in whose name or names any
certificate or certificates for shares of Common Stock shall be issuable upon
such conversion shall be deemed to have become the holder or holders of record
of the shares of Common Stock represented thereby.
(k) Cash in Lieu of Fractional Shares. No fractional shares of Common
---------------------------------
Stock or scrip representing fractional shares shall be issued upon the
conversion of shares of Series A Preferred Stock. Instead of any fractional
shares of Common Stock which would otherwise be issuable upon conversion of
Series A Preferred Stock, the Company shall pay to the holder of the shares of
Series A Preferred Stock which were converted a cash adjustment in respect of
such fractional shares in an amount equal to the same fraction of the market
price per share of the Common Stock (as determined in a reasonable manner
prescribed by the Board of Directors) at the close of business on the Conversion
Date. The determination as to whether or not any fractional shares are issuable
shall be based upon the total number of shares of Series A Preferred Stock being
converted at any one time by any holder thereof, not upon each share of Series A
Preferred Stock being converted.
(l) Partial Conversion. In the event some but not all of the shares
------------------
of Series A Preferred Stock represented by a certificate or certificates
surrendered by a holder are converted, the Company shall execute and deliver to
or on the order of the holder, at the expense of the Company, a new certificate
representing the number of shares of Series A Preferred Stock which were not
converted.
(m) Reservation of Common Stock. The Company 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, such number of its shares of Common Stock as shall
from time to
- 10 -
<PAGE>
time be sufficient to effect the conversion of all outstanding shares of the
Series A Preferred Stock and all unpaid dividends thereon, and if at any time
the number of authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion of all then outstanding shares of the Series
A Preferred Stock and all unpaid dividends thereon, the Company shall take such
corporate action as may be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purpose.
6. Redemption.
----------
(a) At the written election of a majority in interest of the holders
of Series A Preferred Stock on or before March 1, 2005, beginning on August 1,
2005 and on the first day of July in each year thereafter (the "Redemption
Date"), the Company shall redeem twenty-five percent (25%) of all of the
outstanding shares of Series A Preferred Stock; provided, however, that the
Company's redemption option shall be reduced by the number of shares of Series A
Preferred Stock that have been converted prior to any such Redemption Date, and
such reduction shall apply first to the Redemption Date immediately following
such conversion and thereafter any balance shall apply to any Subsequent
Redemption Dates. The redemption price for each share of Series A Preferred
Stock redeemed pursuant to this Section 6 shall be $10.00 per share plus a
dividend computed at a rate of 7% or $0.70 per share per annum, compounded
annually as of February 1, 1998 (the "Redemption Price"). Each redemption of
Series A Preferred Stock shall be made so that the number of shares of Series A
Preferred Stock held by each holder whose shares are being redeemed shall be
reduced in an amount which shall bear the same ratio to the total number of
shares of Series A Preferred Stock being redeemed as all such shares then held
by such registered owner bears to the aggregate number of shares of Series A
Preferred Stock then outstanding and held by all registered owners whose shares
are being redeemed.
(b) The Redemption Price set forth in this Section 6 shall be subject
to equitable adjustment whenever there shall occur a stock split, combination,
reclassification or other similar event involving the Series A Preferred Stock.
(c) At least thirty (30) days before any Redemption Date pursuant to
Section 6(a), written notice (hereinafter referred to as the "Redemption
Notice") shall be mailed, postage prepaid, to each holder of record of the
Series A Preferred Stock which is to be redeemed, at its address shown on the
records of the Company; provided, however, that the giving of such Redemption
Notice shall not affect the conversion rights of such holder pursuant to Section
5 hereof; provided, further, that the Company's failure to give such Redemption
Notice shall in no way affect its obligation to redeem the shares of Series A
Preferred Stock as provided in Section 6(a) hereof. The Redemption Notice shall
contain the following information:
- 11 -
<PAGE>
(i) The number of shares of Series A Preferred Stock held by
the holder which shall be redeemed by the Company and the total number of shares
of Series A Preferred Stock held by all holders to be so redeemed,
(ii) The Redemption Date and the applicable Redemption Price,
and
(iii) That the holder is to surrender to the Company, at the
place designated therein, its certificate or certificates representing the
shares of Series A Preferred Stock to be redeemed.
(d) Each holder of shares of Series A Preferred Stock to be redeemed
shall surrender the certificate or certificates representing such shares to the
Company at the place designated in the Redemption Notice, and thereupon the
applicable Redemption Price for such shares as set forth in this Section 6 shall
be paid to the order of the person whose name appears on such certificate or
certificates and each surrendered certificate shall be cancelled and retired.
(e) If any shares of Series A Preferred Stock are not redeemed solely
because a holder fails to surrender the certificate or certificates representing
such shares pursuant to Section 6(d) hereof, then, from and after the Redemption
Date, such shares of Series A Preferred Stock thereupon subject to redemption
shall not be entitled to any further accrual of any dividends pursuant to
Section 2 hereof or to the conversion provisions set forth in Section 5 hereof,
unless the company otherwise specifically agrees in writing.
7. No Reissuance of Series A Preferred Stock. No share or shares of
-----------------------------------------
Series A Preferred Stock acquired by the Company by reason of redemption,
purchase, conversion or otherwise shall be reissued, and all such shares shall
be cancelled, retired and eliminated from the shares which the Company shall be
authorized to issue. The Company may from time to time take such appropriate
corporate action as may be necessary to reduce the authorized number of shares
of the Series A Preferred Stock accordingly.
8. Restrictions and Limitations.
----------------------------
(a) Except as expressly provided herein or as required by law, neither
the Company nor any subsidiary of the Company (which shall mean any corporation
or trust of which the Company directly or indirectly owns at the time all of the
outstanding shares of every class of such corporation or trust other than
directors' qualifying shares) shall, without the vote or written consent by the
holders of at least a majority of the then outstanding shares of the Series A
Preferred Stock voting together, each share of Series A Preferred Stock to be
entitled to one vote in each instance for each share of Common Stock into which
such Preferred Stock is then convertible:
- 12 -
<PAGE>
(i) Redeem, purchase or otherwise acquire for value or (pay
in, to or set aside for a sinking fund for such purpose), any share or shares of
Series A Preferred Sock other than pursuant to the redemption provisions
contained elsewhere herein;
(ii) Authorize or issue, or obligate itself to authorize or
issue, any other equity security senior to or on a parity with the Series A
Preferred Stock as to liquidation preferences, conversion rights, redemption
rights, dividend rights, voting rights or otherwise;
(iii) Effect any sale, lease, assignment, transfer or other
conveyance of all or substantially all of the assets of the Company or any
subsidiary thereof, or any consolidation or merger involving the company or any
subsidiary thereof, or any reclassification or other change of stock, or any
recapitalization or any dissolution, liquidation or winding up of the Company;
(iv) Effect any bank borrowings in excess of an aggregate
amount of Two Hundred Fifty Thousand Dollars ($250,000) U.S.;
(v) Effect any merger by the Company with or into any business
entity or any acquisition by the Company of any assets or business having a fair
market value in excess of One Million Dollars ($1,000,000) U.S.; or
(vi) Amend its Amended and Restated Certificate of
Incorporation, if such amendment would change any of the rights, preferences,
privileges of or limitations provided for herein for the benefit of any shares
of Series A Preferred Stock.
9. No Dilution or Impairment. Except as provided in Section 8 above, the
-------------------------
Company will not, by amendment of its Amended and Restated Certificate of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms of the
Series A Preferred Stock set forth herein, but will at all times in good faith
assist in the carrying out of all such terms and in the taking of all such
actions as may be necessary or appropriate in order to protect the rights of the
holders of the Series A Preferred Stock against dilution or other impairment.
Without limiting the generality of the foregoing, the Company (a) will not
increase the par value of any shares of stock receivable on the conversion of
the Series A Preferred Stock above the amount payable therefor on such
conversion, (b) will take all such action as may be necessary or appropriate in
order that the Company may validly and legally issue fully paid
- 13 -
<PAGE>
and non-assessable shares of stock on the conversion of all Series A Preferred
Stock from time to time outstanding and all accrued and unpaid dividends
thereon, and (c) will not transfer all or substantially all of its properties
and assets to any other person (corporate or otherwise), or consolidate with or
merge into any other person or permit any such person to consolidate with or
merge into the Company (if the Company is not the surviving person), unless such
other person shall expressly assume in writing and will be bound by all the
terms of the Series A Preferred Stock set forth herein.
10. Notices of Record Date. In the event of
----------------------
(a) any taking by the Company of a record of the holders of any class
of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, or 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, or
(b) any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the company, any merger or
consolidation of the Company, or any transfer of all or substantially all of the
assets of the Company to any other corporation, or any other entity or person,
or
(c) any voluntary or involuntary dissolution, liquidation or winding
up of the Company.
then and in each such event the Company shall mail or cause to be mailed to each
holder of Series A Preferred Stock a notice specifying (i) the date on which any
such record is to be taken for the purpose of such dividend, distribution or
right and a description of such dividend, distribution or right, (ii) the date
on which any such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding up is expected to
become effective, (iii) the time, if any, that is to be fixed, as to when the
holders of record of Common Stock (or other securities) shall be entitled to
exchange their shares of Common Stock (or other securities) for securities or
other property deliverable upon such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding up. Such notice shall be mailed at least twenty (20) days prior to the
date specified in such notice on which such action is to be taken.
This Certificate of Designation was duly adopted in accordance with the
applicable provisions of Section 151 of the Delaware General Corporation Law.
IN WITNESS WHEREOF, Engage Technologies, Inc., has caused its corporation
seal to be affixed hereto and this Certificate to be signed by Paul L. Schaut,
its
- 14 -
<PAGE>
President, and attested by William Williams II, its Assistant Secretary,
this 3rd day of April, 1998.
ENGAGE TECHNOLOGIES, INC.
By: /s/ Paul L. Schaut
-------------------------
Paul L. Schaut, President
ATTEST
By: /s/ William Williams
--------------------
William Williams II, Assistant Secretary
[Corporate Seal]
- 15 -
<PAGE>
CERTIFICATE OF INCREASE IN SHARES
DESIGNATED AS SERIES A PREFERRED STOCK
Pursuant to Section 151(g) of the General Corporation Law
of the State of Delaware
Engage Technologies, inc., a Delaware corporation (the "Corporation" or the
"Company"), pursuant to authority conferred on the Board of Directors of the
Corporation by the Amended and Restated Certificate of Incorporation of the
Corporation and in accordance with the provisions of Section 151 of the General
Corporation Law of the State of Delaware, certifies that the Board of Directors
of the Corporation, by unanimous consent dated July 31, 1998, has duly adopted
the following resolution providing for the increase in the number of shares of
Preferred Stock to be designated "Series A Preferred Stock" from eight Hundred
Thousand (800,000) shares to One Million Five Hundred Thousand (1,500,000)
shares as follows:
RESOLVED: That pursuant to, and to the extent of, the authority expressly
vested in the Board of Directors of the Corporation by the Restated
Certificate of Incorporation of the Corporation, as amended, the
Board of Directors does hereby adopt a resolution increasing the
number of shares of the Corporation's Preferred Stock designated
"Series A Preferred Stock" (the "Series A Preferred Stock") by Seven
Hundred Thousand (700,000) shares to a total of One Million Five
Hundred Thousand (1,500,000) shares, which number of shares may be
decreased (but not below the number of shares then outstanding) from
time to time by the Board of Directors of the Corporation.
This Certificate of Designation was duly adopted in accordance with the
applicable provisions of Section 151 of the Delaware General Corporation Law.
IN WITNESS WHEREOF, Engage Technologies, Inc., has caused its corporation
seal to be affixed hereto and this Certificate to be signed by Paul L. Schaut,
its President, and attested by William Williams II, its Assistant Secretary,
this 1st day of August, 1998.
ENGAGE TECHNOLOGIES, INC.
By: /s/ Paul L. Schaut
-------------------------
Paul L. Schaut, President
ATTEST
By: /s/ William Williams
----------------------------------------
William Williams II, Assistant Secretary
[Corporate Seal]
<PAGE>
CERTIFICATE OF DESIGNATION OF
SERIES B CONVERTIBLE PREFERRED STOCK
Engage Technologies, Inc., a Delaware corporation (the "Corporation" or the
"Company"), pursuant to authority conferred on the Board of Directors of the
Corporation by the Amended and Restated Certificate of Incorporation of the
Corporation and in accordance with the provisions of Section 151 of the General
Corporation Law of the State of Delaware, certifies that the Board of Directors
of the Corporation, by unanimous consent dated July 31, 1998, has duly adopted
the following resolution providing for the establishment and issuance of a
series of Preferred Stock to be designated "Series B Convertible Preferred
Stock" and to consist of two hundred thirty-eight thousand five hundred ninety-
seven (238,597) shares as follows:
RESOLVED: That, pursuant to the authority expressly granted and vested in the
Board of Directors of this Corporation in accordance with the
provisions of its Amended and Restated Certificate of Incorporation,
a series of Preferred Stock of the Corporation hereby is established,
consisting of two hundred thirty-eight thousand five hundred ninety-
seven (238,597) shares, to be designated "Series B Convertible
Preferred Stock" (hereafter "Series B Preferred Stock"), the Board of
Directors be and hereby is authorized to issue such shares of Series
B Preferred Stock from time to time and for such consideration and on
such terms as the Board of Directors shall determine; and subject to
the limitations provided by law and by the Corporation's Amended and
Restated Certificate of Incorporation, the powers, designations,
preferences and relative, participating, optional or other special
rights, powers or priorities of, and the qualifications, limitations
or restrictions upon, the Series B Preferred Stock shall be as
follows:
1. Designation. This series of Preferred Stock, par value $0.01 per
-----------
share, shall be designated the "Series B Convertible Preferred Stock"
(hereinafter "Series B Preferred Stock").
2. Liquidation, Dissolution or Winding Up.
--------------------------------------
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of Series A
Preferred Stock then outstanding shall be entitled to be paid out of the assets
of the Corporation available for distribution to its stockholders, after and
subject to the payment in full of all amounts required to be distributed to the
holders of any other class or series of stock of the Corporation ranking on
liquidation prior and in preference to the Series A Preferred Stock, but before
any payment shall be made to the holders of Series B Preferred Stock, Common
Stock or any other class or series of stock ranking on liquidation junior to the
Series A Preferred Stock, by reason of their
<PAGE>
ownership thereof, an amount equal to $10.00 per share (subject to appropriate
adjustment in the event of any stock dividend, stock split, combination or other
similar recapitalization affecting such shares), plus any accrued but unpaid
dividends with respect thereto. If upon any such liquidation, dissolution or
winding up of the Corporation, the remaining assets of the Corporation available
for distribution to its stockholders shall be insufficient to pay the holders of
shares of Series A Preferred Stock the full amount to which they shall be
entitled, the holders of shares of Series A Preferred Stock and any class or
series of stock ranking on liquidation on a parity with the Series A Preferred
Stock shall share ratably in any distribution of the remaining assets and funds
of the Corporation in proportion to the respective amounts which would otherwise
be payable in respect of the shares held by them upon such distribution if all
amounts payable on or with respect to such shares were paid in full.
(b) After the payment of all preferential amounts required to be paid
to the holders of Series A Preferred Stock and any other class or series of
stock of the Corporation ranking on liquidation senior to the Series B Preferred
Stock, but before any payment shall be made to the holders of Common Stock or
any other class or series of stock ranking on liquidation junior to the Series B
Preferred Stock upon the liquidation, dissolution or winding up of the
Corporation, the holders of shares of Series B Preferred Stock then outstanding
shall be entitled to be paid out of the assets of the Corporation available for
distribution to its stockholders, by reason of their ownership thereof, an
amount equal to $8.3823 per share (subject to appropriate adjustment in the
event of any stock dividend, stock split, combination or other similar
recapitalization affecting such shares). If upon any such liquidation,
dissolution or winding up of the Corporation, the remaining assets of the
Corporation available for distribution to its stockholders shall be insufficient
to pay the holders of shares of Series B Preferred Stock the full amount to
which they shall be entitled, the holders of shares of Series B Preferred Stock
and any class or series of stock ranking on liquidation on a parity with the
Series B Preferred Stock shall share ratably in any distribution of the
remaining assets and funds of the Corporation in proportion to the respective
amounts which would otherwise be payable in respect of the shares held by them
upon such distribution if all amounts payable on or with respect to such shares
were paid in full.
(c) After the payment of all preferential amounts required to be paid
to the holders of Series A Preferred Stock, Series B Preferred Stock and any
other class or series of stock ranking on liquidation senior to the Common
Stock, upon the dissolution, liquidation or winding up of the Corporation, the
holders of shares of Common Stock then outstanding shall be entitled to receive,
on a pro-rata basis the remaining funds and assets of the Corporation available
for distribution to its stockholders.
(d) With respect to the Series B Preferred Stock, a merger or
consolidation of the Corporation into or with another corporation in which the
holders of the outstanding capital stock of the Corporation immediately prior to
such
<PAGE>
merger or consolidation do not hold a majority of the outstanding capital
stock of the surviving corporation, or the sale of all or substantially all the
assets of the Corporation, shall be deemed to be a liquidation, dissolution or
winding up of the Corporation for purposes of this Section 2 unless the holder
of at least 51% of the then outstanding shares of Series B Preferred Stock elect
to have such events not deemed to be a liquidation, dissolution or winding up of
the Corporation by giving written notice thereof to the Corporation at least ten
(10) days before the effective date of such event. If such notice is given, the
provisions of Subsection 4(h) below shall apply. Whenever the distribution
provided for herein shall be paid in property other than cash, the value of such
distribution shall be the fair market value of such property as determined in
good faith by the Board of Directors of the Corporation.
3. Voting Power. Except as otherwise expressly provided herein or as
------------
required by law, each holder of Series B Preferred Stock shall be entitled to
vote on all matters and shall be entitled to that number of votes equal to the
largest number of whole shares of Common Stock into which such holders shares of
Series B Preferred Stock could be converted, pursuant to the provisions of
Section 4 hereof (taking into account all declared but unpaid dividends, if any,
with respect to such Series B Preferred Stock), at the record date for the
determination of stockholders entitled to vote on such matter or, if no such
record date is established, at the date such vote is taken or any written
consent of stockholders is solicited. Except as otherwise expressly provided
herein or as required by law, the holders of shares of Series A Preferred Stock,
Series B Preferred Stock and of Common Stock shall be entitled to vote together
as a class on all matters.
4. Conversion Rights. The holders of the Series B Preferred Stock shall
-----------------
have the following conversion rights:
(a) General. Subject to and in compliance with the provisions of this
-------
Section 4, any shares of the Series B Preferred Stock, may, at the option of the
holder, be converted at any time or from time to time into fully-paid and non-
assessable shares (calculated as to each conversion to the largest whole share)
of Common Stock. The number of shares of Common Stock to which a holder of
Series B Preferred Stock shall be entitled upon conversion shall be the product
obtained by multiplying the Applicable Conversion Rate (determined as provided
in Section 4(c)) by the number of shares of Series B Preferred Stock being
converted. Upon conversion of their shares of Series B Preferred Stock into
shares of Common Stock, holders of shares of Series B Preferred Stock shall also
have the option to have all declared but unpaid dividends on such shares of
Series B Preferred Stock converted into shares of Common Stock. The number of
shares of Common Stock to be received upon the conversion of such declared but
unpaid dividends shall be computed by multiplying the number of shares of Series
B Preferred Stock which could have been purchased with such declared but unpaid
dividends, assuming a Series B Preferred Stock purchase price of $8.3823 per
share, by the Applicable Conversion Rate in effect at the time of such
conversion.
<PAGE>
(b) Conversion Following Underwritten Public Offering.
-------------------------------------------------
(i) All outstanding shares of Series B Preferred Stock shall, upon the
closing of an underwritten public offering pursuant to an effective registration
statement under the Securities Act of 1933 as amended, covering the offering and
sale of Common Stock for the account of the Company in which the Common Stock is
sold at a price to the public of not less than the amount per share which would
be equal to $10.70 per share (such amount to be equitably adjusted whenever
there shall occur a stock split combination, reclassification or other similar
event affecting the Common Stock) and in which the aggregate gross proceeds
(before deduction of any underwriting discounts, commissions or expenses)
received by the Company from such public offering, shall equal or exceed Fifteen
Million Dollars ($15,000,000), be converted automatically into the number of
shares of Common Stock to which a holder of Series B Preferred Stock shall be
entitled upon conversion pursuant to Section 4(a) hereof without any further
action by such holders and whether or not the certificates representing such
shares are surrendered to the Company or its transfer agent for the Common
Stock.
(ii) Upon the occurrence of the conversion specified in Section
4(b)(i), the holders of such Series B Preferred Stock shall surrender the
certificates representing such shares at the office of the Company or of its
transfer agent for the Common Stock. Thereupon, there shall be issued and
delivered to each such holder a certificate or certificates for the number of
shares of Common Stock into which the shares of the Series B Preferred Stock
surrendered were convertible on the date on which such conversion occurred. The
Company shall not be obligated to issue certificates evidencing the shares of
Common Stock issuable upon such conversion unless certificates evidencing such
shares of the Series B Preferred Stock being converted are either delivered to
the Company or any such transfer agent or the holder notifies the Company or any
such transfer agent that such certificates have been lost, stolen or destroyed
and executes an agreement satisfactory to the Company to indemnify the Company
from any loss incurred by it in connection therewith. In addition, the Company
may, if the Board of Directors deems it reasonably necessary, require the holder
to post a bond in connection with such indemnity agreement.
(c) Applicable Conversion Rate. The conversion rate in effect at any
--------------------------
time (the "Applicable Conversion Rate") shall be the quotient obtained by
dividing (i) $8.3823 by (ii) the Applicable Conversion Value, calculated as
provided in Section 4(d).
(d) Applicable Conversion Value. The Applicable Conversion Value in
---------------------------
effect from time to time, except as adjusted in accordance with Section 4(e)
hereof, shall be $8.3823 as of the date of this Certificate of Series B
Convertible Preferred Stock.
<PAGE>
(e) Adjustments to Applicable Conversion Value.
------------------------------------------
(i) Upon Sales of Common Stock. If the Company shall, while
--------------------------
there are any shares of Series B Preferred Stock outstanding, issue or sell
shares of its Common Stock without consideration or at a price per share less
than the Applicable Conversion Value in effect immediately prior to such
issuance or sale, then in each such case such Applicable Conversion Value upon
each such issuance or sale, except as hereinafter provided, shall be adjusted to
an amount equal to a fraction:
(A) the numerator of which shall be (a) the Applicable
Conversion Value prior to the issuance multiplied by the number of shares
of Common Stock outstanding immediately prior to the issuance of such
additional shares of Common Stock, calculated on a fully diluted basis
assuming exercise or conversion of all securities exercisable for or
convertible into Common Stock, whether or not such exercise or conversion
is unvested or otherwise conditional, plus (b) the price per share of such
additional shares of Common Stock multiplied by number of such additional
shares of Common Stock so issued or deemed issued, and
(B) the denominator of which shall be (a) the number of
shares of Common Stock outstanding immediately prior to the issuance of
such additional shares of Common Stock, calculated on a fully diluted basis
assuming exercise or conversion of all securities exercisable for or
convertible into Common Stock, whether or not such exercise or conversion
is unvested or otherwise conditional, plus (b) the number of such
additional shares of Common stock so issued or deemed issued.
The Corporation's issuance of shares of Common Stock, or options exercisable
therefor, pursuant to any stock purchase or stock option plan or other
individual or group incentive program of any kind approved by the Board of
Directors to the Corporation's officers, directors, employees or consultants
shall not be deemed an issuance of additional shares of Common Stock and shall
have no effect on the calculations contemplated by this Section 4(e).
For the purposes of this Section 4(e), the issuance of any warrants,
options, subscriptions or purchase rights with respect to shares of Common Stock
and the issuance of any securities convertible into or exchangeable for shares
of Common Stock (or the issuance of any warrants, options or any rights with
respect to such convertible or exchangeable securities) whether or not such
conversion or exchange is conditional, shall be deemed an issuance at such time
of such Common Stock if the Net Consideration Per Share (as hereinafter
determined) which may be received by the Company for such Common Stock shall be
less than the Applicable Conversion
<PAGE>
Value at the time of such issuance. Any obligation, agreement or undertaking to
issue warrants, options, subscriptions or purchase rights at any time in the
future shall be deemed to be an issuance at any time such obligation, agreement
or undertaking is made or arises. No adjustment of the Applicable Conversion
Value shall be made under this Section 4(e) upon the issuance of any shares of
Common Stock which are issued pursuant to the exercise of any warrants, options
subscriptions or purchase rights or pursuant to the exercise of any conversion
or exchange rights in any convertible securities if any adjustment shall
previously have been made upon the issuance of any such warrants, options or
subscriptions or purchase rights or upon the issuance of any convertible
securities (or upon the issuance of any warrants, options or any rights
therefor) as above provided. Any adjustment of the Applicable Conversion Value
with respect to this paragraph which relates to warrants, options, subscriptions
or purchase rights with respect to shares of Common Stock shall be disregarded
if, as, and when all of such warrants, options, subscriptions or purchase rights
expire or are canceled without being exercised, so that the Applicable
Conversion Value effective immediately upon such cancellation or expiration
shall be equal to the Applicable Conversion Value in effect at the time of the
issuance of the expired or canceled warrants, options, subscriptions or purchase
rights, with such additional adjustments as would have been made to that
Applicable Conversion Value had the expired or canceled warrants, options,
subscriptions or purchase rights not been issued. For purposes of this
paragraph, the "Net Consideration Per Share" which may be received by the
Company shall be determined as follows:
(A) The "Net Consideration Per Share" shall mean the amount
equal to the total amount of consideration, if any, received by
the Company for the issuance of such warrants, options,
subscriptions or other purchase rights or convertible or
exchangeable securities, plus the minimum amount of
consideration, if any, payable to the Company upon exercise,
conversion or exchange thereof, divided by the aggregate number
of shares of Common Stock that would be issued if all such
warrants, options, subscriptions or other purchase rights or
convertible or exchangeable securities were exercised, exchanged
or converted.
(B) The "Net Consideration Per Share" which may be received
by the Company shall be determined in each instance as of the
date of issuance of warrants, options, subscriptions or other
purchase rights or convertible or exchangeable securities without
giving effect to any possible future price adjustments or rate
adjustments which may be applicable with respect to such
warrants, options, subscriptions or other purchase rights or
convertible or exchangeable securities.
<PAGE>
For purposes of this Section 4(e), if a part or all of the consideration
received by the Company in connection with the issuance of shares of the Common
Stock or the issuance of any of the securities described in this Section 4(e)
consists of property other than cash, the Company at its expense will promptly
cause independent public accountants of recognized standing selected by the
Company to value such property, whereupon such value shall be given to such
consideration and shall be recorded on the books of the Company with respect to
receipt of such property.
This Section 4(e)(i) shall not apply under any of the circumstances which
would constitute an Extraordinary Common Stock Event (as hereinafter defined in
Section 4(e)(ii)).
(ii) Upon an Extraordinary Common Stock Event. Upon the
----------------------------------------
happening of an Extraordinary Common Stock Event (as hereinafter defined), the
Applicable Conversion Value shall, simultaneously with the happening of such
Extraordinary Common Stock Event, be adjusted by multiplying the then effective
Applicable Conversion Value by a fraction, the numerator of which shall be the
number of shares of Common Stock outstanding immediately prior to such
Extraordinary Common Stock Event and the denominator of which shall be the
number of shares of Common Stock outstanding immediately after such
Extraordinary Common Stock event, and the product so obtained shall thereafter
be the Applicable Conversion Value. The Applicable Conversion Value, as so
adjusted, shall be readjusted in the same manner upon the happening of any
successive Extraordinary Common Stock Event or Events.
"Extraordinary Common Stock Event" shall mean (i) the issue of additional
shares of Common Stock as a dividend or other distribution on outstanding shares
of Common Stock, (ii) the subdivision of outstanding shares of Common Stock into
a greater number of shares of Common Stock, or (iii) the combination of
outstanding shares of the Common Stock into a smaller number of shares of Common
Stock.
(f) Dividends. In the event the Company shall make or issue, or fix a
---------
record date for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in securities of the Company
other than shares of Common Stock or in assets (excluding cash dividends or
distributions), then and in each such event provisions shall be made so that the
holders of Series B Preferred Stock shall receive upon conversion thereof in
addition to the number of shares of Common Stock receivable thereupon the number
of securities or such other assets of the Company which they would have received
had their Series B Preferred Stock been converted into Common Stock on the date
of such event and had they thereafter, during the period from the date of such
event to and including the Conversion Date (as that term is hereafter defined in
Section 4(j)), retained such securities or such other assets receivable by them
as aforesaid during such period, giving application to all adjustments called
for during such period under this Section 4 with respect to the rights of the
holders of the Series B Preferred Stock.
<PAGE>
(g) Recapitalization or Reclassification. If the Common Stock
------------------------------------
issuable upon the conversion of the Series B Preferred Stock shall be changed
into the same or a different number of shares of any class or classes of stock
of the Corporation, whether by recapitalization, reclassification or otherwise
(other than a subdivision or combination of shares or stock dividend provided
for elsewhere in this Section 4, or a reorganization, merger, consolidation or
sale of assets provided for elsewhere in this Section 4), then and in each such
event the holder of each share of Series B Preferred Stock shall have the right
thereafter to convert such share into the kind and amount of shares of stock and
other securities and property receivable upon such reorganization,
reclassification or other change by holders of the number of shares of Common
Stock into which such share of Series B Preferred Stock might have been
converted (taking into account all declared and unpaid dividends and interest
with respect to such Series B Preferred Stock) immediately prior to such
reorganization, reclassification or change, all subject to further adjustment as
provided herein.
(h) Capital Reorganization, Merger or Sale of Assets. If at any time
------------------------------------------------
or from time to time there shall be a capital reorganization of the Common Stock
(other than a subdivision, combination, reclassification or exchange of shares
provided for elsewhere in this Section 4) or a merger or consolidation of the
Company with or into another corporation or entity, or the sale of all or
substantially all of the Company's properties and assets to any other person or
persons, then, as a part of such reorganization, merger, consolidation or sale,
provision shall be made so that the holders of the Series B Preferred Stock
shall thereafter be entitled to receive upon conversion of the Series B
Preferred Stock the number of shares of stock or other securities or property of
the Company, or of the successor corporation or entity resulting from such
merger, consolidation or sale, to which such holders would be entitled if they
were holders of the number of shares of Common Stock they were entitled to
receive on conversion of the Series B Preferred Stock held by them immediately
prior to such capital reorganization, merger consolidation, or sale. 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 B Preferred Stock after the reorganization, merger, consolidation or sale
to the end that the provisions of this Section 4 (including adjustment of the
Applicable Conversion Value then in effect and the number of shares purchasable
upon conversion of the Series B Preferred Stock) shall be applicable after that
event in as nearly equivalent a manner as may be practicable.
Each holder of Series B Preferred Stock upon the occurrence of a capital
reorganization, merger or consolidation of the Company, or the sale of all or
substantially all its assets and properties as such events are more fully set
forth in the first paragraph of this Section 4(h), shall have the option of
electing treatment of his shares of Series B Preferred Stock under either this
Section 4(h) or Section 2(d) hereof, notice of which election shall be submitted
in writing to the Company at its principal offices no later than five (5) days
before the effective date of such event.
<PAGE>
(i) Accountant's Certificate as to Adjustments. In each case of an
------------------------------------------
adjustment or readjustment of the Applicable Conversion Rate, the Company will
furnish each holder of Series B Preferred Stock with a certificate, prepared by
its chief financial officer showing such adjustment or readjustment, and stating
in detail the facts upon which such adjustment or readjustment is based. Upon
the request of any holder, the Company will cause its independent public
accountants to confirm the accuracy of such adjustment or readjustment.
(j) Exercise of Conversion Privilege. To exercise his conversion
--------------------------------
privilege, a holder of Series B Preferred Stock shall surrender the certificate
or certificates representing the shares being converted to the Company at its
principal office, and shall give written notice to the Company at that office
that such holder elects to convert such shares. Such notice shall also state
the name or names (with address or addresses) in which the certificate or
certificates for shares of Common Stock issuable upon such conversion shall be
issued. The certificate or certificates for shares of Series B Preferred Stock
surrendered for conversion shall be accompanied by proper assignment thereof to
the Company or in blank. The date when such written notice is received by the
Company, together with the certificate or certificates representing the shares
of Series B Preferred Stock being converted, shall be the "Conversion Date". As
promptly as practicable after the Conversion Date, the Company shall issue and
shall deliver to the holder of the shares of Series B Preferred Stock being
converted, or on its written order, such certificate or certificates as it may
request for the number of whole shares of Common Stock issuable upon the
conversion of such shares of Series B Preferred Stock in accordance with the
provisions of this Section 4, cash in the amount of all unpaid dividends on such
shares of Series B Preferred Stock, up to and including the Conversion Date,
unless conversion of such unpaid dividends into Common Stock has been elected
and cash, as provided in Section 4(k), in respect of any fraction of a share of
Common Stock issuable upon such conversion. Such conversion shall be deemed to
have been effected immediately prior to the close of business on the Conversion
Date, and at such time the rights of the holder as holder of the converted
shares of Series B Preferred Stock shall cease and the person or persons in
whose name or names any certificate or certificates for shares of Common Stock
shall be issuable upon such conversion shall be deemed to have become the holder
or holders of record of the shares of Common Stock represented thereby.
(k) Cash in Lieu of Fractional Shares. No fractional shares of Common
---------------------------------
Stock or scrip representing fractional shares shall be issued upon the
conversion of shares of Series B Preferred Stock. Instead of any fractional
shares of Common Stock which would otherwise be issuable upon conversion of
Series B Preferred Stock, the Company shall pay to the holder of the shares of
Series B Preferred Stock which were converted a cash adjustment in respect of
such fractional shares in an amount equal to the same fraction of the market
price per share of the Common Stock (as determined in a reasonable manner
prescribed by the Board of Directors) at the close of business on the Conversion
Date. The determination as to whether or not any fractional shares are issuable
shall be based upon the total
<PAGE>
number of shares of Series B preferred Stock being converted at any one time by
any holder thereof, not upon each share of Series B Preferred Stock being
converted.
(l) Partial Conversion. In the event some but not all of the shares
------------------
of Series B Preferred Stock represented by a certificate or certificates
surrendered by a holder are converted, the Company shall execute and deliver to
or on the order of the holder, at the expense of the Company, a new certificate
representing the number of shares of Series B Preferred Stock which were not
converted.
(m) Reservation of Common Stock. The Company 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 B 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 the Series B Preferred Stock and all unpaid dividends thereon, and if
at any time the number of authorized but unissued shares of Common Stock shall
not be sufficient to effect the conversion of all then outstanding shares of the
Series B Preferred Stock and all unpaid dividends thereon, the Company shall
take such corporate action as may be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be sufficient
for such purpose.
5. No Reissuance of Series B Preferred Stock. No share or shares of
-----------------------------------------
Series B Preferred Stock acquired by the Company by reason of purchase or
conversion shall be reissued, and all such shares shall be canceled, retired and
eliminated from the shares which the Company shall be authorized to issue. The
Company may from time to time take such appropriate corporate action as may be
necessary to reduce the authorized number of shares of the Series B Preferred
Stock accordingly; provided, that this provision shall not be construed to
permit the amendment of this Certificate of Designation with respect to any
matter other than the number of shares of Series B Stock authorized for
issuance, except with the consent of the holders of a majority in interest of
the issued and outstanding Series B Preferred Stock.
6. No Dilution or Impairment. The Company will not, by amendment of its
-------------------------
Amended and Restated Certificate of Incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of the Series B Preferred Stock set forth
herein, but will at all times in good faith assist in the carrying out of all
such terms and in the taking of all such actions as may be necessary or
appropriate in order to protect the rights of the holders of the Series B
Preferred Stock against dilution or other impairment. Without limiting the
generality of the foregoing, the Company (a) will not increase the par value of
any shares of stock receivable on the conversion of the Series B Preferred Stock
above the amount payable therefor on such conversion, (b) will take all such
action as may be necessary or appropriate in order that the Company may validly
and legally issue fully paid and non-assessable shares of stock on the
conversion of all Series B Preferred Stock from time to time outstanding and all
accrued and unpaid
<PAGE>
dividends thereon, and (c) will not transfer all or substantially all of its
properties and assets to any other person (corporate or otherwise), or
consolidate with or merge into any other person or permit any such person to
consolidate with or merge into the Company (if the Company is not the surviving
person), unless such other person shall expressly assume in writing and will be
bound by all the terms of the Series B Preferred Stock set forth herein.
7. Notices of Record Date. In the event of
----------------------
(a) any taking by the Company of a record of the holders of any class
of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, or 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, or
(b) any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company, any merger or
consolidation of the Company, or any transfer of all or substantially all of the
assets of the Company to any other corporation or any other entity or person, or
(c) any voluntary or involuntary dissolution, liquidation or winding
up of the Company,
then and in each such event the Company shall mail or cause to be mailed to each
holder of Series B Preferred Stock a notice specifying (i) the date on which any
such record is to be taken for the purpose of such dividend, distribution or
right and a description of such dividend, distribution or right, (ii) the date
on which any such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding up is expected to
become effective, (iii) the time, if any, that is to be fixed, as to when the
holders of record of Common Stock (or other securities) shall be entitled to
exchange their shares of Common Stock (or other securities) for securities or
other property deliverable upon such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding up. Such notice shall be mailed at least twenty (20) days prior to the
date specified in such notice on which such action is to be taken.
This Certificate of Designation was duly adopted in accordance with the
applicable provisions of Section 151 of the Delaware General Corporation Law.
<PAGE>
IN WITNESS WHEREOF, Engage Technologies, Inc., has caused its corporation
seal to be affixed hereto and this Certificate to be signed by Paul L. Schaut,
its President, and attested by William Williams II, its Assistant Secretary,
this 1st day of August, 1998.
ENGAGE TECHNOLOGIES, INC.
By: /s/ Paul L. Schaut
-------------------------
Paul L. Schaut, President
ATTEST
By: /s/ William Williams
----------------------------------------
William Williams II, Assistant Secretary
[Corporate Seal]
<PAGE>
AUTHENTICATION:
DATE:
CERTIFICATE OF MERGER
of
ACCIPITER, INC.
into
ENGAGE TECHNOLOGIES, INC.
(the surviving corporation)
Pursuant to Section 251 of the General
Corporation Law of the State of Delaware
Engage Technologies, Inc. (hereinafter called the "Corporation"), organized
and existing under and by virtue of the General Corporation Law of the State of
Delaware, does hereby certify:
FIRST: That the name and state of incorporation of each of the constituent
corporations of the Merger is as follows:
Name State of Incorporation
- ---- ----------------------
Engage Technologies, Inc. Delaware
Accipiter, Inc. Delaware
SECOND: That an Agreement and Plan of Merger between the parties to the
Merger has been approved, adopted, certified, executed and acknowledged by each
of the constituent corporations in accordance with the requirements of Section
251 of the General Corporation Law of the State of Delaware.
THIRD: That the surviving corporation of the Merger is Engage
Technologies, Inc.
FOURTH: The Certificate of Incorporation of Engage Technologies, Inc.
shall become the Certificate of Incorporation of the surviving corporation.
<PAGE>
FIFTH: That the executed Agreement and Plan of Merger is on file at the
principal place of business of the surviving corporation. The address of the
principal place of business of the surviving corporation is 100 Brickstone
Square, 1st Floor, Andover, Massachusetts 01810.
SIXTH: That a copy of the Agreement and Plan of Merger will be furnished
by the surviving corporation, on request and without costs, to any stockholder
of any constituent corporation.
IN WITNESS WHEREOF, Engage Technologies, Inc. has caused this Certificate
to be signed by its authorized officer, with effect as of the 6th day of August,
1998.
ENGAGE TECHNOLOGIES, INC.
By: /s/ Paul L. Schaut
------------------------
Paul L. Schaut, President
ATTEST
By: /s/ William Williams
----------------------------------------
William Williams II, Assistant Secretary
[Corporate Seal]
<PAGE>
CERTIFICATE OF MERGER
of
ACCIPITER, INC.
into
ENGAGE TECHNOLOGIES, INC.
(the surviving corporation)
Pursuant to Section 251 of the General
Corporation Law of the State of Delaware
Engage Technologies, Inc. (hereinafter called the "Corporation"), organized
and existing under and by virtue of the General Corporation Law of the State of
Delaware, does hereby certify:
FIRST: That the name and state of incorporation of each of the constituent
corporations of the Merger is as follows:
Name State of Incorporation
- ---- ----------------------
Engage Technologies, Inc. Delaware
Accipiter, Inc. Delaware
SECOND: That an Agreement and Plan of Merger between the parties to the
Merger has been approved, adopted, certified, executed and acknowledged by each
of the constituent corporations in accordance with the requirements of Section
251 of the General Corporation Law of the State of Delaware.
THIRD: that the surviving corporation of the Merger is Engage
Technologies, Inc.
FOURTH: The Certificate of Incorporation of Engage Technologies, Inc.
shall become the Certificate of Incorporation of the surviving corporation.
FIFTH: That the executed Agreement and Plan of Merger is on file at the
principal place of business of the surviving corporation. The address of the
principal place of business of the surviving corporation is 100 Brickstone
Square, 1st Floor, Andover, Massachusetts 01810.
SIXTH: That a copy of the Agreement and Plan of Merger will be furnished
by the surviving corporation, on request and without costs, to any stockholder
of any constituent corporation.
<PAGE>
IN WITNESS WHEREOF, Engage Technologies, Inc. has caused this Certificate
to be signed by its authorized officer, with effect as of the 6th day of August,
1998.
ENGAGE TECHNOLOGIES, INC.
By: /s/ Paul L. Schaut
-------------------------
Paul L. Schaut, President
ATTEST
By: /s/ William Williams
----------------------------------------
William Williams II, Assistant Secretary
[Corporate Seal]
<PAGE>
CERTIFICATE OF AMENDMENT OF
RESTATED CERTIFICATE OF INCORPORATION OF
ENGAGE TECHNOLOGIES, INC.
It is hereby certified that:
1. The name of the corporation is Engage Technologies, Inc. (the
"Corporation").
2. The Corporation's Restated Certificate of Incorporation is hereby amended
by striking out the first paragraph of Article 4 thereof and by
substituting the following replacement paragraph:
"The aggregate number of shares of all classes of stock which the
Corporation is authorized to issue is thirty five million (35,000,000)
shares, of which five million (5,000,000) shall be shares of Preferred
Stock, par value $0.01 per share (the "Preferred Stock"), and thirty
million (30,000,000) shall be shares of Common Stock, par value $0.01 per
share (the "Common Stock")."
3. This Certificate of Amendment was duly adopted in accordance with the
applicable provisions of Sections 242 and 228 of the Delaware General
Corporation Law.
Signed and attested to on March 24, 1999.
/s/ Paul L. Schaut
---------------------
Paul L. Schaut
President
ATTEST:
/s/ Michael K. Baker
- -----------------------
Michael K. Baker
Secretary
<PAGE>
Exhibit 10.2
------------
ENGAGE TECHNOLOGIES, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
The purpose of this Plan is to provide eligible employees of Engage
Technologies, Inc. (the "Company") and certain of its subsidiaries with
opportunities to purchase shares of the Company's common stock, $.01 par value
(the "Common Stock"). _______________ (______) shares of Common Stock (prior to
giving effect to the ____-for-____ stock split approved by the Company's Board
of Directors on ______, 1999) in the aggregate have been approved for this
purpose. This Plan is intended to qualify as an "employee stock purchase plan"
as defined in Section 423 of the Internal Revenue Code of 1986, as amended (the
"Code"), and the regulations promulgated thereunder, and shall be interpreted
consistent therewith.
1. Administration. The Plan will be administered by the Company's Board
--------------
of Directors (the "Board") or by a Committee appointed by the Board (the
"Committee"). The Board or the Committee has authority to make rules and
regulations for the administration of the Plan and its interpretation and
decisions with regard thereto shall be final and conclusive.
2. Eligibility. All employees of the Company, including Directors who
-----------
are employees, and all employees of any subsidiary of the Company (as defined in
Section 424(f) of the Code) designated by the Board or the Committee from time
to time (a "Designated Subsidiary"), are eligible to participate in any one or
more of the offerings of Options (as defined in Section 9) to purchase Common
Stock under the Plan provided that:
(a) they are customarily employed by the Company or a Designated
Subsidiary for more than 20 hours a week and for more than five months in a
calendar year; and
(b) they have been employed by the Company or a Designated Subsidiary
for at least six months prior to enrolling in the Plan; and
(c) they are employees of the Company or a Designated Subsidiary on
the first day of the applicable Plan Period (as defined below).
No employee may be granted an option hereunder if such employee,
immediately after the option is granted, owns 5% or more of the total combined
voting power or value of the stock of the Company or any subsidiary. For
purposes of the preceding sentence, the attribution rules of Section 424(d) of
the Code shall apply in determining the stock ownership of an employee, and all
stock which the employee has a contractual right to purchase shall be treated as
stock owned by the employee.
<PAGE>
3. Offerings. The Company will make one or more offerings ("Offerings")
---------
to employees to purchase stock under this Plan. Unless otherwise determined by
the Board or Committee, the first Offering will commence on the effective date
of the Company's initial public offering of Common Stock (the "Effective Date")
and end on the last day of the first month following the end of the fiscal
quarter in which such Offering commences, provided that if upon the commencement
of such initial Offering there are less than 30 days remaining in such quarter,
such Offering shall end on the last day of the first month following the next
succeeding fiscal quarter. Unless otherwise determined by the Board or the
Committee, subsequent Offerings will commence on the date after the end of the
preceding Offering and will end on the last day of the third full month
thereafter. Each such period is referred to as a Plan Period (a "Plan Period").
The Board or the Committee may, at its discretion, choose a different Plan
Period for any Offerings.
4. Participation. An employee eligible on the first day of any Offering
-------------
(an "Offering Commencement Date") may participate in such Offering by completing
and forwarding a payroll deduction authorization form to the employee's
appropriate payroll office at least seven (7) days prior to the applicable
Offering Commencement Date. The form will authorize a regular payroll deduction
from the Compensation received by the employee during the Plan Period. Unless
an employee files a new form or withdraws from the Plan, his or her deductions
and purchases will continue at the same rate for future Offerings under the Plan
as long as the Plan remains in effect. The term "Compensation" means the amount
of money reportable on the employee's Federal Income Tax Withholding Statement,
excluding overtime, shift premium, incentive or bonus awards, allowances and
reimbursements for expenses such as relocation allowances for travel expenses,
income or gains on the exercise of Company stock options or stock appreciation
rights, and similar items, whether or not shown on the employee's Federal Income
Tax Withholding Statement, but including, in the case of salespersons, sales
commissions to the extent determined by the Board or the Committee.
5. Deductions. The Company will maintain payroll deduction accounts for
----------
all participating employees. With respect to any Offering made under this Plan,
an employee may authorize a payroll deduction in any whole percentage (not less
than 1% or more than 10%) or dollar amount not less than $10, or such lesser
amount as the Board or Committee shall determine before the start of each Plan
Period, of the Compensation he or she receives during the Plan Period or such
shorter period during which deductions from payroll are made, provided that such
--------
percentage or amount may not result in total deductions of less than $100 for
any Plan Period for any employee.
No employee may be granted an Option (as defined in Section 9) which
permits his rights to purchase Common Stock under this Plan and any other
-2-
<PAGE>
employee stock purchase plan (as defined in Section 423(b) of the Code) of the
Company and its subsidiaries, to accrue at a rate which exceeds $25,000 of the
fair market value of such Common Stock (determined at the Offering Commencement
Date of the Plan Period) for each calendar year in which the Option is
outstanding at any time.
6. Deduction Changes. An employee may decrease, increase or discontinue
-----------------
his payroll deduction once during any Plan Period, by filing a new payroll
deduction authorization form. If an employee elects to discontinue his payroll
deductions during a Plan Period, but does not elect to withdraw his funds
pursuant to Section 8 hereof, funds deducted prior to his or her election to
discontinue will be applied to the purchase of Common Stock on the Exercise Date
(as defined below).
7. Interest. Interest will not be paid on any employee accounts, except
--------
to the extent that the Board or the Committee, in its sole discretion, elects to
credit employee accounts with interest at such per annum rate as it may from
time to time determine.
8. Withdrawal of Funds. An employee may at any time prior to the close
-------------------
of business on the last business day in a Plan Period and for any reason
permanently draw out the balance accumulated in the employee's account and
thereby withdraw from participation in an Offering. Partial withdrawals are not
permitted. The employee may not begin participation again during the remainder
of the Plan Period. The employee may participate in any subsequent Offering in
accordance with terms and conditions established by the Board or the Committee.
9. Purchase of Shares. On the Offering Commencement Date of each Plan
------------------
Period, the Company will grant to each eligible employee who is then a
participant in the Plan an option ("Option") to purchase on the last business
day of such Plan Period (the "Exercise Date"), at the Option Price hereinafter
provided for, the largest number of whole shares of Common Stock of the Company
as does not exceed the number of shares determined by multiplying $1,667 by the
number of full months in the Offering Period and dividing the result by the
closing price (as defined below) on the Offering Commencement Date of such Plan
Period.
The purchase price for each share purchased will be 85% of the closing
price of the Common Stock on (i) the first business day of such Plan Period or
(ii) the Exercise Date, whichever closing price shall be less. Such closing
price shall be (a) the closing price on any national securities exchange on
which the Common Stock is listed, (b) the closing price on the Nasdaq National
Market or (c) the average of the closing bid and asked prices in the over-the-
counter-market, whichever is applicable, as published in The Wall Street
---------------
Journal. If no sales of Common Stock were made on such a day, the price of the
- -------
Common Stock for purposes of clauses (a) and (b) above shall be the reported
price for the next preceding day on which sales were made.
-3-
<PAGE>
Each employee who continues to be a participant in the Plan on the Exercise
Date shall be deemed to have exercised his or her Option at the Option Price on
such date and shall be deemed to have purchased from the Company the number of
full shares of Common Stock reserved for the purpose of the Plan that his
accumulated payroll deductions on such date will pay for, but not in excess of
the maximum number determined in the manner set forth above.
Any balance remaining in an employee's payroll deduction account at the end
of a Plan Period, other than amounts that would have otherwise been applied for
the payment of fractional shares, will be automatically refunded to the
employee.
10. Issuance of Certificates. Certificates representing shares of Common
------------------------
Stock purchased under the Plan may be issued only in the name of the employee,
in the name of the employee and another person of legal age as joint tenants
with rights of survivorship, or (in the Company's sole discretion) in the name
of a brokerage firm, bank or other nominee holder designated by the employee.
The Company may, in its sole discretion and in compliance with applicable laws,
authorize the use of book entry registration of shares in lieu of issuing stock
certificates.
11. Rights on Retirement, Death or Termination of Employment. In the
--------------------------------------------------------
event of a participating employee's termination of employment prior to the last
business day of a Plan Period, no payroll deduction shall be taken from any pay
due and owing to an employee and the balance in the employee's account shall be
paid to the employee or, in the event of the employee's death, (a) to a
beneficiary previously designated in a revocable notice signed by the employee
(with any spousal consent required under state law) or (b) in the absence of
such a designated beneficiary, to the executor or administrator of the
employee's estate or (c) if no such executor or administrator has been appointed
to the knowledge of the Company, to such other person(s) as the Company may, in
its discretion, designate. If, prior to the last business day of the Plan
Period, the Designated Subsidiary by which an employee is employed shall cease
to be a subsidiary of the Company, or if the employee is transferred to a
subsidiary of the Company that is not a Designated Subsidiary, the employee
shall be deemed to have terminated employment for the purposes of this Plan.
12. Optionees Not Stockholders. Neither the granting of an Option to an
--------------------------
employee nor the deductions from his pay shall constitute such employee a
stockholder of the shares of Common Stock covered by an Option under this Plan
until such shares have been purchased by and issued to him or her.
13. Rights Not Transferable. Rights under this Plan are not transferable
-----------------------
by a participating employee other than by will or the laws of descent and
distribution, and are exercisable during the employee's lifetime only by the
employee.
-4-
<PAGE>
14. Application of Funds. All funds received or held by the Company under
--------------------
this Plan may be combined with other corporate funds and may be used for any
corporate purpose.
15. Adjustment in Case of Changes Affecting Common Stock. In the event of
----------------------------------------------------
a subdivision of outstanding shares of Common Stock, or the payment of a
dividend in Common Stock, the number of shares approved for this Plan, and the
share limitation set forth in Section 9, shall be increased proportionately, and
such other adjustment shall be made as may be deemed equitable by the Board or
the Committee. In the event of any other change affecting the Common Stock,
such adjustment shall be made as may be deemed equitable by the Board or the
Committee to give proper effect to such event.
16. Merger. In the event of a merger or consolidation of the Company with
------
or into another corporation, or of a sale of all or substantially all of the
assets of the Company, while unexercised Options remain outstanding under the
Plan, (a) subject to the provisions of clauses (b) and (c), after the effective
date of such transaction, each holder of an outstanding Option shall be
entitled, upon exercise of such Option, to receive in lieu of shares of Common
Stock, shares of such stock or other securities as the holders of shares of
Common Stock received pursuant to the terms of such transaction; or (b) all
outstanding Options may be cancelled by the Board or the Committee as of a date
prior to the effective date of any such transaction and all payroll deductions
shall be paid out to the participating employees; or (c) all outstanding Options
may be cancelled by the Board or the Committee as of the effective date of any
such transaction, provided that notice of such cancellation shall be given to
each holder of an Option, and each holder of an Option shall have the right to
exercise such Option in full based on payroll deductions then credited to his
account as of a date determined by the Board or the Committee, which date shall
not be less than ten (10) days preceding the effective date of such transaction.
17. Amendment of the Plan. The Board may at any time, and from time to
---------------------
time, amend this Plan in any respect, except that (a) if the approval of any
such amendment by the shareholders of the Company is required by Section 423 of
the Code, such amendment shall not be effected without such approval, and (b) in
no event may any amendment be made which would cause the Plan to fail to comply
with Section 423 of the Code.
18. Insufficient Shares. In the event that the total number of shares of
-------------------
Common Stock specified in elections to be purchased under any Offering plus the
number of shares purchased under previous Offerings under this Plan exceeds the
maximum number of shares issuable under this Plan, the Board or the Committee
will allot the shares then available on a pro rata basis.
19. Termination of the Plan. This Plan may be terminated at any time by
-----------------------
the Board. Upon termination of this Plan all amounts in the accounts of
participating employees shall be promptly refunded.
-5-
<PAGE>
20. Governmental Regulations. The Company's obligation to sell and
------------------------
deliver Common Stock under this Plan is subject to listing on a national stock
exchange or quotation on the Nasdaq National Market (to the extent the Common
Stock is then so listed or quoted) and the approval of all governmental
authorities required in connection with the authorization, issuance or sale of
such stock.
21. Governing Law. The Plan shall be governed by Delaware law except to
-------------
the extent that such law is preempted by federal law.
22. Issuance of Shares. Shares may be issued upon exercise of an Option
------------------
from authorized but unissued Common Stock, from shares held in the treasury of
the Company, or from any other proper source.
23. Notification upon Sale of Shares. Each employee agrees, by entering
--------------------------------
the Plan, to promptly give the Company notice of any disposition of shares
purchased under the Plan where such disposition occurs within two years after
the date of grant of the Option pursuant to which such shares were purchased.
24. Effective Date and Approval of Shareholders. The Plan shall take
-------------------------------------------
effect on _____, 1999 subject to approval by the shareholders of the Company as
required by Section 423 of the Code, which approval must occur within twelve
months of the adoption of the Plan by the Board.
Adopted by the Board of Directors on
_______________, 1999
Approved by the stockholders on
_______________, 1999
-6-
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
Exhibit 10.4
------------
[Red Brick Logo]
October 6, 1998
Mr. Paul Schaut
President
Engage Technologies, Inc.
100 Brickstone Square
Andover, Massachusetts 01810
Dear Gentlemen:
This letter sets out my understanding of the agreement we reached during our
telephone conversation earlier today between myself and Paul Schaut.
In exchange for a payment (described on the Schedule attached to and hereby
incorporated into this letter) to be made by Red Brick Systems, Inc. ("Red
Brick") to CMG Information Services, Inc. ("CMGI"), CMGI, Engage Technologies,
Inc. ("Engage") and Red Brick hereby mutually terminate, without any further
action necessary on the part of any party, the Amended and Restated Mutual
Reseller and Alliance Agreement dated July 31, 1998 ('Reseller Agreement"). As
a result of the termination, (i) neither Red Brick nor either of Engage or CMGI
will have any further obligations or any continuing liability under the Reseller
Agreement, and (ii) Red Brick and Engage and CMGI release each other from and
waive any claims regarding past or future performance or non-performance under
the Reseller Agreement.
In addition, Red Brick, Engage and CMGI will immediately begin discussions
regarding the establishment of a mutual reseller arrangement on mutually
agreeable terms, which arrangement will be binding on the parties' successors
and assigns.
Please countersign a copy of this letter where indicated below and return it to
my attention.
Sincerely,
Christopher G. Erickson
President and CEO
AGREED AND ACCEPTED
CMG Information Services, Inc. Engage Technologies, Inc.
By /s/ D.S. Wetherell By /s/ Stephen A. Royal
-------------------------- ---------------------------
Its CEO Its CFO
-------------------------- ---------------------------
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
Schedule
Schedule of Additional Pre-Paid
Royalties Under DSS Software License Agreement
----------------------------------------------
Concurrent with full execution and delivery of the letter to which this Schedule
is attached, Red Brick shall make a pre-payment of guaranteed, non-refundable
royalties of [**] ("Pre-paid Royalties"), in addition to the payments specified
in Section 3.2 of that certain DSS Server Software License Agreement made as of
July 31, 1998, by and between Engage Technologies, Inc. ("Engage"), including
its parent company CMG Information Services, Inc. ("CMGI") and CMGI's majority-
owned subsidiaries, and Red Brick Systems, Inc. ("Red Brick") (the "DSS
Agreement"), which Pre-Paid Royalties shall be applied against Royalty Fees that
become due and owing under Section 3 of the DSS Agreement; provided, however,
that to the extent that such Pre-Paid Royalties cannot be applied against such
Royal Fees according to the following schedule, such Pre-Paid Royalties shall
expire and be forfeited, without recourse:
Date Amount of Pre-Paid Royalties to Expire
---- --------------------------------------
[**] [**]
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
Exhibit 10.5
------------
[NaviSite Logo]
September 16, 1998
This letter agreement ("Agreement") will serve as a binding agreement between
Engage Technologies, Inc. ("Engage") on the one hand, and NaviSite Internet
Services Corporation ("NaviSite") and Servercast Communications, L.L.C.
("Servercast" collectively with NaviSite, "NaviSite/Servercast"), on the other
hand, concerning their respective responsibilities and the revenue sharing
arrangement between the parties for jointly providing the ad management service
solution to be called "AdBureau." This Agreement will remain in force until the
parties complete a definitive agreement ("Definitive Agreement") that more fully
describes terms of the arrangement between Engage and NaviSite/Servercast.
Engage will be responsible for providing the Accipiter AdManager software as
well as the sales, marketing, billing and end user support of Customers using
the AdBureau service.
NaviSite/Servercast will provide Internet connectivity, hardware, Oracle
databases and other relevant software. NaviSite/Servercast will additionally
market and sell AdBureau and bill directly the clients to whom it has sold
AdBureau.
The fees and revenue sharing for the AdBureau service will be as follows:
Fees:
- ----
. Set-up Fee: [**] NaviSite/Servercast, [**] Engage). (NaviSite and Engage
will discuss guidelines to reduce set-up fees to close sale.)
. Engage will sell the AdBureau service at the mutually agreed CPM pricing
levels. A schedule is attached. Changes in pricing will require
NaviSite/Servercast's approval. AdBureau prices assume an average ad size
of 10Kb. If a customer's monthly ads, on average, exceed 10Kb, the customer
will incur an additional monthly fee.
Revenue sharing:
- ---------------
. If AdBureau is sold through Engage the revenue split will be
NaviSite/ServerCast -[**] Engage -[**]
. If AdBureau is sold through NaviSite/ServerCast the revenue split will be
NaviSite/ServerCast -[**] Engage - [**]
Both parties agree to make sure that the right financial model is in place to
ensure both parties are mutually incented.
The information contained in this document is proprietary and confidential. 1
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
Terms and Mutual Exclusivity
- ----------------------------
The initial of the Definitive Agreement shall be three (3) years commencing as
of the Effective Date, unless terminated sooner for a material breach and other
customary early termination events. Engage agrees to partner exclusively with
NaviSite worldwide for the delivery of AdBureau for a three-year period,
beginning on the effective date of the Definitive Agreement. While this is a
worldwide exclusive, if NaviSite is unable to provide, or chooses not to
provide, services in certain foreign markets, Engage will be free to establish
relationships with other vendors to provide AdBureau services in those markets.
NaviSite, in turn, will not partner with competitive ad serving software
companies to resell their ad serving software as a service. However, NaviSite
will not be restricted from selling hosting services to customers for
competitive ad serving software. Additionally, NaviSite may sell competitive ad
serving software as a service if it is Engage-enable or it receives Engage's
prior approval.
The Definitive Agreement will include revenue and profitability targets to be
mutually agreed upon by the parties. There will be a review period every six (6)
months to evaluate if monthly revenues or profitability are below target, in
which case we will jointly re-architect the AdBureau service without affecting
current clients.
Upon the completion of the initial term, the Definitive shall automatically
renew for an additional one (1) year term, unless either party gives written
notice to terminate ninety (90) days prior to the expiration of the initial term
or any renewal term.
Additional provisions:
- ---------------------
. All contracts with customers will be signed with a 1-year minimum to
ensure that any additional infrastructure incurred by NaviSite/ServerCast
will be covered. Variations from the 1-year contract will require
NaviSite/Servercast's approval.
. Engage will provide NaviSite/Sercast with the standard AdBureau contract
for its review/approval. Variations from this standard contract will
require approval by both parties to ensure mutual acceptability.
. NaviSite/Servercast will participate in testing all Beta versions of
AdManager. It will roll out new version based on reasonable best efforts
and reflecting the commercial viability of these new versions. Engage will
make reasonable best efforts to develop these new versions of AdManager
with the needs of NaviSite/Servercast and AdBureau customers in mind.
The information contained in this document is propriety and confidential. 2
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
. Monthly minimum prices:
Tier One (small customers with limited capital; ad serving size,[**]
impressions per month). For these small customers Navisite/Servercast will
not use Oracle.
There will be a cold back-up which means ad serving will be down for about 5 to
10 minutes (in the early am) daily. Fee: [**] monthly minimum with a set-up
charge of [**] upgrade to move to Oracle/Tier two. (To complete the sale, Engage
may drop the minimum charges to [**] monthly and [**] set up.)
Tier Two (customers with greater financial resources; ad serving volume, 1 ad on
up). For these customers NaviSite/Servercast will be using Oracle databases with
a hot back-up. Fee: [**] monthly minimum which corresponds to serving roughly
[**] ad impressions a month at the [**] CPM. (To complete the sale, Engage may
drop the minimum charges to [**] monthly and a [**] set-up.)
The parties hereby execute this Agreement by signing this letter in the space
provided below.
AGREED AND ACCEPTED:
- ------------------------------------------------------------------------
NaviSite Internet Services Engage Technologies, Inc.
- ------------------------------------------------------------------------
By: /s/ [signature By: /s/ Paul Schaut
illegible]
- -----------------------------------------------------------------------
Name: CFO Name: Paul Schaut
- -----------------------------------------------------------------------
Title: Title: CEO
- -----------------------------------------------------------------------
Date: 9/22/98 Date: 9/16/98
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
Servercast Communications, L.L.C.
- -----------------------------------------------------------------------
By: /s/ [signature
illegible]
- -----------------------------------------------------------------------
Name:
- -----------------------------------------------------------------------
Title: CFO
- -----------------------------------------------------------------------
Date: 9/22/98
- -----------------------------------------------------------------------
[SIGNATURE PAGE TO LETTER AGREEMENT DATED SEPTEMBER 16, 1998]
The information contained in this document is propriety and confidential. 3
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
Exhibit 10.7
------------
LICENSE AGREEMENT
This License Agreement ("Agreement") dated as of July 31, 1998 (the
"Effective Date"), is by and between Engage Technologies, Inc., with offices at
100 Brickstone Square, Andover, Massachusetts, U.S.A. 01810 ("Engage") and
Engage Technologies Japan, Inc., with offices at Hitotsubashi 1-2-2, Chiyoda-ku,
Tokyo, Japan 100-8601, formerly known as Sumisho Mineral Resources Development
Co., Ltd. ("Provider").
WHEREAS, Engage is in the business of providing certain data services
useful for marketing on the Internet; and
WHEREAS, Provider desires to maintain and distribute, and Engage agrees to
permit Provider to maintain and distribute, such Engage data services in Japan
upon the terms and conditions set forth below.
NOW, THEREFORE, for and in consideration of the mutual promises contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. Definitions.
-----------
"Customer" means a person or entity domiciled in the Territory that
--------
purchases a Product.
"Data Services" means the Engage proprietary Internet behavioral profiling
-------------
and marketing data services as is currently marketed by Engage as
"Engage.Knowledge", which services permit a Subscriber to access and use a
repository of data generated by user activity on the Internet.
"Know-How" mean all inventions (whether or not patentable), results,
--------
discoveries, improvements, know-how, techniques, materials, products, designs,
processes or other technology or intellectual property rights, including without
limitation the Technology, owned or controlled by Engage and reasonably useful
for the development, use and sale of the Data Services and Products in the
Territory.
"Mark" means the Engage proprietary trademark "Engage.Knowledge."
----
1
<PAGE>
"Product" means a report or analysis generated by Provider through use of
-------
the Technology.
"Provider Technology" means the Engage-proprietary computer software
-------------------
programs required for Provider to operate the Data Services which Engage
currently owns, controls or has the right to use and which Engage is currently
marketing as of the date hereof, which are: Journal Server, Link Server,
Knowledge DSS Engine, Knowledge Profile Engine, and Knowledge Report Engine, as
well as all updates, upgrades and revisions thereto, including the localized
versions thereof. In addition to the foregoing, in the event that Engage
intends to license any additional technology not included above in the Territory
for which Engage may have the right to so license, Engage shall so notify
Provider, and, if requested by Provider within 10 days of receipt of such
notification, shall negotiate for a period not to exceed 60 days the terms under
which such technology shall be added to this Agreement as Provider Technology.
If the parties fail to reach agreement on the addition of such technology
hereunder within such 60-day period, Engage shall be free to license such
technology to any third party; if an agreement is reached on such terms, such
technology shall additionally be Provider Technology under this Agreement.
"Subscriber" means any person or entity domiciled in the Territory that
----------
purchases a subscription to the Data Services.
"Subscriber Technology" means the Engage-proprietary computer software
---------------------
programs required for a Subscriber to utilize the Data Services which Engage
currently owns, controls or has the right to use and which Engage is currently
marketing as of the date hereof, which are: Journal Client and Link Client, as
well as all updates, upgrades and revisions thereto, including the localized
versions, if any, thereof. In addition to the foregoing, in the event that
Engage intends to license any additional technology not included above in the
Territory for which Engage may have the right to so license, Engage shall so
notify Provider, and, if requested by Provider within 10 days of receipt of such
notification, shall negotiate for a period not to exceed 60 days the terms under
which such technology shall be added to this Agreement as Subscriber Technology.
If the parties fail to reach agreement on the addition of such technology
hereunder within such 60-day period, Engage shall be free to license such
technology to any third party; if an agreement is reached on such terms, such
technology shall additionally be Subscriber Technology under this Agreement.
"Subscription Agreement" means an Agreement between Provider and a
----------------------
Subscriber pursuant to which Provider shall sell each subscription to its Data
Services, which agreement shall be substantially similar to the Engage.Knowledge
Agreement attached hereto as Exhibit A as modified by the terms of this
------------------------------------------
Agreement.
- ---------
2
<PAGE>
"Technology" means the Provider Technology and Subscriber Technology
----------
collectively.
"Territory" means Japan.
---------
2. Data Services.
-------------
2.1 Grant of Rights. Subject to the terms of this Agreement, Engage
---------------
grants Provider an exclusive, non-transferable right, without the right to grant
sublicenses except as permitted in Section 2.2, to take the following actions in
the Territory: (i) use the Know How, including the Technology, internally only
at Provider's principal sales office to construct and maintain a data repository
for the purposes of (a) marketing and selling to Subscribers subscriptions to
the Data Services and (b) marketing and selling Products to Customers; (ii) make
one copy of the Technology for back up and archival purposes; (iii) market,
distribute, sell and maintain the Subscriber Technology to and for Subscribers,
and (iv) use the Mark, as permitted in Section 5, solely for purposes of
marketing, distributing, selling and maintaining subscriptions to the Data
Services to Subscribers and Products to Customers. Provider shall not authorize
or appoint any third party as a subdistributor or other sales agent with respect
to the Data Services or Products except in accordance with Section 2.2.
2.2 Subdistributors. With the prior written consent of Engage (which
---------------
shall not be unreasonably withheld), Provider may sublicense its rights under
Section 2.1(iii)-(iv) to further the objectives set forth in this Agreement;
provided that (i) no subdistributor shall be permitted to use the Provider
Technology, or to construct or maintain a data repository, or offer Data
Services or Products, other than in association with the data repository and
Data Services of Provider, and (ii) each such subdistributor agrees to perform
the duties set forth in this Agreement listed below. Provider shall notify
Engage in writing of its intention to appoint any such subdistributor and the
subdistributor's proposed territory, and provide with such notification a full
description of the proposed appointee, including without limitation a
description of its existing territory, facilities, management, sales and
marketing personnel, clientele, product lines, including products or services
which might be competitive with the Data Services or Products, financial
resources, reputation in the marketplace, and any other factors relevant to the
capability of such appointee to effectively market and service the Data Services
and Products in the Territory. Provider shall execute an agreement with each
subdistributor under which the subdistributor is obligated to comply with the
provisions set forth in this Agreement to the extent applicable, including
without limitation those set forth in Sections 2.3, 2.4, 4.1, 5, 6, 8, 9.2 and
10-13. In addition, such agreement shall provide that (i) termination or
expiration of this Agreement shall automatically terminate such agreement, and
(ii) each subdistributor shall provide Provider with the records and right of
inspection set forth in Section 3.5. Provider shall at all times during the
term
3
<PAGE>
of this Agreement make its best endeavors to ensure that each subdistributor
complies with the terms of said agreement. If Provider becomes aware of any
violation of the agreement, it will immediately notify Engage, and Provider
shall take all reasonable steps as directed by Engage to stop such violation
and/or terminate such agreement. Provider shall remain primarily responsible to
Engage for all of its subdistributors' activities. Notwithstanding anything in
this Agreement to the contrary, no subdistributor shall have the right to grant
sublicenses with respect to the rights in Section 2.1.
2.3 Restrictions. Provider will not (and will not allow any third party
------------
to) (i) reverse engineer or attempt to discover any source code or underlying
ideas or algorithms of the Technology, (ii) modify, translate, or otherwise
create "Derivative Works" (as defined at 17 U.S.C. Section 101) of the
Technology or Know How, (iii) incorporate or embed the Technology, in whole or
in part, into another product or other computer software code, (iv) reproduce or
otherwise manufacture the Technology, (v) provide, lease, or lend the
Technology, (vi) allow the removal, alteration, covering or obscuring of any
copyright notice or any other notice or mark that appears on the Technology, on
any copies, or any media, or (vii) copy the Technology, except as expressly
permitted herein. Provider shall not solicit or accept any order for Data
Services or Products from a person or entity domiciled or located outside of the
Territory. Provider shall be fully responsible for the actions of each of its
employees and independent contractors with respect to the proper use and
protection of the Know How. All rights not expressly granted to Provider herein
in the Know How and Technology are reserved by Engage. There are no implied
rights.
2.4 Provider's Duties.
------------------
2.4.1 Marketing Efforts. Provider shall use its best efforts to
-----------------
construct, maintain and promote the distribution and use of the Data Services
and Products in the Territory. Provider shall have full freedom to establish
the price for subscriptions to the Data Services and sale of Products in the
Territory.
2.4.2 Organization. Provider shall maintain a sales organization of
------------
sufficient size and qualifications to promote the sale of subscriptions to the
Data Services and Products throughout the Territory.
2.4.3 Subscription Agreements. Provider shall not sell subscriptions
-----------------------
to the Data Services unless the Subscriber has signed and delivered to Provider
a Subscription Agreement. Provider shall sell, price and enforce the agreement
to use the Data Services in accordance with any restrictions set forth in the
applicable Subscription Agreement with respect to the permitted number of seats,
users, transactions, domain names or other specified parameters. In the event
that Engage modifies materially its current form of Engage.Knowledge Agreement
(attached
4
<PAGE>
hereto as Exhibit A), Provider shall, upon prior notification by Engage,
---------
promptly make corresponding modifications to the Subscriber Agreement. Engage
and Provider may mutually agree to change the Subscriber Agreement as
appropriate.
2.4.4 Enforcement of Licenses. Provider shall make its best
-----------------------
endeavors to enforce the terms of the Subscription Agreement and inform Engage
of any breach of such terms of which Provider becomes aware. Provider shall not
make any representations, warranties, or other statements regarding the Data
Services to any third party other than those contained in the documentation
supplied by Engage with the Data Services.
2.4.5 Marketing Materials. Provider shall submit to Engage for
-------------------
review any advertising, promotional or instructional materials relating to the
Data Services or Products (other than materials supplied by Engage) including
translations of Engage-provided materials, and shall not publish or distribute
any such materials without Engage's prior written approval. Provider further
agrees that Engage shall own all rights to and interests in any translation of
Engage-supplied materials and shall undertake any necessary action to perfect
such rights and interests. All such materials shall remain the sole and
exclusive property of Engage.
2.4.6 Maintenance Services. Provider shall be solely responsible for
--------------------
providing maintenance and support services to its Subscribers and
subdistributors for the Subscriber Technology.
2.4.7 Governmental Registrations and Import Permit. Provider shall
--------------------------------------------
be responsible, at its own expense, for obtaining all (i) governmental
registrations in the Territory required for the performance of this Agreement
(and shall provide translated copies of related documents to Engage), and (ii)
necessary export and import permits and certificates.
2.4.8 Leads. Provider agrees to advise Engage promptly of any
-----
license leads or potential customers for the Data Services or Products outside
of the Territory.
2.4.9 Competitive Services. Provider shall not, except with Engage's
--------------------
prior written consent, either directly or indirectly through a third party,
promote, market, sell, distribute, support or maintain any services reasonably
deemed by Engage to be similar to and competitive with the Data Services or
Products.
2.5 Engage Duties.
-------------
2.5.1 Initial Delivery of Technology. On the Effective Date, Engage
------------------------------
shall provide Provider with the Technology.
5
<PAGE>
Comfidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
2.5.2 Promotional Literature. At Provider's request, Engage shall
----------------------
supply without cost to Provider an initial allotment of Engage's standard
promotional literature (which are written in the English language) for the Data
Services, in accordance with Engage's standard policies. Engage agrees upon
request to provide additional copies of such promotional literature at Engage's
standard rates.
2.5.3 Maintenance Services. Engage shall provide only to Provider
--------------------
on-going localization, support, maintenance and up-grades to the Technology, the
cost of which shall be deemed included in the Royalties (as defined in Section
3.2) received under this agreement and shall not be paid separately.
3. Fees; Payments Terms.
--------------------
3.1 Initial Payment. In consideration of Engage's performance hereunder,
---------------
Provider shall pay to Engage a non-refundable payment in the amount of [**] (the
"Initial Payment"). Engage shall invoice Provider for this amount on July 31,
1998, and Provider shall pay the amount on or before January 31, 1999. As soon
as practicable after the date hereof Provider shall enter into a forward
exchange contract fixing the Yen/Dollar exchange rate for the initial payment
pursuant to the terms set forth in the first sentence of this Clause 3.1.
3.2 Ongoing Royalty. Provider shall pay Engage [**] received by Provider
---------------
from sale of subscriptions to the Data Services, sale of Products and use of the
Know How in any manner (the "Royalty").
3.3 Payment Terms. Except as expressly provided otherwise, all payments
-------------
hereunder shall be made in U.S. dollars on a quarterly basis within thirty (30)
days from the end of each calendar quarter. Royalties payable on revenues
received shall be calculated by multiplying the royalty rate times the revenue
received and converting the resulting amount into United States dollars at the
rate quoted in the Wall Street Journal on the last business day of the quarterly
reporting period to which such royalty payments relate. Any payments more than
thirty (30) days overdue will bear a late payment fee of 1.5% per month, or, if
lower, the maximum rate allowed by law.
3.4 Tax.
---
3.4.1 Initial Payment. If Japanese withholding tax should become due
---------------
on Provider's payment to Engage of the Initial Payment, then Provider shall pay
such withholding tax, as well as any other duties, assessments and taxes
(exclusive of taxes
6
<PAGE>
on Engage's net income). Engage shall reimburse Provider Provider's payment of
any such withholding tax at such time as Engage is ensured of receiving a tax
credit against Engage's U.S. tax liability, and such reimbursement shall be
limited to the amount of any such credit realized by Engage.
3.4.2 Royalty. Provider shall deduct from amounts paid to Engage
-------
under Section 3.2 and pay Japanese withholding taxes. Provider shall pay any
other duties, assessments and taxes (exclusive of taxes on Engage's net income)
applicable to the rights and licenses granted hereunder, to the parties'
respective performance hereunder, or to this Agreement without offset to or
deduction in the amount due to Engage under Section 3.2. Engage shall reimburse
Provider Provider's payment of any such withholding tax at such time as Engage
is ensured of receiving a tax credit against Engage's U.S. tax liability, and
such reimbursement shall be limited to the amount of any such credit realized by
Engage.
3.5 Records; Inspection. Provider shall provide Engage with a written or
-------------------
electronic monthly report, in a mutually agreed upon format, which report shall
be sufficient to verify the sale of subscriptions to the Data Services and
Products and other revenue received, recorded or invoiced from the Know How
(including names and addresses of Subscribers and subdistributors). Upon
Engage's request, at mutually agreeable times, but in no event later than
fifteen (15) days following Engage's request, Engage or an agent or accounting
firm chosen by Engage shall be provided reasonable access during normal business
hours to the records of Provider for purposes of audit of fees, if any, due and
may make copies of such records. In addition, Provider will cooperate with
Engage's reasonable request for Provider to make such inspection with respect to
a subdistributor. Engage shall be provided a reasonable opportunity to
interview Provider's Subscribers and subdistributors and any employees who have
engaged in the marketing related to the Data Services in order to corroborate
the information contained in such records. If any such audit reveals an
underpayment of more than 5% with respect to amounts due in any fiscal quarter
of Provider, Provider shall pay the cost of Engage's audit.
4. Proprietary Rights.
------------------
4.1 Ownership of Know How. For purposes of this Agreement only, as
---------------------
between the parties, Engage and its suppliers have and shall retain all right,
title and interest in and to the Technology and Know How (subject to the
licenses granted herein), all copies, enhancements, improvements and Derivative
Works thereof (including revisions, updates, versions and releases), and all
other materials, including intellectual property rights therein whether existing
as of the Effective Date or created by Engage thereafter, subject to the rights
granted to Provider hereunder. Provider shall retain all right, title and
interest (subject to the licenses granted herein) to technology and data created
by Provider. In the event that Sumitomo Corporation or Provider (each an
"Inventing Party") creates a module or other functionality that
7
<PAGE>
may function independently from the Know How, such Inventing Party shall, at the
request of Engage, grant Engage a worldwide, royalty-bearing, perpetual license
to use and commercialize such module or functionality (i) outside of the
Territory and (ii) inside the Territory upon the termination or expiration of
this Agreement, subject to mutual agreement between the Inventing Party and
Engage on the additional terms and conditions governing such license.
4.2 Rights to Data.
--------------
4.2.1 Rights of Provider. Provider and Engage shall agree on
------------------
reasonable terms and conditions (including without limitation price) upon which
Provider shall be permitted to access and use, solely within the Territory, data
from Engage's proprietary data repository. The price for such access and use
shall be a reasonable cost plus nominal margin.
4.2.2 Rights of Engage. Provider hereby grants to Engage a paid-up,
----------------
royalty-free, worldwide, perpetual, irrevocable license to access, copy and use,
solely outside of the Territory, data from Provider's data repository.
5. Trademark License.
-----------------
Engage hereby grants to Provider the right in the Territory during the term
of this Agreement to use the name "Engage.Knowledge" (the "Mark") only on or in
connection with the Data Services and Products and Provider's advertising for
the Data Services and Products, provided that Provider shall: (i) only use the
Mark in the form and manner, and in accordance with the quality standards, that
Engage prescribes (and which it may change from time to time); (ii) at Engage's
request, submit samples of packaging and advertising to Engage for approval;
(iii) upon termination of this Agreement for any reason, immediately cease all
use of the Mark. All goodwill associated with the Mark and Provider's use of
such Mark shall inure to Engage. Provider shall not contest the validity of,
use, register or attempt to register, or take other action with respect to any
name, logo, trademark, service mark, or other identifier used anywhere in the
world by Engage (or a mark confusingly similar thereto), except to the extent
authorized in writing by Engage in advance. Provider's use of the Mark shall
clearly identify Engage as the owner of the Mark. Provider shall immediately
notify Engage of any potential infringement of the Mark of which Provider
becomes aware.
6. Confidentiality.
---------------
6.1 Confidential Information. The parties acknowledge and agree that
------------------------
during the course of performing their respective duties under this Agreement,
the parties may exchange confidential and proprietary information ("Confidential
Information"). Confidential Information shall include, without limitation, the
Know
8
<PAGE>
How, the terms of this Agreement, customer lists, trade secrets, product plans
and schedules, new product information, technical data and know-how,
instructional and operating manuals, financial information, marketing and sales
data and plans, and other oral and written information. Each party acknowledges
that the Confidential Information of the other party constitutes valuable trade
secrets of that party. Each party agrees, therefore, to preserve the
confidential nature of the other party's Confidential Information by retaining
such Confidential Information in strict confidence and using such Confidential
Information only as required to perform hereunder. Each party agrees to promptly
report to the other party any violations of these provisions by its employees,
consultants, or agents of which they are aware. Except as expressly permitted
under this Agreement, neither party shall use, copy, make, modify, display or
transmit the Confidential Information, in whole or in part, or cause or permit
any third party to do so, without the prior written consent of the other party.
A party shall have no duty of confidentiality under this Section 6.1 with
respect to information the receiving party can document: (a) is or has become
readily publicly available without restriction through no fault of the receiving
party or its employees or agents; (b) is received without restriction from a
third party lawfully in possession of such information and lawfully empowered to
disclose such information; (c) was rightfully in possession of the receiving
party without restriction prior to its disclosure by the other party; (d) was
independently developed by the receiving party without access to such
Confidential Information; or (e) was required to be disclosed by a court or
other governmental authority after reasonable notice is given to the other
party.
6.2 Equitable Relief. If either party breaches any obligation with
----------------
respect to the use or confidentiality of the Confidential Information, the other
party shall be entitled to equitable relief to protect its interests therein,
including without limitation preliminary and permanent injunctive relief in
addition to any other remedies it may have.
7. Term and Termination.
--------------------
7.1 Term. This Agreement shall commence as of the Effective Date and,
----
unless sooner terminated as set forth in Section 7.2, continue indefinitely.
7.2 Termination.
-----------
7.2.1 Termination for Cause. Either party may, at its option,
---------------------
terminate this Agreement if (i) the other party materially breaches a material
provision of this Agreement, (ii) such party gives the other party written
notice of such material breach (the "Default Notice") stating such party's
intention to terminate this Agreement, (iii) the other party fails to correct
such breach within thirty (30) days following its receipt of the Default Notice,
and (iv) such party gives the other party
9
<PAGE>
written notice of termination of this Agreement, which termination will be
effective upon its receipt.
7.2.2 Termination for Financial Distress. In the event that either
----------------------------------
party files a petition in bankruptcy, or has such a petition filed against it
that is not dismissed within thirty (30) days after filing, or is placed in a
receivership or reorganization proceeding or is placed in a trusteeship
involving an insolvency, or ceases doing business in the ordinary course, this
Agreement automatically shall terminate.
7.2.3 Additional Termination Rights. Engage may elect to terminate
-----------------------------
this Agreement immediately upon notice to Provider in the event that: (i) the
Shareholders Agreement between Engage and Sumitomo Corporation of even date
herewith (the "Shareholders Agreement") is terminated for a reason not
attributable to Engage, or (ii) Provider is liquidated or dissolved for any
reason, in which case termination of this Agreement shall be effected
immediately prior to Provider's duly authorized decision to liquidate or
dissolve and otherwise in such a manner as to comply with applicable law and the
objective of this Section 7.2.3, or (iv) Sumitomo Corporation has not, on or
prior to August 31, 1998, satisfied the conditions of Sections 2.2 and 2.3 of
the Shareholders Agreement and consummated an equity investment in Engage of no
less than $1,500,000 due to a reason solely attributable to Sumitomo.
7.2.4 Nonexclusive Remedy. Termination is not an exclusive remedy
-------------------
and all other remedies will be available whether or not termination occurs.
8. Effect of Termination.
---------------------
8.1 Consequences. Upon expiration or termination of this Agreement for
------------
any reason: (i) all licenses and other rights granted to Provider under this
Agreement will become null and void; (ii) each party will return all tangible
embodiments of Confidential Information, catalogs and sales literature in its
possession or control, or at the other party's option, destroy such materials
and provide the other party with a certificate signed by an executive officer
attesting to the destruction thereof; and (iii) all outstanding obligations or
commitments of either party to pay amounts to the other party, if any, will
become immediately due and payable. Each party understands that the rights of
termination hereunder are absolute. Notwithstanding the foregoing, upon the
expiration or termination of this Agreement (but not in the event of termination
of this Agreement due to a breach by Provider), Provider may retain and use
internally, solely for purposes of providing maintenance and support services to
Subscribers, a copy of the Technology if Provider is contractually obligated, as
of the effective date of termination or expiration, to provide such services;
provided, however, that (a) the foregoing right shall terminate earlier of (i)
expiration of the last such Subscriber agreement and (ii) one (1) year from the
date of
10
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such termination, and (b) Engage shall have no obligation to provide Provider or
its Subscribers with any maintenance or support services.
8.2 No Separation Compensation. Under no circumstances shall Engage be
--------------------------
liable to Provider or any of its subdistributors by reason of termination,
expiration or nonrenewal of this Agreement for indemnification, compensation,
reimbursement, or damages for loss of prospective compensation, goodwill or loss
thereof, or expenditures, investments, leases, or any type of commitment made in
connection with the business of such party or in reliance on the existence of
this Agreement including, but not limited to advertising and promotion costs,
costs of supplies, termination of employees, employee salaries, and other such
costs and expenses.
9. Indemnification.
---------------
9.1 Indemnification of Provider. Engage shall, at its expense, indemnify,
---------------------------
hold harmless and defend Provider from and against any and all damages, costs
and expenses, including reasonable attorneys' fees, incurred by Provider in
connection with a claim that the Technology, as delivered by Engage and used by
Provider within the scope of this Agreement, infringes any copyright, provided
that Provider notifies Engage promptly in writing of the infringement claim and
Engage has sole control over the defense or settlement of such claim and
Provider, at its expense, provides reasonable assistance in the defense of the
same. Notwithstanding the foregoing, in the event that an infringement is found
and continued use of the Technology is enjoined, Engage will, at its option and
expense, either: (i) procure for Provider the right to continue to use the
Technology; (ii) modify or alter the Technology so that it becomes non-
infringing; or (iii) replace the Technology with a non-infringing alternative.
If all of these options may only be exercised by Engage at an unreasonable cost,
then Engage may require Provider to immediately cease all use and distribution
of the Technology and terminate the Subscription Agreements under this Agreement
and pay to the Provider the Technology purchase fees that Provider paid to
Engage, less a portion for prior usage, amortized over a 3 year period.
Engage shall have no obligation to indemnify Provider with respect to any
claim based upon (i) any modification of the Technology by a party other than
Engage; (ii) the combination, operation or use of the Technology with a non-
Engage software program or data if the claim would have been avoided had such
combination, operation or use not occurred; or (iii) the use of other than the
latest release of the Technology, if such claim could have been avoided by use
of the latest unmodified release. Engage's obligation to indemnify Provider
will be reduced to the extent the damages could have been reduced by Provider's
use of the latest release.
9.2 Indemnification of Engage. Provider shall, at its expense, indemnify,
-------------------------
hold harmless and defend Engage from, and against any and all damages, costs and
expenses including reasonable attorneys' fees, incurred by Engage in connection
with
11
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any claim (i) against Engage by any Subscriber which relates to such
Subscriber's relationship with Provider or a subdistributor (and not to any
direct relationship which Engage may have with such Subscriber), (ii) arising
from the performance of the Data Services by Provider, or (iii) any
representation, promise, guarantee or warranty made or implied by Provider or a
subdistributor to the extent it exceeds or differs from those expressly set
forth in the documentation accompanying the Data Services EXCEPT as may be
attributed to Engage's failure to meet the representations, warranties,
covenants or other agreements herein or in the Shareholders Agreement:
10. Warranty and Disclaimer.
-----------------------
10.1 Warranty of Authority. Engage represents and warrants that it
---------------------
possesses the rights in the Know How to perform its obligations hereunder. The
representations and warranties contained in Clauses 22.2 and 22.4 of the
Shareholders Agreement shall apply in relation to the Technology as if they were
set forth in full herein for the benefit of Provider.
10.2 DISCLAIMER OF WARRANTIES. EXCEPT AS SET FORTH HEREIN OR IN THE
------------------------
SHAREHOLDERS AGREEMENT, ENGAGE MAKES NO WARRANTIES OR REPRESENTATIONS TO
PROVIDER OR ANY OTHER PERSON AS TO THE TECHNOLOGY, SOFTWARE OR ANY SERVICES
RENDERED WITH THE TECHNOLOGY OR SOFTWARE. ENGAGE DISCLAIMS ALL EXPRESS AND
IMPLIED WARRANTIES, ORAL OR WRITTEN, INCLUDING BUT NOT LIMITED TO, IMPLIED
WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NONINFRINGEMENT
AND ANY WARRANTIES ARISING FROM COURSE OF DEALING, COURSE OF PERFORMANCE OR
USAGE OF THE TRADE.
10.3 Acknowledgment. Provider acknowledges that the Know How and
--------------
Technology have not been prepared to meet the individual requirements of
Provider or its Subscribers. It is the responsibility of Provider and its
Subscribers to ensure that the functions and facilities performed by the
Technology and Data Services meet the Subscriber's requirements.
11. Limitation of Liability.
-----------------------
NOTWITHSTANDING ANYTHING ELSE IN THIS AGREEMENT OR OTHERWISE, NEITHER
ENGAGE NOR ITS AFFILIATES SHALL BE LIABLE OR OBLIGATED WITH RESPECT TO THE
SUBJECT MATTER OF THIS AGREEMENT OR UNDER ANY CONTRACT, NEGLIGENCE, STRICT
LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY (I) FOR ANY AMOUNTS IN EXCESS IN
THE AGGREGATE OF THE FEES PAID TO IT HEREUNDER; OR (II) SPECIAL, CONSEQUENTIAL,
INCIDENTAL, RELIANCE, EXEMPLARY, OR INDIRECT DAMAGES (INCLUDING SUCH DAMAGES DUE
TO LOSS OF DATA, PROFITS,
12
<PAGE>
OR COMPUTER FAILURE) EVEN IF ENGAGE HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES.
12. Export Control.
--------------
Provider shall comply with all applicable export laws and restrictions.
13. Miscellaneous.
-------------
13.1 Assignment. Provider shall not assign this Agreement (by operation
----------
of law or otherwise), or any rights or obligations hereunder, without the prior
written consent of Engage (and any attempt to do so shall be null and void).
Subject to the limitations above, this Agreement will mutually benefit and be
binding upon the parties, their successors and assigns.
13.2 Waiver. No waiver of any portion of this Agreement shall be
------
effective unless in writing. The failure of a party at any time to require
performance by the other party of any provision shall in no way affect the right
of such party to enforce that or any other provision of this Agreement. No
waiver of any breach of this Agreement shall constitute a waiver of any
subsequent breach of the same or any other provision of this Agreement.
13.3 Notices. All notices given pursuant to this Agreement shall be in
-------
writing sent prepaid by certified or registered mail or overnight express
service, with return receipt requested in each case. All notices sent by
certified mail shall be effective three days after being sent out provided that
a facsimile copy is contemporaneously sent. Notices sent by overnight express
service shall be effective as of the first business day following submission to
the overnight express delivery service. All such notices shall be directed to
the respective parties at the addresses set forth on the first page of this
Agreement unless either party notifies the other in writing of a new address.
13.4 Law and Jurisdiction. This Agreement shall be governed and
--------------------
interpreted in all respects by and according to the laws of the Commonwealth of
Massachusetts, U.S.A., excluding its choice of law provisions. It is the
express intent and agreement of the parties that the United Nations Convention
for the International Sale of Goods shall not apply to this Agreement or to
purchase orders thereunder. This Agreement is written in the English language.
13.5 Disputes. Any dispute, controversy or difference which may arise
--------
among the parties out of or in relation to or in connection with this Agreement
or for the breach thereof shall be amicably settled by consultation among the
parties. All such disputes, controversies and differences, if not settled
amicably, shall be finally settled by arbitration pursuant to the Rules of
Conciliation and Arbitration of the
13
<PAGE>
International Chamber of Commerce by three arbitrators appointed in accordance
with the said rules. In the event that the arbitration is sought by Engage, the
arbitration shall be held in Tokyo, Japan. In the event that the arbitration is
sought by Provider, the arbitration shall be held in Boston, Massachusetts,
U.S.A. The arbitration shall be in the English language. Notwithstanding the
foregoing, each party shall have the right to institute judicial proceedings
against the other party or anyone acting by, through or under such other party
in order to enforce the instituting party's rights hereunder through reformation
of contract, specific performance, injunction or similar equitable relief.
13.6 Compliance With Law. Each party shall at all times during the term
-------------------
of this Agreement perform its duties hereunder in accordance with all local,
state, federal and international laws and regulations, including without
limitation the Foreign Corrupt Practices Act of the United States. Provider
shall take all actions that are reasonably required to ensure that this
Agreement and the transaction contemplated hereby comply with all applicable
laws, regulations, rules or other legal and administrative requirements in the
Territory.
13.7 Independent Contractor. Provider agrees that it is an independent
----------------------
contractor and that this Agreement and relations between Engage and Provider
hereby established do not constitute a joint venture, agency or contract of
employment between them, or any other similar relationship. Neither party has
the right or authority to assume or create any obligation or responsibility on
behalf of the other.
13.8 Severability. If any provision of this Agreement shall be adjudged
------------
by any court of competent jurisdiction to be unenforceable or invalid, that
provision shall be limited or eliminated to the minimum extent necessary so that
this Agreement shall otherwise remain in full force and effect and enforceable.
13.9 English. This Agreement has been drafted and executed in the English
-------
language. In the event of any ambiguity between the English language version
and any translation into any other language, the meaning and intent contained in
the English language version shall prevail.
13.10 Entire Agreement. This Agreement, including Exhibit A attached
---------------- ---------
hereto, constitutes the complete and exclusive statement of the mutual
understanding of the parties relating to the subject matter hereof, and
supersede and cancel all previous written and oral agreements and communications
relating to the subject matter of this Agreement and said agreements.
13.11 Section Headings. Section headings are for convenience only and
----------------
shall not be considered in the interpretation of this Agreement.
14
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
13.12 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. It shall not be a
condition to effectiveness that each party shall have executed the same
counterpart.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their duly authorized representatives as of the date first
written above.
ENGAGE TECHNOLOGIES, INC. ENGAGE TECHNOLOGIES JAPAN, INC.
By: /s/ Paul Schaut By: /s/ Makoto Shibahara
-------------------------------- -------------------------------
Name: Paul Schaut Name: Makoto Shibahara
------------------------------ -----------------------------
Title: CEO Title: President
----------------------------- ----------------------------
15
<PAGE>
EXHIBIT A
ENGAGE.KNOWLEDGE AGREEMENT
This Engage.Knowledge Agreement ("Agreement") is entered into as of _____
("Effective Date") by and between Engage Technologies, Inc. ("Engage") and
_____________ ("Licensee").
1. SCOPE OF AGREEMENT
This Agreement sets forth the terms and conditions governing Licensee's
subscription and/or contribution to Engage's Data Repository (as defined below).
By placing an "X" in the appropriate box(es) below, Licensee will elect to
subscribe and/or contribute to the Data Repository:
o Subscription o Contribution
2. DEFINITIONS
2.1 "Contributor" means a Licensee that has elected to contribute Visitor
Data to the Data Repository as set forth in Section 4.
2.2 "Data" means the past, present and future compilation of "clickstream"
data generated by user activity on the web, as well as such data itself, within
the Data Repository.
2.3 "Data Repository" means the proprietary global Data repository
compiled and maintained by Engage.
2.4 "Documentation" means the user information for the Software, in any
form or medium, provided by Engage to Licensee.
2.5 "Domain Name(s)" means the alphanumeric phrase(s) used by Licensee to
designate a particular site on the Internet or an intranet and identified on
Attachment 1.
- ------------
2.6 "Enterprise Server" means a computer server used by Licensee solely to
collect or combine information from or for one or more Local Servers.
2.7 "Local Server" means a computer server used by Licensee to host one or
more Domain Names.
2.8 "Personal Information" means the name, personal identity, phone
number, mailing address and social security number of a person.
16
<PAGE>
2.9 "Profile" means a set of Data associated with a unique web browser,
which Data provides a demographic and interest description of such web browser.
2.10 "Software" means the object code form of the Engage computer software
programs identified on Attachment 1 including any Updates that Engage provides
------------
to Licensee, as well as related Documentation.
2.11 "Specified Configuration" means the computer hardware and software
products specified in Attachment 1. Engage may change the Specified
------------
Configuration as required for operation of an Update by providing Licensee a
revised Attachment 1.
------------
2.12 "Subscriber" means a Licensee that has purchased a right to access and
use the Profiles in the Data Repository as set forth in Section 3.
2.13 "Update" means any update, version, release, revision or modified form
of the Software that Engage elects to make available at no additional charge to
licensees of the Software.
2.14 "Visitor Data" means any data generated by a web browser's http
requests and posts within a domain name served by a Contributor Enterprise
Server (or, if no Enterprise Server is in use, Local Server) that is collected
by Contributor using Engage software.
3. SUBSCRIPTION
This Section 3 governs Subscriber access to and use of the Data Repository,
and will apply to Licensee only if Licensee has elected (as indicated in Section
1) to subscribe to such Data Repository.
3.1 Grant of Rights. Subject to Subscriber's compliance with the terms
---------------
and conditions of this Agreement, Engage hereby grants to Subscriber a
nonexclusive, nontransferable worldwide right to request and be served Profiles.
Subscriber may use each Profile only for one "Session" (i.e., the period of time
commencing as of a web browser's initial http request within a Domain Name
served by an Enterprise Server (or, if no Enterprise Server is in use, a Local
Server) and concluding after such web browser has failed for 60 consecutive
minutes to make an http request within a Domain Name served by such Enterprise
Server or Local Server).
3.2 Restrictions. Use of a Profile other than as expressly permitted in
------------
Section 3.1 is prohibited, and all rights in the Profiles, Data, and Data
Repository are reserved by Engage; Subscriber has no implied rights. Without
limiting the generality of the foregoing, Subscriber will not (i) retain a
Profile or a copy of a Profile, in whole or in part, after conclusion of a
Session, (ii) use a Profile, through
17
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
combination with other data or otherwise, to attempt to derive Personal
Information or associate Personal Information with a Profile, (iii) combine a
Profile with other information and store the results for later use, or (iv)
resell or transfer a Profile to a third party in return for anything of value.
Any violation of this Section 3.2 will constitute a material breach of this
Agreement.
3.3 Fees and Payment.
----------------
a. Subscription Fee. In consideration of the rights granted in
----------------
Section 3.1, Subscriber will pay to Engage monthly in advance the fee set forth
on Attachment 1 hereto ("Subscription Fee"). Payment of the Subscription Fee
------------
will entitle Subscriber to receive each month the number of Profiles specified
on Attachment 1; Subscriber shall pay Engage for any additional Profiles
------------
received in such month at the rate specified on Attachment 1. Upon the
------------
conclusion of the first three-month period of this Agreement and again upon the
conclusion of each three-month period thereafter during the term of this
Agreement (each a "Contract Quarter"), the Subscription Fee will be adjusted to
reflect a Profile usage level equal to[**] of the average monthly number of
Profiles received by Subscriber during the trailing Contract Quarter. Engage
may change the Profile "cost per mil" upon thirty (30) days prior notice to
Subscriber.
b. Contribution Discount. In the event that Subscriber has elected to
---------------------
contribute Visitor Data to the Data Repository, Subscriber will receive a
discount from the Subscription Fee in the amount set forth on Attachment 1.
------------
c. Payment. Subscriber will pay all fees due hereunder within thirty
-------
(30) days of the date of invoice. Engage reserves the right to impose a late
payment interest charge on amounts past due of 1.5% per month or, if lower, the
maximum rate permitted by law.
d. Taxes. Subscriber shall pay all taxes and government-imposed charges
-----
resulting from this Agreement or activities under this Agreement, excluding
taxes on Engage's net income.
3.4 Subscriber Obligations. Subscriber is solely responsible for its use
----------------------
of Profiles and represents and warrants to Engage that its use of Profiles will
be in compliance with all foreign, federal, state and local laws and
regulations. Subscriber will defend, indemnify and hold harmless Engage against
any third-party claims based on Subscriber's use of the Profiles.
18
<PAGE>
3.5 Access to Data Repository. Subscriber access to the Data Repository
-------------------------
shall be through the Internet or, at Subscriber's option and expense, through a
dedicated telecommunications line as further detailed in Attachment 1.
------------
4. CONTRIBUTION
This Section 4 governs Contributor provision of Visitor Data to Engage, and
will apply to Licensee only if Licensee has elected (as indicated in Section 1)
to contribute to the Data Repository.
4.1 Contribution of Visitor Data. In consideration of the Subscription
----------------------------
Fee discount set forth on Attachment 1, Contributor will deliver to Engage the
------------
Visitor Data from each Domain Name. The Software automatically will deliver the
Visitor Data from Contributor to Engage.
4.2 Engage Use of Visitor Data. Engage will not (i) collect or store
--------------------------
Personal Information, (ii) sell, report or transfer unprocessed Visitor Data
from Contributor to any third party, or (iii) aggregate or present Visitor Data
from Contributor in a form or manner that would permit a third party to (a)
identify any individual's Personal Information or identity, (b) identify the
data as originating from Contributor or (c) associate an individual with a
Profile.
4.3 Classification File. The Software includes a classification table
-------------------
permitting Contributor to map Visitor Data to predefined demographic and other
categories ("Classification File"). Contributor will actively maintain and
manage the Classification File in cooperation with Engage so that the
Classification File is accurate and comprehensive in its mapping of Visitor
Data. In the event that Engage reasonably believes that Contributor is failing
to meet the foregoing standard, Engage will notify Contributor or such failure
and, unless Contributor cures the failure within 30 days from such notification,
Engage may either cancel the Subscription Fee discount for contribution of
Visitor Data or terminate this Agreement.
5. PRIVACY POLICY
Licensee, whether a Subscriber or Contributor or both under this Agreement,
will at all times during the term of this Agreement establish, maintain and post
on each web site served by an Enterprise Server or Local Server a written policy
regarding the collection and use by Licensee of visitor information.
6. RIGHT TO USE SOFTWARE
6.1 License. Subject to the terms and conditions of this Agreement,
-------
Engage hereby grants to Licensee a royalty-free, personal, non-transferable
(except for temporary transfer for the limited duration of a CPU malfunction),
non-exclusive
19
<PAGE>
license to install and operate only on Licensee's premises in the U.S. the
Software solely for Licensee's own internal use on one or more Enterprise or
Local Servers hosting the Domain Name(s).
6.2 Restrictions. Licensee may use the Software only for the purpose of
------------
subscribing and/or contributing to the Data Repository. Without limiting the
foregoing, Licensee may not use the Software for the purpose of creating,
maintaining or operating an enterprise or any other data repository. Except as
expressly provided herein, Licensee shall not, and shall not permit others to,
use, modify, copy (except for one Licensee back-up copy containing Engage's
copyright notices and other proprietary marks), distribute, sublicense, assign,
use for service bureau purposes, share, timeshare, rent or otherwise transfer,
or decompile, disassemble, reverse engineer or otherwise attempt to derive the
source code form of the Software, in whole or in part. All rights not expressly
granted to Licensee are reserved by Engage. There are no implied rights.
6.3 Indemnification. Engage, at its expense, shall defend any action,
---------------
suit or proceeding brought against Licensee which alleges that the Software
infringes any U.S. copyright and Engage shall pay damages finally awarded
against Licensee; provided that Licensee promptly notifies Engage of the action
and gives Engage the opportunity, sole authority, information and assistance (at
Engage's expense) for control of the defense and settlement of the action; but
Engage shall not be responsible for any legal costs incurred or settlement made
without notice and its consent. Engage may, at its sole option and at its
expense, either: (i) replace or modify the Software to make it non-infringing
without material impairment of its functionality; (ii) obtain for Licensee the
right to continue using the Software, or (iii) terminate this Agreement. Engage
shall have no liability for any infringement or claim thereof based upon: (a)
the combination of the Software with products not provided by Engage, or (b)
modification or alteration of the Software by any person or entity other than
Engage. THIS SECTION STATES ENGAGE'S SOLE LIABILITY WITH RESPECT TO
INFRINGEMENT OF ANY INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS.
6.4 Maintenance Services. Subject to the terms and conditions of this
--------------------
Agreement, Engage will provide Licensee with the Software maintenance services
set forth in Attachment 1 during the term of this Agreement.
------------
7. PROPRIETARY RIGHTS AND CONFIDENTIALITY
7.1 Proprietary Rights. As between Engage and Licensee, Engage will own
------------------
all right, title and interest in and to the Profiles, Data, Visitor Data, Data
Repository and Software, as well as all intellectual property and proprietary
rights therein.
20
<PAGE>
7.2 Visitor Data. Contributor hereby assigns, and agrees to assign in the
------------
future, to Engage and its successors and assigns, all right, title and interest
in and to the Visitor Data, as well as all intellectual property rights therein.
From time to time upon the request of Engage or its successor or assign,
Contributor will make such further assignments and confirm such assignments by
execution and delivery of such assignments, confirmations of assignment, or
other written instruments as Engage may reasonably request in order to
effectuate this Section 7.2.
7.3 Confidentiality. Licensee acknowledges and agrees that (i) the Data,
---------------
Profiles, Documentation and the design, operational methods and coding of the
Software (collectively "Confidential Materials") are not generally known to, or
readily ascertainable by, the public, (ii) Engage uses all reasonable efforts on
a consistent basis to prevent the acquisition, disclosure or use of the
Confidential Materials without the specific consent of Engage, (iii) Engage
derives substantial economic value from the secrecy of the Confidential
Materials, and (iv) acquisition, disclosure or use, beyond the limited extent
permitted herein, of the Confidential Materials would cause significant damage
to Engage's business. Accordingly, Licensee agrees to hold the Confidential
Materials in strict confidence and not to disclose the Confidential Materials to
any third party without the prior consent of Engage.
7.4 Equitable Relief. Licensee acknowledges that the unauthorized
----------------
disclosure or use of the Confidential Materials other than as expressly set
forth herein will (i) substantially diminish the value to Engage of the
Confidential Materials and (ii) cause irreparable injury in a short period of
time, and that Engage's remedy at law for such unauthorized disclosure or use is
inadequate. Accordingly, if Licensee breaches any of its obligations with
respect to the confidentiality or use of the Confidential Materials, Engage will
be entitled to equitable relief to protect its interests therein, including, but
not limited to, preliminary and permanent injunctive relief, in addition to any
other remedies it may have, without the necessity of posting bond.
8. LIMITED WARRANTY
8.1 Data. Engage will use commercially reasonable efforts to promptly
----
serve to Subscriber Profiles matching Subscriber requests.
8.2 Software. Engage warrants that the Software, if operated on the
--------
Specified Configuration will function in material conformity with the related
Documentation for a period of ninety (90) days from shipment (the "Warranty
Period"). Receipt by Engage of a written claim under this limited warranty must
occur within such period as a condition of this limited warranty. Engage does
not warrant that the Software will be error free or that all errors and defects
can or will be remedied. Engage's entire liability and Licensee s exclusive
remedy under this warranty shall be for Engage to make commercially reasonable
efforts to remedy in a
21
<PAGE>
commercially reasonable manner any material nonconformance reported by Licensee
in writing within the Warranty Period, which obligation may be discharged by
modifying erroneous Documentation.
8.3 LIMITATION. THE LIMITED WARRANTY STATED IN THIS SECTION 8 AND THE
----------
REMEDIES SET FORTH HEREIN ARE EXCLUSIVE AND IN LIEU OF ALL OTHERS WITH RESPECT
TO THE PROFILES, DATA, VISITOR DATA, DATA REPOSITORY AND SOFTWARE, AND ENGAGE
AND ITS LICENSORS HEREBY DISCLAIM ALL OTHER WARRANTIES, REPRESENTATIONS, AND
CONDITIONS, ORAL OR WRITTEN, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, INCLUDING
WITHOUT LIMITATION THE IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE AND NON-INFRINGEMENT.
9. LIMITATION OF LIABILITY AND REMEDIES
9.1 ENGAGE'S LIABILITY FOR ANY CAUSE WHATSOEVER ARISING UNDER THIS
AGREEMENT, REGARDLESS OF THE FORM OF ACTION, WHETHER IN CONTRACT OR TORT,
INCLUDING NEGLIGENCE, SHALL BE LIMITED TO THE TOTAL AMOUNT PAID TO ENGAGE UNDER
THIS AGREEMENT IN THE CALENDAR YEAR IN WHICH THE EVENT GIVING RISE TO SUCH
LIABILITY FIRST OCCURRED. LICENSEE RECOGNIZES THAT THE FEES HEREUNDER ARE BASED
IN PART ON THE LIMITED WARRANTY AND LIMITATION OF LIABILITY AND REMEDIES SET
FORTH ABOVE.
9.2 IN NO EVENT WILL ENGAGE OR ITS LICENSORS BE LIABLE FOR ANY (a) DAMAGES
CAUSED BY LICENSEE'S FAILURE TO PERFORM LICENSEE OBLIGATIONS, (b)INDIRECT,
INCIDENTAL, SPECIAL, RELIANCE, EXEMPLARY, COVER OR CONSEQUENTIAL DAMAGES,
INCLUDING BUT NOT LIMITED TO LOST PROFITS, LOST SAVINGS OR LOST DATA, EVEN IF
ENGAGE HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, (c) CLAIMS AGAINST
LICENSEE BY ANY THIRD PARTY EXCEPT AS PROVIDED IN SECTION 6.3, (d) CLAIMS,
WHETHER IN CONTRACT OR TORT, THAT AROSE MORE THAN ONE (1) YEAR PRIOR TO
INSTITUTION OF SUIT THEREON, OR (e) DAMAGES, INCLUDING PRODUCT LIABILITY
DAMAGES, CAUSED BY ANY NON-ENGAGE PRODUCT.
10. TERM AND TERMINATION
10.1 Term. This Agreement will commence as of the Effective Date and
----
continue in effect for an initial term of one (1) year, and thereafter will
renew automatically for successive one (1) year terms unless either party elects
not to renew the Agreement by providing written notice thereof to the other
party no later than ninety (90) days prior to the date of expiration of the
then-current term. A Subscriber
22
<PAGE>
may at any time elect to also become a Contributor hereunder, in which case the
term of the Contribution services will be commensurate with the then-current
term of the Subscription services, and the Subscription Fee will be adjusted in
accordance with Section 3.3(b).
10.2 Termination of the Agreement. Either party may terminate this
----------------------------
Agreement in the event of a material breach of any provision this Agreement that
is not cured within thirty (30) days of receipt of written notice thereof from
the other party; provided that such cure period will be ten (10) days in the
event of a material breach of Sections 3.1, 3.2, 6.1, 6.2 or 7.
10.3 Effect of Termination. Upon termination or expiration of this
---------------------
Agreement, (i) each party will promptly pay to the other any amounts due and
owing, (ii) all of Licensee's rights to use the Software and access the Data
Repository shall automatically terminate, and Licensee shall cease use of all
Software and access to the Data Repository and immediately either return or
destroy (with the written certification of an officer of destruction) all copies
of the Software, in whole or in part, and (iii) Licensee shall promptly return
to Engage all tangible embodiments of Confidential Materials in its possession.
Sections 3.2, 3.3(c)-(d), 3.4, 4.2, 6.2, 7, 9, 10.3, and 11 of this Agreement
will survive termination or expiration of this Agreement.
11. GENERAL
11.1 Export Control. Licensee acknowledges that the export of any Software
--------------
is or may be subject to export or import control and Licensee agrees that any
such items or the direct or indirect product thereof will not be exported (or
re-exported from a country of installation) directly or indirectly, unless
Licensee obtains all necessary licenses from the U.S. Department of Commerce or
other agency as required by law.
11.2 Assignment. Licensee may not sublicense, assign (by operation of law
----------
or otherwise) or otherwise transfer this Agreement or any license or any right,
duty or obligation under this Agreement without Engage's prior written consent,
and any attempt to do so shall be null and void. Engage shall not unreasonably
withhold its consent to the assignment of this Agreement by Licensee to an
affiliate, to its successor in connection with a merger, acquisition or
consolidation, or to the purchaser in connection with the sale of all or
substantially all of Licensee's assets.
11.3 No Waiver. Failure or delay by either party to exercise any right or
---------
remedy under this Agreement shall not constitute a waiver of such right or
remedy.
11.4 Entire Agreement. This Agreement, including Attachment 1 hereto
---------------- ------------
constitutes the entire agreement between the parties with respect to the subject
matter hereof. Different or additional terms contained in purchase orders,
other documents
23
<PAGE>
supplied by Licensee, and all other communications, both oral and written,
between the parties relating thereto, shall not apply. Except as set forth in
Section 2.11, this Agreement may only be modified by a mutually agreed signed
amendment that expressly references this Agreement and is executed by duly
authorized representatives of the parties and attached hereto.
11.5 Severability. If any provision or portion of this Agreement is held
------------
to be unenforceable or invalid, the remaining provisions and portions thereof
shall nevertheless be given full force and effect, and the parties agree to
negotiate, in good faith, a substitute valid provision which most nearly effects
the parties' intent in entering this Agreement or attached Schedule.
11.6 Force Majeure. Excluding the payment of money, neither party will be
-------------
deemed in default of any obligation hereunder nor be liable for any failure or
delay in performance which results directly or indirectly from any cause beyond
its reasonable control, including without limitation, "Acts of God", delays or
failures in the Internet or related carriers and third party equipment, acts of
civil or military authority, strikes, fire, theft, delays by suppliers, or
action or inaction by the other party or any third party.
11.7 Independent Contractors. Nothing in this Agreement shall be construed
-----------------------
to imply a joint venture, partnership or agency relationship between the
parties; Engage shall be considered an independent contractor when performing
any Services under this Agreement.
11.8 Notices. Any written notice required to be provided pursuant to this
-------
Agreement shall be deemed given (a) if by hand delivery, upon receipt hereof or
(b) if mailed, three (3) days after deposit in the U.S. mails, postage prepaid,
certified mail, return receipt requested. All notices shall be addressed to the
parties at the respective addresses indicated herein.
11.9 United States Government Restricted Rights. The Software is provided
------------------------------------------
with restricted rights. Use, duplication, or disclosure by the U.S. government
or any agency or instrumentality thereof is subject to restrictions as set forth
in subparagraphs (a) through (d) of the Commercial Computer - Restricted Rights
clause at FAR 52.2227-19 when applicable, or subparagraph (c)(i)(ii) of the
Rights in Technical Data and Computer Software Clause at 48 C.F.R. 52.227-19,
and in similar clauses in the NASA FAR Supplement as applicable. Manufacturer
is as set forth initially above.
11.10 Governing Law. The laws of the Commonwealth of Massachusetts shall
-------------
govern this Agreement, excluding its choice of laws provisions. The U.N.
Convention on the International Sale of Goods shall not apply to this Agreement.
With respect to all claims or actions related to this Agreement, Licensee waives
all objections to the
24
<PAGE>
personal jurisdiction of and venue in the appropriate federal, state and local
courts in the Commonwealth of Massachusetts.
11.12 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.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized representatives.
ENGAGE TECHNOLOGIES, INC. LICENSEE
Signature Signature
Name: Name:
Title: Title:
25
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commissions. Asterisks denote omissions.
Attachment 1
------------
1. Section 2.5 - Domain Name(s):
----------------------------
2. Section 2.10 - Software:
-----------------------
3. Section 2.11 - Specified Configuration:
--------------------------------------
Hardware:
--------
Software:
--------
4. Maintenance Services:
--------------------
Engage will provide Licensee with the following maintenance services for
the Software ("Maintenance Services"). The Maintenance Services will be
provided only for the current release of the Software.
Telephone Support:
. [**]
. [**]
. [**]
. [**]
Error Response:
. [**]
. [**]
26
<PAGE>
Updates:
. From time to time during the term of this Agreement, Engage shall
provide Licensee with Updates.
27
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
Exhibit 10.8
------------
INTERNATIONAL RESELLER AGREEMENT
This International Reseller Agreement ("Agreement") dated as of July 31,
1998 (the "Effective Date"), is by and between Engage Technologies, Inc., with
offices at 100 Brickstone Square, Andover, Massachusetts, U.S.A. 01810
("Engage") and Engage Technologies Japan, Inc., with offices at Hitotsubashi 1-
2-2, Chiyoda-ku, Tokyo, Japan 100-8601, formerly known as Sumisho Mineral
Resources Development Co., Ltd. ("Reseller").
WHEREAS, Reseller is a joint venture in which Sumitomo Corporation ("SC")
will hold a 51% ownership interest and Engage will hold a 49% ownership interest
formed for purposes of pursuing business opportunities in the territory of Japan
through distribution and commercialization of certain Engage products in
accordance with the Letter of Intent executed by the parties dated on or about
June 18, 1998.
NOW, THEREFORE, for and in consideration of the mutual promises contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. Definitions.
-----------
"End User" means any person or entity in the Territory that uses a Product
--------
solely for its own internal purposes within the Territory and does not further
distribute, resell, license, sublicense, use as a Service Bureau, or otherwise
convey to any other person or entity the Product, in whole or in part, or any
rights in the Product.
"End User License" means an end user license substantially similar to
----------------
Engage's End User License as modified by the terms of this Agreement, as such
Engage's End User License may be modified by Engage from time to time, that
accompanies a Product and grants an End User a limited right to use the
Product,. Engage's current forms of End User License are attached hereto as
Exhibit A.
- ----------
"Pilot Program License" means a pilot program license substantially similar
---------------------
to Engage's Pilot Program License as modified by the terms of this Agreement, as
such Engage's Pilot Program License may be modified by Engage from time to time,
that accompanies a Product and grants a prospective End User a limited right to
use the
1
<PAGE>
Product for a limited period of time solely for trial or evaluation purposes.
Engage's current form of Pilot Program License is attached hereto as Exhibit B.
----------
"Maintenance Services Agreement" has the meaning set forth in Section
------------------------------
2.4.6.
"Marks" has the meaning set forth in Section 6.
-----
"Products" shall have the meaning as defined in the Shareholders Agreement.
--------
"Service Bureau" means a person or entity that uses a Product for the
--------------
benefit of third parties where such person or entity receives in return anything
of value.
"Shareholders Agreement" means the Shareholders Agreement in relation to
----------------------
the Reseller of even date herewith between Engage and SC.
"Territory" means Japan.
---------
"Territory List Price" means Engage's retail price list for Products
--------------------
localized for the Territory.
"Update" means any (i) update, version, release, revision code, patch, bug
------
fix or modified form of a Product that Engage will make available at no
additional charge to licensees of a Product pursuant to this Agreement or any
other agreement between Engage and Reseller or SC in relation to maintenance
services or otherwise, and (ii) versions of the Products localized for the
Territory pursuant to the Maintenance Services Agreement, the Shareholders
Agreement or any other agreement between Engage and Reseller or SC.
"U.S. List Price" means Engage's North America retail price list for the
---------------
Products.
"WarrantyDefect" has the meaning set forth in Section 2.4.7.
--------------
"WarrantyPeriod" has the meaning set forth in Section 2.4.7.
--------------
2. Distribution of Products.
------------------------
2.1 Grant of Rights. Subject to the terms of this Agreement, Engage
---------------
grants Reseller an exclusive non-transferable right (except as provided in
Clause 22.2 of the Shareholders Agreement), with the right to grant sublicenses
as provided in Section 2.2, solely in the Territory to: (i) market, distribute
and sell licenses to use the Products directly to End Users; (ii) sell
prospective End Users Pilot Program Licenses to use the Products; (iii) use the
Products internally solely at Reseller's principal sales office for purposes of
(a) providing maintenance and support services, and (b) demonstrating the
2
<PAGE>
operation and capabilities of the Products to prospective End Users and
subdistributors; (iv) make a reasonable number of copies of the Products solely
for purposes of internal back-up; and (v) use the Marks, as permitted in Section
6, for purposes of marketing, distributing and selling licenses to use the
Products. Reseller shall not authorize or appoint any third party as a
subdistributor or other sales agent with respect to the Products except as in
accordance with Section 2.2.
2.2 Subdistributors. With the prior written consent of Engage (which
---------------
shall not be unreasonably withheld), Reseller may sublicense its rights under
Section 2.1 to subdistributors to further the objectives set forth in this
Agreement; provided that each such subdistributor agrees to perform the duties
set forth in this Agreement listed below. Reseller shall notify Engage in
writing of its intention to appoint any such subdistributor and the
subdistributor's proposed territory, and provide with such notification a full
description of the proposed appointee, including without limitation a
description of its existing territory, facilities, management, sales and
marketing personnel, clientele, product lines, including products which might be
competitive with the Products, financial resources, reputation in the
marketplace, and any other factors relevant to the capability of such appointee
to effectively market and service the Products in the Territory. Reseller shall
execute an agreement with each subdistributor under which the subdistributor is
obligated to comply with the provisions set forth in this Agreement to the
extent applicable, including without limitation those set forth in Sections 2.3,
2.4, 5, 6, 7, 9.1, 10.2 and 11-13. In addition, such agreement shall provide
that (i) termination or expiration of this Agreement shall automatically
terminate such agreement, and (ii) each subdistributor shall provide Reseller
with the records and right of inspection set forth in Section 4.4. Reseller
shall at all times during the term of this Agreement use best efforts to ensure
that each subdistributor complies with the terms of said agreement. If Reseller
becomes aware of any violation of the agreement, it will immediately notify
Engage, and Reseller shall take all reasonable steps as directed by Engage to
stop such violation and/or terminate such agreement. Reseller shall remain
primarily responsible to Engage for all of its subdistributors' activities. All
ordering of Products from Engage shall be made by Reseller only pursuant to
Section 3. Notwithstanding anything in this Agreement to the contrary, no
subdistributor shall have the right to grant sublicenses with respect to the
rights in Section 2.1.
2.3 Restrictions. Reseller will not (and will not allow any third party
------------
to) (i) reverse engineer or attempt to discover any source code or underlying
ideas or algorithms of a Product, (ii) modify, translate, or otherwise create
"Derivative Works" (as defined at 17 U.S.C. Section 101) of a Product, (iii)
incorporate or embed a Product, in whole or in part, into another product or
other computer software code, (iv) reproduce or otherwise manufacture a Product,
(v) provide, lease, lend, or use a Product for timesharing or Service Bureau
purposes, (vi) allow the removal, alteration, covering or obscuring of any
copyright notice or any other notice or mark that appears on a Product, on any
copies, or any media, or (vii) copy a Product, except as expressly
3
<PAGE>
permitted herein. Reseller shall not solicit or accept any order for Products
from a person or entity located outside of the Territory. Reseller shall be
fully responsible for the actions of each of its employees and independent
contractors with respect to the proper use and protection of the Products. All
rights not expressly granted to Reseller herein are reserved by Engage. There
are no implied rights.
2.4 Reseller's Duties.
-----------------
2.4.1 Marketing Efforts. Reseller shall use its best efforts to
-----------------
promote the distribution and use of the Products solely in the Territory.
Reseller shall have full freedom to establish the price for the Products.
2.4.2 Organization. Reseller shall maintain a sales organization of
------------
sufficient size and qualifications to promote the sale of the Products
throughout the Territory.
2.4.3 End User Licenses. Reseller shall not distribute a Product
-----------------
unless the recipient of the Product has signed and delivered to Reseller an End
User License (for Products distributed pursuant to Section 2.1(i)) or a Pilot
Program License (for Products distributed pursuant to Section 2.1(ii)).
Reseller shall sell, price and enforce licenses to use the Products in
accordance with any restrictions set forth in the applicable End User License
with respect to the permitted number of seats, users, transactions, domain names
or other specified parameters.
2.4.4 Enforcement of Licenses. Reseller shall use its best efforts
-----------------------
to enforce the terms of the End User License or Pilot Program License
accompanying the Products and inform Engage of any breach of such terms of which
Reseller becomes aware. Reseller shall not make any representations, warranties,
or other statements regarding the Product to any third party other than those
contained in the documentation supplied by Engage with the Product.
2.4.5 Marketing Materials. Reseller shall submit to Engage for
-------------------
review any advertising, promotional or instructional materials relating to the
Products (other than materials supplied by Engage) including translations of
Engage-provided materials, and shall not publish or distribute any such
materials without Engage's prior written approval. Reseller further agrees that
Engage shall own all rights to and interests in any translation of Engage-
supplied materials and shall undertake any necessary action to perfect such
rights and interests. All such materials shall remain the sole and exclusive
property of Engage.
2.4.6 Installation and Maintenance Services. Reseller shall be
-------------------------------------
solely responsible for providing maintenance and support services to its End
Users and subdistributors, except as otherwise agreed upon between Engage and
Reseller or SC.
4
<PAGE>
Engage shall have no obligation under this Agreement to provide Reseller or
its End Users any maintenance or support services. Reseller may elect to
purchase maintenance and support services from Engage pursuant to a separate
maintenance services agreement (the "Maintenance Services Agreement"); in such
event, Engage shall be responsible for providing such services only to Reseller
pursuant to the terms and conditions of such agreement. For avoidance of doubt,
the foregoing shall not prejudice Engage's obligation to provide the warranty
obligations in relation to the Products as set forth in Section 2.4.7.
2.4.7 Warranty Services. Reseller shall evaluate and process all
-----------------
warranty claims of End Users during the "Warranty Period" (one hundred twenty
(120) days from the date of delivery of the Products to the End User). Reseller
shall use its commercially reasonable best efforts to determine whether problems
with the Products are due to (i) user or operational error, (ii) a defect in the
Product media, or (iii) a Product Error or other failure to meet the warranties
set out in Section 11.1 (such Errors and failures are defined herein as
"Warranty Defects"). Reseller shall use its commercially reasonable best
efforts to resolve with End Users all user and operational errors. If problems
are attributable to defective media, Engage shall, as soon as practicable,
supply replacement Products at no cost to Reseller. If Reseller believes that
user problems are due to Warranty Defects, it shall promptly report this fact to
Engage and Engage shall make its best endeavors to remedy such Warranty Defects
pursuant to Section 2.5.2 and Section 11.1.
2.4.8 Governmental Registrations, Import Permit, Taxes and Duties.
-----------------------------------------------------------
Reseller shall be responsible, at its own expense, for obtaining all (i)
governmental registrations in the Territory required for the performance of this
Agreement (and shall provide translated copies of related documents to Engage),
and (ii) necessary export and import permits and certificates. Reseller shall
pay any and all taxes and duties imposed on the delivery of the Products.
2.4.9 Leads. Reseller agrees to advise Engage promptly of any
-----
license leads or potential customers for the license of the Products outside of
the Territory.
2.4.10 Competitive Products. Reseller shall not, except with
--------------------
Engage's prior written consent, either directly or indirectly through a third
party, promote, market, sell, distribute, support or maintain any software
reasonably deemed by Engage to be similar to and competitive with a Product.
2.5 Engage Duties.
-------------
2.5.1 Warranty Support. Engage shall make its best endeavors to
----------------
remedy any Warranty Defects reported to it during the Warranty Period, and to
supply
5
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
replacement Products to Reseller in exchange for Products that fail to meet
warranted performance during the Warranty Period because of such Warranty
Defects.
2.5.2 Promotional Literature. At Reseller's request, Engage shall
----------------------
supply without cost to Reseller an initial allotment of Engage's standard
promotional literature (which are written in the English language) for each of
the Products, in accordance with Engage's standard policies. Engage agrees upon
request to provide additional copies of such promotional literature at Engage's
standard rates.
2.5.3 Product Changes. Engage reserves the right to modify or
---------------
discontinue any Product, or version or release of a Product, at any time upon
forty-five (45) days prior notice to Reseller.
2.5.4 Price Changes. If, at any time during the term of this
-------------
Agreement, Engage determines to change the price or specifications of the
Products, the price of training or the terms of its End User License or Pilot
Program License, [**] such change may have on the operation of Reseller. If, as
a result of such a change to any Product or the release of a new version of any
Product, [**]. Without prejudice to the foregoing obligations of Engage, Engage
will [**] thereof and terms of the standard forms.
3. Ordering and Delivery.
---------------------
Reseller shall place all orders for Products directly with Engage. Engage
shall accept or reject each such order in its sole discretion. All orders shall
be deemed subject to the terms of this Agreement and shall specify the Products,
the quantity ordered, the discounted price, the platform, and such other
information as Engage may reasonably request. Any different or additional terms
of any purchase order, confirmation, or similar form even if signed by the
parties after the Effective Date shall have no force or effect. All orders are
binding upon Engage's written confirmation or shipment. All shipments are FOB
Engage's designated shipping facility and shall be deemed accepted by Reseller
upon delivery.
4. Fees; Payments Terms.
--------------------
4.1 Initial Purchase. Reseller shall pay Engage in advance for Reseller's
----------------
anticipated initial purchases of localized Products in the amount of up to[**].
Engage shall invoice Reseller on a monthly basis for amounts equal to the [**]
of Engage's cost of localizing the Products, and Reseller shall pay amounts so
invoiced in accordance with Section 4.3.
6
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
4.2 Pricing and Payment. Reseller shall pay Engage [**] of the price set
-------------------
forth on the then current U.S. List Price for each English-language Product
purchased, and [**] of the price set forth on the then-current Territory List
Price for each localized Product purchased. Engage may, at its sole discretion,
modify any of its prices for Products or training services at any time [**].
4.3 Payment Terms. Except as expressly provided otherwise, all payments
-------------
hereunder shall be made in U.S. dollars within thirty (30) days of the date of
Engage's shipment F.O.B. Andover, Massachusetts. Reseller shall pay all
applicable shipping charges, duties, assessments and taxes (exclusive of taxes
on Engage's net income). Any payments more than thirty (30) days overdue will
bear a late payment fee of 1.5% per month, or, if lower, the maximum rate
allowed by law.
4.4 Records; Inspection. Reseller shall provide Engage with a written or
-------------------
electronic monthly report, in a mutually agreed upon format, which report shall
be sufficient to verify the sale, license and transfer of Products and revenue
received or invoiced (including names and addresses of End Users and
subdistributors). Upon Engage's request, at mutually agreeable times, but in no
event later than fifteen (15) days following Engage's request, Engage or an
agent or accounting firm chosen by Engage shall be provided reasonable access
during normal business hours to the records of Reseller for purposes of audit of
fees, if any, due and may make copies of such records. In addition, Reseller
will cooperate with Engage's reasonable request for Reseller to make such
inspection with respect to a subdistributor. Engage shall be provided a
reasonable opportunity to interview Reseller's End Users and subdistributors and
any employees who have engaged in the marketing related to the Products in order
to corroborate the information contained in such records. If any such audit
reveals an underpayment of more than 5% with respect to amounts due in any
fiscal quarter of Reseller, Reseller shall pay the cost of Engage's audit.
5. Proprietary Rights
------------------
For purposes of this Agreement only, as between the parties, Engage and its
suppliers have and shall retain all right, title and interest in and to the
Products (subject to the licenses granted herein), all copies and Derivative
Works thereof (including revisions, Updates, versions and releases), and all
other materials, including intellectual property rights therein, subject to the
rights and licenses granted to NEWCO and other restrictions as mutually agreed
upon in the Sharehoders Agreement or other Related Agreements.
7
<PAGE>
6. Trademark License.
-----------------
Engage hereby grants to Reseller the right in the Territory during the term
of this Agreement to use Engage's names, marks, logos, and other identifiers for
the Products ("Marks") only on or in connection with the Products and Reseller's
advertising for the Products, provided that Reseller shall: (i) only use the
Marks in the form and manner, and in accordance with the quality standards, that
Engage prescribes (and which it may change from time to time); (ii) at Engage's
request, submit samples of packaging and advertising to Engage for approval;
(iii) upon termination of this Agreement for any reason, immediately cease all
use of the Marks. All goodwill associated with Engage's Marks and Reseller's
use of such Marks shall inure to Engage. Reseller shall not contest the
validity of, use, register or attempt to register, or take other action with
respect to any name, logo, trademark, service mark, or other identifier used
anywhere in the world by Engage (or a mark confusingly similar thereto), except
to the extent authorized in writing by Engage in advance. Reseller's use of the
Marks shall clearly identify Engage as the owner of the Marks. Reseller shall
immediately notify Engage of any potential infringement of a Mark of which
Reseller becomes aware.
7. Confidentiality.
---------------
7.1 Confidential Information. The parties acknowledge and agree that
------------------------
during the course of performing their respective duties under this Agreement,
the parties may exchange confidential and proprietary information ("Confidential
Information"). Confidential Information shall include, without limitation, the
terms of this Agreement, customer lists, the source code form of the Products,
trade secrets, product plans and schedules, new product information, technical
data and know-how, instructional and operating manuals, financial information,
marketing and sales data and plans, and other oral and written information.
Each party acknowledges that the Confidential Information of the other party
constitutes valuable trade secrets of that party. Each party agrees, therefore,
to preserve the confidential nature of the other party's Confidential
Information by retaining such Confidential Information in strict confidence and
using such Confidential Information only as required to perform hereunder. Each
party agrees to promptly report to the other party any violations of these
provisions by its employees, consultants, or agents of which they are aware.
Except as expressly permitted under this Agreement, neither party shall use,
copy, make, modify, display or transmit the Confidential Information, in whole
or in part, or cause or permit any third party to do so, without the prior
written consent of the other party. A party shall have no duty of
confidentiality under this Section 7 with respect to information the receiving
party can document: (a) is or has become readily publicly available without
restriction through no fault of the receiving party or its employees or agents;
(b) is received without restriction from a third party lawfully in possession of
such information and lawfully empowered to disclose such information; (c) was
rightfully in possession
8
<PAGE>
of the receiving party without restriction prior to its disclosure by the other
party; (d) was independently developed by the receiving party without access to
such Confidential Information; or (e) was required to be disclosed by a court or
other governmental authority after reasonable notice is given to the other
party.
7.2 Equitable Relief. If either party breaches any obligation with
----------------
respect to the use or confidentiality of the Confidential Information, the other
party shall be entitled to equitable relief to protect its interests therein,
including without limitation preliminary and permanent injunctive relief in
addition to any other remedies it may have.
8. Term and Termination.
--------------------
8.1 Term. This Agreement shall commence as of the Effective Date and,
----
unless sooner terminated as set forth in Section 8.2, continue indefinitely.
8.2 Termination.
-----------
8.2.1 Termination by Engage. If SC has not, on or prior to August
---------------------
31, 1998, (i) satisfied the conditions of Sections 2.2 and 2.3 of the
Shareholders Agreement relating to the Reseller between Engage and SC (the
"Shareholders Agreement") and (ii) consummated an equity investment in Engage of
no less than $1,500,000 due to a reason solely attributable to SC, then this
Agreement may be terminated by Engage at any time thereafter upon thirty (30)
days written notice.
8.2.2 Termination for Cause. Either party may, at its option,
---------------------
terminate this Agreement if (i) the other party materially breaches a material
provision of this Agreement, (ii) such party gives the other party written
notice of such material breach (the "Default Notice") stating such party's
intention to terminate this Agreement, (iii) the other party fails to correct
such breach within thirty (30) days following its receipt of the Default Notice,
and (iv) such party gives the other party written notice of termination of this
Agreement, which termination will be effective upon its receipt.
8.2.3 Termination for Financial Distress. In the event that either
----------------------------------
party files a petition in bankruptcy, or has such a petition filed against it
that is not dismissed within thirty (30) days after filing, or is placed in a
receivership or reorganization proceeding or is placed in a trusteeship
involving an insolvency, or ceases doing business in the ordinary course, this
Agreement automatically shall terminate.
8.2.4 Additional Termination Rights. Engage may elect to terminate
-----------------------------
this Agreement immediately upon notice to Reseller in the event that (i) the
Shareholders Agreement is terminated for a reason not attributable to Engage, or
(ii) the Reseller is liquidated or dissolved for any reason, in which case
termination of this Agreement shall
9
<PAGE>
be effected immediately prior to the Reseller's duly authorized decision to
liquidate or dissolve and otherwise in such a manner as to comply with
applicable law and the objective of this Section 8.2.4.
8.2.5 Nonexclusive Remedy. Termination is not an exclusive remedy
-------------------
and all other remedies will be available whether or not termination occurs.
8.2.6 Refund of Prepayment. In the case of the Agreement being
--------------------
terminated due to a reason solely attributable to Engage, Engage shall refund to
Reseller the prepayment for any localized Products not yet delivered at the time
of such termination.
9. Effect of Termination.
---------------------
9.1 Consequences. Upon expiration or termination of this Agreement for
------------
any reason: (i) all licenses and other rights granted to Reseller under this
Agreement will become null and void; (ii) each party will return all tangible
embodiments of Confidential Information, catalogs and sales literature in its
possession or control, or at the other party's option, destroy such materials
and provide the other party with a certificate signed by an executive officer
attesting to the destruction thereof; (iii) all outstanding obligations or
commitments of either party to pay amounts to the other party, if any, will
become immediately due and payable; and (iv) for any order of Products received
but not shipped at the time of termination, Engage shall have the option to
cancel the order or fulfill the order in the case of the Agreement being
terminated due to the reason attributable to Reseller. Each party understands
that the rights of termination hereunder are absolute. Notwithstanding the
foregoing, upon the expiration or termination of this Agreement (but not in the
event of termination of this Agreement due to a breach by Reseller), (a) if
Reseller has acquired Products under this Agreement remaining in its inventory,
Reseller may for six (6) months sell such Products under the provisions of this
Agreement, or, upon the mutual agreement of the parties, return such Products
for credit, and (b) Reseller may retain and use internally, solely for purposes
of providing maintenance and support services to End Users, a copy of each
Product for which Reseller is contractually obligated, as of the effective date
of termination or expiration, to provide such services; provided, however, that
(y) the foregoing right shall terminate with respect to each Product upon the
earlier of (A) expiration of the last such End User agreement and (B) one (1)
year from the expiration or termination of this Agreement, and (z) Engage shall
have no obligation to provide Reseller or its End Users with any maintenance or
support services.
9.2 No Separation Compensation. Under no circumstances shall Engage be
--------------------------
liable to the Reseller or any of its subdistributors by reason of termination,
expiration or nonrenewal of this Agreement for indemnification, compensation,
reimbursement, or damages for loss of prospective compensation, goodwill or loss
thereof, or expenditures,
10
<PAGE>
investments, leases, or any type of commitment made in connection with the
business of such party or in reliance on the existence of this Agreement
including, but not limited to advertising and promotion costs, costs of
supplies, termination of employees, employee salaries, and other such costs and
expenses.
10. Indemnification.
---------------
10.1 Indemnification of Reseller. Engage shall, at its expense,
---------------------------
indemnify, hold harmless and defend Reseller from and against any and all
damages, costs and expenses, including reasonable attorneys' fees, incurred by
Reseller in connection with (a) a claim that a Product, as delivered by Engage
and used by Reseller within the scope of this Agreement, infringes any
copyright, (b) a prohibition or restriction on Reseller's exercise of any right
granted in Section 2 hereof during the term of this Agreement other than those
prohibitions or restrictions set forth in this Agreement (or any other agreement
between the parties); provided that Reseller notifies Engage promptly in writing
of the infringement claim and Engage has sole control over the defense or
settlement of such claim and Reseller, at its expense, provides reasonable
assistance in the defense of the same. Notwithstanding the foregoing, in the
event that an infringement is found and continued use of a Product is enjoined,
Engage will, at its option and expense, either: (i) procure for Reseller the
right to continue to use the Product; (ii) modify or alter the Product so that
it becomes non-infringing; or (iii) replace the Product with a non-infringing
alternative. If all of these options may only be exercised by Engage at an
unreasonable cost, then Engage may require Reseller to immediately cease all use
and distribution of the Product and terminate the End User Licenses granted
under this Agreement and pay to the Reseller the Product purchase fees that
Reseller paid to Engage, less a portion for prior usage, amortized over a 3 year
period.
Engage shall have no obligation to indemnify Reseller with respect to any
claim based upon (i) any modification of a Product by a party other than Engage;
(ii) the combination, operation or use of the Product with a non-Engage software
program or data if the claim would have been avoided had such combination,
operation or use not occurred; or (iii) the use of other than the latest release
of a Product, if such claim could have been avoided by use of the latest
unmodified release, which release is provided by Engage to Reseller pursuant to
the terms of the Maintenance Services Agreement. Engage's obligation to
indemnify Reseller will be reduced to the extent the damages could have been
reduced by Reseller's use of the latest release.
10.2 Indemnification of Engage. Reseller shall, at its expense,
-------------------------
indemnify, hold harmless and defend Engage from, and against any and all
damages, costs and expenses including reasonable attorneys' fees, incurred by
Engage in connection with any claim (i) against Engage by an End User which
relates to such End User's relationship with Reseller or a subdistributor (and
not to any direct relationship which Engage may have with such End User), (ii)
described in clauses (i) through (iii) of Section 10.1 above, (iii)
11
<PAGE>
arising from the performance of a Product or maintenance and support services
rendered or required to be rendered in connection with the distribution of a
Product to an End User, except, if Reseller has purchased maintenance and
support services from Engage, as may be attributed to Engage's failure to render
such maintenance and support services to Reseller, or (iv) any representation,
promise, guarantee or warranty made or implied by Reseller or a subdistributor
to the extent it exceeds or differs from those expressly set forth in the
documentation accompapying a Product, EXCEPT as may be attributed to Engage's
failure to meet the representations, warranties, covenants or other agreements
herein or in the Shareholders Agreement.
10.3 Use of Engage Name. The rights and obligations contained in Section
------------------
12 of the Shareholders Agreement shall apply in relation to the Products as if
they were set forth in full herein for the benefit of Reseller.
11. Warranty and Disclaimer.
-----------------------
11.1 Warranty of Authority. Engage represents and warrants that it
---------------------
possesses the rights in the Products to perform its obligations hereunder. The
representations, warranties and covenants contained in Clauses 22.2 and 22.4 of
the Shareholders Agreement shall apply in relation to the Products as if they
were set forth in full herein for the benefit of Reseller.
11.2 DISCLAIMER OF WARRANTIES. OTHER THAN THE WARRANTIES MADE TO RESELLER
------------------------
CONTAINED OR REFERENCED HEREIN, ENGAGE MAKES NO WARRANTIES OR REPRESENTATIONS AS
TO ANY PRODUCT OR AS TO ANY SERVICES RENDERED TO RESELLER OR ANY OTHER PERSON.
ENGAGE RESERVES THE RIGHT TO CHANGE ITS PRODUCT WARRANTY AND SERVICE POLICIES AT
ANY TIME, WITHOUT FURTHER NOTICE AND WITHOUT FURTHER LIABILITY TO RESELLER OR
ANY OTHER PERSON SUBJECT TO THE CONSENT OF RESELLER WHICH CONSENT WILL NOT BE
UNREASONABLY WITHHELD. EXCEPT AS SET FORTH ABOVE, AND TO THE EXThNT PERMITTED
BY APPUCABLE LAW, ENGAGE DISCLAIMS ALL EXPRESS AND IMPLIED WARRANTIES, ORAL OR
WRITTEN, INCLUDING BUT NOT LIMITED TO, IMPLIED WARRANTIES OF MERCHANTABILITY,
FITNESS FOR A PARTICULAR PURPOSE, NONINFRINGEMENT AND ANY WARRANTIES ARISING
FROM COURSE OF DEALING, COURSE OF PERFORMANCE OR USAGE OF THE TRADE.
11.3 Acknowledgement. Reseller acknowledges that the Products have not
---------------
been prepared to meet the individual requirements of Reseller or its End Users.
It is the responsibility of Reseller and its End Users to ensure that the
functions and facilities performed by a Product meet the End User's
requirements.
12
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omssions.
12. Limitation of Liability.
-----------------------
NOTWITHSTANDING ANYTHING ELSE IN THIS AGREEMENT OR OTHERWISE, NEITHER
ENGAGE NOR ITS AFFILIATES SHALL BE LIABLE OR OBLIGATED WITH RESPECT TO THE
SUBJECT MATTER OF THIS AGREEMENT OR UNDER ANY CONTRACT, NEGLIGENCE, STRICT
LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY FOR (I) ANY AMOUNTS IN EXCESS IN
THE AGGREGATE OF THE FEES PAID TO IT HEREUNDER OR IN THE PRODUCT PURCHASE
AGREEMENT (AS DEFINED IN THE SHAREHOLDERS AGREEMENT); OR (II) SPECIAL,
CONSEQUENTIAL, INCIDENTAL RELIANCE, EXEMPLARY, OR INDIRECT DAMAGES (INCLUDING
SUCH DAMAGES DUE TO LOSS OF DATA, PROFITS, OR COMPUTER FAILURE) EVEN IF ENGAGE
HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
13. Export Control.
--------------
Reseller shall comply with all applicable export laws and restrictions.
14. Miscellaneous.
-------------
14.1 Assignment. Reseller shall not assign this Agreement (by operation
----------
of law or otherwise), or any rights or obligations hereunder, without the prior
written consent of Engage (and any attempt to do so shall be null and void).
14.1.1 [**] Rights. Pursuant to a [**] Engage granted [**] a
------------
worldwide, non-exclusive right to market and distribute certain of Engage's
products. If [**] exercises its right to market and distribute such products in
the Territory, Engage shall use its best efforts (which shall not require Engage
to make any associated payment [**]) to cause [**] of the Reseller in the
Territory with respect to such products. If [**] to the Reseller in the
Territory, then with respect to each such product sold by [**] in the Territory
during the term of this Agreement Engage shall pay to the Reseller an amount
equal to [**] of the price paid by each customer [**]. To the extent permitted
by the terms of the [**] Agreement, Engage shall provide the Reseller with
records and other data regarding [**] sales of such products in the Territory to
the extent necessary for calculation of fees owed by Engage to the Reseller
under this Section.
14.1.2 Successors and Assigns. Subject to the limitations above,
----------------------
this Agreement will mutually benefit and be binding upon the parties, their
successors and assigns.
13
<PAGE>
14.2 Waiver. No waiver of any portion of this Agreement shall be
------
effective unless in writing. The failure of a party at any time to require
performance by the other party of any provision shall in no way affect the right
of such party to enforce that or any other provision of this Agreement. No
waiver of any breach of this Agreement shall constitute a waiver of any
subsequent breach of the same or any other provision of this Agreement.
14.3 Notices. All notices given pursuant to this Agreement shall be in
-------
writing sent prepaid by certified or registered mail or overnight express
service, with return receipt requested in each case. All notices sent by
certified mail shall be effective three days after being sent out provided that
a facsimile copy is contemporaneously sent. Notices sent by overnight express
service shall be effective as of the first business day following submission to
the overnight express delivery service. All such notices shall be directed to
the respective parties at the addresses set forth on the first page of this
Agreement unless either party notifies the other in writing of a new address.
14.4 Law and Jurisdiction. This Agreement shall be governed and
--------------------
interpreted in all respects by and according to the laws of the Commonwealth of
Massachusetts, U.S.A., excluding its choice of law provisions. It is the
express intent and agreement of the parties that the United Nations Convention
for the International Sale of Goods shall not apply to this Agreement or to
purchase orders thereunder. This Agreement is written in the English language
14.5 Disputes. Any dispute, controversy or difference which may arise
--------
among the parties out of or in relation to or in connection with this Agreement
or for the breach thereof shall be amicably settled by consultation among the
parties. All such disputes, controversies and differences, if not settled
amicably, shall be finally settled by arbitration pursuant to the Rules of
Conciliation and Arbitration of the International Chamber of Commerce by three
arbitrators appointed in accordance with the said rules. In the event that the
arbitration is sought by Engage, the arbitration shall be held in Tokyo, Japan.
In the event that the arbitration is sought by Reseller, the arbitration shall
be held in Boston, Massachusetts, U.S.A. The arbitration shall be in the
English language. Notwithstanding the foregoing, each party shall have the
right to institute judicial proceedings against the other party or anyone acting
by, through or under such other party in order to enforce the instituting
party's rights hereunder through reformation of contract, specific performance,
injunction or similar equitable relief.
14.6 Compliance With Law. Each party shall at all times during the term
-------------------
of this Agreement perform its duties hereunder in accordance with all local,
state, federal and international laws and regulations, including without
limitation the Foreign Corrupt Practices Act of the United States. Reseller
shall take all actions that are reasonably required to ensure that this
Agreement and the transaction contemplated hereby comply
14
<PAGE>
with all applicable laws, regulations, rules or other legal and administrative
requirements in the Territory.
14.7 Independent Contractor. Reseller agrees that it is an independent
----------------------
contractor and that this Agreement and relations between Engage and Reseller
hereby established do not constitute a joint venture, agency or contract of
employment between them, or any other similar relationship. Neither party has
the right or authority to assume or create any obligation or responsibility on
behalf of the other.
14.8 Severability. If any provision of this Agreement shall be adjudged
------------
by any court of competent jurisdiction to be unenforceable or invalid, that
provision shall be limited or eliminated to the minimum extent necessary so that
this Agreement shall otherwise remain in full force and effect and enforceable.
14.9 English. This Agreement has been drafted and executed in the English
-------
language. In the event of any ambiguity between the English language version
and any translation into any other language, the meaning and intent contained in
the English language version shall prevail
14.10 Entire Agreement. This Agreement, including Exhibits A and B
---------------- ----------------
attached hereto, constitutes the complete and exclusive statement of the mutual
understanding of the parties relating to the subject matter hereof, and
supersede and cancel all previous written and oral agreements and communications
relating to the subject matter of this Agreement and said agreements.
14.11 Section Headings. Section headings are for convenience only and
----------------
shall not be considered in the interpretation of this Agreement.
14.12 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. It shall not be a
condition to effectiveness that each party shall have executed the same
counterpart.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their duly authorized representatives as of the date first
written above.
ENGAGE TECHNOLOGIES, INC. ENGAGE TECHNOLOGIES JAPAN, INC.
By: /s/ Paul Schaut By: /s/ Makoto Shibahara
------------------------------ -------------------------------
Name: Paul Schaut Name: Makoto Shibahara
---------------------------- -----------------------------
Title: CEO Title: President
--------------------------- ----------------------------
15
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
Exhibit 10.9
------------
Execution Copy
AMENDED AND RESTATED
SOFTWARE LICENSE AGREEMENT
This Amended and Restated Software License Agreement (the "Agreement") is
made as of July 31, 1998 (the "Effective Date") by and between Red Brick
Systems, Inc., a Delaware corporation, with its principal office located at 485
Alberto Way, Los Gatos, California 95032 ("Red Brick") and Engage Technologies,
Inc. ("Engage"), a Delaware corporation with its principal office located at 100
Brickstone Square, Andover, Massachusetts 01810, including its parent company
CMG Information Services, Inc. ("CMGI") and CMGI's majority-owned subsidiaries
(individually, or collectively with Engage and CMGI, "Licensee"), and amends and
restates the Software License Agreement between the parties, dated August 29,
1997.
The following Exhibits are made a part of this Agreement:
Exhibit 1: Defined Terms
Exhibit 2: End User Terms
Exhibit 3: Fees
Exhibit 4: Additional Features for Modified Red Brick Formation Licensed
Materials
In consideration of the covenants, representations and warranties set forth
herein and other good and valuable consideration, the parties agree as follows:
ARTICLE 1: DELIVERIES AND UPDATES
1.1 Delivery of Red Brick Formation.
-------------------------------
Immediately following execution of this Agreement Red Brick will provide
Licensee at no cost with one (1) master media containing the beta version of Red
Brick Formation 1.3 (the "Red Brick Formation 1.3 beta") in both object code and
source code form, along with all related software development kits and/or tools
and one (1) master copy of each item of all documentation for the Red Brick
1
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
Formation 1.3 beta to the extent such documentation is then available (together
the "Red Brick Formation Licensed Materials").
Red Brick's obligation to provide source code for the Red Brick Formation
Licensed Materials will not apply for portions, but only such portions, of the
Red Brick Formation Licensed Materials which are licensed to Red Brick by third
parties under agreements which do not permit the provision to Licensee of a
source code form of such portions of the Red Brick Formation Licensed Materials.
Red Brick's obligation to provide source code for the Red Brick Formation
Licensed Materials also will not apply to portions of the Red Brick Formation
Licensed Materials which are derived from Red Brick Warehouse Products which
existed before Red Brick's acquisition of the Database Technology from Licensee,
do not incorporate, in whole or in part, any of the Database Technology, and
whose absence shall not reduce the functionality of the Red Brick Formation
Licensed Materials or Database Technology below the performance level of such
materials at August 29, 1997, notwithstanding minor software defects which may
have existed as of August 29, 1997.
1.2 Delivery of Database Technology.
-------------------------------
Upon completion of the Services requested in Work Order Number One (as such
terms are defined in that certain Consulting Services Agreement entered into
between the parties as of August 29, 1997 ("Consulting Agreement")), Red Brick
shall provide Licensee at no cost with one (1) master media containing the
Database Technology in source code and object code form and one (1) master copy
of each item of all documentation for the Database Technology to the extent such
documentation is then available.
1.3 Updates.
-------
Upon the earlier of (i) [**] or (ii) completion of the deliverable
described in Section 3(b) of Work Order Number Two of the Consulting Agreement
(the "Start Date") and for a period of two years thereafter, Red Brick shall
provide Licensee at no cost with one (1) master media containing all Updates in
source code and object code form and one (1) master copy of each item of all
documentation for all Updates to the extent such documentation is then
available. Beginning [**] after the Start Date, Red Brick shall provide
Licensee with all subsequent Updates at the same time Red Brick makes such
Updates available to its customers, provided Licensee has elected to pay Royalty
--------
Fees in accordance with Section 2.5.1 of this Agreement and is current in the
payment of all such Royalty Fees. In the event Licensee elects not to pay
Royalty Fees, Red Brick's obligation to provide Licensee with Updates shall
2
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
terminate automatically upon the [**] anniversary of the Start Date; provided
that if the last Update provided by Red Brick to Licensee during such [**]
period was made generally available to customers more than [**], then Red Brick
shall provide Licensee with the next Update, at such time as such Update is made
available to customers, at no charge (the period through the later of such
Update or [**] after the Start Date is the "[**] Period"). All Updates provided
by Red Brick to Licensee pursuant to this Section 1.3 shall be deemed part of
the "Licensed Software" for purposes of this Agreement.
Red Brick's obligation to provide source code for the Updates will not
apply for portions, but only such portions, of the Updates which are licensed to
Red Brick by third parties under agreements which do not permit the provision to
Licensee of a source code form of such portions of the Updates. Red Brick's
obligation to provide source code for the Updates also will not apply to
portions of the Updates which are derived from Red Brick Warehouse Products
which existed before Red Brick's acquisition of the Database Technology from
Licensee, do not incorporate, in whole or in part, any of the Database
Technology, and whose absence shall not reduce the functionality of the Updates
or Database Technology below the performance level of such materials at August
29, 1997, notwithstanding minor software defects which may have existed as of
August 29, 1997.
1.4 Development of Additional Features for Red Brick Formation.
----------------------------------------------------------
Red Brick will use commercially reasonable efforts to develop and deliver
to Licensee a modified version of the Red Brick Formation Licensed Materials by
[**] (the "Modified Red Brick Formation Licensed Materials"). The Modified Red
Brick Formation Licensed Materials will include the features set forth in
Exhibit 4 attached hereto. Red Brick will began work on the Modified Red Brick
Formation Licensed Materials [**] of the signing of this Agreement. Thereafter,
until the Modified Red Brick Formation Licensed Materials are delivered to
Licensee, Red Brick will provide Licensee on a weekly basis with a copy of the
high level project plan for the completion of the Modified Red Brick Formation
Licensed Materials and weekly status against the plan. Failure by Red Brick to
deliver the Modified Red Brick Formation Licensed Materials to Licensee by [**]
shall result in Red Brick being required to make the payments specified below in
compensation of the damages to Licensee for such delay in delivery. Upon the
end [**], if Red Brick has failed to make delivery of the Modified Red Brick
Formation Licensed Materials by such date, Red Brick shall pay to Licensee the
sum of [**]. As an example, if Red Brick delivers the Modified Red Brick
Formation Licensed Materials on [**],Red Brick would be obligated to pay
Licensee [**]. Red Brick's obligations [**], which maximum payment
3
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
will be reached in the event that delivery of the Modified Red Brick Formation
Licensed Materials [**].
If Red Brick is not able, through commercially reasonable efforts, to
obtain the third party licenses and rights to the software necessary to develop
and include in the Modified Red Brick Formation Licensed Materials the features
set forth in Exhibit 4, then Licensee will use commercially reasonable efforts
to obtain such rights on behalf of Red Brick and/or to grant such rights to Red
Brick. If neither Red Brick or Licensee is able to obtain such licenses and
rights for Red Brick's benefit in developing and implementing the features set
forth in Exhibit 4, then Red Brick will not be required to implement the
features, but only such features, in the Modified Red Brick Formation Licensed
Materials, for which the parties are not able to obtain the necessary third
party licenses and rights.
If Red Brick chooses not to market a specific database adapter set forth in
Exhibit 4 and as such does not obtain the third party licenses and rights to the
software necessary to market such adapter, then, in the event Licensee desires
that the Modified Red Brick Formation Licensed Materials contain such adapter,
Licensee will use commercially reasonable efforts to obtain such rights on
behalf of Red Brick and/or to grant such rights to Red Brick. If Licensee is
not able to obtain such licenses and rights for Red Brick's benefit in including
a specific database adapter set forth in Exhibit 4, then Red Brick will not be
required to implement the specific adapter, but only such adapter, in the
Modified Red Brick Formation Licensed Materials, for which the Licensee is not
able to obtain the necessary third party licenses and rights.
1.5 Delivery of Modified Red Brick Formation Licensed Materials.
-----------------------------------------------------------
Upon completion of the development of the Modified Red Brick Formation
Licensed Materials, Red Brick shall provide Licensee at no cost with one (1)
master media containing the Modified Red Brick Formation Licensed Materials in
both object code and source code form and one (1) master copy of each item of
all documentation for the Modified Red Brick Formation Licensed Materials to the
extent such documentation is then available.
Red Brick's obligation to provide source code for the Modified Red Brick
Formation Licensed Materials will not apply for portions, but only such
portions, of the Modified Red Brick Formation Licensed Materials which are
licensed to Red Brick by third parties under agreements which do not permit the
provision to Licensee of a source code form of such portions of the Modified Red
Brick Formation Licensed Materials. Red Brick's obligation to provide source
code for the Modified Red Brick Formation Licensed
4
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
Materials also will not apply to portions of the Modified Red Brick Formation
Licensed Materials which are derived from Red Brick Warehouse Products which
existed before Red Brick's acquisition of the Database Technology from Licensee,
do not incorporate, in whole or in part, any of the Database Technology, and
whose absence shall not reduce the functionality of the Modified Red Brick
Formation Licensed Materials or Database Technology below the performance level
of such materials at August 29, 1997, notwithstanding minor software defects
which may have existed as of August 29, 1997.
1.6 Ongoing Support of Modifications.
--------------------------------
Red Brick covenants and agrees that for all future versions and Updates to
the Database Technology, Red Brick Formation Licensed Materials and Modified Red
Brick Formation Licensed Materials (the "Licensed Software"), which future
versions and Updates occur subsequent to the development of the Modified Red
Brick Formation Licensed Materials called for by Section 1.4 of this Agreement,
Red Brick will continually maintain, update and support in such future versions
and Updates of the Licensed Software the features set forth on Exhibit 4 hereto.
ARTICLE 2: LICENSED ACTIVITIES
2.1 License Grant.
-------------
Subject to the terms and conditions of this Agreement, Red Brick hereby
grants to Licensee and Licensee hereby accepts a perpetual, non-transferable
(except as provided herein), worldwide, license to exercise all rights
whatsoever as provided below with respect to the Licensed Software only for the
Clickstream Market (the "License"):
2.1.1 to use, copy and modify the Licensed Software for internal purposes,
which shall include, without limitation, installation at customer sites of the
Licensed Software by Licensee solely for the purpose of customer access to the
end-user query portion of the Licensed Software in conjunction with Licensee's
provision of data management services.
2.1.2 to use, copy and modify the Licensed Software solely for the purpose
of incorporating the Licensed Software into the Application Suite.
2.1.3 to, either directly or through Resellers (as defined below),: (i)
market, distribute, copy and license (with the right to sublicense) the Licensed
Software in object code form only, only as incorporated in the Application
Suite, in the Clickstream Market; (ii) demonstrate the Licensed Software only as
incorporated in the Application Suite to prospective customers for use in the
Clickstream Market; (iii)
5
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
internally use the Licensed Software to provide technical support to end user
customers or prospective customers; and (iv) license the Licensed Software only
as incorporated in the Application Suite to end users for use in the Clickstream
Market on a trial basis only pursuant to a trial license agreement containing
all terms set forth in Exhibit 2.
2.2 License Restrictions.
--------------------
Notwithstanding anything else in this Agreement, this Agreement does not
include a grant to Licensee of any ownership right, title or other interest, in
any of Red Brick's Rights (as defined in Section 3.2) relating to the Licensed
Software nor in any copy or part thereof. In particular, and without
limitation, Licensee shall not: (i) delete or fail to reproduce any copyright
or other proprietary notices appearing in the Licensed Software, (ii) sublicense
or otherwise distribute Licensed Software in source code form, or (iii)
sublicense or otherwise distribute the Licensed Software in object code form
except when incorporated into the Application Suite.
2.3 Resellers.
---------
Subject to the terms and conditions of this Agreement, Licensee may appoint
authorized resellers ("Resellers") to use and distribute the Licensed Software
only as provided in Section 2.1 provided that each such Reseller shall be bound
by written agreement with Licensee that (a) protects the confidentiality of' and
Red Brick's rights in, the Licensed Software to the same extent as provided
under this Agreement, and prevents the Reseller from disassembling, decompiling
or otherwise reverse engineering the Licensed Software or, except as expressly
provided in this Agreement, otherwise attempting to learn source code,
structure, or algorithms underlying the Licensed Software (except to the extent
that such prohibitions are limited by law in certain jurisdictions, in which
case the affected prohibitions shall be included in such jurisdictions in as
restrictive and protective a form as they are allowed, with unaffected
prohibitions remaining unchanged); and (b) limits the liability of Red Brick to
the same extent as provided under the terms of this Agreement. Licensee shall
remain directly liable to Red Brick and shall indemnify, defend and hold
harmless Red Brick for any breach by any of Licensee's Resellers of such
agreement.
2.4 End User Licenses.
-----------------
Prior to or upon delivery of the Application Suite containing a copy of the
Licensed Software to an end user, Licensee and its Resellers shall enter into a
written binding license agreement with the end user which shall contain terms at
least as restrictive as those set forth on Exhibit 2 ("End User License
Agreement"). Licensee shall provide Red Brick with copies of such End-User
License Agreements upon request.
6
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
2.5 Fees.
----
2.5.1 Obligation to Pay Royalty Fees. During the [**] Period and
------------------------------
thereafter, Licensee may sublicense the Licensed Software in accordance with the
terms of this Agreement and incur [**] payment obligation to Red Brick; provided
that Licensee does not sublicense or otherwise provide its customers any Update
provided to Licensee by Red Brick after the [**] Period. No later than thirty
(30) days prior to the release of the first Update after the [**] Period,
Licensee shall notify Red Brick in writing whether it elects to continue to
receive Updates. In the event Licensee elects not to receive subsequent
Updates, Red Brick shall have no further obligation to provide Licensee with
Updates and Licensee shall have no obligation to pay Red Brick Royalty Fees. In
the event Licensee elects to continue to receive Updates and provided that
Licensee is in good standing under this Agreement: (a) Red Brick shall continue
to provide Licensee with Updates at the same time Red Brick makes such Updates
available to its customers, provided Licensee is current in the payment of all
Royalty Fees and is in good standing under this Agreement; and (b) Licensee
shall be obligated to pay Red Brick the Royalty Fees solely with respect to
revenue recognized from the Application Suite Components incorporating Updates
received after the [**] Period and distributed to its customers in accordance
with the fee schedule set forth in Exhibit 3 and the terms of this Agreement.
The parties hereto agree that revenue received by Licensee from the entire
Application Suite shall be fairly allocated between (i) the Application Suite
Components and (ii) those components of the Application Suite which do not
incorporate Updates of the Licensed Software received after the [**] Period,
such allocation to be based on the relative value of such Application Suite
Components and such other components to the End Users.
2.5.1.1 Licensee's Option to Terminate Obligation to Pay Royalty
--------------------------------------------------------
Fees. At any time during the term of this Agreement when Licensee has an
- ----
obligation to pay Red Brick Royalty Fees in accordance with Section 2.5.1,
Licensee may elect upon sixty (60) days prior written notice to Red Brick to
terminate its obligation to pay Royalty Fees; provided that Licensee shall
continue to pay Red Brick Royalty Fees for a period of [**] hereafter solely
with respect to revenue recognized from the Application Suite Components
incorporating Updates received by Licensee after the [**] Period and distributed
to its customers in accordance with the fee schedule set forth in Exhibit 3.
Upon receipt of such notice, Red Brick shall have no obligation to provide
Licensee with subsequent Updates. The parties may agree under a separate
maintenance agreement to be negotiated by Red Brick and Licensee for Red Brick
to maintain the Licensed Software specifically for Licensee under terms to be
negotiated. Nothing in this Section 2.5.1.1 shall restrain Red Brick's ability
in any way to continue
7
<PAGE>
with its own development efforts with respect to the Licensed Software or any
other Red Brick products.
2.5.2 Pass-Through Royalty Fees. During the entire term of this
-------------------------
Agreement, Licensee shall pay Red Brick an amount equal to the actual variable,
incremental cost paid by Red Brick that is fairly allocated to Licensee's
exercise of its rights hereunder with respect to third-party technology embedded
in the Licensed Software and Updates incorporated into any Application Suite
licensed or otherwise distributed by Licensee ("Pass-Through Royalty Fees").
Each quarter during the term of this Agreement, within fifteen (15) days after
the end of the quarter, Red Brick shall provide Licensee an invoice and report
documenting such costs incurred by Red Brick during the quarter, and a full and
accurate accounting thereof.
2.5.3 Royalty Fee Reports. Each quarter during the term of this Agreement
-------------------
when Licensee has an obligation to pay Royalty Fees, within fifteen (15) days
after the end of the quarter, Licensee shall submit a report to Red Brick
describing any Royalty Fee payments made or due; number of copies of the
Application Suite shipped; the shipment date; and the end user name, address,
hardware, and operating system; as well as any information necessary or useful
for calculating/verifying all Fees due. Any Royalty Fee amounts due based on
Licensee activity or revenue in such quarter will be paid at the same time.
2.5.4 Payment Terms and Compliance. All payments of Fees shall be made
----------------------------
inside the U.S., in U.S. dollars net thirty (30) days from receipt of invoice;
provided, however, Royalty Fees shall be due and payable upon submission of each
quarterly Report as required pursuant to Section 2.5.3. Any payments more than
thirty (30) days overdue will bear a late payment fee of 1.5% per month, or, if
lower, the maximum rate allowed by law. Licensee shall at all times keep and
maintain complete and accurate records that include at least the following
information: name and address of each end user, number of quantities and date
of purchase. Red Brick may, with no less than five (5) business days' notice,
and at Red Brick's expense, have an independent auditor or accountant audit,
during normal business hours, Licensee's records related to the Licensed
Software and Updates to verify Licensee's compliance with the provisions of this
Agreement. If an audit determines that there is an underpayment of five percent
(5%) or more of any amounts due hereunder, Licensee shall promptly pay the
deficiency and reimburse Red Brick for the cost of the audit.
2.6 Support.
-------
2.6.1 Separate Support Agreement. Within thirty (30) days after the
--------------------------
Effective Date of this Agreement, the parties will execute a separate support
agreement ("Support Agreement") under the terms of which Red Brick shall provide
Licensee with such technical support services for the Licensed Software as the
parties mutually
8
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
agree at a price mutually agreed to by the parties for an initial period of [**]
from the execution date of such support agreement. In the Support Agreement the
parties will also mutually agree upon the terms and responsibilities between the
parties for all installation, training and consultation, and all other
maintenance and support directly to end users with respect to any Licensed
Software incorporated into the Application Suite.
2.7 Escrow of Source Code. Red Brick agrees that upon the request of a
---------------------
licensee of Licensee or its Resellers (known as an "End User"), which End User
has licensed all or any part of the Licensed Software, Red Brick will allow
Licensee or its Resellers to place into an escrow one (1) copy of the latest
version of the source code of all Licensed Software licensed to such End User,
together with all related programmer documentation, instructions, flow charts
and other materials necessary for a reasonably skilled programmer or analyst to
use the said source code to maintain and modify the Licensed Software licensed
to such End User, without the assistance of other persons or reference to other
persons (the "Source Code Materials"). Red Brick shall promptly supplement said
deposit with Source Code Materials for any new Updates, releases or additional
products licensed to Licensee, and sublicensed by Licensee or its Resellers to
End User during the term of this Agreement. The deposit will be pursuant to the
terms of an agreement (the "Escrow Agreement") among Licensee or its Resellers,
End User and a third party escrow firm of national reputation specializing in
software escrows ("Escrow Agent") and will be in a form mutually acceptable to
such Licensee or its Resellers, End User and Escrow Agent. In the event such an
Escrow Agreement is established, Red Brick hereby grants to the Licensee, its
Resellers and the End User for whose benefit the escrow is established the
license rights to the Licensed Software which are granted pursuant to the Escrow
Agreement.
ARTICLE 3: INTELLECTUAL PROPERTY; CONFIDENTIALITY
3.1 Licensee Ownership.
------------------
Licensee shall have all right, title and interest (including all patent
rights, copyrights, trade secret rights, and other intellectual property or
proprietary rights throughout the world (collectively referred to as "Licensee's
Rights")) in (a) its Confidential Information, (b) the Application Suite
(including the perpetual License to the Licensed Software for the Clickstream
Market as provided in Section 2.1) and (c) modifications, enhancements,
improvements or new versions of the Licensed Software and the Application Suite
created by Licensee or its contractors or created by Red Brick as Custom Code
for Licensee under the Consulting Agreement. At
9
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Licensee's sole discretion, Red Brick may negotiate a license to use (but not
sublicense) for use solely outside the Clickstream Market except as otherwise
agreed by Licensee explicitly and in writing such modifications of the Licensed
Software by Licensee or its contractors or created by Red Brick as Custom Code
for Licensee under the Consulting Agreement.
3.2 Red Brick Ownership.
-------------------
Red Brick shall have all right, title and interest (including all patent
rights, copyrights, trade secret rights, and other intellectual property or
proprietary rights throughout the world (collectively referred to as "Red
Brick's Rights")) in and to (a) its Confidential Information (b) the Licensed
Software and any modifications, enhancements, improvements or new versions
thereof developed by Red Brick or its contractors, except as provided otherwise
in the Consulting Agreement with respect to Custom Code, including but not
limited to all Updates, but excluding Licensee's Rights as defined in Section
3.1.
3.3 No Other Rights or Licenses.
---------------------------
Except as expressly provided in this Agreement, neither party is granted
any right or license to any of the foregoing or to any rights of the other.
3.4 Confidential Information.
------------------------
The parties acknowledge and agree that during the course of performing
their duties under this Agreement, the parties may exchange confidential and
proprietary information ("Confidential Information"). Confidential Information
shall include, without limitation, customer lists, the Licensed Software, the
Application Suite, trade secrets, product plans and schedules, new product
information, technical data and know-how, instructional and operating manuals,
financial information, marketing and sales data and plans, and any other
business, financial or technical information. Each party acknowledges that the
Confidential Information of the other party constitutes valuable trade secrets
of that party. Both parties agree that this Agreement establishes a
confidential relationship between Licensee and Red Brick as to the other party's
Confidential Information. Each party agrees, therefore, to preserve the
confidential nature of the other party's Confidential Information by retaining
and using such Confidential Information in trust and confidence, solely in
accordance with their rights under this Agreement, and further agrees not to
(except as may be otherwise permitted under this Agreement or any other
agreement between the parties) (i) use the Confidential Information; (ii)
disclose the Confidential Information to any third parties; (iii) permit the use
of such Confidential Information by, or disclosure of such Confidential
Information to unauthorized persons. Each party agrees to promptly report to
the other party any violations of these provisions by its employees,
consultants, or agents of which they are aware. Except as otherwise
10
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permitted under this Agreement or any other agreement between the parties,
neither party shall copy or make, or cause or permit any third party to copy
such Confidential Information, in whole or in part, without the prior written
consent of the other party. A party receiving Confidential Information shall not
be obligated under this Section 3.4 with respect to information the receiving
party can document: (a) is or has become readily publicly available without
restriction through no fault of the receiving party or its employees or agents;
(b) is received without restriction from a third party lawfully in possession of
such information and lawfully empowered to disclose such information; (c) was
rightfully in possession of the receiving party without restriction prior to its
disclosure by the other party; or (d) was independently developed by the
receiving party by employees without violation of this Section 3.4.
Notwithstanding the foregoing, all Database Technology existing as of August 29,
1997 shall be deemed Confidential Information of Red Brick disclosed to Licensee
under this Agreement and exceptions (c) and (d) above will not be applicable
thereto.
ARTICLE 4: WARRANTIES; LIABILITY LIMITATION
4.1 Warranties.
----------
At such future time as Red Brick makes generally available it first release
of Red Brick Formation or a similar successor product, Red Brick will make all
representations and warranties to Licensee concerning such release, and all
Licensed Software and Updates thereto provided subsequent to the date of such
release, that Red Brick makes to end users concerning such licensed materials
under its standard software license agreement.
EXCEPT AS OTHERWISE SET FORTH IN THIS AGREEMENT, THE LICENSED SOFTWARE IS
PROVIDED "AS IS." EXCEPT AS OTHERWISE SET FORTH IN THIS AGREEMENT RED BRICK
MAKES NO WARRANTIES TO ANY PERSON WITH RESPECT TO THE LICENSED SOFTWARE OR ANY
SERVICES PROVIDED HEREUNDER, AND DISCLAIMS ALL IMPLIED WARRANTIES, INCLUDING
WITHOUT LIMITATION WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR
PURPOSE AND NON-INFRINGEMENT.
4.2 Limitation of Liability.
-----------------------
IN NO EVENT SHALL ANY PARTY UNDER THIS AGREEMENT BE LIABLE WITH RESPECT TO
ANY SUBJECT MATTER OF THIS AGREEMENT UNDER ANY CONTRACT, NEGLIGENCE (EXCLUDING
WILLFUL MISCONDUCT), STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY FOR (I)
ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES, LOST PROFITS OR LOST DATA OR COST OF
PROCUREMENT OF SUBSTITUTE GOODS, TECHNOLOGY OR SERVICES OR (II) FOR ANY AMOUNT
IN EXCESS OF $10,000, EXCLUDING,
11
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HOWEVER, LIABILITY FOR BREACH OF SECTION 3.4 OR RED BRICK'S DUTY OF
INDEMNIFICATION PURSUANT TO SECTION 5.1.
ARTICLE 5: INDEMNIFICATION
5.1 Red Brick Duty of Indemnification.
---------------------------------
Except with respect to that portion of the Database Technology existing as
of August 29, 1997, Red Brick shall hold Licensee, its directors, officers,
employees and agents harmless from, and indemnify them against, all demands,
costs, damages, expenses, including reasonable attorneys' fees, and liabilities,
including amounts paid in settlement, for any claim or suit ("Claim") brought
against Licensee by a third party alleging that the use or distribution of the
Licensed Software by Licensee, its directors, officers, employees or agents
hereunder infringes upon any United States patent, trademark, copyright, or
trade secret; provided that Licensee (i) gives Red Brick prompt written notice
of the Claim and (ii) gives Red Brick all necessary information, reasonable
assistance and sole authority to defend and/or settle the Claim. In the event
that the use or distribution of the Licensed Software as permitted hereunder is
held to constitute an infringement, Red Brick shall, at its option and sole
expense, (a) modify or replace the Licensed Software so that it performs
comparable functions without material degradation in efficiency and without
infringement; or (b) obtain a perpetual, royalty-free license for Licensee to
use the infringing portion of the Licensed Software. Red Brick shall have no
liability for any Claim or infringement to the extent the same is based on (x)
use or combination of the Licensed Software with equipment, devices, software or
data not supplied by Red Brick; (y) the Licensed Software having been modified
by Licensee or; (z) use of the Licensed Software in a manner for which the
Licensed Software was not designed.
5.2 Licensee Duty of Indemnification.
--------------------------------
Licensee agrees to enforce and to use its best efforts to cause its
authorized Resellers to enforce the terms of the End User License Agreements
granted in accordance with the terms of this Agreement and to inform Red Brick
of any breach of such terms. Licensee will defend and indemnify Red Brick
against all damages, payments, costs and expenses (including attorney's fees)
for all claims or alleged claims (i) related to any use by Licensee, its
Resellers, or end users of the Licensed Software; or (ii) related to the failure
by Licensee or its Resellers to include in any End User License Agreement
granted hereunder the required contractual terms as set forth in Exhibit 2.
ARTICLE 6: TERM AND TERMINATION
6.1 Term and Termination.
--------------------
12
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The term of this Agreement shall be perpetual, commencing as of the
Effective Date. The rights and obligations under Article 1 and Sections 2.4,
2.5 and 2.6 of this Agreement may be terminated by either party in the event of
a material breach by either party of any warranty, covenant, or other provision
of this Agreement which is not cured within thirty (30) days of notice. In no
event shall Red Brick have any right whatsoever to terminate any part or all of
Sections 2.1 through 2.4, Section 2.7 and Article 3 hereof, provided, however,
that Red Brick shall have the right to terminate the License granted Licensee
under Section 2.1 for failure by Licensee to pay fees due under Work Order
Number Two to the Consulting Services Agreement following written notice of such
failure given by Red Brick to Licensee provided such failure is not cured within
thirty (30) days following receipt of such notice by Licensee.
6.2 Survival.
--------
The following Articles and Sections shall survive any termination of this
Agreement: Sections 2.1 through 2.5 (except as provided in the last sentence of
Section 6.1) and Section 2.7, Article 3 in its entirety, Sections 4.2, 5.1, 5.2,
6.1, 6.2 and Articles 7 and 8 in their entirety.
In the event that this Agreement is terminated for any reason, the rights
of the End Users to whom the Licensee may have distributed Licensed Software
pursuant to this Agreement will be unaffected by such termination. Within
thirty (30) days after the effective date of the termination of this Agreement,
Licensee shall deliver to Red Brick complete and accurate copies of all executed
End User license agreements that survive termination of this Agreement that are
held in Licensee's possession. In order to maintain their rights End Users must
continue to abide by the terms of their End User agreements.
ARTICLE 7: CONTRACTORS
7.1 Licensee's Use of Contractors.
-----------------------------
Notwithstanding any other provision of this Agreement, Licensee's
contractors shall have the same right to use the Licensed Software as afforded
to Licensee and its employees hereunder, provided that (i) Licensee shall ensure
that its contractors comply with the terms of this Agreement, (ii) Licensee
shall remain liable to Red Brick for the actions of its contractors, and (iii)
the contractors shall enter into a confidentiality agreement with Licensee
containing terms substantially similar to those set forth in Section 3.4.
ARTICLE 8: GENERAL TERMS AND CONDITIONS
8.1 Equitable Relief.
----------------
13
<PAGE>
Each party acknowledges that any breach of its obligations with respect to
the rights of the other party will cause the other party irreparable injury for
which there are inadequate remedies at law and that the other party shall be
entitled to equitable relief in addition to all other remedies available to it;
provided, however, that in no event will such equitable relief affect in any
respect the rights and obligations of the parties under Articles 2 and Sections
3.1 and 3.2 hereof.
8.2 Remedies.
--------
In the event of Termination for breach, the sole remedy of either aggrieved
party shall be money damages.
8.3 Relationships between Parties.
-----------------------------
In all matters relating to this Agreement, Licensee will act as an
independent contractor. The relationship between Red Brick and Licensee is that
of licensor/licensee. Neither party will represent that it has any authority to
assume or create any obligation, express or implied, on behalf of the other
party, nor to represent the other party as agent, employee, franchise, or in any
other capacity. Except as provided herein and in the agreements referenced in
Article 8.10, nothing in this Agreement shall be construed to limit either
party's right to independently develop or distribute software which is
functionally similar to the other party's product, so long as proprietary
information and Confidential Information of the other party is not used in such
development.
8.4 Assignment.
----------
Except as expressly contemplated hereby, neither this Agreement nor any of
the rights, interests or obligations hereunder may be assigned by a party
(whether by operation of law or otherwise) without the prior written consent of
the other party, which consent shall not be unreasonably withheld; provided that
either party may assign this Agreement and any of its rights, interests or
obligations hereunder to any successor in connection with a merger or
consolidation and any assignee or successor in interest to any such party in
connection with the sale of substantially all of such party's assets, including,
without limitation, the sale, merger or acquisition of Engage or the sale,
merger or acquisition of CMG. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of and be enforceable by the parties
and their respective successors and assigns. In the event of any assignment of
this Agreement by any party hereto, or the merger, acquisition or consolidation
of any party hereto, or the sale of substantially all of such party's assets (or
the sale of the Licensed Software), such party hereby agrees that any such
assignee, acquirer or purchaser shall execute an agreement of assumption
satisfactory to the other party in all respects, whereby such assignee, acquirer
or purchaser agrees to be bound by all
14
<PAGE>
of the obligations of such party hereunder in all respects. The respective
obligations and covenants of each party hereto shall be binding upon each party
and its respective affiliates, being those persons or legal entities
controlling, controlled by or under common control with such parties.
8.5 Notices.
-------
All notices, including notices of address change, required to be sent
hereunder shall be in writing and shall be deemed to have been given when mailed
by first class mail to the address set forth under the signature blocks at the
end of this Agreement, Attention: Legal/Contracts Department.
8.6 Governing Law/Jurisdiction.
--------------------------
This Agreement shall be governed by and construed in accordance with the
laws of the Commonwealth of Massachusetts, without regard to any applicable
conflicts of laws. Red Brick, and Licensee each agree that all disputes arising
among them related to this Agreement, whether arising in contract, tort, equity
or otherwise, shall be resolved only and exclusively in either the United States
Federal Court in Boston, Massachusetts, or in a Massachusetts state court
located in Essex County, Massachusetts. Red Brick hereby consents to the
jurisdiction of the United States Federal Court in Boston, Massachusetts, and of
the Massachusetts state courts in Essex County, Massachusetts, with respect to
any action, suit or proceeding commenced in any such court by Licensee or by
their successors or assigns, and Red Brick waives any defense it may have with
respect to such jurisdiction or with respect to the proper venue of any such
action, suit or proceeding in any such court.
8.7 Severability.
------------
In the event any provision of the Agreement is held to be invalid or
unenforceable, the remaining provisions of this Agreement will remain in full
force and effect.
8.8 Export.
------
Licensee and its Resellers agree to comply fully with all relevant export
laws and regulations of the United States to assure that neither the Licensed
Software, nor any direct product thereof, is exported, directly or indirectly,
in violation of United States law.
8.9 Waiver.
------
The waiver by either party of any default or breach of this Agreement shall
not constitute a waiver of any other or subsequent default or breach.
15
<PAGE>
8.1 Entire Agreement.
----------------
This Agreement together with the Amended and Restated Mutual Reseller and
Alliance Agreement, dated the date hereof, the DSS Server Software License
Agreement, dated the date hereof, the Consulting Services Agreement, dated
August 29, 1997 and the Technology Purchase Agreement, dated August 29, 1997,
constitute the complete agreement between the parties and supersede all prior or
contemporaneous agreements or representation, written or oral, concerning the
subject matter of this Agreement. This Agreement may not be modified or amended
except in a writing signed by a duly authorized representative of each party; no
other act, document, usage or customer shall be deemed to amend or modify this
Agreement. All terms and conditions of any Licensee purchases order or other
ordering document shall be superseded by the terms and conditions or this
Agreement.
8.1 Construction.
------------
The Parties have participated jointly in the negotiation and drafting of
this Agreement. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the Parties and no presumption or burden of proof shall arise favoring or
disfavoring any Party by virtue of the authorship of any of the provisions of
this Agreement.
8.1 Counterparts.
------------
This Agreement may be executed in any number of counterparts, each of which
shall be an original and all of which shall constitute together but one and the
same document.
16
<PAGE>
RED BRICK SYSTEMS, INC. ENGAGE TECHNOLOGIES, INC.
By: /s/ P W Fernandez By: /s/ Stephen A. Royal
----------------------------- -------------------------------------
Name: Philip W. Fernandez Name: Stephen A. Royal
-------------------------- ----------------------------------
Title: EVP/COO Title: CFO
-------------------------- ----------------------------------
Red Brick Systems, Inc. Engage Technologies, Inc.
485 Alberto Way 100 Brickstone Square
Los Gatos, CA 95032 Andover, MA 01810
Tel: 408-399-3200 Tel: 978-684-3686
-----------------------------------
Fax: 408-399-7200 Fax: 978-684-3877
-----------------------------------
CMG INFORMATION SERVICES, INC.
By: /s/ Andrew J. Hajducky
------------------------------------
Name:____________________________________
Title:___________________________________
CMG Information Services, Inc.
100 Brickstone Square
Andover, MA 01810
Tel:_____________________________________
Fax:_____________________________________
17
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
EXHIBIT 1: DEFINED TERMS
-------------------------
The following terms as used in Agreement shall have the meanings set forth
below:
"Application Suite" means (i) the current or future version of Licensee's suite
of Internet-based applications designed to collect, characterize, classify,
combine and analyze Internet data and currently known by the trade names:
Engage.Journal(TM), Engage.Portrait(TM) and Engage.Link(TM)-API, and currently
being developed under the names DSS Server and Profile Server, or (ii) any other
product, technology or service that is proprietary, in whole or in part, to
Licensee and used or useful in the Clickstream Market.
"Application Suite Components" are one or more components of any Application
Suite, each of which incorporates Updates of the Licensed Software received by
Licensee after the [**] Period.
"Clickstream Market" means any market for any products or services primarily
designed to collect, characterize, classify, combine and analyze user or user
"agent" (i.e., a device or process that acts on a user's behalf) activity data
(including, without limitation, clickstream data) created, gathered, analyzed,
manipulated or otherwise processed through or in association with any form of
Interactive Media.
"Database Technology" means the source code and object code form of the Database
Technology acquired by Red Brick under the separate Technology Purchase
Agreement dated August 29, 1997 including end user documentation, technical
specifications and programmer notes and all Updates, enhancements, modifications
and improvements thereto, and Derivative Works thereof, but excluding code that
is part of Licensee's rights under Section 3.1(c).
"Data Warehouse Market" means any market, excluding the Clickstream Market, for
products or services used for the collection, transformation, loading, storage,
management, retrieval, delivery or presentation of any data other than
clickstream data.
"Derivative Works" shall have the meaning set forth in 17 U.S.C. (S) 101.
"Fees" means Royalty Fees and Pass-Through Royalty Fees.
18
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"Interactive Media" means communication media that allow users to input
information or participate, including, but not limited to, the Internet,
interactive television and interactive telephony.
"Updates" means all updates, enhancements, modifications and improvements,
including, but not limited to, preview releases, external alpha releases, beta
releases, controlled releases and general releases, to the Licensed Software (as
such term is defined in Section 1.6), and Derivative Works thereof, that Red
Brick makes commercially available and which are not identified on the Red Brick
Price List as a separate product and which are developed by Red Brick or its
contractors in source code form, including end user documentation, technical
specifications and programmer notes.
19
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EXHIBIT 2: END USER TERMS
-------------------------
All of Licensee's or its Reseller's agreements with end users licensing the
Application Suite which incorporates a copy of the Licensed Software shall
contain terms at least as restrictive as those set forth in this Exhibit (except
to the extent that such terms are prohibited by law in certain jurisdictions, in
which case the affected terms shall be included in such jurisdictions in as
restrictive a form as they are allowed, with all unaffected terms being
unchanged):
1. Restrict use of the Application Suite to object code form for End User's
own internal use only;
2. Prohibit transfer or duplication of the Application Suite except for
temporary transfer in the event of CPU malfunction and a single backup or
archival copy;
3. Prohibit timesharing or rental of the Application Suite and prohibit
assignment of the Application Suite unless the assignee assumes in writing
all of the restrictions on the End User required under this Agreement;
4. Prohibit causing or permitting the reverse engineering, disassembly or
decompilation of the Application Suite;
5. Prohibit title from passing to the sublicensee or Reseller;
6. Disclaim Red Brick's and its licensors' liability for any damages, whether
direct, indirect, incidental or consequential arising from the use of the
Licensed Software or the Application Suite;
7. Require the sublicensee and/or Reseller, at the termination of the
sublicense, to discontinue use and destroy or return to the Licensee or
Reseller the Application Suite, including documentation and all archival or
other copies;
8. For copies of the Application Suite sublicensed for use in the United
States, prohibit transfer of the Application Suite outside the United
States; require the sublicensee to comply fully with all relevant export
laws and regulations of the United States to assure that neither the
Application Suite, nor any direct product thereof, are exported, directly
or indirectly, in violation of United States law;
9. If Licensee or its Resellers grants an End User License to the United
States government, the Application Suite shall be provided with "Restricted
Rights" and Licensee or its Reseller will place a legend, in addition to
applicable copyright notices, on the documentation, and on any media label,
substantially similar to the following:
20
<PAGE>
"RESTRICTED RIGHTS LEGEND: Use, duplication, or disclosure by the U.S.
Government is subject to the restrictions set forth in subparagraph (c) of
the Commercial Computer Software--Restricted Rights clause of FAR 52.227-
19."
10. Specify Red Brick and its licensors as intended third-party beneficiaries
of Licensee's rights under any End User License Agreement.
21
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
EXHIBIT 3: FEES
---------------
In accordance with Section 2.5 of the Agreement, Licensee shall pay Red
Brick Royalty Fees based upon the following schedule:
Allocated Application Suite Revenue Percent due Red Brick as Royalty Fee
[**] [**]
[**] [**]
[**] [**]
[**] [**]
Where "Allocated Application Suite Revenue" means the aggregate annual revenue
net of returns and allowances recognized by Licensee from the sale,
licensing or distribution of the Application Suite Components incorporating
Updates received by Licensee after the [**] Period.
Royalty Fees are calculated on a graduated basis with the beginning balance
starting from zero each year. For example, if Allocated Application Suite
Revenue for Year 1 was [**], the Royalty Fee for Year 1 would be calculated as
follows: [**]. In Year 2, the calculation would begin from $0 again. Royalty
Fees are calculated based on Total Annual Revenue, but are payable on a
quarterly basis in accordance with Sections 2.5.3 and 2.5.4 of the Agreement.
In addition to Licensee's obligation to pay Royalty Fees, Licensee shall have an
obligation, commencing on the Effective Date of this Agreement, to make Pass-
Through Royalty Fee payments to Red Brick in accordance with Section 2.5.2 of
the Agreement.
The parties hereto agree that revenue received by Licensee from the entire
Application Suite shall be fairly allocated between (i) the Application Suite
Components and (ii) those components of the Application Suite which do not
incorporate Updates of the Licensed Software received after the [**] Period,
such allocation to be based on the relative value of such Application Suite
Components and such other components to the End Users.
22
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
EXHIBIT 4:
----------
ADDITIONAL FEATURES FOR MODIFIED RED BRICK FORMATION
----------------------------------------------------
LICENSED MATERIALS
------------------
[**]
23
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
Exhibit 10.10
-------------
Execution Copy
DSS SERVER SOFTWARE LICENSE AGREEMENT
This DSS Server Software License Agreement (the "Agreement") is made as of
July 31, 1998 ("Effective Date") by and between Engage Technologies, Inc.
("Engage"), a Delaware corporation with its principal office located at 100
Brickstone Square, Andover, Massachusetts 01810, including its parent company
CMG Information Services, Inc. ("CMGI") and CMGI's majority-owned subsidiaries
(individually, or collectively with Engage and CMGI, "CMGI") and Red Brick
Systems, Inc., a Delaware corporation, with its principal office located at 485
Alberto Way, Los Gatos, California 95032 ("Red Brick").
The following Exhibits are made a part of this Agreement:
Exhibit 1: Defined Terms
Exhibit 2: End User Terms
Exhibit 3: List of Products to Which Warehouse DSS Server Software Will Port
and/or Interface
In consideration of the covenants, representations and warranties set forth
herein and other good and valuable consideration, the parties agree as follows:
ARTICLE 1: OPERATING PROVISIONS FOR LICENSED ACTIVITIES
1.1 Development of DSS Server Software for Database Technology.
----------------------------------------------------------
CMGI will use commercially reasonable efforts to develop and deliver to Red
Brick a commercially complete and salable version of the Current DSS Server
Software (as defined in the Amended and Restated Mutual Reseller and Alliance
Agreement between the parties, dated the date hereof) porting to or interfacing
with the Red Brick products and applications set forth on Exhibit 3 attached
hereto (the "Warehouse DSS Server Software"). CMGI will use commercially
reasonable efforts to develop and deliver the Warehouse DSS Server Software for
incorporation into the Database Technology by [**].
1
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
1.2 Development Assistance for the Warehouse DSS Server Software.
------------------------------------------------------------
Commencing upon the Effective Date of this Agreement, Red Brick shall
provide CMGI, at no charge, with development assistance related to the
development and delivery by CMGI of the Warehouse DSS Server Software. Such
development assistance shall include all reasonable assistance necessary to
assist CMGI in the development and delivery by CMGI of the Warehouse DSS Server
Software, including, without limitation, telephone access to a named Red Brick
engineer for support, provision of all Red Brick Warehouse and Red Brick
Formation database connectors to the Red Brick Warehouse and Red Brick Formation
software and weekly meetings between CMGI and Red Brick personnel, to the extent
necessary, to resolve any outstanding issues.
1.3 Delivery of Warehouse DSS Server Software for Database Technology.
-----------------------------------------------------------------
Upon completion of the development of the Warehouse DSS Server Software,
CMGI shall provide Red Brick at no cost with one (1) master media containing the
Warehouse DSS Server Software in object code form and one (1) master copy of
each item of all documentation for the Warehouse DSS Server Software to the
extent such documentation is then available (together the "Warehouse DSS Server
Software Licensed Materials").
1.4 Acceptance of Warehouse DSS Server Software.
-------------------------------------------
Red Brick shall, within [**] following Red Brick's receipt of the Warehouse
DSS Server Software, conduct acceptance testing to ensure that: (i) the
Warehouse DSS Server Software functions in accordance with the specifications
for the Warehouse DSS Server Software contained in the user documentation
provided to Red Brick by CMGI with the Warehouse DSS Server Software and (ii)
the Warehouse DSS Server Software ports to or interfaces with the Red Brick
products and applications set forth on Exhibit 3 attached hereto such that the
Warehouse DSS Server Software is at least as functional as the standard DSS
Server Software produced by CMGI which interfaces with other commercially
available databases.
Within such [**] testing period Red Brick will give CMGI notice as soon as
reasonably possible concerning any potential issues or problems with the
Warehouse DSS Server Software or potential reasons for not accepting such
Warehouse DSS Server Software, such notice to be given in no events less than
[**] after Red Brick becomes aware of any such potential issues or problems.
Any notice of non-acceptance or of potential problems or issues which may result
in non-acceptance
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
of the Warehouse DSS Server Software shall describe the failure, or potential
failure, of the Warehouse DSS Server Software in reasonable detail. If Red Brick
gives CMGI written notice of non-acceptance, or reasons for potential non-
acceptance, within such [**] testing period, CMGI shall promptly investigate the
failure or potential failure. Red Brick shall provide to CMGI, to the extent
reasonably available at the time, detailed documentation and explanation,
together with underlying data, to substantiate the failure or potential failure
and to assist CMGI in its efforts to diagnose and correct the failure or
potential failure. If CMGI determines, reasonably and in good faith, that there
was no failure or that such failure was not caused by an error in the Warehouse
DSS Server Software, then CMGI shall give prompt written notice to Red Brick
explaining that determination in reasonable detail and unless, within [**] after
receiving such notice, Red Brick gives written notice to CMGI that it disputes
that determination, Red Brick shall be deemed to have accepted the Warehouse DSS
Server Software.
If CMGI determines that there was a failure which was caused by a defect in
the Warehouse DSS Server Software, then CMGI shall use commercially reasonable
efforts to correct the failure as soon as reasonably practicable. If CMGI
corrects such failure, then CMGI shall give written notice to Red Brick
certifying that such failure has been corrected, and another acceptance period
shall begin, provided that such additional acceptance period shall last for
[**].
1.5 License Grant to the Warehouse DSS Server Software.
--------------------------------------------------
Subject to the terms and conditions of this Agreement CMGI hereby grants to
Red Brick and Red Brick hereby accepts a non-transferable (except as provided
herein), limited license for the term of this Agreement to exercise all rights
whatsoever as provided below solely with respect to the Warehouse DSS Server
Software Licensed Materials in all parts of the world (the "License"):
1.5.1 to use, copy and modify the Warehouse DSS Server Software Licensed
Materials solely for the purpose of incorporating the Warehouse DSS Server
Software Licensed Materials into the Database Technology;
1.5.2 to incorporate portions of the Warehouse DSS Server Software
Licensed Materials into the Database Technology provided that users of the
Database Technology cannot gain access to the source code for the Warehouse DSS
Server Software Licensed Materials;
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1.5.3 to, either directly or through Resellers (as defined below): (i)
market, distribute, copy and license (with the right to sublicense) the
Warehouse DSS Server Software Licensed Materials in object code form only, only
as incorporated in the Database Technology; (ii) demonstrate the Warehouse DSS
Server Software Licensed Materials only as incorporated in the Database
Technology to prospective customers; (iii) internally use the Warehouse DSS
Server Software Licensed Materials to provide technical support to end user
customers or prospective customers; and (iv) license the Warehouse DSS Server
Software Licensed Materials only as incorporated in the Database Technology to
end users for use on a trial basis only pursuant to a trial license agreement
containing all terms set forth in Exhibit 2; and
1.5.4 when the Warehouse DSS Server Software Licensed Materials are
delivered by Red Brick as part of the Application Suite, in Red Brick's capacity
as a Reseller of the Application Suite, Red Brick will have the rights to market
and distribute the Warehouse DSS Server Software Licensed Materials as part of
the Application Suite which are set forth in the Amended and Restated Mutual
Reseller and Alliance Agreement between the parties, dated the date hereof (the
"Reseller Agreement").
1.6 License Restrictions to the Current and Warehouse DSS Server Software.
---------------------------------------------------------------------
Notwithstanding anything else in this Agreement, this Agreement and the
Reseller Agreement do not include a grant to Red Brick of any ownership right,
title or other interest, in any of CMGI's Rights (as defined in Section 4.1)
relating to the Current DSS Server Software Licensed Materials, the Warehouse
DSS Server Software Licensed Materials or any DSS Updates nor in any copy or
part thereof. In particular, and without limitation, Red Brick shall not, and
will not allow any third party to (i) reverse engineer or attempt to discover
any source code or underlying algorithms of the Current DSS Server Software
Licensed Materials, the Warehouse DSS Server Software Licensed Materials or any
DSS Updates, (ii) delete or fail to reproduce any copyright or other proprietary
notices appearing in the Current DSS Server Software Licensed Materials, the
Warehouse DSS Server Software Licensed Materials or any DSS Updates, (iii)
sublicense or otherwise distribute the Current DSS Server Software Licensed
Materials, Warehouse DSS Server Software Licensed Materials or any DSS Updates
in source code form, (iv) sublicense or otherwise distribute the Warehouse DSS
Server Software Licensed Materials or any DSS Updates in object code form except
when incorporated into the Database Technology or as part of the Application
Suite or (v) sublicense or otherwise distribute the Current DSS Server Software
Licensed Materials in object code form except as part of the Application Suite.
Red Brick has no right to sublicense or otherwise distribute the Current DSS
Server Software except purely as a Reseller of the Application Suite in the
event that the Current DSS Server Software is part of the Application Suite.
1.7 Red Brick Resellers.
-------------------
4
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Subject to the terms and conditions of this Agreement, Red Brick may
appoint authorized resellers ("Resellers") to use and distribute the Warehouse
DSS Server Software Licensed Materials and DSS Updates (only as incorporated in
the Database Technology) only as provided in Section 1.5 provided that each such
Reseller shall be bound by written agreement with Red Brick that (a) protects
the confidentiality of; and CMGI's rights in, the Warehouse DSS Server Software
Licensed Materials and DSS Updates to the same extent as provided under this
Agreement, and prevents the Reseller from disassembling, decompiling or
otherwise reverse engineering the Warehouse DSS Server Software Licensed
Materials and DSS Updates or otherwise attempting to learn source code,
structure, or algorithms underlying the Warehouse DSS Server Software Licensed
Materials and DSS Updates (except to the extent that such prohibitions are
limited by law in certain jurisdictions, in which case the affected prohibitions
shall be included in such jurisdictions in as restrictive and protective a form
as they are allowed, with unaffected prohibitions remaining unchanged); and (b)
limits the liability of CMGI to the same extent as provided under the terms of
this Agreement. Each such Reseller shall enter into a restricted use license
agreement with Red Brick that contains terms at least as restrictive in all
respects as the required terms set forth for "Distributors" on Exhibit D to the
Amended and Restated Mutual Reseller and Alliance Agreement between the parties,
dated the date hereof. Red Brick shall remain directly liable to CMGI and shall
indemnify, defend and hold harmless CMGI for any breach by any of Red Brick's
Resellers of such agreement.
1.8 End User Licenses.
-----------------
Prior to or upon delivery of the Database Technology containing a copy of
the Warehouse DSS Server Software Licensed Materials or DSS Updates to an end
user, Red Brick and its Resellers shall enter into a written binding license
agreement with the end user which shall contain terms at least as restrictive as
those set forth on Exhibit 2 ("End User License Agreement"). Red Brick shall
provide CMGI with copies of such End-User License Agreements upon request.
1.9 Delivered Copy of Warehouse DSS Server Software to be Disabled.
--------------------------------------------------------------
Every copy of the Warehouse DSS Server Software Licensed Materials or DSS
Updates which is incorporated into the Database Technology and delivered by Red
Brick or its Resellers shall employ a license key mechanism or otherwise be
disabled in a manner so as to prohibit use of the Warehouse DSS Server Software
Licensed Materials or DSS Updates until the end user obtains an appropriate code
or enabling software components from either Red Brick or CMGI, the obtaining of
such code or enabling software components from either Red Brick or CMGI and
their use to activate the Warehouse DSS Server Software Licensed Materials or
DSS Updates
5
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otherwise referred to as the Warehouse DSS Server Software Licensed Materials or
DSS Updates being activated.
ARTICLE 2: UPDATES
2.1 Updates to the Warehouse DSS Server Software.
--------------------------------------------
(a) For the term of this Agreement, CMGI shall provide Red Brick with one
(1) master media containing all DSS Updates in object code form and one (1)
master copy of each item of all documentation for the DSS Updates to the extent
such documentation is then available.
(b) CMGI will develop and deliver to Red Brick DSS Updates to ensure that
the Warehouse DSS Server Software Licensed Materials delivered and licensed to
Red Brick track the most recent version of the DSS Server Software Licensed
Materials being marketed by CMGI.
(c) CMGI will develop and deliver to Red Brick DSS Updates to ensure that
the Warehouse DSS Server Software Licensed Materials port to, or interface with,
the most recent versions of the Red Brick products and applications set forth on
Exhibit 3 attached hereto. To facilitate CMGI's development of such DSS Updates,
Red Brick will inform CMGI at least ninety (90) days in advance of Red Brick's
release of any updates to, or more recent versions of; any of such products and
applications. In addition, whenever Red Brick updates or releases a new version
of any of the products or applications set forth on Exhibit 3, Red Brick shall
deliver to CMGI one (1) master media containing all such updates or new versions
in object code form and one (1) master copy of each item of all documentation
available for such updates or new versions to the extent such documentation is
then available. CMGI will develop and provide to Red Brick DSS Updates to port
to, or interface with, such updated or new versions of the Red Brick products
and applications within ninety (90) days of CMGI's receipt of the master media
and documentation for the updated or new versions of such products and
applications.
(d) Red Brick will have the license rights to all DSS Updates which are set
forth in Section 1.5 of this Agreement for the Warehouse DSS Server Software
Licensed Materials and Red Brick will be subject to all restrictions for use of
the DSS Updates which are applicable to the Warehouse DSS Server Software
Licensed Materials.
ARTICLE 3: LICENSE FEES AND SUPPORT
3.1 Obligation to Pay Royalty Fees. For every sale of Database Technology
------------------------------
which incorporates a version of the Warehouse DSS Server Software Licensed
Materials or any DSS Updates and for which the recipient of such Database
Technology elects to
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
activate the Warehouse DSS Server Software Licensed Materials and DSS Updates,
Red Brick will pay to CMGI, or to any party which CMGI designates in writing to
Red Brick, an amount equal to the then current CMGI list price for such
Warehouse DSS Server Software Licensed Materials or DSS Updates, less the
discount set forth below (the "Royalty Fees"):
3.1.1 For the period beginning on the Effective Date of this Agreement and
ending on the [**] year anniversary of the Effective Date of this Agreement,
[**], subject to the exception set forth below.
3.1.2 For the period beginning on the day after the [**] year anniversary
of the Effective Date of this Agreement and lasting through the expiration or
termination of this Agreement, [**], subject to the exception set forth below.
3.1.3 In the event that CMGI establishes a joint venture or exclusive
distributor in a geographic area and such joint venture or exclusive distributor
becomes the source of the Warehouse DSS Server Software Licensed Materials and
DSS Updates for Red Brick pursuant to Section 9.12 of this Agreement, such joint
venture or exclusive distributor will offer a discount off of current list price
of at least [**], with a higher discount potentially being available at the
agreement of such joint venture or exclusive distributor.
Red Brick shall independently determine the prices at which to sell the
Database Technology (including the Warehouse DSS Server Software Licensed
Materials and DSS Updates incorporated therein) to its End Users or to
Resellers; provided, however, that to the extent Red Brick offers an End User a
discount, such discount shall be equitably distributed between Red Brick's own
products that End User or Reseller is purchasing and the Database Technology
(including the Warehouse DSS Server Software Licensed Materials and DSS Updates
incorporated therein) being resold.
CMGI may designate any person or entity as the recipient of all or any
portion of the Royalty Fees, such persons or entities to potentially include,
without limitation, any joint ventures or subsidiary companies of CMGI.
3.2 Pre-paid Royalties.
------------------
(a) Red Brick shall make the following guaranteed, non-refundable
minimum royalty payments (the "Prepaid Royalty Fees") to CMGI:
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
(i) on the later of (a) the date of acceptance of the Warehouse DSS
Server Software Licensed Materials pursuant to Section 1.4 of this Agreement or
(b) [**] (the "First Payment Date"), Red Brick will pay to CMGI an additional
[**];
(ii) on [**], Red Brick will pay to CMGI an additional [**];
(iii) on [**], Red Brick will pay to CMGI an additional [**];
(iv) on [**], Red Brick will pay to CMGI an additional [**];
(v) on each of the [**][**] anniversaries of the First Payment Date,
Red Brick will pay to CMGI an additional [**](for a total payment of [**] under
this Section 3.2(a) by the [**] anniversary of the First Payment Date; and
(vi) in the event of a termination of this Agreement Red Brick will
remain liable to CMGI, despite such termination, for payment of all of the
Prepaid Royalty Fees set forth in this Section 3.2(a), including those payments
designated to be paid on dates after the date of such termination.
(b) Each payment made pursuant to subsections 3.2(a)(ii)-(iv) is a minimum
royalty for the period commencing the day after the prior payment and ending as
of the day designated for the current payment; provided, however, that each such
payment shall be reduced by the amount paid by Red Brick to Engage during each
such period in respect of Royalty Fees due pursuant to Section 3.1 of this
Agreement, as well as any fees due under Section 7(a) of the Reseller Agreement
between the parties, dated the date hereof (together the "Combined Fees") for
such period.
Each payment made pursuant to subsection 3.2(a)(v) is a prepaid royalty and
will be credited toward any Combined Fees for the [**] period following the date
of each such payment at the end of each [**] period, on the day immediately
preceding the day designated for the next payment pursuant to Section 3.2(a)(v)
above, the Prepaid Royalty Fees which have not been used will expire and be
forfeited, such that every [**] payment may only be credited toward Combined
Royalty Fees which accrue in the period beginning on such payment and ending on
the day immediately preceding the next scheduled payment. Notwithstanding the
foregoing, the payment on the [**] anniversary of the First Payment Date shall
also be credited toward Combined Fees for the period commencing [**] and ending
on the [**] anniversary of the First Payment Date.
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3.3 Royalty Fee Reports. Each quarter during the term of this Agreement when
-------------------
Red Brick has an obligation to pay Royalty Fees or Prepaid Royalty Fees, within
fifteen (15) days after the end of the quarter, Red Brick shall submit a report
to CMGI describing any Royalty Fee payments made or due; number of copies of the
Database Technology shipped for which the licensee has accepted and activated a
license to the Warehouse DSS Server Software Licensed Materials or DSS Updates;
the shipment date; and the end user name, address, hardware, and operating
system; as well as any information necessary or useful for calculating/verifying
all Royalty Fees due. Red Brick shall also provide, in the reports described
above, the shipment date; and the end user name, address, hardware, and
operating system for any trial licenses which Red Brick grants. Any Royalty Fee
amounts due based on Red Brick activity or revenue in such quarter will be paid
at the same time.
3.4 Payment Terms and Compliance. Except as set forth below, all payments of
----------------------------
Royalty Fees and Prepaid Royalty Fees (together the "Fees") shall be made inside
the U.S., in U.S. dollars net thirty (30) days from receipt of invoice;
provided, however, Royalty Fees shall be due and payable upon submission of each
quarterly Report as required pursuant to Section 3.3 and provided further that
in the event that CMGI designates another person or entity as the recipient of
all or any portion of the Royalty Fees, pursuant Section 3.1, then if such
person or entity desires it may receive payment outside the U.S. in the country
and currency of its choice. Any payments more than thirty (30) days overdue will
bear a late payment fee of 1.5% per month, or, if lower, the maximum rate
allowed by law. Red Brick shall at all times keep and maintain complete and
accurate records that include at least the following information: name and
address of each end user who has activated a copy of the Warehouse DSS Server
Software Licensed Materials or DSS Updates, number of copies licensed and date
of purchase. CMGI may, with no less than five (5) business days' notice, and at
CMGI's expense, have an independent auditor or accountant audit, during normal
business hours, Red Brick's records related to the Warehouse DSS Server Software
Licensed Materials and any DSS Updates to verify Red Brick's compliance with the
provisions of this Agreement. If an audit indicates an underpayment of five
percent (5%) or more of any amounts due hereunder, Red Brick shall promptly pay
the deficiency and reimburse CMGI for the cost of the audit.
3.5 Support.
-------
3.5.1 Separate Support Agreement. Within thirty (30) days after the
--------------------------
Effective Date of this Agreement, the parties will execute a separate support
agreement ("Support Agreement") under the terms of which CMGI shall provide Red
Brick with such technical support services for the Warehouse DSS Server Software
Licensed
9
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
Materials and DSS Updates as the parties mutually agree at a price mutually
agreed to by the parties for an initial period of [**] from the execution date
of such support agreement. In the Support Agreement the parties will also
mutually agree upon the terms and responsibilities between the parties for all
installation, training and consultation, and all other maintenance and support
directly to end users with respect to the Warehouse DSS Server Software Licensed
Materials and DSS Updates incorporated into the Database Technology.
ARTICLE 4: INTELLECTUAL PROPERTY; CONFIDENTIALITY
4.1 CMGI Ownership.
--------------
CMGI shall have all right, title and interest (including all patent rights,
copyrights, trade secret rights, and other intellectual property or proprietary
rights throughout the world (collectively referred to as "CMGI's Rights")) in
and to (a) its Confidential Information and (b) the Current DSS Server Software
Licensed Materials, Warehouse DSS Server Software Licensed Materials and any DSS
Updates.
4.2 Red Brick Ownership.
-------------------
Red Brick shall have all right, title and interest (including all patent
rights, copyrights, trade secret rights, and other intellectual property or
proprietary rights throughout the world (collectively referred to as "Red
Brick's Rights")) in and to its Confidential Information.
4.3 No Other Rights or Licenses.
---------------------------
Except as expressly provided in this Agreement, neither party is granted
any right or license to any of the foregoing or to any rights of the other.
4.4 Confidential Information.
------------------------
The parties acknowledge and agree that during the course of performing
their duties under this Agreement, the parties may exchange confidential and
proprietary information ("Confidential Information"). Confidential Information
shall include, without limitation, customer lists, the Current DSS Server
Software Licensed Materials, the Warehouse DSS Server Software Licensed
Materials, DSS Updates, trade secrets, product plans and schedules, new product
information, technical data and know-how, instructional and operating manuals,
financial information, marketing and sales data and plans, and any other
business, financial or technical information.
10
<PAGE>
Each party acknowledges that the Confidential Information of the other party
constitutes valuable trade secrets of that party. Both parties agree that this
Agreement establishes a confidential relationship between CMGI and Red Brick as
to the other party's Confidential Information. Each party agrees, therefore, to
preserve the confidential nature of the other party's Confidential Information
by retaining and using such Confidential Information in trust and confidence,
solely in accordance with their rights under this Agreement, and further agrees
not to (except as may be otherwise permitted under this Agreement) (i) use the
Confidential Information; (ii) disclose the Confidential Information to any
third parties; (iii) permit the use of such Confidential Information by, or
disclosure of such Confidential Information to unauthorized persons. Each party
agrees to promptly report to the other party any violations of these provisions
by its employees, consultants, or agents of which they are aware. Except as
otherwise permitted under this Agreement, neither party shall copy or make, or
cause or permit any third party to copy such Confidential Information, in whole
or in part, without the prior written consent of the other party. A party
receiving Confidential Information shall not be obligated under this Section 4.4
with respect to information the receiving party can document: (a) is or has
become readily publicly available without restriction through no fault of the
receiving party or its employees or agents; (b) is received without restriction
from a third party lawfully in possession of such information and lawfully
empowered to disclose such information; (c) was rightfully in possession of the
receiving party without restriction prior to its disclosure by the other party;
or (d) was independently developed by the receiving party by employees without
violation of this Section 4.4.
ARTICLE 5: WARRANTIES; LIABILITY LIMITATION
5.1 Warranties.
----------
As is set forth in Section 4.1 of the Amended and Restated Software License
Agreement between the parties, dated the date hereof, at such future time as Red
Brick makes generally available its first release of Red Brick Formation, Red
Brick will make all representations and warranties to CMGI concerning such
release, and all Licensed Software and Updates thereto (as such terms are
defined in such Amended and Restated Software License Agreement) provided
subsequent to the date of such release, that Red Brick makes to end users
concerning such licensed materials under its standard software license
agreement. At that time CMGI will make reciprocal warranties to Red Brick
concerning the Warehouse DSS Server Software Licensed Materials and DSS Updates.
EXCEPT AS OTHERWISE SET FORTH IN THIS AGREEMENT, THE CURRENT DSS SERVER
SOFTWARE LICENSED MATERIALS, WAREHOUSE DSS SERVER SOFTWARE LICENSED MATERIALS
AND DSS UPDATES ARE PROVIDED "AS IS." EXCEPT AS OTHERWISE SET FORTH IN THIS
AGREEMENT, CMGI MAKES NO WARRANTIES TO ANY PERSON WITH RESPECT TO THE
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
CURRENT DSS SERVER SOFTWARE LICENSED MATERIALS, WAREHOUSE DSS SERVER SOFTWARE
LICENSED MATERIALS AND DSS UPDATES OR ANY SERVICES PROVIDED HEREUNDER, AND
DISCLAIMS ALL IMPLIED WARRANTIES, INCLUDING WITHOUT LIMITATION WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND NON-INFRINGEMENT.
5.2 Limitation of Liability.
-----------------------
IN NO EVENT SHALL ANY PARTY UNDER THIS AGREEMENT BE LIABLE WITH RESPECT TO
ANY SUBJECT MATTER OF THIS AGREEMENT UNDER ANY CONTRACT, NEGLIGENCE (EXCLUDING
WILLFUL MISCONDUCT), STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY FOR (I)
ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES, LOST PROFITS OR LOST DATA OR COST OF
PROCUREMENT OF SUBSTITUTE GOODS, TECHNOLOGY OR SERVICES OR (II) FOR ANY AMOUNT
IN EXCESS OF [**], EXCLUDING, HOWEVER, LIABILITY FOR BREACH OF SECTION 4.4 OR
CMGI'S DUTY OF INDEMNIFICATION PURSUANT TO SECTION 6.1.
ARTICLE 6: INDEMNIFICATION
6.1 CMGI Duty of Indemnification.
----------------------------
CMGI shall hold Red Brick, its directors, officers, employees and agents
harmless from, and indemnify them against, all demands, costs, damages,
expenses, including reasonable attorneys' fees, and liabilities for any claim or
suit ("Claim") brought against Red Brick by a third patty alleging that the use
or distribution of the Warehouse DSS Server Software Licensed Materials or DSS
Updates by Red Brick, its directors, officers, employees or agents hereunder
infringes upon any United States patent, trademark, copyright, or trade secret;
provided that Red Brick (i) gives CMGI prompt written notice of the Claim and
(ii) gives CMGI all necessary information, reasonable assistance and sole
authority to defend and/or settle the Claim. In the event that the use or
distribution of the Warehouse DSS Server Software Licensed Materials or DSS
Updates as permitted hereunder is held to constitute an infringement, CMGI
shall, at its option and sole expense, (a) modify or replace the Warehouse DSS
Server Software Licensed Materials or DSS Updates so that they perform
comparable functions without material degradation in efficiency and without
infringement; or (b) obtain a royalty-free license for Red Brick to use the
infringing portion of the Warehouse DSS Server Software Licensed Materials and
DSS Updates. CMGI shall have no liability for any Claim or infringement to the
extent the same is
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based on (x) use or combination of the Warehouse DSS Server Software Licensed
Materials or DSS Updates with equipment, devices, software, data or equipment
not supplied by CMGI; (y) the Warehouse DSS Server Software Licensed Materials
or DSS Updates having been modified by Red Brick or; (z) use of the Warehouse
DSS Server Software Licensed Materials or DSS Updates in a manner for which they
were not designed.
6.2 Red Brick Duty of Indemnification.
---------------------------------
Red Brick agrees to enforce and to use its best efforts to cause its
authorized Resellers to enforce the terms of the End User License Agreements
granted in accordance with the terms of this Agreement and to inform CMGI of any
breach of such terms. Red Brick will defend and indemnify CMGI against all
damages, payments, costs and expenses (including attorney's fees) for all claims
or alleged claims (i) related to any use by Red Brick, its Resellers, or end
users of the Current DSS Server Software Licensed Materials, Warehouse DSS
Server Software Licensed Materials, or DSS Updates; or (ii) related to the
failure by Red Brick or its Resellers to include in any End User License
Agreement granted hereunder the required contractual terms as set forth in
Exhibit 2.
ARTICLE 7: TERM AND TERMINATION
7.1 Term and Termination. The term of this Agreement shall last for five (5)
--------------------
years, commencing as of the Effective Date, unless earlier terminated as
provided below. At the end of such initial term, and of all subsequent renewal
terms thereof, this agreement shall renew at the sole option of CMGI for
successive one-year terms. CMGI will exercise its sole option to renew by
informing Red Brick of its intent to renew in writing at least thirty-days prior
to the end of the initial, or any renewal, term. This Agreement may be
terminated by either party in the event of a material breach by the other party
of any warranty, covenant, or other provision which is not cured within thirty
(30) days of notice. In addition, CMGI may terminate this Agreement in the event
of a termination or expiration of the Amended and Restated Mutual Reseller and
Alliance Agreement between the parties, dated the date hereof (the "Reseller
Agreement"). In the event of a termination of this Agreement by one party for
breach by the other patty, the breaching party will lose all license and other
rights provided by this Agreement.
7.2 Survival.
--------
The following Articles and Sections shall survive any termination of this
Agreement: Sections 1.6 and 1.8, Sections 3.1 through 3.4, Article 4 in its
entirety and Sections 5.2, 6.1,6.2 and Articles 7 and 9 in their entirety.
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In the event that this Agreement is terminated for any reason, the rights
of the End Users to whom Red Brick may have distributed Warehouse DSS Server
Software Licensed Materials or DSS Updates pursuant to this Agreement will be
unaffected by such termination. Within thirty (30) days after the effective date
of the termination of this Agreement, Red Brick shall deliver to CMGI complete
and accurate copies of all executed End User license agreements that survive
termination of this Agreement that are held in Red Brick's possession. In order
to maintain their rights End Users must continue to abide by the terms of their
End User agreements.
ARTICLE 8: CONTRACTORS
8.1 Red Brick's Use of Contractors.
------------------------------
Notwithstanding any other provision of this Agreement, Red Brick's
contractors shall have the same right to use the Warehouse DSS Server Software
Licensed Materials and DSS Updates as afforded to Red Brick and its employees
hereunder, provided that (i) Red Brick shall ensure that its contractors comply
with the terms of this Agreement, (ii) Red Brick shall remain liable to CMGI for
the actions of its contractors, and (iii) the contractors shall enter into a
confidentiality agreement with Red Brick containing terms substantially similar
to those set forth in Section 4.4.
ARTICLE 9: GENERAL TERMS AND CONDITIONS
9.1 Equitable Relief.
----------------
Each patty acknowledges that any breach of its obligations with respect to
the rights of the other party will cause the other party irreparable injury for
which there are inadequate remedies at law and that the other party shall be
entitled to equitable relief in addition to all other remedies available to it;
provided, however, that in no event will such equitable relief affect in any
respect the rights and obligations of the parties under Sections 1.6, 1.7, 1.8,
1.9, 3.1 through 3.4 and Articles 4 and 5 hereof.
9.2 Relationships between Parties.
-----------------------------
In all matters relating to this Agreement, Red Brick and CMGI will act as
independent contractors. The relationship between Red Brick and CMGI is that of
licensee/licensor. Neither party will represent that it has any authority to
assume or create any obligation, express or implied, on behalf of the other
party, nor to represent the other party as agent, employee, franchise, or in any
other capacity. Except as provided herein and in the agreements referenced in
Section 9.9, nothing in this Agreement shall be construed to limit either
party's right to independently develop or distribute software which is
functionally similar to the other party's product, so long as proprietary
information and Confidential Information of the other party is not used in such
development.
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9.3 Assignment.
----------
Neither party may assign this Agreement, or any rights or obligations
hereunder, without the prior written consent of the other party, which consent
shall not be unreasonably withheld, provided that either party may assign this
Agreement to an affiliate, to its successor in connection with a merger,
acquisition or consolidation or to any acquirer in connection with the sale of
all or substantially all of such party's assets, including, without limitation,
the sale, merger or acquisition of Red Brick or CMGI. Subject to the limitations
above, this Agreement will mutually benefit and be binding upon the parties,
their successors and assigns. In the event of any assignment of this Agreement
by any party hereto, or the merger, acquisition or consolidation of any party
hereto, or the sale of all of such party's assets, such party hereby agrees that
any such assignee, acquirer or purchaser shall execute an agreement of
assumption satisfactory to the other party in all respects, whereby such
assignee, acquirer or purchaser agrees to be bound by all of the obligations and
covenants of such party hereunder in all respects.
In the event of a sale of all or substantially all of:
(a) CMGI's assets, including, without limitation, the sale, merger or
acquisition of CMG or Engage, with, into or to a Red Brick Competitor, then Red
Brick may terminate this Agreement and the licenses and rights granted pursuant
hereto.
(b) Red Brick's assets, including, without limitation, the sale, merger or
acquisition of Red Brick, with, into or to an Engage Competitor, then CMGI may
terminate this Agreement and the licenses and rights granted pursuant hereto,
(c) The respective obligations and covenants of each party hereto shall be
binding upon each party and its respective Affiliates, being those persons or
legal entities controlling, controlled by or under common control with such
parties.
9.4 Notices.
-------
All notices, including notices of address change, required to be sent
hereunder shall be in writing and shall be deemed to have been given when mailed
by first class mail to the address set forth under the signature blocks at the
end of this Agreement, Attention: Legal/Contracts Department.
9.5 Governing Law/Jurisdiction.
--------------------------
This Agreement shall be governed by and construed in accordance with the
laws of the Commonwealth of Massachusetts, without regard to any applicable
15
<PAGE>
conflicts of laws. CMGI and Red Brick each agree that all disputes arising among
them related to this Agreement, whether arising in contract, tort, equity or
otherwise, shall be resolved only and exclusively in either the United States
Federal Court in Boston, Massachusetts, or in a Massachusetts state court
located in Essex County, Massachusetts. Red Brick hereby consents to the
jurisdiction of the United States Federal Court in Boston, Massachusetts, and of
the Massachusetts state courts in Essex County, Massachusetts, with respect to
any action, suit or proceeding commenced in any such court by CMGI or by their
successors or assigns, and Red Brick waives any defense it may have with respect
to such jurisdiction or with respect to the proper venue of any such action,
suit or proceeding in any such court.
9.6 Severability.
------------
In the event any provision of the Agreement is held to be invalid or
unenforceable, the remaining provisions of this Agreement will remain in full
force and effect.
9.7 Export.
------
Red Brick and its Resellers agree to comply fully with all relevant export
laws and regulations of the United States to assure that neither the Current DSS
Server Software Licensed Materials, Warehouse DSS Server Software Licensed
Materials and DSS Updates, nor any direct product thereof, are exported,
directly or indirectly, in violation of United States law.
9.8 Waiver.
------
The waiver by either party of any default or breach of this Agreement shall
not constitute a waiver of any other or subsequent default or breach.
9.9 Entire Agreement.
----------------
This Agreement together with the Amended and Restated Mutual Reseller and
Alliance Agreement, dated the date hereof, the Consulting Services Agreement,
dated August 29, 1997, the Technology Purchase Agreement, dated August 29, 1997
and the Amended and Restated License Agreement, dated the date hereof,
constitute the complete agreement between the parties and supersede all prior or
contemporaneous agreements or representation, written or oral, concerning the
subject matter of this Agreement. This Agreement may not be modified or amended
except in a writing signed by a duly authorized representative of each party; no
other act, document, usage or customer shall be deemed to amend or modify this
Agreement. All terms and conditions of any Red Brick purchases order or other
ordering document shall be superseded by the terms and conditions or this
Agreement.
16
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
9.10 Construction.
------------
The Parties have participated jointly in the negotiation and drafting of
this Agreement. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the Parties and no presumption or burden of proof shall arise favoring or
disfavoring any Party by virtue of the authorship of any of the provisions of
this Agreement.
9.11 Counterparts.
------------
This Agreement may be executed in any number of counterparts, each of
which shall be an original and all of which shall constitute together but one
and the same document.
9.12 Future CMGI Joint Ventures and Distributors.
-------------------------------------------
In the future event that CMGI establishes a joint venture or designates
any other person or entity as an exclusive distributor of the Current DSS Server
Software Licensed Materials, Warehouse DSS Server Software Licensed Materials or
DSS Updates in any geographic area, then at the sole election of CMGI, Red Brick
will enter into a relationship with such joint venture or distributor providing
that Red Brick will operate as a subdistributor of such joint venture or other
distributor in the designated geographic area and Red Brick will, as a
subdistributor, obtain all training in the designated geographic area from such
joint venture or distributor, will receive all Current DSS Server Software
Licensed Materials, Warehouse DSS Server Software Licensed Materials and DSS
Updates in such area from such joint venture or distributor and will make all
payments due for the Current DSS Server Software Licensed Materials, Warehouse
DSS Server Software Licensed Materials or DSS Updates marketed and distributed
in the designated geographic area to such joint venture or other distributor, in
the manner designated by such joint venture or distributor. Except for the terms
of payment as set forth above, [**].
17
<PAGE>
RED BRICK SYSTEMS, INC. ENGAGE TECHNOLOGIES, INC.
By:/s/ PW Fernandez By: /s/ Stephen A. Royal
--------------------------- ------------------------------------
Name: Philip W. Fernandez Name: Stephen A. Royal
------------------------- -----------------------------------
Title: EVP/COO Title: CFO
------------------------ ----------------------------------
Red Brick Systems, Inc. Engage Technologies, Inc.
485 Alberto Way 100 Brickstone Square
Los Gatos, CA 95032 Andover, MA 01810
Tel: 408-399-3200 Tel: 978-684-3686
------------------------------------
Fax: 408-399-7200 Fax: 978-684-3877
------------------------------------
CMG INFORMATION SERVICES, INC.
By: /s/ Andrew J. Hajducky
-------------------------------------
Name:
___________________________________
Title:
__________________________________
CMG Information Services, Inc.
100 Brickstone Square
Andover, MA 01810
Tel:____________________________________
Fax:____________________________________
18
<PAGE>
EXHIBIT 1: DEFINED TERMS
------------------------
The following terms as used in Agreement shall have the meanings set forth
below:
"Clickstream Market" means any market for any products or services primarily
designed to collect, characterize, classify, combine and analyze user or user
"agent" (i.e., a device or process that acts on a user's behalf) activity data
(including, without limitation, clickstream data) created, gathered, analyzed,
manipulated or otherwise processed through or in association with any form of
Interactive Media.
"Database Technology" means the source code and object code form of the Database
Technology acquired by Red Brick under the separate Technology Purchase
Agreement dated August 29, 1997, including end user documentation, technical
specifications and programmer notes and all Updates, enhancements, modifications
and improvements thereto, and Derivative Works thereof, but excluding code that
is part of CMGI's rights under Section 3.1(c) of the Amended and Restated
Software License Agreement between the parties, dated the date hereof.
"Derivative Works" shall have the meaning set forth in 17 U.S.C. (S) 101.
"DSS Updates" means all updates, enhancements, modifications and improvements,
including, but not limited to, preview releases, external alpha releases, beta
releases, controlled releases and general releases, to the Warehouse DSS Server
Software Licensed Materials, and Derivative Works thereof and which are
developed by CMGI or its contractors, including end user documentation,
technical specifications and programmer notes.
"Clickstream Service Bureau" means a Clickstream Service Bureau as defined in
the Amended and Restated Mutual Reseller and Alliance Agreement between the
parties, dated the date hereof.
"Engage Competitor" means a party defined as an "Engage Competitor" under the
definition contained in Exhibit A to the Amended and Restated Mutual Reseller
and Alliance Agreement between the parties, dated the date hereof.
"Fees" means Royalty Fees and Pass-Through Royalty Fees.
"Interactive Media" means communication media that allow users to input
information or participate, including, but not limited to, the Internet,
interactive television and interactive telephony.
19
<PAGE>
"Red Brick Competitor" means a party defined as a "Red Brick Competitor" under
the definition contained in Exhibit A to the Amended and Restated Mutual
Reseller and Alliance Agreement between the parties, dated the date hereof.
"Red Brick Formation" means the Red Brick product currently known as Red Brick
Formation, as well as any successor products to such product.
"Red Brick Warehouse" means the Red Brick product currently known as Red Brick
Warehouse, as well as any successor products to such product.
"Updates" means all updates, enhancements, modifications and improvements,
including, but not limited to, preview releases, external alpha releases, beta
releases, controlled releases and general releases, to the technology and
software, and Derivative Works thereof, that are made commercially available and
which are not identified on the Red Brick Price List as a separate product and
which are developed by Red Brick or its contractors in source code form,
including end user documentation, technical specifications and programmer notes.
20
<PAGE>
EXHIBIT 2: END USER TERMS
All of Red Brick's or its Reseller's agreements with End Users licensing
the Database Technology (which Database Technology contains the Warehouse DSS
Server Software Licensed Materials or DSS Updates) shall contain terms at least
as restrictive as those set forth in this Exhibit (except to the extent that
such terms are prohibited by law in certain jurisdictions, in which case the
affected terms shall be included in such jurisdictions in as restrictive a form
as they are allowed, with all unaffected terms being unchanged):
1. End User shall use the Database Technology (including the Warehouse DSS
Server Software Licensed Materials and DSS Updates if incorporated into the
Database Technology) solely in object code form for its own internal use
and not to further distribute, license or sublicense or use for the benefit
of a third patty in the Clickstream Market where End User receives in
return anything of value, or otherwise convey to any other person or entity
the Database Technology (including the Warehouse DSS Server Software
Licensed Materials and DSS Updates if incorporated into the Database
Technology), in whole or in part, or any rights therein. End User shall not
use the Database Technology (including the Warehouse DSS Server Software
Licensed Materials and DSS Updates if incorporated into the Database
Technology) for any purpose or in any manner not expressly permitted in
this End User license agreement. End User shall not operate a Clickstream
Service Bureau.
2. Prohibit transfer or duplication of the Database Technology (including the
Warehouse DSS Server Software Licensed Materials and DSS Updates if
incorporated into the Database Technology) except for temporary transfer in
the event of CPU malfunction and a single backup or archival copy;
3. Prohibit timesharing or rental of the Database Technology (including the
Warehouse DSS Server Software Licensed Materials and DSS Updates if
incorporated into the Database Technology) and prohibit assignment of the
Database Technology (including the Warehouse DSS Server Software Licensed
Materials and DSS Updates if incorporated into the Database Technology)
unless the assignee assumes in writing all of the restrictions on the End
User required under this Agreement;
4. Prohibit causing or permitting the reverse engineering, disassembly or
decompilation of the Database Technology (including the Warehouse DSS
Server Software Licensed Materials and DSS Updates if incorporated into the
Database Technology);
5. Prohibit title from passing to the sublicensee or Reseller;
21
<PAGE>
6. Disclaim all warranties of CMGI and its licensors and disclaim CMGI's and
its licensors' liability for any damages, whether direct, indirect,
incidental or consequential arising from the use of the Database Technology
(including the Warehouse DSS Server Software Licensed Materials and DSS
Updates if incorporated into the Database Technology);
7. Require the sublicensee and/or Reseller, at the termination of the
sublicense, to discontinue use and destroy or return to Red Brick or
Reseller the Database Technology (including the Warehouse DSS Server
Software Licensed Materials and DSS Updates if incorporated into the
Database Technology), including documentation and all archival or other
copies;
8. For copies of the Database Technology (including the Warehouse DSS Server
Software if incorporated into the Database Technology) sublicensed for use
in the United States, prohibit transfer of the Database Technology
(including the Warehouse DSS Server Software Licensed Materials and DSS
Updates if incorporated into the Database Technology) outside the United
States; require the sublicensee to comply fully with all relevant export
laws and regulations of the United States to assure that neither the
Database Technology (including the Warehouse DSS Server Software Licensed
Materials and DSS Updates if incorporated into the Database Technology),
nor any direct product thereof, are exported, directly or indirectly, in
violation of United States law;
9. If Red Brick or its Resellers grants an End User License to the United
States government, the Database Technology (including the Warehouse DSS
Server Software Licensed Materials and DSS Updates if incorporated into the
Database Technology) shall be provided with "Restricted Rights" and Red
Brick or its Reseller will place a legend, in addition to applicable
copyright notices, on the documentation, and on any media label,
substantially similar to the following:
"RESTRICTED RIGHTS LEGEND: Use, duplication, or disclosure by the U.S.
Government is subject to the restrictions set forth in subparagraph (c) of
the Commercial Computer Software--Restricted Rights clause of FAR 52.227-
19."
10. Specify CMGI and its licensors as intended third-party beneficiaries of Red
Brick's or its Reseller's rights under any End User License Agreement.
22
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
EXHIBIT 3: LIST OF PRODUCTS TO WHICH WAREHOUSE DSS SERVER
SOFTWARE WILL PORT AND/OR INTERFACE
The Warehouse DSS Server Software shall interface with the following Red Brick
products:
[**]
23
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
Exhibit 10.11
-------------
EXCLUSIVE STRATEGIC ALLIANCE AGREEMENT
between
Engage Technologies, Inc. and ADSmart Corporation
and
Cross Beam Networks Corporation
January 7, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
TABLE OF CONTENTS.......................................................... 2
1. DEFINITIONS........................................................... 3
2. LOCALIZATION OF SYSTEM................................................ 5
3. LICENSE OF LOCALIZED SYSTEM........................................... 6
4. MARKETING AND DISTRIBUTION OBLIGATIONS OF XBEAM....................... 8
5. MARKETING AND DISTRIBUTION OBLIGATIONS OF ADSMART..................... 9
6. COMPENSATION.......................................................... 12
7. REPRESENTATIONS AND WARRANTIES........................................ 14
8. LIMITATION OF LIABILITY............................................... 15
9. PROPRIETARY RIGHTS.................................................... 15
10. INDEMNIFICATION....................................................... 17
11. CONFIDENTIAL INFORMATION.............................................. 18
12. TERM AND TERMINATION.................................................. 19
13. MISCELLANEOUS......................................................... 21
</TABLE>
SCHEDULES
Schedule A --Description of ADSmart System
Schedule B --ADSmart Marks
Schedule C --This Page Left Intentionally Blank
Schedule D --Error Correction
Schedule E --Implementation Timeline
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
EXCLUSIVE STRATEGIC ALLIANCE AGREEMENT
THIS EXCLUSIVE STRATEGIC ALLIANCE AGREEMENT (the "Agreement"), dated as of
January 7, 1998 (the "Effective Date"), is by and between Engage Technologies,
Inc., with offices at 100 Brickstone Square, Andover, MA, USA 01810 ("Engage")
and ADSmart Corporation, with offices at 100 Brickstone Square, Andover, MA, USA
01810 ("ADSmart"), sister companies under common management, and Cross Beam
Networks Corporation, with offices at 1-32-2 Harmony Tower 14F Honcho, Nakano-
ku, Tokyo, 100 Japan ("Xbeam").
WHEREAS, ADSmart has developed and operates a system for the sale and
distribution of advertisements on the World Wide Web (the "Web"); and
WHEREAS, Xbeam desires to operate on an exclusive basis within a limited
territory a version of such system localized for the Japanese market, and
ADSmart agrees to grant Xbeam such rights and develop such localized version on
the terms and conditions set forth below.
NOW, THEREFORE, for and in consideration of the mutual promises contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. DEFINITIONS.
As used herein, the following capitalized terms shall have the meanings set
forth below.
1.1 "Ad Services" means the provision by Xbeam, solely in conjunction with
ADSmart's provision of Interim System Services as set forth in Section 5.1 or
Xbeam's use of the Localized System pursuant to Section 3, to Customers who are
advertisers and ad agencies, of the following advertisement sales and management
services, which are similar to the services provided by ADSmart to its network
of Web sites: Web media placement services, campaign-based ad serving and
management services, sales representation (including site promotion to
advertisers and agencies, audience promotion to advertisers and agencies,
proposal generation, client support, campaign and revenue reporting, overall
marketing and branding of the network of Xbeam affiliated Web sites) and
management services (including order entry and provision of sales automation for
a site's sales force, creative management and approval, ad serving and
targeting, client support, campaign reporting and billing and collections).
3
<PAGE>
1.2 "Affiliate" means any person or entity directly or indirectly
Controlling, Controlled by or under common Control with either party, as the
context may require. "Control" shall mean an ownership interest of more than
fifty percent (50%).
1.3 "Confidential Information" means, subject to the limitations set forth
in Section 11 of this Agreement, any written or visual, technical, trade secret
or business information of either party hereto or an Affiliate (the "Disclosing
Party") which is confidential or proprietary in nature and specifically
designated as confidential or proprietary or, where orally or visually
disclosed, reduced to writing by the Disclosing Party within three (3) days
after the disclosure, including, without limitation, the following: business
plans and/or strategy, the System and the Localized System, in whole or in part,
business activities (past, present and future), pricing, financial information,
product development, customer information and the terms and conditions of this
Agreement.
1.4 "Customer" means a person with a primary residence, or an entity with
a principal place of business or corporate headquarters, in the Territory that
purchases Ad Services from Xbeam as contemplated hereunder.
1.5 "Derivative Works" means works that are based upon the System and
Localized System, in whole or in part, such as a revision, modification,
translation, abridgment, condensation, expansion, or any other form in which the
System or Localized System may be recast, transformed, or adapted, and which, if
prepared without authorization of the owner of the copyright in the System or
Localized System would constitute a copyright infringement.
1.6 "Documentation" means the administrator and user documentation of
software and processes, provided in hard copy or electronic on-line format,
required for the intended and proper use of the System or the Localized System,
as the context may require.
1.7 "Enhancements" means new features added to the System or Localized
System.
1.8 "Error" means a Class 1, Class 2 or Class 3 error, as defined in
Schedule D
- ----------
1.9 "Internationalized System" means the core code base which is double
byte enabled or further enhanced and which supports the System to be localized.
1.10 "Localized System" means the version of the System localized pursuant
to Section 2 for use solely in the Territory.
1.11 "Proprietary Materials" has the meaning set forth in Section 10.1.
4
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
1.12 "Revenues" means the [**], if applicable, and (ii) the [**], to the
Web site(s), if any, on which ads were placed.
1.13 "System" means the ADSmart proprietary materials, techniques,
processes and know-how, including computer software, Documentation and related
materials, as further described in Schedule A.
----------
1.14 "Term" has the meaning set forth in Section 12.
1.15 "Territory" means the country of Japan.
2. LOCALIZATION OF SYSTEM.
2.1 ADSmart Obligations. With the assistance and cooperation of Xbeam as
-------------------
set forth in Sections 2.2, 2.3 and 2.4, ADSmart shall according to schedule as
set forth in Schedule E use best efforts to localize the System and deliver the
System and Localized System to Xbeam, and provide updates and revisions thereof
on an ongoing basis, including double byte-enablement, user interface,
translation of user interface and end user documentation and modification of
operational policies and procedures. ADSmart shall be solely responsible for the
Localized System and System, excluding all contributions solely by Xbeam.
2.2 Xbeam Obligations. Xbeam shall use vigorous and diligent efforts to
-----------------
provide ADSmart assistance required for ADSmart to comply with its obligations
under Section 2.1, including advising ADSmart on the legal, cultural and other
requirements for the Localized System and providing ADSmart the financial and/or
personnel resources available for Xbeam and agreed by parties for reduction of
the amount of the costs pursuant to Section 2.5.
2.3 Testing of Localized System. Upon initial completion of the Localized
---------------------------
System, ADSmart shall provide one (1) copy of the Localized System and (1) copy
of the Documentation thereof to Xbeam to be used solely for testing purposes and
not for any productive or other use. Xbeam shall test the Localized System, and,
in accordance with Schedule D, shall promptly report to ADSmart any substantial
----------
Errors related to the Localized System. ADSmart shall address such Errors as set
forth in Schedule D.
----------
2.4 Receipt of Localized System for service by Xbeam. After successful
------------------------------------------------
testing of the Localized System according to operational criteria to be mutually
5
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
established and accepted by the parties, Xbeam shall submit to ADSmart written
certification of acceptance of the Localized System.
2.5 Costs and Expenses of Localization Efforts. The parties shall share
------------------------------------------
equally the cost and expense incurred by ADSmart in internationalizing and
localizing the System, both initially and applicable to later new releases (the
"Expenses") provided that Xbeam's share of the Expenses shall not exceed [**]
payable on a monthly basis as expenses are accrued ("Xbeam's Share") the ADSmart
sends invoices to Xbeam with proper voucher. Notwithstanding the foregoing
provision, the amount of the costs borne by Xbeam shall, after prior agreement
by both parties, be reduced if Xbeam provides engineering resources for
localization. The amount of the reduction shall be decided based on the amount
of the engineering resources provided by Xbeam as agreed by parties before Xbeam
provides engineering resources. Xbeam shall not be required or obliged to bear
any costs other than those of internationalization and localization of the
System for Japan pursuant to this provision.
Xbeam's payment, or reimbursement, of monies to ADSmart pursuant to this
Section 2 shall be in accordance with Section 6.4.
2.6 Localization of On-Going Features and Enhancements. Xbeam agrees to
--------------------------------------------------
share equally the costs and expense incurred by ADSmart for any on-going
features and enhancements, which have not been developed and planned to be
developed for US market, to the System and Localized System required
specifically for the Japanese market.
3. LICENSE OF LOCALIZED SYSTEM.
3.1 Grant of Rights. Provided that Xbeam timely pays all fees due ADSmart
---------------
hereunder and otherwise complies with the terms of this Agreement during the
term of this Agreement, ADSmart grants to Xbeam a non-transferable, exclusive
right, with the right of sublicence to the joint venture when established by
Xbeam and ADSmart and/or third parties which Xbeam shall be free to select
subject to AD Smart's prior approval, such approval not being unreasonably
withheld, (provided that in the joint venture Sumitomo Corporation has a
controlling interest in the joint venture and Xbeam shall create a joint venture
with no more than one (1) ad network at any one time), for the operation of the
System or Licensed System in Japan to use only internally the object code
version of the System, subject to Section 5.1, and the Localized System solely
for the purpose of performing Ad Services in the Territory for Customers, and
not for internal advertising purposes or for Affiliates, unless Xbeam shall
compensate ADSmart for such uses as provided in Section 6.1. Xbeam
6
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
may make two (2) back-up copies of the Localized System. Prior to the
completion, testing and delivery of the Localized System as set forth in Section
2, ADSmart shall provide Xbeam with the System services set forth in Section 5.1
so that Xbeam can market and sell Ad Services in the Territory on an interim
basis.
3.2 Restrictions. Xbeam may not use the System or Localized System for
------------
any purpose other than that specified in Section 3.1. Xbeam shall not, and shall
not permit any employee, contractor or other third party to, use, modify, copy,
disclose, publish, distribute, assign, sublicense, sell, rent, lease, transfer,
reverse engineer, disassemble, decompile, dispose of, or use for "outsourcing"
or "service bureau" purposes the System or Localized System, in whole or in
part, except as specifically permitted herein. Xbeam has the right to request
modifications to the Oracle database tables and ADSmart shall respond to such
enhancement requests as specified in Schedule D or give approval to modify to
Xbeam. All of Xbeam's rights to use the System and Localized System are
expressly stated herein; there are no implied rights and ADSmart reserves all
rights not expressly granted to Xbeam.[**]
3.3 Misuse of System or Localized System. Xbeam shall provide ADSmart
------------------------------------
with written notice of any material breach of this Agreement, including any
misuse of the System or Localized System by Xbeam, where misuse is defined as
any usage beyond that specified in Section 3.2 or expressly authorized under the
terms and conditions of this Agreement (hereafter 'Misuse'), excluding with
ADSmart's prior approval, such approval shall not be unreasonably withheld,
including but not limited to (i) copying, sale, rental, distribution or
repackaging of the System, Localized System and clickstream data in any form;
(ii) use of the System, Localized System or clickstream data for sites outside
the ADSmart network in the Territory; (iii) use of the System, Localized System
or clickstream data with software tools other than those provided by ADSmart and
Engage; and (iv) operating the System, Localized System and clickstream data on
hardware and software platforms not certified by ADSmart or Engage; and (v)
modifying Oracle database tables for the System or Localized System. If Xbeam
materially breaches the terms of this Agreement or if Xbeam Misuses the System
or Localized System and such breach or Misuse is not cured within thirty (30)
days after written notice thereof from Xbeam, ADSmart shall have no further
obligation with respect to any warranty, support or maintenance of the part of
the System or Localized System, and, notwithstanding any provision to the
contrary herein, Xbeam shall not be entitled to a refund of any amounts paid to
ADSmart and shall discontinue all Ad Service operations in Japan.
3.4 Equitable Relief. Xbeam acknowledges that the Misuse of ADSmart's
----------------
System or Localized System will substantially diminish the value to ADSmart of
the System and/or Localized System and cause irreparable injury in a short
period of
7
<PAGE>
time, and that ADSmart's remedy at law for such Misuse is inadequate.
Accordingly, if Xbeam materially breaches any of its obligations with respect to
the use of the System or Localized System, ADSmart shall be entitled to
equitable relief to protect its interests therein, induding, but not limited to,
preliminary and permanent injunctive relief, in addition to any other remedies
it may have.
3.5 Marketing and Sale of Xbeam Ad Services. The parties respective
---------------------------------------
obligations regarding the marketing and sale of the Ad Services are set forth in
Sections 4 and 5.
4. MARKETING AND DISTRIBUTION OBLIGATIONS OF XBEAM.
With respect to marketing and sale of Ad Services, Xbeam shall have the
following obligations:
4.1 Market Development. Xbeam shall, at all times during the Term, use
------------------
its best efforts to develop the market for the Ad Services and to sell the Ad
Services in the Territory in a vigorous and diligent manner which shall
favorably reflect upon ADSmart's name, trademarks and the quality of its System
and Localized System.
4.2 Advertising and Promotion. Xbeam shall use its efforts through its
-------------------------
sales and merchandizing programs to advertise and promote the Ad Services
throughout the Territory in an adequate manner. Xbeam shall be responsible for:
(i) the distribution of all advertising and promotional materials provided to
Xbeam by ADSmart; (ii) the translation of such materials as well as all
instructional materials provided to Xbeam by ADSmart, as necessary to meet legal
and marketing requirements; and (iii) the distribution of advertising and
promotional materials, at Xbeam's expense, as appropriate in fulfilling its
obligations hereunder to develop the market for the Ad Services. For the
foregoing, ADSmart shall furnish to Xbeam, at no cost, with a reasonable
quantity of advertising, promotional and instructional materials, including
catalogues, quotation sheets, specifications and technical data in an electronic
on-line format. All advertising, promotional and instructional materials not
supplied by ADSmart, including any translations of any English-language
materials provided by ADSmart, must be approved in writing by AD Smart prior to
use. Xbeam further agrees that ADSmart shall own all rights to and interests in
any such translation of materials and shall undertake any necessary action to
perfect such rights and interests. All such materials shall remain the sole and
exclusive property of ADSmart and, except insofar as they are distributed by
Xbeam in the course of its performance of its duties under this Agreement, must
be promptly destroyed in accordance with Section 12.7 hereof upon the expiration
or termination of this Agreement.
4.3 Xbeam Prices. Xbeam shall be free to establish its own pricing for Ad
------------
Services that it sells. Xbeam shall notify ADSmart of its pricing, as in effect
from time to time.
8
<PAGE>
4.4 Facilities and Staff. Throughout the term of this Agreement Xbeam
---------------------
shall maintain the facilities and a staff of competent sales, marketing,
technical and support personnel reasonably necessary to properly market, service
and support the Ad Services in the Territory. ADSmart shall not be responsible
for any performance failures significantly due to Xbeam's facilities or staff.
Xbeam shall be solely responsible for upgrades required by any third party
hardware, software and communications systems listed in Schedule A as well as
----------
staying current on all third party hardware, software and communications systems
listed in Schedule A. If the equipment, staff, facilities and personnel are not
----------
sufficient for ADSmart to fulfill its obligations then the penalty in Section
6.2 will not be applied.
4.5 Training. Xbeam shall be responsible for the instruction and training
--------
of its personnel as may be necessary to effectively support, market and
distribute the Ad Services in the Territory. Without limiting the foregoing,
Xbeam shall ensure that an adequate number of its (i) sales and technical
personnel attend the ADSmart sales and technical training courses described in
Section 5.4; and (ii) technical and support personnel receive formal training
from third-party certified trainers in Oracle database applications, Oracle web
server software, the Solaris operating system and third party router vendor
classes to the extent necessary or appropriate for the performance by Xbeam of
this Agreement.
4.6 Books and Records. Xbeam shall keep accurate and complete books and
-----------------
records of all sales of all Ad Services, whether such services are provided by
Xbeam or by ADSmart (as set forth in Section 5.7). Upon the reasonable prior
request of ADSmart, Xbeam shall permit ADSmart and its agents and
representatives, at ADSmart's cost and expense, to review such books and records
for the sole purpose of ensuring the accuracy of the amounts payable hereunder
pursuant to Section 6. Such audits shall be carried out at reasonable times and
in a manner that does not disrupt or otherwise adversely affect the conduct of
Xbeam's business. If an audit reveals that Xbeam has failed to account
accurately for any amounts due ADSmart, Xbeam shall promptly pay ADSmart such
amounts, and reimburse ADSmart for the cost and expense of such audit.
4.7 Support. Xbeam shall be responsible for (i) communicating with all
-------
Customers regarding maintenance and support, (ii) replicating and documenting
errors and problems identified by Customers, and (iii) reporting such errors and
problems to ADSmart. ADSmart shall have no direct responsibility for Xbeam's
Customers, but shall be responsible for performing error correction, as provided
in Schedule D.
----------
4.8 Non-Competition. Xbeam shall not, during the Term, research, design,
---------------
develop, sell, market or distribute in the Territory, either directly or
indirectly, any service or product that may reasonably be regarded as
competitive with the Ad Services or Localized System, and shall keep ADSmart
fully informed regarding any
9
<PAGE>
services or products that might be considered so competitive whether then being
researched, designed, developed, distributed or being considered for
distribution by Xbeam, Xbeam also shall provide current market information to
ADSmart on a regular basis, including without limitation, general economic
trends and conditions affecting the industry, competitor activities, customer
attitudes and reactions, and other relevant information.
5. MARKETING AND DISTRIBUTION OBLIGATIONS OF ADSMART.
With respect to Xbeam's marketing and sale of the Ad Services, ADSmart
shall have the following obligations:
5.1 Interim System Services.
-----------------------
a. Commencing as per Schedule E and continuing in effect through the
----------
date that the Localized System is first used by Xbeam for productive purposes as
set forth in subsection 5.1(b), hereinafter the Interim Period, ADSmart, at its
facilities, where Xbeam shall bear the costs of setting up the Xbeam advertising
center including hardware and software platform costs (hereafter the 'Interim
Equipment') and communications costs of establishing the interim system in
Japan, shall provide Xbeam the services set forth in Schedule A according to the
----------
schedule in Schedule E for Xbeam to market and sell Ad Services to Customers in
----------
the Territory on an interim basis. At the conclusion of the Interim Period,
Xbeam shall be responsible for all transportation costs, tariffs and taxes
associated with shipping the Interim Equipment to the designated Xbeam
facilities in Japan.
b. ADSmart shall endeavor, as soon after the Effective Date as
commercially practicable, to provide Xbeam a copy of the System solely for Xbeam
to market and sell Ad Services to Customers in the Territory on an interim
basis. Xbeam's limited right to use the System under this subsection shall
terminate upon the date of its first productive use of the Localized System,
whereupon Xbeam shall immediately cease all use of the System and return to
ADSmart all tangible elements of the System, including without limitation all
software and documentation.
c. Xbeam is responsible for managing ad campaigns for their
customers, including proposal generation, order entry, order reservation,
booking and scheduling, creative submission and approval, inventory management,
reporting and billing, and ADSmart will provide web-based interfaces and access
rights to the advertising database applications during the Interim Period to
enable Xbeam to do so.
5.2 Advertising Material. ADSmart shall make available to Xbeam at no
--------------------
charge a reasonable supply of printed English language advertising,
instructional and promotional material for use by Xbeam in carrying out its
obligations in the Territory under this Agreement together with the electronic
on-line format thereof Such
10
<PAGE>
materials shall remain the sole and exclusive property of ADSmart and, except
insofar as they are distributed by Xbeam in the course of its performance of its
duties under this Agreement, must be promptly returned to ADSmart or destroyed
in accordance with Section 12.7 hereof upon the expiration or termination of
this Agreement.
5.3 Quality and Delivery. ADSmart shall use best efforts to ensure that
--------------------
the Localized System is of a quality consistent with its intended use.
5.4 Training. At no charge to Xbeam, ADSmart shall make available initial
--------
technical training to Xbeam technical operations staff, customer service manager
and database administrator at a location designated by ADSmart to train
representatives of Xbeam to properly perform the Ad Services; provided that
Xbeam shall be responsible for payment of all associated travel, lodging, meal
and other expenses of Xbeam personnel. ADSmart will also endeavor to make
reasonably available further training services, support services, and in the
event of an emergency, including telephone support and localized system repair
services.
5.5 Improvements. ADSmart shall provide written notice to Xbeam of new
------------
models of, and improvements and enhancements to, the System that become
available for use by Xbeam in the Territory, and the localized models,
improvements and enhancements shall be considered to be part of the Localized
System defined in Section 1.10. Xbeam shall provide written notice to ADSmart
regarding enhancements specifically required for the Japanese market in the
Territory and for any joint venture created as per Section 3.1. ADSmart will
respond to these requests as per Schedule D and Xbeam will share equally the
----------
costs incurred by ADSmart for these enhancements according to Section 2.6.
5.6 Exclusivity. During the Term, ADSmart will sell the Ad Services in
-----------
the Territory exclusively to and through Xbeam, subject to the exclusivity
granted in Section 3.1 and will refer to Xbeam any orders or inquiries
concerning sale of Ad Services in the Territory.
5.7 Use of ADSmart's Network of Web Sites by Customer. Notwithstanding
-------------------------------------------------
any provision contained herein to the contrary, ADSmart shall, during the Term,
use vigorous and diligent efforts to provide ad services using ADSmart's System
and network of Web sites to Customers referred by Xbeam. If ADSmart accepts such
an order, ADSmart shall pay to Xbeam a Commission of five percent (5%) of the
Revenues derived, attributable or reasonably imputed to the sale or use of
services provided by ADSmart to such Customer. ADSmart hereby agrees that Xbeam
may, for and on behalf of ADSmart and at its discretion, receive the service
charges, fees or commissions to be received by ADSmart from the Customers in
respect of said service, and that Xbeam may deduct and set off the commission to
be paid by ADSmart to Xbeam hereunder from and against such service charges,
fees or commissions to be paid by Xbeam to ADSmart.
11
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
5.8 Commitment to Technology. ADSmart has an intention to continue during
------------------------
the Term its involvement and investment in web media technology, and to maintain
its efforts to develop and market leading-edge technology.
5.9 [**]. The parties agree to [**] the purposes of [**] creating a
business [**] in the Territory.
6. COMPENSATION.
License Fee.
6.1 In consideration of the exclusive license granted and the technical
assistance and services to be rendered by ADSmart hereunder, Xbeam agrees to pay
to ADSmart:
a. a down payment of [**] (the "Initial Fee") which shall be paid
within thirty (30) days after the Effective Date by telegraphic transfer
remittance to the bank account of ADSmart to be designated by ADSmart, provided
that, if this Agreement is terminated by Xbeam for any material breach of the
Agreement by ADSmart, and excluding any termination of the Agreement by ADSmart
pursuant to Article 12.2 and 12.3 or termination of the Agreement by Xbeam
pursuant to Section 12.9, ADSmart shall immediately refund to Xbeam an amount
equal to the Initial Fee less the amount set forth below:
<TABLE>
<CAPTION>
Time of Termination of this Agreement Amount
-------------------------------------
(Each Year being measured from the Commencement Date)
-----------------------------------------------------
<S> <C>
First Year [**]
Second Year [**]
Third Year [**]
Fourth Year [**]
</TABLE>
and;
b. the Annual License Fee amount set forth below for the Second Year
to the Fourth Year (each year being measured from the Commencement Date on which
ADSmart commences provision of the interim system set forth in Section 5.1 (the
the Annual License Fee amount set forth below for the Second Year "Commencement
Date"):
First Year [**]
Second Year [**]
Third Year [**]
12
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
Fourth Year [**]
Fifth Year and each [**] of the Revenue (the "Running Royalty")
year thereafter
if the parties hereto acting in good faith have not agreed to modify terms and
conditions within the last [**] to the end of the [**] as measured from the
Commencement Date. In the event of formation of a joint venture as per Section
3.1, the [**] Running Royalty payable by Xbeam to ADSmart shall be applied to
the aggregate revenue of the joint venture.
Within thirty (30) days after the Effective Date Xbeam shall pay to ADSmart the
Annual License Fee for the First year, and by end of prior year for Second to
Fourth year. Within thirty (30) days after the end of each calendar quarter or
after termination, Xbeam shall pay to ADSmart the Running Royalty (for the Fifth
year and each year thereafter) accrued during such calendar quarter or any
period immediately prior to the termination. The above payment shall be made by
Xbeam to ADSmart by telegraphic transfer remittance to the bank account of
ADSmart to be designated by ADSmart.
For the Fifth Year and each year thereafter Xbeam shall pay ADSmart [**] if the
parties hereto acting in good faith have not agreed to modify terms and
conditions within the last [**] to the end of the [**] as measured from the
Effective Date, as Prepaid Royalty to be credited against the Running Royalty
which shall be paid by the end of Prior year of such year, provided that, if
this Agreement is terminated by Xbeam for any material breach of the agreement
by ADSmart, excluding any termination of the Agreement by ADSMART pursuant to
Article 12.2 and 12.3 or termination of the Agreement by Xbeam pursuant to
Section 12.9, ADSmart shall immediately refund to Xbeam the amount equal to the
amount of the Prepaid Royalty less the aggregate amount of the Running Royalty
which has accrued until such termination in such year.
For the avoidance of doubt, if this Agreement is terminated or expires for any
reason, Xbeam shall not be obligated or required to pay any further Annual
License Fee for the years following the year in which the Agreement is
terminated or expires.
6.2 Delayed Delivery. If the completion of the Localized System will be
----------------
delayed beyond Scheduled F, ADSmart shall be obligated to Xbeam [**].
-----------
6.3 Reimbursement for Localization Efforts. ADSmart shall submit invoices
--------------------------------------
to Xbeam for reimbursement of costs and expenses incurred by ADSmart in the
13
<PAGE>
localization effort with the relevant voucher. Subject to the limitation set
forth in Section 2.4, Xbeam shall pay such invoices within thirty (30) days of
receipt.
6.4 Payment. All payments due to ADSmart hereunder shall be paid in full
-------
in U.S. Dollars without deduction for import duties or other charges of any
nature whatsoever (except as stated in Section 6.6), by wire transfer, to such
bank or account as ADSmart may from time to time designate in writing. All costs
incurred in connection with such wire transfer shall be the responsibility of
Xbeam.
6.5 Overdue Amounts. In addition to any other remedies available to
---------------
ADSmart hereunder, if Xbeam fails to pay any amounts due and owing within thirty
(30) days of the date the amounts become due and payable, then Xbeam shall pay
ADSmart a late payment charge in U.S. Dollars) equal to one and one-half percent
(1.5%) per month on all overdue amounts, or the maximum percentage permitted by
law, whichever is lower, together with all costs and expenses incurred by
ADSmart in collecting such overdue amounts.
6.6 Taxes. Payments from Xbeam to ADSmart hereunder are exclusive of any
-----
sales, use and/or all other taxes or duties, however designated, except for (i)
taxes on AD Smart's net income and (ii) withholding taxes on the Initial Fee,
License Fee and Running Royalty payments payable the fifth year and each year
thereafter as per Section 6.1(b) that are required to be paid by Xbeam to a
Japanese taxing authority, if any. Any such taxes or duties required to be
withheld and paid by Xbeam shall be borne by ADSmart, provided that Xbeam shall
furnish ADSmart with all related tax receipts or other evidence showing payment
of any such taxes.
7. REPRESENTATIONS AND WARRANTIES.
7.1 ADSmart Representations and Warranties. ADSmart hereby represents and
--------------------------------------
warrants that:
a. Authority to Enter into Agreement. ADSmart has full power and
---------------------------------
authority to enter into this Agreement and to perform hereunder. This Agreement
has been duly authorized, executed and delivered by ADSmart and constitutes a
valid and binding obligation of ADSmart.
b. Right to Grant License. ADSmart has all the necessary right,
----------------------
title and interest in the System and Localized System to grant the licenses
contemplated herein.
c. Other Agreements. This Agreement and the licenses contemplated
----------------
herein do not and will not violate the terms of any other agreement or license
between ADSmart and any third party.
14
<PAGE>
d. DISCLAIMER. THE WARRANTIES STATED ABOVE IN THIS SECTION 7.1 ARE
----------
THE ONLY WARRANTIES MADE BY AD SMART. ADSMART DOES NOT MAKE AND HEREBY DISCLAIMS
ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND NON-INFRINGEMENT.
7.2 Xbeam's Representations and Warranties. Xbeam hereby represents and
--------------------------------------
warrants that:
a. Authority to Enter into Agreement. Xbeam has full power and
---------------------------------
authority to enter into this Agreement and to perform hereunder. This Agreement
has been duly authorized, executed and delivered by Xbeam and constitutes a
valid and binding obligation of Xbeam.
b. Other Agreements. This Agreement and the licenses contemplated
----------------
herein do not and will not violate the terms of any other agreement or license
between Xbeam and any third party.
c. DISCLAIMER. THE WARRANTIES STATED ABOVE IN THIS SECTION 8.2 ARE
----------
THE ONLY WARRANTIES MADE BY XBEAM. XBEAM DOES NOT MAKE AND HEREBY DISCLAIMS ALL
OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WARRANTIES OF MERCHANTABILITY,
FITNESS FOR A PARTICULAR PURPOSE, AND NON-INFRINGEMENT.
8. LIMITATION OF LIABILITY
ADSMART'S LIABILITY FOR DAMAGES TO XBEAM FOR ANY CAUSE, REGARDLESS OF THE
FORM OF ACTION, SHALL NOT EXCEED THE LESSER OF (i) XBEAM'S ACTUAL DAMAGES OR
(ii) THE AGGREGATE AMOUNT PAID TO ADSMART BY XBEAM UNDER THIS AGREEMENT AS OF
THE DATE SUCH LIABILITY IS INCURRED. IN NO EVENT SHALL EITHER PARTY BE LIABLE TO
THE OTHER OR ANY THIRD PARTY FOR ANY DAMAGES CAUSED BY A PARTY'S FAILURE TO
PERFORM ITS COVENANTS AND RESPONSIBILITIES HEREUNDER, BY REASON OF NEGLIGENCE OR
OTHERWISE. ADSMART SHALL NOT BE LIABLE TO XBEAM OR ANY THIRD PARTY FOR DAMAGES
CAUSED BY XBEAM'S REPAIRS OR ALTERATIONS TO THE SYSTEM OR LOCALIZED SYSTEM
WITHOUT AD SMART'S PRIOR WRITTEN APPROVAL.
NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY OR ANY THIRD PARTY FOR
PUNITIVE, INCIDENTAL, INDIRECT, SPECIAL, RELIANCE, EXEMPLARY, COVER, OR
CONSEQUENTIAL DAMAGES, INCLUDING WITHOUT LIMITATION LOST PROFITS, COSTS OF
DELAY, ANY FAILURE OF DELIVERY, COSTS OF LOST OR DAMAGED DATA OR DOCUMENTATION,
OR LIABILITIES TO THIRD PARTIES ARISING FROM ANY SOURCE, EXCEPT AS REQUIRED BY
APPLICABLE LAW.
15
<PAGE>
9. PROPRIETARY RIGHTS.
9.1 Ownership of System and Localized System. Title to, and ownership of,
----------------------------------------
the System and Localized System, as well as any Derivative Works, translations,
releases or other versions thereof, including all patents, copyrights and other
intellectual property rights applicable thereto (collectively, the "Proprietary
Materials"), are and shall at all times remain solely and exclusively with
ADSmart, notwithstanding that Xbeam may contribute to the cost of or participate
in the making of such Proprietary Materials. Xbeam hereby assigns, and agrees to
assign in the future, to ADSmart and its successors and assigns, ownership of
all such Proprietary Materials, including all intellectual property rights
therein. From time to time upon ADSmart's request, Xbeam shall make such further
assignments and confirm such assignment by execution and delivery of such
assignments, confirmations of assignment, or other written instruments as
ADSmart may request. Except as specifically set forth in this Agreement, Xbeam
shall have no other rights to use the Proprietary Materials.
9.2 Xbeam Compliance. Xbeam agrees to abide by the terms of all patent,
----------------
trademark, copyright and other proprietary notices contained on any of ADSmart's
printed materials or Localized System made available by ADSmart to Xbeam
pursuant to this Agreement. Xbeam agrees that it will not at any time do
anything which may adversely affect the registration, validity or enforceability
of any trade secret, patent, trademark or copyright of ADSmart or the rights of
ADSmart therein. In addition, Xbeam shall not, and shall not permit any other
person or entity to, attempt to reverse engineer, disassemble, re-engineer,
decompile, or otherwise discover or recreate the structural framework or
functionality of the Localized System, in whole or in part, including without
limitation any computer software in the Localized System.
9.3 AD Smart's Proprietary Rights. Xbeam acknowledges that it has no
-----------------------------
interest in, and agrees that it will not at any time assert or claim any
interest in, nor register or attempt to register, AD Smart's trademarks, trade
names, insignias, or logos set forth on Schedule B attached hereto and
----------
incorporated herein (the "Marks") or any Marks confusingly similar thereto, and
will cooperate with ADSmart to secure ADSmart's registration of such Marks in
the Territory at ADSmart's cost and expense. Except in printed materials made
available by ADSmart to Xbeam, any use of such Marks shall be subject to
ADSmart's prior written approval. Xbeam shall not use the name "ADSmart" in the
name of the Xbeam without prior written permission from ADSmart. Xbeam shall
immediately notify ADSmart, upon discovery thereof, of any infringement or
potential infringement of ADSmart's interests in the Marks and undertakes to
cooperate with ADSmart in its efforts to cure such infringement at ADSmart's
cost and Expense.
16
<PAGE>
9.4 License to Use Marks. ADSmart hereby grants Xbeam a non-transferable,
--------------------
exclusive, royalty-free license to use the Marks in the Territory for the Term,
provided that the Marks are used solely in connection with the marketing and
sale of the Ad Services. Upon termination or expiration of this Agreement, Xbeam
shall immediately take all action necessary to transfer and assign to ADSmart,
or its nominee, any right, title or interest in or to any of the Marks, and all
goodwill related thereto, and Xbeam shall immediately cease to use any Mark of
ADSmart.
9.5 No Association with Other Localized System. Xbeam shall not advertise
------------------------------------------
or promote the Ad Services or Localized System in any manner that could imply
ADSmart's association with or endorsement of any non-ADSmart products or
services.
9.6 No Interference with Marks. Xbeam shall not change, alter or remove
--------------------------
any Mark, patent notice, copyright notice or any other designation affixed to
any Localized System, and shall not attach any additional designation to any
such Localized System.
9.7 Change of the Marks. If for any reason ADSmart should change the
-------------------
trade name or trademark of its service offering, currently identified as "the
ADSmart Network," Xbeam shall have the right to use the new trade name or
trademark under the same terms and conditions as any earlier trade name or trade
mark licensed to Xbeam as per this Agreement.
10. INDEMNIFICATION.
10.1 ADSmart Duty of Indemnification. ADSmart will indemnify and hold
-------------------------------
harmless Xbeam from all demands, costs, damages, expenses, including reasonable
attorneys' fees, and liabilities for any claim or suit ("Claim") brought against
Xbeam by a third party (i) alleging that the use of the System or Localized
System by Xbeam, its directors, officers employees or agents hereunder infringes
upon any U.S. trademark, copyright, or trade secret, existing as of the
Effective Date of this Agreement or (ii) based on the System or Localized
System, if such Claim does not concern the actions of inaction of Xbeam, its
Affiliates, or their respective directors, officers employees or agents;
provided that Xbeam gives ADSmart written notice of the Claim of infringement
within ten (10) days of the date of notice of the same to Xbeam and Xbeam gives
ADSmart all necessary information, reasonable assistance and sole authority to
defend and/or settle the Claim. At ADSmart's option, it may satisfy its entire
obligation under this paragraph by: (a) modifying or replacing the System or
Localized System so that it performs comparable functions without material
degradation in efficiency and without infringement; (b) obtaining a royalty-free
license for Xbeam to use the infringing portion of the System or Localized
System; or (c) refunding to Xbeam the fees paid with respect to the infringing
portion of the System or Localized System less a pro-rata usage charge. ADSmart
shall have no liability for any claim or infringement based on (x) use or
17
<PAGE>
combination of the System or Localized System with equipment, devices, software,
data or equipment not supplied by ADSmart; (y) the System or Localized System
having been modified by Xbeam, an Affiliate or a third party without the prior
written consent of ADSmart; (z) use of the System or Localized System in a
manner for which the System or Localized System was not designed.
10.2 Xbeam Duty of Indemnification. Xbeam shall indemnify and hold
-----------------------------
harmless ADSmart from all demands, costs, damages, expenses, including
reasonable attorneys' fees, and liabilities for any claim or suit ("Claim")
brought against ADSmart by a third party (i) alleging infringement resulting
from or arising out of the importation, manufacture, sale or use of the system
or Localized System in combination with another item not furnished by ADSmart,
(ii) alleging negligence of Xbeam, its directors, officers, employees, or
agents, or (iii) failing to allege facts that would, assuming their veracity,
constitute a material breach of this Agreement by ADSmart; provided that ADSmart
gives Xbeam written notice of such Claim within ten (10) days of the date of
notice of the same to ADSmart and ADSmart gives Xbeam all necessary information,
reasonable assistance and sole authority to defend and/or settle the Claim.
10.3 LIMITATION OF LIABILITY. THE PROVISIONS OF THIS SECTION 10 STATE THE
-----------------------
ENTRE LIABILITY OF ADSMART FOR PATENT, TRADEMARK, COPYRIGHT, TRADE SECRET AND
ALL OTHER PROPRIETARY RIGHT INFRINGEMENT BY THE SYSTEM, LOCALIZED SYSTEM OR ANY
MARK FURNISHED HEREUNDER.
11. CONFIDENTIAL INFORMATION.
11.1 Confidential Treatment. In the performance of this Agreement or in
----------------------
contemplation thereof, each "Party" (which, for purposes of this Section 11
shall include each party's Affiliates, employees, contractors and agents) may
disclose or receive sensitive Confidential Information. Accordingly, each Party
shall (i) hold in strict confidence Confidential Information of the other Party,
(ii) refrain from using, copying or publishing, disclosing Confidential
Information of the other Party, except strictly as necessary to perform its
obligations hereunder, and (iii) return Confidential Information of the other
Party at the Party's request. A Party disclosing Confidential Information
hereunder shall retain sole ownership of the contents of such information.
Nothing contained in this Section shall restrict either Party with respect to
information that becomes publicly available to a Party through no fault of such
Party, was lawfully received from a third party who rightfully acquired it and
did not obtain it in violation of any confidentiality agreement, or was required
to be disclosed by a court or other governmental authority and reasonable notice
was given to the disclosing Party. The Parties hereby acknowledge that the
burden of proving the exceptions set forth above resides with the Party
receiving such information.
18
<PAGE>
Xbeam shall not publish, disclose, disseminate or use the ideas, concepts,
know-how or techniques related to the System or Localized System disclosed by
ADSmart hereunder; provided, however, that Xbeam shall be allowed to disclose
such information solely to the extent reasonably necessary to market and sell Ad
Services to Customers and prospective Customers.
This Section 11.1 shall survive termination or expiration of this Agreement
for a period of three (3) years.
11.2 Equitable Relief. If either Party breaches any obligation with
----------------
respect to the use or confidentiality of the Confidential Information, the other
Party shall be entitled to equitable relief to protect its interests therein,
including without limitation preliminary and permanent injunctive relief in
addition to any other remedies it may have.
11.3 Publicity. Neither Party shall identify the other as having entered
---------
into a strategic alliance relationship or into this Agreement in any
advertising, promotional literature or any other material, whether in written,
electronic or other form, distributed to any third party, without obtaining the
prior written approval of the other Party. Neither party may disclose the terms
of this Agreement to any third party.
12. TERM AND TERMINATION.
12.1 Term. This Agreement shall commence as of the Effective Date and
----
continue for a period of four (4) years after the Commencement Date, and
thereafter shall automatically renew for successive two (2)-year terms (the
"Term"); provided that either party may terminate this Agreement by giving the
other party written notice no later than sixty (60) days prior to the expiration
of the initial or any renewal term.
12.2 Events Permitting Termination. Either party shall have the right to
-----------------------------
terminate this Agreement, effective immediately, upon written notice to the
other party in the event any of the following should occur:
a. The other party becomes insolvent; is adjudicated bankrupt; a
receiver, trustee or custodian is appointed for it; there is an assignment of
the other party's business for the benefit of creditors; the other party
liquidates or dissolves; or the occurrence of any action or event involving
Xbeam which is, in the Territory, the equivalent of one or more of the events
described in this subsection;
b. The other party ceases to conduct its operations in the normal
course of business;
19
<PAGE>
c. If any merger or consolidation occurs, which materially adversely
affects the ability of ADSmart or Xbeam to fulfill its obligations hereunder; or
d. Any Misuse of the System or Localized System by Xbeam, as defined
in Sec. 3.3, and such Misuse is not cured within thirty (30) days after written
notice thereof from ADSmart to Xbeam; or
e. Any change in control of Xbeam or Xbeam comes under the control
of any third party other than Sumitomo Corporation or any sale of all or
substantially all of the assets of Xbeam or if Sumitomo Corporation ceases to
have a controlling interest in any joint venture created by Xbeam as set forth
in Section 3.1.
12.3 Material Breach. Other than for occurrences covered by Section 12.2
---------------
hereof, either party shall have the right to terminate this Agreement upon
thirty (30) days' written notice if the other party materially breaches or fails
to perform any of its obligations, representations or undertakings hereunder,
and fails to cure such breach or failure within such thirty (30) day notice
period.
12.4 Termination of License. Upon the termination or expiration of this
----------------------
Agreement, Xbeam's right to use the System or Localized System shall terminate,
and Xbeam shall immediately cease all use of System and Localized System Code,
including without limitation any Error corrections or enhancements thereto that
have become a part of the System or Localized System, and shall make no further
copies of any of the foregoing. Xbeam shall immediately return to ADSmart all
copies of the System and Localized System, including without limitation any
Error corrections and enhancements that have become a part of the System or
Localized System. Xbeam shall warrant in writing, upon request of ADSmart, that
no copies of any such material have been retained or are within the control of
Xbeam.
12.5 Losses Due to Termination. ADSmart shall not by reason solely of any
-------------------------
expiration or termination of this Agreement be liable to Xbeam for any
compensation, reimbursement, expenses or damages, or on account of any loss of
prospective profits on anticipated sales, or on account of expenditures,
investments, leases or commitments in connection with Xbeam's business or good
will, or on any other account, and Xbeam hereby expressly waives any right to
make any such claim in any proceeding or otherwise with regard to such damages.
12.6 Payment of Monies Owed at Termination. Upon expiration or termination
-------------------------------------
of this Agreement, Xbeam shall immediately cease to be an ADSmart licensee and
all monies then owed to either party hereunder shall become immediately due and
payable notwithstanding any credit terms previously made available to Xbeam, and
each party's obligations to pay any sum of money due, payable or accrued under
this Agreement shall survive such expiration or termination.
20
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
12.7 Advertising Material. Upon the expiration or termination of this
--------------------
Agreement for any reason, Xbeam shall immediately cease any reference to its
status as an ADSmart licensee and any use of, or reference to, the Marks for any
purpose. In such event, Xbeam shall, either destroy all advertising and
promotional materials and all other materials concerning the Localized System or
the Marks.
12.8 Additional Remedies. Each party's remedies hereunder are in addition
-------------------
to any additional rights and remedies at law or in equity.
12.9 After the [**] year beginning on the Effective Date, and for a period
ending at the end of the [**] year from the Commencement Date, Xbeam may
terminate this Agreement by giving ADSmart written notice of intent to
terminate, such termination becoming effective [**] after receipt (the "Notice
Period"). Xbeam's termination as per this Section 12.9 shall not absolve Xbeam
of obligations for payments owed ADSmart during the Notice Period, including but
not limited to Licensee Fees, Localization fees, and Enhancements fees.
Notwithstanding anything to the contrary in this Agreement, upon Xbeam's
triggering of the Section 12.9, ADSmart shall be no longer liable for any refund
of the Initial Fee, License Fees, or Localization and Enhancements fees paid by
Xbeam to ADSmart prior to the effective date of termination. Upon effective date
of termination at the end of the Notice Period Xbeam shall be responsible for
operating the ADSmart Network for ten (10) additional months and ADSmart shall
be free to enter into an agreement with a new partner and initiate service
immediately.
13. MISCELLANEOUS.
13.1 Independent Contractors. Xbeam shall be considered to be an
-----------------------
independent contractor. The relationship between ADSmart and Xbeam shall not be
construed to be that of employer and employee, nor to constitute a partnership,
joint venture or agency of any kind. Xbeam shall have no right to enter into any
contracts or commitments in the name of, or on behalf of, ADSmart, or to bind
ADSmart in any respect whatsoever. In addition, Xbeam shall not obligate or
purport to obligate ADSmart by issuing or making any affirmations,
representations, warranties or guaranties with respect to the System or
Localized System to any third party, other than the warranties set forth in
Section 8 below or otherwise provided to Xbeam by ADSmart in writing during the
Term. Xbeam shall pay all of its expenses, including without limitation all
travel, lodging and entertainment expenses, incurred in connection with its
performance hereunder. ADSmart shall not reimburse Xbeam for any of those
expenses.
21
<PAGE>
13.2 Compliance with Law. Each party's performance hereunder shall be in
-------------------
compliance with all applicable laws, regulations and other legal and
administrative requirements.
13.3 Regulatory Approvals. ADSmart shall be responsible for obtaining, and
--------------------
shall use its best efforts to obtain, any and all required U.S. governmental
approvals, authorization and permits pertaining to the System and Localized
System, including without limitation, any such approvals related to electrical
devices and medical devices. Xbeam shall be responsible for obtaining, and shall
use its best efforts to obtain, any and all required non-U.S. governmental
approvals, authorization and permits pertaining to the System and Localized
System, including without limitation, any such approvals related to electrical
devices and medical devices. Neither party shall be liable if any authorization
is delayed, denied, revoked, restricted or not renewed; each party shall bear
all such risks and costs caused thereby. In addition, upon termination of this
Agreement for any reason, ADSmart or its designee shall be exclusively entitled
to any rights Xbeam may have acquired as a result of, or in, governmental
approvals authorization or permits, and Xbeam shall take all necessary actions
to effect the transfer of interest in same to ADSmart or any third party
identified by AD Smart.
13.4 Force Majeure. Except with respect to the payment of monies due
-------------
hereunder and the responsibility to maintain the Confidential Information in
confidence, neither party shall be responsible for failure to perform hereunder
due to causes beyond its reasonable control, including, but not limited to,
governmental requirements (including, without limitation, export control laws
and regulations), work stoppages, fires, civil disobedience, embargo, war,
riots, rebellions, strikes, inability to secure products, raw materials or
transport, acts of God, and similar occurrences which are beyond the reasonable
control of the parties hereto. Performance shall be resumed as soon as possible
after the cessation of such cause.
13.5 Waiver. The waiver by either party of any breach of this Agreement by
------
the other party in a particular instance shall not operate as a waiver of prior
or subsequent breaches of the same or different kind.
13.6 Governing Law. This Agreement shall be governed and interpreted in
-------------
all respects by and according to the laws of the Commonwealth of Massachusetts,
USA, excluding its choice of law provisions. Words and phrases shall also be
interpreted as understood in the USA. It is the express intent and agreement of
the parties that the United Nations Convention for the International Sale of
Goods shall not apply to this Agreement or to purchase orders hereunder. All
disputes arising between the parties in connection with this Agreement shall be
settled by arbitration under the Rules of Conciliation and Arbitration of the
International Chamber of Commerce before a single arbitrator selected under
those rules. In the event that ADSmart seeks arbitration, the place of
arbitration shall be Tokyo, Japan. In the event
22
<PAGE>
that Xbeam seeks arbitration, the place of arbitration shall be Boston,
Massachusetts. The arbitral award may be enforced in any court having
jurisdiction thereof
13.7 Notices. All notices under this Agreement shall be in writing and
-------
shall be by registered or certified air mail, postage prepaid, return receipt
requested, reputable international express courier service providing return
notice of receipt, or by telecopy with hard copy to follow immediately via air
mail or express courier service in accordance with this Section 15.4, to the
addresses set forth below, or at such different addresses as may be designated
in writing by like notice from time to time. Such notice shall, when mailed, be
effective on the tenth day after it has been deposited in the mails, or, if sent
by courier, on the second business day in the jurisdiction of the recipient
after delivery to the courier, or if given by telecopy, upon receipt thereof by
the recipient's telecopy machine as indicated either in the sender's
identification line produced by recipient's telecopy machine or in the sender's
transmission confirmation report as produced electronically by sender's telecopy
machine.
If to Engage: 100 Brickstone Square
Andover, MA, USA 01810
Attention: ____________________
Fax Number:
If to ADSmart: 100 Brickstone Square
Andover, MA, USA 01810
Attention: ____________________
Fax Number:
If to Xbeam: at 1-32-2 Harmony Tower 14F Honcho, Nakano-ku,
Tokyo, 100 Japan
Attention: ___________________
Fax Number:
13.8 Assignment. Except as expressly provided herein, neither party may
----------
assign this Agreement, or any of its interests herein, without the prior written
consent of the other party, except that each party may assign this Agreement
without such consent to an Affiliate, to its successor in connection with a
merger, acquisition or consolidation, or to the purchaser in connection with the
sale of all or substantially all of its assets; provided that (i) such assignee
shall agree in writing in a form reasonably satisfactory to the other party to
comply with such party's obligation under, and to be bound by, this Agreement.
Any assignment in violation of this Section shall be void. In the event of a
merger, acquisition or consolidation of ADSmart by Engage, Engage shall agree to
assume ADSmart's obligation under, and to be bound by, this Agreement.
23
<PAGE>
13.9 Prior Agreements. This Agreement cancels and supersedes all prior
----------------
agreements and understandings, oral or written, entered into by the Parties.
This Agreement, including the Schedules A-E attached hereto, sets forth the
-------------
entire understanding of the Parties with respect to its subject matter and may
be changed or amended only by a writing signed by duly-authorized officers of
both Parties. All captions and headings contained in this Agreement are for
convenience only and are not a part of this Agreement.
13.10 Cumulative Rights. Any rights and remedies of either party shall be
-----------------
cumulative and may be exercised singularly or concurrently. The failure of
either party, in any one or more instances, to enforce any of the terms of this
Agreement shall not be construed as a waiver of future enforcement of that or
any other term.
13.11 Survival. Sections 3.2, 3.4, 6, 7.1, 8, 9.1, 9.3, 10, 11, 12.4,
12.5, 12.6, 12.7, and 13 shall survive the termination of this Agreement for an
indefinite period.
13.12 Severability. In the event that any one or more of the provisions
------------
contained herein shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions of this Agreement, but this Agreement
shall be construed as if such invalid, illegal or unenforceable provisions had
never been contained herein. In such event, the Parties shall use their best
efforts to replace such invalid, illegal, or unenforceable provisions by
provisions that, to the extent permitted by the applicable law, achieve the
purposes intended under such invalid, illegal, or unenforceable provisions,
unless the deletion or replacement of such provision or provisions would result
in such a material change as to cause completion of the transactions
contemplated herein to be unreasonable.
13.13 Successors. This Agreement shall be binding upon and shall inure to
----------
the benefit of the parties and their respective successors and other legal
representatives and, to the extent that any assignment is permitted hereunder,
their assignees.
13.14 English. This Agreement has been drafted and executed in the English
-------
language. In the event of any ambiguity between the English language version and
any translation into any other language, the meaning and intent contained in the
English language version shall prevail.
24
<PAGE>
13.15 Counterparts. This Agreement may be executed in counterparts, each
------------
of which shall be deemed to be an original and all of which together shall be
deemed to be one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Exclusive
Strategic Alliance Agreement under seal as of the date first written above.
ENGAGE TECHNOLOGIES, INC.
By: /s/Paul Schaut
---------------------
Name: Paul Schaut
----------------
Title:_______________
ADSMART CORPORATION
By: /s/Paul Schaut
---------------------
Name: Paul Schaut
----------------
Title:_______________
CROSS BEAM NETWORKS CORPORATION
By: /s/Isao Momata
---------------------
Name: Isao Momata
----------------
Title: President
----------------
25
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
SCHEDULE A
----------
Description of ADSmart System
The System is defined as ADSmart's software and business processes for Internet
advertising, including the following:
The ADSmart Network Enabling System
[**]
26
<PAGE>
SCHEDULE B
----------
ADSmart Marks
ADSmart(TM)
ADSmart Corporation(TM)
ADSmart.net(TM)
ADSmart.net(TM)
Network Enabling System(TM)
Site Enabling System(TM)
The ADSmart Network(TM)
The ADSmart Network(TM)
True Targeting P1anner(TM)
True Targeting(TM)
True Targeting(TM)
27
<PAGE>
SCHEDULE C
----------
THIS PAGE LEFT INTENTIONALLY BLANK.
28
<PAGE>
SCHEDULE D
----------
Error Correction and Enhancements
Error Correction
- ----------------
During the terms of this Agreement, ADSmart shall provide error correction
services ("Error Correction Services") pursuant to the following procedures:
Each party shall designate a primary and secondary contact (with telephone,
pager and fax numbers and email addresses) for communications and receipt of
materials related to Error Correction Services.
1. Each party shall designate a primary and secondary contact (with telephone,
pager and fax numbers and email addresses) for communications and receipt of
materials related to Error Correction Services.
2. ADSmart's designated representative shall receive and process Xbeam's
reports of~any Errors in the Localized System between the hours of 9:00 a.m. to
5:00 p.m. EST Monday through Friday, excluding ADSmart holidays. For reporting
of a Class 1 Error, an ADSmart representative will be available by pager on a
24-hours per day.
3. Xbeam shall advise ADSmart of any Error within two (2) working days after
its becoming aware of such Errors. Xbeam shall provide all information
reasonably requested by ADSmart from time to time to assist ADSmart in
identifying and solving the Errors. Xbeam shall bear all shipping charges,
communications charges, and the like that are associated with providing such
data to AD Smart.
4. ADSmart and Xbeam shall mutually agree to classify reported Errors as
follows:
Class 1 Error: Renders the Localized System unusable or the use
thereof commercially infeasible.
Class 2 Error: Renders a significant function of the Localized System
unusable or the use thereof commercially unfeasible.
Class 3 Error All other Errors are Class 3 Errors, in particular, all
Documentation shortcomings and deviations that do not
have the operational or economic consequences as
defined for Class 1 and Class 2 Errors shall be deemed
Class 3 Errors.
29
<PAGE>
In the event of any dispute related to the classification of an Error, Xbeam's
classification, if reasonable, shall govern.
5. With respect to Class 1 and Class 2 Errors, within two (2) working days of
receipt of notice of any such Error, ADSmart shall, at no additional charge, use
best efforts to either: (i) provide Xbeam with a response specific to the Errors
described, sufficient to alleviate any adverse effect of the Error on the
utility of the Localized System satisfactory to Xbeam, or (ii) provide Xbeam
with a response describing ADSmart's then-existing diagnosis of the Errors
described and outlining ADSmart's then existing plan and timetable for
correcting the Errors, in which case ADSmart shall report its progress in
correcting the Errors to correcting the Errors. As well as informing Xbeam at
least weekly. In addition, ADSmart shall inform Xbeam of any action that ADSmart
believes should be taken by Xbeam for data preservation or other damage.
6. With respect to Class 3 Errors ADSmart will respond with a proposed plan of
action back to Xbeam via email within five (5) working days and the parties will
mutually agree on the plan of action.
If Xbeam determines that the Errors will not be corrected by any action as above
and ask reasonably, ADSmart shall dispatch its competent engineer to correct
such Errors.
This paragraph states Xbeam's exclusive remedy and ADSmart's sole obligation~for
Error Correction. Under no circumstances does ADSmart warrant that all Errors
can or will be corrected.
Enhancements
- ------------
Xbeam will notify ADSmart, in writing, of all proposed enhancements to the
System and Localized System. ADSmart will respond with a proposed plan of action
back to Xbeam via email within fourteen working days and the parties will
mutually agree on the plan of action.
30
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
SCHEDULE E
----------
Implementation Timeline
[**] of the Effective Date of the Agreement:
---------------------------------------
Xbeam and ADSmart agree upon facilities plan and order equipment, software and
network bandwidth.
[**] of the Effective Date of the Agreement
---------------------------------------
ADSmart trains Xbeam customer service manager and jointly defines Xbeam
classification system, user roles and access rights.
Xbeam and ADSmart agree upon staffing levels, hire appropriate staff and arrange
for training. ADSmart trains Xbeam technical operations staff and database
administrator at ADSmart's facility in Andover, MA.
[**] of the Effective Date of the Agreement:
---------------------------------------
Interim System Services (as listed in Section 5.1.a) provided by ADSmart.
[**] of the Effective Date of the Agreement
---------------------------------------
Xbeam uses English language Ad Server from their facility in Japan to serve ads
within Territory using ADSmart's English-Language database applications based in
ADSmart's Andover facility.
[**] of the Effective Date of the Agreement:
---------------------------------------
Xbeam uses Japanese language Ad Server from their facility in Japan to serve ads
within Territory using ADSmart's English-language database applications located
in ADSmart's Andover facility.
[**] of the Effective Date of the Agreement
---------------------------------------
Xbeam uses Japanese-language Ad Server along with Japanese-language database
applications from their facility in Japan to serve ads.
31
<PAGE>
ADDENDUM
--------
Reference is made to Exclusive Strategic Alliance Agreement dated January 7,
1998 (the "Agreement") between Engage Technologies, Inc. ("EG"), ADSmart
Corporation ("ADSmart") and Cross Beam Networks Corporation ("Xbeam").
EG for itself and ADS mart and Sumitomo Corporation for itself and Xbeam hereby
agree as follows:
1. EG acknowledges that it has acquired the engineering division of ADSmart
and it shall be responsible for developing the next version of Accipiter
based ADSmart and also for providing on-going version-up of the same.
2. EG/ADSmart and SC/Xbeam shall immediately meet to clarify the status of the
project of such development on the part of ADSmart and shall discuss and
agree upon (i) the completion date for the localization of the next version
of Accipiter based ADS mart and (ii) the commencement date of the services
based on that next version, each of which shall be on or before the end of
December, 1998. Such next version needs to be acceptable to the customers
in Japan. Until the completion of such next version, EG shall provide full
support and assistance utilizing their commercial and technical resources
in order to keep the reputation and goodwill of ADSmart and keep the
services of ADSmart attractive to the customers in Japan. EG shall at its
responsibility procure that the localization and the commencement of the
services of ADSmart shall be completed by the above-mentioned dates. It is
a condition to SC's execution of the contract in relation to the
establishment of a joint venture company between SC and EG for the purpose
of pursuing the business opportunities in the territory of Japan through
the commercialization of Internet behavioral profiling and marketing
products, database subscription services and the performance of related
consulting services (the "Contract") that the above mentioned dates shall
have been agreed upon among EG/ADSmart and SC/Xbeam by the end of June,
1998. For avoidance of doubt, the foregoing shall be without prejudice to
SC/Xbeam's right to the payment of liquidated damages for delay payable by
ADSmart under the Agreement.
3. This Addendum is an integral part of the Agreement. Terms already defined
in the Agreement but not otherwise defined in this Addendum shall have the
same meanings defined in the Agreement.
32
<PAGE>
Signature below by both parties signifies the foregoing:
<TABLE>
<S> <C> <C> <C>
For and on behalf of For and on behalf of
Engage Technologies, Inc. Sumitomo Corporation
/s/ Paul E. Schaut /s/ Hiroji Iwasaki
- ------------------ -------- ------------------- --------
Paul E. Schaut Date Hiroji Iwasaki Date
President & CEO Director
Engage Technologies, Inc. Deputy General Manager
Media Business Division
Sumitomo Corporation
For and on behalf of For and on behalf of
ADSmart Corporation Cross Beam Networks Corporation
/s/ Paul E. Schaut /s/ Isao Momota
- ------------------ -------- ---------------- --------
Paul E. Schaut Date Isao Momota Date
President & CEO General Manager
Engage Technologies, Inc. Information & Telecommunication
Business Department No. 2
Sumitomo Corporation
</TABLE>
33
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
SCHEDULE A
- ----------
Description of Advertising System
The Advertising System is defined as ADSmart's business processes and
Accipiter's software for automating Internet advertising placement. The business
processes have already been delivered to Xbeam. The software will be delivered
in two phases, the first phase based on Accipiter Ad Manager 2.2 and the second
based on Accipiter Ad Manager 4.0.
[**]
34
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
SCHEDULE E
----------
Implementation Timeline
[**] after conclusion of original Agreement
---------------------------------------
Xbeam and ADS mart agree upon facilities plan and order equipment, software and
network bandwidth.
[**] after conclusion of original Agreement:
---------------------------------------
Xbeam provides ADSmart with site classification data, user roles and access
rights. Xbeam and ADSmart agree upon staffing levels, hire appropriate staff and
arrange for training.
ADSmart trains Xbeam technical operations staff and database administrator at
ADSmart's facility in Andover, MA.
[**] after conclusion of original Agreement:
---------------------------------------
ADSmart trains Xbeam customer service staff at ADSmart's facility in Andover,
MA.
[**] after conclusion of original Agreement:
---------------------------------------
Interim System Services (as listed in Section 5.1 .a) provided by ADSmart.
[**]
Engage delivers Phase 1 of the Advertising System, as described in Schedule A,
with the exception of Technical Consulting and Customer Support Training. Engage
continues to support ADSmart Interim System Services up until [**].
[**]
Engage delivers Technical Consulting and Customer Support Training for Phase 1
of the Advertising system, as described in Schedule A. Xbeam implements Phase 1
of the Advertising System, as described in Schedule A, in Japan. Xbeam ceases
use of AD Smart proprietary software.
[**]
Engage delivers Phase 2 of the Advertising System, as described in Schedule A,
with the exception of Technical Consulting and Customer Service Training.
After [**] but No Later Than [**]
- ----- ------------------
Engage delivers Phase 3 of the Advertising System, as described in Schedule A,
with the exception of Technical Consulting and Customer Service Training.
35
<PAGE>
SECOND AMENDMENT TO
EXCLUSIVE STRATEGIC ALLIANCE AGREEMENT
--------------------------------------
This Second Amendment (the "Amendment") to the Exclusive Strategic Alliance
Agreement is entered into as of November 26, 1998 (the "Effective Date") by and
among Engage Technologies, Inc. ("Engage"), ADSmart Corporation ("ADSmart"),
Sumitomo Corporation ("Sumitomo"), Cross Beam Networks Corporation ("Xbeam"),
and Interactive Solutions, Inc. ("1S1").
WHEREAS Engage, ADS mart and Xbeam are parties to an Exclusive Strategic
Alliance Agreement dated January 7, 1998 (the "Agreement");
WHEREAS Engage, ADSmart, Sumitomo and Xbeam are parties to an addendum to
the Agreement executed as of June 18, 1998; and
WHEREAS Engage, ADSmart, Sumitomo, Xbeam and ISI desire to amend the
Agreement in order to assign all of the rights, obligations and liabilities
under the Agreement from Xbeam to ISI, a wholly-owned subsidiary of Sumitomo.
NOW, THEREFORE, Engage, ADSmart, Sumitomo, Xbeam and 1S1 agree as follows:
1. Capitalized terms used herein and not otherwise defined shall have the
meanings set forth in the Agreement.
2. Pursuant to Section 13.8 of the Agreement, Xbeam hereby assigns to ISI all
of its rights, obligations and liabilities under the Agreement, and ISI hereby
assumes all of the rights, obligations and liabilities (whether past, present or
future) of Xbeam under the Agreement, and the parties hereto hereby consent to
such assignment and assumption effective as of the Effective Date. All notices
to ISI under the Agreement shall be sent to the following address:
Interactive Solutions, Inc.
2FShinshu-Meitetsu Yasuda Building
3-15 Kandanishikicho
Chiyoda-ku, Tokyo 101-0054, Japan
3. Except as specifically set forth herein, no other portion of the Agreement
shall be affected.
4. This Amendment may be executed in one or more counterparts, each of which
shall for all purposes be deemed to be an original and all of which shall
constitute the same instrument.
36
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective authorized representatives below as of the day and
year first above written.
ENGAGE TECHNOLOGIES, INC. ADSMART CORPORATION
By: /s/ Stephen A. Royal By: /s/ John Federman
-------------------------------- --------------------------
Name: Stephen A. Royal Name: John Federman
Title: Chief Financial Officer Title: President
INTERACTIVE SOLUTIONS, INC. CROSS BEAM NETWORKS CORPORATION
By: /s/ Ikuo Matsumoto By: /s/ Motohiko Ikweda
------------------------- --------------------------
Name: Ikuo Matsumoto Name: Motohiko Ikeda
Title: President Title: President
SUMITOMO CORPORATION
By: /s/ Isao Momota
----------------------------
Name: Isao Momota
Title: General Manager
Information & Telecommunications
Business Department No. 2
37
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
THIRD AMENDMENT TO
EXCLUSIVE STRATEGIC ALLIANCE AGREEMENT
--------------------------------------
This Third Amendment(the "Amendment") to the Exclusive Strategic Alliance
Agreement is entered into as of January 20, 1999 (the "Effective Date") by and
among Engage Technologies, Inc. ("Engage"), ADSmart Corporation ("ADSmart"),
Sumitomo Corporation ("Sumitomo"), and Interactive Solutions, Inc. ("ISI")
(collectively the "Parties").
WHEREAS the Parties entered into an Exclusive Strategic Alliance Agreement
dated January 7, 1998 (the "Agreement") as amended by addendum executed as of
June 18, 1998 and amendment dated November 26, 1998; and
WHEREAS the Parties desire to further amend the Agreement as set forth
below.
NOW, THEREFORE, the Parties agree as follows:
1. Capitalized terms used herein and not otherwise defined shall have the
meanings set forth in the Agreement. In the event of any conflict between the
terms and conditions of this Amendment and the terms and conditions of the
Agreement, this Amendment shall control,
2. Section 6.1(b) of the Agreement shall be amended as follows:
Notwithstanding any other provision of this Agreement: (i) the Annual
License Fee for the Third Year shall be [**], which amount shall represent
Engage's entire liability and sole and final payment for any delayed
delivery of the Localized System and/or any other deliverable under the
Agreement as amended; and (ii) by [**] Engage shall deliver Phases 2 and 3
of the Advertising System, as described in Schedule A, with the exception
----------
of Technical Consulting and Customer Service Training.
3. Except as specifically set forth herein, no other portion of the Agreement
shall be affected.
4. This Amendment may be executed in one or more counterparts, each of which
shall for all purposes be deemed to be an original and all of which shall
constitute the same instrument.
38
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective authorized representatives below as of the day and
year first above written.
ENGAGE TECHNOLOGIES, INC. ADSMART CORPORATION
By: /s/ Stephen A. Royal By: /s/John Federman
-------------------------------- --------------------------
Name: Stephen A. Royal Name: John Federman
Title: Chief Financial Officer Title: President
INTERACTIVE SOLUTIONS, INC. SUMITOMO CORPORATION
By: /s/ Ikuo Matsumoto By: /s/ Isao Momota
------------------------- ----------------------------
Name: Ikuo Matsumoto Name: Isao Momota
-------------------
Title: President Title: General Manager
Information &
Telecommunications
Business Department
No. 2
39
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
Exhibit 10.12
-------------
SERVICES AND LICENSE AGREEMENT
This Services and License Agreement ("Agreement"), effective as of October
29, 1997 ("Effective Date"), is made by and between Lycos, Inc., a Delaware
Corporation with a principal place of business at 500 Old Connecticut Path,
Framingham, MA. 01701-4576 ("Lycos"), and Engage Technologies, Inc., a
Massachusetts Corporation with a principal place of business at 100 Brickstone
Square, Andover, MA 01810 ("Engage").
Recitals
--------
A. Lycos is the owner or Licensee of certain Web services (collectively,
the "Lycos Services"), which are accessible through the URL www.lycos.com (the
"Lycos Site");
B. Engage provides open, standards-based software solutions that enable
companies to distinguish, understand and engage prospects and customers in
personalized communications over the Web.
C. The purpose of this Agreement is to address Lycos' requirement for a
visitor profiling system with the capability to drive visitor-specific
applications. The system integrates advanced Neural Network technology from
Nestor, Inc. for the decision rule engine with the Engage large-scale
clickstream data processing capability. The system offers an optimized approach
to Lycos' long-term requirements and is aimed at strengthening the Lycos brand
with an industry-leading capability in visitor profiling, clickstream data
mining and personalization of services and content.
D. Engage agrees to provide stated service in exchange for Lycos' public
support of the Engage Suite of products and access to Lycos' clickstream data.
E. Lycos and Engage desire to enter other arrangements as more
particularly described herein.
NOW, THEREFORE, for good and valuable consideration, receipt and
sufficiency of which are hereby acknowledged, Lycos and Engage hereby agree as
follows:
<PAGE>
Terms
-----
1. Lycos will:
----------
a) Lycos will provide Engage with the specifications of the various NT-
based servers on which Engage will install the Web server kits.
b) Lycos will provide Engage with a map of Lycos' Web site operations and
product areas as well as detailed traffic volume data per respective areas
to enable resource planning at the hosting facility in Andover. Lycos will
include a determination of the amount of data it wishes to maintain online
at Engage's hosting facility.
c) Lycos will provide Engage with a content description of Lycos' Web
site pages to enable classification and will work with Engage in specifying
the number of categories which should be addressed by the user profiling
system.
d) Lycos will provide a Windows NT-based server at Lycos' operations site
to load and operate the Engage Discover decision support module.
e) Lycos will facilitate and manage the technical interface between
Engage, Lycos and Accipiter.
f) Lycos will work with Nestor Interactive, Inc. ("Nestor") to develop
the models for the Communication Strategies driving the personalization
services application and will endeavor in becoming thoroughly familiar in
the usage of Nestor-provided operator controls for managing Communications
Strategies and content serving.
g) Lycos will provide open access to its operations team for
representatives of Engage and Nestor, Inc. and will designate a team leader
on Lycos' side responsibilities for direct interface with the Engage-Nestor
team with technical responsibilities in the following three main areas: a)
operations and data communications, b) personalization services, and c)
advertising management.
h) Lycos grants to Engage a non-exclusive, perpetual, world wide, fully
paid up, royalty free license to use all Lycos, Inc. clickstream data
provided to Engage under this Agreement. Engage may retain the clickstream
data indefinitely and shall be allowed to merge, transform, enhance or
perform operations on the data for further resale on the marketplace with
the expressed limitations that (i) such data may not be aggregated and
presented in a form or manner that would permit it to be identified as
Lycos' and (ii) such data shall not contain the means to identify personal
and confidential data provided by Lycos' users and/or the means to
associate identifiable individual Lycos'
-2-
<PAGE>
users to an observed behavior or interest profile. Engage technologies
shall be further prohibited from the sale or transfer of unprocessed Lycos
data to any third party.
i) Lycos will provide marketing support of the Engage Suite of products
in return for successful installment of Engage Suite modules. Furthermore,
Lycos agrees to endorse commercial versions of the Engage Suite of products
and allow Lycos' name to be used in Engage's product packaging, advertising
collateral, press releases (as set forth below) and on the Engage website
in support of the marketing and sale of commercial versions of the full
range of Engage' Suite of products. Lycos will provide an overall level of
marketing support no less than the level of marketing support provided by
Lycos to Nestor pursuant to that certain Letter Agreement between Lycos and
Nestor, a true copy of which is attached hereto as Appendix A and
incorporated herein by reference. Each promotional item must be approved in
advance by Lycos, which approval shall not be unreasonably withheld.
j) Lycos' performance under this Agreement is governed by the Statement
of Work attached hereto as Appendix B and incorporated herein by reference.
k) Lycos will ensure that no action (or inaction, as the case may be) by
Lycos causes a material breach under that certain Agreement between Nestor
and Engage, a true copy of which is attached hereto as Appendix C and
incorporated herein by reference.
2. Engage will:
-----------
a) Engage will provide Lycos with software and services defined below as
"Engage Suite" modules (Engage.Journal, Engage.Portrait, Engage.Link,
Engage.Discover), the use of which shall be subject to the Engage Software
License Agreement attached hereto as Appendix D and incorporated herein by
reference, and "Engage Hosting Services" enabling Lycos to reach the
following operational objectives:
1. To Collect, classify and categorize site visitor activity data,
also defined as "clickstream data", from the Web servers and product
areas determined by Lycos;
2. To generate and update a database of registered users with their
corresponding interests and activity log data;
3. To generate and update a database of anonymous users with their
corresponding interests and activity log data;
4. To generate user profiles from which personalized services and
targeted content can be served to users;
5. To generate user profiles allowing improved ad targeting; and
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6. To provide reporting and analysis tools for measuring site
activity.
b) Engage will install and test a host server for Lycos' operations at
Engage's Andover facility. This host server, defined as "Engage Hosting
Services", will be configured to provide sufficient data storage and
processing resources to allow uninterrupted processing of Lycos data on a 7
day/24 hours per day basis and according to the volume and schedule
determined by Lycos as well as the length of time required to maintain data
online. This is a material term of this Agreement.
c) Engage will install and test Web Server kits at Lycos' operations in
the Windows-NT servers defined by Lycos. These kits will provide the data
collection capability (Engage.Journal) and the user registration capability
(Engage.Portrait).
d) Engage will procure, install and test the necessary data communication
channels, hardware and software, under the sub-contract from Navisite, to
transmit raw clickstream data from Lycos' operations in Pittsburgh to
Engage's facility in Andover and return processed user profiles from
Andover back to Pittsburgh.
e) Engage will build the Lycos site classification tables for the
personalization areas and other sections of Lycos' site which are
complementary to the search engine function.
f) Engage will install and test the Engage.Discover decision support tool
and database at Lycos' site and at the Andover hosting facility providing
Lycos with the capability to carry out the queries on the processed data.
g) Engage will install and test the Engage.Link Web Server kit at Lycos'
designated server. This module will be used by the applications to
retrieve user profiles for the content personalization application.
h) Engage will provide data inputs in the form of user profiles generated
by the Engage software to Lycos' ad targeting system (Accipiter) and will
work with Lycos' advertising management team in formatting the data
according to the ad server engine requirement and as defined by the Lycos
technical operations team.
i) Engage will develop in conjunction with Nestor, an integrated system
consisting of Engage user profiling software and Nestor Neural Network rule
engine. This is a material provision of this Agreement. Notwithstanding
the foregoing, however, Engage shall not be liable for any breach of this
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Agreement caused by the failure of any software provided by Nestor if
Engage procures a reasonably acceptable replacement for such failed
software within forty-five (45) days after written notice from Lycos. This
integrated system will be hosted at Engage's facilities in Andover and will
be the platform from which Lycos' personalization services servers will
operate.
j) Engage will migrate the full Windows NT-based application to the main
Lycos operation running under Digital UNIX/Netscape 2.0 (or higher) web
server environment within 30 days of Lycos upgrading to Netscape 2.0 (or
higher).
k) Engage will provide Lycos with software updates for Engage software
modules installed at Lycos provided Lycos' operations remain on the server
software environments discussed above.
l) Engage will place in escrow with Data Securities International, Inc.
("DSI"), pursuant to the FlexSAFE Escrow Agreement attached hereto as
Appendix E and incorporated herein by reference, a copy of the source code
for each component of the Engage Suite that is owned by Engage, e.g.,
Engage.Journal, Engage.Link, and Engage.Portrait, and Engage will use
commercially reasonable efforts to acquire the rights to place into escrow,
for Lycos' protection, the source code for each component of the Engage
Suite that is licensed by Engage from a third party. In the event the
Escrow Material is distributed by the Escrow Agent to the License pursuant
to the FlexSAFE Escrow Agreement, and provided that Lycos is in compliance
with the terms of the Software License Agreement attached hereto as
Appendix D and incorporated herein by reference ("Software License
Agreement"), Engage hereby grants to Lycos a non-exclusive, non-
transferable limited license to permit only its employees with a "need to
know," who have signed a confidentiality agreement with Lycos containing
terms no less protective of Engage's rights than those in this paragraph,
the right to use the Source Code only on Lycos' facilities and solely to
support Lycos' use of the object code form of the Engage Suite as permitted
in the Software License Agreement. Lycos shall maintain the Source Code in
strict confidence and shall not use, reproduce, modify, access, disclose,
reverse engineer, display, transfer or transmit the Source Code, except as
expressly permitted herein. This limited Source Code license is further
subject to the same Software License Agreement restrictions as govern
Lycos' use of the Engage Suite, provided that the terms of this Section
2(1) shall govern over any conflicting terms in the Software License
Agreement. Without in any way limiting the generality of the foregoing,
Licensee shall not be permitted to sell or license the Escrow Material to
any third party and Lycos shall return the Source Code to Engage
immediately upon the cure, cancellation, removal or other termination or
expiration of the event giving rise under the Escrow Agreement to the
release
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<PAGE>
of the Source Code. Lycos will reimburse Engage, promptly upon receipt of
an invoice from DSI, $1,750 towards the cost of establishing the FlexSAFE
Escrow Agreement. Engage will pay all future charges owed to DSI, and will
provide Lycos with proof of payment.
m) Engage's performance under this Agreement is governed by the Statement
of Work attached hereto as Appendix B and incorporated herein by reference.
3. Term. The term ("Term") of this Agreement shall commence on the
----
Effective Date hereof and continue until October 1, 1998 unless
terminated earlier as provided in section 10 below. This Agreement
shall renew automatically for successive one year periods unless
either party gives written notice of cancellation to the other party
within thirty (30) days prior to the commencement of any such renewal
date.
4. Pricing. The pricing for hosting and integration services provided by
-------
Engage to Lycos under this Agreement are set forth in Appendix F
Pricing.
5. License. Engage grants Lycos a license to use the Engage Suite
-------
modules during the term of this Agreement subject to the terms and
conditions of the Software License Agreement to be put in place
between Engage and Lycos.
6. Representations and Warranties of Engage. In order to induce Lycos to
----------------------------------------
enter into this Agreement, Engage hereby warrants and represents as
follows:
a) Status. Engage is a corporation in good standing under the laws of the
------
state of its organization, and has the full right, power and authority to
enter into this Agreement and to grant the rights herein granted.
b) No Conflicting Obligations. The performance by Engage pursuant to this
--------------------------
Agreement and/or the rights herein granted to Lycos will not conflict with
or result in a breach or violation of any of the terms or provision of, or
constitute a default, under any organizational instruments of Engage or any
agreement to which Engage is a party or to which it is bound.
c) Right to License. Engage possesses the full right and authority to
----------------
license the Engage Suite modules and the Engage's trademarks, service
marks, and the like (the "Engage Marks") used in connection therewith.
Engage is the sole owner and/or has the right to license, and shall
continue to own and/or
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<PAGE>
have the right to license, throughout the Term of the Agreement the Engage
Suite modules and each element thereof.
d) Compliance with Laws and Regulations. Engage shall comply with all
------------------------------------
applicable laws, statutes, ordinances, rules and regulations of each
county, state, city or other political entity.
e) Clearances. Engage shall clear all rights in the Engage Suite modules
----------
and Engage marks and all elements thereof for use as provided herein. All
fees of any nature, including, without limitation, residuals, royalties,
reuse, health and welfare payments, and similar or dissimilar fees due to
third parties for rights necessary to exploit the Engage Suite modules and
Engage Marks, as provided herein, shall be the sole responsibility of
Engage.
f) No Infringement. Engage has the right to enter into this Agreement and
---------------
to grant to Lycos the license provided herein and neither the Engage Suite
modules, Engage Marks, nor any other materials or any elements or parts
thereof, shall violate or infringe upon the copyright, literary, privacy,
publicity, trademark, service mark or any other personal, moral or property
right of any person, or shall same constitute a libel or defamation of any
person whatsoever.
g) General. EXCEPT FOR THE FOREGOING REPRESENTATIONS AND WARRANTIES AND
-------
THE REPRESENTATIONS AND WARRANTIES IN THE SOFTWARE LICENSE AGREEMENT
ATTACHED AS APPENDIX D, ENGAGE TECHNOLOGIES MAKES NO REPRESENTATIONS OR
WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, AS TO ANY MATTER
INCLUDING, BUT NOT LIMITED TO, IMPLIED WARRANTIES OF FITNESS FOR A
PARTICULAR PURPOSE, MERCHANTABILITY OR OTHERWISE WHICH WOULD EXTEND BEYOND
THE REPRESENTATIONS AND WARRANTIES CONTAINED HEREIN.
7. Representations and Warranties of Lycos. In order to induce Engage to
enter into this Agreement, Lycos represents and warrants that:
a) Corporate Status. Lycos is a corporation in good standing under the
----------------
laws of the State of Delaware, and has the full right, power and authority
to enter into this Agreement and to grant the rights herein granted.
b) No Conflicting Obligations. The performance by Lycos pursuant to this
--------------------------
Agreement and/or the rights herein granted to Engage will not conflict with
or result in a breach or violation of any of the terms or provisions of, or
constitute a default under, any organizational instruments of Lycos or any
agreement to which Lycos is a party or to which it is bound.
-7-
<PAGE>
c) Right to License. Lycos possesses the full right and authority to
----------------
provide access to the Lycos Site and to license the Lycos Services and
Lycos' trademarks, service marks and the like (the "Lycos Marks"). Lycos
is the sole owner and/or has the right to license, and shall continue to
own and/or have the right to license, throughout the term of this
Agreement, all right, title and interest in and to the Lycos Site and each
element thereof.
d) Compliance with Laws and Regulations. Lycos shall comply with all
------------------------------------
applicable laws, statutes, ordinances, rules and regulations of each
county, state, city or other political entity.
e) Clearances. Lycos shall clear all rights in the Lycos site and all
----------
elements thereof for use as provided herein. All fees of any nature,
including, without limitation, residuals, royalties, reuse, health and
welfare payments, and similar or dissimilar fees due to third parties for
rights necessary to exploit the Lycos Site, as provided herein, shall be
the sole responsibility of Lycos.
f) No Infringement. Lycos has the right to enter into this Agreement and
---------------
to grant to Engage the license provided herein and neither the Lycos Site
nor any other materials or any elements or parts thereof, shall violate or
infringe upon the copyright, literary, privacy, publicity, trademark,
service mark or any other personal, moral or property right of any person,
nor shall same constitute a libel or defamation of any person whatsoever.
g) General. EXCEPT FOR THE FOREGOING REPRESENTATIONS AND WARRANTIES,
-------
LYCOS MAKES NO REPRESENTATIONS OR WARRANTIES OF ANY KIND, EITHER EXPRESS OR
IMPLIED, AS TO ANY MATTER INCLUDING, BUT NOT LIMITED TO, IMPLIED WARRANTIES
OF FITNESS FOR A PARTICULAR PURPOSE, MERCHANTABILITY OR OTHERWISE WHICH
WOULD EXTEND BEYOND THE REPRESENTATIONS AND WARRANTIES CONTAINED HEREIN.
8. Indemnification.
---------------
a) Engage Indemnity. Engage will at all times indemnify and hold harmless
----------------
Lycos and its officers, directors, shareholders, employees, accountants,
attorneys, agents, successors and assigns from and against any and all
third party claims, damages, liabilities, costs and expenses, including
reasonable legal fees and expenses, arising out of or related to any breach
of any warranty, representation, covenant or agreement made by Engage in
this Agreement. Lycos shall give Engage prompt written notice of any
claim, action or demand for which indemnity is claimed. Engage shall have
the right, but not the obligation, to control the defense and/or settlement
of any claim in
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<PAGE>
which it is named as a party. Lycos shall have the right to participate in
any defense of a claim by Engage with counsel of Lycos' choice at Lycos'
own expense. The foregoing indemnity is conditioned upon: prompt written
notice by Lycos to Engage of any claim, action or demand for which
indemnity is claimed; complete control of the defense and settlement
thereof by Engage; and such reasonable cooperation by Lycos in the defense
as Engage may request.
b) Lycos Indemnity. Lycos will at all times defend, indemnify and hold
---------------
harmless Engage and its officers, directors, shareholders, employees,
accountants, attorneys, agents, successors and assigns from and against any
and all third party claims, damages, liabilities, costs and expenses,
including reasonable legal fees and expenses, arising out of or related to
any breach of any warranty, representation, covenant or agreement made by
Lycos in this Agreement. Engage shall give Lycos prompt written notice of
any claim, action or demand for which indemnity is claimed. Lycos shall
have the right, but not the obligation, to control the defense and/or
settlement of any claim in which it is named as a party. Engage shall have
the right to participate in any defense of a claim by Lycos with counsel
defense of Engage chose at its own expense. The foregoing indemnity is
conditioned upon; prompt written notice by Engage to Lycos of any claim,
action or demand for which indemnity is claimed; complete control of the
defense and settlement thereof by Lycos; and such reasonable cooperation by
Engage in the defense of Lycos may request.
9. Confidentiality, Press Release.
------------------------------
a) Non-Disclosure Agreement. The parties agree and acknowledge that, as a
------------------------
result of negotiating entering into and performing this Agreement, each
party has and will have access to certain of the other party's Confidential
Information (as defined below). Each party also understands and agrees
that misuse and/or disclosure of that information could adversely affect
the other party's business. Accordingly, the parties agree that, during the
Term of this Agreement and thereafter, each party shall use and reproduce
the other party's Confidential Information only for purposes of this
Agreement and only to the extent necessary for such purpose and shall
restrict disclosure of the other party's Confidential Information to its
employees, consultants or independent contractors with a need to know and
shall not disclose to the other party's Confidential Information to any
third party without the prior written approval of the other party.
Notwithstanding the foregoing, it shall not be a breach of this Agreement
for either party to disclose Confidential Information of the other party if
required to do so under law or in a judicial or other governmental
investigation or proceeding, provided the other party has been given prior
notice and the disclosing party has sought all available safeguards against
widespread dissemination prior to such disclosure.
-9-
<PAGE>
b) Confidential Information Defined. As used in this Agreement, the term
--------------------------------
"Confidential Information" refers to: (i) the terms and conditions of this
Agreement; (ii) each party's trade secrets, business plans, strategies,
methods and/or practices; and (iii) other information relating to either
party that is not generally known to the public, including information
relating to either party's personnel, products, customers, marketing
strategies, services or future business plans. Notwithstanding the
foregoing, the term "Confidential Information" specifically excludes (A)
information that is now in the public domain or subsequently enters the
public domain by publication or otherwise through no action or fault of the
other party; (B) information that is known to either party without
restriction, prior to receipt from the other party under this Agreement,
from its own independent sources as evidenced by such party's written
records, and which was not acquired, directly or indirectly, from the other
party; (C) information that either party receives from any third party
reasonably known by such receiving party to have a legal right to transmit
such information, and not under any obligation to keep such information
confidential; and (D) information independently developed by either party's
employees or agents provided that either party can show that those same
employees or agents had no access to the Confidential Information received
hereunder.
c) Press Releases. Lycos and Engage may jointly prepare press releases
--------------
concerning the existence of this Agreement and the terms hereof.
Otherwise, no public statements concerning the existence or terms of the
Agreement and shall be made or released to any medium except with the prior
approval of Lycos and Engage or as required by law.
10. Termination. Either party may terminate this Agreement if (a) the
-----------
other party files a petition for bankruptcy or is adjudicated
bankrupt; (b) a petition in bankruptcy is filed against the other
party and such petition is not dismissed within sixty (60) days of the
filing date; (c) the other party becomes insolvent or makes an
assignment for the benefit if its creditors pursuant to any bankruptcy
law; (d) a receiver is appointed for the other party or its business.
In addition, either party may terminate this Agreement (e) upon the
occurrence of a material breach by the other party if such breach is
not cured within thirty (30) days after written notice is received by
the breaching party identifying the matter constituting the material
breach; (f) by mutual consent of the parties; or (g) for failure by
either party to fulfill its obligations as set forth in Appendix A
Statement of Work.
11. Survivability. Lycos will continue to provide clickstream data to
-------------
Engage for a period extending six (6) months from the date of any
termination
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<PAGE>
of this Agreement. This Sec. 11 shall survive any termination of this
Agreement.
12. Relationship of Parties. Engage and Lycos are independent contractors
-----------------------
under this Agreement, and nothing herein shall be construed to create
a partnership, joint venture or agency relationship between Engage and
Lycos. Neither party has authority to enter into agreements of any
kind on behalf of the other.
13. Assignment, Binding Effect. Neither Lycos nor Engage may assign this
--------------------------
Agreement or any of its rights or delegate any of its duties under
this Agreement without the prior written consent of the other.
14. Choice of Law and Forum. This Agreement, its interpretation,
-----------------------
performance or any breach thereof, shall be construed in accordance
with, and all questions with respect thereto shall be determined by,
the laws of the Commonwealth of Massachusetts applicable to contracts
entered into and wholly to be performed within said state. Engage
hereby consents to the personal jurisdiction of the Commonwealth of
Massachusetts, acknowledges that venue is proper in any state or
Federal court in the Commonwealth of Massachusetts, agrees that any
action related to this Agreement must be brought in a state or Federal
court in the Commonwealth os Massachusetts, and waives any objection
Engage has or may have in the future with respect to any of the
foregoing.
15. Good Faith. The parties agree to act in good faith with respect to
----------
this Agreement and any dispute that may arise related hereto.
16. Additional Documents/Information. The parties agree to sign and/or
--------------------------------
provide such additional documents and/or information as may reasonably
be required to carry out the intent of this Agreement and to
effectuate its purposes.
17. Counterparts. This Agreement may be executed in multiple
------------
counterparts, each of which shall be deemed to be an original, but all
of which together shall constitute one and the same instrument.
18. Entire Agreement. This Agreement contains the entire understanding of
----------------
the parties hereto with respect to the transactions and matters
contemplated by hereby, supersedes all previous agreements between
Lycos and Engage concerning the subject matter, and cannot be amended
except by a writing signed by both parties. No party hereto has
relied on any statement, representation or promise of any other
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<PAGE>
party or with any other officer, agent, employee or attorney for the
other party in executing this Agreement except as expressly stated
herein.
19. Limitations of Liability.
------------------------
UNDER NO CIRCUMSTANCES SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR
INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR EXEMPLARY DAMAGES (EVEN IF THAT
PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES), ARISING FROM ANY
PROVISION OF THIS AGREEMENT (INCLUDING SUCH DAMAGES INCURRED BY THIRD PARTIES),
SUCH AS, BUT NOT LIMITED TO, LOSS OF REVENUE OR ANTICIPATED PROFITS OR LOST
BUSINESS. IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR DAMAGES IN EXCESS OF THE
AMOUNT RECEIVED BY THE OTHER PARTY UNDER THIS AGREEMENT, PROVIDED THAT THIS
SECTION DOES NOT LIMIT EITHER PARTY'S LIABILITY TO THE OTHER FOR (A) WILLFUL AND
MALICIOUS MISCONDUCT; (B) DIRECT DAMAGES TO REAL OR TANGIBLE PERSONAL PROPERTY;
(C) BODILY INJURY OR DEATH CAUSED BY NEGLIGENCE; OR (D) INDEMNIFICATION
OBLIGATIONS HEREUNDER.
IN WITNESS WHEREOF, the parties have duly executed and delivered this
Agreement as of the date set forth above.
ENGAGE TECHNOLOGIES, INC. LYCOS, INC.
By: /s/Paul Schaut By: /s/Edward M. Philip
---------------------- ----------------------------
Name: Paul Schaut Name: Edward M. Philip
-------------------- --------------------------
Title: CEO Title: COO
------------------- -------------------------
Date: 10/29/97 Date: 10/29/97
-------------------- --------------------------
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APPENDIX A
October 29, 1997
Lycos, Inc.
500 Old Connecticut Path
Framingham, MA 01701-4576
Attn: Edward M. Philip, CFO
Dear Ted:
Reference is made to the request by Lycos, Inc. ("Lycos") that Nestor
Interactive, Inc. ("Nestor") deliver and license a copy or copies of Nestor's
software program called InterSite (the "Nestor Software") to Engage
Technologies, Inc. (the "Licensee") and permit the Licensee to sublicense that
copy or copies to Lycos in conjunction with Licensee's license to Lycos of the
Engage Enterprise Suite (the "Subject Product").
Nestor is willing to so license and deliver the Nestor Software to Licensee
conditioned on and subject to Lycos' agreement to the following:
1. Lycos shall fully comply with all of the terms and conditions of the
license of the Subject Product between the Licensee and Lycos.
2. Lycos and Nestor shall jointly release a press release in the form attached
hereto, the timing of which shall be subject to both parties' reasonable
approval, but no later than December 1, 1997.
3. As long as Lycos uses the Nestor Software, Lycos shall:
(i) identify Nestor as Lycos's exclusive vendor of "neural network ad
targeting software";
(ii) maintain on Lycos's Web pages on which the Nestor Software
participates in ad selection or personalization, a GIF image (the
placements, compositions and sizes of which shall be similar to
those of the GIF images of other software providers on such Web
pages (if any) and shall in any event be subject to Nestor's advance
approval, which approval shall not be unreasonably withheld), which
shall be linked to such Web pages as Nestor reasonably may elect
from time to time;
(iii) allow and host such visits to its facilities by potential customers
for the Nestor Software as Nestor may reasonably request;
(iv) participate in such sales conference calls for the Nestor Software
as Nestor may reasonably request;
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(v) recommend the Nestor Software as its preferred solution to all
Lycos's customers (including without limitation Barnes and Noble,
Prodigy, Accipiter, Planet Direct, GTE Corporation, United Parcel
Service of America, Inc., and InfoSpace) and other third parties who
inquire; and
(vi) not in any way disparage the Nestor Software to any third party.
4. Personnel of Lycos reasonably acceptable to Nestor shall present the
keynote address at the 1998 InterSite User's Group meeting.
5. If Lycos at any time pays the Licensee a license fee for or in connection
with the Subject Product, the continued use of the Nestor Software by
Licensee shall be subject to such fee as Nestor and Lycos shall then agree
after good faith negotiation.
6. Nestor may immediately terminate the license of the Nestor Software to the
Licensee if (i) Lycos and Nestor, each acting in good faith, fail to agree
on the fees as provided in paragraph 5 of this letter agreement, (ii) if
Lycos fails to fully and timely perform any of its obligations under this
letter agreement.
7. Lycos will provide Nestor with 3,000,000 banner advertisements, on a run of
site and space available basis, over a three month period.
8. Nestor assumes no obligation or liability for, and Lycos will indemnify,
defend and hold Nestor harmless from, any expenses, damages, costs
(including reasonable attorneys' fees) or losses resulting from, arising
from or relating to (i) the breach by Lycos of any of its agreements or
duties contained in this letter agreement or (ii) the use by Lycos of the
Nestor Software.
9. Lycos will maintain the confidentiality of, and not disclose to any third
party (except the Licensee), the terms and conditions of this letter
agreement.
10. THE NESTOR SOFTWARE IS LICENSED TO THE LICENSEE AS-IS.
11. REGARDLESS OF WHETHER ANY REMEDY HEREIN FAILS OF ITS ESSENTIAL PURPOSE, IN
NO EVENT WILL NESTOR OR ANY THIRD PARTY SOFTWARE SUPPLIER BE LIABLE FOR ANY
INCIDENTAL, SPECIAL, EXEMPLARY, PUNITIVE, INDIRECT OR CONSEQUENTIAL DAMAGES
ARISING OUT OF OR RELATING IN ANY WAY TO THIS LETTER AGREEMENT. THE NESTOR
SOFTWARE OR THE USE OF THE SAME (INCLUDING, WITHOUT LIMITATION, DAMAGES FOR
LOST INFORMATION, LOST SAVINGS, LOST PROFITS OR BUSINESS INTERRUPTION),
EVEN IF NESTOR AND/OR THE THIRD-PARTY SOFTWARE SUPPLIERS HAVE BEEN
INFORMED, ARE AWARE, OR SHOULD BE OR HAVE BEEN AWARE, OF THE POSSIBILITY OF
SUCH
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<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
DAMAGES. THE SOLE REMEDY FOR ANY DISK OR OTHER MACHINE READABLE MATERIAL
SUPPLIED BY NESTOR WHICH IS PHYSICALLY DEFECTIVE SHALL BE REPLACEMENT OF
SUCH DISK OR MATERIAL. IN NO EVENT WILL NESTOR OR ANY THIRD-PARTY SOFTWARE
SUPPLIERS BE LIABLE IN DAMAGES OR OTHERWISE IN EXCESS OF[**].
12. This letter agreement has been entered into, delivered and is to be
governed by, construed, interpreted and enforced in accordance with the
laws of the State of New York (without giving reference to choice-of-law
provisions) from time to time in effect. The parties agree that the United
Nations Convention on Contracts for the International Sale of Goods shall
not apply to any of the transactions which are contemplated by this letter
agreement.
13. Any dispute arising out of or relating to this letter agreement, a breach
hereof, or Lycos' use of the Nestor Software, shall be settled by
arbitration before one neutral arbitrator (selected from a panel of
attorneys having experience with the knowledge of computers and the
computer business) in New York City and administered by the American
Arbitration Association in accordance with its Commercial Arbitration
Rules. Any provisional or equitable remedy which would be available from a
court of law shall be available from the arbitrator to the Parties. In any
such proceeding, limited civil discovery shall be permitted for the
production of documents, which shall be governed by the Federal Rules of
Civil Procedure (without reference to any local rules of a particular
court). All issues regarding discovery requests shall be decided by the
arbitrator. Judgment upon the award of the arbitrator may be enforced in
any court having jurisdiction with respect thereto. The parties hereby
consent to the non-exclusive jurisdiction of the courts of the State of New
York or to any Federal court located within the State of New York for any
action (i) to compel arbitration, (ii) to enforce the award of the
arbitrator or, (iii) at any time prior to the qualification and appointment
of the arbitrator, for temporary, interim or provisional equitable remedies
and to service of process in any such action by registered mail, return
receipt requested, or by any other means provided by law.
Yours very truly,
NESTOR INTERACTIVE, INC.
By: /s/ Christopher L. Scofield
--------------------------------
Name: Christopher L. Scofield
------------------------------
Title: VP - Nestor Interactive
-----------------------------
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<PAGE>
ACCEPTED AND AGREED TO AS
OF THE DATE OF THIS LETTER
LYCOS, INC.
By: /s/ Edward M. Philip
----------------------------
Name: Edward M. Philip
--------------------------
Title: COO
-------------------------
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<PAGE>
APPENDIX B
STATEMENT OF WORK
The integration of the system subject to the present agreement will include the
following tasks and responsibilities:
I. Installation of Engage Suite:
Sub-tasks:
[**]
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APPENDIX C
AGREEMENT
AGREEMENT (the "Agreement") made this __ day of _________, 19__, by and
between Nestor Interactive, Inc., a Delaware corporation, having a place of
business at One Richmond Square, Providence, RI 02906 ("Nestor"), and Engage
Technologies, Inc., a Delaware corporation having a place of business at 100
Brickstone Square, Andover, MA 01810 ("Licensee" and together with Nestor, the
"Parties" and each singularly a "Party").
Since Licensee wishes to acquire a non-exclusive limited license to copy
and sublicense copies of a product developed by Nestor called InterSite ("Nestor
Software") in connection with the license by Licensee of its product called the
Engage Enterprise Suit (the "Subject Product") described in the Schedule to this
Agreement (the "Schedule") to Lycos, Inc. (the "Sublicensee"), and in
consideration of the mutual promises and covenants herein contained, the Parties
agree as follows:
I. Grant of License.
----------------
A. Subject to the provisions of this Agreement, Nestor hereby grants to
Licensee, and Licensee accepts a personal, nontransferable and non-exclusive
license (the "License"), but only to deliver and sublicense to the Sublicensee
for its use with the Subject Product the copies of the Nestor Software
previously delivered to Licensee by Nestor. Licensee may not duplicate any of
the Nestor Software. All rights not expressly granted to Licensee are reserved
by Nestor.
B. The License includes the Nestor Software in object code only and does
not include source code ("source code" is a computer program or any part thereof
in human-readable form; "object code" is a computer program restricted in its
entirety to machine-executable instructions).
C. If and to the extent the Nestor Software includes Software belonging
to third-parties (the "Third-Party Software"), the License includes the right to
use such Third-Party Software in accordance with the terms and conditions of
this Agreement. Unless the context otherwise indicates to the contrary, as used
in this Agreement the term Nestor Software shall include such Third-party
Software.
II. Right to Sublicense.
-------------------
A. The Nestor Software may be sublicensed only for use with a Subject
Product. A sublicense of the Nestor Software (a "Sublicense") may not:
(1) entail or contemplate a transfer of any right, title or interest in
the Nestor Software,
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(2) be granted except in connection with a license of a Subject Product,
(3) be granted except for the internal use of the Nestor Software by the
Sublicensee or,
(4) allow the Sublicensee to re-sublicense,
B. The Sublicense shall also provide or contain:
(1) any terms and conditions contained in this Agreement that specifically
apply to the Sublicense,
(2) such terms and conditions as are necessary to effectuate the
provisions and/or limitations on use of paragraphs IB, VB, C and D, VI and VII,
(3) such terms and conditions as Nestor deems necessary or desirable to
ensure the Sublicensee's compliance with the terms and conditions of the letter
agreement (the "Letter Agreement") attached hereto in the Exhibit; and
(4) that Nestor at its election shall have the right to enforce and/or
enjoy the benefits of the provisions of the Sublicense relating to the Nestor
Software.
C. Licensee shall prior to use deliver to Nestor a copy of those
provisions of the Sublicense that pertain to the Nestor Software.
III. Audit
-----
Licensee will keep such records as will enable its compliance with the
terms and conditions of this Agreement to be accurately determined by Nestor.
Such records will be retained by Licensee and made available to Nestor for
examination at the request and at the expense of Nestor during reasonable
business hours at the offices of Licensee set forth in the preamble to this
Agreement for a period of at least five (5) years after the date of the
transaction to which the records relate.
IV. Indemnification. Nestor assumes no obligation or liability for, and
---------------
Licensee will indemnify, defend and hold Nestor harmless from any expenses,
damages, costs (including reasonable attorneys' fees) or losses resulting from,
arising or relating to (i) the breach by Licensee of any of its agreements,
warranties or duties contained in this Agreement or (ii) the use by Licensee of
the Nestor Software and/or the Subject Product or (iii) the use by the
Sublicensee of the Subject Product.
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
V. Warranties and Covenants.
------------------------
A. Each Party does hereby warrant that this Agreement has been duly and
validly authorized and executed by it and is its valid and binding obligation.
B. NESTOR SOFTWARE IS LICENSED AS IS NESTOR AND ALL THIRD-PARTY SOFTWARE
SUPPLIERS DO NOT WARRANT THAT THE NESTOR SOFTWARE AND THE TECHNOLOGY EMBODIED
THEREIN ARE CAPABLE OF INDUSTRIAL REALIZATION OR COMMERCIAL EXPLOITATION NESTOR
AND ANY THIRD PARTY SOFTWARE SUPPLIERS SHALL HAVE NO RESPONSIBILITY FOR THE
CONSEQUENCES OF ANY SUCH FAILURE OF INDUSTRIAL REALIZATION OR COMMERCIAL
EXPLOITATION. IT IS UNDERSTOOD THAT NESTOR AND ALL THIRD-PARTY SOFTWARE
SUPPLIERS ARE NOT MAKING AND EXPRESSLY DISCLAIM ANY REPRESENTATIONS OR
WARRANTIES THAT THE MANUFACTURE, USE, SUBLICENSING OR SALE OF THE SUBJECT
PRODUCT WILL NOT INFRINGE THE PATENTS, COPYRIGHTS, TRADEMARKS OR OTHER
PROPRIETARY PROPERTY RIGHTS OF ANY THIRD PARTY. NESTOR AND ALL THIRD-PARTY.
NESTOR AND ALL THIRD-PARTY SOFTWARE SUPPLIERS EXPRESSLY DISCLAIM, ANY AND ALL
WARRANTIES OR GUARANTEES OF ANY KIND WHATSOEVER, EITHER EXPRESS OR IMPLIED,
INCLUDING WITHOUT LIMITATION ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE.
C. REGARDLESS OF WHETHER ANY REMEDY HEREIN FAILS OF ITS ESSENTIAL
PURPOSE, IN NO EVENT WILL NESTOR OR ANY THIRD PARTY SOFTWARE SUPPLIER BE LIABLE
FOR ANY INCIDENTAL, SPECIAL, EXEMPLARY, PUNITIVE, INDIRECT OR CONSEQUENTIAL
DAMAGES, ARISING OUT OF OR RELATING IN ANY WAY TO THIS AGREEMENT, NESTOR
SOFTWARE OR THE USE OF THE SAME (INCLUDING, WITHOUT LIMITATION, DAMAGES FOR LOST
INFORMATION, LOST SAVINGS, LOST PROFITS OR BUSINESS INTERRUPTION), EVEN IF
NESTOR AND/OR THE THIRD-PARTY SOFTWARE SUPPLIERS HAVE BEEN INFORMED, ARE AWARE,
OR SHOULD BE OR HAVE BEEN AWARE, OF THE POSSIBILITY OF SUCH DAMAGES. THE SOLE
REMEDY FOR ANY DISK OR OTHER MACHINE READABLE MATERIAL SUPPLIED BY NESTOR WHICH
IS PHYSICALLY DEFECTIVE SHALL BE REPLACEMENT OF SUCH DISK OR MATERIAL. IN NO
EVENT WILL NESTOR OR ANY THIRD-PARTY SOFTWARE SUPPLIERS BE LIABLE IN DAMAGES OR
OTHERWISE IN EXCESS OF [**].
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D. Licensee further understands, agrees and/or warrants that:
(1) it does not intend to and will not use, market, sublicense,
disseminate or transfer in any way the Nestor Software in violation of any
applicable law, rule or regulation of the United States, or any State of the
United States or any foreign country of applicable jurisdiction (including
without limitation any United States law, rule or regulation relating to
technology export or transfer) and it will obtain at its own cost any required
export licenses;
(2) it will not accept any purchase order or contract (including without
limitation any United States or foreign government contract) that by its terms
or by the operation of law will abridge or otherwise diminish Nestor's rights in
and/or to the Nestor Software (and that all such orders or contracts with any
government or governmental agency will include "restricted" or "limited" rights
provisions or be on no less favorable terms to Nestor);
(3) it has all legal right and authority to conduct its activities as
contemplated by this Agreement, including but not limited to the production and
license of the Subject Product, which contain substantial valuable technology
belonging to Licensee;
(4) this Agreement is a license agreement only, not an agreement for the
sale of any Copy of the Nestor Software, and neither Licensee nor the
Sublicensee obtains any rights in or to the Nestor Software other than the
limited right to use it, and in the case of the Licensee, the limited right to
copy and sublicense, granted by the License and no right (except for such
limited right) to create derivative works from, rent, lease, assign or otherwise
use, sublicense, copy or transfer any Copy is granted, either expressly, by
implication or otherwise;
(5) it will not infringe the copyright or other proprietary rights in the
Nestor Software; it will take all steps necessary to fully enforce the
Sublicense against the Sublicensee and it and the Sublicensee are, to the
maximum extent permitted by law, prohibited by law, prohibited from modifying,
disassembling, decompiling, or "reverse engineering" any part of the Nestor
Software;
(6) it will take, and be solely responsible and liable for, all necessary
or desirable steps to adequately support and maintain the Subject Product;
provided, however, that the foregoing will not be deemed to make Licensee
responsible for support and maintenance of the Nestor Software;
(7) it will maintain the confidentiality of, and not disclose to any third
party (except the Sublicensee), the existence or terms and conditions of this
Agreement (including, without limitation, the Schedule and Exhibit);
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(8) it is solely responsible for warranting the Subject Products and
liable for any warranty (either express, implied or otherwise) claims therefor
and
(9) it is solely responsible for all expenses incurred by it in its
performance of its obligations under this Agreement which shall not include
expenses related to the installation or maintenance of the Nestor Software.
E. Nestor agrees to hold the Licensee harmless from any expenses and
obligations relating to the installation, training and support of the Nestor
Software. Licensee agrees to hold the Nestor harmless from any expenses and
obligations relating to the installation, training and support of the Subject
Product.
VI. Expiration or Termination
-------------------------
A. This Agreement and the Licensee shall commence on the date hereof and
continue until October 1, 1998 and shall thereafter renew automatically for
successive one (1) year periods unless either Party gives the other written
notice of cancellation at least thirty (30) days prior to the end of the initial
term or any subsequent yearly anniversary date. It shall immediately terminate:
(1) if Licensee or the Sublicensee liquidates, dissolves, shall be
adjudicated insolvent, files or has filed against it a petition in bankruptcy or
for reorganization, takes advantage of any insolvency act or proceeding,
including an assignment for the benefit of creditors, or commits any other act
of bankruptcy or
(2) if Nestor's right to license to Licensee any Third-Party Software
terminates or expires.
B. Either Party may terminate this Agreement and the License by written
notice to the other Party, if such other Party shall breach any provision of
this Agreement and such breach continues for at least thirty (30) days after
notice thereof, Nestor may terminate this Agreement and the License by written
notice to the Licensee, or if the Sublicensee shall breach any provision of the
Letter Agreement and such breach continues for at least thirty (30) days after
notice thereof to the Sublicensee and the Licensee.
C. Termination or expiration of this Agreement and the License shall not
release Licensee from any of its obligations or liabilities accrued or incurred
under this Agreement, or rescind or give rise to any right to rescind any
payment made or other consideration given hereunder. Upon termination or
expiration of this Agreement and the License, Licensee and the Sublicensee shall
cease all marketing and other activities under the License and shall (i) (at
Nestor's election) immediately deliver to Nestor or irretrievably destroy, or
cause to be so delivered or destroyed, any and all Copies of the Nestor Software
in whatever form and any written or other
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materials relating to the Nestor Software in Licensee's possession, custody or
control and (ii) within thirty (30) days deliver to Nestor a certification
thereof.
VII. Miscellaneous
-------------
A. Licensee shall not use or make reference to Nestor's patent rights,
copyrights, trademarks, service marks and/or trade names without the advance
written permission of Nestor.
B. Neither this Agreement, the License or other interest hereunder shall
be assignable by Licensee. Subject to the foregoing, this Agreement shall be
for to the benefit of and be binding upon the Parties' successors.
C. The headings and captions used in this Agreement are for convenience
only and are not to be used in the interpretation of this Agreement.
D. The failure of either Party to require performance of any provision of
this Agreement shall not affect the right to subsequently require the
performance of such or any other provision of this Agreement. The waiver of
either Party of a breach of any provision shall not be taken or held to be a
waiver of any subsequent breach of that provision or any subsequent breach of
any other provision of this Agreement.
E. The Parties are independent contractors and engage in the operation of
their own respective businesses. Neither Party is the agent or employee of the
other Party for any purpose whatsoever. Nothing in this Agreement shall be
construed to establish a relationship of co-partners or joint venturers between
the two Parties. Neither Party has the authority to enter into any contracts or
assume any obligations for the other Party or to make any warranties or
representations on behalf of the other Party.
F. If any provision of this Agreement is, or is determined to be,
invalid, illegal or unenforceable, all remaining provisions of this Agreement
shall nevertheless remain in full force and effect, and no provision of this
Agreement shall be deemed to be dependent upon any provision so determined to be
invalid, illegal or unenforceable unless otherwise expressly provided for
herein. Should any provision of this Agreement be found or held to be invalid,
illegal or unenforceable, in whole or in part, such provision shall be deemed
amended to render it enforceable in accordance with the spirit and intent of
this Agreement.
G. This Agreement has been entered into, delivered and is to be governed
by, construed, interpreted and enforced in accordance with the laws of the State
of New York (without giving reference to choice-of-law provisions) from time to
time in effect. The Parties agree that the United Nations Convention on
Contracts for the
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International Sale of Goods shall not apply to any of the transactions which are
contemplated by this Agreement.
H. Any dispute arising out of or relating to this Agreement, the License,
a breach thereof or Licensee's or Sublicensee's use of the Nestor Software shall
be settled by arbitration before one neutral arbitrators (selected from a panel
of attorney's having experience with and knowledge of computers and the computer
business) in New York City and administered by the American Arbitration
Association in accordance with its Commercial Arbitration Rules. Any
provisional or equitable remedy which would be available from a court of law
shall be available from the arbitrators to the Parties. In any such proceeding
limited civil discovery shall be permitted for the production of documents,
which shall be governed by the Federal Rules of Civil Procedure (without
reference to any local rules of a particular court). All issues regarding
discovery requests shall be decided by the arbitrator. Judgment upon the award
of the arbitrator may be enforced in any court having jurisdiction thereof. The
Parties hereby consent to the non-exclusive jurisdiction of the courts of the
State of New York or to any Federal Court located within the State of New York
for any action (i) to compel arbitration, (ii) to enforce the award of the
arbitrator or (iii) at any time prior to the qualification and appointment of
the arbitrator, for temporary, interim or provisional equitable remedies and to
service of process in any such action by registered mail, return receipt
requested, or by any other means provided by law.
I. This Agreement contains the entire and exclusive agreement of the
Parties with respect to its subject matter. This Agreement supersedes any
agreements and understandings, whether written or oral, entered into by the
Parties prior to its effective date and relating to its subject matter. No
modification or amendment of this Agreement shall be effective unless it is
stated in writing, specifically refers hereto and is executed on behalf of each
Party.
J. Except as otherwise specified, all notices, payments, certificates and
reports hereunder shall be deemed given and in effect as of the date of mailing,
when sent by express mail (or other overnight delivery service), postage
prepaid, addressed to the Parties as set forth in the preamble to this Agreement
directed in each case to the President of the Party receiving the notice or to
such other addresses as the Parties may from time to time given written notice.
K. Except for failures to make any payment when due, neither Party hereto
shall be liable to the other for failure or delay in meeting any obligations
hereunder as the result of strikes, lockouts, war, Acts of God, fire, flood or
acts of government, if beyond the control of such Party.
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IN WITNESS WHEREOF, the Parties hereto have set their hands and seals by
their duly authorized representatives as of the day and year first above
written.
LICENSEE NESTOR INTERACTIVE, INC.
By:________________________ By:_____________________________
Title: Title:
[Seal] [Seal]
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APPENDIX D
SOFTWARE LICENSE AGREEMENT
This agreement ("Agreement") is made effective the 31st day of October, 1997
("Effective Date") between Engage Technologies, Inc., with its principal offices
at 100 Brickstone Square, Andover, Massachusetts 01801 ("ENGAGE") and Lycos,
Inc., with a principal place of business at 500 Old Connecticut Path,
Framingham, MA 01701-4576 ("LYCOS").
1. SCOPE OF AGREEMENT
This Agreement sets forth the terms and conditions governing ENGAGE's delivery
to LYCOS of the various ENGAGE Products and Services as described in the
Schedule listed below or otherwise expressly made part hereof:
Schedule A: Software Product List and License Fees
2. DEFINITIONS
2.1 "Documentation" means ENGAGE information provided to LYCOS in writing or
fixed on other tangible form, including, but not limited to, manuals, lists,
schematics, drawings and marketing, development, maintenance, pricing and/or
product information.
2.2 "Domain Name(s)" means the name or names used by LYCOS for purposes of
company identification on the Internet or intranets.
2.3 "Enterprise Server" means a computer server used by LYCOS to collect or
combine information from one or more Local Servers.
2.4 "Local Server" means a computer server used by LYCOS to host one or more
Domain Names.
2.5 "Product" and "Services" means any ENGAGE Software, ENGAGE Documentation
and other materials or support services which are generally available from
ENGAGE or are expressly classified as ENGAGE Products and Services herein which
will be furnished by ENGAGE as set forth in Schedule(s) attached hereto.
2.6 "Schedule" means the document(s) incorporated by reference herein which
describe the ENGAGE Products and Services which are to be furnished to LYCOS as
part of this Software License Agreement.
2.7 "Software" means any computer programs in object code provided to LYCOS by
ENGAGE and/or computer programs in which ENGAGE and its Licensors own
proprietary rights, including any and all programs generated by the Software, or
any
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modifications, enhancements, compilations, releases or updates which are
licensed to ENGAGE by a third party and any related materials, including but not
limited to ENGAGE Documentation relating thereto, as well as any subsequent
revisions, iterations or updates provided to LYCOS by ENGAGE at ENGAGE's option.
3. GRANT OF LICENSE
3.1 Subject to the terms and conditions of this Agreement and payment of the
applicable license fees set forth in Schedule A: Software Product List and
License Fees attached, ENGAGE hereby grants to LYCOS a personal, non-
transferable (except for temporary transfer in the event of CPU malfunction),
object code only, non-exclusive license to install and operate the ENGAGE
Software and Documentation solely for the LYCOS's own internal use and only on
one (1) computer central processing unit (CPU) located on one (1) Enterprise
Server and one (1) Local Server and in association with one (1) Domain Name, and
install and operate on additional Local Server CPU's and in association with
additional Domain Names only in the event LYCOS purchases additional Local
Server or Domain Name licenses as indicated in Schedule A or any Schedule
subsequently attached to and made a part of this Agreement. LYCOS's use of
Engage.Fusion shall be limited to the single designated CPU and single
authorized user basis, or multiple CPU's and multiple users, as indicated in
Schedule A or any Schedule subsequently attached to and made part of this
Agreement, whereby the total number of CPUs and users may not exceed the number
of authorized simultaneous CPU's and users for which Engage.Fusion license has
been granted.
3.2 LYCOS shall not copy or permit any party to copy ENGAGE Software and
Documentation, except to make a single copy solely for backup or archival
purposes as necessary, but only with the inclusion of ENGAGE's and its
licensors' restrictive rights, copyrights, trademarks and proprietary notices.
3.3 LYCOS shall not sublicense, disclose, disseminate, assign, timeshare or
rent the Software in any manner or otherwise make ENGAGE Software available to
any third party. LYCOS shall not, nor allow third parties to, modify,
decompile, dissassemble or otherwise reverse engineer ENGAGE Software. The
Software may be installed on computers located solely on the premises of the
LYCOS within the United States of America. Use of the software for any purpose
outside the stated scope of the software is prohibited.
3.4 Any modifications to the Software shall be considered derivative works
owned by ENGAGE and/or its licensors which are licensed to LYCOS as Software
under this Agreement.
3.5 Title, ownership, and all other rights in patents, copyrights, and trade
secrets in the Software, including any and all programs generated by the
Software, the
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Documentation, and any copy, portion, or modification thereof, including all
Derivative Works, shall remain in ENGAGE and/or its licensors and shall not
transfer to LYCOS.
3.6 ENGAGE's licensors as well as Red Brick Systems, Inc. and its licensors
remain third party beneficiaries to this Agreement.
3.7 This license is effective from the Effective Date and shall remain in
effect until it is terminated as per Section 11.
4. ENGAGE'S PERSONNEL POLICIES
4.1 ENGAGE reserves the right to determine the assignment of ENGAGE personnel
for performance of this Agreement, replace or reassign such personnel, or
subcontract with qualified third persons for part or all of the services
required under any Schedule attached to this Agreement. No person performing
services on behalf of ENGAGE hereunder shall be restricted or prevented from
performing services for others that are similar to the services provided under
this Agreement.
4.2 If services will be performed on LYCOS's premises, ENGAGE personnel will
conform to LYCOS's reasonable work hours and security procedures.
5. RISK OF LOSS
5.1 Risk of loss for all ENGAGE Products shall pass to LYCOS upon shipment by
ENGAGE as herein provided. Unless otherwise provided in attached Schedule(s),
all ENGAGE Products shall be shipped F.O.B. origin and LYCOS is responsible for
all shipping and insurance costs. ENGAGE Products shall be deemed to be
accepted on date of delivery.
6. FEES AND PAYMENTS
6.1 The fees and payments are set forth in the Schedule A: Software Product
List and License Fees and any other Schedules subsequently attached to this
Agreement and exclude all costs of handling, transportation and insurance.
LYCOS agrees to pay amounts equal to any taxes, including state and local use,
sales, property, ad valorem and similar taxes resulting from this Agreement or
any activities under this Agreement except for taxes based on ENGAGE's net
income. All invoices are payable thirty (30) calendar days after the date of
invoice. A finance charge shall be made on all past due invoiced balances at
the rate of 1.5% per month or at the maximum rate permitted by law.
6.2 Deleted.
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7. OWNERSHIP OF INTELLECTUAL PROPERTY
7.1 All patent, copyright, trade secrets and other intellectual property or
proprietary rights in ENGAGE Products or any parts or copies thereof, and title
to and ownership of ENGAGE Products and Documentation shall not transfer to
LYCOS but shall remain in ENGAGE and/or its licensors. ENGAGE Products are
confidential and proprietary to ENGAGE and its licensors and LYCOS shall observe
the proprietary nature thereof. LYCOS shall not disclose, provide or otherwise
make available such ENGAGE Products or any parts or copies to any third party
without the prior express written permission of ENGAGE. LYCOS shall take action
by instruction or agreement with its employees who are permitted access to such
ENGAGE Products, to protect the confidentiality thereof. LYCOS shall keep such
ENGAGE Products secure, and prevent unauthorized access, copying or use thereof.
LYCOS agrees to notify ENGAGE immediately of any unauthorized possession or use
of such ENGAGE Products by any person or entity.
8. PATENT AND COPYRIGHT INDEMNITY
8.1 ENGAGE shall defend any action, suit or proceeding brought against LYCOS
which alleges that any ENGAGE Product infringes any U.S. patent or U.S.
copyright and ENGAGE shall pay LYCOS's reasonable legal costs and damages
awarded against LYCOS provided that LYCOS promptly notifies ENGAGE of the action
and gives ENGAGE the opportunity, full authority, information and assistance for
the defense of the action, but ENGAGE shall not be responsible for any legal
costs incurred or settlement made without its consent. ENGAGE may, at its sole
option and at its expense either: (i) replace or modify the ENGAGE Product so
that infringement will not exist; (ii) remove the ENGAGE Product involved and
refund LYCOS a portion of the price thereof as depreciated over a two (2) year
life of the Software commencing upon the date of delivery; or (iii) obtain for
LYCOS the right to continue using the ENGAGE Product. ENGAGE disclaims all
other liability for copyright, patent or other infringement, including any
incidental or consequential damages. ENGAGE shall have no liability for any
infringement or claim thereof based upon: (i) the combination of ENGAGE
Products with products not produced by ENGAGE, or (ii) modification or
alteration of ENGAGE Products by third parties.
8.2 Any provision of this Agreement to the contrary notwithstanding, ENGAGE
shall have no liability to LYCOS for any patent, copyright or other intellectual
property infringement for any Product not produced by ENGAGE, whether alone or
in combination with ENGAGE Products. Any vendor obligations regarding patent or
copyright infringement for non-ENGAGE Products, if any, will be set forth in the
applicable vendor agreement.
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9. LIMITED WARRANTY
9.1 ENGAGE warrants (i) each ENGAGE Product that is Software which is operated
on ENGAGE approved hardware and software will substantially conform, for a
period of ninety (90) days from shipment, to ENGAGE's specifications for
software and hardware requirements prevailing at time of shipment. Receipt by
ENGAGE of a written claim under this warranty, and return of such Software must
occur within such period as a condition of this warranty. ENGAGE does not
warrant that such Software will be error free or that all errors will be
remedied. ENGAGE's entire liability and LYCOS's exclusive remedy under this
warranty shall be for ENGAGE to make commercially reasonable efforts to remedy,
in a manner deemed suitable to ENGAGE, any nonconformance reported in writing
within the warranty period; and (ii) each ENGAGE Product that is classified as a
Service will be performed in a workmanlike manner in accordance with reasonable
commercial standards.
9.2 THE WARRANTIES STATED IN THIS SECTION AND THE REMEDIES SET FORTH HEREIN
ARE EXCLUSIVE AND IN LIEU OF ALL OTHERS, ORAL OR WRITTEN, EXPRESS, IMPLIED OR
STATUTORY, RESPECTING THIS AGREEMENT AND THE ENGAGE PRODUCTS AND SERVICES
PROVIDED HEREUNDER. EXCEPT AS PROVIDED HEREIN ENGAGE AND IT'S LICENSORS MAKE NO
REPRESENTATIONS, WARRANTIES OR INDEMNIFICATION, WHETHER EXPRESS, IMPLIED OR
STATUTORY, INCLUDING BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OR
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND NON-INFRINGEMENT
RESPECTING THIS AGREEMENT OR THE ENGAGE PRODUCTS OR SERVICES PROVIDED HEREUNDER.
IN NO EVENT SHALL ENGAGE'S LIABILITY EXCEED THE TOTAL CHARGES PAID OR PAYABLE
WITH RESPECT TO THE ENGAGE PRODUCTS OR SERVICES INVOLVED IN THE DAMAGE.
9.3 THE NESTOR SOFTWARE IS BEING LICENSED BY ENGAGE TO LICENSEE UNDER THIS
AGREEMENT AS-IS. ENGAGE, NESTOR AND ALL THIRD-PARTY SOFTWARE SUPPLIERS DO NOT
WARRANT THAT THE NESTOR SOFTWARE AND THE TECHNOLOGY EMBODIED THEREIN ARE CAPABLE
OF INDUSTRIAL REALIZATION OR COMMERCIAL EXPLOITATION. ENGAGE, NESTOR AND ANY
THIRD-PARTY SOFTWARE SUPPLIERS SHALL HAVE NO RESPONSIBILITY FOR THE CONSEQUENCES
OF ANY SUCH FAILURE OF INDUSTRIAL REALIZATION OR COMMERCIAL EXPLOITATION.
10. LIMITATION OF LIABILITY AND REMEDIES
10.1 ENGAGE'S LIABILITY FOR DAMAGES FOR ANY CAUSE WHATSOEVER REGARDLESS OF THE
FORM OF ACTION, WHETHER IN CONTRACT OR TORT, INCLUDING NEGLIGENCE, PATENT,
COPYRIGHT OR OTHER INTELLECTUAL PROPERTY INFRINGEMENT, SHALL BE LIMITED TO THE
TOTAL AMOUNT PAID
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
TO ENGAGE UNDER THIS AGREEMENT. LYCOS RECOGNIZES THAT THE FEES HEREUNDER ARE
BASED IN PART ON THE LIMITED WARRANTY AND LIMITATION OF LIABILITY AND REMEDIES
SET FORTH ABOVE.
10.2 IN NO EVENT WILL ENGAGE OR ITS LICENSORS BE LIABLE FOR ANY (a) DAMAGES
CAUSED BY LYCOS'S FAILURE TO PERFORM LYCOS' OBLIGATIONS, (b) DIRECT, INCIDENTAL,
SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES, INCLUDING, BUT NOT LIMITED TO, LOST
PROFITS, LOST SAVINGS OR LOST DATA, EVEN IF ENGAGE HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES, (c) CLAIM AGAINST LYCOS BY ANY THIRD PARTY EXCEPT
AS PROVIDED IN SECTION 8.1 PATENT AND COPYRIGHT INDEMNITY (d) CLAIM, WHETHER IN
CONTRACT OR TORT, THAT AROSE MORE THAN ONE (1) YEAR PRIOR TO INSTITUTION OF SUIT
THEREON, OR (e) DAMAGES, INCLUDING PRODUCT LIABILITY DAMAGES, CAUSED BY ANY NON-
ENGAGE PRODUCT.
10.3 IN NO EVENT WILL ENGAGE, NESTOR OR ANY THIRD-PARTY SOFTWARE SUPPLIER BE
LIABLE IN DAMAGES OR OTHERWISE IN EXCESS OF [**] WITH REGARD TO THE NESTOR
SOFTWARE.
11. TERM AND TERMINATION
11.1 Deleted.
11.2 LYCOS's license to use ENGAGE Products shall terminate upon LYCOS's
failure to cure any breach of this Agreement within thirty (30) days of receipt
of notice from ENGAGE of such breach
11.3 Section 11.1 notwithstanding, and except as permitted by this Agreement,
the Software License provided hereunder shall automatically terminate if LYCOS
copies, decompiles, disassembles, reverse engineers, provides, attempts to
provide, or makes available the Software to any third party.
11.4 Upon any termination, LYCOS shall cease use of all such ENGAGE Products
and immediately either return or destroy all copies and all other proprietary
materials, including Confidential Information (as defined in Section 12.1) and
certify in writing as to such destruction or return.
11.5 Sections of this Agreement which by their nature are meant to survive any
termination thereof, including sections 2, 3, 7, 9, 10, 12, and 13, together
with LYCOS's obligation to pay outstanding amounts due ENGAGE, shall survive the
expiration or
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termination of this Agreement. Such provisions shall apply to each party's
successors and assigns.
12. CONFIDENTIAL INFORMATION
12.1 All information submitted by either LYCOS or ENGAGE to the other in
connection with this Agreement and expressly identified in writing thereon as
confidential or proprietary, including without limitation, ENGAGE Products and
Services and LYCOS information, product and marketing information (collectively
"Confidential Information"), shall be safeguarded by the recipient to the same
extent recipient safeguards its own proprietary or confidential information and
in any event with not less than a reasonable degree of protection. However,
neither party is responsible for safeguarding information which is publicly
available, or in its possession prior to this Agreement or obtained by it from
third parties without restriction on disclosure, or developed without reference
to the confidential or proprietary information hereby disclosed.
12.2 LYCOS agrees to treat the results of its evaluation and bench mark testing
of the Software and any of LYCOS's suggestions for modifications or enhancements
(collectively "Results") as Confidential Information. LYCOS shall grant no
interviews or make public statements or presentations, either written or verbal,
regarding the Results without the prior written permission of ENGAGE.
13. GENERAL
13.1 LYCOS acknowledges that the export of any ENGAGE Products is or may be
subject to export or import control and LYCOS agrees that any such items or the
direct or indirect product thereof will not be exported (or re-exported from a
country of installation) directly or indirectly, unless LYCOS obtains all
necessary licenses from the U.S. Department of Commerce or other agency as
required by law.
13.2 LYCOS may not sublicense, assign or otherwise transfer any license or any
right, duty or obligation under this Agreement without ENGAGE's prior written
consent.
13.3 Failure or delay by either party to exercise any right or remedy under
this Agreement shall not constitute a waiver of such right or remedy.
13.4 This Agreement, including any attached Schedules, constitutes the entire
agreement between the parties with respect to the subject matter hereof.
Different or additional terms contained in purchase orders, other documents
supplied by LYCOS, and all other communications, both oral and written, between
the parties relating thereto, shall not apply. This Agreement may only be
modified by a mutually agreed signed amendment executed by duly authorized
representatives of the parties and attached hereto.
-32-
<PAGE>
13.5 If any provision or portion of this Agreement or attached Schedule is
held to be unenforceable or invalid, the remaining provisions and portions
thereof shall nevertheless be given full force and effect, and the parties agree
to negotiate, in good faith, a substitute valid provision which most nearly
effects the parties' intent in entering this Agreement or attached Schedule.
13.6 Neither party will be deemed in default of any obligation hereunder nor
be liable for any failure or delay in performance which results directly or
indirectly from any cause beyond its reasonable control, including without
limitation, "Acts of God", acts of civil or military authority, strikes, fire,
theft, delays by suppliers, or action or inaction by the other party or any
third party.
13.7 Nothing in this Agreement shall be construed to imply a joint venture,
partnership or agency relationship between the parties and ENGAGE shall be
considered an independent contractor when performing any Services under this
Agreement.
13.8 Any written notice required to be provided pursuant to this Agreement
shall be deemed given (a) if by hand delivery, upon receipt hereof; (b) if
mailed, three (3) days after deposit in the U.S. mails, postage prepaid,
certified mail, return receipt requested. All notices shall be addressed to the
parties at the respective addresses indicated herein.
13.9 The ENGAGE Software and Product are a "commercial item," as that term is
defined in 48 C.F.R. 2.101, consisting of "commercial computer software" and
"commercial computer software documentation," as such terms are used in 48
C.F.R. 12.212. The ENGAGE Software and Product are also "commercial computer
software" as defined in 48 C.F.R. 252.227-7014(a)(1). Consistent with 48 C.F.R.
12.212 and 48 C.F.R. 227.7202-1 through 227.7202-4, all U.S. Government entities
shall have only those rights, and shall be subject to all restrictions, set
forth in this Agreement. Use, duplication, or disclosure by the U.S. Government
is subject to the restrictions set forth in subparagraph (c) of the Commercial
Computer Software-Restricted Rights clause of FAR 52.227-19.
13.10 The laws of the Commonwealth of Massachusetts shall govern this
Agreement, excluding its choice of laws provisions. The U.N. Convention on the
International Sale of Goods shall not apply to this Agreement. LYCOS waives all
objections to personal jurisdiction and venue being in the appropriate federal,
state and local courts in the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized representatives.
-33-
<PAGE>
ENGAGE TECHNOLOGIES, INC. LYCOS
/s/ Andrew J. Hajducky /s/ Edward M. Philip
- ---------------------------------- -----------------------------------
Signature Signature
Andrew J. Hajducky Edward M. Philip
- ---------------------------------- -----------------------------------
Name Name
Treasurer COO
- ---------------------------------- -----------------------------------
Title Title
-34-
<PAGE>
Schedule A:
Product List and License Fees
No. of Copies Location(s)
Engage.Discovery(TM) 1 Lycos, Inc.
500 Old Connecticut Path
Framingham, MA 01701
Engage.Journal(TM) 1 Lycos, Inc.
One Oxford Center
301 Grant St. Suite 525
Pittsburgh, PA 15219
Engage.Link(TM) 1 Lycos, Inc.
One Oxford Center
301 Grant St. Suite 525
Pittsburgh, PA 15219
Engage.Portrait(TM) 1 Lycos, Inc.
One Oxford Center
301 Grant St. Suite 525
Pittsburgh, PA 15219
InterSite(TM)* 1 Lycos, Inc.
One Oxford Center
301 Grant St. Suite 525
Pittsburgh, PA 15219
Hereinafter these Engage Technologies products are also referred to as the
Engage Suite as the term is used in the Service and License Agreement ("Service
and License Agreement") between Lycos, Inc. and Engage Technologies Inc. dated
as of October 29, 1997, which sets forth the mutually agreed consideration upon
which this Engage Technologies Software License with Lycos, Inc. is based. The
Engage Technology Software licensed hereunder may only be used in conjunction
with Lycos Inc.'s performance of the Service and License Agreement. Any usage
beyond the scope of the Service and License Agreement is prohibited unless
agreed to in writing by Engage Technology and such permission shall not be
unreasonably withheld.
-35-
<PAGE>
*InterSite software is supplied to LYCOS subject to the attached Schedule B:
Additional Terms and Conditions in the software license between Nestor
Interactive, Inc. and Engage Technologies, Inc.
-36-
<PAGE>
Schedule A:
Product List and License Fees
No. of Copies Location(s)
Engage.Discover(TM) 1 To Be Determined
Engage.Journal(TM) 1 T.B.D.
Engage.Link(TM) 1 T.B.D.
Engage.Portrait(TM) 1 T.B.D.
InterSite(TM)* 1 T.B.D.
Hereinafter these Engage Technologies products are also referred to as the
Engage Suite as the term is used in the Service and License Agreement ("Service
and License Agreement") between Lycos, Inc. and Engage Technologies Inc. dated
as of September __, 1997, which sets forth the mutually agreed consideration
upon which this Engage Technologies Software License with Lycos, Inc. is based.
The Engage Technology Software licensed hereunder may only be used in
conjunction with Lycos Inc.'s performance of the Service and License Agreement.
Any usage beyond the scope of the Service and License Agreement is prohibited
unless agreed to in writing by Engage Technology and such permission shall not
be unreasonably withheld.
*InterSite software is supplied to LYCOS subject to the attached Schedule B:
Additional Terms and Conditions.
-37-
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
APPENDIX F
PRICING
1. Engage Software suite
[**] (and subject to Engage Software License Agreement terms and
conditions).
2. Hosting Services
Engage will provide the functionality described in Section 2 of the
Agreement according to the following pricing schedule:
2.1 Online Storage
Up to [**]/month:
[**] per month
2.2 Processing
Up to [**]
Per day, requiring [**] of processing per Day at [**] per processing
hour:
[**] per month
2.3 Staffing
One staff dedicated to Lycos interface at [**] /month:
[**] per month
Total minimum monthly charge: [**] per month
3. Integration
One-time system integration charge: [**]
4. Price Review
Engage and Lycos will meet at three month intervals from the date of
signature of the present contract to review hosting charges based on
Engage's costs and Lycos' volume ramp-up.
5. Terms
Net 30 days.
-38-
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
Exhibit 10.13
-------------
SALES AND MARKETING AGREEMENT
This Agreement is made and entered into effective as of September 5, 1995,
("Effective Date") by and between Internet Profiles Corporation, a California
corporation ("I/PRO"), with its principal place of business at 785 Market
Street, 13th Floor, San Francisco, CA 94103, and the Nielsen Media Research
division ("Nielsen") of A.C. Nielsen Company, a Delaware corporation, with
offices at 299 Park Avenue, New York, New York 10171-0074 (collectively I/PRO
and Nielsen are referred to as the "Parties" and individually as a "Party").
A. I/PRO has developed and distributes certain software products and
related services for the measurement of Internet usage.
B. I/PRO and Nielsen desire to enter into a strategic partnership for the
sale and marketing of existing Internet usage measurement and analysis products
and services developed by I/PRO.
C. The parties desire to set forth the terms and conditions under which
I/PRO and Nielsen will engage in the marketing of certain of I/PRO's Internet
usage measurement and analysis products and services;
D. I/PRO and Nielsen desire to establish a framework under which they may
implement future joint development and/or marketing agreements covering Internet
measurement products and services.
In consideration of the foregoing and the agreements contained herein, the
parties agree as follows:
1. Definitions.
------------
(a) "Confidential Information" shall mean all information provided by one
Party to the other which is marked to be confidential or verbally
indicated to be such prior to an oral/visual presentation (or, in the
case of information which is designated in writing to be confidential
subsequent to such presentation by a Party, such information shall
from the time of receipt by the other of such designation be
Confidential Information), including without limitation technical
information not included in user documentation related to the
Products, customer lists, marketing plans, financial information and
the terms of this Agreement.
<PAGE>
(b) "End Customer" shall mean a person or entity that acquires the right
to use the Products for the person or entity's own personal or
internal business use, rather than for distribution or other transfer.
(c) "Future Products" shall mean products and services for the measurement
and analysis of Internet usage that may be developed in the future by
either Party, including but not limited to the product and related
services currently offered by I/PRO under the name "I/CODE."
(d) "I/PRO Proprietary Rights" shall mean all rights held by I/PRO in the
Products and its Confidential Information, including, without
limitation, patents, copyrights, authors' rights, trademarks,
tradenames, know-how and trade secrets, irrespective of whether such
rights arise under U.S. or international intellectual property, unfair
competition, trade secret or other laws.
(e) "Nielsen Proprietary Rights" shall mean all rights held by Nielsen in
its Confidential Information, including, without limitation, patents,
copyrights, authors' rights, trademarks, tradenames, know-how and
trade secrets, irrespective of whether such rights arise under U.S. or
international intellectual property, unfair competition, trade secret
or other laws.
(f) "Products" shall mean I/PRO's computer software products (and related
reporting services, technical maintenance and support) known as
I/COUNT and I/AUDIT (in each case as described on Exhibit A),
---------
including the accompanying user documentation, and any current and
future revisions and releases thereof, including all modifications,
upgrades and improvements made to the Products during the term of this
Agreement.
(e) "Product Development" shall mean the periodic refinement, enhancement
and development of new features and functionalities for the Products.
(g) "Reseller" shall mean a person (other than I/PRO or Nielsen) who
acquires the right to distribute the Products.
(h) "Technical Support" shall mean customer support services provided in
accordance with I/PRO's technical support policies then in effect and
as modified from time to time.
-2-
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
2. Co-Branding of Products.
------------------------
(a) Exclusive Tradenames for Products. The Parties agree that during the
-----------------------------------
term of this Agreement, the Products will be marketed by I/PRO,
Nielsen and any Reseller only under the tradenames "Nielsen-I/PRO
I/COUNT" and "Nielsen-I/PRO I/AUDIT", without regard to the sales
channel employed.
(b) Co-Branding of Future Products. To the extent either Party intends to
-------------------------------
commercially introduce any Future Product during the term of this
Agreement, [**] the Parties. [**]. Notwithstanding the foregoing,
neither party will have an obligation under this Agreement to develop
any such Future Products, and Nielsen will have no obligation under
this Agreement to sell and/or market any Future Products, absent an
amendment of this Agreement or a new agreement regarding such Future
Products.
3. Sales and Distribution Rights; License Agreements.
--------------------------------------------------
(a) Grant of Marketing Rights. Subject to the terms and conditions of
-------------------------
this Agreement, I/PRO grants to Nielsen a world-wide non-exclusive,
non-transferable (except as set forth in Section 16(a) hereto) license
to market the Products and Services to End Customers and to Resellers
of the Products and Services. Promptly following notice from Nielsen
of a completed Product sale by Nielsen, Nielsen will enter into a
license agreement with the End Customer or Reseller and I/PRO will
implement the Product in accordance with I/PRO's installation
procedures.
(b) License Agreements. Distribution of the Product to End Customers or
-------------------
Resellers shall be made only pursuant to a license agreement executed
and delivered by the Party (either I/PRO or Nielsen, as the case may
be), which shall be in such form as the Parties may adopt from time to
time. Except as expressly provided herein, Nielsen shall have no
independent right to bind I/PRO to any agreement or to reproduce,
license or distribute the Products. Nielsen will be provided with the
opportunity to review the forms of agreements to be used with End
Customers and Resellers, and may provide I/PRO with suggested
modifications. I/PRO will promptly evaluate and, when appropriate,
incorporate such suggestions into I/PRO's form agreements. The Parties
will review the forms of agreement to be used with End customers and
-3-
<PAGE>
Resellers and will attempt to establish mutually acceptable forms of
agreement to be used for such purposes. In the event the Parties are
unable to agree, each Party shall be entitled to use its preferred
form of agreement, provided that the terms of such agreement shall not
impose any material obligation on the other Party not otherwise
imposed upon that Party herein, or materially disadvantage or
otherwise damage the legitimate business interests of the other Party.
(c) No Restrictions on End Customer Sales. Each Party may market the
--------------------------------------
Products to any End Customer, even if such End User is or could be
deemed to be a competitor of Nielsen or I/PRO.
(d) Notice of I/PRO Resellers. I/PRO shall provide Nielsen with prompt
--------------------------
notice of the identity of all of I/PRO's End customers and Resellers
for the Products, and all sales by I/PRO of the Products shall be
subject to the terms and conditions of this Agreement. If Nielsen has
objections to any standards and quality levels then practiced by
Nielsen), Nielsen will document such objections to I/PRO, so that a
joint decision can be taken on whether the relationship with the
objectionable Reseller should be continued. If I/PRO chooses to
continue its relationship with such Reseller, I/PRO will provide
Nielsen with a list of End Customers served by the objectionable
Reseller, and Nielsen will be permitted to notify those customers that
it is not supporting product sold by that Reseller. In addition,
I/PRO shall remove Nielsen's name or logo from Products licensed to
such objectionable Reseller by I/PRO.
4. Joint Sales and Marketing.
--------------------------
(a) Concerted Efforts. Each Party agrees to use its reasonable efforts to
------------------
sell the Products through all distribution channels that they may deem
appropriate including, in the case of Nielsen, through all reasonable
efforts of existing sales organizations within Nielsen Media Research.
The parties currently anticipate that Nielsen will focus on direct
sales to End Customers, while I/PRO will focus on indirect sales
thorough Resellers; provided that each Party may employ either
indirect or direct sales strategies in such Party's discretion, and it
is expressly understood and agreed between the parties that nothing
herein shall prevent either Party from accepting inquiries and
business from potential customers within the other Party's area of
focus.
(b) Coordination of Efforts. I/PRO shall be responsible for the
------------------------
coordination of sales and marketing efforts, including the development
and maintenance of a shared leads and sales database, and the
scheduling of monthly joint sales meetings. The parties will
coordinate their efforts to
-4-
<PAGE>
ensure that branding, logos, promotional look and product messages
used by each Party shall be as consistent as possible. I/PRO and
Nielsen will use reasonable efforts to minimize sales and customer
conflicts in the Parties' respective sales efforts. Each Party will
designate a contact person for the other Party with respect to
activities under this Agreement, and the operational employees form
the major departments of each Party will establish direct
relationships.
(c) Confirmation of Capacity. Nielsen agrees that in the course of its
-------------------------
sales efforts it will not schedule installations or other service
activities by I/PRO except with I/PRO's prior confirmation of
availability of capacity.
(d) Reseller Materials. The Parties shall ensure that the messages and
------------------
materials used by Resellers shall be consistent with those used by the
Parties. Neither Nielsen nor any Reseller identified by Nielsen will
make any representations, warranties or guaranties with respect to the
specifications, features or capabilities of the Products or Services
that are not consistent with I/PRO's then-current published Product
descriptions and specifications.
5. Price, Payment and Commissions.
------------------------------
(a) Pricing. Nielsen and I/PRO will market the Products only in
--------
accordance with a pricing schedule to be jointly established from time
to time by mutual agreement of the Parties. The pricing schedule will
include a range of allowable discounts applicable under specified
market and customer conditions. I/PRO and Nielsen may from time to
time and by mutual agreement change the prices and discounts set forth
on the rate card. Pricing for separate but related Products and
related services will identify each component separately and will be
consistently valued.
(b) Commissions.
------------
(i) Amount. During the term of this Agreement, I/PRO will pay to
------
Nielsen commissions equal to a percentage of Net Revenues (as defined below)
from Products (a) sold primarily through the efforts of Nielsen (or through any
Reseller identified and closed by Nielsen), in the percentage amounts set forth
on Exhibit B with respect to sales to U.S.-based End customers or Resellers
---------
("U.S. Customers"); and (b) sold primarily through the efforts of I/PRO (or by
any Reseller not identified and closed by Nielsen), in the percentage amounts
set forth on Exhibit C with respect to sales to U.S. Customers. The Parties
---------
agree to negotiate in good faith to set Commissions payable on sales to
non-U.S.-based End Customers and
-5-
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
Resellers ("foreign Customers") on a country-by-country basis. If the Parties
cannot agree upon Commissions payable to Foreign Customers in any particular
country within thirty (30) days of the commencement of such good faith
negotiations, which thirty-day period shall begin to run upon receipt by one
Party of written notice that the other Party desires to begin such negotiations
accompanied by such information as the notifying party believes, in good faith,
provides a well-founded basis for the commissions proposed by the notifying
Party, then Commissions payable with respect to such sales in such country shall
be as set forth on Exhibit B (with respect to sales by Nielsen), or Exhibit C
--------- ---------
(with respect to sales by I/PRO), as the case may be. The Parties recognize that
because the costs associated with sales and service for Foreign Customers are
likely higher than for U.S. Customers, prices of the Products and Commissions
payable on sales of the Products to Foreign Customers may be adjusted upon
mutual agreement of the Parties. As used herein, "Net Revenues" means[**].
Each Party will invoice its respective Customers or Resellers. Commissions will
be paid to Nielsen at the end of each quarter with respect to Net Revenues and
accounts which are thirty (30) days or more overdue. It is understood that
whichever Party is responsible in law for the payment of taxes (if any) upon
revenues received from a Customer or Reseller shall pay such taxes, and shall be
responsible for the collection of such taxes.
(ii) Disputes. The Parties agree to mutually determine in good
---------
faith the amount of commission due in the event that I/PRO and Nielsen shall
disagree as to the Party responsible for the sale to the End Customer or
Reseller. I/PRO agrees to give Nielsen credit and pay Nielsen in accordance
with Exhibit B for any End Customers or Resellers over which a reasonable
---------
conflict arises.
(iii) Adjustments. The commissions set forth on Exhibit B and
------------ ---------
Exhibit C may be adjusted by mutual agreement of the Parties to reflect changes
- ---------
in pricing, costs, and market conditions, as the case may be. The Parties
acknowledge and agree that commissions must be set and periodically adjusted so
that prices can remain competitive with the marketplace, provide a reasonable
profit to I/PRO in each Product category, and a reasonable compensation to
Nielsen for its sales, support, and promotional efforts. In addition to
adjustments to commissions, the Parties also agree to consider other alternate
means of responding to competitive pressures on pricing of the Products.
Commissions on Future Products, if any, Parties subject to this Agreement will
be established upon mutual agreement of the Parties.
(iv) During the term of this Agreement, and for a period of two
(2) years thereafter, each Party will maintain books and records in connection
with its sales and marketing of the Products pursuant to this Agreement in
sufficient
-6-
<PAGE>
detail to permit the other Party to verify compliance with the terms and
conditions of this Agreement. Each Party will have the right through its
independent auditors to inspect such books and records of the other Party solely
to verify the amount of commissions payable pursuant to this Section 5. Any such
audit will be conducted on reasonable notice and during regular business hours
and will not interfere unreasonably with either Party's business activities.
Audits will be made not more than twice annually.
6. Product Development and Maintenance. I/PRO will use its best efforts
------------------------------------
to ensure high quality standards for the Products, and will use its best efforts
to resolve any errors in systems or reports. I/PRO will be responsible for
Product Development. I/PRO agrees to consider suggestions and requirements of
the respective sales personnel of each Party, as well as customer response data
and feedback, and shall make such enhancements to the Products as are reasonable
and appropriate in light of overall technical and operational constraints of
I/PRO. I/PRO will schedule monthly coordination meetings between its Product
Development staff and sales personnel of each Party as an aid in meeting its
Product Development obligations. I/PRO will devote its reasonable best efforts
to continue to provide superior value to End Customers, including sufficient
resources to maintain the Products. I/PRO acknowledges that it is I/PRO's
intention to develop and maintain Products that are deemed in customer technical
evaluations to be demonstrably superior overall to similarly priced competitive
products. If at any time a majority of customer technical evaluations clearly
indicate that the Products are inferior overall to similarly priced competitive
products, Nielsen shall provide I/PRO with the results of such studies and shall
make specific recommendations (the "Recommendations") regarding the manner in
which the Products shall be improved. I/PRO shall have a reasonable time, which
shall not be less than six (6) months or substantially more than nine (9)
months, to implement the Recommendations. If after such period a majority of
customer technical evaluations clearly indicate that, for the reasons addressed
by the Recommendations, the Product is inferior overall to similarly priced
competitive products, Nielsen shall have the right to terminate this Agreement
upon 30 days written notice to I/PRO.
7. Support. Each Party shall be responsible, through its respective
--------
sales organization and at its own expense, to provide an initial response to End
Customers and Resellers closed by such Party as to questions concerning
technical issues, problems or questions regarding the Products. Further
Technical Support will be provided solely by I/PRO, in accordance with I/PRO's
customer support policies in effect from time to time. Nielsen shall have the
right, at Nielsen's expense, to supplement the Technical Support provided by
I/PRO. If at any time Nielsen can demonstrate to I/PRO based upon significant
indications of customer dissatisfaction that I/PRO's technical support is
insufficient to meet the needs of End Customers and Resellers, Nielsen and I/PRO
shall work together to establish adequate customer support, which shall be
financed by appropriate offsets to commissions payable, or
-7-
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
such other method upon which the parties mutually agree. In addition, Nielsen
may provide additional analysis products and services to I/COUNT End Customers.
Nielsen may price such products and services separately; provided that the I/PRO
will receive a commission upon such products and services which is mutually
acceptable to both Parties. Nielsen may at its own expense also set up a hot-
line for third party I/AUDIT support, in addition to the standard I/AUDIT
support provided by I/PRO.
8. Exclusivity.
------------
(a) No Substantially Similar Agreements. During the term of the
------------------------------------
Agreement, I/PRO will not enter into any other comprehensive
agreement, such as this one, for the co-branding and marketing of the
Products; provided that I/PRO shall be permitted to enter into
bundling relationships with respect to other companies' products or
services.
(b) [**]. During the term of this Agreement, [**] will include a [**] and
other material terms [**]. In the event that [**]. Information [**]
shall be deemed to be Confidential Information [**], and shall be
treated in accordance with Section 10 of this Agreement. [**]. The
Parties hereby expressly acknowledge that Nielsen's relationship with
Anywhere Online shall not be subject to this Section 8(b).
(c) Derivative Informational Products and Services. The Parties may, upon
-----------------------------------------------
mutual agreement, develop and brand derivative informational products
and services based on data collected through use of the Products sold
pursuant to this Agreement. The Parties will share the revenues from
such products in such manner as the Parties may agree.
9. Property Rights.
----------------
(a) Intellectual Property Rights. I/PRO and Nielsen acknowledge and agree
----------------------------
that I/PRO owns all of the I/PRO Proprietary Rights. Any use by
Nielsen of such I/PRO Proprietary Rights is authorized only for the
purposes herein set forth and upon termination of this Agreement for
any reason, such authorization will cease. Nielsen and I/PRO
acknowledge and agree that Nielsen owns all of the Nielsen Proprietary
Rights. Any use by I/PRO of such Nielsen Proprietary Rights is
authorized only for the purposes herein set forth and upon termination
of this Agreement for any reason, such authorization will cease.
-8-
<PAGE>
Ownership of products and services developed jointly by the Parties in
the future shall be determined by mutual agreement of the Parties.
(b) No Other Rights. Nielsen may not, directly or through any person or
----------------
entity, in any form or manner, copy, distribute, reproduce,
incorporate, use or allow access to the Products or modify, prepare
derivative works of, decompile, reverse engineer, disassemble or
otherwise attempt to derive source code or object code from the
Products, except as I/PRO may agree in writing. Each Party will take
appropriate steps with End Customers and Resellers, as the other Party
may reasonably request, to inform them of and assure their compliance
with the restrictions contained in this Agreement.
(c) Proprietary Notices. Neither Party will remove from any copy of the
--------------------
Products any copyright and other proprietary notices of the other
Party.
(d) Use of Trademarks. Subject to the terms and conditions of this
------------------
Agreement, during the term of this Agreement each Party grants to the
other a non-exclusive, world-wide license to use the other Party's
tradename and trademarks (collectively, the "Trademarks") to the
extent included in the Product names set forth in Section 2(a), and
for the purpose of marketing and selling the Products; provided that
the user submits all such media to the other Party for prior approval
and follows reasonable trademark usage guidelines communicated by the
other Party. Each Party understands that the other has applied for
and/or obtained applicable federal and state registration of certain
of the Trademarks and agrees, to so indicate on the box containing the
Products and in any advertisement, promotional materials or other
documents that contain the Trademarks. Except as expressly provided
herein, their Agreement shall not be construed to grant to any Party
any right, title or interest in the other's Trademarks. Upon
termination of this Agreement for any reason, each Party will
immediately cease all use of Products' names and Trademarks and
destroy or deliver to the other Party all materials in the user's
control or possession which bear such names and trademarks, including
any sales literature. At no time during or after the term of this
Agreement will either Party challenge or assist others to challenge
the other's Trademarks or the registration thereof or attempt to
register any trademarks, marks or tradenames confusingly similar to
those of the other. Each Party will present and promote the sale of
the Products and Services fairly.
-9-
<PAGE>
10. Confidentiality.
----------------
(a) General. Except as provided in this Agreement, each Party will not
--------
use in any way for its own account of any third party, nor disclose to
any third party, any such Confidential Information revealed to it by
the other Party. Each Party agrees to protect any Confidential
Information from disclosure to others with at least the same degree of
care as that which is accorded to its own proprietary information, but
in no event with less than reasonable care. In the event of
termination of this Agreement, each Party agrees not use or disclose
any Confidential Information, to destroy or return all written or
electronic copies of Confidential Information of the other Party and
each Party will not develop or have developed any product programs
utilizing any of the Confidential Information.
(b) Exceptions. The foregoing restrictions will not apply to information
-----------
that (i) is known to each Party at the time of disclosure to that
Party as demonstrated by written or electronic records of the
receiving Party, (ii) has become publicly known through no wrongful
act of the receiving Party, (iii) has been rightfully received by a
Party from a third party authorized to make such disclosure without
restriction, or (iv) has been approved for release by written
authorization of the disclosing Party.
(c) Notice. Each Party agrees to notify the other promptly in the event
-------
of any breach of confidentiality its security under conditions in
which it would appear that any Confidential Information was prejudiced
or exposed to loss. Each Party shall, upon request of the other, take
all reasonable steps necessary to recover any confidential Information
disclosed to or placed in the possession of the receiving Party by
virtue of this Agreement. The cost of taking such actions shall be
borne solely by the breaching Party.
(d) Non-Disclosure Agreement. The parties agree that the Non-Disclosure
-------------------------
Agreement dated January 20, 1995 shall remain in full force and effect
as to disclosures made prior to the date of this Agreement.
11. Indemnity.
---------
(a) Indemnification by I/PRO. I/PRO agrees, at its own expense, to defend
------------------------
or at its option to settle any claim or action brought against Nielsen
on the issue of infringement of any patent, copyright or other
intellectual property right of any third party by the Products as used
or distributed within the scope of this Agreement, and to indemnify
Nielsen against all damages and costs, including reasonable legal
fees, which may be
-10-
<PAGE>
assessed against Nielsen under any such claim or action; provided that
--------
Nielsen provides I/PRO with (i) prompt written notice of such claim or
action, (ii) sole control and authority over the defense or settlement
of such claim or action and (iii) the authority, information and
assistance that is reasonably necessary for defense or settlement of
the claim or action. In the event that the Products, or a part
thereof, are held, or in I/PRO's sole opinion, may be held to
constitute an infringement, I/PRO, at its option and expense, may
either (w) procure, at no additional cost to Nielsen or any and all
End Customers or Resellers with whom Nielsen has completed a Product
sale, the right to continue to use the Product(s), (x) modify the
Products so they become non-infringing, (y) replace the Products with
functionally equivalent non-infringing materials reasonably acceptable
to Nielsen or (z) accept return of the Products. Notwithstanding the
foregoing, I/PRO will have no liability if the alleged infringement
arises from (i) the use, in the manner specified in relevant I/PRO
documentation, of other than a then current release of the Products,
or (ii) combinations of the Products with non-I/PRO programs or
products, including any Nielsen products, unless such combination is
authorized in advance in writing by I/PRO. THE FOREGOING STATES THE
ENTIRE LIABILITY AND OBLIGATIONS OF I/PRO AND THE EXCLUSIVE REMEDY OF
NIELSEN, WITH RESPECT TO ANY ALLEGED OR ACTUAL INFRINGEMENT OF
PATENTS, COPYRIGHTS, TRADE SECRETS, TRADEMARKS OR OTHER INTELLECTUAL
PROPERTY RIGHTS BY THE PRODUCTS. In addition, I/PRO agrees to
indemnify and hold Nielsen harmless from and against any cost, loss,
expense (including attorney's fees) resulting from any and all claims
by third parties for loss, damage or injury allegedly caused by any
wrongful act, misrepresentation or omission by I/PRO in connection
with I/PRO's activities under this Agreement; Nielsen has have the
right to participate at its expense in any such dispute.
(b) Indemnification by Nielsen. Nielsen agrees to indemnify and hold
--------------------------
I/PRO harmless from and against any cost, loss, expense (including
attorney's fees) resulting from any and all claims by third parties
for loss, damage or injury allegedly caused by any wrongful act,
misrepresentation or omission by Nielsen in connection with Nielsen's
activities under this Agreement; I/PRO shall have the right to
participate at its expense in any such dispute. Notwithstanding the
foregoing, Nielsen assumes no liability hereunder for claims or
actions resulting from or arising out of the design, development
and/or operation of the Products.
-11-
<PAGE>
12. Warranty Disclaimer. EXCEPT AS EXPRESSLY PROVIDED HEREIN, I/PRO
-------------------
GRANTS NO WARRANTIES, EXPRESS OR IMPLIED, BY STATUTE OR OTHERWISE, REGARDING THE
PRODUCTS, THEIR FITNESS FOR ANY PURPOSE, THEIR QUALITY, THEIR MERCHANTABILITY,
OR OTHERWISE.
13. Termination.
-----------
(a) Term. This Agreement shall become effective on the date first written
----
on this Agreement and shall continue for a period of three (3) years,
and shall be continued thereafter unless either Party notifies the
other of termination of the Agreement not less than nine (9) months
prior to the effective date of such termination.
(b) Termination for Cause. Either Party may terminate this Agreement at
---------------------
any time if the other Party materially breaches this Agreement and
fails to cure such breach within sixty (60) days after written notice
of such breach, or if the other Party shall become insolvent, or if
either Party makes an assignment for the benefit of creditors, or if
there are instituted by or against either party proceedings in
bankruptcy or under any insolvency or similar law or for
reorganization, receivership or dissolution.
(c) Termination Liability. Neither party shall be liable in any manner on
---------------------
account of such Party's determination on termination or cancellation
of this Agreement in accordance with its terms. Each Party shall
immediately discontinue all advertising and marketing references of
any kind to the other Party and/or its products upon such termination
or cancellation. The rights of termination and cancellation as set
forth herein are absolute.
(d) Obligations Upon Termination. The termination or expiration of this
----------------------------
Agreement shall in no way relieve either party from its obligations to
pay the other any sums accrued hereunder prior to such termination or
expiration.
14. Limitation of Liability. EXCEPT AS SET FORTH IN SECTION 11 HERETO,
-----------------------
NEITHER I/PRO NOR NIELSEN SHALL HAVE ANY LIABILITY TO THE OTHER, FOR ANY LOST
PROFITS OR COSTS OF PROCUREMENT OF SUBSTITUTE GOODS OR SERVICES, OR FOR ANY
INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES HOWEVER CAUSED AND WHETHER ARISING
UNDER CONTRACT, TORT OR OTHER THEORY OF LIABILITY. IT IS ACKNOWLEDGED BY THE
PARTIES THAT NOTHING IN THIS SECTION 14 SHALL LIMIT A PARTY'S OBLIGATION TO PAY
AMOUNTS ALREADY DUE AND OWING TO THE OTHER PARTY. THESE LIMITATIONS SHALL APPLY
-12-
<PAGE>
NOTWITHSTANDING THE FAILURE OF THE ESSENTIAL PURPOSE OF ANY LIMITED REMEDY.
15. Certain Equity Matters. The Parties acknowledge and agree that,
----------------------
concurrently with the execution and delivery of this Agreement, I/PRO is
delivering to Nielsen certain warrants to purchase Common Stock of I/PRO. I/PRO
also agrees during the term of this Agreement to provide notice of each meeting
of I/PRO's Board of Directors and will permit a representative of Nielsen (who
shall be reasonably acceptable to I/PRO) to attend such meetings, without any
power to vote and subject to exclusion with respect to any portion of any Board
meeting which, in the good faith determination of I/PRO's Board of Directors,
involves confidential information of I/PRO disclosure of which to Nielsen would
be expected to involve a conflict of interest detrimental to I/PRO. Nielsen
may, upon appropriate notice to I/PRO's President or Chairman of the Board of
Directors, submit appropriate matters for the agenda at any such Board meeting.
16. Miscellaneous.
-------------
(a) Assignment. This Agreement will be binding upon and inure to the
----------
benefit of the parties hereto and their permitted successors and
assigns. Notwithstanding the foregoing, neither this Agreement, nor
any rights or obligations hereunder, may be assigned or otherwise
transferred by either Party, except to any successor to all or
substantially all of such Party's assets or a majority of the voting
power of such Party's capital stock or, in the case of Nielsen, to an
assignee of or successor to substantially all of the business or
assets of Nielsen's Nielsen Media Research division. Any other
assignment or transfer without prior written consent will be null and
void.
(b) 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 (x) such provision shall be excluded from
this Agreement, (y) the balance of the Agreement shall be interpreted
as if such provision were so excluded and (z) the balance of the
Agreement shall be enforceable in accordance with its terms.
(c) Legal Expenses. The prevailing party in any legal action brought by
--------------
one Party against the other and arising out of or relating to this
Agreement shall be entitled, in addition to any other rights and
remedies it may have, to reimbursement for its expenses, including
court costs and reasonable attorneys' fees (including those incurred
in any appeal).
-13-
<PAGE>
(d) Titles and Subtitles. The titles and subtitles used in this Agreement
--------------------
are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
(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) 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 party to be charged. The failure by either party to
enforce any rights hereunder shall not be construed as a waiver of any
rights of such party.
(g) Governing Law. The validity, construction and enforceability of this
-------------
Agreement shall be governed in all respects by the law of California
applicable to agreements negotiated, executed and performed in
California, whether one or more of the parties shall be or hereafter
become a resident of another state or country, and without reference
to conflict of laws principles.
(h) Exclusive Jurisdiction. The Parties agree that all disputes arising
----------------------
among them related to this Agreement, whether arising in contract,
tort, equity or otherwise, shall be resolved only in the United States
federal courts in the Northern District in California or California
State courts located in San Francisco County, California. Each Party
hereby irrevocably submits to the personal jurisdiction of such
courts.
(i) Force Majeure. If the performance of this Agreement or any
-------------
obligations hereunder is prevented, restricted or interfered with by
reason of fire or other casualty or accident, strikes or labor
disputes, war or other violence, any law, order, proclamation,
regulation, ordinance, demand or requirement of any government agency,
or any other act or condition beyond the reasonable control of the
parties hereto, the party so affected upon giving prompt notice to the
other parties shall be excused from such performance during such
prevention, restriction or interference.
(j) Notices and Other Communications. Notice by any party under this
--------------------------------
Agreement shall be in writing and personally delivered or given by
registered mail, overnight courier, telecopy confirmed by registered
mail, telefax or prepaid cable, or e-mail transmission via Internet
(with a
-14-
<PAGE>
copy by first class, certified mail, postage prepaid on the first
business day thereafter) addressed to the other party at its
respective address given herein (or at any such other address as may
be communicated to the notifying party in writing) and shall be deemed
to have been served when delivered or, if delivery is not accomplished
by reason of some fault of the addressee, when tendered.
(k) Import and Export Controls. Nielsen understands and acknowledges that
--------------------------
I/PRO may be subject to regulation by agencies of the U.S. government,
including the U.S. Department of Commerce which prohibit export or
diversion of certain products and technology to certain countries. Any
and all obligations of I/PRO to provide Products or any media in which
the Products is contained, as well as any training or technical
assistance will be subject in all respects to such U.S. laws and
regulations as will from time to time govern the license and delivery
of technology and products abroad by persons subject to the
jurisdiction of the U.S., including the Export Administration Act of
1979, as amended, any successor legislation, and the Export
Administration Regulations issued by the Department of Commerce,
International Trade Administration, Bureau of Export Administration.
Notwithstanding anything to the contrary contained herein, the parties
agree that unless prior authorization is obtained from the Office of
Export Licensing, the parties shall not export, reexport, or
transship, directly or indirectly, to country groups Q, S, W, Y or Z
(as defined in the Export Administration Regulations), or Afghanistan
or the People's Republic of China (excluding Taiwan), the Products or
any of the technical data disclosed hereunder or the direct product of
such technical data.
(l) Remedies. The parties acknowledge that any breach of any of the
--------
obligations under Sections 10, 11 and 14 is likely to cause or
threaten irreparable harm, and, accordingly, the parties agree that in
such event, the other party shall be entitled to equitable relief to
protect its interest therein, including but not limited to preliminary
and permanent injunctive relief, as well as money damages.
[SIGNATURE PAGE FOLLOWS]
-15-
<PAGE>
The parties have executed this Agreement as of the date first written
above.
INTERNET PROFILES CORPORATION, NIELSEN MEDIA RESEARCH, A
a California corporation DIVISION OF A.C. NIELSEN
COMPANY, a Delaware corporation
By: /s/ Ariel Poler By: /s/ David Harkness
---------------------- ------------------------
Name: Ariel Poler Name: David Harkness
-------------------- ----------------------
Title: President Title: Sr. Vice President
------------------- ---------------------
Address: Address:
Internet Profiles Corporation Nielsen Media Research
785 Market Street, 13th floor 299 Park Avenue
San Francisco, California 94103 New York, New York 10171-0074
Attn: Chief Financial Officer Attn: Sr. Vice President, Planning
and Development
-16-
<PAGE>
Exhibit A
---------
Produce Description
-------------------
I/AUDIT is that certain software program and related services referred to
by I/PRO as I/AUDIT, all as more fully described on I/PRO's World Wide Web site
with the URL http://www.ipro.com/iaudit.html. I/AUDIT does not include the
I/PRO product known as "I/CODE".
I/COUNT is that certain software program and related services referred to
by I/PRO as I/COUNT, all as more fully described on I/PRO's World Wide Web site
with the URL http://www.ipro.com/icount.html. I/COUNT does not include the
I/PRO product known as "I/CODE".
-17-
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
Exhibit B
---------
Nielsen Commission Terms
------------------------
(U.S. End Customers or Resellers)
- ------------------------------------------------------------------------
Product Percentage [**]
------- ---------------
- ------------------------------------------------------------------------
I/AUDIT [**]
- ------------------------------------------------------------------------
I/COUNT [**]
(aggregate cumulative sales of I/COUNT
by Nielsen [**])
- ------------------------------------------------------------------------
I/COUNT [**]
(aggregate cumulative sales of I/COUNT
by Nielsen [**])
- ------------------------------------------------------------------------
-18-
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
Exhibit C
---------
I/PRO Commission Terms
----------------------
(U.S. End Customers or Resellers)
- -----------------------------------------------------------------------------
Product Percentage [**]
------- ---------------
- -----------------------------------------------------------------------------
I/AUDIT [**]
- -----------------------------------------------------------------------------
I/COUNT [**]
(sold directly by I/PRO)
- -----------------------------------------------------------------------------
I/COUNT [**]
(sold by any Reseller or other channel)
- -----------------------------------------------------------------------------
-19-
<PAGE>
EXHIBIT 10.14
-------------
DATED: 27th April 1999
- -------------------------------------------------------------------------------
CAPITAL & COUNTIES plc
and
ENGAGE TECHNOLOGIES LIMITED
- -------------------------------------------------------------------------------
UNDERLEASE
of
Fifth Floor Premises
at Egyptian House 170
Piccadilly London W1
- -------------------------------------------------------------------------------
<PAGE>
CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
CLAUSE 1 - DEFINITIONS ........................................................................................ 1
CLAUSE 2 - INTERPRETATION ..................................................................................... 7
CLAUSE 3 - GRANT AND TERM ..................................................................................... 10
CLAUSE 4 - RIGHTS GRANTED ..................................................................................... 11
CLAUSE 5 - RIGHTS RESERVED AND REGRANTED ...................................................................... 14
CLAUSE 6 - THIRD PARTY RIGHTS OVER THE PREMISES ............................................................... 17
CLAUSE 7 - PAYMENT OF RENTS ................................................................................... 18
Tenant's obligation to pay rent ...................................................................... 18
First payment of the Service Charge Estimate ......................................................... 18
Rent Commencement Date ............................................................................... 18
Payment of Rents ..................................................................................... 18
No Right of Set-Off .................................................................................. 18
CLAUSE 8 - RENT REVIEW ........................................................................................ 19
Definitions .......................................................................................... 19
Determination of revised Rent by agreement ........................................................... 21
The Surveyor ......................................................................................... 21
Determination of revised Rent by the Surveyor ........................................................ 22
Rent pending review .................................................................................. 22
Legislative restrictions ............................................................................. 22
Guarantors not to take part in the review ............................................................ 23
Rent review memorandum ............................................................................... 23
Time not of the essence .............................................................................. 23
CLAUSE 9 - OTHER FINANCIAL MATTERS ............................................................................ 24
Utilities ............................................................................................ 24
Common facilities .................................................................................... 24
Rates and taxes ...................................................................................... 24
Payments relating to the Premises and other property ................................................. 24
Landlord's costs ..................................................................................... 25
VAT .................................................................................................. 25
Interest ............................................................................................. 25
Exclusion of statutory compensation .................................................................. 26
</TABLE>
<PAGE>
<TABLE>
<S> <C>
CLAUSE 10 - INSURANCE ......................................................................................... 27
Landlord's obligations relating to insurance ......................................................... 27
Reinstatement ........................................................................................ 27
Tenant's obligations relating to insurance ........................................................... 28
Suspension of rent ................................................................................... 29
Option to determine following damage by an Insured Risk .............................................. 30
Insurance monies ..................................................................................... 31
CLAUSE 11 - SERVICE CHARGE .................................................................................... 32
Definitions .......................................................................................... 32
Landlord's obligations ............................................................................... 36
Tenant's obligations ................................................................................. 36
Estimating and revising the Service Charge ........................................................... 37
General provisions ................................................................................... 37
CLAUSE 12 - STATE AND CONDITION OF THE PREMISES ............................................................... 39
Repair ............................................................................................... 39
Redecoration ......................................................................................... 39
Alterations .......................................................................................... 40
Signs and reletting notices .......................................................................... 40
CLAUSE 13 - USE OF THE PREMISES ............................................................................... 41
The Permitted Use .................................................................................... 41
Restrictions on Use .................................................................................. 41
Use of machinery ..................................................................................... 42
Fire and security precautions ........................................................................ 42
Exclusion of warranty ................................................................................ 42
CLAUSE 14 - DEALINGS .......................................................................................... 43
General restrictions ................................................................................. 43
Assignments .......................................................................................... 43
Underlettings ........................................................................................ 44
Terms to be contained in any underlease .............................................................. 45
Rent review in an underlease ......................................................................... 46
Further provisions relating to underleases ........................................................... 47
Charging ............................................................................................. 47
Declarations of trust ................................................................................ 48
Group sharing of occupation .......................................................................... 48
Registration of dealings and provision of information ................................................ 48
CLAUSE 15 - LEGAL REQUIREMENTS AND REGULATIONS ................................................................ 49
Legislation .......................................................................................... 49
Notices relating to the Premises ..................................................................... 49
Planning ............................................................................................. 50
The Construction (Design and Management) Regulations 1994 ............................................ 50
Local authority requirements ......................................................................... 51
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Defective Premises Act 1972 .......................................................................... 51
Regulations .......................................................................................... 51
No additional rights ................................................................................. 51
CLAUSE 16 - LANDLORD'S COVENANT FOR QUIET ENJOYMENT ........................................................... 52
CLAUSE 17 - LIMIT ON LANDLORD'S LIABILITY ..................................................................... 53
CLAUSE 18 - FORFEITURE ........................................................................................ 54
Landlord's right of re-entry ......................................................................... 54
Events giving rise to the Landlord's right of re-entry ............................................... 54
CLAUSE 19 - NOTICES IN CONNECTION WITH THIS LEASE ............................................................. 56
CLAUSE 20 - MISCELLANEOUS ..................................................................................... 57
Landlord's rights to remedy default by the Tenant .................................................... 57
Superior interests ................................................................................... 57
Tenant to provide information ........................................................................ 57
Tenant's indemnity ................................................................................... 58
Tenant's acknowledgement ............................................................................. 58
Disputes ............................................................................................. 58
Guarantor ............................................................................................ 58
Qualification of Landlord's liability ................................................................ 59
Sale of goods after end of Term ...................................................................... 59
Arbitration .......................................................................................... 59
CLAUSE 21 - EXCLUSION OF THE 1954 ACT ......................................................................... 61
CLAUSE 22 - NEW OR OLD LEASE .................................................................................. 62
CLAUSE 23 - MUTUAL OPTION TO DETERMINE ........................................................................ 63
CLAUSE 24 - CERTIFICATE ....................................................................................... 64
THE SCHEDULE .................................................................................................. 66
</TABLE>
<PAGE>
PARTICULARS
Date 27th April 1999
New or old tenancy The tenancy created by this Lease is a new tenancy for
the purposes of the Landlord and Tenant (Covenants) Act
1995.
Landlord Capital & Counties plc (company no. 280739).
Registered office 40 Broadway London SW1H OBU.
Tenant Engage Technologies Limited (company no. 3484747).
Registered office 212 Piccadilly London W1V 9LD
Premises Fifth floor office premises of the Building as shown
edged red on the Plan.
Building Egyptian House, 170 Piccadilly, London W1
Term granted From and including the date hereof and expiring on and
including 24 March 2009 but subject to early
determination as provided in clause 23.
Rent In respect of the period from the date hereof until but
excluding the first anniversary of the date hereof
SIXTY NINE THOUSAND FIVE HUNDRED AND THIRTY THREE
POUNDS ((Pounds)69,533.00) per annum rising to ONE
HUNDRED AND FOUR THOUSAND THREE HUNDRED POUNDS
((Pounds)104,300.00) per annum in respect of the period
from and including the first anniversary of the date
hereof until and including 24 March 2004 and thereafter
subject to review.
Rent commencement date the date of this Lease.
Rent review dates 25 March 2004
Service charge A fair proportion of the total for the Building.
Service charge the date of this Lease.
commencement date
<PAGE>
Service charge estimate FIFTEEN THOUSAND SEVEN HUNDRED AND NINETY FOUR POUNDS
((Pounds)15,794.00) per annum.
Interest rate 4% over the Barclays Bank PLC Base Rate.
Permitted use Offices within Use Class B1 of the Town and Country
Planning (Use Classes) Order 1987.
<PAGE>
LEASE
Date 27th April 1999
PARTIES
(1) CAPITAL & COUNTIES PLC (incorporated and registered in England and
Wales under company number 280739, the registered office of which is at
40 Broadway London SW1H OBU (the Landlord); and
(2) ENGAGE TECHNOLOGIES LIMITED (incorporated and registered in England and
Wales under company number 3484747), the registered office of which is
at 212 Piccadilly London W1V 9LD (the Tenant).
IT IS AGREED AS FOLLOWS:
DEFINITIONS
- --------------------------------------------------------------------------------
CLAUSE 1
In this Lease the following definitions apply:
"Base Rate"
the base rate from time to time of Barclays Bank PLC, or if that rate is no
longer published then the rate of interest which the Landlord reasonably
considers to be most closely comparable to minimum lending rates generally
applicable in the UK from time to time;
"Building"
Egyptian House, 170 Piccadilly, London W1 shown for identification only edged
blue on the Plan and all Service Media on, over or under such land, and Service
Media outside such land but exclusively serving it (excluding, in both cases,
any Service Media which are not owned by the Landlord);
"Common Parts"
the entrances, lobbies, halls, stairways, landings, corridors, lifts,
lavatories, internal and external fire escapes other internal areas of the
Building other than the Premises or the Offices;
1
<PAGE>
"Excluded Risks"
any risk against which the Landlord does not insure because insurance cover for
that risk is either not ordinarily available in the London insurance market, or
is available there only at a premium or subject to conditions which in the
Landlord's discretion are unacceptable;
"Group"
a group of companies within the meaning of section 42 of the Landlord and Tenant
Act 1954;
"Guarantor"
any person who has entered into a guarantee or an authorized guarantee agreement
pursuant to this Lease and their respective successors in title;
"Insurance Rent"
(a) a fair proportion of the cost to the Landlord (before any commission)
of insuring the Building against the Insured Risks for its full
reinstatement cost, including the costs of demolition and site
clearance, temporary works, compliance with local authority
requirements in connection with any works of repair or reinstatement,
architects', surveyors' and other professional fees and other
incidental expenses, and in each case with due allowance for inflation
and VAT, and insuring against public liability of the Landlord in
connection with any matter relating to the Building or the occupation
or use of the Building; and
(b) the cost of the Landlord (before any commission) of insuring against
loss of the Rent (having regard to the provisions for the review of
the Rent) for a period of three years or such longer period as the
Landlord reasonably considers appropriate;
"Insured Risks"
(a) fire, explosion, lightning and earthquake;
(b) flood, storm, bursting or overflowing of water tanks, pipes, or
other water or heating apparatus;
(c) impact, aircraft (other than hostile aircraft) and things dropped
from such aircraft;
(d) riot, civil commotion and malicious damage; and
2
<PAGE>
(e) such other risks as the Landlord may from time to time insure against,
but to the extent that any risk is for the time being an Excluded Risk, it will
not to that extent and for that time be an Insured Risk;
"Interest Rate"
4% over the Base Rate;
"Landlord"
the first party to this deed and its successors in title and persons entitled to
the reversion immediately expectant on the termination of this Lease;
"Landlord's Surveyor"
a chartered surveyor appointed by the Landlord, who may be an individual, or a
firm or company of chartered surveyors, or an employee of the Landlord or a
company which is in the same Group as the Landlord;
"this Lease"
this deed as varied or supplemented by any Supplemental Document;
"Offices"
the parts of the Building (other than the Premises) which are intended for
letting on the basis of a demise similar in nature to the Premises, or which are
let;
"Permitted Use"
Offices within Use Class B1 of the Town and Country (Use Classes) Order 1987 (as
at the date that Order first came into force);
"Plan"
the plan annexed to this deed;
"Planning Acts"
the Town and Country Planning Act 1990, the Planning (Listed Building and
Conservation Areas) Act 1990, the Planning (Hazardous Substances) Act 1990 and
the Planning and Compensation Act 1991;
3
<PAGE>
"Premises"
Fifth floor office premises of the Building as shown for identification only
edged red on the Plan bounded by and including:
(a) the interior plaster and other finishes of the external walls of
such premises and walls dividing the Building from other property
(but excluding any other part of such walls);
(b) the inner half of the non-load-bearing internal walls dividing
such premises from other parts of the Building (but excluding any
other part of such walls);
(c) the interior plaster and other finishes of the internal
load-bearing walls dividing such premises from other parts of the
Building (but excluding any other part of such walls);
(d) the flooring, floor screeds and any voids beneath them down to
(but excluding) the joists, slabs or other structures supporting
such flooring;
(e) the ceiling finishes and any suspended or false ceilings and any
voids between the ceiling and any suspended or false ceiling (but
excluding any other part of the ceilings),
and including:
(f) the whole of any non-load-bearing walls, columns and partitions
within such premises;
(g) the interior plaster and other finishes of load-bearing walls and
columns within such premises (being excluding any other part of
such walls and columns);
(h) the whole of any doors and windows and door and window frames and
fittings at such premises including the glass in any doors and
windows;
(i) landlord's fixtures from time to time within such premises, but if
those fixtures are Service Media then only if they fall within
paragraph (j) below;
(j) Service Media within and from time to time exclusively serving
such premises and which are owned by the Landlord (but excluding
any other Service Media);
4
<PAGE>
"Quarter Days"
25 March, 24 June, 29 September and 25 December in each year;
"Rent"
In respect of the period from the date hereof until but excluding the first
anniversary of the date hereof SIXTY NINE THOUSAND FIVE HUNDRED AND THIRTY THREE
POUNDS ((pound)69,533.00) per annum rising to ONE HUNDRED AND FOUR THOUSAND
THREE HUNDRED POUNDS ((pound)104,300.00) per annum in respect of the period from
and including the first anniversary of the date hereof until and including 24
March 2004 and thereafter subject to review.
"Rent Commencement Date"
the date of this Lease;
"Review Date"
25 March 2004;
"Service Charge"
a fair proportion of the cost of all of the Landlord's Expenses in relation to
relevant Service Charge Year (as those terms are defined in clause 11.1);
"Service Charge Balance"
the shortfall, if any, between the Service Charge Estimate and the Service
Charge;
"Service Charge Commencement Date"
the date of this Lease;
"Service Charge Estimate"
the same fair proportion of the amount which the Landlord, or the Landlord's
Surveyor or its accountant, reasonably estimates will be the total cost of the
Landlord's Expenses in any Service Charge Year (as those terms are defined in
clause 11.1) which for the first year of the Term is estimated to be FIFTEEN
THOUSAND SEVEN HUNDRED AND NINETY FOUR POUNDS ((pound)15,794.00) per annum;
5
<PAGE>
[Certificate Copy of Filed Plan]
6
<PAGE>
"Service Media"
conduits and equipment used for the reception, generation, passage and/or
storage of Utilities and all fire alarms, smoke detectors, sprinklers, dry
risers, security cameras and closed circuit television apparatus;
"Structural Parts"
all parts of the Building other than the Common Parts, the Offices and the
Premises;
"Supplemental Document"
any deed, agreement, license, memorandum or other document which is
supplemental to this deed;
"Surveyor"
an independent chartered surveyor appointed jointly by the Landlord and the
Tenant or, if they do not agree on the identity of such surveyor, by the
President of the Royal Institution of Chartered Surveyors (or any other officer
authorized to carry out that function) on the application of either the Landlord
or the Tenant in accordance with this Lease;
"Tenant"
the second party to this deed and its successors in title;
"Term"
a term from and including the date hereof and expiring on and including 24 March
2009;
"Utilities"
electricity, gas, water, foul water and surface drainage, heating, ventilation
and air conditioning, smoke and fumes, signals, telecommunications, satellite
and data communications and all other utilities;
"VAT"
value added tax payable by virtue of the Value Added Tax Act 1994 (or previous
legislation relating to value added tax);
"Working Day"
7
<PAGE>
any day (other than Saturday) on which banks are usually open for business in
England and Wales.
INTERPRETATION
- --------------------------------------------------------------------------------
CLAUSE 2
2.1 In this Lease:
2.1.1 the table of contents, particulars and clause headings are for
reference only and do not affect its construction;
2.1.2 the words "include" and "including" are deemed to be followed by
the words "without limitation";
2.1.3 general words introduced by the word "other" do not have a
restrictive meaning by reason of being preceded by words
indicating a particular class of acts, things or matters; and
2.1.4 obligations owed by or to more than one person are owed by or to
them jointly and severally.
2.2 In this Lease, unless otherwise specified:
2.2.1 a reference to legislation is a reference to all legislation
having effect in the United Kingdom at any time during the Term,
including:
(a) directives, decisions and regulations of the Council or
Commission of the European Union;
(b) Acts of Parliament;
(c) orders, regulations, consents, licences, notices and
bye-laws made or granted under any Act of Parliament or
directive, decision or regulation of the Council or
Commission of the European Union, or made or granted by a
local authority or by a court of competent jurisdiction;
and
(d) any approved Codes of Practice issued by a statutory body;
2.2.2 a reference to particular legislation is a reference to that
legislation as amended, consolidated or re-enacted from time to
time and to all subordinate legislation made under it from time to
time;
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2.2.3 a reference to a person includes an individual, corporation,
company, firm, partnership or government body or agency, whether
or not legally capable of holding land; and
2.2.4 a reference to a clause is a reference to a clause or sub-clause
of this Lease.
2.3 In this Lease:
2.3.1 an obligation of the Tenant not to do something includes and
obligation not to cause or allow that thing to be done;
2.3.2 a reference to any act or to any act or omission of the Tenant
includes any act or any act or omission of any other person at the
Premises or the Building with the Tenant's express or implied
authority;
2.3.3 the rights of the Landlord udder any clause are without prejudice
to the rights of the Landlord under any other clause or
Supplemental Document or other instrument entered into in
connection with this Lease;
2.3.4 the obligations of or restrictions on the Tenant or a Guarantor
under any clause, Supplemental Document or other instrument
entered into in connection with this Lease, are without prejudice
to the obligations of or restrictions on the Tenant or Guarantor,
or to the rights of the Landlord under any other clause,
Supplemental Document or other instrument entered into in
connection with this Lease;
2.3.5 a reference to the consent or approval of the Landlord means the
prior consent in writing of the Landlord, signed by or on behalf
of the Landlord;
2.3.6 where a matter in this Lease is subject to the consent or approval
of the Landlord, it is also, where required, subject to the
written consent of any superior landlord or mortgagee of the
Landlord;
2.3.7 references to any adjoining property of the Landlord include any
property adjoining or near the Building owned, leased or occupied
by the Landlord from time to time;
2.3.8 references to the end of the Term are to the end of the Term
whether before or at the end of the term of years granted by this
Lease;
2.3.9 references to a fair proportion of any sum are to the whole or a
proportion of that sum which is fair and reasonable in the
circumstances as determined by the Landlord's Surveyor, whose
decision shall be final and binding (save in the case of manifest
error). Where there are different
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elements to that sum a different proportion for each element may
be determined on this basis;
2.3.10 the perpetuity period is eighty years from the date of this deed;
2.3.11 where a sum is expressed to be payable on demand, it will become
payable, unless otherwise specified, 5 Working Days after the
demand has been made; and
2.3.12 unless otherwise specified, references to the Premises and the
Building include any part of the Premises or the Building.
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GRANT AND TERM
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CLAUSE 3
The Landlord leases the Premises to the Tenant for the Term, the Tenant paying
the following sums, which are reserved as rent: the Rent, the Service Charge
Estimate, the Insurance Rent, the Service Charge Balance and any VAT payable on
those sums and any interest due under this Lease.
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RIGHTS GRANTED
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CLAUSE 4
4.1 The following rights are granted by the Landlord to the Tenant:
4.1.1 the right to enter and exit from the Premises on foot over the
Common Parts;
4.1.2 the right to have the name of the Tenant (or other permitted
occupier(s)) displayed on any name board which may be provided by
the Landlord on the Common Parts in a style approved by the
Landlord with such approval not to be unreasonably withheld or
delayed;
4.1.3 the right to display a sign at the entrance to the Premises
showing the names of the Tenant and any other permitted occupiers
and any companies having their registered office at the Premises
in a style approved by the Landlord with such approval not to be
unreasonably withheld or delayed;
4.1.4 the right to use such of the lavatories on the Common Parts as the
Landlord acting reasonably shall designate from time to time;
4.1.5 the right to use the Service Media forming part of the Building at
the date of this deed which serve, but do not form part of, the
Premises;
4.1.6 the right to enter other part of the Building in order to carry
out any repairs to the Premises, but only if those repairs cannot
reasonably be carried out without such entry, and subject to the
Tenant complying with clause 4.3; and
4.1.7 the right to support and protection from the rest of the Building
to the extent existing at the date of this deed.
4.1.8 the right in case of emergency only to use such means of emergency
escape serving the Premises as shall comply with fire regulations
and as the Landlord shall from time to time designate and notify
to the Tenant;
4.2 The rights granted by clause 4.1:
4.2.1 are granted only to the extent that the Landlord has power to
grant them;
4.2.2 are not granted to the Tenant exclusively, but are to be used in
common with the Landlord, any superior landlord, any other tenants
and lawful occupiers of the Building, and other persons authorized
by them;
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4.2.3 may be interrupted or varied for the purposes of any works of
maintenance, repair, alteration or the replacement of any land,
building, lifts or lift equipment or Service Media in connection
with which the rights are exercised;
4.2.4 are to be exercised by the Tenant, and any authorized undertenant,
in accordance with any reasonable regulations which the Landlord
may make for the proper management of the Building; and
4.2.5 will last only until such time as any land or Service Media over
or through which they are exercised (or any rights in connection
with such land or Service Media) is or are adopted or acquired by
a third party for the purposes of providing the relevant facility
to the general public.
4.3 The right granted by clause 4.1.6 is granted subject to the
conditions that the Tenant may, except in cases of emergency, only
exercise that right:
4.3.1 during such hours as the occupier of the relevant adjoining
property and the Landlord agree; and
4.3.2 after having given reasonable prior written notice to the occupier
of the relevant other property and the Landlord,
and in any event on the conditions that:
4.3.3 it is exercised in a manner which causes as little inconvenience
as reasonably practicable to the occupier of the other property;
and
4.3.4 the person exercising that right shall immediately make good any
damage caused to that other property and to any items belonging to
the Landlord, the tenant or the occupier of the other property
which are at the other property, and will indemnify the Landlord
against any losses or claims resulting from the exercise of that
right,
and the Tenant shall ensure that the person exercising that right
complies with the terms of this clause 4.3.
4.4 Nothing contained or referred to in this Lease will confer on, or
grant to, the Tenant any right, easement or privilege other than
those which are set out in clause 4.1 and section 62 of the Law of
Property Act 1925 will not apply to this Lease.
4.5 Nothing contained or referred to in this Lease entitles the Tenant
to the benefit of, or the right to enforce, or to prevent the
release or modification
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of any agreement entered into by any other tenant or occupier of
the Building or any other tenant of the Landlord.
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RIGHTS RESERVED AND REGRANTED
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CLAUSE 5
5.1 The following rights are reserved from this Lease and regranted to
the Landlord by the Tenant:
5.1.1 the right to build, or carry out works, to any other part of the
Building or on any adjoining property of the Landlord or to raise
the height of the Building, even if such building or works:
(a) lessen the access of light or air to the Premises; or
(b) cause any nuisance, damage or inconvenience to the Tenant
or other occupier of the Premises, provided that they do
not materially affect the Tenant's or other permitted
occupier's use of the Premises for the Permitted Use;
5.1.2 the right to build into any of the structures bounding and forming
part of the Premises;
5.1.3 the right to attach scaffolding to any part of the Premises in the
exercise of any of the rights excepted and reserved by this clause
5.1;
5.1.4 the right to:
(a) inspect, connect into, repair and replace any Service
Media in, on, under or over the Premises, but which do not
form part of the Premises;
(b) construct Service Media within the perpetuity period in,
on, over or under the Premises;
(c) connect into and use any Service Media which within that
time form part of the Premises; and
(d) cut into any walls, floors or ceilings at the Premises for
these purposes;
5.1.5 the right to attach any equipment to the Premises in order to
clean the outside of the windows of the Building;
5.1.6 the right to attach any equipment or notices to the Premises to
comply with any legislation or any requirements of the insurers of
the Building;
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5.1.7 the right of support and protection from the Premises for the rest
of the Building any adjoining property;
5.1.8 the right for the occupier of any other part of the building to
enter the Premises for the same purposes and in the same
circumstances as the Tenant may enter other parts of the Building:
5.1.9 the right to attach Service media to the Premises in connection
with the provision of the Services;
5.1.10 the right to enter the Premises:
(a) to exercise any other right reserved and regranted to the
landlord by this Lease;
(b) to view the sate and condition of the Premises, to measure
and undertake surveys of the Premises and to prepare
schedules of condition or of dilapidation at the Premises;
(c) to determine whether the Tenant is complying with its
obligations in this Lease and to remedy any breach of
those obligations;
(d) to show prospective purchasers of any interest in the
Landlord's reversion or, in the last six months of the
Term, to show prospective tenants over the Premises;
(e) in connection with the provision of the Services;
(f) in connection with any requirements of the insurers of the
Premises;
(g) to comply with a superior lease or mortgage; and
(h) for any other reasonable purpose connected with this Lease
or with the Landlord's interest in the Premises or the
Building or with the proper management of the Building or
any adjoining property of the Landlord.
5.2 The rights reserved and regranted by this Lease are reserved and
regranted to the Landlord and any superior landlord or mortgagee,
and their tenants, and may be exercised by anyone authorized by
the Landlord or a superior landlord.
5.3 The person exercising any right of entry reserved and regranted by
this Lease shall make good any damage caused to the Premises
(subject to
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clause 5.4) but shall not be under any obligation to make any
other compensation to the Tenant or other occupier of the
Premises.
5.4 The Tenant shall allow any person who has a right to enter the
Premises to enter the Premises at all reasonable times, during and
outside usual business hours, provided that reasonable notice has
been given, which need not be written notice. In cases of
emergency no notice need be given and the Landlord or another
person on behalf of the landlord may break into the Premises if
entry cannot be effected in any other way. The landlord will not
be liable to make good any damage caused to the Premises in
breaking into the Premises in these circumstances.
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THIRD PARTY RIGHTS OVER THE PREMISES
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CLAUSE 6
6.1 There are excepted from this deed and this Lease is granted subject to:
6.1.1 all existing rights which belong to other property, or are enjoyed by
other property over the Premises or any land or Service Media over
which rights are granted by the Landlord to the Tenant by this Lease;
and
6.1.2 the matters contained or referred to in the headlease dated 24 August
1988 between (1) The Queen's Most Excellent Majesty (2) Crown Estate
Commissioners and (3) the Landlord as varied from time to time and the
property and charges registers of title number NGL 621783 as at the
date of this deed.
6.2 The Tenant shall comply with the matters contained or referred to in
the documents and registers referred to in clause 6.1 so far as they
relate to the Premises and the rights granted by this Lease.
6.3 The Tenant shall:
6.3.1 not permit any third party to acquire any right over the Premises or to
encroach upon the Premises;
6.3.2 give the Landlord immediate written notice of any attempt to do this;
6.3.3 take any steps which the Landlord may reasonably require to prevent the
acquisition of any right over or encroachment on the Premises; and
6.3.4 preserve for the benefit of the Premises and the Landlord's interest in
them all existing rights which belong to the Premises and are enjoyed
over adjoining or neighboring property.
6.4 The Tenant shall not block or obstruct any window or ventilator at the
Premises.
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PAYMENT OF RENTS
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CLAUSE 7
7.1 Tenant's obligation to pay rent
The Tenant agrees with the Landlord to pay:
7.1.1 the Rent, the Service Charge Estimate and any VAT payable on those sums
in four equal installments in advance on the Quarter Days;
7.1.2 the Insurance Rent on demand;
7.1.3 the Service Charge Balance, and any VAT on it, on demand; and
7.1.4 interest in accordance with clause 9.7.
7.2 First payment of the Service Charge Estimate
The first instalment of the Service Charge Estimate, and any VAT due on
it is to be made on the date of this deed, and is to be a proportionate
amount for the period from and including the Service Charge
Commencement Date until the next Quarter Day.
7.3 Rent Commencement Date
The first payment of the Rent shall be made on the date of this deed
and shall be the Rent for the period from and including the Rent
Commencement Date until the next Quarter Day.
7.4 Payment of Rents
If required by the Landlord, the Tenant shall pay the Rent, the Service
Charge Estimate and any VAT on those sums, by bankers standing order,
direct debit or credit transfer to a bank and account in the United
Kingdom which the Landlord has notified in writing to the Tenant.
7.5 No Right of Set-Off
The Tenant waives any legal or requitable right of set-off, deduction,
abatement or counterclaim which it may have in respect of the Rent or
any other sums due under this Lease and agrees to make all payments of
Rent and other such sums in full on their due dates.
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RENT REVIEW
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CLAUSE 8
8.1 Definitions
In this clause the following definition applies:
"Open Market Rent"
the best annual rent at which the Premises could reasonably be expected
to be let as a whole at the relevant Review Date in the open market:
(a) without a fine or premium;
(b) by a willing landlord to a willing tenant;
(c) which would be payable after the expiry of such rent free or
reduced rent period as would be negotiated in the open market by
the willing landlord and the willing tenant at the relevant
Review Date in respect of the period during which fitting out
works would be carried out by the willing tenant (notwithstanding
the assumption at paragraph (h) that the Premises are assumed to
be fitted out);
(d) under a lease of ten years commencing on and including the
relevant Review Date; and
(e) otherwise on the same terms as this Lease, except as to the
amount of the Rent and assuming that the rent commencement date
in such lease is at such date after the relevant Review Date so
as to provide for the rent free or reduced rent period referred
to in paragraph (c) above;
assuming that:
(f) the Premises are available to be let with vacant possession;
(g) the Premises and the Building and any land or Service Media over
which any rights granted by this Lease are to be exercised are in
good and substantial repair and condition and if damaged or
destroyed that they have been reinstated;
(h) the Premises have been fully fitted out and are ready for
immediate occupation and use by the willing tenant;
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(i) the Landlord and the Tenant have fully complied with their
obligations in this Lease;
(j) no work has been carried out on the Premises by the Tenant or any
undertenant or their predecessors in title, or on any other part
of the Building or any adjoining property of the Landlord before
or during the Term, which would lessen the rental value of the
Premises;
(k) the Premises can, in their assumed state, be lawfully used by the
willing tenant for the Permitted Use and for any other purpose to
which the Landlord has, at the request of the Tenant, given its
consent;
(l) any consents or licenses current or required at the relevant
Review Date are available to the willing tenant; and
(m) if the Landlord (or the relevant member of its VAT group) has
elected to waive the exemption for the purposes of VAT in respect
of the Premises, that the willing landlord has also so elected,
but that if the Landlord (or the relevant member of its VAT
group) has not so elected, the willing landlord has not so
elected;
but disregarding:
(n) any occupation of the Premises by the Tenant or any authorized
undertenant;
(o) any goodwill attached to the Premises by reason of the Tenant or
any authorized undertenant carrying on any business at the
Premises;
(p) any improvements (including improvements which form part of the
Premises at the relevant Review Date) carried out by the Tenant
or any authorized undertenant, or their predecessors in title,
before or during the Term, with the consent (if required) of the
Landlord, at the cost of the relevant Tenant or authorized
undertenant, and not pursuant to an obligation owed by the
relevant Tenant or authorized undertenant to the Landlord or its
predecessors in title;
(q) any legislation which imposes a restraint upon agreeing or
receiving an increase in the Rent.
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8.2 Determination of revised Rent by agreement
8.2.1 The Rent will be reviewed at each Review Date, and from each Review
Date the Rent will be the higher of the Rent reserved immediately
before the relevant Review Date and the Open Market Rent at the
relevant Review Date.
8.2.2 The Landlord and the Tenant may agree the level of the Open Market Rent
at any time before the Surveyor has determined it.
8.2.3 The Landlord and the Tenant may agree that, taking into account the
Open Market Rent at the relevant Review Date, the revised Rent reserved
from that Review Date will be formulated in terms which provide for
different amounts to be paid with effect from different dates on or
after that Review Date.
8.2.4 If the Landlord and the Tenant have not agreed the Open Market Rent
three months before the relevant Review Date, either may require it to
be determined by a Surveyor.
8.3 The Surveyor
8.3.1 The Tenant may not make an application for the appointment of a
Surveyor without first notifying the Landlord and allowing the landlord
to direct that the Surveyor is to act as an expert.
8.3.2 The Surveyor must be experienced in the letting and valuation of
properties of a similar type and in the same region as the Premises.
8.3.3 If the Surveyor dies, or gives up the appointment, or fails to act in
accordance with this clause 8, or it becomes apparent that the Surveyor
is or will become unable so to act, the landlord and the Tenant may
make a further appointment of, or application for, a substitute
Surveyor.
8.3.4 The Landlord may before the appointment of the Surveyor by the Landlord
and the Tenant or at the time of the application to the President (or
other relevant officer) of the Royal Institution of Chartered
Surveyors, direct that the Surveyor is to act as an expert. If the
Landlord does not so direct at that time the review of the Rent will be
referred to arbitration with the Surveyor acting as the arbitrator.
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8.4 Determination of revised Rent by the Surveyor
8.4.1 The Surveyor shall be instructed to determine the Open Market Rent
within two months (or longer if reasonable) of being appointed and to
make a direction as to costs (including the costs of appointment).
8.4.2 If the Surveyor is to act as an expert, the Landlord and the Tenant may
within one month of being notified of the Surveyor's appointment submit
a valuation of the Open Market Rent at the relevant Review Date and
written representations to the Surveyor. The Landlord and the Tenant
may also make written counter-representations to the Surveyor within a
further 10 Working Days after the end of that month. Any valuation,
representation or counter-representation supplied to the Surveyor are
to be copied to the other party at the same time. The Surveyor will be
not be fettered by any valuation, representation or counter-
representation supplied.
8.4.3 Where acting as an expert, the decision of the Surveyor will be final
and binding (save in the case of manifest error).
8.4.4 The costs of appointment and fees of the Surveyor shall be paid in such
proportions as the Surveyor directs, of if no such direction is made,
then equally by the landlord and the Tenant. If the Tenant has not paid
any costs required to be paid under this clause within 10 Working Days
of having been required to pay them, the Landlord may pay such costs
which will be deemed due as additional rent and recoverable as rent in
arrears.
8.4.5 The Landlord will not be liable to the Tenant for any failure of the
Surveyor to determine the Open Market Rent as instructed.
8.5 Rent pending review
8.5.1 If the revised Rent has not been agreed or determined before the
relevant Review Date, then the Rent shall continue to be payable at the
rate payable immediately before the relevant Review Date.
8.5.2 On the Quarter Day after the revised Rent has been agreed or determined
the shortfall, if any, between the Rent paid and the revised Rent for
the period from the relevant Review Date until that Quarter Day will
become due together with interest on that shortfall at the Base Rate
from the date or dates on which such shortfall became due.
8.6 Legislative restrictions
If there is any legislation in force at the relevant Review Date which
restricts the Landlord's right to review the Rent in accordance with
this
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clause, or to receive any increase in the Rent following a review, then
the date on which the legislation is repealed or amended to allow a
review of or increase in the Rent, will be a further Review Date. The
Landlord will be entitled to require a review of the Rent in accordance
with this clause, except that the revised Rent will be the highest of:
8.6.1 the Open Market Rent at that further Review Date;
8.6.2 the Rent reserved immediately before that further Review Date; and
8.6.3 the Rent reserved immediately before the relevant legislative
restriction became applicable to this Lease.
8.7 Guarantors not to take part in the review
A Guarantor will not have the right to take part in the review of the
Rent, but will be bound by it.
8.8 Rent review memorandum
Following the agreement of the revised Rent after each rent review, the
Landlord, the Tenant and any Guarantor shall sign a memorandum
recording the revised level of the Rent and any agreement made pursuant
to clause 8.2.3. The memorandum will be prepared by the Landlord and
each party will bear its own costs.
8.9 Time not of the essence
Time will not be of the essence in relation to this clause.
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OTHER FINANCIAL MATTERS
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CLAUSE 9
9.1 Utilities
The Tenant shall pay all charges, including connection and hire
charges, relating to the supply of Utilities to the Premises and will
comply with all present or future requirements and recommendations of
the suppliers of Utilities to the Premises;
9.2 Common facilities
The Tenant shall pay on demand a fair proportion of any costs incurred
or payable by the Landlord in respect of any land or Service Media
outside the Building but used in connection with the Premises.
9.3 Rates and taxes
9.3.1 The Tenant shall pay and indemnify the Landlord against all present and
future rates, duties and assessments of any nature charged on or
payable in respect of the Premises whether payable by the landlord,
owner, occupier or tenant of the Premises and whether of a capital or
income, recurring or non-recurring nature except any income or
corporation tax imposed on the Landlord (or any superior landlord) in
respect of:
(a) the grant of this deed; or
(b) the receipt of the rents reserved by this Lease; or
(c) any dealing or disposition by the Landlord with its interest in
the Premises.
9.3.2 The Tenant shall not make any claim for relief from any of the charges
referred to above which could result in the Landlord not being entitled
(during or after the end of the Term) to that relief in respect to the
Premises.
9.4 Payments relating to the Premises and other property
Where any of the charges payable under clauses 9.1, 9.2 or 9.3 relates
to other property as well as the Premises, the amount to be paid by the
Tenant will be a fair proportion of the whole of the amount charged or
payable.
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9.5 Landlord's costs
The Tenant shall pay to the Landlord, on demand, and on an indemnity
basis, the fees, costs and expenses charged, incurred or payable by the
Landlord, and its advisors or bailiffs in connection with:
9.5.1 any steps taken in relation to, any proceedings under section 146 or
147 of the Law of Property Act 1925 or the Leasehold Property (Repairs)
Act 1938, including the preparation and service of all notices, and
even if forfeiture is avoided (unless it is avoided by relief granted
by the court);
9.5.2 preparing and serving schedules of dilapidations at any time during the
Term (or after the Term in respect of dilapidations arising during the
Term), and supervising any works undertaken to remedy such
dilapidations;
9.5.3 recovering (or attempting to recover) any arrears of Rent or other sums
due to the Landlord under this Lease, including any costs associated
with the Landlord's remedies of distress or execution;
9.5.4 any investigations or reports carried out to determine the nature and
extent of any breach by the Tenant of its obligations in this Lease;
9.5.5 any steps taken to procure that a breach by the Tenant of its
obligations under this Lease is remedied; and
9.5.6 any application for a consent of the Landlord (including the
preparation of any documents) which is needed by virtue of this Lease,
whether or not such consent is granted).
9.6 VAT
9.6.1 Where the Tenant is to pay the Landlord for any supply made to the
Tenant by the Landlord, the Tenant shall also pay any VAT which may be
payable in connection with that supply.
9.6.2 Where the Tenant is to pay the Landlord the costs of any supplies made
to the Landlord, the Tenant shall also pay the Landlord any VAT payable
in connection with that supply, except to the extent that the Landlord
is able to obtain a credit for the VAT from HM Customs and Excise.
9.7 Interest
9.7.1 If the Rent is not paid to the Landlord on the due date or if any other
sums payable under this Lease to the Landlord are not paid within 5
Working
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Days of the due date for payment the Tenant shall pay interest to the
Landlord at the Interest Rate for the period from and including the due
date until payment (both before and after any judgment).
9.7.2 If the Landlord refuses to accept any Rent or other sum due under this
Lease, when the Tenant is, or may be, in breach of any of its
obligations in this Lease so as not to prejudice the Landlord's rights
to re-enter the Premises and forfeit this Lease, the Tenant shall pay
interest on such sum to the Landlord at the Interest Rate for the
period from and including the date such sum became due until the date
the payment is accepted by the Landlord.
9.7.3 Interest under this Lease will accrue on a daily basis, compounded with
quarterly rests on the Quarter Days and will be payable immediately on
demand.
9.8 Exclusion of statutory compensation
Any statutory right of the Tenant, or any undertenant, to claim
compensation from the Landlord or any superior landlord on leaving the
Premises is excluded to the extent that the law allows.
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INSURANCE
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CLAUSE 10
10.1 Landlord's obligations relating to insurance
10.1.1 The Landlord shall insure the Building, other than any part installed
by or on behalf of the Tenant or any undertenant against the Insured
Risks.
10.1.2 The insurance taken out by the Landlord shall be through an agency
chosen by the Landlord and subject to any exclusions, excesses and
conditions as may be usual in the insurance market at the time or
required by the insurers, or reasonably required by the Landlord.
10.1.3 The Landlord shall, at the request of the Tenant, and on payment by the
Tenant of a reasonable fee, produce details of the terms of the current
insurance policy and evidence of the payment of the current premium.
10.2 Reinstatement
10.2.1 If the Premises, or any part of the Building over which the Tenant
exercises rights granted by this Lease, are damaged or destroyed by an
Insured Risk, then:
(a) unless payment of any insurance monies is refused because of any
act or omission of the Tenant and the Tenant has failed to comply
with clause 10.3.8;
(b) subject to the Landlord being able to obtain any necessary
consents; and
(c) subject to the necessary labor and materials being and remaining
available,
the Landlord shall use the insurance monies received by the Landlord,
except monies received for loss of rent, in repairing and reinstating:
(d) the Premises (other than any part which the Landlord is not
obliged to insure); or
(e) such part of the Building over which the Tenant exercises rights
granted by this Lease; or
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in constructing Comparable Premises as soon as reasonably possible.
"Comparable Premises" are premises generally similar to the Premises
(or the relevant part of the Building) in design, function, size and
location within the Building, but may differ in these aspects from the
Premises (or the relevant part of the Building) having regard to the
principles of good estate management and building design.
10.2.2 The Landlord shall use reasonable endeavors to obtain the necessary
labor, materials and consents to repair or reinstate the Premises, but
will not be obliged to appeal against any refusal of a consent.
10.2.3 Where any reinstatement does not involve the total reconstruction of
the Premises, the Landlord may give written notice to the Tenant
requiring the Tenant to reinstate on behalf of the Landlord. The Tenant
will then carry out the reinstatement in a good and workmanlike manner
and within such time as is reasonably specified by the Landlord. The
Landlord will pay to the Tenant the insurance moneys which the Landlord
receives (other than any moneys relating to loss of rent) in connection
with the relevant damage.
10.3 Tenant's obligations relating to insurance
The Tenant shall:
10.3.1 pay the Insurance Rent in accordance with this Lease;
10.3.2 pay on demand any increase in the insurance premium for any part of the
Building or any adjoining property of the Landlord which is
attributable to the use of the Premises, or anything done or omitted to
be done on the Premises by the Tenant or any other occupier of the
Premises;
10.3.3 pay on demand a fair proportion of the costs incurred or payable by the
Landlord in connection with the Landlord obtaining any valuation of the
Building for insurance purposes, as long as such valuation is made at
least three years after any previous such valuation;
10.3.4 comply with the requirements of the insurers relating to the Premises
and the rights granted to the Tenant by this Lease;
10.3.5 not do or omit to do anything which may make any insurance of the
Building or of any adjoining property of the Landlord, taken out by the
Landlord or any superior landlord, void or voidable, or which would
result in an increase in the premiums for such insurance;
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10.3.6 give the Landlord immediate written notice of any damage to or
destruction of the Premises by an Insured Risk;
10.3.7 pay the Landlord on demand the amount of any excess required by the
insurers in connection with that damage or destruction;
10.3.8 pay the Landlord on demand an amount equal to any amount which the
insurers refuse to pay, following damage or destruction to any part of
the Building, or any adjoining property of the Landlord, by an Insured
Risk, because of any act or omission of the Tenant;
10.3.9 if requested by the Landlord, remove its fixtures and effects from the
Premises to allow the Landlord to repair or reinstate the Premises;
10.3.10 pay the Landlord on demand the costs incurred by the Landlord in
preparing and settling any insurance claim relating to the Premises (or
a fair proportion of such costs in relation to the Common Parts, the
Structural Parts, or the Building as a whole) arising, in any case,
from any insurance taken out by the Landlord; and
10.3.11 not take out any insurance of the Premises against the Insured Risks in
its own name other than in respect of any part of the Premises
installed by or on behalf of the Tenant or any undertenant or any other
occupier, and other than in respect of any plate glass at the Premises.
If the Tenant has the benefit of any such insurance, the Tenant shall
hold all money receivable under that insurance upon trust for the
Landlord.
10.4 Suspension of rent
10.4.1 If:
(a) the whole of the Premises or any part which the Landlord is
obliged to insure; or
(b) the means of access over the Building to the Premises; or
(c) any Service Media over which the Tenant exercises rights granted
by this Lease,
are damaged or destroyed by an Insured Risk so as to make the Premises
or any part which the Landlord is obliged to insure, unfit for
occupation or use, the Rent (or a due proportion of it according to the
nature and extent of the damage) will be suspended;
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10.4.2 The Rent (or due proportion) will be suspended from the date of damage
or destruction for a period of three years, or, if sooner until the
Premises, or such part, have been made fit for occupation and use, or
the means of access restored; or the Service Media over which the
rights are exercised are repaired or restored.
10.4.3 The Rent will not be suspended to the extent that any loss of rent
insurance has been made ineffective, or payment of it has been refused
by the insurers because of any act or omission by the Tenant.
10.4.4 The Rent will not be suspended unless and until any arrears of Rent or
other sums due under this Lease have been paid by the Tenant in full.
10.4.5 Any dispute relating to this clause 10.4 will be referred to
arbitration.
10.5 Option to determine following damage by an Insured Risk
10.5.1 If the whole or substantially the whole of the Premises is made unfit
for occupation or use by damage or destruction caused:
(a) by an Insured Risk and either
i. the damage or destruction occurs during the last four years
of the term of years granted by this Lease; or
ii. the Landlord has not been able to begin the necessary works
of repair or reinstatement because of circumstances beyond
its reasonable control, within thirty months of the damage
or destruction;
(b) by an Excluded Risk,
the Landlord or the Tenant may terminate this Lease by giving written
notice to the other.
10.5.2 The notice must be given within eighteen months after the damage or
destruction if paragraph (a)(i) or (b) above applies and within three
months beginning with the date which is thirty months after the damage
or destruction if paragraph (a)(ii) above applies.
10.5.3 This Lease will terminate on service of such notice, but such
termination will be without prejudice to any claim which the Landlord
or the Tenant may have against the other for any earlier breach of
their respective obligations in this Lease.
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10.5.4 The Tenant shall remain bound by clauses 10.3.7 and 10.3.8 after such
termination.
10.6 Insurance monies
All insurance monies payable will belong to the Landlord.
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SERVICE CHARGE
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CLAUSE 11
11.1 Definitions
In this clause the following definitions apply:
"Certificate"
a statement certified by the Landlord or the Landlord's Surveyor or its
accountant, which shows the Service Charge Estimate, the Landlord's
Expenses, the Service Charge and the Service Charge Balance for the
relevant Service Charge Year;
"Landlord's Expenses"
the costs (including any VAT charge on such costs to the extent that
the Landlord is not able to obtain a credit for such VAT from HM
Customs & Excise) incurred or provided for by or on behalf of the
Landlord in connection with all or any of the following items:
(a) cleaning, maintaining, carpeting and recarpeting, decorating,
lighting, treating, repairing, and (where beyond economic repair)
rebuilding and replacing the Common Parts;
(b) cleaning, maintaining, treating, and repairing, and (where beyond
economic repair) rebuilding and replacing the Structural Parts;
(c) cleaning, maintaining, treating, repairing and redecorating the
outside of all windows, window frames and sills at the Building;
(d) replacing where necessary all windows at the Building from time
to time;
(e) providing, operating, inspecting, maintaining, repairing and
(where beyond economic repair) replacing Service Media (other
than Service Media which form part of the Premises or the Offices
or which do not belong to the Landlord);
(f) removing any obstruction on the Common Parts;
(g) providing, operating, inspecting, insuring and maintaining,
repairing and replacing (where beyond economic repair) any
equipment, plant
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and machinery and other materials, which are used in providing
the matters listed in this definition;
(h) fuel and Utilities used on the Common Parts or in providing the
matters listed in this definition;
(i) maintenance and other contracts entered into for the provision of
the matters listed in this definition;
(j) providing, maintaining and, when reasonably necessary, renewing
signs at the Building;
(k) providing and replacing refuse containers for occupiers of the
Building and arranging for the collection of refuse;
(l) providing, maintaining and restocking floral and/or plant
displays on the Common Parts;
(m) providing, maintaining and (where beyond economic repair)
replacing furniture and fittings for use on the Common Parts;
(n) providing, maintaining, when reasonably necessary, altering and
where beyond economic repair replacing such security systems for
the benefit of the whole (or substantially the whole) of the
Building, which the Landlord (in the interests of good estate
management) reasonably considers appropriate. This may include
the provision of alarms, closed circuit television, barriers and
other equipment, and security guards and patrols (whether
employed by the Landlord or engaged as contractors);
(o) providing fire detection, prevention and fighting equipment, and
any signs, notices or equipment required by the fire authority
for the Common Parts and the Structural Parts. Maintaining,
repairing and (where beyond economic repair) replacing such
items;
(p) providing a reception or security desk in the entrance hall of
the Building and staffing it;
(q) employing or arranging for the employment (and the termination of
employment) of staff in connection with the provision of the
matters listed in this definition. This may include the costs of
insurance, pension and welfare contributions and the provision of
clothing, tools and equipment incurred in connection with such
employment;
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(r) all present and future rates, taxes, duties and assessments of
whatever nature charged on, or payable in respect of, the Common
Parts or Structural Parts or in respect of the Building as a
whole (as distinct from the Offices);
(s) complying with any legislation relating to the Common Parts or
the Structural Parts or the Building as a whole (as distinct from
the Offices);
(t) complying with or, where the Landlord reasonably considers it
appropriate, contesting the requirements or proposals of the
local or any other competent authority in respect of the Common
Parts or the Structural Parts or of the Building as a whole (as
distinct from the Offices);
(u) complying with the matters referred to in clause 6.1 in so far as
they relate to the Common Parts, the Structural Parts or the
Building as a whole (as distinct from the Offices);
(v) abating any nuisance to the Building;
(w) making such provisions as the Landlord reasonably considers
appropriate for anticipated future expenditure. This may include
the provision and replacement of any plant, machinery, lifts or
equipment used or to be used in connection with the matters
listed in this definition;
(x) leasing any item used in providing the matters listed in this
definition;
(y) commitment fees, interest and any other cost of borrowing money,
where necessary, to finance the matters listed in this
definition;
(z) obtaining any professional advice which may from time to time be
required in relation to the management of the Building or the
provision of the matters listed in this definition;
(aa) the reasonable fees at market rates current from time to time of
managing agents retained by the Landlord for the management of
the Building; the provision of the matters listed in this
definition and the collection of service charges (including the
Service Charge Estimate and the Service Charge Balance) due from
the Tenant and the other occupiers of the Building (or where any
of those tasks is carried out by the Landlord a reasonable charge
of the Landlord for
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that task), but not any such costs arising by reason of
service charges being in arrears;
(bb) preparing the Certificate (where by the Landlord or the
Landlord's Surveyor or its accountants);
(cc) any other works, services or facilities which the Landlord
from time to time reasonably considers desirable for the
purpose of maintaining, improving or modernising the
services or facilities in or for the Building. These shall
be for the general benefit of all, or substantially all,
of the occupiers of the Building and in accordance with
the principles of good estate management, but excluding
any cost which the Landlord recovers under any other
clause, or form any insurance taken out by the Landlord,
where the Tenant is obliged to refund the Landlord the
whole or any part of the premium;
"Service Charge Year"
the year from and including 24th June in each year or such
other date which the Landlord chooses from time to time;
"Services"
(a) cleaning, maintaining, decorating, lighting,
treating and repairing the Common Parts;
(b) cleaning, maintaining, treating, reparing and
decorating the outside of the windows, window frames
and sills of the Building;
(c) heating the Common Parts between such hours and at
such times of the year as the Landlord in its
discretion, considers appropriate;
(d) providing hot and cold water, towels and other
supplies in the lavatories on the Common Parts;
(e) any of the other items referred to in the definition
of Landlord's Expenses which the Landlord in its
discretion, and from time to time, provides for the
management or maintenance of the Building.
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11.2 Landlord's obligations
11.2.1 The Landlord shall provide the Services in a manner which the Landlord
reasonably considers appropriate.
11.2.2 The Landlord will have no liability for any failure or interruption of
any Service:
(a) while the Tenant is in arrears with payment of the Rent or other
sums due under this Lease;
(b) during the proper inspection, maintenance, repair or replacement
of any relevant Service Media or equipment;
(c) resulting from a shortage of fuel, water, materials or labour;
(d) resulting from a breakdown of any equipment used in connection
with the provision of the Services; or
(e) resulting from act or omission of any employee, contractor or
agent of the Landlord,
or for any other reason beyond the reasonable control of the
Landlord.
11.2.3 In the circumstances mentioned in paragraphs (b), (c), (d) and (e)
above, the Landlord shall restore the relevant Service as soon as is
reasonably practicable.
11.2.4 The Landlord shall produce the Certificate to the Tenant as soon as
practicable after the end of the Service Charge Year.
11.2.5 The Landlord shall, but at the cost of the Tenant, allow the Tenant to
inspect any invoices and receipts for the Services as long as the
Tenant has given the Landlord reasonable written notice.
11.2.6 If any Office in the Building is unlet for any period, the Landlord
shall bear a fair proportion of the Landlord's Expenses in respect of
that Office.
11.3 Tenant's obligations
11.3.1 The Tenant shall pay the Service Charge Estimate, and any VAT on it
and the Service Charge Balance, and any VAT on it as provided in
clause 7.1 (Tenant's obligation to pay rent).
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11.3.2 If the date of this deed does not coincide with the beginning of a
Service Charge Year, the Service Charge due from the Tenant for the
part of that Service Charge Year which is within the Term will be
reduced by the proportion which the part of that Service Charge Year
which is before the beginning of the Term bears to one year, and the
Service Charge Estimate for that part of that Service Charge Year will
be adjusted accordingly.
11.3.3 If the end of the Term does not coincide with the end of a Service
Charge Year, the Service Charge due from the Tenant for the part of
that Service Charge Year which is within the Term will be reduced by
the proportion which the part of that Service Charge Year which is
after the end of the Term bears to one year.
11.4 Estimating and revising the Service Charge
11.4.1 The Landlord shall give the Tenant a statement of the Service Charge
Estimate for each Service Charge Year. Until the statement has been
given, the Service Charge Estimate shall be payable at the rate of the
Service Charge Estimate for the previous Service Charge Year. Once the
statement has been given, the remaining installments of the Service
Charge Estimate and any VAT on them will be adjusted so as to provide
for payment of the whole Service Charge Estimate for that Service
Charge Year to be paid during the year.
11.4.2 If, during a Service Charge Year, the Landlord reasonably expects the
cost of the Services to increase materially above its previous estimate
of the cost of the Services for that Service Charge Year, the Landlord
may revise its estimate of those costs. The Service Charge Estimate
will be based on that revised estimate and the remaining installments
of the Service Charge Estimate adjusted so that the revised Service
Charge Estimate will have been paid by the end of that Service Charge
Year. The Landlord may revise the Service Charge Estimate more than
once in a Service Charge Year.
11.5 General provisions
11.5.1 In the absence of manifest error, the Certificate will be conclusive as
to the amount of the Service Charge.
11.5.2 The Landlord shall notify the Tenant in writing of any change in the
date of the beginning of the Service Charge Year.
11.5.3 If the Service Charge for any Service Charge Year is less than the
Service Charge Estimate (as and if revised), the balance will be
credited against the installments of the Service Charge Estimate due
from the Tenant in the
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following Service Charge Year, or, at the end of the Term, set off
against any sums due from the Tenant to the Landlord with any balance
being repaid to the Tenant.
11.5.4 The Landlord's Expenses for the Service Charge Year in which the
beginning of the Term falls may include costs incurred by or provided
for or on behalf of the Landlord before the beginning of the Term so
far as they relate to Services which are to be provided during the
Term. The Landlord's Expenses in any Service Charge Year may include
provisions for expenses to be made after the end of the Term so far as
such provisions are reasonable having regard to the Services which are
provided during the Term.
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STATE AND CONDITION OF THE PREMISES
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CLAUSE 12
12.1 Repair
12.1.1 The Tenant shall repair the Premises and keep them in good and
substantial repair and condition.
12.1.2 The Tenant shall carry out all works and treatments to the Premises as
are necessary for the proper repair and maintenance of the Premises and
to ensure the health and safety of people working at or visiting the
Premises.
12.1.3 The Tenant shall regularly clean the inside of the windows at the
Premises.
12.1.4 The Tenant will not be liable under this clause 12.1 to the extent that
the Landlord is obliged to carry out the relevant repair works under
clause 11.2.1 (Services) clause 10.2 (Reinstatement) or to the extent
that the Landlord is prevented from carrying them out by reason of the
matters referred to in paragraph (b) or (c) of clause 10.2.1.
12.2 Redecoration
12.2.1 The Tenant shall redecorate the Premises every five years, and in the
last six months of the Term, and, on the last occasion, in colours and
materials approved by the Landlord with such approval not to be
unreasonably withheld or delayed.
12.2.2 All redecoration is to be carried out to a high standard and in
accordance with good modern practice and to the reasonable satisfaction
of the Landlord.
12.2.3 The Tenant will not be obliged to redecorate the Premises while the
Landlord is repairing or reinstating the Premises by reason of clause
10.2 (Reinstatement) to the extent that repair or reinstatement includes
redecoration. The Tenant shall then redecorate the interior every five
years after the repair or reinstatement and in the last six months of the
Term and otherwise in accordance with this clause 12.2.
12.2.4 The Tenant shall renew the carpet in the Premises at the end of the Term
in a colour and style which shall be approved by the Landlord such
approval not to be unreasonably withheld or delayed.
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12.3 Alterations
12.3.1 The Tenant shall not without the consent of the Landlord, such consent
not to be unreasonably withheld or delayed, make any alterations or
additions to the Service Media which form part of the Premises or make
any alterations or additions to the Premises;
12.3.2 On any application for consent to make alterations or additions the
Tenant shall give the Landlord two copies of a specification and
detailed drawings identifying the proposed works, and any further
copies required by a superior landlord.
12.3.3 Unless otherwise required by the Landlord, the Tenant shall, at the end
of the Term, remove any alterations or additions made to the Premises
(and make good any damage caused by that removal to the reasonable
satisfaction of the Landlord) and shall reinstate the Premises to their
original layout and condition.
12.4 Signs and reletting notices
12.4.1 The Tenant shall not display any signs or notices at the Premises which
can be seen from outside the Premises, except one sign at the entrance
to the Premises giving the name and business of the Tenant (or other
authorized occupier), and a sign giving the names of any companies
having their registered office at the Premises. The size, style and
position of all signs permitted under this clause 12.4 must be approved
by the Landlord with such approval not to be unreasonably withheld or
delayed.
12.4.2 At the end of the Term the Tenant shall remove any signs at the
Premises and will make good any damage caused by that removal to the
reasonable satisfaction of the Landlord.
12.4.3 The Tenant shall permit the Landlord to place a sign on the Premises
(and shall not object to any sign placed on the exterior of the
Building):
(a) during the last six months of the Term for the reletting of the
Premises; and
(b) at any time advertising the sale of the Landlord's interest (or any
superior interest) in the Premises or the Building.
so long as such signs do not unreasonably restrict the access of light
or air to the Premises.
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USE OF THE PREMISES
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CLAUSE 13
13.1 The Permitted Use
The Tenant shall not use the Premises except for the Permitted Use.
13.2 Restrictions on Use
The Tenant shall not:
13.2.1 leave the Premises unoccupied for a period of more than one month without
first notifying the Landlord in writing, nor for more than three months
without first complying with the Landlord's insurer's requirements (if
any) for rendering the Premises safe and secure. The Tenant will not by
virtue of this clause be required to trade from the Premises;
13.2.2 do anything on the Premises which is illegal or immoral;
13.2.3 do anything on the Premises which would cause a nuisance or inconvenience
or any damage or disturbance to the Landlord or any of the other
occupiers of the Building or any owner or occupier of any other property
near the Building;
13.2.4 obstruct any pavement, footpath or roadway adjoining or serving the
Building;
13.2.5 carry out any noisy, noxious, dangerous or offensive acts at the
Premises;
13.2.6 store dangerous or inflammable materials at the Premises, unless they
are:
(a) of a type usually kept by persons carrying on the same business as
the Tenant (or other occupier) or necessary for the operation of any
plant or machinery;
(b) kept in reasonable quantities; and
(c) stored safely and in accordance with any requirements or
recommendations of the insurers of the Premises.
13.2.7 allow waste to accumulate at the Premises;
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13.2.8 allow any material which is deleterious, polluting or dangerous (to
persons or property) to enter any Service Media or any adjoining
property; nor
13.2.9 overload or obstruct any Service Media which serve the Premises.
13.3 Use of machinery
The Tenant shall not use any machinery on the Premises in a manner
which causes or may cause:
13.3.1 any damage to the fabric of the Building or any strain on the structure
of the Building beyond that which it is designed to bear; or
13.3.2 any undue noise, vibration or other inconvenience to the Landlord or
other occupiers of the Building or of any adjoining property.
13.4 Fire and security precautions
The Tenant shall comply with the requirements and recommendations of
the fire authority and with any reasonable requirements of the Landlord
relating to fire prevention and the provision of fire fighting
equipment at the Premises. The Tenant shall comply with the reasonable
requirements of the Landlord in relation to the security of the
Building.
13.5 Exclusion of warranty
The Landlord does not warrant or represent that the Premises may be
used for the Permitted Use or for any other purpose.
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DEALINGS
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CLAUSE 14
14.1 General restrictions
The Tenant shall not part with nor agree to part with possession of the
whole or part of the Premises or this Lease, nor allow any other person
to occupy the whole or any part of the Premises, except as permitted by
the remainder of this Clause 14.
14.2 Assignments
14.2.1 In this clause "Assignee" means the proposed assignee and "Assignment"
means the proposed assignment.
14.2.2 The Tenant shall not assign any part (as opposed to the whole) of this
Lease.
14.2.3 The Tenant shall not assign the whole of this Lease without the consent
of the Landlord, such consent not to be unreasonably withheld or delayed.
14.2.4 The Landlord and the Tenant agree that, for the purposes of section
19(1A) of the Landlord and Tenant Act 1927, the Landlord may refuse its
consent to an assignment in any of the following circumstances:
(a) if the Tenant has not paid all Rent and other sums due under this
Lease;
(b) if in the reasonable opinion of the Landlord the Assignee is not of
sufficient financial standing to pay the Rent and other sums payable
under this Lease and to comply with the Tenant's obligations in this
Lease (except where in the reasonable opinion of the Landlord
acceptable security for such payments and such obligations is
provided);
(c) if, where the obligations of the Tenant have been guaranteed by a
member of the same Group as the Tenant, the Assignee is another
member of that Group;
(d) if the Assignee (being a body corporate) is not incorporated within
the UK, unless its proposed guarantor (and if more than one then all
of them) (being a body corporate) is (or are) incorporated within the
UK.
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14.2.5 The Landlord and the Tenant agree that, for the purposes of section
19(1A) of the Landlord and Tenant Act 1927, the Landlord may give its
consent to an assignment subject to all or any of the following
conditions:
(a) that the Tenant enters into an authorized guarantee agreement no
later than the date of the Assignment. The agreement is to be by
deed and, is to provided for a guarantee of all the obligations of
the Assignee under this lease from the date of the Assignment
until the Assignee is released by virtue of the Landlord and
Tenant (Covenants) Act 1995. The agreement will also provide for
all the matters permitted by section 16(5) of that Act and be
otherwise in accordance with section 16 of that Act and be in a
form reasonable required by the Landlord.
(b) that the Assignee shall procure a guarantor or guarantors, which,
if a body corporate, is to be incorporated within the UK,
acceptable to the Landlord. The guarantor shall enter into a full
guarantee and indemnity of the Assignee's obligations under this
Lease. Such guarantee and indemnity is to be by deed and to be in
the form of the schedule to this deed together with any additional
provisions reasonably required by the Landlord or reasonably
requested by the Tenant;
(c) that, if at any time before the Assignment the circumstances set
out in clause 14.2.4 apply, the Landlord may revoke its consent to
the Assignment by written notice to the Tenant;
(d) that the Assignment is completed within such time as may
reasonably be specified by the Landlord.
14.2.6 Clauses 14.2.4 and 14.2.5 do not limit the right of the Landlord to
refuse consent to an assignment on any other reasonable ground or to
impose any other reasonable condition to its consent.
14.3 Underlettings
14.3.1 The Tenant shall not underlet or agree to underlet any part of the
Premises (as distinct from the whole).
14.3.2 The Tenant shall not underlet the whole of the Premises, except in
accordance with the remainder of this clause 14.3 and with clause 14.4
(Terms to be contained in any underlease) and then only with the
consent of the Landlord, such consent not to be unreasonably withheld
or delayed.
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14.3.3 The Tenant shall not underlet the Premises without first obtaining
from the undertenant a covenant by the undertenant with the Landlord:
(a) to comply with the terms of this Lease on the part of the tenant,
other than as to the payment of any Rent or other sums reserved as
rent by this Lease; and
(b) to comply with the obligations on the undertenant in the
underlease throughout the term of the underlease or until the
undertenant is released by virtue of the Landlord and Tenant
(Covenants) Act 1995, if sooner.
14.3.4 Any underlease shall be granted at a rent which is not less than the
then full open market rental value of the Premises and without a fine
or premium and with the underlease rent payable not more than one
quarter in advance.
14.3.5 Tenant shall not grant an underlease until the Landlord has given its
approval of an order of a court of competent jurisdiction made under
section 38(4) of the Landlord and Tenant Act 1954 authorizing an
agreement excluding sections 24 to 28 (inclusive) from the tenancy to
be created by the underlease. The Tenant shall supply the Landlord
with a copy of the order (with the form of underlease) certified by
solicitors as a true copy of the original for this purpose.
14.4 Terms to be contained in any underlease
Any underlease shall contain the following terms:
14.4.1 an agreement excluding sections 24 to 28 (inclusive) of the Landlord
and Tenant Act 1954 from the tenancy created by the underlease;
14.4.2 (where the term of the underlease extends beyond a Review Date) a
provision for the review of the rent in the same terms and on the same
dates as the review of the Rent in this Lease;
14.4.3 a provision for re-entry in the same terms as clause 18 (Forfeiture);
14.4.4 an obligation on the undertenant not to deal with or dispose of its
interest in the underlease, or part with possession of the whole or
part of that interest or permit any other person to occupy the
Premises except by way of an assignment or charge of the whole of its
interest in the Premises, which may only be made with the Landlord's
consent, such consent not to be unreasonably withheld or delayed;
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14.4.5 agreements between the Tenant and the undertenant in the same terms as
clause 14.2.4 and 14.2.5;
14.4.6 an agreement between the Tenant and the undertenant expressed to be
for the purposes of section 19(1A) of the Landlord and Tenant Act 1927
that the Tenant may give its consent to an assignment of the
underlease subject to a condition that the proposed assignee of the
underlease enters into a covenant with the Landlord:
(a) to comply with the terms of this Lease on the part of the tenant,
other than as to the payment of any Rent or other sums reserved
as rent by this Lease; and
(b) to comply with the obligations on the undertenant in the
underlease, from the date the assignment of the underlease is
completed throughout the term of the underlease or until the
assignee of the underlease is released by virtue of the Landlord
and Tenant (Covenants) Act 1995, if sooner.
14.4.7 an acknowledgement in the terms of clause 14.2.6;
14.4.8 a provision that any document to be entered into by an assignee of the
undertenant in fulfillment of a condition of consent to the assignment
shall be in a form reasonably required by the Landlord; and
14.4.9 an agreement between the Tenant and the undertenant that where the
review of rent in the underlease is referred to a third party for
determination, the Tenant will be allowed to make representations and
counter-representations to that third party on behalf of the Landlord
as to the reviewed rent to be payable under the underlease.
and shall otherwise be consistent with the terms of this Lease.
14.5 Rent review in an underlease
14.5.1 The Tenant shall procure that the rent in any underlease is reviewed
in accordance with the underlease.
14.5.2 The Tenant shall not agree the level of any reviewed rent with an
undertenant without the consent of the Landlord, such consent not to
be unreasonably withheld.
14.5.3 If the rent review in an underlease is referred to a third party for
determination, the Tenant shall:
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(a) ensure that the decision as to whether that third party is to act
as arbitrator or expert is made with the Landlord's consent with
such consent not to be unreasonably withheld or delayed;
(b) ensure that the Landlord is given a reasonable opportunity to
supply evidence to the Tenant to enable the Tenant to make
representations and counter-representations. The Tenant shall
make such representations and counter-representations on behalf
of the Landlord and that any representations and counter-
representations made by the Tenant or undertenant are immediately
copied to the Landlord; and
(c) keep the Landlord informed as to the progress of that third party
determination.
14.6 Further provisions relating to underleases
14.6.1 The Tenant shall enforce the obligations of the undertenant in any
underlease;
14.6.2 Where the Tenant has the right to refuse consent to an assignment of
an undertenant's interest in the Premises it shall exercise that right
and where the Tenant has the right to grant such consent subject to
conditions, the Tenant shall impose those conditions unless the
Landlord consents to a waiver of that right in respect of one or more
of those conditions. Such consent, except consent to waive the right
to require an authorized guarantee agreement in accordance with the
underlease, is not to be unreasonably withheld or delayed;
14.6.3 The Tenant shall not vary the terms of, nor, without the consent of
the Landlord, such consent not to be unreasonably withheld, accept or
agree to accept a surrender of, or forfeit any underlease.
14.7 Charging
14.7.1 The Tenant shall not charge or agree to charge any part of the
Premises (as distinct from the whole);
14.7.2 The Tenant shall not charge or agree to charge the whole of the
Premises without the consent of the Landlord, such consent not to be
unreasonably withheld or delayed.
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14.8 Declarations of trust
The Tenant shall not execute any declaration of trust of the whole or
any part of its interest in the Premises or this Lease.
14.9 Group sharing of occupation
If the Tenant is a company, it may share occupation of the Premises
with any company which is in the same Group as the Tenant on the
following conditions:
14.9.1 the Tenant promptly notifies the Landlord in writing of the beginning
and the end of the arrangement;
14.9.2 no relationship of landlord and tenant is created by the arrangement;
and
14.9.3 the other company vacates the Premises immediately if it ceases to be
a member of the same Group as the Tenant.
14.10 Registration of dealings and provision of information
14.10.1 Within one month of any dealing with, or devolution of, the Premises
or this Lease or of any interest created out of them or it, the Tenant
shall:
(a) notify the Landlord in writing of that dealing or devolution;
(b) give the Landlord a copy of any document effecting or evidencing
the dealing or devolution, together with a copy for any superior
landlord and the copies will each be certified by solicitors as a
true copy of the original; and
(c) pay the Landlord a reasonable registration fee of not less than
(pound)25 and the registration fee of any superior landlord.
14.10.2 Registration of any dealing with or devolution of the Premises or this
Lease or any interest created out of it or them will not imply that
the Landlord has considered or approved the terms of that dealing or
devolution.
14.10.3 The Tenant shall give the Landlord written details of persons
occupying the Premises and the basis upon which they occupy on request
by the Landlord.
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LEGAL REQUIREMENTS AND REGULATIONS
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CLAUSE 15
15.1 Legislation
The Tenant shall:
15.1.1 comply with all legislation affecting the Premises, their use and
occupation, and the health and safety of persons working at or
visiting the Premises, whether the legislation requires the owner,
landlord, tenant or occupier to comply;
15.1.2 carry out any works to the Premises which are required by legislation;
15.1.3 obtain all licences and consents which are required under any
legislation to use the Premises or carry out any works or other
activity at the Premises;
15.1.4 at the end of the Term pay the Landlord a fair proportion of any
compensation which the Tenant has received or which is receivable by
the Tenant because of any restriction placed on the use of the
Premises under any legislation;
15.1.5 not do or omit to do anything at the Premises which would result in:
(a) any other property owned or occupied by the Landlord (including
any other part of the Building) failing to comply with any
legislation; or
(b) the Landlord incurring any cost, penalty or liability under any
legislation (save as referred to in clause 9.3.1).
15.2 Notices relating to the Premises
The Tenant shall:
15.2.1 give the Landlord a copy of any notice received by the Tenant,
relating to the Premises or the Building or any occupier of them, or
to the Landlord's interest in them, within 5 Working Days of having
received it (or immediately if there are shorter time limits in the
notice);
15.2.2 where a notice requires compliance by the owner or occupier of the
Premises, but subject to clause 15.2.3, comply with the terms of any
such notice in a manner approved by the Landlord. The Landlord's
approval of
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any particular manner will not imply that the Tenant has discharged
its obligation to comply with the terms of the notice;
15.2.3 at its own cost, make or join the Landlord in making, any objection or
appeal against such notice, which the Landlord may reasonably require
15.3 Planning
15.3.1 The Tenant shall comply with the Planning Acts.
15.3.2 The Tenant shall pay any charge imposed under the Planning Acts in
respect of the use of the Premises, or any works carried out at the
Premises.
15.3.3 The Tenant shall not apply for planning permission or make any other
application under the Planning Acts nor implement any planning
permission affecting the Premises without the consent of the Landlord.
15.4 The Construction (Design and Management) Regulations 1994
15.4.1 In this clause "Regulations" means the Construction (Design and
Management) Regulations 1994 and "File" means The Health and Safety
file for the Premises and works carried out to them required by the
Regulations.
15.4.2 In respect of any works carried out by or on behalf of the Tenant or
any undertenant or other occupier of the Premises (including any works
of reinstatement which may be carried out after the end of the Term)
to which the Regulations apply, the Tenant shall:
(a) comply in all respects with the Regulations and procure that any
person involved in carrying out such works complies with the
Regulations; and
(b) act as the only client in respect of those works and where
required by the Landlord serve a declaration to that effect on
the Health and Safety Executive pursuant to Regulation 4 of the
Regulations and give a copy of it to the Landlord.
15.4.3 The Tenant shall:
(a) maintain and make the File available to the Landlord for
inspection at all times;
(b) on request provide copies of the whole or any part of the File to
the Landlord; and
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(c) hand the File to the Landlord at the end of the Term.
15.4.4 The Tenant shall obtain copyright licences which are needed for the
Tenant lawfully to comply with this clause 15.4 and such licences
shall:
(a) be granted with a full title guarantee;
(b) allow the Landlord and any superior landlord and anyone deriving
title through or under them to take further copies of such
documents;
(c) be obtained without cost to any such person; and
(d) be irrevocable.
15.5 Local authority requirements
The Tenant shall comply with all local authority requirements and
recommendations relating to the loading and unloading of goods at the
Building and the collection of refuse from the Premises.
15.6 Defective Premises Act 1972
15.6.1 The Tenant shall give the Landlord immediate written notice of any
defect in the Structural Parts or Common Parts adjoining the Premises
of which the Tenant becomes aware and of any defect in the Premises
which, in either case, may make the Landlord liable to do, or not to
do, any act to comply with the duty of care imposed by the Defective
Premises Act 1972.
15.6.2 The Tenant shall display any notices at the Premises needed to enable
the Landlord to comply with the Defective Premises Act 1972.
15.7 Regulations
The Tenant shall comply with any regulations which may reasonably be
made by the Landlord from time to time to ensure the health and safety
of persons at the Building and generally for the proper management of
the Building.
15.8 No additional rights
The Landlord will not be obliged to grant any additional rights to the
Tenant or waive any of the Landlord's rights under this Lease in
connection with the obligations of the Tenant in this clause 15.
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LANDLORD'S COVENANT FOR QUIET ENJOYMENT
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CLAUSE 16
The Landlord agrees with the Tenant that, for so long as the Tenant complies
with the Terms of this Lease, the Tenant may hold and use the Premises during
the Term without any interruption (except as authorized by this Lease) by the
Landlord or by any person lawfully claiming through, under or in trust for the
Landlord.
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LIMIT ON LANDLORD'S LIABILITY
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CLAUSE 17
17.1 In this clause "Interest" means the whole of the interest in the
reversion immediately expectant on the end of the Term.
17.2 The obligations on the Landlord contained or implied in this Lease, to
the extent that they relate to any time after a person has parted with
its Interest, will not be binding on or enforceable against a person
after that person has parted with its Interest.
17.3 To the extent that a person retains any liability for such obligations
after having parted with its Interest, the Tenant agrees to release
that person from such liability within four weeks of being notified in
writing that such person has parted with its Interest. Such release
will have effect from the date of the disposal of the Interest.
17.4 If the Landlord makes a request under section 6 or 7 of the Landlord
and Tenant (Covenants) Act 1995 (Release from covenants on assignment
of the reversion), the Tenant agrees not to unreasonably withhold or
delay the release requested.
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FORFEITURE
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CLAUSE 18
18.1 Landlord's right of re-entry
If any event set out in clause 18.2 occurs, the Landlord may forfeit
this Lease and re-enter the Premises. The Term will then end, but
without prejudice to any claim which the Landlord may have against the
Tenant or a Guarantor for any failure to comply with the terms of this
Lease.
18.2 Events giving rise to the Landlord's right of re-entry
18.2.1 The Rent or any other sum payable under this Lease has not been paid
15 Working Days after it became due, whether formally demanded or not.
18.2.2 The Tenant or any Guarantor has failed to comply with the terms of
this Lease.
18.2.3 The Tenant or any Guarantor, if an individual (or if more than one
individual then any one of them):
(a) is the subject of a bankruptcy petition;
(b) is the subject of an application for an interim order under Part
VIII of the Insolvency Act 1986; or
(c) enters into any compositions, moratorium or other arrangement
with its creditors, whether or not in connection with any
proceeding under the Insolvency Act 1986; or
a receiver of the income of the Premises is appointed under section
101 of the Law of Property Act 1925.
18.2.4 In relation to a Tenant or any Guarantor which is a body corporate (or
if more than one body corporate then any one of them):
(a) a proposal for voluntary arrangement is made under Part I of the
Insolvency Act 1986 or the directors of the Tenant or Guarantor
resolve to make such a proposal;
(b) a petition for an administration order is presented under Part II
of the Insolvency Act 1986 or the directors of the Tenant or
Guarantor resolve to present such a petition;
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(c) a receiver (including a receiver under section 101 of the Law of
Property Act 1925) or manager or administrative receiver of its
property (or part of it) is appointed;
(d) a resolution for its voluntary winding up is passed under Part IV
of the Insolvency Act 1986 or a meeting of its creditors is
called for the purpose of considering that it be wound up
voluntarily (in either case, other than a voluntary winding up
whilst solvent for the purposes of and followed by a solvent
reconstruction or amalgamation);
(e) a petition for its winding up is presented to the court under
Part IV or by virtue of Part V of the Insolvency Act 1986 or a
resolution is passed that it be wound up by the court; or
(f) an application is made under section 425 of the Companies Act
1985 or a proposal is made which could result in such an
application.
18.2.5 The Tenant or any Guarantor which is a body corporate (or if more than
one body corporate then any of them):
(a) enters or proposes to enter into any arrangement, moratorium or
composition (other than any referred to above) with its
creditors; or
(b) is dissolved, or is removed from the Register of Companies, or
ceases to exist (whether or not capable of reinstatement or
reconstitution).
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NOTICES IN CONNECTION WITH THIS LEASE
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CLAUSE 19
19.1 Where a notice is to be given in connection with this Lease, it must
be given in writing and signed by or on behalf of the party giving it,
unless it is stated that it need not be given in writing.
19.2 Any notice to be given in connection with this Lease will be validly
served if sent by first class post, or registered post or recorded
delivery and addressed to or personally delivered to:
19.2.1 the Landlord at the address given in this deed or such other address
which the Landlord has notified to the Tenant in writing;
19.2.2 the Tenant at the Premises or its registered office or its last known
address;
19.2.3 a Guarantor at the Premises or its registered office or its last known
address.
19.3 Any notice or demand sent by post from within the UK, and properly
stamped and correctly addressed will be conclusively treated as having
been delivered 2 Working Days after posting.
19.4 The Tenant shall give the Landlord verbal notice of any matter
affecting the Premises where emergency action is needed as well as
written notice.
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MISCELLANEOUS
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CLAUSE 20
20.1 Landlord's rights to remedy default by the Tenant
20.1.1 If the Tenant fails to comply with any of its obligations in this
Lease, the Landlord may give the Tenant written notice of that
failure, and the Tenant shall:
(a) immediately in the case of an emergency; and
(b) otherwise as soon as practicable, but in any event within one
month of such notice,
begin and then, within a reasonable time, complete remedying that
failure.
20.1.2 If the Tenant does not comply with clause 20.1.1, the Landlord may
enter the Premises and carry out any works or do anything else which
may be needed to remedy the Tenant's failure to comply with its
obligations under this Lease.
20.1.3 Any costs incurred by the Landlord by reason of clause 20.1.2 will be
a debt due from the Tenant payable on demand and may be recovered by
the Landlord as if it were additional rent.
20.2 Superior interests
If at any time this Lease is a underlease:
20.2.1 the Tenant shall comply with the Terms of any superior lease to the
extent that they relate to the Premises, other than any obligation to
pay any rent; and
20.2.2 the Landlord shall pay any rent due under the immediate superior
lease.
20.3 Tenant to provide information
20.3.1 The Tenant shall give the Landlord any information or documents which
the Landlord reasonably requests to show that the Tenant is complying
with its obligations in this Lease.
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20.3.2 The Tenant shall give the Landlord immediate written notice of any
defect or default which may make the Landlord liable to the Tenant or
any third party.
20.4 Tenant's indemnity
The Tenant agrees to indemnify the Landlord at all times (both during
and after the Term) against all charges, claims, proceedings,
liabilities, damages, losses, costs and expenses arising directly or
indirectly from:
20.4.1 the existence, state of repair or use of the Premises;
20.4.2 any works carried out at the Premises;
20.4.3 any breach of any of the Tenant's obligations in this Lease; or
20.4.4 any act or omission of the Tenant.
20.5 Tenant's acknowledgement
The Tenant acknowledges that it has not entered into this Lease in
reliance on any representation made by or on behalf of the Landlord.
20.6 Disputes
Any dispute between the Tenant (or other occupier of the Premises) and
the Landlord or any other tenant or occupier of the Building relating
to the Building shall be referred to the Landlord whose decision,
provided it is made in accordance with the principles of good estate
management and save in the case of manifest error, will be final and
binding.
20.7 Guarantor
20.7.1 If at any time during the Term a Guarantor (or where a Guarantor
comprises more than one person, any one of them) dies or any of the
events referred to in clause 18 (Forfeiture) occurs in relation to a
Guarantor, then the Tenant shall give immediate written notice to the
Landlord of that event. Within one month of being so required by the
Landlord, the Tenant shall procure that another person acceptable to
the Landlord enters into a deed of guarantee and indemnity in the form
of the schedule to this deed.
20.7.2 The Tenant shall procure that a Guarantor enters into any deed or
document which is supplemental to this deed and which is entered into
before that Guarantor is released by virtue of the Landlord and Tenant
(Covenants) Act 1995.
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20.8 Qualification of Landlord's liability
The Landlord will not be liable to the Tenant or any other person
for:
20.8.1 any damage to person or property arising from any act, omission or
misfeasance by the Landlord, or its employees, agents or independent
contractors, or by any other tenant or occupier of the Building or
from the state and condition of the Premises or of any other part of
the Building or any adjoining property of the Landlord;
20.8.2 any interruption to the supply of Utilities to the Premises or other
parts of the Building;
20.8.3 any accidental damage to the Premises or to any property of the Tenant
or any other occupier of the Premises or their employees, agents or
independent contractors;
20.8.4 any accidental damage to any person occurring during the performance
by or on behalf of the Landlord of any service which the Tenant or
other authorized occupier of the Premises has requested the Landlord
to carry out; or
20.8.5 for any failure to perform any obligation in this Lease, unless the
Tenant has given the Landlord written notice of the facts giving rise
to that failure and allowed the Landlord a reasonable time to remedy
the matter.
20.9 Sale of goods after end of Term
20.9.1 The Tenant irrevocably appoints the Landlord as its agent to store or
dispose of any items left by the Tenant at the Premises more than 10
Working Days after the end of the Term.
20.9.2 The Landlord may store or dispose of such items after that time as it
thinks fit and without any liability to the Tenant, other than to
account to the Tenant for the proceeds of sale, after deducting any
costs of sale or storage incurred by the Landlord.
20.9.3 The Tenant agrees to indemnify the Landlord against any liability
incurred by the Landlord by reason of the Landlord disposing of any
items left at the Premises which do not belong to the Tenant, but
which the Landlord believed did belong to the Tenant, which will be
presumed unless the contrary is proved.
20.10 Arbitration
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Where this Lease refers to a dispute being referred to arbitration, it
will be referred to a single arbitrator who will act in accordance
with the Arbitration Act 1996, and the referral will be a submission
to arbitration in accordance with that Act.
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EXCLUSION OF THE 1954 ACT
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CLAUSE 21
Having been authorized to do so by an order of the Mayor's and City of London
Court, under section 38(4) of the Landlord and Tenant Act 1954 made on 22nd
April, 1999 (No. MY965783), the Landlord and the Tenant agree that the
provisions of sections 24 to 28 (inclusive) of the Landlord and Tenant Act 1954
shall not apply to the tenancy created by this deed.
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NEW OR OLD LEASE
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CLAUSE 22
This Lease is a new tenancy for the purposes of Section 1 of the Landlord and
Tenant (Covenants) Act 1995.
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MUTUAL OPTION TO DETERMINE
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CLAUSE 23
23.1 In this clause 23 "Termination Date" means 24 March 2004;
23.2 Subject to the pre-conditions contained in clause 23.3 being satisfied
on the Termination Date, and subject to the provisions of clause 23.4
either party may determine the Term on the Termination Date by giving
to the other not less than six month's written notice. The Term will
then determine on the Termination Date, but without prejudice to any
rights of either party against the other for any antecedent breach of
its obligations under this Lease.
23.3 The pre-conditions are that:
23.3.1 (in the case only of a notice served by the Tenant) materially the
Premises are in a state consistent with the proper performance of the
Tenant's obligations contained in clause 12;
23.3.2 (in the case only of a notice served by the Tenant) vacant possession
of the whole of the Premises is given to the Landlord;
23.3.3 the party giving the notice referred to in clause 23.2 pays to the
other party a sum equal to 3 months' Rent at the rate of the Rent per
annum payable immediately preceding the Termination Date;
23.3.4 (in the case only of a notice served by the Tenant) all Rent and other
sums due under this Lease up to the Termination Date have been paid in
full.
23.4 In the case only where the notice referred to in clause 23.2 is served
by the Tenant the Landlord may waive any of the pre-conditions
contained in clause 23.3 at any time before the Termination Date by
written notice to the Tenant.
23.5 In the case where the notice referred to in clause 23.2 is served by
the Landlord this Lease shall determine notwithstanding that the
Landlord has not made payment as referred to in clause 23.3.3 but in
such event the liability of the Landlord to make such payment shall
remain.
23.6 Time will be of the essence for the purposes of this clause 23.
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CERTIFICATE
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CLAUSE 24
It is certified that there is no agreement for lease to which this deed gives
effect.
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IN WITNESS of which this deed has been duly executed and is delivered on the
date written at the beginning of this deed.
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THE SCHEDULE
Form of deed of guarantee and indemnity
DEED OF GUARANTEE AND INDEMNITY
DATE
PARTIES
(1) [GUARANTOR ] (incorporated and registered in
England and Wales under company number [ ]), the
registered office of which is at [ ]; and
(2) [LANDLORD ] (incorporated and registered in
England and Wales under company number [ ]), the
registered office of which is at [ ].
RECITALS
(A) By the Lease premises known as [ ] were let by [
] to [ ] for a term of [ ] years
from [ ].
(B) [The reversion immediately expectant on the termination of the
Term [is now] [remains] vested in [ ]].
(C) [By an [assignment][transfer] dated [ ] and made
between [ ] (1) and the Tenant (2) the residue of the
Term is now vested in the Tenant.]
(D) The Guarantor has agreed to enter into this deed of guarantee and
indemnity in respect of the obligations of the Tenant pursuant to
the Lease.
IT IS AGREED AS FOLLOWS:
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DEFINITIONS
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CLAUSE 1
In this deed the following definitions apply:
"Guarantor"
the first party to this deed and its successors in title;
"Landlord"
the second party to this deed and its successors in title;
"Lease"
a lease made between [ ] (1) and [ ] (2) of [premises] dated [
] and any document varying or supplemental to such lease whether entered into
before or after the date of this deed;
"Tenant"
[name of tenant] of [address]
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INTERPRETATION
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CLAUSE 2
2.1 The clause headings are for reference only and do not affect the
construction of this deed.
2.2 The words "include" and "including" are deemed to be followed by the
words "without limitation".
2.3 General words introduced by the word "other" do not have a restrictive
meaning by reason of being preceded by words indicating a particular
class of acts, things or matters.
2.4 Obligations owed by or to more than one person are owed by or to them
jointly and severally.
2.5 A reference to a person includes an individual, a corporation,
company, firm, or partnership, whether or not legally capable of
holding land.
2.6 A reference to particular legislation is a reference to that
legislation as amended, consolidated or re-enacted from time to time
and includes all orders, regulations, consents, notices, licenses and
by-laws made or granted under such legislation.
2.7 Unless otherwise stated, a reference to a clause is a reference to a
clause or sub-clause of this deed.
2.8 The rights of the Landlord under any clause are without prejudice to
the rights of the Landlord under any other clause or under the Lease
or any other security.
2.9 The obligations of or restrictions on the Guarantor under any clause
are without prejudice to the obligations of or restrictions on the
Guarantor, or to the rights of the Landlord under any other clause or
under the Lease or any other security.
2.10 Where a sum is expressed to be payable on demand, unless otherwise
specified, 5 working days after the demand has been made.
2.11 The words "Interest Rate", "Rent", and "Term" have the meanings given
to them in the Lease.
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GUARANTEE
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CLAUSE 3
3.1 The Guarantor irrevocably and unconditionally guarantees to the
Landlord that the Rent and other sums due under the Lease will be duly
and punctually paid, and that all the other obligations of the Tenant
under the Lease will be duly performed and complied with, in either
case whether during or after the end of the Term (however and whenever
it ends).
3.2 The Guarantor agrees that if at any time the Rent or other sums due
under the Lease are not paid on their due date, or any of the other
obligations of the Tenant under the Lease are not duly performed and
complied with, it shall, on demand, pay such sum or perform or comply
with such obligation.
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PRINCIPAL DEBTOR
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CLAUSE 4
As a separate and independent obligation under this deed, the Guarantor agrees
that if any sum or obligation expressed to be guaranteed under this deed is not
recoverable from or enforceable against the Guarantor on the basis of a
guarantee (for whatever reason), the Guarantor shall be liable as sole or
principal debtor in respect of such sum or obligation which shall be paid,
performed or complied with by the Guarantor on demand.
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INDEMNITY
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CLAUSE 5
As a separate and independent obligation under the deed, the Guarantor agrees to
indemnify the Landlord and keep the Landlord indemnified against any costs,
loss, expense or liability resulting from:
5.1 the failure of the Tenant duly and punctually to pay the Rent and
other sums due under the Lease or to perform and comply with its
obligations in the Lease;
5.2 any of the obligations on the Tenant in the Lease being or becoming
void, voidable or unenforceable by the Landlord against the Tenant or
any other person who is liable;
5.3 the Lease (or the Tenant's obligations under it) being disclaimed;
5.4 the Lease being surrendered by a liquidator or trustee in bankruptcy
of the Tenant, or becoming forfeited;
5.5 the Tenant or any other person who is liable entering into any
arrangement or composition with any of its creditors (whether or not
such arrangement or composition binds or is expressed to bind the
Landlord); or
5.6 the Tenant (being a body corporate) ceasing to exist (whether or not
capable of reconstitution or reinstatement), and
to pay on demand to the Landlord the amount of such cost, loss, expense or
liability, whether or not the Landlord has sought to enforce any rights against
the Tenant or any other person who is liable.
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<PAGE>
NO DISCHARGE OF GUARANTOR
- --------------------------------------------------------------------------------
CLAUSE 6
Without prejudice to sub-section 18(3) of the Landlord and Tenant (Covenants)
Act 1995 (Effect of variations on guarantors), the Guarantor's liability under
this deed will remain in full force and effect and will not be released or
discharged nor will the rights of the Landlord be prejudiced or affected by any
of the following:
6.1 any time, indulgence or concession granted by the Landlord to the
Tenant or to any other person who is liable;
6.2 the Landlord dealing with, exchanging, varying or failing to perfect
or enforce any of its rights or remedies against the Tenant or any
other person who is liable;
6.3 the existence of or dealing with, varying or failing to perfect or
enforce any other rights or security which the Landlord may have or
acquire against the Tenant or any other person who is liable in
respect of its obligations under the Lease;
6.4 any variation of, addition to or reduction from the terms of the Lease
whether or not the same is substantial or is prejudicial to the
Guarantor or confers only a personal right or obligation;
6.5 any non-acceptance of the Rent or other sums due from the Tenant under
the Lease, in circumstances where the Landlord has reason to suspect a
breach of its obligations in the Lease;
6.6 the occurrence of any of the events set out in clause 18 (Forfeiture)
of the Lease;
6.7 a surrender of part of the premises demised by the Lease, except that
the Guarantor will have no liability in relation to the surrendered
part in respect of any period after the date of the surrender;
6.8 any incapacity, disability or change in the constitution, status, or
name of the Tenant or of the Landlord;
6.9 any amalgamation, merger or reconstruction by the Landlord with any
other person or the acquisition of the whole or any part of its assets
or undertaking by any other person;
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<PAGE>
6.10 any voluntary arrangement entered into by the Tenant or any other
person who is liable with all or any of its creditors (whether or not
such arrangement binds or is expressed to bind the Landlord);
6.11 any other act or thing by virtue of which, but for this provision, the
Guarantor would have been released or discharged from its obligations
under this deed, or the rights of the Landlord would have been
prejudiced or affected, other than a release by deed, entered into by
the Landlord, in accordance with the terms of such deed,
and the parties acknowledge that each of the matters listed above is separate
and independent and is not to be interpreted in the light of any other.
74
<PAGE>
WAIVER BY GUARANTOR OF ITS RIGHTS
- --------------------------------------------------------------------------------
CLAUSE 7
7.1 Until all the liabilities expressed to be guaranteed by the Guarantor
under this deed have been paid, discharged or satisfied irrevocably
and in full, the Guarantor agrees not, without the consent of the
Landlord with such consent not to be unreasonably withheld or delayed,
to:
7.1.1 exercise any of its rights in respect of the liabilities expressed to
be guaranteed under this deed against the Tenant or any other person
who is liable;
7.1.2 demand or accept any security from the Tenant or any other person who
is liable in respect of the obligations of the Guarantor under this
deed or in respect of any indebtedness due to the Guarantor from the
Tenant or any other person who is liable. Any security received by the
Guarantor in breach of the above or any such security held by the
Guarantor at the date of this deed shall be held by the Guarantor on
trust for the Landlord and delivered to the Landlord on demand;
7.1.3 claim any legal or equitable set-off or counterclaim against the
Tenant or any other person who is liable; or
7.1.4 claim or prove in competition with the Landlord in the liquidation or
bankruptcy or in any administration or receivership of the Tenant or
any other person who is liable, or have the benefit of or share in any
payment or distribution from or composition or arrangement with the
Tenant or any other person who is liable. Any money or other property
received by the Guarantor in breach of this shall be held by the
Guarantor on trust for the Landlord and delivered to the Landlord on
demand.
7.2 The obligations of the Guarantor under this deed may be enforced by
the Landlord against the Guarantor.
7.2.1 at its discretion and without first enforcing or seeking to enforce
its rights against the Tenant or any other person who is liable or
exercising its rights under any other security or resorting to any
other means of payment; and
7.2.2 as primary obligations and not merely as obligations of a surety.
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<PAGE>
PAYMENTS IN GROSS
- --------------------------------------------------------------------------------
CLAUSE 8
All dividends, compositions and monies received by the Landlord from the Tenant
or any other person which are capable of being applied by the Landlord in
satisfaction of the liabilities expressed to be guaranteed under this deed, will
be regarded for all purposes as payments in gross. This will not prejudice the
right of the Landlord to recover from the Guarantor the ultimate balance which,
after receipt of such dividends, compositions and moneys, may remain owing or
expressed to be owing to the Landlord.
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<PAGE>
GUARANTOR TO TAKE A NEW LEASE
- --------------------------------------------------------------------------------
CLAUSE 9
9.1 In this clause a "Relevant Event" is:
9.1.1 the surrender of disclaimer of the Lease, or the Tenant's obligations
under it by a liquidator or trustee in bankruptcy of the Tenant;
9.1.2 the disclaimer of the Lease after it has become bona vacantia;
9.1.3 the forfeiture of the Lease; or
9.1.4 the Tenant (being a body corporate) ceasing to exist (whether or not
the Tenant is capable of being reconstituted or reinstated).
9.2 If a Relevant Event occurs the Guarantor agrees, at the request of the
Landlord made within 12 months following the Landlord having notice of
the Relevant Event, to take a new lease of the Premises from the
Landlord.
9.3 Such new lease shall:
9.3.1 be for a term commencing on the date of the Relevant Event and be
equal to the unexpired residue of the term of years granted by the
Lease (or the residue which would be unexpired but for the Relevant
Event) as at the date of the Relevant Event;
9.3.2 reserve a rent equal to the Rent reserved under the Lease immediately
before the Relevant Event and otherwise be on the same terms as the
Lease; and
9.3.3 take effect from the date of the Relevant Event.
9.4 The new lease will take effect subject to the Lease, if and to the
extent that it is still subsisting, and subject to any underlease or
other interest created or permitted by the Tenant or its predecessors
in title.
9.5 The Guarantor shall pay the Landlord's costs (on an indemnity basis)
in connection with the grant of such new lease and shall execute
deliver and pay the stamp duty on a counterpart of it to the Landlord.
9.6 The Guarantor shall before the grant of such new lease make a joint
application with the Landlord (in a form reasonably determined by the
Landlord) to a court of competent jurisdiction for an order to be made
77
<PAGE>
authorizing an agreement between the Landlord and the Guarantor to
exclude the provisions of sections 24 to 28 of the Landlord and Tenant
Act 1954 from the tenancy to be created by the new lease.
9.7 If the Landlord does not require the Guarantor to take a new lease of
the Premises, the Guarantor shall nevertheless pay on demand to the
Landlord a sum equal to the Rent and other sums due under the Lease
which would have been payable but for the Relevant Event in respect of
the period from the date of the Relevant Event until six months after
it or, if sooner, the date the Premises are re-let.
78
<PAGE>
SUPPLEMENTARY PROVISIONS
- --------------------------------------------------------------------------------
CLAUSE 10
10.1 This deed is in addition to any other security or any other right or
remedy held by or available to the Landlord from time to time.
10.2 As and when called upon to do so by either the Landlord or the Tenant,
the Guarantor shall enter into any document supplemental to the Lease
(by deed if required) for the purpose of consenting to the Tenant
entering into such supplemental document and confirming that, subject
only to subsection 18(3) of the Landlord and Tenant (Covenants) Act
1995 (Effect of variations on guarantors), all the obligations of the
Guarantor will remain in full force and effect in respect of the
Lease.
10.3 The Guarantor agrees to pay to the Landlord on demand, and on an
indemnity basis, all legal and other costs and charges which may be
payable by the Landlord in relation to the enforcement of the
Guarantor's obligations in this deed.
10.4 The Guarantor agrees to pay interest on each amount demanded of it
under this deed, at the Interest Rate until payment (both before and
after any judgment), except that where the sum demanded from the
Guarantor is interest due from the Tenant at that rate and is paid by
the Guarantor immediately on demand, the Guarantor will not be liable
to pay further interest on that sum.
10.5 Each of the provisions of this deed is distinct and severable from the
others, and if at any time one or more such provisions is or becomes
illegal, invalid or unenforceable (either wholly or to any extent),
the validity, legality and enforceability of the remaining provisions
(or the same provision to any other extent) will not be affected or
impaired.
10.6 The rights of the Landlord under this deed will enure for the benefit
of the Landlord and its successors in title without any need for any
express assignment of them.
79
<PAGE>
(EXECUTED AS A DEED by
(CAPITAL & COUNTIES plc
(acting by:
Director /s/ [signature illegible]
Secretary /s/ [signature illegible]
80
<PAGE>
Registered on
under section 395, Companies Act 1985
DATE 27th April 1999
------------------------------
CAPITAL & COUNTIES plc
and
ENGAGE TECHNOLOGIES LIMITED
_______________________________
RENT DEPOSIT DEED
relating to
an Underlease
dated 27 April 1999 and made
between Capital & Counties plc and (1)
and Engage Technologies Limited (2)
relating to
5th floor premises at Egyptian House 170 Piccadilly London W1
_______________________________
Nabarro Nathanson
50 Stratton Street
London W1X 6NX
Tel: 0171 493 9933
81
<PAGE>
CONTENTS
<TABLE>
<CAPTION>
Clause Subject matter Page
<S> <C>
1. DEFINITIONS AND INTERPRETATION.................................. 1
2. RECITALS........................................................ 2
3. SUPPLEMENTAL DEED............................................... 3
4. DEPOSIT......................................................... 3
5. WITHDRAWALS..................................................... 3
6. INTEREST........................................................ 4
7. TRANSFER OF REVERSION........................................... 4
8. RELEASE OF RENT DEPOSIT......................................... 4
9. CHARGE.......................................................... 5
10. GENERAL PROVISIONS.............................................. 5
11. EXECUTION....................................................... 5
SCHEDULE Part I - (Lease)................................ 6
Part II - (Property)............................ 6
Part III - (Deposited Sum)...................... 6
</TABLE>
82
<PAGE>
DEED
DATE 27th April 1999
PARTIES
(1) CAPITAL & COUNTIES plc (incorporated and registered in England and
Wales under company number 280739) the registered office of which is at
40 Broadway London SW1H 0BU (the Landlord); and
(2) ENGAGE TECHNOLOGIES LIMITED (incorporated and registered in England and
Wales under company number 3484747) the registered office of which is
at 212 Piccadilly, London W1V 9LD (the Tenant).
IT IS AGREED AS FOLLOWS:
1. DEFINITIONS AND INTERPRETATION
1.1 In this Deed, unless the context otherwise requires, the following
words and phrases have the following meanings:
"Account"
means an interest-bearing account to be opened in the name of the
Landlord with a bank or institution of the Landlord's choosing;
"Deposited Sum"
means the sum deposited by the Tenant with the Landlord under the terms
of this Deed and which is referred to in Part III of the Schedule and
includes any sum subsequently deposited in the Account from time to
time in accordance with this Deed;
"Lease"
means the underlease brief particulars of which are contained in Part I
of the Schedule and includes any document supplemental to the Lease
whether or not expressed to be so;
83
<PAGE>
"Property"
means that property brief particulars of which are contained in part II
of the Schedule;
"Rent Deposit"
means NINETY THOUSAND AND SEVENTY POUNDS ((pound)90,070) representing
an amount equal to nine months' rent plus value added tax from time to
time first reserved by the Lease and nine months' estimated service
charge payable under the Lease;
"Term"
means the term granted by the Lease and includes any extenion or
continuation whether by statute or at common law.
1.2 The clause headings in this Deed (erxcept the definitions) are for ease
of reference and are not to be used for the purposes of construing this
Deed.
1.3 References in this Deed to clauses or Schedules will mean the clauses
of or the Schedules attached to this Deed.
1.4 Obligations undertaken by more than one person are joint and several
obligations.
1.5 Words importing persons include firms companies and corporations and
vice versa.
1.6 Words importing one gender shall be construed as importing any other
gender.
1.7 Words importing the singular shall be construed as importing the plural
and vice versa.
1.8 The expression the "Landlord" includes (subject to clause 7) any person
entitled at any time to the reversion to the Lease.
2. RECITALS
2.1 It was a term of the negotiations for the Lease that the Tenant should
lodge with the Landlord the Rent Deposit.
2.2 On or before the date of this Deed the Tenant has lodged with the
Landlord the Deposited Sum.
84
<PAGE>
2.3 The Landlord agrees to hold the Rent Deposit under the terms of this
Deed.
3. SUPPLEMENTAL DEED
This Deed is supplemental to the Lease.
4. DEPOSIT
4.1 The Landlord acknowledges receipt from the Tenant of the Deposited Sum.
4.2 The Landlord will place the Deposited Sum (together with all money
received subsequently under the terms of this Deed as poart of the Rent
Deposit) in the Account and (subject to the provisions of clause 5)
will hold the Deposited Sum throughout the Term as security for:
4.2.1 payment by the Tenant on the due date of all of the rents payable under
the Lease;
4.2.2 payment by the Tenant of any other sums which may become due to the
Landlord from time to time under the Lease; and
4.2.3 compliance by the Tenant with the covenants and conditions contained in
the Lease and this Deed.
4.3 The Tenant will at all times maintain the amount standing to the credit
of the Account in a sum equivalent to the Rent Deposit.
4.4 If as a result of any withdrawal by the Landlord or for any other
reason the Deposited Sum is at any time less than the Rent Deposit, the
Tenant will within seven days after written notice from the Landlord
(and notwithstanding any dispute of any kind whatsoever as to any
withdrawal from the Account by the Landlord) deposit with the Landlord
a sum equal to the difference between the Deposited Sum and the Rent
Deposit.
4.5 Immediately following any increase of rent payable under the Lease, the
Tenant will deposit with the Landlord a sum equal to the difference
between the Deposited Sum and the Rent Deposit.
5. WITHDRAWALS
The Landlord may from time to time at the Landlord's absolute
discretion make withdrawals from the Account of sums sufficient to
compensate the Landlord for any non-payment, delay in payment or damage
suffered by or debt due to the Landlord arising from any of the
following events:
85
<PAGE>
5.1 any failure by the Tenant during the Term to pay, within seven days
after the due date, any of the rents or other sums payable under the
Lease or any mense profits for which the Tenant may be liable in
respect of the Property;
5.2 any default by the Tenant in complying with any covenant or condition
contained in the Lease relating to any other matter; or
5.3 forfeiture or disclaimer of the Lease or the Tenant ceasing to exist.
6. INTEREST
The Landlord will arrange for payments of all interest earned in
respect of the Account to be made (net of any tax required to be
deducted by the landlord before the Landlord accounts to the Tenant) to
the Tenant yearly at the Property or at such other address as the
Tenant may from time to time notify to the Landlord in writing.
7. TRANSFER OF REVERSION
If the landlord transfers the reversion immediately expectant upon the
determination of the Term the Landlord will:
7.1 transfer the Deposited Sum to the transferee of the reversion and
assign the benefit and the burden of this Deed to that transferee;
7.2 procure that the transferee of the reversion, no later than the date of
the transfer, covenants in a deed with the Tenant to observe and
perform the obligations of the Landlord under this Deed; and
7.3 on delivery of the deed of covenant referred to in clause 7.2 to the
Tenant the Landlord (being the transferor) will cease to be liable for
any default in compliance with any provision contained in this Deed.
8. RELEASE OF RENT DEPOSIT
If the Tenant has materially complied with all the covenants and
conditions contained inthe Lease and in this Deed such that at the time
of the occurrence of the relevant rent referred to in 8.1, 8.2 or 8.3
(as the case may be) below there are then no financial obligations
under the Lease or under this Deed outstanding then the landlord will
repay the Deposited Sum or the balance of the Deposited Sum then
standing to the credit of the Account to the Tenant (or as the Tenant
may direct) 10 working days after the earliest to occur of the
following:
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<PAGE>
8.1 the Landlord receiving notice of an assignment in accordance with the
Lease following a permitted assignment of the Lease by the Tenant;
8.2 the expiration or sooner determination of the Term or such later date
as any outstanding financial obligations have been settled;
8.3 receipt by the Landlord of audited accounts showing that the Tenant's
net profits after tax during each of the three immediately preceding
accounting periods (none of which is to be a period of more than one
year) are in excess of three times the annual rent payable under the
Lease at the date of receipt of those accounts in 8.1, 8.2 or 8.3 (as
the case may be).
9. CHARGE
The Tenant willful title guarantee charges the Account and all sums
standing to the credit of the Account from time to time as security for
the payment or reimbursement (as the case may be) to the landlord of
the sums referred to in clause 5.
10. GENERAL PROVISIONS
10.1 The Deposited Sum will at all times be and remain the property of the
Tenant subject to the Charge contained in clause 9.
10.2 The Landlord's rights of re-entry contained in the Lease will be
exercisable on any default by the Tenant in compliance with any
provision contained in this Deed as well as on the happening of any of
the events mentioned in the Lease.
10.3 The provisions of this Deed will not in any way lessen or affect the
Tenant's or any guarantor's obligations under the Lease or lessen the
Landlord's rights to take any action or proceedings under the Lease in
respect of any default by the Tenant in complying with any of the
covenants or conditions contained in the Lease.
10.4 All expenses incurred by the landlord in maintaining the Account will
be paid or indemnified (as the case may be) by the Tenant to the
Landlord on demand and if not so paid within 14 days of any demand may
be withdrawn by the Landlord from the Account.
11. EXECUTION
IN WITNESS of which the Landlord and the Tenant have executed this
document as a Deed which is intended to be and is delivered the day and
year first before written but not before.
87
<PAGE>
SCHEDULE
Part I
(Lease)
Date : 27th April 1999
Parties : Capital & Counties plc (1) and Engage Technologies Limited (2)
Term : from and including the date hereof and expiring on and including
24 March 2009
Part II
(Property)
Property situate at and known as 5th floor, Egypitan House, 170 Piccadilly,
London W1 as the same is more particularly described and comprised in the Lease.
Part III
(Deposited Sum)
NINETY THOUSAND AND SEVENTY POUNDS ((Pound)90,070)
( EXECUTED AS A DEED by
( CAPITAL & COUNTIES plc
( acting by:
Director /s/ [signature illegible]
Secretary /s/ [signature illegible]
88
<PAGE>
Exhibit 10.17
-------------
DIRECTOR INDEMNIFICATION AGREEMENT
This Agreement is made as of the _____ day of ________ 1999, by and between
Engage Technologies, Inc., a Delaware corporation (the "Corporation), and
_______________ ("Indemnitee"), a director of the Corporation.
WHEREAS, it is essential to the Corporation to retain and attract as
directors the most capable persons available, and
WHEREAS, it is the express policy of the Corporation to indemnify its
directors so as to provide them with the maximum possible protection permitted
by law, and
WHEREAS, Indemnitee does not regard the protection available under the
Corporation's Certificate of Incorporation and insurance as adequate in the
present circumstances, and may not be willing to serve or remain as a director
without adequate protection, and
WHEREAS, the Corporation desires Indemnitee to serve, or continue to serve,
as a director of the Corporation.
NOW THEREFORE, the Corporation and Indemnitee do hereby agree as follows:
1. Agreement to Serve. Indemnitee agrees to serve or continue to serve
------------------
as a director of the Corporation for so long as he is duly elected or appointed
or until such time as he tenders his resignation in writing.
2. Definitions. As used in this Agreement:
-----------
(a) The term "Proceeding" shall include any threatened, pending or
completed action, suit, or proceeding, whether brought by or in the right of the
Corporation or otherwise and whether of a civil, criminal, administrative or
investigative nature, and any appeal therefrom.
(b) The term "Corporate Status" shall mean the status of a person who
is or was a director of the Corporation, or is or was serving, or has agreed to
serve, at the request of the Corporation, as a director, officer, partner,
trustee, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise.
<PAGE>
(c) The term "Expenses" shall include, without limitation, attorneys'
fees, retainers, court costs, transcript costs, fees of experts, travel
expenses, duplicating costs, printing and binding costs, telephone charges,
postage, delivery service fees and other disbursements or expenses of the types
customarily incurred in connection with investigations, judicial or
administrative proceedings or appeals, but shall not include the amount of
judgments, fines or penalties against Indemnitee or amounts paid in settlement
in connection with such matters.
(d) References to "other enterprise" shall include employee benefit
plans; references to "fines" shall include any excise tax assessed with respect
to any employee benefit plan; references to "serving at the request of the
Corporation" shall include any service as a director, officer, employee or agent
of the Corporation 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 a person who acted in good faith and in
a manner he reasonably believed to be in the interests of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the Corporation" as referred to in
this Agreement.
3. Indemnification in Third-Party Proceedings. The Corporation shall
------------------------------------------
indemnify Indemnitee in accordance with the provisions of this Paragraph 3 if
Indemnitee was or is a party to or threatened to be made a party to or otherwise
involved in any Proceeding (other than a Proceeding by or in the right of the
Corporation to procure a judgment in its favor) by reason of his Corporate
Status or by reason of any action alleged to have been taken or omitted in
connection therewith, against all Expenses, judgments, fines, penalties and
amounts paid in settlement actually and reasonably incurred by Indemnitee or on
his behalf in connection with such Proceeding, if Indemnitee acted in good faith
and in a manner which he reasonably believed to be in, or not opposed to, the
best interests of the Corporation and, with respect to any criminal Proceeding,
had no reasonable cause to believe that his conduct was unlawful. The
termination of any 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 he
reasonably believed to be in, or not opposed to, the best interests of the
Corporation, and, with respect to any criminal Proceeding, had reasonable cause
to believe that his conduct was unlawful.
4. Indemnification in Proceedings by or in the Right of the Corporation.
--------------------------------------------------------------------
The Corporation shall indemnify Indemnitee in accordance with the provisions of
this Paragraph 4 if Indemnitee is a party to or threatened to be made a party to
or otherwise involved in any Proceeding by or in the right of the Corporation to
procure a judgment in its favor by reason of his Corporate Status or by reason
of any action alleged to have been taken or omitted in connection therewith,
against all Expenses and, to the extent permitted by law, amounts paid in
settlement actually and
-2-
<PAGE>
reasonably incurred by Indemnitee or on his behalf in connection with such
Proceeding, if he acted in good faith and in a manner which he reasonably
believed to be in, or not opposed to, the best interests of the Corporation,
except that no indemnification shall be made under this Paragraph 4 in respect
of any claim, issue, or matter as to which Indemnitee shall have been adjudged
to be liable to the Corporation, unless and only to the extent that the Court of
Chancery of Delaware shall determine upon application that, despite the
adjudication of such liability but in view of all the circumstances of the case,
Indemnitee is fairly and reasonably entitled to indemnity for such Expenses as
the Court of Chancery shall deem proper.
5. Exceptions to Right of Indemnification. Notwithstanding anything to
--------------------------------------
the contrary in this Agreement, except as set forth in Paragraph 10, the
Corporation shall not indemnify the Indemnitee in connection with a Proceeding
(or part thereof) initiated by the Indemnitee unless the initiation thereof was
approved by the Board of Directors of the Corporation. Notwithstanding anything
to the contrary in this Agreement, the Corporation shall not indemnify the
Indemnitee to the extent the Indemnitee is reimbursed from the proceeds of
insurance, and in the event the Corporation makes any indemnification payments
to the Indemnitee and the Indemnitee is subsequently reimbursed from the
proceeds of insurance, the Indemnitee shall promptly refund such indemnification
payments to the Corporation to the extent of such insurance reimbursement.
6. Indemnification of Expenses of Successful Party. Notwithstanding any
-----------------------------------------------
other provision of this Agreement, to the extent that Indemnitee has been
successful, on the merits or otherwise, in defense of any Proceeding or in
defense of any claim, issue or matter therein, Indemnitee shall be indemnified
against all Expenses incurred by him or on his behalf in connection therewith.
Without limiting the foregoing, if any Proceeding or any claim, issue or matter
therein is disposed of, on the merits or otherwise (including a disposition
without prejudice), without (i) the disposition being adverse to the Indemnitee,
(ii) an adjudication that the Indemnitee was liable to the Corporation, (iii) a
plea of guilty or nolo contendere by the Indemnitee, (iv) an adjudication that
---------------
the Indemnitee did not act in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the Corporation, and (v) with
respect to any criminal proceeding, an adjudication that the Indemnitee had
reasonable cause to believe his conduct was unlawful, the Indemnitee shall be
considered for the purposes hereof to have been wholly successful with respect
thereto.
7. Notification and Defense of Claim. As a condition precedent to his
---------------------------------
right to be indemnified, the Indemnitee must notify the Corporation in writing
as soon as practicable of any Proceeding for which indemnity will or could be
sought by him and provide the Corporation with a copy of any summons, citation,
subpoena, complaint, indictment, information or other document relating to such
Proceeding with which he is served. With respect to any Proceeding of which the
Corporation is
-3-
<PAGE>
so notified, the Corporation will be entitled to participate therein at its own
expense and/or to assume the defense thereof at its own expense, with legal
counsel reasonably acceptable to the Indemnitee. After notice from the
Corporation to the Indemnitee of its election so to assume such defense, the
Corporation shall not be liable to the Indemnitee for any legal or other
expenses subsequently incurred by the Indemnitee in connection with such claim,
other than as provided below in this Paragraph 7. The Indemnitee shall have the
right to employ his own counsel in connection with such claim, but the fees and
expenses of such counsel incurred after notice from the Corporation of its
assumption of the defense thereof shall be at the expense of the Indemnitee
unless (i) the employment of counsel by the Indemnitee has been authorized by
the Corporation, (ii) counsel to the Indemnitee shall have reasonably concluded
that there may be a conflict of interest or position on any significant issue
between the Corporation and the Indemnitee in the conduct of the defense of such
action or (iii) the Corporation shall not in fact have employed counsel to
assume the defense of such action, in each of which cases the fees and expenses
of counsel for the Indemnitee shall be at the expense of the Corporation, except
as otherwise expressly provided by this Agreement. The Corporation shall not be
entitled, without the consent of the Indemnitee, to assume the defense of any
claim brought by or in the right of the Corporation or as to which counsel for
the Indemnitee shall have reasonably made the conclusion provided for in clause
(ii) above. The Corporation shall not be required to indemnify the Indemnitee
under this Agreement for any amounts paid in settlement of any Proceeding
effected without its written consent. The Corporation shall not settle any
Proceeding in any manner which would impose any penalty or limitation on
Indemnitee without Indemnitee's written consent. Neither the Corporation nor the
Indemnitee will unreasonably withhold their consent to any proposed settlement.
8. Advancement of Expenses. Any Expenses incurred by the Indemnitee in
-----------------------
connection with any such Proceeding to which the Indemnitee was or is a party or
is threatened to be a party by reason of his Corporate Status or by reason of
any action alleged to have been taken or omitted in connection therewith shall
be paid by the Corporation in advance of the final disposition of such matter;
provided, however, that the payment of such Expenses incurred by the Indemnitee
- -------- -------
in advance of the final disposition of such matter shall be made only upon
receipt of an undertaking by or on behalf of the Indemnitee to repay all amounts
so advanced in the event that it shall ultimately be determined that the
Indemnitee is not entitled to be indemnified by the Corporation as authorized in
this Agreement. Such Expenses shall be paid immediately upon the written
request of the Indemnitee to the Corporation.
9. Procedure for Indemnification. In order to obtain indemnification
-----------------------------
pursuant to Paragraphs 3, 4 or 6 of this Agreement, Indemnitee shall submit to
the Corporation a written request, including in such request such documentation
and information as is reasonably available to Indemnitee and is reasonably
necessary to
-4-
<PAGE>
determine whether and to what extent Indemnitee is entitled to indemnification
or advancement of Expenses. Any such indemnification shall be made promptly, and
in any event within 60 days after receipt by the Corporation of the written
request of the Indemnitee, unless with respect to requests under Paragraphs 3 or
4 the Corporation determines within such 60-day period that such Indemnitee did
not meet the applicable standard of conduct set forth in Paragraph 3 or 4, as
the case may be. Such determination, and any determination pursuant to Section 8
that advanced Expenses must be repaid to the Corporation, shall be made in each
instance (a) by a majority vote of the directors of the Corporation consisting
of persons who are not at that time parties to the Proceeding ("disinterested
directors"), whether or not a quorum, (b) by a committee of disinterested
directors designated by majority vote of disinterested directors, whether or not
a quorum, (c) if there are no disinterested directors, or if disinterested
directors so direct, by independent legal counsel (who may, to the extent
permitted by applicable law, be regular legal counsel to the Corporation) in a
written opinion, or (d) by the stockholders.
10. Remedies. The right to indemnification and immediate advancement of
--------
Expenses as provided by this Agreement shall be enforceable by the Indemnitee in
any court of competent jurisdiction. Unless otherwise required by law, the
burden of proving that indemnification is not appropriate shall be on the
Corporation. Neither the failure of the Corporation to have made a
determination prior to the commencement of such action that indemnification is
proper in the circumstances because Indemnitee has met the applicable standard
of conduct, nor an actual determination by the Corporation pursuant to Paragraph
9 that Indemnitee has not met such applicable standard of conduct, shall be a
defense to the action or create a presumption that Indemnitee has not met the
applicable standard of conduct. Indemnitee's expenses (of the type described in
the definition of "Expenses" in Paragraph 2(c)) reasonably incurred in
connection with successfully establishing his right to indemnification, in whole
or in part, in any such Proceeding shall also be indemnified by the Corporation.
11. Partial Indemnification. If Indemnitee is entitled under any
-----------------------
provision of this Agreement to indemnification by the Corporation for some or a
portion of the Expenses, judgments, fines, penalties or amounts paid in
settlement actually and reasonably incurred by him or on his behalf in
connection with any Proceeding but not, however, for the total amount thereof,
the Corporation shall nevertheless indemnify Indemnitee for the portion of such
Expenses, judgments, fines, penalties or amounts paid in settlement to which
Indemnitee is entitled.
12. Subrogation. In the event of any payment under this Agreement, the
-----------
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Indemnitee, who shall execute all papers required and take
all action necessary to secure such rights, including execution of such
documents as are necessary to enable the Corporation to bring suit to enforce
such rights.
-5-
<PAGE>
13. Term of Agreement. This Agreement shall continue until and terminate
-----------------
upon the later of (a) six years after the date that Indemnitee shall have ceased
to serve as a director of the Corporation or, at the request of the Corporation,
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise or (b) the final termination of all
Proceedings pending on the date set forth in clause (a) in respect of which
Indemnitee is granted rights of indemnification or advancement of Expenses
hereunder and of any proceeding commenced by Indemnitee pursuant to Paragraph 10
of this Agreement relating thereto.
14. Indemnification Hereunder Not Exclusive. The indemnification and
---------------------------------------
advancement of Expenses provided by this Agreement shall not be deemed exclusive
of any other rights to which Indemnitee may be entitled under the Certification
of Incorporation, the By-Laws, any agreement, any vote of stockholders or
disinterested directors, the General Corporation Law of Delaware, any other law
(common or statutory), or otherwise, both as to action in his official capacity
and as to action in another capacity while holding office for the Corporation.
Nothing contained in this Agreement shall be deemed to prohibit the Corporation
from purchasing and maintaining insurance, at its expense, to protect itself or
the Indemnitee against any expense, liability or loss incurred by it or him in
any such capacity, or arising out of his status as such, whether or not the
Indemnitee would be indemnified against such expense, liability or loss under
this Agreement; provided that the Corporation shall not be liable under this
Agreement to make any payment of amounts otherwise indemnifiable hereunder if
and to the extent that Indemnitee has otherwise actually received such payment
under any insurance policy, contract, agreement or otherwise.
15. No Special Rights. Nothing herein shall confer upon Indemnitee any
-----------------
right to continue to serve as a director of the Corporation for any period of
time or at any particular rate of compensation.
16. Savings Clause. If this Agreement or any portion thereof shall be
--------------
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify Indemnitee as to Expenses, judgments,
fines, penalties and amounts paid in settlement with respect to any Proceeding
to the full extent permitted by any applicable portion of this Agreement that
shall not have been invalidated and to the fullest extent permitted by
applicable law.
17. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall constitute the original.
18. Successors and Assigns. This Agreement shall be binding upon the
----------------------
Corporation and its successors and assigns and shall inure to the benefit of the
estate, heirs, executors, administrators and personal representatives of
Indemnitee.
-6-
<PAGE>
19. Headings. The headings of the paragraphs of this Agreement are
--------
inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction thereof.
20. Modification and Waiver. This Agreement may be amended from time to
-----------------------
time to reflect changes in Delaware law or for other reasons. No supplement,
modification or amendment of this Agreement shall be binding unless executed in
writing by both of the parties hereto. No waiver of any of the provisions of
this Agreement shall be deemed or shall constitute a waiver of any other
provision hereof nor shall any such waiver constitute a continuing waiver.
21. Notices. All notices, requests, demands and other communications
-------
hereunder shall be in writing and shall be deemed to have been given (i) when
delivered by hand or (ii) if mailed by certified or registered mail with postage
prepaid, on the third day after the date on which it is so mailed:
(a) if to the Indemnitee, to:
______________________
______________________
______________________
(b) if to the Corporation, to:
Engage Technologies, Inc.
100 Brickstone Square
Andover, Massachusetts 01810
Attn: Paul L. Schaut, President
or to such other address as may have been furnished to Indemnitee by the
Corporation or to the Corporation by Indemnitee, as the case may be.
22. Applicable Law. This Agreement shall be governed by and construed in
--------------
accordance with the laws of the State of Delaware.
23. Enforcement. The Corporation expressly confirms and agrees that it
-----------
has entered into this Agreement in order to induce Indemnitee to continue to
serve as a director of the Corporation, and acknowledges that Indemnitee is
relying upon this Agreement in continuing in such capacity.
-7-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
ENGAGE TECHNOLOGIES, INC.
By:
----------------------------------
Name:
Title:
INDEMNITEE:
----------------------------------
-8-
<PAGE>
EXHIBIT 10.18
-------------
ENGAGE TECHNOLOGIES, INC.
INVESTOR RIGHTS AGREEMENT
This Agreement dated as of __________, 1999 is entered into by and among
Engage Technologies, Inc., a Delaware corporation (the "Company"), and CMGI,
Inc. (the "Investor").
Recitals
--------
WHEREAS, the Company desires to undertake an initial public offering of its
Common Stock; and
WHEREAS, in order to induce the Investor to approve such offering, the
Company has agreed to provide for certain arrangements with respect to (i) the
registration of shares of capital stock of the Company under the Securities Act
of 1933 and (ii) the Investor's right of first refusal with respect to certain
issuances of securities of the Company.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained in this Agreement, the parties hereto agree as follows:
1. Certain Definitions.
-------------------
As used in this Agreement, the following terms shall have the following
respective meanings:
"Commission" means the Securities and Exchange Commission, or any
----------
other federal agency at the time administering the Securities Act.
"Common Stock" means the common stock, $.01 par value per share, of
------------
the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
------------
or any successor federal statute, and the rules and regulations of the
Commission issued under such Act, as they each may, from time to time, be in
effect.
"Initiating Holders" means the Stockholders initiating a request for
------------------
registration pursuant to Section 2.1(a) or 2.1(b), as the case may be.
<PAGE>
"Initial Public Offering" means the initial underwritten public
-----------------------
offering of shares of Common Stock pursuant to an effective Registration
Statement.
"Other Holders" shall have the meaning set forth in Section 2.2(b).
-------------
"Prospectus" means the prospectus included in any Registration
----------
Statement, as amended or supplemented by an amendment or prospectus supplement,
including post-effective amendments, and all material incorporated by reference
or deemed to be incorporated by reference in such Prospectus.
"Registration Statement" means a registration statement filed by the
----------------------
Company with the Commission for a public offering and sale of securities of the
Company (other than a registration statement on Form S-8 or Form S-4, or their
successors, or any other form for a similar limited purpose, or any registration
statement covering only securities proposed to be issued in exchange for
securities or assets of another corporation).
"Registration Expenses" means the expenses described in Section 2.4.
---------------------
"Registrable Shares" means (i) the shares of Common Stock held by the
------------------
Investor upon the closing of the Initial Public Offering and (ii) any other
shares of Common Stock issued in respect of such shares (because of stock
splits, stock dividends, reclassifications, recapitalizations, or similar
events); provided, however, that shares of Common Stock which are Registrable
-------- -------
Shares shall cease to be Registrable Shares upon (i) any sale pursuant to a
Registration Statement or Rule 144 under the Securities Act or (ii) any sale in
any manner to a person or entity which, by virtue of Section 4 of this
Agreement, is not entitled to the rights provided by this Agreement.
"Securities Act" means the Securities Act of 1933, as amended, or any
--------------
successor federal statute, and the rules and regulations of the Commission
issued under such Act, as they each may, from time to time, be in effect.
"Selling Stockholder" means any Stockholder owning Registrable Shares
-------------------
included in a Registration Statement.
"Stockholders" means the Investor and any persons or entities to whom
------------
the rights granted under this Agreement are transferred by the Investor, its
successors or assigns, pursuant to Section 4 hereof.
-2-
<PAGE>
2. Registration Rights
-------------------
2.1 Required Registrations.
----------------------
(a) At any time following 180 days after the closing of the
Initial Public Offering, a Stockholder or Stockholders may request, in writing,
that the Company effect the registration on Form S-1 or Form S-2 (or any
successor form) of Registrable Shares owned by such Stockholder or Stockholders
having an aggregate value of at least $10,000,000 (based on the then current
public market price).
(b) At any time after the Company becomes eligible to file a
Registration Statement on Form S-3 (or any successor form relating to secondary
offerings), a Stockholder or Stockholders may request, in writing, that the
Company effect the registration on Form S-3 (or such successor form), of
Registrable Shares having an aggregate value of at least $2,500,000 (based on
the then current public market price).
(c) Upon receipt of any request for registration pursuant to
this Section 2, the Company shall promptly give written notice of such proposed
registration to all other Stockholders. Such Stockholders shall have the right,
by giving written notice to the Company within 15 days after the Company
provides its notice, to elect to have included in such registration such of
their Registrable Shares as such Stockholders may request in such notice of
election, subject in the case of an underwritten offering to the approval of the
managing underwriter as provided in Section 2.1(d) below. Thereupon, the Company
shall, as expeditiously as possible, use its best efforts to effect the
registration on an appropriate registration form of all Registrable Shares which
the Company has been requested to so register (provided, however, that in the
case of a registration requested under Section 2.1(b), the Company will only be
obligated to effect such registration on Form S-3 (or any successor form)).
(d) If the Initiating Holders intend to distribute the
Registrable Shares covered by their request by means of an underwriting, they
shall so advise the Company as a part of their request made pursuant to Section
2.1(a) or (b), as the case may be, and the Company shall include such
information in its written notice referred to in Section 2.1(c). The right of
any other Stockholder to include its Registrable Shares in such registration
pursuant to Section 2.1(a) or (b), as the case may be, shall be conditioned upon
such other Stockholder's participation in such underwriting on the terms set
forth herein. If the managing underwriter determines that the marketing factors
require a limitation of the number of shares to be underwritten, the number of
Registrable Shares to be included in a Registration Statement filed pursuant to
this Section 2.1, shall be reduced pro rata among the requesting Stockholders
based on the quotient of (1) the total Registrable Shares to be included in the
Registration Statement, divided by (2) the total number of Registrable Shares
that requested registration.
-3-
<PAGE>
(e) The Initiating Holders shall have the right to select the
managing underwriter(s) for any underwritten offering requested pursuant to
Section 2.1(a) or (b), subject to the approval of the Company, which approval
will not be unreasonably withheld.
(f) The Company shall not be required to effect more than two
registrations pursuant to Section 2.1(a) or more than five registrations
pursuant to Section 2.1(b). In addition, the Company shall not be required to
effect any registration within 90 days after the effective date of any other
Registration Statement of the Company relating to an underwritten offering. For
purposes of this Section 2.1(f), a Registration Statement shall not be counted
until such time as such Registration Statement has been declared effective by
the Commission (unless the Initiating Holders withdraw their request for such
registration (other than as a result of information concerning the business or
financial condition of the Company which is made known to the Stockholders after
the date on which such registration was requested) and elect not to pay the
Registration Expenses therefor pursuant to Section 2.4).
(g) If at the time of any request to register Registrable Shares
by Initiating Holders pursuant to this Section 2.1, the Company is engaged or
has plans to engage in a registered public offering or is engaged in any other
activity which, in the good faith determination of the Company's Board of
Directors, would be adversely affected by the requested registration or
financial statements required for the requested registration are not then
available, then the Company may at its option direct that such request be
delayed for a period not in excess of 90 days from the date of such request,
such right to delay a request to be exercised by the Company not more than once
in any 12-month period.
2.2 Incidental Registration.
-----------------------
(a) Whenever the Company proposes to file a Registration
Statement (other than a Registration Statement filed pursuant to Section 2.1) at
any time and from time to time, it will, prior to such filing, give written
notice to all Stockholders of its intention to do so; provided, that no such
--------
notice need be given if no Registrable Shares are to be included therein as a
result of a determination of the managing underwriter pursuant to Section
2.2(b). Upon the written request of a Stockholder or Stockholders given within
20 days after the Company provides such notice (which request shall state the
intended method of disposition of such Registrable Shares), the Company shall
use its best efforts to cause all Registrable Shares which the Company has been
requested by such Stockholder or Stockholders to register to be registered under
the Securities Act to the extent necessary to permit
-4-
<PAGE>
their sale or other disposition in accordance with the intended methods of
distribution specified in the request of such Stockholder or Stockholders;
provided that the Company shall have the right to postpone or withdraw any
registration effected pursuant to this Section 2.2 without obligation to any
Stockholder.
(b) If the registration for which the Company gives notice
pursuant to Section 2.2(a) involves an underwriting, the Company shall so advise
the Stockholders as a part of the written notice given pursuant to Section
2.2(a). In such event, the right of any Stockholder to include its Registrable
Shares in such registration pursuant to Section 2.2 shall be conditioned upon
such Stockholder's participation in such underwriting on the terms set forth
herein. All Stockholders proposing to distribute their securities through such
underwriting shall enter into an underwriting agreement in customary form with
the underwriter or underwriters selected for the underwriting by the Company.
Notwithstanding any other provision of this Section 2.2, if the managing
underwriter determines that the inclusion of all shares requested to be
registered would adversely affect the offering, the Company may limit the number
of Registrable Shares to be included in the registration and underwriting. The
Company shall so advise all holders of Registrable Shares requesting
registration, and the number of shares that are entitled to be included in the
registration and underwriting shall be allocated in the following manner. The
securities of the Company held by holders other than Stockholders and other
stockholders entitled to include shares therein ("Other Holders") shall be
excluded from such registration and underwriting to the extent deemed advisable
by the managing underwriter, and, if a further limitation on the number of
shares is required, the number of shares that may be included in such
registration and underwriting shall be allocated among all Stockholders and
Other Holders requesting registration in proportion, as nearly as practicable,
to the respective number of shares of Common Stock which they held at the time
the Company gives the notice specified in Section 2.2(a). If any Stockholder or
Other Holder would thus be entitled to include more securities than such holder
requested to be registered, the excess shall be allocated among other requesting
Stockholders and Other Holders pro rata in the manner described in the preceding
sentence. If any holder of Registrable Shares or any Other Holder disapproves of
the terms of any such underwriting, such person may elect to withdraw therefrom
by written notice to the Company, and any Registrable Shares or other securities
excluded or withdrawn from such underwriting shall be withdrawn from such
registration.
(c) Notwithstanding the foregoing, the Company shall not be
required, pursuant to this Section 2.2, to include any Registrable Shares in a
Registration Statement if such Registrable Shares can then be sold pursuant to
Rule 144(k) under the Securities Act and represent less than 1% of the then
outstanding shares of Common Stock.
-5-
<PAGE>
2.3 Registration Procedures.
-----------------------
(a) If and whenever the Company is required by the provisions of
this Agreement to use its best efforts to effect the registration of any
Registrable Shares under the Securities Act, the Company shall:
(i) file with the Commission a Registration Statement
with respect to such Registrable Shares and use its best efforts to cause that
Registration Statement to become effective as soon as possible;
(ii) as expeditiously as possible prepare and file with
the Commission any amendments and supplements to the Registration Statement and
the prospectus included in the Registration Statement as may be necessary to
comply with the provisions of the Securities Act (including the anti-fraud
provisions thereof) and to keep the Registration Statement effective for 12
months from the effective date or such lesser period until all such Registrable
Shares are sold;
(iii) as expeditiously as possible furnish to each Selling
Stockholder such reasonable numbers of copies of the Prospectus, including any
preliminary Prospectus, in conformity with the requirements of the Securities
Act, and such other documents as such Selling Stockholder may reasonably request
in order to facilitate the public sale or other disposition of the Registrable
Shares owned by such Selling Stockholder;
(iv) as expeditiously as possible use its best efforts to
register or qualify the Registrable Shares covered by the Registration Statement
under the securities or Blue Sky laws of such states as the Selling Stockholders
shall reasonably request, and do any and all other acts and things that may be
necessary or desirable to enable the Selling Stockholders to consummate the
public sale or other disposition in such states of the Registrable Shares owned
by the Selling Stockholder; provided, however, that the Company shall not be
-------- -------
required in connection with this paragraph (iv) to qualify as a foreign
corporation or execute a general consent to service of process in any
jurisdiction;
(v) as expeditiously as possible, cause all such
Registrable Shares to be listed on each securities exchange or automated
quotation system on which similar securities issued by the Company are then
listed; and
(vi) promptly make available for inspection by the Selling
Stockholders, any managing underwriter participating in any disposition pursuant
to such Registration Statement, and any attorney or accountant or other agent
retained by any such underwriter or selected by the Selling Stockholders, all
financial and other records, pertinent corporate documents and properties of the
Company and cause the Company's officers, directors, employees and independent
-6-
<PAGE>
accountants to supply all information reasonably requested by any such seller,
underwriter, attorney, accountant or agent in connection with such Registration
Statement.
(b) If the Company has delivered a Prospectus to the Selling
Stockholders and after having done so the Prospectus is amended to comply with
the requirements of the Securities Act, the Company shall promptly notify the
Selling Stockholders and, if requested, the Selling Stockholders shall
immediately cease making offers of Registrable Shares and return all
Prospectuses to the Company. The Company shall promptly provide the Selling
Stockholders with revised Prospectuses and, following receipt of the revised
Prospectuses, the Selling Stockholders shall be free to resume making offers of
the Registrable Shares.
(c) In the event that, in the judgment of the Company, it is
advisable to suspend use of a Prospectus included in a Registration Statement
due to pending material developments or other events that have not yet been
publicly disclosed and as to which the Company believes public disclosure would
be detrimental to the Company, the Company shall notify all Selling Stockholders
to such effect, and, upon receipt of such notice, each such Selling Stockholder
shall immediately discontinue any sales of Registrable Shares pursuant to such
Registration Statement until such Selling Stockholder has received copies of a
supplemented or amended Prospectus or until such Selling Stockholder is advised
in writing by the Company that the then current Prospectus may be used and has
received copies of any additional or supplemental filings that are incorporated
or deemed incorporated by reference in such Prospectus. Notwithstanding anything
to the contrary herein, the Company shall not exercise its rights under this
Section 2.3(c) to suspend sales of Registrable Shares for a period in excess of
90 days in any 365-day period.
2.4 Allocation of Expenses. The Company will pay all Registration
----------------------
Expenses for all registrations under this Agreement; provided, however, that if
-------- -------
a registration under Section 2.1 is withdrawn at the request of the Initiating
Holders (other than as a result of information concerning the business or
financial condition of the Company which is made known to the Stockholders after
the date on which such registration was requested) and if the Initiating Holders
elect not to have such registration counted as a registration requested under
Section 2.1, the requesting Stockholders shall pay the Registration Expenses of
such registration pro rata in accordance with the number of their Registrable
Shares included in such registration. For purposes of this Section, the term
"Registration Expenses" shall mean all expenses incurred by the Company in
complying with this Agreement, including, without limitation, all registration
and filing fees, exchange listing fees, printing expenses, fees and expenses of
counsel for the Company and the fees and expenses of one counsel selected by the
Selling Stockholders to represent the Selling Stockholders, state Blue Sky fees
and expenses, and the expense of any special audits incident to or required by
any such registration, but excluding underwriting discounts, selling commissions
and the fees and expenses of Selling Stockholders' own counsel (other than the
counsel selected to represent all Selling Stockholders).
-7-
<PAGE>
2.5 Indemnification and Contribution.
--------------------------------
(a) In the event of any registration of any of the Registrable
Shares under the Securities Act pursuant to this Agreement, the Company will
indemnify and hold harmless the seller of such Registrable Shares, each
underwriter of such Registrable Shares, and each other person, if any, who
controls such seller or underwriter within the meaning of the Securities Act or
the Exchange Act against any losses, claims, damages or liabilities, joint or
several, to which such seller, underwriter or controlling person may become
subject under the Securities Act, the Exchange Act, state securities or Blue Sky
laws or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in any Registration
Statement under which such Registrable Shares were registered under the
Securities Act, any preliminary prospectus or final prospectus contained in the
Registration Statement, or any amendment or supplement to such Registration
Statement, or arise out of or are based upon the omission or alleged omission to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading; and the Company will reimburse such seller,
underwriter and each such controlling person for any legal or any other expenses
reasonably incurred by such seller, underwriter or controlling person in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company will not be liable in
-------- -------
any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon any untrue statement or omission made in such
Registration Statement, preliminary prospectus or prospectus, or any such
amendment or supplement, in reliance upon and in conformity with information
furnished to the Company, in writing, by or on behalf of such seller,
underwriter or controlling person specifically for use in the preparation
thereof.
(b) In the event of any registration of any of the Registrable
Shares under the Securities Act pursuant to this Agreement, each seller of
Registrable Shares, severally and not jointly, will indemnify and hold harmless
the Company, each of its directors and officers and each underwriter (if any)
and each person, if any, who controls the Company or any such underwriter within
the meaning of the Securities Act or the Exchange Act, against any losses,
claims, damages or liabilities, joint or several, to which the Company, such
directors and officers, underwriter or controlling person may become subject
under the Securities Act, Exchange Act, state securities or Blue Sky laws or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in any Registration
-8-
<PAGE>
Statement under which such Registrable Shares were registered under the
Securities Act, any preliminary prospectus or final prospectus contained in the
Registration Statement, or any amendment or supplement to the Registration
Statement, or arise out of or are based upon any omission or alleged omission to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, if the statement or omission was made in
reliance upon and in conformity with information relating to such seller
furnished in writing to the Company by or on behalf of such seller specifically
for use in connection with the preparation of such Registration Statement,
prospectus, amendment or supplement; provided, however, that the obligations of
-------- -------
a Stockholder hereunder shall be limited to an amount equal to the net proceeds
to such Stockholder of Registrable Shares sold in connection with such
registration.
(c) Each party entitled to indemnification under this Section
(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 be unreasonably
withheld); 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 except to the extent that the Indemnifying Party
is adversely affected by such failure. The Indemnified Party may participate in
such defense at such party's expense; provided, however, that the Indemnifying
-------- -------
Party shall pay such expense if representation of such Indemnified Party by the
counsel retained by the Indemnifying Party would be inappropriate due to actual
or potential differing interests between the Indemnified Party and any other
party represented by such counsel in such proceeding; provided further that in
-------- -------
no event shall the Indemnifying Party be required to pay the expenses of more
than one law firm per jurisdiction as counsel for the Indemnified Party. The
Indemnifying Party also shall be responsible for the expenses of such defense if
the Indemnifying Party does not elect to assume such defense. 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 of such claim or litigation, and no Indemnified Party
shall consent to entry of any judgment or settle such claim or litigation
without the prior written consent of the Indemnifying Party, which consent shall
not be unreasonably withheld.
(d) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in this Section 2.5 is
due in accordance with its terms but for any reason is held to be unavailable to
an Indemnified Party in respect to any losses, claims, damages and liabilities
referred to herein, then the Indemnifying Party shall, in lieu of indemnifying
such Indemnified
-9-
<PAGE>
Party, contribute to the amount paid or payable by such Indemnified Party as a
result of such losses, claims, damages or liabilities to which such party may be
subject in such proportion as is appropriate to reflect the relative fault of
the Company on the one hand and the Stockholders on the other in connection with
the statements or omissions which resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations. The
relative fault of the Company and the Stockholders shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of material fact related to information supplied by the Company or the
Stockholders and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission. The Company
and the Stockholders agree that it would not be just and equitable if
contribution pursuant to this Section 2.5 were determined by pro rata allocation
or by any other method of allocation which does not take account of the
equitable considerations referred to above. Notwithstanding the provisions of
this paragraph of Section 2.5, (a) in no case shall any one Stockholder be
liable or responsible for any amount in excess of the net proceeds received by
such Stockholder from the offering of Registrable Shares and (b) the Company
shall be liable and responsible for any amount in excess of such proceeds;
provided, however, that no person guilty of fraudulent misrepresentation (within
- -------- -------
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. Any party entitled to contribution will, promptly after
receipt of notice of commencement of any action, suit or proceeding against such
party in respect of which a claim for contribution may be made against another
party or parties under this Section, notify such party or parties from whom
contribution may be sought, but the omission so to notify such party or parties
from whom contribution may be sought shall not relieve such party from any other
obligation it or they may have thereunder or otherwise under this Section. No
party shall be liable for contribution with respect to any action, suit,
proceeding or claim settled without its prior written consent, which consent
shall not be unreasonably withheld.
2.6 Other Matters with Respect to Underwritten Offerings. In the
----------------------------------------------------
event that Registrable Shares are sold pursuant to a Registration Statement in
an underwritten offering pursuant to Section 2.1, the Company agrees to enter
into an underwriting agreement containing customary representations and
warranties with respect to the business and operations of the Company and
customary covenants and agreements to be performed by the Company, including
without limitation customary provisions with respect to indemnification by the
Company of the underwriters of such offering.
2.7 Information by Holder. Each holder of Registrable Shares
---------------------
included in any registration shall furnish to the Company such information
regarding such holder and the distribution proposed by such holder as the
Company may reasonably request in writing and as shall be required in connection
with any registration, qualification or compliance referred to in this
Agreement.
-10-
<PAGE>
3. Right Of First Refusal
----------------------
3.1 Rights of Investor
------------------
(a) Until the first date on which the Investor or any Permitted
Transferee (as defined below) owns less than a majority, by voting power, of the
outstanding shares of capital stock of the Company (assuming the exercise and
conversion of all outstanding options, warrants and convertible securities), the
Company shall not issue or sell (i) any shares of its Common Stock, (ii) any
other voting equity securities of the Company, including, without limitation,
shares of preferred stock, (iii) any option, warrant or other right to subscribe
for, purchase or otherwise acquire any voting equity securities of the Company,
or (iv) any debt securities convertible into voting capital stock of the Company
(collectively, the "Offered Securities"), unless in each such case the Company
shall have first complied with this Section 3.1. The Company shall deliver to
the Investor a written notice of any proposed or intended issuance or sale of
Offered Securities (the "Offer"), which Offer shall (i) identify and describe
the Offered Securities, (ii) describe the price and other terms upon which they
are to be issued or sold, and the number or amount of the Offered Securities to
be issued or sold, (iii) identify the persons or entities (if known) to which or
with which the Offered Securities are to be offered, issued or sold and (iv)
offer to issue and sell to the Investor a number of the Offered Securities (the
"Available Amount") such that, after the issuance and sale of all of the Offered
Securities, including the purchase of the Available Amount by the Investor, the
Investor would own at least a majority, by voting power, of the outstanding
capital stock of the Company (assuming the exercise and conversion of all
outstanding options, warrants and convertible securities). The Company shall
not be required to offer any Offered Securities to the Investor hereunder if,
after the issuance and sale thereof, the Investor (or the Permitted Transferee)
would continue to own at least a majority, by voting power, of the outstanding
capital stock of the Company (assuming the exercise and conversion of all
outstanding options, warrants and convertible securities).
(b) To accept an Offer, in whole or in part, the Investor must
deliver a written notice to the Company within 20 days after its receipt of the
Offer, setting forth the portion of the Available Amount that the Investor
elects to purchase (the "Notice of Acceptance").
(c) The Company shall have 180 days from the expiration of the
period set forth in Section 3.1(b) above to issue or sell all or any part of
such Offered Securities as to which a Notice of Acceptance has not been given by
the Investor, upon terms and conditions which are not more favorable, in the
aggregate, to the acquiring person or persons or less favorable to the Company
than those set forth in the Offer. If the consideration to be received by the
Company from the sale of Offered Securities consists of anything other than
cash, the Board of Directors of
-11-
<PAGE>
the Company shall in good faith determine the cash equivalent of such non-cash
consideration and the Investor may pay an equivalent portion of its purchase
price for the Offered Securities in cash.
(d) The purchase by the Investor of any Offered Securities is
subject in all cases to the preparation, execution and delivery by the Company
and the Investor of a purchase agreement relating to such Offered Securities
reasonably satisfactory in form and substance to the Investor.
(e) The rights of the Investor under this Section 3 shall not
apply to the grant of options to officers, directors, consultants and employees
of the Company or any subsidiary pursuant to any plan, agreement or arrangement
approved by a vote of not less than a majority of the members of the Board of
Directors of the Company, provided, however, that if the exercise of any such
--------
options results in the reduction of the Investor's, or Permitted Transferee's,
ownership to less than a majority, by voting power, of the outstanding capital
stock of the Company, the Company shall so notify the Investor (or Permitted
Transferee), and the Investor or Permitted Transferee shall have the right,
within 30 days after such notice, to purchase from the Company, at a price equal
to the then Fair Market Value (as defined below) thereof, such number of shares
of Common Stock as would increase its ownership to a majority, by voting power,
of the outstanding capital stock of the Company. "Fair Market Value" shall mean
the average closing price of the Common Stock, on the NASDAQ National Market (or
other principal securities exchange on which the Common Stock is traded), during
the 10-day period ending on the day prior to the date of purchase.
3.2 Termination. This Section 3 shall terminate upon the earlier of
-----------
(i) the sale of all or substantially all of the assets or business of the
Company, by merger, sale of assets or otherwise, and (ii) the first date on
which the Investor (or Permitted Transferee) owns less than a majority, by
voting power, of the outstanding capital stock of the Company for 30 consecutive
days.
3.3 Permitted Transferee. For purposes hereof, a "Permitted
--------------------
Transferee" shall mean any person or entity that acquires directly from the
Investor shares of Common Stock representing at least a majority of the
outstanding shares of Common Stock of the Company and to which the Investor
assigns, in writing, its rights under this Section 3. Upon such assignment, the
Permitted Transferee shall be considered the "Investor" for purposes of Section
3 of this Agreement.
4. Transfers of Rights. The rights and obligations of the Investor under
-------------------
Section 2 may be assigned by to any person or entity that requires at least
$2,500,000 shares of Common Stock (as adjusted in stock splits and similar
events) from the Investor. The rights and obligations of the Investor under
Section 3 may be assigned only to a Permitted Transferee, and, upon such
assignment, the rights and obligations
-12-
<PAGE>
of the Investor under Section 3 shall terminate. In the event of any such
transfer, the transferee must provide written notice of such assignment to the
Company and agree in writing to be bound by the applicable provisions of this
Agreement.
5. General.
-------
(a) Severability. The invalidity or unenforceability of any
------------
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
(b) Specific Performance. In addition to any and all other remedies
--------------------
that may be available at law in the event of any breach of this Agreement, each
Investor shall be entitled to specific performance of the agreements and
obligations of the Company hereunder and to such other injunctive or other
equitable relief as may be granted by a court of competent jurisdiction.
(c) Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the internal laws of the Commonwealth of Massachusetts
(without reference to the conflicts of law provisions thereof).
(d) Notices. All notices, requests, consents, and other
-------
communications under this Agreement shall be in writing and shall be deemed
delivered (i) two business days after being sent by registered or certified
mail, return receipt requested, postage prepaid or (ii) one business day after
being sent via a reputable nationwide overnight courier service guaranteeing
next business day delivery, in each case to the intended recipient as set forth
below:
If to the Company, at Engage Technologies, Inc., 100 Brickstone Square,
Andover, Massachusetts 01810, Attention: President, or at such other address or
addresses as may have been furnished in writing by the Company to the Investor;
or
If to the Investor, at CMGI, Inc., 100 Brickstone Square, Andover,
Massachusetts 01810, or at such other address or addresses as may have been
furnished to the Company in writing by such Investor.
Any party may give any notice, request, consent or other communication
under this Agreement using any other means (including, without limitation,
personal delivery, messenger service, telecopy, first class mail or electronic
mail), but no such notice, request, consent or other communication shall be
deemed to have been duly given unless and until it is actually received by the
party for whom it is intended. Any party may change the address to which
notices, requests, consents or other communications hereunder are to be
delivered by giving the other parties notice in the manner set forth in this
Section.
-13-
<PAGE>
(e) Complete Agreement. This Agreement constitutes the entire
------------------
agreement and understanding of the parties hereto with respect to the subject
matter hereof and supersedes all prior agreements and understandings relating to
such subject matter.
(f) Amendments and Waivers. Any term of this Agreement may be
----------------------
amended or terminated and the observance of any term of this Agreement may be
waived (either generally or in a particular instance and either retroactively or
prospectively), with the written consent of the Company and the Investor.
(g) Pronouns. Whenever the context may require, any pronouns used in
--------
this Agreement shall include the corresponding masculine, feminine or neuter
forms, and the singular form of nouns and pronouns shall include the plural, and
vice versa.
(h) Counterparts; Facsimile Signatures. This Agreement may be
----------------------------------
executed in any number of counterparts, each of which shall be deemed to be an
original, and all of which together shall constitute one and the same document.
This Agreement may be executed by facsimile signatures.
(i) Section Headings. The section headings are for the convenience
----------------
of the parties and in no way alter, modify, amend, limit or restrict the
contractual obligations of the parties.
(j) Effective Date. This Agreement shall become effective upon the
--------------
closing of the Company's initial public offering of Common Stock pursuant to an
effective registration statement and shall terminate if such offering does not
close prior to December 31, 1999.
-14-
<PAGE>
Executed as of the date first written above.
COMPANY:
ENGAGE TECHNOLOGIES, INC.
By:
------------------------------
Name:
----------------------------
Title:
----------------------------
INVESTOR:
CMGI, INC.
By:
------------------------------
Name:
----------------------------
Title:
----------------------------
-15-
<PAGE>
Exhibit 10.20
-------------
SEPARATION AGREEMENT
--------------------
Agreement dated as of May 3, 1999 (the "Effective Date") is by and between
CMGI, INC. ("CMG"), its successors, assigns, officers, directors, stockholders,
agents, employees, subsidiaries and affiliates (hereinafter collectively
referred to as the "Company" which term shall include Engage Technologies, Inc.
("Engage"), CMGI, Inc. and all other companies and entities controlled by CMGI,
Inc.) And CHRIS EVANS, his executors, heirs, administrators, and assigns
(hereinafter collectively referred to as "Mr. Evans"). In consideration of the
mutual covenants contained herein, the parties agree as follows:
Duties and Responsibilities. Mr. Evans hereby assigns as an employee of
---------------------------
Engage and relinquishes all related duties and responsibilities effective as of
the close of business on the Effective Date.
1. Compensation. The Compensation will continue to pay Mr. Evans'
------------
current annual salary ($130,000), less legally required and voluntarily
authorized deductions, in accordance with regular Company practice, through the
Effective Date without deduction or set-off on account of earnings from other
employment. Mr. Evans acknowledges that he has received full payment of any
unused accrued vacation pay to which he is entitled. Following the close of
business on the Effective Date, Mr. Evans' employee relationship with the
company shall cease. The date after the effective Date, Mr. Evans will become a
non-employee independent contractor for Engage under the terms and conditions of
the Consulting, Inventions and Nondisclosure Agreement attached hereto as
Exhibit A.
- ---------
2. Benefits.
--------
a. Group Health and Dental Coverage. Following the Effective Date,
--------------------------------
Mr. Evans may continue receiving group health and dental coverage as provided by
state and federal laws the cost of which will be paid for by Mr. Evans.
Eligibility to continue this insurance stops upon the termination of any period
allowed by law, or upon Mr. Evans becoming eligible for any other group health
and/or dental insurance plan provided by a new employer, whichever is sooner.
Mr. Evans agrees to notify the Company promptly when he is covered by another
plan.
b. 401(K) Plan. Mr. Evans shall be entitled to the vested value of
-----------
his retirement account in the Company's 401(K) Plan subject to the terms of the
Plan, the interests of his spouse and the requirements of applicable law.
c. Stock Options. Notwithstanding anything to the contrary, upon
-------------
execution of this Agreement, Mr. Evans acknowledges that his right to exercise
any
<PAGE>
or all stock options he holds with respect to Engage's 1995 Equity Incentive
Plan shall expire thirty (30) days from the Effective Date.
d. Cessation of Benefits. Unless otherwise provided for expressly
---------------------
in this Agreement, all other benefits will cease as of the Effective Date,
including without limitation the accrual of vacation time.
3. Return of Property. Mr. Evans shall return all papers, files,
------------------
documents, computers, reference guides, equipment, keys, identification, credit
cards, software, computer access codes, disks and institutional manuals, or
other property belonging to the Company on or before the Effective Date of this
Agreement. Mr. Evans shall not retain any copies, duplicates, reproductions or
excerpts thereof. Notwithstanding the foregoing, Mr. Evans shall be entitled to
retain so long as he remains a director of Engage any such materials as are
required to discharge of his duties as a director.
4. Non-Disclosure of Confidential Information. Mr. Evans acknowledges
------------------------------------------
that during the course of his employment with the Company he has become
acquainted with and/or developed confidential information belonging to the
Company and its customers. Mr. Evans agrees not to use to his own advantage or
to disclose to any person or entity any confidential information of the Company
or of any past or present customer of the Company, including but not limited to
financial data or projections, customer lists, projects, economic information,
systems, plans, methods, procedures, operations, techniques, know-how, trade
secrets or merchandising or marketing strategies. In addition to the foregoing
but subject to Section 6 of the attached Consulting, Invention and Non-
Disclosure Agreement between the parties, dated the date hereof, Mr. Evans shall
continue to be bound by the terms of the Non-Disclosure, Non-Competition and
Developments Agreement which he executed on April 8, 1998, regarding, among
other things, inventions, intellectual property, proprietary information and an
agreement not to compete with the Company for two years.
5. Escrow Agreement. Mr. Evans states and represents that Mr. Evans
----------------
understands that, for purposes of the Employee Stockholder Escrow Agreement (the
"Escrow Agreement"), dated as of April 8, 1998 by and among CMG, Kip A. Frey as
the Stockholder Representative, and State Street Bank and Trust Company, as the
Escrow Agent, the CMG Board of Directors approves and consents to Mr. Evans'
resignation as an employee of the Company conditioned upon Mr. Evans executing
this Agreement. Mr. Evans acknowledges that the consent of the CMG Board of
Directors benefits Mr. Evans under the terms of the Escrow Agreement and such
consent represents consideration for Mr. Evans' agreement to enter into this
Agreement.
6. General Release. In consideration of the benefits set forth in this
---------------
Agreement, Mr. Evans, for himself, his executors, heirs, administrators,
assigns, and
2
<PAGE>
anyone else claiming by, through or under him, irrevocably and unconditionally
remises, releases, and forever discharges the Company (including all officers,
directors and affiliates thereof and all officers, directors, partners and
affiliates of any subsidiary thereof) from, and with respect to, any and all
debts, demands, actions, causes of action, suits, covenants, contracts, wages,
bonuses, damages and any and all claims, demands liabilities, and expenses
(including attorneys' fees and costs) whatsoever of any name or nature both in
law and in equity ("Claims") which Mr. Evans now has, ever had or may in the
future have against the Company by reason of any matter, cause or thing which
has happened, developed or occurred before the signing of this Agreement,
including, but not limited to, any and all suits in tort or contract, and any
Claims or suits relating to the breach of an oral or written contract,
misrepresentation, defamation, and interference with prospective economic
advantage, interference with contract, intentional and negligent infliction of
emotional distress, negligence, breach of the covenant of good faith and fair
dealing, and Claims arising out of, based on, or connected with his employment
by the Company and the termination of that employment as set forth in this
Agreement, including any causes of action or Claims for unlawful employment
discrimination arising under or based on Title VII of the Civil Rights Act of
1964, as amended; the Employee Retirement Income Security Act of 1974, as
amended; the Rehabilitation Act of 1973, as amended; the Americans with
Disabilities Act; the Occupational Safety and Health Act of 1970, as amended;
the National Labor Relations Act of 1935, as amended; the Fair Labor Standards
Act of 1938, as amended; the Family and Medical Leave Act of 1993, as amended;
the Age Discrimination in Employment Act, as amended; Section 1981 of the Civil
Rights Act of 1866; the Equal Pay Act of 1963; Section 1985 of the Civil Rights
Act of 1871; the Massachusetts Fair Employment Practices Act; the Massachusetts
Civil Rights Act; the Massachusetts Equal Rights Law and any other state or
federal equal employment opportunity law, public policy, order, or regulation
affecting or relating to the Claims or rights of employees, which Mr. Evans ever
had, now has, or claims to have against the Company (including all officers,
directors and affiliates thereof and all officers, directors, partners and
affiliates of any subsidiary thereof). Mr. Evans further agrees not to institute
any charge, complaint, or lawsuit to challenge the validity of this Agreement or
the circumstances surrounding its execution. It is expressly agreed and
understood that the release contained herein is a GENERAL RELEASE. In addition,
and not in limitation of the foregoing, Mr. Evans hereby forever releases and
discharges the Company from any liability or obligation to reinstate or reemploy
Mr. Evans in any capacity. Notwithstanding the foregoing, this release shall not
apply to events occurring after the date hereof.
7. Covenant Not to Sue. Mr. Evans represents and warrants that he has
-------------------
not filed any complaints, charges, or claims for relief against the Company with
any local, state or federal court or administrative agency. Mr. Evans further
agrees and covenants not to sue or bring any claims or charges against the
Company with respect to any matters arising out of or relating to his employment
with or separation
3
<PAGE>
from the Company, including the validity of sections 6, 7 and 8 of this
Agreement.
8. Nonadmissions Clause. It is understood and agreed that this Agreement
--------------------
does not constitute any admission by the Company that any action taken with
respect to Mr. Evans was unlawful or wrongful, or that such action constituted a
breach of contract or violated any federal or state law, policy, rule or
regulation.
9. Confidentiality of this Agreement. Both the Company and Mr. Evans
---------------------------------
agree that both will keep the background, negotiations, and terms of this
Agreement strictly confidential and not disclose, directly or indirectly, any
information concerning them to any third party, with the exception of Mr. Evans'
spouse and either party's financial or legal advisors, provided that they agree
to keep such information confidential and not disclose it to others.
10. Non-Disparagement. Mr. Evans agrees that he will not disparage or
-----------------
make negative statements about the Company or any of its officers, trustees,
agents, employees, successors and assigns. The Company agrees that it will not
disparage or make negative statements about Mr. Evans. This Agreement in no way
restricts or prevents the Company from providing truthful responses to reference
checks on Mr. Evans or truthful testimony concerning Mr. Evans as required by
court order or other legal process.
11. Breach. Mr. Evans agrees that the compensation and benefits contained
------
in this Agreement and which flow to him from the Company are subject to
termination, reduction or cancellation in the event that he materially breaches
this Agreement.
Mr. Evans acknowledges that in exchange for entering into this Agreement he
has received good and valuable consideration in excess of that to which he would
otherwise have been entitled in the absence of this Agreement. This
consideration includes, but is not limited to, the Company's hiring Mr. Evans as
a contractor and the consent referred to in Section 6. Mr. Evans further
acknowledges the sufficiency of that consideration.
Mr. Evans acknowledges that he has carefully read this Agreement,
voluntarily agrees to all of its terms and conditions, understands its contents
and the final and binding effect of this Agreement, and signs the same as his
own free act with the full intent of releasing the Company from all claims.
12. Severability. If any of the terms of this Agreement shall be held to
------------
be invalid and unenforceable, the remaining terms of this Agreement are
severable and shall not be affected thereby.
13. Entire Agreement. This Agreement and the Consulting, Invention and
----------------
4
<PAGE>
Non-Disclosure Agreement dated the date hereof constitute the entire agreement
between the parties about or relating to Mr. Evans' termination of employment
from the Company, or the Company's obligations to him with respect to his
termination and fully supersedes any and all prior agreements or understandings
between the parties. The terms of this Agreement are contractual in nature and
not a mere recital, and they shall take effect as a sealed document. This
Agreement shall be governed by the laws of the Commonwealth of Massachusetts,
without regard to conflicts of law principles. This Agreement may not be changed
orally, but only by agreement in writing signed by both parties. The parties
attest that no other representations were made regarding this Agreement other
than those contained herein.
14. REPRESENTATIONS AND ACKNOWLEDGEMENTS. MR. EVANS STATES AND REPRESENTS
------------------------------------
THAT MR. EVANS HAS CAREFULLY READ THIS AGREEMENT, HAS HAD AN OPPORTUNITY TO
CONSULT WITH AND REVIEW THIS AGREEMENT WITH AN ATTORNEY OR MR. EVANS' CHOICE,
KNOWS THE CONTENTS HEREOF, UNDERSTANDS THE MEANING, INTENT AND FINAL AND BINDING
EFFECT OF THIS AGREEMENT, FREELY AND VOLUNTARILY ASSENTS TO ALL THE TERMS AND
CONDITIONS HEREOF, AND SIGNS THE SAME AS MR. EVANS' OWN FREE ACT WITH THE FULL
INTENT OF RELEASING THE COMPANY FROM ALL CLAIMS. MR. EVANS FURTHER REAFFIRMS
THAT THE ONLY CONSIDERATION FOR SIGNING THIS AGREEMENT IS THE TERMS STATED
HEREIN AND THAT NO OTHER PROMISES OR AGREEMENTS OF ANY KIND HAVE BEEN MADE TO OR
WITH MR. EVANS BY ANY PERSON OR ENTITY WHATSOEVER TO CAUSE MR. EVANS TO SIGN
THIS AGREEMENT. MR. EVANS FURTHER STATES THAT MR. EVANS UNDERSTANDS THAT THE
GENERAL RELEASE AND THE COVENANT NOT TO SUE CONTAINED IN SECTIONS 6 AND 7 OF
THIS AGREEMENT INCLUDE A RELEASE AND WAIVER OF ANY RIGHTS OR CLAIMS MR. EVANS
HAS OR MAY HAVE UNDER THE AGE DISCRIMINATION IN EMPLOYMENT ACT OF 1967, AS
AMENDED. MR. EVANS ACKNOWLEDGES THAT MR. EVANS HAS BEEN ADVISED IN WRITING TO
CONSULT WITH AN ATTORNEY PRIOR TO EXECUTING THIS AGREEMENT, THAT MR. EVANS HAS
BEEN GIVEN A PERIOD OF TWENTY-ONE (21) DAYS WITHIN WHICH TO CONSIDER WHETHER OR
NOT TO SIGN THIS AGREEMENT, AND THAT MR. EVANS HAS BEEN GIVEN A PERIOD OF SEVEN
(7) DAYS FOLLOWING MR. EVANS' SIGNING OF THIS AGREEMENT IN WHICH TO REVOKE IT,
AND THE AGREEMENT SHALL NOT BECOME EFFECTIVE OR ENFORCEABLE UNTIL THE SEVEN (7)
DAY PERIOD HAS EXPIRED.
5
<PAGE>
Witness the execution hereof under Seal as of the Effective Date.
CMGI, INC.
By: /s/ Andrew J. Hajducky /s/ Chris Evans
---------------------------- ------------------------------
Chris Evans
_______________________________ ______________________________
Witness Witness
6
<PAGE>
EXHIBIT A
CONSULTING, INVENTION AND NON-DISCLOSURE AGREEMENT
--------------------------------------------------
This Consulting, Invention and Non-Disclosure Agreement ("Agreement") is by and
between Engage Technologies, Inc., with a principal place of business at 100
Brickstone Square, Andover, MA 01810 ("Engage") and Chris Evans ("Consultant").
WHEREAS, Engage is engaged in the design, development, reproduction and
distribution of computer software and Internet related products and services;
WHEREAS, Engage desires to engage Consultant to develop, create, test and
deliver certain programming and other materials as works made for hire pursuant
to the Services (as defined below) to be performed by Consultant hereunder, and
Consultant desires to perform such Services as may be required from time to time
by Engage pursuant to the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the covenants herein contained, and for
other good and valuable consideration, the parties hereto agree as follows:
1. Consultant shall serve as a consultant to Engage with respect to (i) the
assignments described in Schedule A attached hereto and (ii) other assignments
which may be proposed by Engage in writing and accepted by Consultant from time
to time relating to Engage's business. Services rendered by Consultant
hereunder with respect to such assignments are hereinafter all referred to as
the "Services." Consultant agrees to devote at least that minimum amount of
time per month to the performance of the Services, at the request of the Engage,
as set forth in Schedule A. Consultant shall keep Engage apprised of
developments of which it is and may become aware which may be of value to Engage
regarding the Services. In consideration of such Services, Engage shall pay
Consultant in accordance with the terms set forth in Schedule A. Consultant
acknowledges that the scope and detail and any other term of any assignment may
be reduced at any time by Engage, with seven (7) days prior notice to
Consultant.
2. This Agreement shall commence as of the day after the Effective Date (as
defined in the Separation Agreement between the parties dated the date hereof),
and shall remain in effect indefinitely (or, if sooner, until termination or
expiration of the XCo Agreement Consulting Letter of Appointment between Engage
Technologies, Inc. and XCo LLC dated as of January 21, 1999 (the "XCo Consulting
Agreement"), but may be terminated at any time and for any reason or no reason
upon ninety (90) days written notice by Consultant to Engage or by Engage to
Consultant. It is understood that Sections 5 through 18 of this Agreement shall
survive any termination of this Agreement.
7
<PAGE>
3. It is specifically understood and agreed that during the term of this
Agreement Consultant's relationship to Engage will be that of an independent
contractor and that neither this Agreement nor the Services to be rendered
hereunder shall for any purpose whatsoever or in any way or manner create an
employer-employee relationship between Engage and Consultant. Accordingly,
Consultant shall have sole and exclusive responsibility for the payment of all
federal, state and local income taxes and for all employment and disability
insurance, social security and other similar taxes with respect to any
compensation provided by Engage hereunder. Consultant is not authorized to bind
Engage except as expressly authorized in writing by Engage.
4. Consultant hereby represents that it is not bound by the terms of any
agreement (except as set forth in Schedule B) with any other party that is in
any way inconsistent with Consultant's obligations under this Agreement or
imposes any restrictions on Consultant's activities with Engage. Consultant
further represents that Consultant's performance under this Agreement does not
and will not breach any agreement to keep in confidence proprietary information,
knowledge or data acquired in confidence or in trust prior to the provision of
consulting services to Engage. Consultant agrees and covenants with Engage
that, during the term of this Agreement, Consultant will not enter into any
relationship with any other party which would restrict Consultant's performance
of Services hereunder or which would involve Consultant competing, directly or
indirectly, with the business of Engage.
5. Consultant shall not without the prior written consent of Engage, either
during of after its engagement, disclose to anyone outside Engage, or use other
than for the purpose of the business of Engage, any Confidential Information of
Engage or any information received in confidence by Engage from any third party.
"Confidential Information" means information and data, whether in oral, written,
graphic, or machine-readable form relating to Engage's past, present and future
business, including but not limited to computer programs, routines, source code,
object code, data, information, documentation, know-how, technology, designs,
procedures, formulas, discoveries, inventions, trade secrets, improvements,
concepts, ideas, product plans, research and development, personnel information,
financial information, customer lists and marketing programs and including,
without limitation, all documents marked as confidential or proprietary and/or
containing such information, which Engage has acquired or developed and which
has not been made publicly available by Engage. Consultant agrees that during
the term of this Agreement, Consultant will not engage in other consulting or
other activity which competes with the business of Engage, or which would
otherwise conflict with Consultant's obligations to Engage. If Consultant's
engagement with Engage is terminated for any reason whatsoever, Consultant shall
return to Engage all property of Engage or of any third party, including all
Confidential Information such as drawings, computer programs and documentation
(on electronic media or on printouts), notebooks, reports, and other documents.
8
<PAGE>
6. During the time that Consultant is engaged by Engage and for a period of
one (1) year after the termination or cessation of such engagement, for any
reason, Consultant will not directly or indirectly recruit, solicit or induce,
or attempt to induce, any employee or employees or consultant or consultants of
Engage to terminate their employment with, or otherwise cease their relationship
with, Engage; or, solicit, divert or take away, or attempt to divert or take
away, the business or patronage of any of the clients, customers or accounts, or
prospective clients, customers or accounts, of Engage. This Section 6 shall not
limit Consultant from continuing to perform consulting services to XCo, LLC in
the event of termination of this Consulting, Invention and Non-Disclosure
Agreement in accordance with Section 2.
7. Consultant hereby assigns to Engage all right, title and interest in all
Developments. "Developments" means any idea, invention, design of a useful
article (whether the design is ornamental or otherwise), computer program
including source code and object code and related documentation, and any other
work or authorship, or audio/visual work, written, made or conceived during
Consultant's engagement with Engage, whether or not patentable, subject to
copyright or susceptible to other forms of protection, that relate to the actual
or anticipated business or research or development of Engage; or, are suggested
by or result from any task assigned or work performed by Consultant for or on
behalf of Engage. Consultant acknowledges that the copyrights in Developments
created in the scope of performance of this Agreement, belong to Engage by
operation of law or otherwise, or may belong to a customer of Engage pursuant to
a contract between the Engage and such customer.
8. In connection with any of the Developments assigned by Section 7:
Consultant agrees to promptly disclose them to Engage; and, Consultant agrees,
on the request of Engage, to promptly execute separate written assignments to
Engage and do all things reasonably necessary to enable Engage to secure
patents, register copyrights or obtain any other forms of protection for
Developments in the United States and in other countries, at Consultant's usual
rate of compensation plus required expenses. In the event Engage is unable,
after sending notice by certified mail with return receipt requested to the
address of Consultant on page 1 of this Agreement or other address supplied by
Consultant in writing to Engage, to secure Consultant's authorized signature on
any letters patent, copyright or other analogous protection relating to a
Development, for any reason whatsoever, Consultant hereby designates and
appoints Engage and its duly authorized officers and agents as Consultant's
agent and attorney-in-fact, to act for and in Consultant's behalf to execute and
file any such application or applications and to do all other lawfully permitted
acts to further the prosecution and issuance of letters patent, copyright or
other analogous protection thereon with the same legal force and effect as if
executed by Consultant.
9
<PAGE>
9. Engage, its subsidiaries, licensees, successors and assigns (direct or
indirect), are not required to designate Consultant as the Inventor, creator or
author of any Development, when such Development is distributed publicly or
otherwise. Consultant waives and releases, to the extent permitted by law, all
rights to such designation and any rights concerning future modifications of
such Developments.
10. Consultant understands that this Agreement does not create an obligation on
Engage or any other person to continue Consultant's engagement.
11. Rights and assignments granted by Consultant in this Agreement are
assignable by Engage and are for the benefit of the successors and assigns of
Engage. Consultant shall not assign this Agreement or any rights under this
Agreement. Consultant's obligations under this Agreement shall survive the
termination of Consultant's engagement by Engage regardless of the manner of
such termination and shall be binding upon Consultant's successors in interest
or other legal representatives.
12. Consultant acknowledges that any breach of its obligations under this
Agreement may result in irreparable injury to Engage. Engage may, therefore, be
entitled, without restricting Engage from other legal and equitable remedies, to
injunctive and other equitable relief to prevent or restrain the breach of this
Agreement.
13. Consultant hereby acknowledges that Engage is now and may hereafter be
subject to non-disclosure or confidentiality agreements with third persons
pursuant to which Engage must protect or refrain from use of proprietary
information which is the property of such third persons. Consultant hereby
agrees upon the directive of Engage to be bound by the terms of such agreements
in the event Consultant has access to the proprietary information protected
thereunder to the same extent as if Consultant was an original signatory
thereto.
14. No delay or omission by either party in exercising any right under this
Agreement will operate as a waiver of that or any other right; a waiver or
consent given by a party on any one occasion is effective only in that instance
and will not be construed as a bar to or waiver of any right on any other
occasion.
15. With respect to the subject matter hereof, this Agreement, including
Schedules A and B attached hereto, supersedes all previous oral or written
communications, representations, understandings, undertakings, or agreements by
or with Engage and this Agreement can only be amended by a writing signed by
both parties; provided that, subject to Section 6 of this Agreement, this
Agreement shall not supersede the Nondisclosure, Noncompetition and Inventions
Agreement entered into between CMG Information Services, Inc. and Chris Evans
dated April 8, 1998.
10
<PAGE>
16. In the event any paragraph or provision of this Agreement shall be held to
be illegal or unenforceable, such paragraph or provision shall be severed from
this Agreement and the entire Agreement shall not fail on account thereof, but
shall otherwise remain in full force and effect. This Agreement may be signed
in two or more counterparts, each of which shall be deemed an original and all
of which shall together constitute one agreement.
17. This Agreement shall be governed by the laws of the Commonwealth of
Massachusetts, without regard to its conflict of laws provisions.
18. Consultant acknowledges receipt of a copy of this Agreement.
For Engage: For Consultant:
/s/ Paul Schaut /s/ Chris Evans
- ------------------------- ------------------------------
By: Paul Schaut By: Chris Evans
--------------------- --------------------------
Title: CEO Title: _______________________
------------------
11
<PAGE>
SCHEDULE A
ASSIGNMENTS
-----------
Consultants shall be compensated at the rate of $8,800 per month (subject
to adjustment as stated below) plus reimbursement of reasonable incurred and
documented expenses to the extent reimbursed under the XCo Agreement. In
addition, Consultant will be provided office space in Raleigh, NC and access to
secretarial support. Consultant shall on a monthly basis submit time and
expense sheets to the CFO of Engage for approval. Such invoices shall be paid
by Engage without thirty (30) days of receipt and approval.
Consultant shall provide Services as follows:
Consultant Responsibilities
- ---------------------------
Consultant shall perform all duties of Engage required under the XCo
Consulting Agreement.
Hours Per Month
- ---------------
One day per week; any additional time worked as needed to perform the
Services shall be paid at $2,500 for each eight (8) hour increment of time;
provided; however, that XCo provides Engage with its prior written consent to
pay such additional amounts to Engage.
12
<PAGE>
SCHEDULE B
SCHEDULE OF SEPARATE WORKS
--------------------------
The following are works in which Consultant has any right, title or
interest, and which were conceived or written either wholly or in part by
Consultant, prior to Consultant's engagement by Engage and not being assigned by
Consultant to Engage.
Description: (if none enter the word "None")
None_________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
Please indicate if any item listed above has been published, registered as a
copyright, or is or has been the subject of a patent application:
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
Please indicate the name of any organization or third party who also has rights
in any of the listed items. (Such as former employees, partners, etc.)
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
The foregoing is complete and accurate to the best of Consultant's knowledge and
belief.
13
<PAGE>
EXHIBIT 10.22
-------------
INTER-COMPANY AGREEMENT
THIS INTER-COMPANY AGREEMENT is made and entered into as of April 7, 1999
between CMGI, Inc., a Delaware corporation ("CMGI") and Engage Technologies,
Inc., a Delaware corporation and a majority-owned subsidiary of CMGI ("Engage").
WHEREAS, pursuant to that certain Stock Purchase Agreement, dated as of
April 7, 1999 and attached hereto as Exhibit A (the "Purchase Agreement"), by
and among CMGI, Engage, I/PRO and the certain stockholders (the "Stockholders")
of Internet Profiles Corporation, a California corporation ("I/PRO"), Engage and
CMGI have agreed to acquire at least 90% of the capital stock of I/PRO;
WHEREAS, Engage wishes to merge a corporation formed and incorporated in
Delaware and wholly owned by Engage with I/PRO in accordance with California
law, in which I/PRO will be the surviving company and wholly owned by Engage and
in which the remaining stockholders of I/PRO will receive cash compensation (the
"Merger"); and
WHEREAS, CMGI will hold over 80% of the capital stock of Engage on a fully
diluted, as converted basis after consummation of the transactions contemplated
by this Inter-Company Agreement.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
conditions hereinafter set forth and other good and valuable consideration, the
parties hereto hereby agree as follows:
1. Upon the terms and subject to the conditions of this Inter-Company
Agreement (the "Agreement"), CMGI hereby agrees to contribute to Engage, and
Engage hereby agrees to accept from CMGI, all shares of I/PRO common stock, par
value $0.001 per share, (the "I/PRO Stock") purchased by CMGI on April 7, 1999,
pursuant to Section 1.1(b) of the Purchase Agreement (purchased by CMGI in
return for 180,266 shares of CMGI Common Stock disbursed by CMGI to Stockholders
as part of the Initial Consideration as provided therein). In consideration for
such I/PRO Stock, and for CMGI's cash payments of (a) $1,160,000 distributed
pursuant to Section 7.3 of the Purchase Agreement and (b) $27.13 distributed for
fractional shares; and (c) $612,838.08 distributed to unaccredited shareholders
and as part of the squeezeout merger (less $112,498.50 received back by CMGI as
the exercise price of the Comdisco warrant) and all as set forth in the
Breakdown of the Initial IPRO Price hereby certified by Engage to be true and
correct and attached hereto as Exhibit B, Engage hereby agrees to issue to CMGI
218,460 shares of Series C Preferred Stock of Engage valued at $101.10 per share
with an Applicable Purchase Price of $ 101.10 per share, and initially
convertible into 2,184,600 shares of Engage Common Stock. Such Series C
Preferred Stock shall have the rights and privileges as are set forth in the
form of Certificate of Designations attached hereto as Exhibit C. In the event
CMGI is required to pay any additional amounts in connection with the initial
acquisition of
<PAGE>
I/PRO (exclusive of Contingent Consideration or amounts paid in connection with
any claimed breach of Section 4 of the Purchase Agreement) whether in connection
with appraisal rights or additional payments to unaccredited investors or in
connection with the squeezeout merger or otherwise, then Engage shall
immediately reimburse CMGI for any and all such payments by paying CMGI, at
CMGI's sole option, cash in the amount of such payments or by issuing to CMGI
additional shares of Engage Series C Preferred Stock and valued for purposes of
this calculation at $101.10 per share with an Applicable Purchase Price of $
101.10 per share (or following a Qualified Public Offering by issuing to CMGI
shares of Engage Common Stock into which said shares of Series C Preferred Stock
would have been converted upon such Qualified Public offering valued for
purposes of this calculation at $ 10.11 per share). Sums payable out of the
Escrow to the Purchasers shall be paid entirely to Engage.
2. The transactions contemplated by Section 1 of this Inter-Company
Agreement shall for purposes of this Agreement be deemed to have taken place on
April 7, 1999, the closing date of the I/PRO acquisition.
3. Any amounts paid by CMGI pursuant to the Purchase Agreement in
connection with the payment of Contingent Consideration shall be paid by CMGI in
cash or CMGI common stock, as applicable. Engage shall immediately reimburse
CMGI for any and all such payments by paying CMGI, at CMGI's sole option, cash
in the amount of such payments or by issuing to CMGI additional shares of Engage
Series C Preferred Stock valued for purposes of this calculation with reference
to the total enterprise valuation of Engage as of the end of the immediately
preceding fiscal quarter (as determined by the Board of Directors of Engage in
good faith and in a manner consistent with past practice and satisfactory to
CMGI in all respects) (or following a Qualified Public Offering by issuing to
CMGI shares of Engage Common Stock valued at the average closing price of such
stock during the 20 trading days ending on the third trading day prior to the
date of issuance). All CMGI Common Stock shall be valued in accordance with
Section 1.1 (b)(vii) of the Purchase Agreement.
4. Attached hereto as Exhibit D is the capitalization table of Engage as
of the date hereof, after giving effect to the initial acquisition transactions
contemplated by the Purchase Agreement.
5. As between CMGI and Engage, any liability arising from a breach of any
representation in Section 4 of the Purchase Agreement relating to CMGI shall be
the responsibility of CMGI, and any liability arising from a breach of any
representation in Section 4 relating to Engage shall be the responsibility of
Engage.
6. The purpose of this Agreement is to provide for the equitable
adjustment of amounts due Engage and CMGI with respect to the acquisition of
-2-
<PAGE>
I/PRO by Engage as set forth above and shall not under any circumstances be
deemed to create any rights in, or confer any benefits upon, any third party or
parties (including, without limitation, the former stockholders of I/PRO) in any
respect. Nothing herein shall be construed as waiving or affecting any
respective rights of the Purchasers with respect to any amounts held in escrow
or with respect to any amounts due from the Stockholders or with respect to any
indemnification obligations or otherwise. Capitalized terms used herein which
are defined in the Purchase Agreement have the same meanings herein as therein,
except to the extent that such meanings are amended hereby.
IN WITNESS WHEREOF, the parties have executed this Inter-Company Agreement
as of the date first above written.
CMGI, INC.
By: /s/ Andrew J. Hajducky
-----------------------------------------
Name: Andrew J. Hajducky III
Title: Chief Financial Officer
ENGAGE TECHNOLOGIES, INC.
By: /s/ Stephen Royal
-----------------------------------------
Name: Stephen Royal
Title: Chief Financial Officer
-3-
<PAGE>
EXHIBIT A
---------
This Exhibit A to the Inter-Company Agreement between CMGI and Engage has
---------
been filed as Exhibit 10.26, Stock Purchase Agreement by and among CMGI, Engage,
-------------
Internet Profiles Corporation and certain stockholders of Internet Profiles
Corporation listed on Schedule 1 attached thereto, dated April 7, 1999.
<PAGE>
EXHIBIT B
---------
<PAGE>
ENGAGE TECHNOLOGIES
BREAKDOWN OF INITIAL IPRO PURCHASE PRICE
<TABLE>
<CAPTION>
Amounts disbursed by Engage
<S> <C> <C>
Engage shares (505,092 shares at $10.11) 5,106,480.12
Consideration in the form of Engage options 2,807,222.28
-------------
Net paid by Engage 7,913,702.40
Amounts disbursed by CMGI
CMGI shares (180,266 shares at $113.31) 20,425,940.46
Cash
Section 7.3 expenses 1,160,000.00a
Cash for fractional shares 27.13
Cash to unaccredited shareholders and squeezeouts 612,838.08
Comdisco warrant exercise price coming back to CMGI (112,498.50)
-------------
Net cash disbursed/to be disbursed by CMGI 1,660,366.71
-------------
Total deal cost 30,000,009.57
=============
Amount for CMGI to recover through intercompany agreement 22,086,307.17
218,460 Preferred Series C
</TABLE>
a Note that actual 7.3 expenses to date paid by CMGI are $1,135,276.95
representing a savings of $24,723.05 (IPRO made a payment on their line
subsequent to providing the estimate of 7.3 expenses to us). Under the terms of
the Stock Purchase Agreement, any difference between actual and assumed
obligations is to be refunded to stockholders. The above assumes that CMGI will
need to refund $24,732 to the IPRO shareholders, presumably into escrow.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
Wires sent by CMGI
- ----------------------------------------------------------------
Party Date Sent Amount
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Wire to Hambrecht 4/7/99 254,000.00
Wire to IPRO for bonuses 4/13/99 230,371.00
SVB payoff 4/7/99 475,905.95
IPRO's legal fees 4/7/99 175,000.00
Shortfall in expenses 24,723.05
-------------
Total 7.3 expenses 1,160,000.00
-------------
Unaccredited shareholders payout 1 4/15/99 236,018.88
Cash for fractional shares 27.13
Unaccredited shareholders payout 2 4/26/99 376,819.20
-------------
Total cash payments to unaccredited investors 612,865.21
-------------
-------------
Chech coming back to CMGI (112,498.50)
-------------
-------------
</TABLE>
<PAGE>
EXHIBIT C
---------
<PAGE>
CERTIFICATE OF DESIGNATION OF
SERIES C CONVERTIBLE PREFERRED STOCK
Engage Technologies, Inc., a Delaware corporation (the "Company"), pursuant
to authority conferred on the Board of Directors of the Company by the
Certificate of Incorporation of the Company, as amended to date, and in
accordance with the provisions of Section 151 of the General Corporation Law of
the State of Delaware, certifies that the Board of Directors of the Company, at
a meeting duly held on May 5, 1999, has duly adopted the following resolution
providing for the establishment and issuance of a series of Preferred Stock to
be designated "Series C Convertible Preferred Stock" and to consist of two
million (2,000,000) shares as follows:
RESOLVED: That, pursuant to the authority expressly granted and vested in
the Board of Directors of the Company in accordance with the
provisions of Section 151 of the General Corporation Law of the
State of Delaware and its Amended and Restated Certificate of
Incorporation, a series of Preferred Stock of the Company hereby
is established, consisting of two million (2,000,000) shares to
be designated "Series C Convertible Preferred Stock" (hereinafter
"Series C Preferred Stock"); the Board of Directors be and hereby
is authorized to issue such shares of Series C Preferred Stock
from time to time and for such consideration and on such terms as
the Board of Directors shall determine; and subject to the
limitations provided by law and by the Amended and Restated
Certificate of Incorporation, the powers, designations,
preferences and relative, participating, optional or other
special rights of, and the qualifications, limitations or
restrictions upon, the Series C Preferred Stock shall be as
follows:
1. Designation. This series of Preferred Stock, par value $0.01 per
-----------
share, shall be designated the "Series C Convertible Preferred Stock"
(hereinafter "Series C Preferred Stock").
2. Dividends.
---------
(a) The holders of shares of Series C Preferred Stock shall be
entitled to receive, out of funds legally available therefor, dividends computed
at a rate of 7% of the Applicable Purchase Price (as defined in Section 3(a)
below) per share per annum (or a proportional part thereof for a portion of a
year and all subject to appropriate adjustment in the event of any stock
dividend, stock split, combination or other similar recapitalization affecting
such shares) commencing as of the date the particular shares of Series C
Preferred Stock are issued (the "Applicable Issue Date"), payable when, as and
if declared by the Board of Directors of the Company. The
<PAGE>
right to receive dividends on Series C Preferred Stock shall be non- cumulative,
and no right to receive dividends shall accrue by reason of the fact that no
dividends have been declared on the Series C Preferred Stock in any or every
prior year.
(b) The Company shall not declare or pay any distributions on shares
of Common Stock until the holders of shares of Series C Preferred Stock then
outstanding shall have first received a distribution at the rate specified in
paragraph (a) of this Section 2 calculated on a cumulative basis from the date
of issuance of said stock compounded annually as of any anniversary of the date
of issuance of such shares.
(c) For purposes of this Section 2, unless the context requires
otherwise, "distribution" shall mean the transfer of cash or property without
consideration, whether by way of dividend or otherwise, payable other than in
Common Stock or other securities of the Company, or the purchase or redemption
of shares of the Company (other than repurchases of Common Stock held by
employees or directors of, or consultants to, the Company pursuant to agreements
providing for such repurchase and other than redemptions in liquidation or
dissolution of the Company) for cash or property, including any such transfer,
purchase or redemption by a subsidiary of the Company.
3. Liquidation, Dissolution or Winding Up.
--------------------------------------
(a) In the event of any liquidation, dissolution or winding up of the
Company, and provided that the amount available for distribution to each holder
of the Series C Preferred Stock pursuant to this Section 3 is less than the
Applicable Purchase Price (as defined below) per share plus a dividend computed
at a rate of 7% per share per annum, compounded annually beginning as of the
Applicable Issue Date (such amount to be equitably adjusted whenever there shall
occur a stock split, combination, reclassification or other similar event as
provided in Section 5(e)(ii) hereof), whether voluntary or involuntary, the
entire assets of the Company available for such distribution shall, after
satisfaction of all payment obligations under the Company's Series A Preferred
Stock, be distributed ratably among the holders of the Series C Preferred Stock.
The "Applicable Purchase Price" for each share of Series C Preferred Stock shall
be the price paid for such share on the Applicable Issue Date.
It is expressly contemplated that separate tranches of shares of Series C
Preferred Stock issued on different dates will have different Applicable
Purchase Prices.
(b) In the event of any liquidation, dissolution or winding up of the
Company, and provided that the amount available for distribution to each holder
of the Series C Preferred Stock pursuant to this Section 3 is at least equal to
the Applicable Purchase Price per share plus a dividend computed at a rate of 7%
of the Applicable Purchase Price for each such share per annum, compounded
annually as
-2-
<PAGE>
of the Applicable Issue Date (such amount to be equitably adjusted whenever
there shall occur a stock split, combination, reclassification or other similar
event as provided in Section 5(e)(ii) hereof), whether voluntary or involuntary,
holders of each share of Series C Preferred Stock shall, after satisfaction of
all payment obligations under the Company's Series A Preferred Stock, be
entitled to be paid first out of the assets of the Company available for
distribution to holders of the Company's capital stock of all classes, whether
such assets are capital, surplus, or earnings, before any sums shall be paid or
any assets distributed among the holders of any other class of capital stock, an
amount equal to the Applicable Purchase Price for each share of Series C
Preferred Stock plus a dividend computed at a rate of 7% per share per annum,
compounded annually as of the Applicable Issue Date. After the payment of the
preferential amount required to be paid to the holders of the Series C Preferred
Stock, upon the liquidation, dissolution or winding up of the Company, the
holders of shares of the Company's Common Stock shall be entitled to receive the
remaining assets and funds of the Company available for distribution to its
stockholders.
(c) A consolidation or merger of the Company or a sale of all or
substantially all of the assets of the Company shall be regarded as a
liquidation, dissolution or winding up of the affairs of the Company within the
meaning of this Section 3; provided, however, that each holder of Series C
Preferred Stock shall have the right to elect the benefits of the provisions of
Section 5(h) hereof in lieu of receiving payment in liquidation, dissolution or
winding up of the Company pursuant to this Section 3. Each holder of Series C
Preferred Stock shall notify the Company in advance of its election to obtain
the benefits of this Section 3(c) or of Section 5(h), which notification shall
be given not later than a date specified in writing to each holder by the
Company to be at least five (5) days prior to the effective date of such
consolidation, merger or sale. If a holder fails to make any election, he shall
be deemed to have elected the benefits of this Section 3(c).
(d) Whenever the distribution provided for herein shall be paid in
property other than cash, the value of such distribution shall be the fair
market value of such property as determined in good faith by the Board of
Directors of the Company.
4. Voting Power. Except as otherwise expressly provided in Section 7
------------
hereof, or as required by law, each holder of Series C Preferred Stock shall be
entitled to vote on all matters and shall be entitled to that number of votes
equal to the largest number of whole shares of Common Stock into which such
holder's shares of Series C Preferred Stock could be converted, pursuant to the
provisions of Section 5 hereof (taking into account all declared and unpaid
dividends, if any, with respect to such Series C Preferred Stock), at the record
date for the determination of shareholders entitled to vote on such matter or,
if no such record date is established, at the date such vote is taken or any
written consent of shareholders is solicited.
-3-
<PAGE>
Except as otherwise expressly provided herein or as required by law, the holders
of shares of Series C Preferred Stock and of Common Stock shall be entitled to
vote together as a class on all matters.
5. Conversion Rights. The holders of the Series C Preferred Stock shall
-----------------
have the following conversion rights:
(a) General. Subject to and in compliance with the provisions of this
-------
Section 5, any shares of the Series C Preferred Stock, may, at the option of the
holder, be converted at any time or from time to time into fully-paid and non-
assessable shares (calculated as to each conversion to the largest whole share)
of Common Stock. The number of shares of Common Stock to which a holder of
Series C Preferred Stock shall be entitled upon conversion shall be calculated
by adding together each product obtained by multiplying the Applicable
Conversion Rate (determined as provided in Section 5(c)) for each tranche of
Series C Preferred Stock held by such holder by the number of shares of each
tranche of Series C Preferred Stock having such particular Applicable Purchase
Price being converted. Upon conversion of their shares of Series C Preferred
Stock into shares of Common Stock, holders of shares of Series C Preferred Stock
shall also have the option to have all declared but unpaid dividends on such
shares of Series C Preferred Stock converted into shares of Common Stock. The
number of shares of Common Stock to be received upon the conversion of such
declared but unpaid dividends shall, for each tranche of Series C Preferred
Stock, be computed by multiplying the number of shares of Series C Preferred
Stock which could have been purchased with such declared but unpaid dividends,
assuming a Series C Preferred Stock purchase price equal to the Applicable
Purchase Price per share, by the Applicable Conversion Rate in effect for such
tranche at the time of such conversion.
(b) Conversion Following Underwritten Public offering.
(i) All outstanding shares of Series C Preferred Stock shall, upon the
closing of an underwritten public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended, covering the offering
and sale of Common Stock for the account of the Company in which the Common
Stock is sold at a price to the public of not less than an amount per share to
be calculated as follows: (A) the aggregate sum of the Applicable Purchase Price
for each tranche of Series C Preferred Stock multiplied by the number of shares
issued in such tranche plus a dividend computed at a rate of 7% per share per
annum, compounded annually as of the Applicable Issue Date (such amount to be
equitably adjusted whenever there shall occur a stock split, combination,
reclassification or other similar event affecting the Common Stock) divided by
(B) the total number of shares of Series C Preferred Stock issued and
outstanding, and in which the aggregate gross proceeds (before deduction of any
underwriting discounts, commissions or expenses) received by the Company from
such public offering, shall
-4-
<PAGE>
equal or exceed Fifteen Million Dollars ($15,000,000), be converted
automatically into the number of shares of Common Stock to which a holder of
Series C Preferred Stock shall be entitled upon conversion pursuant to Section
5(a) hereof without any further action by such holders and whether or not the
certificates representing such shares are surrendered to the Company or its
transfer agent for the Common Stock.
(ii) Upon the occurrence of the conversion specified in Section
5(b)(i), the holders of such Series C Preferred Stock shall surrender the
certificates representing such shares at the office of the Company or of its
transfer agent for the Common Stock. Thereupon, there shall be issued and
delivered to each such holder a certificate or certificates for the number of
shares of Common Stock into which the shares of the Series C Preferred Stock
surrendered were convertible on the date on which such conversion occurred. The
Company shall not be obligated to issue certificates evidencing the shares of
Common Stock issuable upon such conversion unless certificates evidencing such
shares of the Series C Preferred Stock being converted are either delivered to
the Company or any such transfer agent or the holder notifies the Company or any
such transfer agent that such certificates have been lost, stolen or destroyed
and executes an agreement satisfactory to the Company to indemnify the Company
from any loss incurred by it in connection therewith. In addition, the Company
may, if the Board of Directors deems it reasonably necessary, require the holder
to post a bond in connection with such indemnity agreement.
(c) Applicable Conversion Rate. The conversion rate in effect at any
--------------------------
time (the "Applicable Conversion Rate") shall be the quotient obtained by
dividing (i) the Applicable Purchase Price by (ii) the Applicable Conversion
Value, calculated as provided in Section 5(d).
(d) Applicable Conversion Value. The Applicable Conversion Value in
---------------------------
effect from time to time, except as subsequently adjusted in accordance with
Section 5(e) hereof, shall be equal to the quotient obtained by dividing (i) the
Applicable Purchase Price by (ii) ten (10).
(e) Adjustments to Applicable Conversion Value.
(i) Upon Sales of Common Stock. If the Company shall, while there
--------------------------
are any shares of Series C Preferred Stock outstanding, issue or sell shares of
its Common Stock without consideration or at a price per share less than the
Applicable Conversion Value for any tranche of Series C Preferred Stock in
effect immediately prior to such issuance or sale, then in each such case such
Applicable Conversion Value for such tranche of Series C Preferred Stock upon
each such issuance or sale, except as hereinafter provided, shall be adjusted to
an amount determined by multiplying such Applicable Conversion Value by a
fraction:
-5-
<PAGE>
(A) the numerator of which shall be (a) the number of shares of
Common Stock outstanding immediately prior to the issuance of
such additional shares of Common Stock, calculated on a fully
diluted basis assuming exercise or conversion of all securities
exercisable for or convertible into Common Stock, whether or not
such exercise or conversion is unvested or otherwise conditional,
plus (b) the number of shares of Common Stock which the net
aggregate consideration received by the Company for the total
number of such additional shares of Common Stock so issued would
purchase at the Applicable Conversion Value for such tranche, and
(B) the denominator of which shall be (a) the number of shares of
Common Stock outstanding immediately prior to the issuance of
such additional shares of Common Stock, calculated on a fully
diluted basis assuming exercise or conversion of all securities
exercisable for or convertible into Common Stock, whether or not
such exercise or conversion is unvested or otherwise conditional,
plus (b) the number of such additional shares of Common Stock so
issued or deemed issued.
The Company's issuance of up to an aggregate of 3,544,737 shares of Common Stock
or such greater number if approved by a majority of the Board of Directors (such
amount to be equitably adjusted whenever there shall occur a stock split,
combination, reclassification or other similar event affecting the Common
Stock), or options exercisable therefor, pursuant to any stock purchase or stock
option plan or other individual or group incentive program of any kind approved
by the Board of Directors to the Company's officers, directors, employees or
consultants shall have no effect on the calculations contemplated by this
Section 5(e).
(C) For the purposes of this Section 5(e), with respect to each
tranche of Series C Preferred Stock, the issuance of any
warrants, options, subscriptions or purchase rights with respect
to shares of Common Stock and the issuance of any securities
convertible into or exchangeable for shares of Common Stock (or
the issuance of any warrants, options or any rights with respect
to such convertible or exchangeable securities) whether or not
such conversion or exchange is conditional, shall be deemed an
issuance at such time of such Common Stock. Any obligation,
agreement or undertaking to issue warrants, options,
subscriptions or purchase rights at any time in the future
-6-
<PAGE>
shall be deemed to be an issuance at any time such obligation,
agreement or undertaking is made or arises. No adjustment of the
Applicable Conversion Value for any such tranche shall be made
under this Section 5(e) upon the issuance of any shares of
Common Stock which are issued pursuant to the exercise of any
warrants, options, subscriptions or purchase rights or pursuant
to the exercise of any conversion or exchange rights in any
convertible securities if any adjustment shall previously have
been made upon the issuance of any such warrants, options or
subscriptions or purchase rights or upon the issuance of any
convertible securities (or upon the issuance of any warrants,
options or any rights therefor) as above provided. Any
adjustment of the Applicable Conversion Value with respect to
this paragraph for any tranche of Series C Preferred Stock which
relates to warrants, options, subscriptions or purchase rights
with respect to shares of Common Stock shall be disregarded if,
as, and when all of such warrants, options, subscriptions or
purchase rights expire or are canceled without being exercised,
so that the Applicable Conversion Value for such tranche
effective immediately upon such cancellation or expiration shall
be equal to the Applicable Conversion Value for such tranche in
effect at the time of the issuance of the expired or canceled
warrants, options, subscriptions or purchase rights, with such
additional adjustments as would have been made to that Applicable
Conversion Value had the expired or canceled warrants, options,
subscriptions or purchase rights not been issued.
For purposes of this Section 5(e), if a part or all of the consideration
received by the Company in connection with the issuance of shares of the Common
Stock or the issuance of any of the securities described in this Section 5(e)
consists of property other than cash, the Company at its expense will promptly
cause independent public accountants of recognized standing selected by the
Company to value such property, whereupon such value shall be given to such
consideration and shall be recorded on the books of the Company with respect to
receipt of such property.
This Section 5(e)(i) shall not apply under any of the circumstances which
would constitute an Extraordinary Common Stock Event (as hereinafter defined in
Section 5(e)(ii)).
-7-
<PAGE>
(ii) Extraordinary Common Stock Event. Upon the happening of an
--------------------------------
Extraordinary Common Stock Event (as hereinafter defined), the Applicable
Conversion Value for each tranche of Series C Preferred Stock shall,
simultaneously with the happening of such Extraordinary Common Stock Event, be
adjusted by multiplying the then effective Applicable Conversion Value for such
tranche by a fraction, the numerator of which shall be the number of shares of
Common Stock outstanding immediately prior to such Extraordinary Common Stock
Event and the denominator of which shall be the number of shares of Common Stock
outstanding immediately after such Extraordinary Common Stock event, and the
product so obtained shall thereafter be the Applicable Conversion Value for such
tranche. The Applicable Conversion Value for such tranche, as so adjusted,
shall be readjusted in the same manner upon the happening of any successive
Extraordinary Common Stock Event or Events.
"Extraordinary Common Stock Event" shall mean (i) the issue of additional
shares of Common Stock as a dividend or other distribution on outstanding shares
of Common Stock, (ii) the subdivision of outstanding shares of Common Stock into
a greater number of shares of Common Stock, or (iii) the combination of
outstanding shares of the Common Stock into a smaller number of shares of Common
Stock.
(f) Dividends. In the event the Company shall make or issue, or fix a
---------
record date for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in securities of the Company
other than shares of Common Stock or in assets (excluding cash dividends or
distributions), then and in each such event provisions shall be made so that the
holders of Series C Preferred Stock shall receive upon conversion thereof in
addition to the number of shares of Common Stock receivable thereupon, the
number of securities or such other assets of the Company which they would have
received had their Series C Preferred Stock been converted into Common Stock on
the date of such event and had they thereafter, during the period from the date
of such event to and including the Conversion Date (as that term is hereafter
defined in Section 5(j)), retained such securities or such other assets
receivable by them as aforesaid during such period, giving application to all
adjustments called for during such period under this Section 5 with respect to
the rights of the holders of the Series C Preferred Stock.
(g) Recapitalization or Reclassification. If the Common Stock
------------------------------------
issuable upon the conversion of the Series C Preferred Stock shall be changed
into the same or a different number of shares of any class or classes of stock
of the Company, whether by recapitalization, reclassification or otherwise
(other than a subdivision or combination of shares or stock dividend provided
for elsewhere in this Section 5, or a reorganization, merger, consolidation or
sale of assets provided for elsewhere in this Section 5), then and in each such
event the holder of each share of Series C Preferred Stock shall have the right
thereafter to convert such share into the kind and amount of shares of stock and
other securities and property receivable upon such
-8-
<PAGE>
reorganization, reclassification or other change by holders of the number of
shares of Common Stock into which such share of Series C Preferred Stock might
have been converted (taking into account all accrued and unpaid dividends and
interest with respect to such Series C Preferred Stock) immediately prior to
such reorganization, reclassification or change, all subject to further
adjustment as provided herein.
(h) Capital Reorganization Merger or Sale of Assets. If at any time
-----------------------------------------------
or from time to time there shall be a capital reorganization of the Common Stock
(other than a subdivision, combination, reclassification or exchange of shares
provided for elsewhere in this Section 5) or a merger or consolidation of the
Company with or into another corporation or entity, or the sale of all or
substantially all of the Company's properties and assets to any other person or
persons, then, as a part of such reorganization, merger, consolidation or sale,
provision shall be made so that each holder of the Series C Preferred Stock
shall thereafter be entitled to receive upon conversion of such holder's shares
of Series C Preferred Stock, the number of shares of stock or other securities
or property of the Company, or of the successor corporation or entity resulting
from such merger, consolidation or sale, to which a holder of Common Stock
issuable upon conversion would have been entitled on such capital
reorganization, merger, consolidation, or sale. In any such case, appropriate
adjustment shall be made in the application of the provisions of this Section 5
with respect to the rights of the holders of the Series C Preferred Stock after
the reorganization, merger, consolidation or sale to the end that the provisions
of this Section 5 (including adjustment of the Applicable Conversion Value then
in effect and the number of shares purchasable upon conversion of each tranche
of Series C Preferred Stock) shall be applicable after that event in as nearly
equivalent a manner as may be practicable.
Each holder of Series C Preferred Stock upon the occurrence of a capital
reorganization, merger or consolidation of the Company, or the sale of all or
substantially all its assets and properties as such events are more fully set
forth in the first paragraph of this Section 5(h), shall have the option of
electing treatment of his shares of Series C Preferred Stock under either this
Section 5(h) or Section 3(b) hereof, notice of which election shall be
submitted in writing to the Company at its principal offices no later than five
(5) days before the effective date of such event.
(i) Accountant's Certificate as to Adjustments. In each case of an
------------------------------------------
adjustment or readjustment of the Applicable Conversion Rate, the Company will
furnish each holder of Series C Preferred Stock with a certificate, prepared by
its chief financial officer showing such adjustment or readjustment, and stating
in detail the facts upon which such adjustment or readjustment is based. Upon
the request of any holder, the Company will cause its independent public
accountants to confirm the accuracy of such adjustment or readjustment.
-9-
<PAGE>
(j) Exercise of Conversion Privilege. To exercise his conversion
--------------------------------
privilege, a holder of Series C Preferred Stock shall surrender the certificate
or certificates representing the shares being converted to the Company at its
principal office, and shall give written notice to the Company at such office
that such holder elects to convert such shares. Such notice shall also state
the name or names (with address or addresses) in which the certificate or
certificates for shares of Common Stock issuable upon such conversion shall be
issued. The certificate or certificates for shares of Series C Preferred Stock
surrendered for conversion shall be accompanied by proper assignment thereof to
the Company or in blank. The date when such written notice is received by the
Company, together with the certificate or certificates representing the shares
of Series C Preferred Stock being converted, shall be the "Conversion Date". As
promptly as practicable after the Conversion Date, the Company shall issue and
shall deliver to the holder of the shares of Series C Preferred Stock being
converted, or on its written order, such certificate or certificates as it may
request for the number of whole shares of Common Stock issuable upon the
conversion of such shares of Series C Preferred Stock in accordance with the
provisions of this Section 5, cash in the amount of all declared but unpaid
dividends on such shares of Series C Preferred Stock, up to and including the
Conversion Date, unless conversion of such declared but unpaid dividends into
Common Stock has been elected, and cash, as provided in Section 5(k), in
respect of any fraction of a share of Common Stock issuable upon such
conversion. Such conversion shall be deemed to have been effected immediately
prior to the close of business on the Conversion Date, and at such time the
rights of the holder as holder of the converted shares of Series C Preferred
Stock shall cease and the person or persons in whose name or names any
certificate or certificates for shares of Common Stock shall be issuable upon
such conversion shall be deemed to have become the holder or holders of record
of the shares of Common Stock represented thereby.
(k) Cash in Lieu of Fractional Shares. No fractional shares of Common
---------------------------------
Stock or scrip representing fractional shares shall be issued upon the
conversion of shares of Series C Preferred Stock. Instead of any fractional
shares of Common Stock which would otherwise be issuable upon conversion of
Series C Preferred Stock, the Company shall pay to the holder of the shares of
Series C Preferred Stock which were converted a cash adjustment in respect of
such fractional shares in an amount equal to the same fraction of the market
price per share of the Common Stock (as determined in a reasonable manner
prescribed by the Board of Directors) at the close of business on the Conversion
Date. The determination as to whether or not any fractional shares are issuable
shall be based upon the total number of shares of Series C Preferred Stock being
converted at any one time by any holder thereof, not upon each share of Series C
Preferred Stock being converted.
(l) Partial Conversion. In the event some but not all of the shares
------------------
of Series C Preferred Stock represented by a certificate or certificates
surrendered by a holder are converted, the Company shall execute and deliver to
or on the order of the
-10-
<PAGE>
holder, at the expense of the Company, a new certificate representing the
number of shares of Series C Preferred Stock which were not converted.
(m) Reservation of Common Stock. The Company 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 C 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 the Series C Preferred Stock and all unpaid dividends thereon, and if
at any time the number of authorized but unissued shares of Common Stock shall
not be sufficient to effect the conversion of all then outstanding shares of the
Series C Preferred Stock and all unpaid dividends thereon, the Company shall
take such corporate action as may be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be sufficient
for such purpose.
6. No Reissuance of Series C Preferred Stock. No share or shares of
-----------------------------------------
Series C Preferred Stock acquired by the Company by reason of redemption,
purchase, conversion or otherwise shall be reissued, and all such shares shall
be canceled, retired and eliminated from the shares which the Company shall be
authorized to issue. The Company may from time to time take such appropriate
corporate action as may be necessary to reduce the authorized number of shares
of the Series C Preferred Stock accordingly.
7. Restrictions and Limitations.
----------------------------
(a) Except as expressly provided herein or as required by law, neither
the Company nor any subsidiary of the Company (which shall mean any corporation
or trust of which the Company directly or indirectly owns at the time all of the
outstanding shares of every class of such corporation or trust other than
directors' qualifying shares) shall, without the vote or written consent by the
holders of at least a majority of the then outstanding shares of the Series C
Preferred Stock voting together, each share of Series C Preferred Stock to be
entitled to one vote in each instance for each share of Common Stock into which
such Preferred Stock is then convertible:
(i) Redeem, purchase or otherwise acquire for value or (pay in,
to or set aside for a sinking fund for such purpose), any share or shares of
Series C Preferred Stock;
(ii) Authorize or issue, or obligate itself to authorize or issue,
any other equity security senior to or on a parity with the Series C Preferred
Stock as to liquidation preferences, conversion rights, redemption rights,
dividend rights, voting rights or otherwise;
-11-
<PAGE>
(iii) Effect any sale, lease, assignment, transfer or other
conveyance of all or substantially all of the assets of the Company or any
subsidiary thereof, or any consolidation or merger involving the Company or any
subsidiary thereof, or any reclassification or other change of stock, or any
recapitalization or any dissolution, liquidation or winding up of the Company;
(iv) Effect any merger by the Company with or into any business
entity or any acquisition by the Company of any assets or business having a fair
market value in excess of One Million Dollars ($1,000,000) U.S.; or
(v) Amend its Amended and Restated Certificate of Incorporation,
if such amendment would change any of the rights, preferences, privileges of or
limitations provided for herein for the benefit of any shares of Series C
Preferred Stock.
8. No Dilution or Impairment. Except as provided in Section 7 above,
-------------------------
the Company will not, by amendment of its Amended and Restated Certificate of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms of the
Series C Preferred Stock set forth herein, but will at all times in good faith
assist in the carrying out of all such terms and in the taking of all such
actions as may be necessary or appropriate in order to protect the rights of the
holders of the Series C Preferred Stock against dilution or other impairment.
Without limiting the generality of the foregoing, the Company (a) will not
increase the par value of any shares of stock receivable on the conversion of
the Series C Preferred Stock above the amount payable therefor on such
conversion, (b) will take all such action as may be necessary or appropriate in
order that the Company may validly and legally issue fully paid and non-
assessable shares of stock on the conversion of all Series C Preferred Stock
from time to time outstanding and all accrued and unpaid dividends thereon, and
(c) will not transfer all or substantially all of its properties and assets to
any other person (corporate or otherwise), or consolidate with or merge into any
other person or permit any such person to consolidate with or merge into the
Company (if the Company is not the surviving person), unless such other person
shall expressly assume in writing and will be bound by all the terms of the
Series C Preferred Stock set forth herein.
9. Notices of Record Date. In the event of
----------------------
(a) any taking by the Company of a record of the holders of any class
of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, or 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, or
-12-
<PAGE>
(b) any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company, any merger or
consolidation of the Company, or any transfer of all or substantially all of the
assets of the Company to any other corporation, or any other entity or person,
or
(c) any voluntary or involuntary dissolution, liquidation or winding
up of the Company, then and in each such event the Company shall mail or cause
to be mailed to each holder of Series C Preferred Stock a notice specifying (i)
the date on which any such record is to be taken for the purpose of such
dividend, distribution or right and a description of such dividend, distribution
or right, (ii) the date on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding up is expected to become effective, (iii) the time, if any, that is to
be fixed, as to when the holders of record of Common Stock (or other securities)
shall be entitled to exchange their shares of Common Stock (or other securities)
for securities or other property deliverable upon such reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding up. Such notice shall be mailed at least
twenty (20) days prior to the date specified in such notice on which such action
is to be taken.
This Certificate of Designation was duly adopted in accordance with the
applicable provisions of Section 151 of the Delaware General Corporation Law.
-13-
<PAGE>
IN WITNESS WHEREOF, Engage Technologies, Inc. has caused this Certificate
of Designation of Series C Convertible Preferred Stock to be signed by Paul L.
Schaut, its President, this 5th day of May, 1999.
By:_______________________________
Paul L. Schaut, President
-14-
<PAGE>
EXHIBIT D
---------
<PAGE>
Ipro analysis
<TABLE>
<CAPTION>
Engage Technologies, Inc.
Fully Diluted Common Equivalent Shares
%
# of shares ownership $ ownership
----------- --------- ------------
<S> <C> <C> <C> <C>
Fully diluted common equivalent shares
Before IPro Acquisition
Engage Option Pool (total including exercised) 2,894,737 14.6% $ 29,273,707
Preferred Series A 15,000,000 75.8% $151,691,021
Preferred Series B - Sumitomo 238,597 1.2% $ 2,412,868 --------------------
Preferred Shares issued in interco debt conversion 1,643,710 8.3% $ 16,622,403 Ave. share price
----------- --------- ------------ 10.11
Total capitalization 19,777,044 100.0% $200,000,000 --------------------
=========== ========= ============
----------- --------- ------------
CMGI ownership 16,643,710 84.2% $168,313,424
----------- --------- ------------
Fully diluted common equivalent shares ------------
230,000,000
IPro Acquisition - (before additional Option grants) ------------
Engage Option Pool (total including exercised) 2,894,737 12.7% $ 29,273,707
Preferred Series A 15,000,000 66.0% $151,691,021
Preferred Series B - Sumitomo 238,597 1.0% $ 2,412,868
Preferred Shares issued in interco debt conversion 1,643,710 7.2% $ 16,622,403
----------- --------- ------------
Subtotal shares pre-IPro 19,777,044 87.0% $200,000,000
--------------------
Engage Shares issued to CMGI - IPro acquisition 2,184,599 9.6% $ 22,086,300 Purchase
Engage Shares issued to former IPro shareholders 505,092 2.2% $ 5,106,480 Price
Engage Options issued to former IPro optionships 277,668 1.2% $ 2,807,220 30,000,000
--------------------
Ave. share price
----------- --------- ------------ --------------------
Total capitalization 22,744,403 100.0% $230,000,000 10.11
=========== ========= ============ --------------------
----------- --------- ------------
CMGI ownership 18,828,309 82.8% $190,399,725
=========== ========= ============
IPro Acquisition - including additional Options
granted in purchase
Engage Option Pool (total including exercised) 2,894,737 12.5% $ 28,801,191
Preferred Series A 15,000,000 64.9% $149,242,526
Preferred Series B - Sumitomo 238,597 1.0% $ 2,373,921
Preferred Shares issued in interco debt conversion 1,643,710 7.1% $ 16,354,096
Engage Shares issued to CMGI - IPro acquisition 2,184,599 9.5% $ 21,735,676
Engage Shares issued to former IPro shareholders 505,092 2.2% $ 5,025,414
Engage Option issued to former IPro optionholders 277,668 1.2% $ 2,762,655
Additional Engage options reserved for IPro 372,332 1.6% $ 3,704,522
employees ----------- ---------- ------------
Subtotal IPro options 650,000 2.8% $ 6,467,176
--------------------
----------- ---------- ------------ Ave. share price
Total capitalization 23,116,735 100% $230,000,000 9.95
=========== ========== ============ --------------------
----------- ---------- ------------
CMGI ownership 18,828,309 81.4% $187,332,298
----------- ---------- ------------
</TABLE>
<PAGE>
EXHIBIT 10.23
-------------
SECURED CONVERTIBLE DEMAND NOTE
-------------------------------
$20,000,000 as of FEBRUARY 1, 1999
Andover, Massachusetts
FOR VALUE RECEIVED, the undersigned ENGAGE TECHNOLOGIES, INC., a Delaware
corporation (the "Borrower"), hereby promises to pay to the order of CMGI, INC.,
--------
a Delaware corporation (the "Lender"), ON DEMAND the lesser of (i) the principal
------
sum of Twenty Million Dollars ($20,000,000) or (ii) the aggregate unpaid
principal amount of all advances hereunder, together with accrued interest
thereon. Interest, if not paid, shall be added to principal monthly (and
interest shall thereafter accrue thereon) on the last day of each calendar month
at the rate of seven percent (7%) per annum based on the average of (i) the
aggregate unpaid principal amount of all advances made hereunder as of the last
day of the immediately preceding month and (ii) the aggregate unpaid principal
amount of all advances made hereunder as of the last day of the month for which
interest is being calculated. The unpaid principal balance and all accrued
interest on this Note at any time shall be determined from the records of the
Lender which shall constitute presumptive evidence of such amounts and may be
summarized on Schedule I hereto, which may be updated by the Lender from time to
----------
time to reflect new advances and repayment or conversion of indebtedness. As
soon as practicable after each January 31, April 30, July 31 and October 31
(each a "Fiscal Quarter End"), the Borrower shall provide notice to the Lender
------------------
of the Conversion Price applicable to the fiscal quarter then ended.
NOTWITHSTANDING THE FOREGOING, NOTHING IN THIS NOTE SHALL OBLIGATE THE LENDER TO
MAKE ANY ADVANCES HEREUNDER.
Advances in the aggregate amount of $9,347,451 (representing $5,334,605
advanced on or before April 30, 1998, an additional $2,418,456 advanced on or
before July 31, 1998, an additional $598,117 advanced on or before October 31,
1998 and an additional $996,273 advanced on or before January 31, 1999, in each
case including interest accrued during the applicable fiscal quarter) made by
the Lender to the Borrower prior to the date hereof shall be converted into
164,371 shares of Series C Stock (as defined below) of the Borrower (based upon
applicable conversion prices of $4.75, $6.95, $8.50 and $9.74, respectively) as
soon as practicable after the date hereof without further accrual of interest
thereon and shall not constitute advances hereunder.
The Lender, in its sole discretion, will at any time and from time to time
have the option, exercisable by written notice to the Borrower in substantially
the form attached as Exhibit A hereto, to require the Borrower to satisfy all or
---------
any part of the indebtedness represented by this Note (including both principal
and accrued interest) by issuing to the Lender (or its nominee(s)) shares of the
Borrower's capital stock in the following manner:
(A) prior to a Qualified Public Offering, the Borrower shall issue
that number of shares of its Series C Convertible Preferred Stock, $0.01
par value per share (the "Series C Stock"), equal to one-tenth of the
--------------
quotient of (i) the aggregate
<PAGE>
amount of principal and interest to be so converted for any particular date
divided by (ii) the applicable Conversion Price (as defined below,
-------
proportionately adjusted in the event that from time to time following the
date of determination thereof there occurs any stock dividend, stock split,
reverse stock split, recapitalization, or other similar event affecting the
Borrower's Series C Stock); and
(B) following a Qualified Public Offering, the Borrower shall issue
that number of shares of its common stock, $0.01 par value per share (the
"Common Stock"), equal to the quotient of (i) the aggregate amount of
-------------
principal and interest to be so converted for any particular date divided
-------
by (ii) the applicable Conversion Price (as defined below, proportionately
adjusted in the event that from time to time following the date of
determination thereof there occurs any stock dividend, stock split, reverse
stock split, recapitalization, or other similar event affecting the
Borrower's Common Stock).
A "Qualified Public Offering" shall mean a transaction which triggers the
-------------------------
mandatory conversion into Common Stock of the Series C Stock pursuant to the
terms of Section 5(b) of the Certificate of Designation of the Series C Stock.
The "Conversion Price" applicable to the conversion of the principal amount
----------------
of advances made, and interest accrued, during any particular fiscal quarter
shall be determined as of the Fiscal Quarter End for that particular fiscal
quarter by dividing (i) the total enterprise valuation of the Borrower (as
determined by the Board of Directors of the Borrower in good faith and in a
manner satisfactory to the Lender in all respects) as of the Fiscal Quarter End
for that particular fiscal quarter by (ii) the number of shares of the
Borrower's Common Stock outstanding at such Fiscal Quarter End determined on a
fully-diluted, as-if-converted basis (and assuming the conversion of all
convertible securities, the grant of all options available under any option
plans and the exercise of all options, whether vested and unvested, warrants and
other rights to acquire equity interests in the Borrower of any nature
whatsoever). It is expressly contemplated that advances made, and interest
accrued, during each fiscal quarter will have a different applicable Conversion
Price depending upon the total enterprise valuation and number of shares of
Common Stock deemed outstanding as of the Fiscal Quarter End for that particular
fiscal quarter. Notwithstanding the foregoing, (i) the Conversion Price
applicable to the principal amount of advances made, and interest accrued,
during the fiscal quarter in which a Qualified Public Offering occurs shall be
equal to the price per share of Common Stock to the public in such offering and
(ii) the Conversion Price applicable to the principal amount of any advances
made, and interest accrued, during a fiscal quarter if the Lender elects to
convert such advances and/or interest prior to the Fiscal Quarter End of such
fiscal quarter shall be the Conversion Price in effect for the immediately
preceding fiscal quarter.
-2-
<PAGE>
This Note may be voluntarily prepaid in whole or in part at any time
without premium or penalty upon thirty (30) days written notice to the Lender.
Any such prepayment shall be applied to advances and compounded interest in
inverse order of incurrence.
If any payment of principal or interest hereon shall become due on a day
which is not a day on which banks are open for normal business hours in Andover
or Boston, Massachusetts, such payment shall be made on the next succeeding
business day and such extension of time shall in such case be included in
computing interest in connection with such payment.
Payments of both principal and interest hereon shall be made in immediately
available funds at the office of the Lender, at Andover, Massachusetts, or at
such other place as the holder hereof shall designate to the Borrower in
writing, in lawful money of the United States of America.
This Note will be secured by certain assets of the Borrower pursuant to a
certain Security Agreement and a certain Intellectual Property Security
Agreement (the "Security Agreements"), to be entered into between the Borrower
-------------------
and the Lender. The rights of the Lender under this paragraph are in addition
to any other rights and remedies (including other rights of setoff) which the
Lender may have. The Lender shall be permitted to exercise its rights as a
secured party under the Security Agreements to the extent permitted by
applicable law.
Except to the extent otherwise required by the context of this Note, the
word "Lender" wherever used herein shall mean and include the holder of this
Note originally issued to CMGI, Inc.
This Note for all purposes shall be governed by and construed in accordance
with the laws of the Commonwealth of Massachusetts without regard to its
conflicts of laws rules. The Borrower waives presentment, demand, notice,
protest and all other demands and notices in connection with the delivery,
acceptance, performance, default and enforcement of this Note. The Borrower
hereby irrevocably and unconditionally submits, for itself and its property, to
the non-exclusive jurisdiction of the courts of the Commonwealth of
Massachusetts and of the United States District Court for the District of
Massachusetts, and any appellate court from any thereof, in any action or
proceeding arising out of or relating to this Note or the Security Agreements,
or for recognition or enforcement of any judgment, and the Borrower hereby
irrevocably and unconditionally agrees that all claims in respect of any such
action or proceeding may be heard and determined in such Massachusetts court
(or, to the extent permitted by law, in such Federal court). The Borrower agrees
that a final judgment in any such action or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on the judgment or in any other
manner provided by law. Nothing in this Note shall affect any
-3-
<PAGE>
right that the Lender may otherwise have to bring any action or proceeding
relating to this Note against the Borrower or its properties in the courts of
any jurisdiction.
THE LENDER AND THE BORROWER AGREE THAT NEITHER OF THEM NOR ANY ASSIGNEE OR
SUCCESSOR SHALL (A) SEEK A JURY TRIAL IN ANY LAWSUIT, PROCEEDING, COUNTERCLAIM
OR ANY OTHER ACTION BASED UPON, OR ARISING OUT OF, THIS NOTE, ANY RELATED
INSTRUMENTS, ANY COLLATERAL OR THE DEALINGS OR THE RELATIONSHIP BETWEEN OR AMONG
ANY OF THEM, OR (B) SEEK TO CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION IN
WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. THE PROVISIONS OF THIS
PARAGRAPH HAVE BEEN FULLY DISCUSSED BY THE LENDER AND THE BORROWER, AND THESE
PROVISIONS SHALL BE SUBJECT TO NO EXCEPTIONS. NEITHER THE LENDER NOR THE
BORROWER HAS AGREED WITH OR REPRESENTED TO THE OTHER THAT THE PROVISIONS OF THIS
PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL INSTANCES.
If any provision of this Note shall be held invalid or unenforceable by any
court of competent jurisdiction, that holding shall not invalidate or render
unenforceable any other provision hereof.
Executed and delivered as an instrument under seal in Andover,
Massachusetts as of the date first above written.
ENGAGE TECHNOLOGIES, INC.
By: /s/ Stephen A. Royal
------------------------------
Name: Stephen A. Royal
Title: Chief Financial Officer
-4-
<PAGE>
SCHEDULE I
----------
ACTIVITY PURSUANT TO
SECURED CONVERTIBLE DEMAND NOTE
OF
ENGAGE TECHNOLOGIES, INC.
Dated: as of February 1, 1999
- ------------------------------------------------------------------------
PAYMENT
PRINCIPAL RECEIVED OR APPLICABLE NEW
AMOUNT OF INDEBTEDNESS CONVERSION PRINCIPAL
DATE ADVANCE CONVERTED PRICE BALANCE
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
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-5-
<PAGE>
EXHIBIT A
---------
Notice of Election to Convert
TO: ENGAGE TECHNOLOGIES, INC.
Reference is made to the Secured Convertible Demand Note of Engage
Technologies, Inc. dated February 1, 1999 (the "Note"). Capitalized terms used
herein and not defined herein shall have the meanings given them in the Note. In
accordance with the terms of the Note, the undersigned hereby elects to convert
the following indebtedness into shares of Series C Stock or Common Stock, as the
case may be:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Number of Shares of
Date of Advance or Amount of Series C stock (or
Capitalization of Indebtedness to be Applicable Conversion Common Stock) to be
Interest Converted Price Issued
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
</TABLE>
Please issue a certificate or certificates representing said shares of
Series C Stock or Common Stock, as the case may be, in the name of the
undersigned or in such other name as is specified below:
___________________________________
(Name)
___________________________________
___________________________________
(Address)
CMGI, INC.
By:____________________________________
Name:
Title:
-6-
<PAGE>
EXHIBIT 10.24
SECURITY AGREEMENT
This SECURITY AGREEMENT, dated as of May 3, 1999, is by and between ENGAGE
TECHNOLOGIES, INC., a Delaware corporation having its principal place of
business at One Hundred Brickstone Square, Andover, Massachusetts 01810 (the
"Debtor"') and CMGI, INC., a Delaware corporation having an address at One
- -------
Hundred Brickstone Square, Andover, Massachusetts 01810 (the "Lender").
------
W I T N E S S E T H:
WHEREAS, the Lender has agreed, in its sole discretion, to advance funds to
the Debtor from time to time (the "Loans"), which Loans are evidenced by a
-----
Secured Convertible Demand Note dated as of February 1, 1999 (the "Note"); and
----
WHEREAS, the willingness of the Lender to make the Loans is subject to the
condition, among others, that the Debtor shall execute and deliver this
Agreement and grant the security interest hereinafter described;
NOW THEREFORE, in consideration of the willingness of the Lender to make
the Loans to the Debtor, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, it is hereby agreed,
with the intent to be legally bound, as follows:
1. Defined Terms. Except as otherwise expressly defined herein, all
-------------
capitalized terms shall have the meanings ascribed to them in the Note.
2. Security Interest. As security for the Secured Obligations described
-----------------
in paragraph 3 hereof, the Debtor hereby grants to the Lender a security
interest in and lien on all of the tangible and intangible personal property and
fixtures of the Debtor, including without limitation the property described
below, whether now owned or existing or hereafter acquired or arising, together
with any and all additions thereto and replacements therefor and proceeds and
products thereof (hereinafter referred to collectively as the "Collateral"):
----------
(a) all of the Debtor's tangible personal property, including without
limitation all present and future goods, inventory (including, without
limitation, all printed materials, merchandise, raw materials, work in process,
finished goods and supplies), equipment, merchandise, furniture, fixtures,
office supplies, motor vehicles, machinery, paper, tools, computers, and
associated equipment now owned or hereafter acquired, including, without
limitation, the tangible personal property used in the operation of the
businesses of the Debtor;
(b) to the extent that such rights are assignable as collateral, the
Debtor's rights under all present and future authorizations, permits, licenses
and franchises issued, granted or licensed to the Debtor for the operation of
its business,
<PAGE>
including, without limitation, each of the authorizations, permits, licenses and
franchises listed on the Intellectual Property Security Agreement executed this
date from the Debtor to the Lender;
(c) to the extent that such rights are assignable, all of the Debtor's
rights under all present and future vendor or customer contracts and all
franchise, distribution, construction, engineering, management, direct marketing
and advertising and related agreements; and
(d) all of the Debtor's other personal property, including, without
limitation, all present and future accounts, accounts receivable, investment
property, rights to proceeds of letters of credit, contract rights, general
intangibles (including without limitation, all goodwill, all trademarks,
intellectual property, all customer lists, vendor lists, and other printed
materials, including all catalogs, indexes, lists, data and other documents and
papers relating thereto, blue prints, designs and research and development), any
information stored on any medium, including electronic medium, related to any of
the personal property of the Debtor, all instruments, documents and chattel
paper, and all debts, obligations and liabilities in whatever form owing to the
Debtor from any person, firm or corporation or any other legal entity, whether
now existing or hereafter arising, now or hereafter received by or belonging or
owing to the Debtor, and all guaranties and security therefor.
Any of the foregoing terms which are defined in the Uniform Commercial Code
shall have the meaning provided in the Uniform Commercial Code as supplemented
and expanded by the foregoing.
3. Secured Obligations. The security interest hereby granted shall
-------------------
secure the due and punctual payment and performance of the following liabilities
and obligations of the Debtor (herein called the "Secured Obligations"):
-------------------
(a) Principal of and premium, if any, and interest on the Loans;
(b) Any and all obligations of the Debtor to the Lender under the
Note; and
(c) Any and all other obligations of the Debtor to the Lender.
4. Perfection Certificate. The Debtor has delivered to the Lender a
----------------------
Perfection Certificate in the form appended hereto as Schedule I. The Debtor
represents to the Lender that the completed Perfection Certificate delivered to
the Lender is true and correct in every respect and the facts contained in such
certificate are accurate. The Debtor shall supplement the Perfection
Certificate promptly after
2
<PAGE>
obtaining information which would require a correction or addition to the
Perfection Certificate.
5. Special Warranties and Covenants of the Debtor. The Debtor hereby
----------------------------------------------
warrants and covenants to the Lender that:
(a) The address shown at the beginning of this Agreement is the
current principal place of business of the Debtor, and all of the Debtor's
current additional places of business, if any, and the locations of all of the
Collateral currently are listed in the Perfection Certificate delivered pursuant
to Section 4 above. The Debtor will not change its principal or any other place
of business, or the location of any Collateral from the locations set forth in
the Perfection Certificate, or make any change in the Debtor's name or conduct
the Debtor's business operations under any fictitious business name or trade
name, without, in any such case, at least thirty (30) days' prior written notice
to the Lender.
(b) Except for the security interest created hereunder, the Debtor is
the owner of the Collateral free from any lien, security interest or encumbrance
and the Debtor will defend the Collateral against all claims and demands of all
persons at any time claiming the same or any interest therein.
(c) Except as otherwise consented to in writing by the Lender, the
Debtor will not sell or otherwise dispose of any of the Collateral or any
interest therein nor will the Debtor create, incur or permit to exist any
mortgage, lien, charge, encumbrance or security interest whatsoever with respect
to the Collateral.
(d) Except for Collateral that is obsolete or no longer used in the
Debtor's business, the Debtor will keep the Collateral in good order and repair
(normal wear excepted) and adequately insured at all times. The Debtor will pay
promptly when due all taxes and assessments on the Collateral or for its use or
operation, except for taxes and assessments contested in good faith and for
which adequate reserves are created. The Lender may at its option discharge any
taxes, liens, security interests or other encumbrances to which any Collateral
is at any time subject, and may, upon the failure of the Debtor to do so in
accordance with the terms hereof, purchase insurance on any Collateral and pay
for the repair, maintenance or preservation thereof, and the Debtor agrees to
reimburse the Lender on demand for any payments or expenses incurred by the
Lender pursuant to the foregoing authorization and any unreimbursed amounts
shall constitute Secured Obligations for all purposes hereof.
(e) The Collateral may be transferred to a third party upon a default
without the consent of any other third party.
3
<PAGE>
(f) The Debtor will promptly execute and deliver to the Lender such
financing statements, certificates and other documents or instruments as may be
necessary to enable the Lender to perfect or from time to time renew the
security interest granted hereby, including, without limitation, such financing
statements, certificates and other documents as may be necessary to perfect a
security interest in any additional Collateral hereafter acquired by the Debtor
or in any replacements or proceeds thereof. The Debtor authorizes and appoints
the Lender, in case of need, to execute such financing statements, certificates
and other documents pertaining to the Lender's security interest in the
Collateral in its stead, with full power of substitution, as the Debtor's
attorney in fact. The Lender may from time to time request and the Debtor shall
deliver copies of all customer lists and vendor lists. The Debtor further
agrees that a carbon, photographic or other reproduction of a security agreement
or financing statement is sufficient as a financing statement under this
Agreement.
(g) The Debtor will give the Lender notice of each office at which
records of the Debtor pertaining to all intangible items of Collateral are kept.
Except as may be provided in such notice, the records concerning all intangible
Collateral are and will be kept at the address shown at the beginning of this
Agreement as the principal place of business of the Debtor.
(h) To the extent that the Debtor is a beneficiary under any written
Letter of credit now or hereafter issued in favor of the Debtor, the Debtor
shall deliver such Letter of credit to the Lender. The Lender shall from time
to time, at the request and expense of the Debtor, make such arrangements with
the Debtor as are in the Lender's reasonable judgment necessary and appropriate
so that the Debtor may make any drawing to which the Debtor is entitled under
such Letter of credit, without impairment of the Lender's perfected security
interest in the Debtor's rights to the proceeds of such Letter of credit or in
the actual proceeds of such drawing. At the Lender's request, the Debtor shall,
for any Letter of credit, whether or not written, now or hereinafter issued in
favor of the Debtor as beneficiary, execute and deliver to the issuer any
confirmer of such Letter of credit an assignment of proceeds form, in favor of
the Lender and satisfactory to the Lender and such issuer or (as the case may
be) such confirmer, requiring the proceeds of any drawing under such Letter of
credit to be paid directly to the Lender for application under the Note.
6. Fixtures, etc. It is the intention of the parties hereto that none of
-------------
the Collateral shall become fixtures and the Debtor will take all such
reasonable action or actions as may be necessary to prevent any of the
Collateral from becoming fixtures. Without limiting the generality of the
foregoing, the Debtor will, if requested by the Lender, use commercially
reasonable efforts to obtain waivers of lien, in form satisfactory to the
Lender, from each lessor of real property on which any of the Collateral is or
is to be located.
4
<PAGE>
7. Events of Default. The Debtor shall be in default under this
-----------------
Agreement (an "Event of Default") upon the happening of any Event of Default
----------------
under the Note.
8. Rights and Remedies of Lender. Upon the occurrence of any Event of
-----------------------------
Default, such default not having previously been waived, remedied or cured, the
Lender shall have the following rights and remedies:
(a) All rights and remedies provided by law, including, without
limitation, those provided by the Uniform Commercial Code;
(b) All rights and remedies provided in this Agreement; and
(c) All rights and remedies provided in any other agreement, document
or instrument pertaining to the Secured Obligations.
9. Right of Lender to Dispose of Collateral, etc. Upon the occurrence of
---------------------------------------------
any Event of Default, such Event of Default not having previously been waived,
remedied or cured, but subject to the provisions of the Uniform Commercial Code
or other applicable law, the Lender shall have the right to take possession of
the Collateral and, in addition thereto, the right to enter upon any premises on
which the Collateral or any part thereof may be situated and remove the same
therefrom. The Lender may require the Debtor to make the Collateral (to the
extent the same is moveable) available to the Lender at a place to be designated
by the Lender which is reasonably convenient to both parties or transfer any
information related to the Collateral to the Lender by electronic medium.
Unless the Collateral is perishable or threatens to decline speedily in value or
is of a type customarily sold on a recognized market, the Lender will give the
Debtor at least ten (10) days' prior written notice in accordance with paragraph
18 hereof of the time and place of any public sale of any of the Collateral or
of the time after which any private sale or any other intended disposition
thereof is to be made. Any such notice shall be deemed to meet any requirement
hereunder or under any applicable law (including the Uniform Commercial Code)
that reasonable notification be given of the time and place of such sale or
other disposition.
10. Note. Notwithstanding any other provision of this Agreement, the
----
rights of the parties hereunder are subject to the provisions of the Note.
11. Right of Lender to Use and Operate Collateral, etc. Upon the
--------------------------------------------------
occurrence of any Event of Default, such default not having previously been
waived, remedied or cured, but subject to the provisions of the Uniform
Commercial Code or other applicable law, the Lender shall have the right and
power to take possession of all or any part of the Collateral, and to exclude
the Debtor and all persons claiming under the Debtor wholly or partly therefrom,
and thereafter to hold, store, and/or use, operate, manage and control the same.
Upon any such taking of possession, the
5
<PAGE>
Lender may, from time to time, at the expense of the Debtor, make all such
repairs, replacements, alterations, additions and improvements to and of the
Collateral as the Lender may deem proper. In any such case the Lender shall have
the right to manage and control the Collateral and to carry on the business and
to exercise all rights and powers of the Debtor in respect thereto as the Lender
shall deem best, including the right to enter into any and all such agreements
with respect to the operation of the Collateral or any part thereof as the
Lender may see fit; and the Lender shall be entitled to collect and receive all
rents, issues, profits, fees, revenues and other income of the same and every
part thereof. Such rents, issues, profits, fees, revenues and other income shall
be applied to pay the expenses of holding and operating the Collateral and of
conducting the business thereof, and of all maintenance, repairs, replacements,
alterations, additions and improvements, and to make all payments which the
Lender may be required or may elect to make, if any, for taxes, assessments,
insurance and other charges upon the Collateral or any part thereof, and all
other payments which the Lender may be required or authorized to make under any
provision of this Agreement (including legal costs and attorneys' fees). The
remainder of such rents, issues, profits, fees, revenues and other income shall
be applied as provided in paragraph 13. Without limiting the generality of the
foregoing or limiting in any way the rights of the Lender under applicable law,
at any time after (i) the entire principal balance of any Loan shall have become
due and payable (whether at maturity, by acceleration or otherwise) and (ii) the
Lender shall have provided to the Debtor not less than ten (10) days prior
written notice of its intention to apply for a receiver, the Lender shall be
entitled to apply for and have a receiver appointed under state or federal law
by a court of competent jurisdiction in any action taken by the Lender to
enforce its rights and remedies hereunder in order to manage, protect, preserve,
sell and otherwise dispose of all or any portion of the Collateral and continue
the operation of the business of the Debtor, and to collect all revenues and
profits thereof and apply the same to the payment of all expenses and other
charges of such receivership, including the compensation of the receiver, and to
the payment of the Secured Obligations as aforesaid until a sale or other
disposition of such Collateral shall be finally made and consummated. THE DEBTOR
HEREBY IRREVOCABLY CONSENTS TO AND WAIVES ANY RIGHT TO OBJECT TO OR OTHERWISE
CONTEST THE APPOINTMENT OF RECEIVER AS PROVIDED ABOVE. THE DEBTOR (I) GRANTS
SUCH WAIVER AND CONSENT KNOWINGLY AFTER HAVING DISCUSSED THE IMPLICATIONS
THEREOF WITH COUNSEL, (II) ACKNOWLEDGES THAT (A) THE UNCONTESTED RIGHT TO HAVE A
RECEIVER APPOINTED FOR THE FOREGOING PURPOSES IS CONSIDERED ESSENTIAL BY THE
LENDER IN CONNECTION WITH THE ENFORCEMENT OF IT S RIGHTS AND REMEDIES HEREUNDER
AND UNDER THE NOTE, AND (B) THE AVAILABILITY OF SUCH APPOINTMENT AS A REMEDY
UNDER THE FOREGOING CIRCUMSTANCES WAS A MATERIAL FACTOR IN INDUCING THE LENDER
TO MAKE THE LOANS TO THE DEBTOR, AND (III) AGREES TO ENTER INTO ANY AND ALL
STIPULATIONS IN ANY LEGAL ACTIONS, OR AGREEMENTS OR OTHER INSTRUMENTS IN
6
<PAGE>
CONNECTION WITH THE FOREGOING AND TO COOPERATE FULLY WITH THE LENDER IN
CONNECTION WITH THE ASSUMPTION AND EXERCISE OF CONTROL BY THE RECEIVER OVER ALL
OR ANY PORTION OF THE COLLATERAL. THE LENDER ACKNOWLEDGES AND AGREES THAT
NOTHING IN THIS PARAGRAPH 11 SHALL BE DEEMED TO CONSTITUTE A WAIVER OF THE
DEBTOR'S RIGHT TO FILE FOR PROTECTION UNDER TITLE 11 OF THE UNITED STATES CODE
AT ANY TIME PRIOR TO THE APPOINTMENT OF A RECEIVER.
12. Collection of Accounts Receivable, etc. Upon the occurrence of any
--------------------------------------
Event of Default, such default not having previously been waived, remedied or
cured, the Lender may notify or may require the Debtor to notify account
debtors, including without limitation, customers and vendors, obligated on any
or all of the Debtor's accounts receivable, whether now existing or hereafter
arising, to make payment directly to the Lender, and may take possession of all
proceeds of any accounts in the Debtor's possession, and may take any other
steps which the Lender deems necessary or advisable to collect any or all such
accounts receivable or other Collateral or proceeds thereof.
13. Proceeds of Collateral. After deducting all costs and expenses of
----------------------
collection, storage, custody, sale or other disposition and delivery (including
legal costs and attorneys' fees) and all other charges against the Collateral,
the residue of the proceeds of any such sale or disposition shall be applied to
the payment of the Secured Obligations in such order of priority as the Lender
shall determine (consistent with the Credit Agreement) and any surplus shall be
returned to the Debtor or to any person or party lawfully entitled thereto
(including, if applicable, any subordinated creditors of the Debtor). By way of
enlargement and not by way of limitation of the rights of the Lender under
applicable law or the Note, the Lender shall be entitled to allocate its
application of the Collateral, and the proceeds thereof, to the Secured
Obligations (including without limitation the Loans) in such proportions and in
such order as the Lender, in its sole discretion, shall decide (consistent with
the Note). In the event the proceeds of any sale, lease or other disposition of
the Collateral hereunder are insufficient to pay all of the Secured Obligations
in full, the Debtor will be liable for the deficiency, together with interest
thereon at the maximum rate provided in the Note, and the cost and expenses of
collection of such deficiency, including (to the extent permitted by law),
without limitation, reasonable attorneys' fees, expenses and disbursements.
14. Waivers, etc. The Debtor hereby waives presentment, demand, notice,
------------
protest and, except as is otherwise provided herein, all other demands and
notices in connection with this Agreement or the enforcement of the Lender's
rights hereunder or in connection with any Secured Obligations or any
Collateral; consents to and waives notice of the granting of renewals,
extensions of time for payment or other indulgences to the Debtor or to any
account debtor in respect of any account
7
<PAGE>
receivable or to any other third party, or substitution, release or surrender of
any Collateral, the addition or release of persons primarily or secondarily
liable on any Secured Obligation or on any account receivable or other
Collateral, the acceptance of partial payments on any Secured Obligation or on
any account receivable or other Collateral and/or the settlement or compromise
thereof. No delay or omission on the part of the Lender in exercising any right
hereunder shall operate as a waiver of such right or of any other right
hereunder. Any waiver of any such right on any one occasion shall not be
construed as a bar to or waiver of any such right on any future occasion. THE
DEBTOR FURTHER WAIVES ANY RIGHT IT MAY HAVE UNDER THE CONSTITUTION OF THE STATE
OF NEW YORK, UNDER THE CONSTITUTION OF ANY STATE IN WHICH ANY OF THE COLLATERAL
MAY BE LOCATED, OR UNDER THE CONSTITUTION OF THE UNITED STATES OF AMERICA, TO
NOTICE (OTHER THAN ANY REQUIREMENT OF NOTICE PROVIDED HEREIN) OR TO A JUDICIAL
HEARING PRIOR TO THE EXERCISE OF ANY RIGHT OR REMEDY PROVIDED BY THIS AGREEMENT
TO THE LENDER AND WAIVES ITS RIGHTS, IF ANY, TO SET ASIDE OR INVALIDATE ANY SALE
DULY CONSUMMATED IN ACCORDANCE WITH THE FOREGOING PROVISIONS HEREOF ON THE
GROUNDS (IF SUCH BE THE CASE) THAT THE SALE WAS CONSUMMATED WITHOUT A PRIOR
JUDICIAL HEARING. The Debtor's waivers under this section have been made
voluntarily, intelligently and knowingly and after the Debtor has been apprized
and counseled by its attorneys as to the nature thereof and its possible
alternative rights.
15. Termination; Assignment, etc. This Agreement and the security
----------------------------
interest in the Collateral created hereby shall terminate when all of the
Secured Obligations have been paid and finally discharged in full and no Lender
is obligated to make additional Loans under the Credit Agreement. In such
event, the Lender agrees to execute appropriate releases of liens on the
Collateral. No waiver by the Lender or by any other holder of Secured
Obligations of any default shall be effective unless in writing nor operate as a
waiver of any other default or of the same default on a future occasion. In the
event of a sale or assignment of part or all of the Secured Obligations by the
Lender, the Lender may assign or transfer its respective rights and interest
under this Agreement in whole or in part to the purchaser or purchasers of such
Secured Obligations, whereupon such purchaser or purchasers shall become vested
with all of the powers and rights of the Lender hereunder.
16. Reinstatement. Notwithstanding the provisions of paragraph 15, this
-------------
Agreement shall continue to be effective or be reinstated, as the case may be,
if at any time any amount received by the Lender in respect of the Secured
Obligations is rescinded or must otherwise be restored or returned by the Lender
upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of
the Debtor or any subsidiary or upon the appointment of any intervener or
conservator of, or trustee or similar official for, the Debtor or any subsidiary
or any substantial part of
8
<PAGE>
any of their properties, or otherwise, all as though such payments had not been
made.
17. Governmental Approval. Prior to or, where permitted, upon the
---------------------
exercise by the Lender of any power, right, privilege or remedy pursuant to this
Agreement which requires any consent, approval, registration, qualification or
authorization of any governmental authority or instrumentality, the Debtor will
execute and deliver, or will cause the execution and delivery of, all
applications, certificates, instruments and other documents and papers that the
Debtor may be required to obtain for such governmental consent, approval,
registration, qualification or authorization.
18. Notices. All notices, consents, approvals, elections and other
-------
communications hereunder shall be in writing (whether or not the other
provisions of this Agreement expressly so provide) and shall be deemed to have
been duly given if delivered by hand or overnight courier service, mailed by
certified or registered mail or sent by telephonic facsimile (fax), as follows:
(i) if to the Lender, to CMGI, Inc., 100 Brickstone Square, Andover,
Massachusetts, 01810, Attention: Chief Financial Officer, and (ii) if to the
Debtor, to Engage Technologies, Inc., 100 Brickstone Square, Andover,
Massachusetts 01810, Attention: President.
19. Miscellaneous. This Agreement shall inure to the benefit of the
-------------
Lender and be binding upon the Lender and the Debtor and their respective
successors and assigns. In case any provision in this Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
This Agreement may be executed in any number of counterparts and by the
different parties hereto on separate counterparts, each of which shall be an
original, but all of which together shall constitute one instrument.
20. Governing Law; Jurisdiction; Waiver of Jury Trial. This Agreement,
-------------------------------------------------
including the validity hereof and the rights and obligations of the parties
hereunder, shall be construed in accordance with and governed by the laws of the
Commonwealth of Massachusetts. The Debtor, to the extent that it may lawfully
do so, hereby consents to service of process, and to be sued, in the
Commonwealth of Massachusetts and consents to the jurisdiction of the courts of
the Commonwealth of Massachusetts and the United States District Court for the
District of Massachusetts, as well as to the jurisdiction of all courts to which
an appeal may be taken from such courts, for the purpose of any suit, action or
other proceeding arising out of any of the Secured Obligations or with respect
to the transactions contemplated hereby, and expressly waives any and all
objections it may have as to venue in any such courts. The Debtor further agrees
that a summons and complaint commencing an action or proceeding in any of such
courts shall be properly served and shall confer personal jurisdiction if served
personally or by certified mail to it at its address provided in
9
<PAGE>
paragraph 18 hereof or as otherwise provided under the laws of the Commonwealth
of Massachusetts.
THE DEBTOR IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY
PROCEEDING HEREAFTER INSTITUTED BY OR AGAINST THE DEBTOR IN RESPECT OF ITS
OBLIGATIONS HEREUNDER OR THE TRANSACTIONS CONTEMPLATED HEREBY.
10
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as a sealed
instrument as of the date first above written.
ENGAGE TECHNOLOGIES, INC.
By: /s/ [signature illegible]
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CMGI, INC.
By: /s/ Andrew J. Hajducky III
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Andrew J. Hajducky III
Chief Financial Officer
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EXHIBIT 10.25
INTELLECTUAL PROPERTY SECURITY AGREEMENT
Dated as of May 3, 1999
This INTELLECTUAL PROPERTY SECURITY AGREEMENT (this "Agreement"), is made
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as of May 3, 1999, by and between ENGAGE TECHNOLOGIES, INC. a Delaware
corporation having its principal place of business at One Hundred Brickstone
Square, Andover, Massachusetts 01810 ("Pledgor"), in favor of CMGI, INC., having
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an office at One Hundred Brickstone Square, Andover, Massachusetts 01810 (the
"Lender").
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RECITALS
A. The Lender has agreed to make certain advances (the "Loans") to the
Pledgor, which advances are evidenced by a Secured Convertible Demand Note dated
as of February 1, 1999 (the "Note").
B. Pledgor is the owner of the Pledged Collateral (as defined herein).
C. It is a condition precedent to the Lender's willingness to make the
Loans that Pledgor shall execute and deliver, among other agreements, this
Agreement.
D. This Agreement is given by Pledgor in favor of the Lender to secure
the payment and performance of all of the Secured Obligations (as defined in
Section 2).
E. This Agreement, the Note, the Security Agreement between the Lender
and the Pledgor of even date herewith, and all documents executed in connection
with any of the foregoing are collectively referred to herein as the "Loan
Documents."
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing premises and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Pledgor and the Lender hereby agree as follows:
Section 1. Pledge. Pledgor hereby pledges and grants to the Lender a
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continuing first priority security interest in all of Pledgor's right, title and
interest, whether now existing or hereafter acquired, in and to the following
property (collectively, the "Pledged Collateral") to secure all of the Secured
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Obligations:
(a) Patents issued or assigned to and all patent applications made by
Pledgor and all exclusive licenses to Pledgor from third parties or rights
to use patents owned by such third parties, including, without limitation,
the patents, patent applications and exclusive licenses listed on Schedule
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A hereto, along with any and all (1) inventions and improvements described
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and claimed therein, (2) reissues, divisions, continuations, extensions and
continuations-in-part thereof, (3) income, royalties, damages, claims and
payments now and hereafter due and/or
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payable under and with respect thereto, including, without limitation,
damages and payments for past or future infringements thereof, (4) rights
to sue for past, present and future infringements thereof, and (5) any
other rights corresponding thereto throughout the world (collectively,
"Patents");
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(b) Trademarks (including service marks), federal and state trademark
registrations and applications made by Pledgor (excluding Federal Intent To
Use Applications), common law trademarks and trade names owned by or
assigned to Pledgor, all registrations and applications for the foregoing
and all exclusive licenses from third parties of the right to use
trademarks of such third parties, including, without limitation, the
registrations, applications, unregistered trademarks, service marks and
exclusive licenses listed on Schedule B hereto, along with any and all (1)
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renewals thereof, (2) income, royalties, damages and payments now and
hereafter due and/or payable with respect thereto, including, without
limitation, damages, claims and payments for past or future infringements
thereof, (3) rights to sue for past, present and future infringements
thereof, and (4) trademarks, trademark registrations, and trade name
applications for any thereof and any other rights corresponding thereto
throughout the world (collectively, "Trademarks");
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(c) Copyrights, whether statutory or common law, owned by or assigned
to Pledgor, and all exclusive licenses to Pledgor from third parties to use
copyrights owned by such third parties, including, without limitation, the
registrations, applications and exclusive licenses listed on Schedule C
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hereto, along with any and all (1) renewals and extensions thereof, (2)
income, royalties, damages, claims and payments now and hereafter due
and/or payable with respect thereto, including, without limitation, damages
and payments for past, present or future infringements thereof, (3) rights
to sue for past, present and future infringements thereof, and (4)
copyrights and any other rights corresponding thereto throughout the world
(collectively, "Copyrights");
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(d) The entire goodwill of Pledgor's business and other general
intangibles (including know-how, trade secrets, customer lists, proprietary
information, inventions, methods, procedures and formulae) connected with
the use of and symbolized by Trademarks of Pledgor; and
(e) All Proceeds (as defined under the Uniform Commercial Code as in
effect in any relevant jurisdiction (the "UCC") or other relevant law) of
any of the foregoing, and in any event including, without limitation, any
and all (1) proceeds of any insurance, indemnity, warranty or guaranty
payable to the Lender or to Pledgor from time to time with respect to any
of the Pledged Collateral, (2) payments (in any form whatsoever) made or
due and payable to Pledgor from time to time in connection with any
requisition, confiscation, condemnation, seizure or forfeiture of all or
any part of the Pledged Collateral by any
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governmental authority (or any person acting on behalf of a governmental
authority), (3) instruments representing amounts receivable in respect of
any Patents, Trademarks or Copyrights, (4) products of the Pledged
Collateral and (5) other amounts from time to time paid or payable under or
in connection with any of the Pledged Collateral;
Section 2. Secured Obligations. The security interest hereby granted
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shall secure the due and punctual payment and performance of the following
liabilities and obligations of the Pledgor (herein called the "Secured
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Obligations"):
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(1) Principal of and premium, if any, and interest on the Loans;
(2) Any and all obligations of the Pledgor under the Note; and
(3) Any and all other obligations of the Pledgor to the Lender,
whether direct or indirect, absolute or contingent, due or to become due or
now existing or hereafter arising, including, without limitation, any and
all other fees, premiums, penalties or other indebtedness of the Pledgor to
the Lender.
Section 3. No Release. Nothing set forth in this Agreement shall relieve
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Pledgor from the performance of any term, covenant, condition or agreement on
Pledgor's part to be performed or observed under or in respect of any of the
Pledged Collateral or from any liability to any person or entity (each a
"Person") under or in respect of any of the Pledged Collateral or impose any
obligation on the Lender to perform or observe any such term, covenant,
condition or agreement on Pledgor's part to be so performed or observed or
impose any liability on the Lender for any act or omission on the part of
Pledgor relating thereto or for any breach of any representation or warranty on
the part of Pledgor contained in this Agreement or any other Loan Document or
under or in respect of the Pledged Collateral or made in connecti6n herewith or
therewith. The obligations of Pledgor contained in this Section 3 shall survive
the termination of this Agreement and the discharge of Pledgor's other
obligations hereunder and under the other Loan Documents.
Section 4. Supplements; Further Assurances. Pledgor (1) agrees that it
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will join with the Lender in executing and, at its own expense, will file and
refile, or permit the Lender to file and refile, such financing statements,
continuation statements and other documents (including, without limitation, this
Agreement and exclusive licenses to use software and other property protected by
copyright), in such offices (including, without limitation, the United States
Patent and Trademark Office, appropriate state trademark offices and the United
States Copyright Office), as the Lender may reasonably deem necessary or
appropriate, wherever required or permitted by law in order to perfect and
preserve the rights and interests granted to the Lender hereunder, and (2)
hereby authorizes the Lender to file financing statements and amendments,
relative to all or any part thereof, without the signature of Pledgor where
permitted by law and agrees to do
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such further acts and things, and to execute and deliver to the Lender such
additional assignments, agreements, powers and instruments, as the Lender may
reasonably require to carry into effect the purposes of this Agreement or better
to assure and confirm unto the Lender its respective rights, powers and remedies
hereunder. Pledgor shall, upon the reasonable request of the Lender, and hereby
authorizes the Lender take any and all such actions as may be deemed advisable
by the Lender to perfect and preserve the rights and interests granted to the
Lender with respect to the Pledged Collateral wherever located. All of the
foregoing shall be at the sole cost and expense of Pledgor.
Section 5. Representations and Warranties of Pledgor. Pledgor hereby
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represents and warrants to the Secured Parties as follows:
(a) Pledgor is, and, as to Pledged Collateral acquired by it from time
to time after the date hereof, Pledgor will be, the sole and exclusive
owner or, as applicable, licensee of all Pledged Collateral. The pledge
and security interest created by this Agreement shall not at any time be
subject to any prior lien, pledge, security interest, encumbrance, license,
assignment, collateral assignment or charge of any kind, including, without
limitation, any filing or agreement to file a financing statement as debtor
under the UCC or any similar statute or any subordination arrangement in
favor of any party other than Pledgor (collectively, "Liens"). Pledgor
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further represents and warrants to the Lender that Schedules A, B and C
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hereto, respectively, are true, correct and complete lists as of the date
hereof of all Patents, Trademarks and Copyrights owned by Pledgor and that
Schedules D, E and F hereto are true and correct with respect to the
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matters set forth therein as of the date hereof.
(b) Pledgor has full corporate power, authority and legal right to
pledge and grant a security interest in the Pledged Collateral in
accordance with the terms of this Agreement and this Agreement has been
duly and validly executed and delivered by Pledgor, constitutes the legal,
valid and binding obligation of Pledgor, enforceable against Pledgor in
accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium or other laws affecting creditors' rights
generally and subject to general principles of equity, regardless of
whether considered in a proceeding in equity or at law.
(c) Except as set forth on Schedule E hereto and except for filings
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with the Patent and Trademark Office, under the UCC and under applicable
foreign law, no authorization, consent, approval, license, qualification or
formal exemption from, nor any filing, declaration or registration with,
any court (other than in connection with the exercise of judicial
remedies), governmental agency or regulatory authority, or with any
securities exchange or any other Person is required in connection with (1)
the pledge by Pledgor of the Pledged Collateral pursuant to this Agreement,
or the execution, delivery or performance by Pledgor of this Agreement, (2)
the grant of a security interest (including the priority
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thereof when the appropriate filings have been made and accepted) in, the
Pledged Collateral by Pledgor in the manner and for the purpose
contemplated by this Agreement or (3) the exercise of the rights and
remedies of the Lender created hereby.
(d) Pledgor has made and will continue to make all necessary filings
and recordations from time to time and use appropriate statutory notice to
protect its interests in the Pledged Collateral, including without
limitation, appropriate recordations of its interests in the Patents and
Trademarks in the United States Patent and Trademark Office and in
corresponding offices wherever it does business using such Patents and
Trademarks throughout the world and its claims to Copyrights in the United
States Copyright Office, in each case including exclusive licenses and as
otherwise requested from time to time by the Lender, but in any event all
in a manner consistent with prudent and commercially reasonable business
practices.
(e) Pledgor owns or has rights to use all the Pledged Collateral and
all rights with respect to any of the foregoing used in, necessary for or
material to Pledgor's business as currently conducted and as contemplated
to be conducted pursuant to the Loan Documents. To Pledgor's best
knowledge, the use of such Pledged Collateral and all rights with respect
to the foregoing by Pledgor does not infringe on the rights of any Person
and, except as set forth on Schedule F attached hereto, no material claim
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has been made and remains outstanding that Pledgor's use of the Pledged
Collateral does or may violate the rights of any third person.
(f) Upon filings and the acceptance thereof in the appropriate offices
under the UCC and in the United States Patent and Trademark Office and the
United States Copyright Office, this Agreement will create a valid and duly
perfected first priority lien and security interest in the United States in
the Pledged Collateral, subject to no Liens.
Section 6. Covenants.
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(a) On a continuing basis, Pledgor will, at the expense of Pledgor,
subject to any prior licenses, Liens and restrictions, make, execute,
acknowledge and deliver, and file and record in the proper filing and
recording offices, all such instruments or documents, including, without
limitation, appropriate financing and continuation statements, exclusive
licenses and collateral agreements, and take all such action (limited, as
aforesaid, if applicable) as may reasonably be deemed necessary or
appropriate by the Lender (i) to carry out the intent and purposes of this
Agreement, (ii) to assure and confirm to the Lender the grant or perfection
of a security interest in the Pledged Collateral for the benefit of the
Secured Parties, and (iii) during the continuation of an Event of Default,
to enable
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the Secured Parties to exercise and enforce their rights and remedies
hereunder with respect to any Pledged Collateral. Without limiting the
generality of the foregoing, Pledgor:
(A) will not enter into any agreement that would impair or conflict
with Pledgor's obligations hereunder;
(B) will, from time to time, upon the Lender's request, cause its
books and records to be marked with such legends or segregated in such
manner as the Lender may specify and take or cause to be taken such other
action and adopt such procedures as the Lender may specify to give notice
or to perfect the security interest in the Pledged Collateral intended to
be conveyed hereby;
(C) will, promptly following its becoming aware thereof, notify the
Lender of
(i) any materially adverse determination in any proceeding in
the United States Patent and Trademark Office or United States
Copyright Office with respect to any Patent, Trademark or Copyright
material to Pledgor's business; or
(ii) any written claim received, the institution of any
proceeding or any materially adverse determination in any federal,
state, local or foreign court or administrative bodies regarding
Pledgor's claim of ownership in or right to use any of the Pledged
Collateral, its right to register the Pledged Collateral, or its right
to keep and maintain such registration in full force and effect;
(D) will properly maintain and protect the Pledged Collateral to the
extent necessary or appropriate for the conduct of Pledgor's business (as
presently conducted and as contemplated by the Loan Documents) and
consistent with Pledgor's current practice in accordance with applicable
statutory requirements;
(E) will not grant or permit to exist any Lien upon or with respect to
the Pledged Collateral or any portion thereof except Liens in favor of the
Lender for itself and the Secured Parties or as permitted under this
Agreement and Liens permitted by Section 7 hereof, and will not execute any
security agreement or financing statement covering any of the Pledged
Collateral except in the name of the Lender for itself and the Secured
Parties or as permitted under this Agreement;
(F) except in accordance with prudent and commercially reasonable
business practices, will not permit to lapse or become abandoned, settle or
compromise any pending or future litigation or administrative proceeding
with
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respect to the Pledged Collateral without the consent of the Secured
Parties, or contract for sale or otherwise dispose of the Pledged
Collateral or any portion thereof except pursuant to Section 7 hereof;
(G) upon Pledgor obtaining knowledge thereof, will promptly notify the
Lender in writing of any event which may reasonably be expected to
materially adversely affect the value or utility of the Pledged Collateral
or any portion thereof, the ability of Pledgor or the Lender to dispose of
the Pledged Collateral or any portion thereof or the rights and remedies of
the Lender in relation thereto including, without limitation, a levy or
threat of levy or any legal process against the Pledged Collateral or any
portion thereof;
(H) until the Lender exercises its rights to make collection, will
diligently keep adequate records respecting the Pledged Collateral;
(I) subject to the first sentence of this Section 6(a), hereby
authorizes the Lender, in its sole discretion, to file one or more
financing or continuation statements and amendments thereto, relative to
all or any part of the Pledged Collateral without the signature of Pledgor
where permitted by law;
(J) will furnish to the Lender from time to time statements and
amended schedules further identifying and describing the Pledged Collateral
and such other materials evidencing or reports pertaining to the Pledged
Collateral as the Lender may from time to time reasonably request, all in
reasonable detail;
(K) will pay when due any and all taxes, levies, maintenance fees,
charges, assessments, licenses fees and similar taxes or impositions
payable in respect of the Pledged Collateral, that, if not paid, could
result in a material adverse effect, before the same shall become
delinquent or in default, except where (a) the validity or amount thereof
is being contested in good faith by appropriate proceedings, (b) Pledgor
has set aside on its books adequate reserves with respect thereto in
accordance with GAAP and (c) the failure to make payment pending such
contest could not reasonably be expected to result in a material adverse
effect;
(L) will comply in all material respects with all laws, rules and
regulations applicable to the Pledged Collateral; and
(M) will deposit with the Lender, at such times as the Lender shall
reasonably request, copies of all source code of all software owned by
Pledgor as the Lender shall request which is material to the operation of
Pledgor's business and such source code copy shall be of the most current
version of all software and shall include all modifications and
enhancements thereto and shall be
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annotated so as to be easily understood by a software technician of
reasonable proficiency.
(b) If, before the Secured Obligations shall have been paid and
satisfied in full in cash or cash equivalents, Pledgor shall, (1) obtain
any rights to any additional Pledged Collateral or (2) become entitled to
the benefit of any additional Pledged Collateral or any renewal or
extension thereof, including any reissue, division, continuation, or
continuation-in-part of any Patent, or any improvement on any Patent, the
provisions of this Agreement shall automatically apply thereto and any item
enumerated in clause 6(b)(1) or clause 6(b)(2) with respect to Pledgor
shall automatically constitute Pledged Collateral if such would have
constituted Pledged Collateral at the time of execution of this Agreement,
and be subject to the assignment, Lien and security interest created by
this Agreement without further action by any party. Pledgor shall promptly
provide to the Lender written notice of any of the foregoing. Pledgor
shall, at least once in each calendar quarter, provide written notice to
the Lender of all applications for Patents and all applications for
registration of Trademarks or Copyrights made during the preceding calendar
quarter. Pledgor agrees, promptly following the written request by the
Lender, to confirm the attachment of the lien and security interest created
by this Agreement to any rights described in clause 6(b)(1) or clause
6(b)(2) above if such would have constituted Pledged Collateral at the time
of execution of this Agreement by execution of an instrument in form
acceptable to the Lender.
(c) Pledgor authorizes the Lender to modify this Agreement by amending
Schedules A, B and/or C annexed hereto to include any future Pledged
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Collateral of Pledgor, including, without limitations any of the items
listed in Section 6(b).
(d) Pledgor shall file and prosecute diligently all applications for
Patents, Trademarks or Copyrights now or hereafter pending that would be
useful or beneficial to the businesses of Pledgor to which any such
applications pertain, and to do all acts necessary to preserve and maintain
all rights in the Pledged Collateral unless such Pledged Collateral has
become obsolete to Pledgor's business, as reasonably determined by Pledgor
consistent with prudent and commercially reasonable business practices.
Any and all costs and expenses incurred in connection with any such actions
shall be borne by Pledgor. Except in accordance with prudent and
commercially reasonable business practices, Pledgor shall not abandon any
right to file a Patent, Trademark or Copyright application or any pending
Patent, Trademark or Copyright application or any Patent, Trademark or
Copyright without the consent of the Lender.
Section 7. Transfers and Other Liens. Pledgor will not (a) sell, convey,
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assign or otherwise dispose of, or grant any option with respect to, any of the
Pledged Collateral
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except for licensing in the ordinary course of business or (b) create or permit
to exist any Lien upon or with respect to any of the Pledged Collateral, except
for Liens for taxes, assessments or government charges or claims the payment of
which is not at the time required and inchoate Liens imposed by law (each of
which shall, except to the extent otherwise required by law, be subordinate to
the lien created by this Agreement) and the lien granted to the Lender under
this Agreement.
Section 8. Remedies upon Default.
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(a) If any Event of Default shall have occurred and be continuing, the
Lender may to the full extent permitted by law, (1) exercise any and all
rights as beneficial and legal owner of the Pledged Collateral, including,
without limitation, perfecting assignment of any and all contractual rights
and powers with respect to the Pledged Collateral and (2) sell or assign or
grant a license to use, or cause to be sold or assigned or a license
granted to use any or all of the Pledged Collateral (in the case of
Trademarks, along with the goodwill associated therewith) or any part
thereof, in each case, free of all rights and claims of Pledgor therein and
thereto. In accordance with such rights, the Lender shall have (A) the
right to cause any or all of the Pledged Collateral to be transferred of
record into the name of the Lender or its nominee and (B) the right to
impose (i) such limitations and restrictions on the sale or assignment of
the Pledged Collateral as the Secured Parties may deem to be necessary or
appropriate to comply with any law, rule or regulation (federal, state or
local) having applicability to the sale or assignment, and (ii) any
necessary or appropriate requirements for any required governmental
approvals or consents.
(b) Except as provided in this Section 8 and other express notice
provisions of the Loan Documents, Pledgor hereby expressly waives, to the
fullest extent permitted by applicable law, any and all notices,
advertisements, hearings or process of law in connection with the exercise
by the Secured Parties of any of their rights and remedies hereunder.
(c) Pledgor agrees that, to the extent notice of sale shall be
required by law, ten (10) days' notice from the Lender of the time and
place of any public sale or of the time after which a private sale or other
intended disposition is to take place shall be commercially reasonable
notification of such matters. In addition to the rights and remedies
provided in this Agreement and in the other Loan Documents, the Secured
Parties shall have all the rights and remedies of a secured party under the
UCC.
(d) Except as otherwise provided herein, Pledgor hereby waives, to the
fullest extent permitted by applicable law, notice or judicial hearing in
connection with the Lender's taking possession or the Lender's disposition
of any of the Pledged Collateral, including, without limitation, any and
all prior notice and
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rights to a hearing for any prejudgment remedy or remedies and any such
right which Pledgor would otherwise have under law, and Pledgor hereby
further waives to the extent permitted by applicable law: (1) all damages
occasioned by any such taking of possession; (2) all other requirements as
to the time, place and terms of sale or other requirements with respect to
the enforcement of the Secured Parties' rights hereunder; and (3) all
rights of redemption, appraisal, valuation, stay, extension or moratorium
now or hereafter in force under any applicable law. Any sale of, or the
grant of options to purchase, or any other realization upon, any Pledged
Collateral shall operate to divest all right, title, interest, claim and
demand, either at law or in equity, of Pledgor therein and thereto, and
shall be a perpetual bar both at law and in equity against Pledgor and
against any and all Persons claiming or attempting to claim the Pledged
Collateral so sold, optioned or realized upon, or any part thereof, from,
through or under Pledgor.
Section 9. Application of Proceeds. The proceeds of any Pledged
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Collateral obtained pursuant to the exercise of any remedy set forth in Section
8 shall be applied, together with any other sums then held by the Lender
pursuant to this Agreement, promptly by the Lender:
First, to the payment of all costs and expenses, fees, commissions and
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taxes of such sale, collection or other realization, including, without
limitation, reasonable reimbursement to the Lender, and its agents and
counsel for all expenses, fees, liabilities and advances made or incurred
by them in connection therewith and all expenses, liabilities and advances
made or incurred by the Lender in connection therewith, together with
interest on each such amount at the rate then in effect under the Note;
Second, to the payment of all other costs and expenses of such sale,
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collection or other realization, including, without limitation, reasonable
reimbursement to the Lender and its agents and counsel for all expenses,
fees, liabilities and advances made or incurred by them in connection
therewith and all costs, liabilities and indebtedness made or incurred by
the Lender in connection therewith together with interest on each such
amount at the highest rate then in effect under the Note;
Third, to the indefeasible payment in full in cash of the Secured
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Obligations, ratably according to the unpaid amounts thereof, without
preference or priority of any kind among amounts so due and payable; and
Fourth, to Pledgor, or its successors or assigns, or to whomsoever may
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be lawfully entitled to receive the same or as a court of competent
jurisdiction may direct, of any surplus then remaining from such Proceeds.
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Section 10. Expenses. Pledgor will pay on demand all expenses of the
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Lender and the Secured Parties in connection with the preparation, waiver or
amendment of this Agreement or other Loan Documents executed in connection
therewith, or the administration, default or collection of the Loans or
administration, default, collection in connection with the Lender's exercise,
preservation or enforcement of any of its rights, remedies or options
thereunder, including, without limitation, reasonable fees and disbursements of
outside legal counsel or accounting, consulting, brokerage or other similar
professional fees or expenses, and any fees or expenses associated with any
travel or other costs relating to any appraisals or examinations conducted in
connection with the Secure Obligations or any Collateral therefor, and the
amount of all such expenses shall, until paid, bear interest at the rate
applicable to principal hereunder (including any default rate).
Section 11. No Waiver; Cumulative Remedies.
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(a) No failure on the part of the Lender or the Secured Parties to
exercise, no course of dealing with respect to, and no delay on the part of
the Lender in exercising, any right, power or remedy hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of
any such right, power or remedy hereunder preclude any other or further
exercise thereof or the exercise of any other right, power or remedy. The
remedies herein provided are cumulative and are not exclusive of any
remedies provided by law.
(b) In the event the Lender shall have instituted any proceeding to
enforce any right, power or remedy under this instrument by foreclosure,
sale, entry or otherwise, and such proceeding shall have been discontinued
or abandoned for any reason or shall have been determined adversely to the
Lender, then and in every such case, Pledgor and the Lender shall, to the
extent permitted by applicable law, be restored to their respective former
positions and rights hereunder with respect to the Pledged Collateral, and
all rights, remedies and powers of the Lender shall continue as if no such
proceeding had been instituted.
Section 12. The Lender May Perform, the Lender Appointed Attorney-in-Fact.
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If Pledgor shall fail to do any act or thing that it has covenanted to do
hereunder or any warranty on the part of Pledgor contained herein shall be
breached, the Lender may (but shall not be obligated to) do the same or cause it
to be done or remedy any such breach, and may expend funds for such purpose.
Any and all amounts so expended by the Lender shall be paid by Pledgor promptly
upon demand therefor, with interest at the highest rate then in effect under the
Note during the period from and including the date on which such funds were so
expended to the date of repayment. Pledgor's obligations under this Section 12
shall survive the termination of this Agreement and the discharge of Pledgor's
other obligations hereunder. Pledgor hereby appoints the Lender its attorney-
in-fact with an interest, with full authority in the place and stead of Pledgor
and in the name of Pledgor, or otherwise, from time to time in the Lender's
reasonable
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discretion to take any action and to execute any instruments consistent with the
terms of this Agreement and the other Loan Documents which the Lender may deem
necessary or advisable to accomplish the purposes of this Agreement. The
foregoing grant of authority is a power of attorney coupled with an interest and
such appointment shall be irrevocable for the term of this Agreement. Pledgor
hereby ratifies all that such attorney shall lawfully do or cause to be done by
virtue hereof.
Section 13. Indemnity.
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(a) Indemnity. Pledgor agrees to indemnify, reimburse and hold the
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Lender and its successors, assigns, employees, agents and servants
(collectively, "Indemnitees") harmless from and against any and all
liabilities, obligations, damages, injuries, penalties, claims, demands,
actions, suits, judgments and any and all costs and expenses (including,
without limitation, attorneys' fees and expenses and the allocated costs of
internal counsel) of whatsoever kind and nature imposed on, asserted
against or incurred by any of the Indemnitees in any way relating to or
arising out of this Agreement or the other Loan Documents or in any other
way connected with the administration of the transactions contemplated
hereby or the enforcement of any of the terms hereof, or the preservation
of any rights hereunder, or in any way relating to or arising out of the
manufacture, processing, ownership, ordering, purchase, delivery, control,
acceptance, lease, financing, possession, operation, condition, sale,
return or other disposition, or use of the Pledged Collateral (including,
without limitation, latent or other defects, whether or not discoverable,
any claim for patent, trademark, trade secret or copyright infringement),
the violation of the laws of any country, state or other governmental body
or unit, any tort (including, without limitation, claims arising or imposed
under the doctrine of strict liability, or for or on account of injury to
or the death of any Person (including any Indemnitee)), or property damage,
or contract claim; provided that Pledgor shall have no obligation to an
Indemnitee hereunder to the extent it is finally judicially determined that
such indemnified liabilities arise solely from the gross negligence or
willful misconduct of that Indemnitee. Upon written notice by any
Indemnitee of the assertion of such a liability, obligation, damage,
injury, penalty, claim, demand, action, judgment or suit, Pledgor shall
assume full responsibility for the defense thereof. If any action, suit or
proceeding arising from any of the foregoing is brought against any
Indemnitee, Pledgor shall, if requested by such Indemnitee, resist and
defend such action, suit or proceeding or cause the same to be resisted and
defended by counsel reasonably satisfactory to such Indemnitee. Each
Indemnitee shall, unless any other Indemnitee has made the request
described in the preceding sentence and such request has been complied
with, have the right to employ its own counsel (or internal counsel) to
investigate and control the defense of any matter covered by the indemnity
set forth in this Section 13 and the fees and expenses of such counsel
shall be paid by Pledgor; provided that, only to the extent that no
conflict exists between or among the
12
<PAGE>
Indemnitees as reasonably determined by the Indemnitees, Pledgor shall not
be obligated to pay the fees and expenses of more than one counsel for all
Indemnitees as a group with respect to any such matter, action, suit or
proceeding.
(b) Misrepresentations. Without limiting the application of
------------------
subsection 13(a), Pledgor agrees to pay, indemnify and hold each Indemnitee
harmless from and against any loss, costs, damages and expenses which such
Indemnitee may suffer, expend or incur in consequence of or growing out of
any misrepresentation by Pledgor in this Agreement or any of the other Loan
Documents or in any statement or writing contemplated by or made dr
delivered pursuant to or in connection with this Agreement or any of the
other Loan Documents.
(c) Contributions. If and to the extent that the obligations of
-------------
Pledgor under this Section 13 are unenforceable for any reason, Pledgor
hereby agrees to make the maximum contribution to the payment and
satisfaction of such obligations that is permissible under applicable law.
(d) Survival. The obligations of Pledgor contained in this Section 13
--------
shall survive the termination of this Agreement and the discharge of
Pledgor's other obligations hereunder and under the other Loan Documents.
(e) Reimbursement. Any amounts paid by any Indemnitee as to which
-------------
such Indemnitee has the right to reimbursement shall constitute Secured
Obligations secured by the Pledged Collateral.
Section 14. Litigation.
----------
(a) Pledgor shall have the right to commence and prosecute in its own
name, as real party in interest, for its own benefit and at its own
expense, such applications for protection of Pledged Collateral, suits,
proceedings or other actions for infringement, counterfeiting, unfair
competition, dilution or other damage as are in its reasonable business
judgment necessary to protect the Pledged Collateral. Pledgor shall
promptly notify the Lender in writing as to the commencement and
prosecution of any such actions, or threat thereof relating to the Pledged
Collateral and shall provide to the Lender such information with respect
thereto as may be reasonably requested. The Lender shall provide all
reasonable and necessary cooperation in connection with any such suit,
proceeding or action, including, without limitation, joining as a necessary
party.
(b) Upon the occurrence and during the continuation of an Event of
Default, the Lender shall have the right but shall in no way be obligated
to file applications for protection of the Pledged Collateral and/or bring
suit in the name
13
<PAGE>
of Pledgor, the Lender or the Lender to enforce the Pledged Collateral and
any license thereunder; in the event of such suit, Pledgor shall, at the
request of the Lender, do any and all lawful acts and execute any and all
documents required by the Lender in aid of such enforcement and Pledgor
shall promptly, upon demand, reimburse and indemnify the Lender, as the
case may be, for all costs and expenses incurred by the Lender in the
exercise of its rights under this Section 14. In the event that the Lender
shall elect not to bring suit to enforce the Pledged Collateral, Pledgor
agrees to use all measures, whether by action, suit, proceeding or
otherwise, to prevent the infringement, counterfeiting or other diminution
in value of any of the Pledged Collateral by others and for that purpose
agrees to diligently maintain any action, suit or proceeding against any
person so infringing necessary to prevent such infringement as is in the
reasonable business judgment of Pledgor necessary to protect the Pledged
Collateral and the Lender shall provide, at Pledgor's expense, all
necessary and reasonable assistance to Pledgor to maintain such action.
Section 15. Modifications in Writing. No amendment, modification,
------------------------
supplement, termination or waiver of or to any provision of this Agreement, nor
consent to any departure by Pledgor therefrom, shall be effective unless the
same shall be in writing and signed by the Lender and, except in the case of any
such termination, waiver or consent, by the Pledgor. Any amendment,
modification or supplement of or to any provision of this Agreement, any waiver
of any provision of this Agreement, and any consent to any departure by Pledgor
from the terms of any provision of this Agreement, shall be effective only in
the specific instance and for the specific purpose for which made or given.
Except where notice is specifically required by this Agreement or any other Loan
Document, no notice to or demand on Pledgor in any case shall entitle Pledgor to
any other or further notice or demand in similar or other circumstances.
Section 16. Termination; Release. When all the Secured Obligations (other
--------------------
than Secured Obligations in the nature of continuing indemnitees or expense
reimbursement obligations not yet due and payable) have been paid in full and
have been terminated and the Lender and the Pledgor agree to terminate this
Agreement, this Agreement shall terminate. Upon termination of this Agreement
the Lender shall, upon the request and at the expense of Pledgor, forthwith
assign, transfer and deliver to Pledgor against receipt and without recourse to
or warranty by the Lender, such of the Pledged Collateral to be released (in the
case of a release) as may be in the possession of the Lender and as shall not
have been sold or otherwise applied pursuant to the terms hereof, on the order
of and at the expense of Pledgor, and proper instruments (including UCC
termination statements on Form UCC-3 and documents suitable for recordation in
the United States Patent and Trademark Office, the United States Copyright
Office or similar domestic or foreign authority) acknowledging the termination
of this Agreement or the release of such Pledged Collateral, as the case may be.
14
<PAGE>
Section 17. Reinstatement. Notwithstanding the provisions of Section 16,
-------------
this Agreement shall continue to be effective or be reinstated, as the case may
be, if at any time any amount received by the Lender in respect of the Secured
Obligations is rescinded or must otherwise be restored or returned by the Lender
upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of
Pledgor or upon the appointment of any intervenor or conservator of, or trustee
or similar official for, Pledgor or any substantial part of its properties, or
otherwise, all as though such payments had not been made.
Section 18. Note. Notwithstanding any other provision of this Agreement,
----
the rights of the parties hereunder are subject to the provisions of the Note,
including the provisions thereof pertaining to the rights and responsibilities
of the Lender.
Section 19. Notices. All notices, consents, approvals, elections and
-------
other communications hereunder shall be in writing (whether or not the other
provisions of this Agreement expressly so provide) and shall be deemed to have
been duly given if delivered by hand or overnight courier service, mailed by
certified or registered mail or sent by telephonic facsimile (fax), as follows:
(i) if to the Lender, to CMGI, Inc., 100 Brickstone Square, Andover,
Massachusetts, 01810, Attention: Chief Financial Officer, and (ii) if to the
Debtor, to Engage Technologies, Inc., 100 Brickstone Square, Andover,
Massachusetts 91810 Attention: President.
Section 20. Continuing Security Interest; Assignment. This Agreement
----------------------------------------
shall create a continuing security interest in the Pledged Collateral and shall
(a) remain in full force and effect until the payment in full in cash of all
Secured Obligations, (b) be binding upon Pledgor, its successors and assigns,
and (c) inure, together with the rights and remedies of the Secured Parties
hereunder, to the benefit of the Lender and its successors, transferees and
assigns; no other Persons (including, without limitation, any other creditor of
Pledgor) shall have any interest herein or any right or benefit with respect
hereto. Without limiting the generality of the foregoing clause 20(c), any the
Lender may assign or otherwise transfer any indebtedness held by it secured by
this Agreement to any other Person, and such other Person shall thereupon become
vested with all the benefits in respect thereof granted to the Lender, herein or
otherwise, subject however, to the provisions of the Note.
Section 21. GOVERNING LAW; TERMS. THIS AGREEMENT SHALL BE GOVERNED BY,
--------------------
AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF
LAWS, EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY
INTEREST HEREUNDER, OR REMEDIES HEREUNDER IN RESPECT OF ANY PARTICULAR
INTELLECTUAL PROPERTY ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE
COMMONWEALTH OF MASSACHUSETTS.
15
<PAGE>
Section 22. CONSENT TO JURISDICTION AND SERVICE OF PROCESS. ALL JUDICIAL
----------------------------------------------
PROCEEDINGS BROUGHT AGAINST PLEDGOR WITH RESPECT TO THIS AGREEMENT MAY BE
BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE
COMMONWEALTH OF MASSACHUSETTS AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT
PLEDGOR ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND
UNCONDITIONALLY THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS, AND
IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION
WITH THIS AGREEMENT. THE PARTIES HERETO HEREBY IRREVOCABLY WAIVE TRIAL BY JURY,
AND PLEDGOR HEREBY IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING, WITHOUT
LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF
FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY
SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS. IN THE EVENT THAT
PLEDGOR DESIGNATES AND APPOINTS ANY PERSON AS ITS AGENT AND SUCH PERSON
IRREVOCABLY AGREES IN WRITING TO SO SERVE AS PLEDGOR'S AGENT TO RECEIVE ON
PLEDGOR'S BEHALF, SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDINGS IN ANY SUCH
COURT, SUCH SERVICE IS HEREBY ACKNOWLEDGED BY PLEDGOR TO BE EFFECTIVE AND
BINDING SERVICE IN EVERY RESPECT. A COPY OF SUCH PROCESS SO SERVED SHALL BE
MAILED BY REGISTERED MAIL TO PLEDGOR AT ITS ADDRESS PROVIDED FOR IN SECTION 19
HEREOF. IF ANY AGENT APPOINTED BY PLEDGOR REFUSES TO ACCEPT SERVICE, PLEDGOR
HEREBY AGREES THAT SERVICE UPON IT BY MAIL SHALL CONSTITUTE SUFFICIENT NOTICE.
NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF THE LENDER TO BRING PROCEEDINGS
AGAINST PLEDGOR IN THE COURTS OF ANY OTHER JURISDICTION.
Section 23. Severability of Provisions. Any provision of this Agreement
--------------------------
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining pm visions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
Section 24. Execution in Counterparts. This Agreement and any amendments,
-------------------------
waivers, consents or supplements hereto may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed to be an original, but all
such counterparts together shall constitute one and the same agreement.
Section 25. Headings. The Section headings used in this Agreement are for
--------
convenience of reference only and shall not affect the construction of this
Agreement.
16
<PAGE>
Section 26. Obligations Absolute. To the extent permitted by applicable
--------------------
law, all obligations of Pledgor hereunder shall be absolute and unconditional
irrespective of:
(a) any bankruptcy, insolvency, reorganization, arrangement,
readjustment, composition liquidation or the like of Pledgor or any other
Subsidiary of Pledgor;
(b) any lack of validity or enforceability of the Note, any other Loan
Document, or any other agreement or instrument relating thereto;
(c) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Secured Obligations, or any other
amendment or waiver of or any consent to any departure from the Note, any
other Loan Document, or any other agreement or instrument relating thereto;
(d) any exchange, release or non-perfection of any other collateral,
or any release or amendment or waiver of or consent to any departure from
any guarantee, for all or any of the Secured Obligations; or
(e) any exercise or non-exercise, or any waiver of any right, remedy,
power or privilege under or in respect of this Agreement or any other Loan
Document except as specifically set forth in a waiver granted pursuant to
the provisions of Section 15 hereof.
Section 27. Waiver of Single Action. Pledgor hereby waives to the
-----------------------
greatest extent permitted under law the right to a discharge of any of the
Secured Obligations under any statute or rule of law now or hereafter in effect
which provides that the exercise of any particular right or remedy as provided
for herein (by judicial proceedings or otherwise) constitutes the exclusive
means for satisfaction of the Secured Obligations or which makes unavailable any
further judgment or any other right or remedy provided for herein because the
Lender elected to proceed with the exercise of such initial right or remedy or
because of any failure by the Lender to comply with laws that prescribe
conditions to the entitlement to such subsequent judgment or the availability of
such subsequent right or remedy. In the event that, notwithstanding the
foregoing waiver, any court shall for any reason hold that such subsequent
judgment or action is not available to the Lender, Pledgor shall not (a)
introduce in any other jurisdiction any judgment so holding as a defense to
enforcement against Pledgor of any remedy in the Note or executed in connection
with the Note or (b) seek to have such judgment recognized or entered in any
other jurisdiction, and any such judgment shall in all events be limited in
application only to the state or jurisdiction where rendered and only with
respect to the collateral referred to in such judgment.
Section 28. Future Advances. This Agreement shall secure the payment of
---------------
any amounts advanced from time to time pursuant to the Note.
17
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
ENGAGE TECHNOLOGIES, INC.
By: /s/ [signature illegible]
-----------------------------------
CMGI, INC.
By: /s/ Andrew J. Hajducky III
-----------------------------------
Andrew J. Hajducky III
Chief Financial Officer
18
<PAGE>
SCHEDULE A
PATENTS
(including exclusive licenses)
[To be furnished by Pledgor]
19
<PAGE>
SCHEDULE B
TRADEMARKS & SERVICE MARKS
(including registrations and applications and exclusive licenses)
[To be furnished by Pledgor]
20
<PAGE>
SCHEDULE C
COPYRIGHTS
(including registrations and applications and exclusive licenses)
[To be furnished by Pledgor]
21
<PAGE>
SCHEDULE D
LIENS
[To be furnished by Pledgor]
22
<PAGE>
SCHEDULE E
REQUIRED CONSENTS AND LICENSES
[To be furnished by Pledgor]
23
<PAGE>
SCHEDULE F
CLAIMS, LITIGATION, ETC.
[To be furnished by Pledgor]
24
<PAGE>
Exhibit 10.26
STOCK PURCHASE AGREEMENT
AMONG
CMGI, INC.,
ENGAGE TECHNOLOGIES, INC.,
INTERNET PROFILES CORPORATION, AND
THE STOCKHOLDERS OF INTERNET PROFILES CORPORATION
LISTED ON SCHEDULE 1 ATTACHED HERETO
____________________________________
Dated as of April 7, 1999
____________________________________
<PAGE>
TABLE OF CONTENTS
Page
SECTION 1 - PURCHASE AND SALE OF THE SHARES............................... 1
1.1 Purchase and Sale............................................. 1
1.2 Closing....................................................... 5
1.3 No Fractional Shares.......................................... 6
1.4 Stockholders' Representative.................................. 6
SECTION 2 - REPRESENTATIONS AND WARRANTIES RELATING TO THE COMPANY........ 8
2.1 Organization and Qualification................................ 8
2.2 Authority to Execute and Perform Agreements................... 8
2.3 Capitalization and Title to Shares............................ 9
2.4 Subsidiaries and Other Affiliates............................. 9
2.5 Financial Statements.......................................... 10
2.6 Absence of Undisclosed Liabilities............................ 10
2.7 Intellectual Property......................................... 10
2.8 No Material Adverse Change.................................... 14
2.9 Tax Matters................................................... 15
2.10 Compliance with Laws.......................................... 16
2.11 No Breach..................................................... 17
2.12 Actions and Proceedings....................................... 17
2.13 Contracts and Other Agreements................................ 17
2.14 Bank Accounts and Powers of Attorney.......................... 19
2.15 Properties.................................................... 20
2.16 Customers..................................................... 20
2.17 Accounts Receivable........................................... 20
2.18 Employee Benefit Plans........................................ 21
2.19 Employee Relations............................................ 24
2.20 Employment Matters............................................ 25
2.21 Employee Conflicts............................................ 25
2.22 Transactions with Management.................................. 25
2.23 Insurance..................................................... 26
2.24 Brokerage..................................................... 26
2.25 Hazardous Materials........................................... 26
2.26 HSR........................................................... 27
2.27 Disclosure.................................................... 27
i
<PAGE>
SECTION 3 - REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDERS.... 27
3.1 Authority to Execute and Perform Agreements................... 27
3.2 No Breach..................................................... 28
3.3 Title to Shares............................................... 28
3.4 Absence of Control............................................ 28
SECTION 4 - REPRESENTATIONS AND WARRANTIES OF PURCHASERS.................. 28
4.1 Organization.................................................. 28
4.2 Authority to Execute and Perform Agreement.................... 29
4.3 Capitalization of CMGI........................................ 29
4.4 SEC Reports................................................... 30
4.5 No Material Adverse Change.................................... 31
4.6 No Breach..................................................... 31
4.7 Actions and Proceedings....................................... 31
4.8 Brokerage..................................................... 32
4.9 Disclosure.................................................... 32
4.10 Acquisition of Purchased Stock................................ 32
4.11 Engage Valuation.............................................. 32
4.12 Financial Statements.......................................... 32
SECTION 5 - COVENANTS AND AGREEMENTS...................................... 33
5.1 Conduct of Business........................................... 33
5.2 Corporate Examinations and Investigations..................... 34
5.3 Expenses...................................................... 35
5.4 Authorization from Others..................................... 35
5.5 Consummation of Agreement..................................... 35
5.6 Public Announcements and Confidentiality...................... 35
5.7 No Solicitation............................................... 36
5.8 Investment Representation and Lock-Ups........................ 36
5.9 Employment Related Instruments................................ 36
5.10 Disclosure Statements......................................... 36
5.11 Further Assurances............................................ 37
5.12 Stock Options................................................. 37
5.13 Short-Form Merger............................................. 38
5.14 Underwater Warrants........................................... 38
SECTION 6 - CONDITIONS PRECEDENT TO THE OBLIGATIONSOF EACH PARTY
TO CONSUMMATE THE TRANSACTION........................................ 39
6.1 Approvals..................................................... 39
6.2 Absence of Order.............................................. 39
6.3 Due Diligence................................................. 39
ii
<PAGE>
SECTION 7 - CONDITIONS PRECEDENT TO THE OBLIGATIONSOF PURCHASERS
TO CONSUMMATE THE TRANSACTION........................................ 39
7.1 Representations Warranties and Covenants...................... 40
7.2 Opinion of Counsel to Company................................. 40
7.3 Fees Bonuses and Indebtedness................................. 40
7.4 Stockholder Letters........................................... 40
7.5 Escrow Agreements............................................. 40
7.6 Non-Competition and Non-Solicitation Agreements............... 41
7.7 Non-Disclosure and Developments Agreements.................... 41
7.8 Officer's Certificate......................................... 41
7.9 Secretary's Certificate....................................... 41
7.10 1998 Audit.................................................... 41
7.11 Option Exchange Agreements.................................... 41
7.12 Employment Agreements......................................... 42
7.13 Convertible Debt.............................................. 42
7.14 Waivers and Consents.......................................... 42
7.15 Additional Items.............................................. 42
SECTION 8 - CONDITIONS PRECEDENT TO THE OBLIGATIONOF THE COMPANY AND
THE STOCKHOLDERS TO CONSUMMATE THE TRANSACTION....................... 42
8.1 Representations Warranties and Covenants...................... 42
8.2 Opinion of Counsel to Purchasers.............................. 42
8.3 Registration Rights Agreement................................. 42
8.4 Officer's Certificate......................................... 43
8.5 Secretary's Certificate....................................... 43
8.6 Additional Items.............................................. 43
SECTION 9 - TERMINATION, AMENDMENT AND WAIVER............................. 43
9.1 Termination................................................... 43
9.2 Effect of Termination......................................... 44
9.3 Termination Fee............................................... 44
9.4 Amendment..................................................... 44
9.5 Waiver........................................................ 44
SECTION 10 - INDEMNIFICATION.............................................. 45
10.1 Survival...................................................... 45
10.2 Obligation of Stockholders' to Indemnify...................... 45
10.3 Notice and Defense of Claims.................................. 46
SECTION 11 - MISCELLANEOUS................................................ 47
11.1 Material Adverse Change....................................... 47
11.2 Notices....................................................... 47
11.3 Entire Agreement.............................................. 49
11.4 Governing Law................................................. 49
11.5 Binding Effect: No Assignment................................. 49
11.6 Variations in Pronouns........................................ 49
11.7 Counterparts.................................................. 49
11.8 Disclosure Schedules.......................................... 49
11.9 Arbitration................................................... 49
11.10 Letter Agreement.............................................. 49
iii
<PAGE>
EXHIBIT 10.26
STOCK PURCHASE AGREEMENT
THIS AGREEMENT dated as of April 7,1999, among CMGI, Inc., a Delaware
corporation ("CMGI"), Engage Technologies, Inc., a Delaware corporation and a
majority- owned subsidiary of CMGI ("Engage," collectively with CMGI the
"Purchasers," and each individually a "Purchaser"), Internet Profiles
Corporation, a California corporation (the "Company"), and the stockholders of
the Company listed on Schedule 1 hereto (collectively, the "Stockholders" and
----------
each a "Stockholder").
WITNESSETH
WHEREAS each of the Stockholders owns (or will own as of the Closing (as
defined) through conversion or otherwise) the number of the issued and
outstanding shares (collectively, the "Shares" and each a "Share") of the common
stock, par value $0.001 per share (the "Common Stock"), of the Company set forth
opposite such Stockholder's name and address on Schedule 1 attached hereto,
----------
which Shares in the aggregate represent at least 90% of the issued and
outstanding shares of the capital stock of the Company on a fully diluted, as-
converted basis on the date of this Agreement;
WHEREAS Purchasers desire to acquire the Shares from the Stockholders, and
the Stockholders desire to sell the Shares to Purchasers, upon the terms and
subject to the conditions hereinafter set forth.
NOW THEREFORE, in consideration of the foregoing and of the covenants set
forth below, the parties hereby agree as follows:
SECTION 1 - PURCHASE AND SALE OF THE SHARES
1.1 Purchase and Sale.
-----------------
(a) For the purposes of this Agreement:
(i) "Fully Diluted Shares" means the total number of outstanding
--------------------
shares of common stock of the Company as determined on a fully diluted, as
converted basis with respect to any convertible preferred stock, convertible
notes, other convertible securities, options or other rights to acquire a
capital interest in or stock of the Company; provided, however, that "Fully
Diluted Shares" shall not be deemed to include the Underwater Warrants (as
defined). The number of Fully Diluted Shares is 59,068,868.
(ii) "CMGI Stock Number" means, with respect to a certain dollar
-----------------
value, the number of shares of CMGI common stock, par value $0.01 per share
("CMGI Common Stock"), equal to such dollar value when a share of CMGI Common
<PAGE>
Stock is valued at the average of the closing prices per share of CMGI Common
Stock as reported on the NASDAQ National Market System during the twenty (20)
consecutive trading days ending on March 1, 1999. In accordance with the
foregoing, each share of CMGI Common Stock is valued at $113.31 per share. The
CMGI Stock Number shall be adjusted, as necessary, to reflect any stock split,
reverse stock split, stock dividend or stock combination affecting CMGI Common
Stock as a class occurring after the third trading day prior to the Closing
Date.
(iii) "Engage Stock Number" means, with respect to a certain
-------------------
dollar value, the number of shares of Engage common stock, par value $0.01 per
share ("Engage Common Stock"), valued at a pre-Closing valuation for Engage of
Two Hundred Million Dollars ($200,000,000). There are 19,777,041 shares of
Engage Common Stock outstanding as of January 31, 1999 determined on a fully
diluted, as converted basis with respect to any convertible preferred stock,
convertible notes, other convertible securities, options or other rights to
acquire a capital interest in or stock of Engage. In accordance with the
foregoing, each share of Engage Common Stock is valued for purposes hereof at
$10.11 per share.
(b) Upon the terms and subject to the conditions of this Agreement, at
the Closing, each of the Stockholders agrees to sell to Purchasers, and
Purchasers agree to purchase from each of the Stockholders, all of the Shares
owned by each such Stockholder, as set forth opposite such Stockholder's name on
Schedule 1 hereto. The purchase price for each Share (the "Base Purchase Price")
- ----------
shall be an amount equal to the product of Thirty Million Dollars ($30,000,000)
and the Stockholders' Interest (as defined), less any reduction pursuant to
Section 7.3 hereof, and (in order to provide for payment by the Company,
following the Closing, of certain fees described in Section 7.3) divided by the
product of the Stockholders' Interest and the number of Fully Diluted Shares.
"Stockholders' Interest" means the aggregate percentage interest of the Fully
Diluted Shares (as used to calculate the Base Purchase Price) held by the
Stockholders. The Base Purchase Price shall be paid in CMGI Common Stock in a
CMGI Stock Number derived from 80% of the Base Purchase Price and in Engage
Common Stock in an Engage Stock Number derived from 20% of the Base Purchase
Price (collectively, the "Initial Consideration").
(i) Within 30 days after March 31,2000, Purchasers shall deliver
to the Stockholders' Representative (as defined below), a profit and loss
statement showing gross revenues for the Company, prepared in accordance with
generally accepted accounting principles on a basis consistent with the
accounting principles utilized in the preparation of the Company's year-end
financial statements, and including all revenues derived from the sale of
products and services of the Company, whether recorded on the books of the
Company or on any other direct or indirect subsidiary of CMGI ("Gross
Revenues"). Purchasers shall provide the Stockholders' Representative with
reasonable access to the work papers in connection with such calculation and
shall make themselves available at reasonable times upon request of the
Stockholders' Representative to discuss with Purchasers such calculation.
2
<PAGE>
(ii) If the Stockholders' Representative objects to Purchasers'
calculation of Gross Revenues, the Stockholders' Representative shall deliver to
Purchasers, within 30 days after receipt of Purchasers' calculation (the
"Objection Period"), a written statement describing its objection thereto. In
the event that the Stockholders' Representative fails to deliver such written
statement to Purchaser prior to the expiration of the Objection Period,
Purchasers' calculation shall be final, conclusive and binding upon the parties
hereto. In the event that the Stockholders' Representative delivers such
written statement prior to the expiration of the Objection Period, the parties
will use all reasonable efforts to resolve any dispute. If a final resolution
is not obtained within 30 days after the Stockholders' Representative has
delivered such written notice, either the Purchasers or the Stockholders'
Representative may submit any remaining disputes for resolution to a nationally-
recognized accounting firm mutually agreeable to Purchasers and the
Stockholders' Representative (the ("Selected Accountants"), which firm shall
resolve such dispute within 30 days following its selection. In resolving any
dispute, the Selected Accountants shall examine only those issues in dispute and
shall not assign a value greater than the highest value claimed by a party or
lower than the lowest value claimed by a party. The Selected Accountants'
determination shall be final, binding and conclusive upon the parties hereto.
The calculation of Gross Revenues as finally revised based on the mutual
agreement of Purchasers and the Stockholders' Representative shall be final,
conclusive and binding upon the parties hereto.
(iii) Purchasers and the Stockholders' Representative shall
cooperate with the Selected Accountants in all respects, including providing the
Selected Accountants with all work papers and back-up materials used in
preparation and review of their calculations of Gross Revenues.
(iv) All fees, expenses and costs of the Selected Accountants
shall be borne by as determined by the Selected Accountants, or, if no such
determination is made, by the party (Purchasers or the Stockholders'
Representative), whose estimation of Gross Revenues, taking into account any
changes made prior to submission to the Selected Accountants, is farthest from
the sum of Gross Revenues as finally determined by the Selected Accountants.
(v) In the event that (x) Gross Revenues as finally determined is
$10,800,000 or more, and (y) for one year following the Closing Date (as defined
below) (1) Bradley Rode has not voluntarily terminated his employment with the
Company except for Good Reason, and has not been terminated for Cause, (2) at
least eighty percent (80%) of all employees of the Company employed on a full-
time basis on the Closing Date have not voluntarily ceased employment with the
Company (other than for Good Reason) or been terminated for Cause, and (3) at
least eighty
3
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percent (80%) of the employees of the Company, as of the Closing Date, listed on
Schedule 2 attached hereto have not voluntarily ceased employment with the
- ----------
Company (other than for Good Reason) or been terminated for Cause, then the
Purchasers shall pay to each Stockholder (other than those Stockholders that are
terminated for Cause prior to March 31,2000 or who voluntarily terminate their
employment for other than Good Reason) additional consideration equal to five
percent of the Initial Consideration (without giving effect to any reduction
pursuant to Section 7.3) payable to such Stockholders pursuant to Section
1.1(b).
"Good Reason" shall mean any of the following: (w) the employer's material
breach of employees' employment agreement or other agreement with the employer
or a material reduction in the employee's compensation level other than for
Cause; (x) the assignment, other than for Cause, of the employee without his
consent to a position, responsibilities, or duties of a materially lesser status
or degree of responsibility than his position, responsibilities, or duties upon
the Closing Date or a material diminution, other than for Cause, in such
employee's job title on the Closing Date; (y) the relocation of the employer's
principal executive offices outside of the San Francisco/Bay Area; or (z) the
requirement by the employer that the employee be based anywhere other than the
San Francisco/Bay Area, in either case without the employee's consent. "Cause"
shall mean (1) the employee's material breach of any agreement entered into with
the employer; (2) the employee's material failure to adhere to any written
employer policy consistent with such employee's position, responsibilities and
duties, if the employee has been given a reasonable opportunity to comply with
such policy or cure his failure to comply; (3) the misappropriation of any of
the employer's funds or material property; (4) the conviction of, the indictment
for, or the entering of a guilty plea or plea of no contest with respect to a
felony; or (5) the employee's prolonged absence or gross dereliction of duty,
after written notice and reasonable opportunity to cure.
(vi) Further, upon the terms and subject to the conditions of
this Agreement, if the Company, as of March 31, 2000, secures contribution to
the Engage database of the data generated by visitors to the web sites of the
Company's customers ("Clickstream Data") (A) equal to 65% or more of the volume
of such data contributed to Company as of the Closing Date and (B) from 75% or
more of its customer base (determined as of the Closing Date or, if Company has
a greater number of customers on March 31, 2000, as of March 31, 2000) then the
Purchasers shall pay to each Stockholder (other than any employees of the
Company on the Closing Date who are not employees of the Company at March 31,
2000 unless such employee has been terminated other than for Cause or has
voluntarily ceased employment with the Company for other than Good Reason prior
to such date) additional consideration equal to five percent (5%) of the Initial
Consideration (without giving effect to any reduction pursuant to Section 7.3)
payable to such Stockholder pursuant to Section 1.1 (b).
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(vii) To the extent that any amounts otherwise payable in
accordance with the foregoing are not payable to any Stockholder because he has
been terminated for Cause or has voluntarily ceased employment with the Company
for other than Good Reason prior to March 31, 2000, such amounts shall be paid
to all Stockholders pro rata in accordance with Schedule 1. Fifty percent (50%)
----------
of any payments due under Subsections 1.1 (b)(v) and (vi) will be paid directly
into Escrow (as defined) and shall be subject to the Escrow Agreement (as
defined) and the remaining fifty percent (50%) shall be paid directly to the
Stockholders; provided, however, that the amount payable directly to the
Stockholders shall be reduced, and the amount payable into Escrow shall be
increased, to the extent that the amount in Escrow on the first anniversary of
the Closing Date is less than $3 million. The consideration due under
Subsections 1.1 (b)(v) and (vi), if any ("Contingent Consideration"), will be
payable no later than May 5, 2000 or, if there is a dispute concerning the Gross
Revenues or Clickstream Data, then no later than five days after final
resolution of such dispute, in (a) registered CMGI Common Stock, (b) cash or (c)
a mixture thereof, at the sole discretion of the Purchasers. CMGI Common Stock
used in any part to pay such consideration shall be valued in a manner
consistent with the definition of "CMGI Stock Number", except that March 31,
2000 shall be substituted for March 1, 1999 therein for purposes of this
Subsection 1.1(b)(vii).
(c) Six million dollars' worth of the Initial Consideration (subject
to increase pursuant to Section 1.3 herein), allocable among the Stockholders
pro rata in accordance with Schedule 1 (without giving effect to Common Stock
----------
issuable upon exercise of the stock options referred to in Section 5.12), in the
ratio of 80% CMGI Common Stock and 20% Engage Common Stock, shall, at Closing,
be paid directly into escrow (the "Escrow"), which Escrow shall be the subject
of an escrow agreement in form and substance as set forth on Exhibit A hereto
---------
(the "Escrow Agreement").
(d) Anything to the contrary contained herein notwithstanding, the
first one million dollars payable to the Stockholders following the Closing
Date, either from Escrow or as Contingent Consideration, shall be paid in full.
All additional amounts otherwise so payable to the Stockholders shall be reduced
by an amount equal to 1% if out of the Escrow and 1% divided by the
Stockholders' Interest if in the form of the Contingent Consideration.
1.2 Closing. The closing (the "Closing") of the purchase and sale of the
-------
Shares hereunder shall take place at the offices of Palmer & Dodge LLP, One
Beacon Street, Boston, Massachusetts 02108, at 12:00 p.m. (EST) on April 7,
1999, or at such other time or place as Purchasers and the Stockholders'
Representative (as hereinafter defined), acting on behalf of the Stockholders,
agree (the "Closing Date"). At the Closing, each Stockholder shall deliver to
Purchasers the certificate or certificates for the Shares owned by such
Stockholder, duly endorsed or accompanied by stock powers duly endorsed in
blank, reasonably satisfactory to the Purchasers in all respects. At the
Closing, there shall be delivered to the respective parties the opinions,
certificates and instruments provided to be delivered at the closing under
Sections 6, 7 and 8 hereof.
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1.3 No Fractional Shares. No certificates representing fractional CMGI
--------------------
Common Stock shares or Engage Common Stock shares shall be issued to
Stockholders. All fractional shares otherwise payable directly to Stockholders
shall be-paid into Escrow and aggregated with all other shares (whole and
fractional) payable into Escrow, to the effect that one certificate representing
all whole shares of CMGI Common Stock payable into Escrow and one certificate
representing all whole shares of Engage Common Stock payable into Escrow shall
be deposited into Escrow together with cash in lieu of any one remaining
fractional share of CMGI Common Stock and any one remaining share of Engage
Common Stock in an amount equal to the applicable fraction multiplied by the
applicable dollar value per share of CMGI Common Stock or Engage Common Stock,
determined in accordance with the definitions of "CMGI Stock Number" and "Engage
Stock Number."
1.4 Stockholders' Representative.
----------------------------
(a) In order to efficiently administer (i) the waiver of any condition
to the obligations of the Stockholders to consummate the transactions
contemplated hereby and (ii) the defense and/or settlement of any claims for
which the Stockholders may be required to indemnify Purchasers pursuant to
Section 10 hereof the Stockholders hereby designate Tench Coxe as their
representative (the "Stockholders' Representative").
(b) The Stockholders hereby authorize the Stockholders' Representative
(i) to take all action necessary in connection with the waiver of any condition
to the obligations of the Stockholders to consummate the transactions
contemplated hereby, or the defense and/or settlement of any claims for which
the Stockholders may be required to indemnify Purchasers pursuant to Section 10
hereof; (ii) to give and receive all notices required to be given and received
to and from the Stockholders under this Agreement and under any Related
Instruments (as defined below), and (iii) to take any and all additional actions
(including signing on their behalf) as is contemplated to be taken by or on
behalf of the Stockholders by the terms of this Agreement and any agreement or
document related thereto (a "Related Instrument").
(c) In the event that the Stockholders' Representative dies, becomes
unable to perform his or her responsibilities hereunder or resigns from such
position, Stockholders holding, prior to the Closing, a majority of the Shares
as set forth on Schedule 1 attached hereto shall select another representative
----------
to fill such vacancy and such substituted representative shall be deemed to be
the Stockholders' Representative for all purposes of this Agreement and any
Related Instrument.
6
<PAGE>
(d) All decisions and actions by the Stockholders' Representative,
including, without limitation, any agreement between the Stockholders'
Representative and Purchasers relating to the defense or settlement of any
claims for-which the Stockholders may be required to indemnify the Purchasers
pursuant to Section 10 hereof shall be binding upon all of the Stockholders, and
no Stockholder shall have the right to object, dissent, protest or otherwise
contest the same.
(e) By their execution of this Agreement, the Stockholders agree that:
(i) the Purchasers shall be able to rely conclusively on the
instructions and decisions of the Stockholders' Representative as to the
determination of the settlement of any claims for indemnification by the
Purchasers pursuant to Section 10 hereof or any other actions required to be
taken by the Stockholders' Representative hereunder, and no party hereunder
shall have any cause of action against Purchasers for any action taken by
Purchasers in reliance upon the instructions or decisions of the Stockholders'
Representative;
(ii) all actions, decisions and instructions of the
Stockholders' Representative shall be conclusive and binding upon all of the
Stockholders and no Stockholder shall have any cause of action against the
Stockholders' Representative for any action taken, decision made or instruction
given by the Stockholders' Representative under this Agreement, except for fraud
or willful breach of this Agreement by the Stockholders' Representative;
(iii) the provisions of this Section 1.4 are independent and
severable, are irrevocable and coupled with an interest and shall be enforceable
notwithstanding any rights or remedies that any Stockholder may have in
connection with the transactions contemplated by this Agreement;
(iv) remedies available at law for any breach of the provisions
of this Section 1.4 are inadequate; therefore, Purchasers and the Company shall
be entitled to temporary and permanent injunctive relief without the necessity
of proving damages if either of the Purchasers or the Company brings an action
to enforce the provisions of this Section 1.4; and
(v) the provisions of this Section 1.4 shall be binding upon
the executors, heirs, legal representatives and successors of each Stockholder,
and any references in this Agreement to a Stockholder or the Stockholders shall
mean and include the successors to the Stockholders' rights hereunder, whether
pursuant to testamentary disposition, the laws of descent and distribution or
otherwise.
(f) All reasonable fees and expenses incurred by the Stockholders'
Representative shall be paid from the funds in Escrow, and if such funds are
insufficient, then by the Stockholders in proportion to their ownership of
Shares as set forth on Schedule 1 attached hereto.
----------
7
<PAGE>
SECTION 2 - REPRESENTATIONS AND WARRANTIES RELATING TO
THE COMPANY
Except as set forth on the disclosure schedule delivered to the Purchasers
on the date hereof (the "Company Disclosure Schedule"), the section numbers of
which are numbered to correspond to the section numbers of this Agreement to
which they refer, the Company represents and warrants to the Purchasers as set
forth below:
2.1 Organization and Qualification.
------------------------------
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of California with full corporate power and
authority to own, lease and operate its assets and properties and to carry on
its business as now being and as heretofore conducted. The Company is qualified
or otherwise authorized to transact business as a foreign corporation or other
legal entity in all jurisdictions in which such qualification or authorization
is required by law, except for jurisdictions in which the failure to be so
qualified or authorized would not reasonably be expected to have a material
adverse effect on the assets, properties, business, prospects, results of
operations or financial condition of the Company (the "Business of Company").
(b) The Company has previously provided to the Purchasers true and
complete copies of the charter and bylaws or other governing instruments of the
Company as presently in effect, and the Company is not in default in the
performance, observation or fulfillment of its charter or bylaws or other
governing instruments. The minute books of the Company contain true and
complete records of all meetings and consents in lieu of meetings of the Board
of Directors (and any committees thereof) and of the stockholders since the time
of Company's incorporation and accurately reflect in all material respects all
transactions referred to in such minutes and consents in lieu of meetings. The
stock books of the Company are true and complete.
2.2 Authority to Execute and Perform Agreements. The Company has the
-------------------------------------------
corporate power and authority to enter into, execute and deliver this Agreement
and to perform fully its obligations hereunder. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by the Board of Directors of the Company. No further
action on the part of the Company is necessary to consummate the transactions
contemplated hereby, except as provided in this Agreement and the Related
Instruments. This Agreement has been duly executed and delivered by the Company
and, subject to the foregoing, constitutes a valid and binding obligation of the
Company, enforceable in
8
<PAGE>
accordance with its terms, except as enforcement thereof may be limited by (i)
bankruptcy, insolvency, reorganization, moratorium and similar laws, both state
and federal, affecting the enforcement of creditors' rights or remedies in
general as from time to time in effect or (ii) the exercise by courts of equity
powers.
2.3 Capitalization and Title to Shares.
----------------------------------
(a) At Closing, the Company is authorized to issue 75,000,000 shares
of Common Stock, of which 53,549,359 shares are issued and outstanding on the
date hereof, and no shares of preferred stock. As of the Closing Date, there
will be no shares of Preferred Stock (or warrants or other rights to acquire
Preferred Stock) and no warrants or other rights to acquire Common Stock issued
and outstanding. Such shares are owned of record by the persons and in the
amounts set forth on the Company Disclosure Schedule. No other class of capital
stock of the Company is authorized or outstanding. All of the issued and
outstanding shares of the Company's capital stock are duly authorized and are
validly issued, fully paid, nonassessable and free of pre-emptive rights. None
of the issued and outstanding shares of the Company's capital stock have been
issued in violation of any federal or state law or any preemptive rights or
rights to subscribe for or purchase securities.
(b) The Company Disclosure Schedule includes a true and complete list
of all outstanding rights, subscriptions, warrants, calls, preemptive rights,
options or other agreements of any kind to purchase or otherwise receive from
the Company any shares of the capital stock or any other security of the
Company, and all outstanding securities of any kind convertible into or
exchangeable for such securities. True and complete copies of all instruments
(or the forms of such instruments) referred to in this Section 2.3(b) have been
previously furnished to the Purchasers. There are no shareholder agreements,
voting trusts, proxies or other agreements, instruments or understandings with
respect to the outstanding shares of capital stock of the Company to which the
Company is a party. As of the Closing, there will be no outstanding convertible
debt of the Company that is convertible into capital stock of the Company.
(c) The Shares constitute no less than 90% of the Adjusted Fully
Diluted Shares. "Adjusted Fully Diluted Shares" means Fully Diluted Shares
minus all (i) options to purchase Common Stock that will be exchanged at Closing
for options to purchase Engage Common Stock and (ii) shares of Common Stock
subject to vesting that will be cancelled at Closing and replaced with options
to purchase Engage Common Stock. The number of Adjusted Fully Diluted Shares is
53,549,359.
2.4 Subsidiaries and Other Affiliates.
---------------------------------
(a) The Company has no Subsidiaries except as set out in the Company
Disclosure Schedule. As used in this Agreement, "Subsidiary" means any
corporation or other legal entity of which the Company or any Subsidiary owns,
directly or indirectly, stock or other equity interests.
9
<PAGE>
(b) The Company is not a party to a partnership or joint venture with
any other person except as set out in the Company Disclosure Schedule.
2.5 Financial Statements. The Company has previously delivered to the
--------------------
Purchasers (a) the audited consolidated financial statements of the Company at
December 31, 1996 and December 31, 1997 and for the two years then ended
(including the footnotes thereto) (the "Audited Financial Statements"), (b) the
unaudited balance sheet of the Company as of January 31, 1999 and related
statements of operations and cash flows for the period then ended (the "Interim
Financial Statements"). All of such financial statements referred to in this
section are collectively referred to herein as the "Company Financial
Statements." The Company Financial Statements have been prepared from, and are
in accordance with, the books and records of the Company and present fairly the
financial position and the results of operations of the Company as of the dates
and for the periods indicated, in each case in accordance with generally
accepted accounting principles ("GAAP") consistently applied throughout the
periods involved except as otherwise stated therein, and subject, in the case of
the Interim Financial Statements, to normal year end audit adjustments, which
are not, in the aggregate, material and subject to the addition of appropriate
notes to the Interim Financial Statements.
2.6 Absence of Undisclosed Liabilities. As of January 31, 1999, the
----------------------------------
Company had no liabilities of any nature, whether accrued, absolute, contingent
or otherwise (including, without limitation, liabilities as grantor or otherwise
with respect to obligations of others or liabilities for taxes due or then
accrued or to become due), required to be reflected or disclosed in the December
31, 1998 balance sheet included in the Audited Financial Statements or the
January 31, 1999 balance sheet included in the Interim Financial Statements that
were not adequately reflected or reserved against on such balance sheets. The
Company has no such liabilities other than liabilities (a) adequately reflected
or reserved against on the December 31, 1998 balance sheet included in the
Audited Financial Statements or the January 31, 1999 balance sheet included in
the Interim Financial Statements, (b)incurred since January 31, 1999 in the
ordinary course of business, (c) disclosed in this Agreement or (d) that would
not, in the aggregate, reasonably be expected to have a material adverse effect
on the Business of Company.
2.7 Intellectual Property.
---------------------
(a) Company Intellectual Property. All patents, trademarks, trade
-----------------------------
names, service marks, trade dress, Internet domain names, copyrights and any
renewal rights therefor, mask works, net lists, schematics, technology,
manufacturing processes, supplier lists, trade secrets, know-how, computer
software programs or
10
<PAGE>
applications (in both source and object code form) ("Software Programs"),
technical documentation of the Software Programs ("Technical Documentation"),
registrations and applications for any of the foregoing and all other tangible
or intangible proprietary information or materials that are used in the
Company's business and/or in any product, technology or process (i) currently
being manufactured, published or marketed by the Company or (ii) currently under
development for possible future manufacturing, publication, marketing or other
use by the Company are hereinafter referred to as the "Company Intellectual
Property."
(b) Applications and Registrations. The Company Disclosure Schedule
------------------------------
contains a true and complete list of all of the Company's patents' patent
applications, trademark registrations, trademark applications, trade names,
service marks, service mark applications, Internet domain names, Internet domain
name applications, copyright registrations and applications and other filings
and formal actions made or taken pursuant to federal, state, local and foreign
laws by the Company to protect its interests in the Company Intellectual
Property.
(c) Rights to Company Intellectual Property. The Company Intellectual
---------------------------------------
Property consists solely of items and rights which are: (i) owned by the
Company; (ii) in the public domain; or (iii) rightfully used by the Company
pursuant to a valid license. The Company has all rights in the Company
Intellectual Property necessary to carry out the Company's current and
anticipated (up through the Closing) activities.
(d) Third Party Claims. Reproduction, manufacturing, distribution,
------------------
licensing, sublicensing, sale or any other exercise of rights in any Company
Intellectual Property owned by the Company or any product, service, work,
technology or process as now licensed or sold by the Company to third parties
does not infringe on any copyright, trade secret, trademark, service mark, trade
name, mask work, moral right or patent of any person. No claims (i) challenging
the validity, effectiveness or ownership by the Company of any of the Company
Intellectual Property owned by the Company, or (ii) to the effect that the use,
distribution, licensing, sublicensing, sale or any other exercise of rights by
the Company in any product, work, technology or process as now used or offered
or proposed for use, licensing, sublicensing or sale by the Company infringes on
any intellectual property or other proprietary right of any person have been
asserted or, to the best knowledge of Company, are threatened by any person, nor
are there any valid grounds for any bona fide claim of any such kind; provided
that with respect to the third-party software listed in Section 2.7(j) of the
Company Disclosure Schedule, the foregoing shall apply only to the best of the
Company's knowledge. The Company has made in a timely manner all filings and
payments necessary to maintain in effect all registered, granted or issued
patents, mask works, trademarks, Internet domain names and copyrights held by
the Company. To the best of the Company's knowledge, there is no unauthorized
use, infringement or misappropriation of any of the Company Intellectual
Property by any third party, employee or former employee.
11
<PAGE>
(e) Royalties. Except as set forth on the Company Disclosure
---------
Schedule, there are no royalties, fees, honoraria or other payments payable by
the Company to any person or entity by reason of the ownership, development,
use, license, sale or disposition of the Company Intellectual Property, other
than salaries and sales commissions paid to employees and sales agents in the
ordinary course of business and support fees for third party software and other
third party license fees and maintenance fees listed in Section 2.7 of the
Company's Disclosure Schedule.
(f) Personnel. All personnel, including employees, agents,
---------
consultants and contractors, who have contributed to or participated in the
conception and development of the Company Intellectual Property owned by the
Company on behalf of the Company have executed nondisclosure agreements in the
form set forth on the Company Disclosure Schedule and either (i) have been a
party to a "work-for-hire" arrangement or agreements with the Company in
accordance with applicable national and state law that has accorded the Company
full, effective, exclusive and original ownership of all tangible and intangible
property thereby arising, or (ii) have executed appropriate instruments of
assignment in favor or the Company as assignee that have conveyed to the Company
effective and exclusive ownership of all tangible and intangible property
thereby arising.
(g) Third Party Agreements. The Company is not, nor as a result of
----------------------
the execution or delivery of this Agreement, or performance of the Company's
obligations hereunder, will Company be, in violation of any material license,
sublicense, agreement or instrument relating to the Company Intellectual
Property to which the Company is a party or otherwise bound, nor will execution
or delivery of this Agreement, or performance of Company's obligations
hereunder, cause the diminution, termination or forfeiture of any Company
Intellectual Property.
(h) Company Software Programs. The Company Disclosure Schedule
-------------------------
contains a true and complete list of all of Company's Software Programs owned by
the Company. The Company owns full and unencumbered right and good, valid and
marketable title to such Software Programs free and clear of all mortgages,
pledges, liens, security interests, conditional sales agreements, encumbrances
or charges of any kind (other than non-exclusive licenses granted in the
ordinary course of business).
(i) Protection. The Company has enforced the trade secret protection
----------
program set forth in the Company Disclosure Schedule. To the best of the
Company's knowledge, there has been no violation of such program by any person
or entity. The source code and system documentation relating to the Software
Programs owned by the Company (i) have at all times been maintained in strict
confidence, (ii) have been disclosed by the Company only to employees who have
had a "need to
12
<PAGE>
know" the contents thereof in connection with the performance of their duties to
the Company and who have executed the nondisclosure agreements referred to in
Section 2.7(f), and (iii) have not been disclosed to any third party.
(j) Third-Party Software. The Company Disclosure Schedule contains a
--------------------
complete list of (i) software libraries, compilers and other third-party
software used in the development of the Software Programs and (ii) material
software systems and applications used by the Company in the operation of its
business. The Company Disclosure Schedule lists all license agreements for the
use of all such software and, if any such software is not licensed, the basis of
the use of such software by the Company.
(k) Software Performance. The Software Programs owned by the Company
--------------------
will perform in accordance with the warranties set forth in the standard end-
user license agreements listed on the Company Disclosure Schedule (the "License
Agreements").
(l) Integrity. Except with respect to demonstration or trial copies,
---------
no portion of any Software Program owned by the Company contains any "back
door," "time bomb," "Trojan horse," "worm," "drop dead device," "virus" or
other software routines or hardware components designed to permit unauthorized
access; to disable or erase software, hardware, or data; or to perform any other
such actions.
(m) Contract Performance. The Company has observed all provisions of
--------------------
and performed all of its material obligations under the License Agreements,
including, but not limited to, the performance of its product maintenance
obligations. The Company has not taken any action, or failed to take any action,
that could cause (i) any source code, trade secret or other Company Intellectual
Property to be released from an escrow or otherwise made available to any person
or entity other than those persons described in Section 2.7(i), dedicated to the
public or otherwise placed in the public domain or (ii) any other adverse affect
to the protection of the Software Programs owned by the Company under trade
secret, copyright, patent or other intellectual property laws.
(n) Year 2000. The Software Programs owned by the Company (i) shall
---------
store, retrieve, sort and process date data correctly when used on the proper
platform and in accordance with the applicable Technical Documentation, (ii)
when used on the proper platform and in accordance with the applicable Technical
Documentation shall store, retrieve, sort and process date data correctly, and
(iii) when used on the proper platform and in accordance with the applicable
Technical Documentation, shall not end abnormally or provide invalid or
incorrect results as a result of date data, including without limitation date
data which represents or references different centuries or more than one
century. The Company Acquisition Year 2000 Questionnaire completed by the
Company and sent to the
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Purchasers on February 17, 1999 by facsimile transmission contains no material
untrue statements of fact and does not omit to state any facts necessary to make
the statements therein not materially misleading.
(o) Adequacy of Technical Documentation. The Technical Documentation
-----------------------------------
for the Software Programs owned by the Company includes the source code (with
comments) for such Software Programs, as well as any pertinent comments by or
explanation that may be necessary to render such materials understandable and
usable to a programmer trained in the language in which the Software Program is
written and ordinarily skilled in such matters. The Technical Documentation for
the Software Programs owned by the Company, also includes any programs
(including compilers), "workbenches," tools and higher level (or "proprietary")
languages necessary for the development, maintenance and implementation of the
Software Programs.
2.8 No Material Adverse Change. Since January 31, 1999 there has not
--------------------------
been:
(a) any material adverse change in the Business of Company;
(b) any transaction, commitment, contract or agreement entered into by
the Company or any termination by the Company of any contract or other right
having a value of or requiring aggregate payments in excess of $30,000;
(c) any redemption or other acquisition of any capital stock of the
Company by the Company or any declaration, setting aside, or payment of any
dividend or distribution of any kind by the Company with respect to any shares
of capital stock of the Company except for stock options granted in the ordinary
course of business;
(d) any increase in compensation, bonus or other benefits payable or
to become payable by the Company to any of their respective directors, officers
or employees, other than regularly scheduled increases in the ordinary course of
business;
(e) any entering into or granting by the Company of any new employment
agreement providing for annual compensation over $ 100,000, any new employee
benefit, deferred compensation or other similar employee benefit arrangement, or
any new consulting arrangement providing for annual compensation over $100,000
and any grant of any severance or termination rights to any director, officer or
employee of the Company or any increase in benefits payable under existing
severance or termination pay policies or employment agreements;
14
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(f) any material change in any accounting method or practice followed
by the Company;
(g) any making by the Company of any loan or advance to any
stockholder, officer, director or consultant (other than expense advances made
in the ordinary course of business), or any other loan or advance otherwise than
in the ordinary course of business;
(h) except for inventory or equipment acquired in the ordinary course
of business, any material acquisition by the Company of all or any part of the
assets, properties, capital stock or business of any other person;
(i) any destruction of, material damage to or loss of any assets
material to the Business of Company (whether or not covered by insurances);
(j) a material adverse change in a customer relationship including,
without limitation, the following to the extent inconsistent with the Company's
past results: cancellation or termination or actual notice of cancellation or
termination by any customer of its relationship or a material portion of its
relationship with Company or any material decrease or planned decrease in the
usage or purchase of the products or services of Company by any such customer;
(k) any filed claim of wrongful discharge or other unlawful labor
practice or action or to the best knowledge of the Company of facts which could
reasonably be expected to form the basis of such a claim;
(l) any litigation commenced by or against the Company that (i) is
likely to result in a final judgment adverse to the Company, and (ii) is likely
to have a material adverse effect on the Business of Company;
(m) except in the ordinary course of business, any sale, abandonment
or any other disposition of any of the Company's assets or properties; or
(n) any commitment or agreement by Company or any of its directors,
officers or employees to do any of the things described in the preceding clauses
(a) through (m).
2.9 Tax Matters.
-----------
(a) The Company has filed all tax reports and returns required to be
filed by it and paid or will timely pay all taxes and other charges shown as due
on such reports and returns. The Company is not delinquent in the payment of
any material tax assessment, or any other governmental charge (including without
limitation applicable withholding taxes, without regard to materiality). Any
15
<PAGE>
provision for taxes reflected in the Audited Financial Statements is adequate
for payment of any and all tax liabilities for periods ending on or before
December 31, 1998 and there are no tax liens on any assets of the Company except
liens for current taxes not yet due.
(b) There has not been any audit of any tax return filed by the
Company and no audit of any such tax return is in progress and the Company has
not been notified by any tax authority that any such audit is contemplated or
pending. The Company knows of no tax deficiency or claim for additional taxes
asserted or threatened to be asserted against it by any taxing authority and the
Company knows of no grounds for any such assessment except for IRS challenges
that may be made to reasonable filing positions taken by the Company in its
returns. No extension of time with respect to any date on which a tax return was
or is to be filed by the Company is in force, and no waiver or agreement by the
Company is in force for the extension of time for the assessment or payment of
any tax. For purposes of this Agreement, the term "tax" includes all federal,
state, local and foreign taxes or assessments, including income, sales, gross
receipts, excise, use, value added, royalty, franchise, payroll, withholding,
property and import taxes and any interest or penalties applicable thereto.
(c) The Company has not agreed to, and is not required to, make any
adjustments under Section 481(a) of the Code by reason of a change in accounting
method or otherwise.
(d) The Company is not and has never been a member of a consolidated
group or combined group of corporations.
2.1 Compliance with Laws.
--------------------
(a) The Company has all licenses, permits, franchises, orders or
approvals of any federal, state, local or foreign governmental or regulatory
body material to the conduct of its business (collectively, "Permits"); such
Permits are in full force and effect; and no proceeding is pending or, to the
best knowledge of the Company, threatened to revoke or limit any Permit. The
Company Disclosure Schedule contains a true and complete list of all Permits.
(b) The Company is not in violation of any applicable law, ordinance
or regulation or any order, judgment, injunction, decree or other requirement of
any court, arbitrator or governmental or regulatory body, except for violations
that would not, in the aggregate, be reasonably expected to have a material
adverse effect on the Business of Company. Since its organization, the Company
has not received notice of; and there has not been any citation, fine or penalty
imposed against the Company for, any such violation or alleged violation.
16
<PAGE>
2.11 No Breach. The execution, delivery and performance of this Agreement
---------
by the Company and the consummation by the Company of the transactions
contemplated hereby will not (a) violate any provision of the Articles of
Incorporation or Bylaws of the Company; (b) violate, conflict with or result in
the breach of any of the terms or conditions of, result in modification of the
effect of, or otherwise give any other contracting party the right to terminate,
or constitute (or with notice or lapse of time or both constitute) a default
under, any instrument, contract or other agreement to which the Company is a
party or to which it or its assets or properties is bound or subject; (c)
violate any law, ordinance or regulation or any order, judgment, injunction,
decree or other requirement of any court, arbitrator or governmental or
regulatory body applicable to the Company or by which any of Company's assets,
properties or securities is bound; (d) violate any Permit; (e) require any
filing with, notice to, or permit, consent or approval of, any other
governmental or regulatory body; or (f) result in the creation of any lien or
other encumbrance on the assets, properties or securities of the Company,
excluding from the foregoing clauses (b), (c), (d), (e) and (f) exceptions to
the foregoing that, in the aggregate, would not be reasonably expected to have a
material adverse effect on the Business of Company or on the ability of the
Company to consummate the transactions contemplated hereby.
2.12 Actions and Proceedings. There are no outstanding orders, awards,
-----------------------
judgments, injunctions or decrees of any court, arbitrator or governmental or
regulatory body against the Company or any of its securities, assets or
properties. There are no actions, suits, investigations or claims or legal,
administrative or arbitration proceedings pending or, to the best knowledge of
the Company, threatened against the Company that in the aggregate would
reasonably be expected to have a material adverse effect upon the transactions
contemplated hereby or the Business of Company. To the best knowledge of the
Company, there is no fact, event or circumstance now in existence that
reasonably could be expected to give rise to any action, suit, claim, proceeding
or investigation that individually or in the aggregate would reasonably be
expected to have a material adverse effect upon the transactions contemplated
hereby or on the Business of Company.
2.13 Contracts and Other Agreements. The Company Disclosure Schedule sets
------------------------------
forth a list of the following contracts and other agreements to which the
Company is a party or by or to which any it or its assets or properties are
bound or subject:
(a) any agreement or series of related agreements requiring aggregate
payments by or to the Company of more than $50,000;
(b) any agreement with or for the benefit of any current officer,
director, shareholder, employee or consultant of the Company;
17
<PAGE>
(c) any agreement with any labor union or association representing any
employee of the Company;
(d) any agreement for the purchase or sale of materials, supplies,
equipment, merchandise or services that contain an escalation, renegotiation or
redetermination clause or that obligate the Company to purchase all or
substantially all of its requirements of a particular product or service from a
supplier, or for periodic minimum purchases of a particular material product or
material service from a supplier;
(e) any agreement for the sale of any of the assets or properties of
the Company other than in the ordinary course of business or for the grant to
any person of any options, rights of first refusal, or preferential or similar
rights to purchase any such assets or properties other than in the ordinary
course of business;
(f) any partnership or joint venture agreement including co-marketing
agreements;
(g) any agreement of surety, guarantee or indemnification, other than
agreements in the ordinary course of business with respect to obligations in an
aggregate amount not in excess of $30,000;
(h) any agreement containing covenants of the Company not to compete
in any line of business, in any geographic area or with any person or covenants
of any other person not to compete with the Company or in any line of business
of the Company;
(i) any agreement granting or restricting the right of the Company to
use any Intellectual Property other than license agreements entered into in the
ordinary course of business;
(j) any agreement with customers or suppliers for the sharing of fees,
the rebating of charges or other similar arrangements;
(k) any agreement with any holder of securities of the Company as such
(including, without limitation, any agreement containing an obligation to
register any of such securities under any federal or state securities laws);
(l) any agreement obligating the Company to deliver services or
product enhancements or containing a "most favored nation" pricing clause;
(m) any agreement relating to the acquisition by the Company of any
operating business or the capital stock of any other person;
18
<PAGE>
(n) any agreement requiring the payment to any person of a brokerage
or sales commission or a finder's or referral fee (other than arrangements to
pay commissions or fees to employees in the ordinary course of business);
(o) any agreement or note relating to or evidencing outstanding
indebtedness for borrowed money in amounts over $5,000;
(p) any lease, sublease or other agreement under which the Company is
lessor or lessee of any real property or equipment or other tangible property;
(q) any material agreement with a change of control provision or
otherwise requiring consent with respect to the Closing;
(r) any stock option agreement; restricted stock agreement; employment
or severance agreement; phantom stock plan; bonus, incentive or similar
agreement, arrangement or understanding;
(s) any distribution or sales representative agreement or agreements
appointing any agents; and
(t) any other material agreement whether or not made in the ordinary
course of business.
True and complete copies of all the contracts and other agreements (and all
amendments, waivers or other modifications thereto) set forth on the Company
Disclosure Schedule have been furnished to the Purchasers. Each of such
contracts is valid, subsisting, in full force and effect, binding upon the
Company, and to the best knowledge of the Company, binding upon the other
parties thereto in accordance with their terms, and the Company is not in
default under any of them, nor, to the best knowledge of the Company, is any
other party to any such contract or other agreement in default thereunder, nor,
to the best knowledge of the Company, does any condition exist that with notice
or lapse of time or both would constitute a default thereunder, except, in each
case, such defaults as would not, in the aggregate, be reasonably expected to
have a material adverse effect on the Business of Company.
2.14 Bank Accounts and Powers of Attorney. The Company Disclosure Schedule
------------------------------------
identifies all bank and brokerage accounts of the Company, whether or not such
accounts are held in the name of the Company, lists the respective signatories
therefor and lists the names of all persons holding a power of attorney from the
Company and a summary of the terms thereof.
19
<PAGE>
2.15 Properties.
----------
(a) The Company owns and has good title to all of its assets and
properties reflected as owned on the December 31,1998 balance sheet included in
the Audited Financial Statements and the January 31, 1999 balance sheet included
in the Interim Financial Statements, free and clear of any lien, claim or other
encumbrance, except for (i) assets and properties disposed of, or subject to
purchase or sales orders, in the ordinary course of business since January 31,
1999, (ii) liens or other encumbrances securing the liens of materialmen,
carriers, landlords and like persons, all of which are not yet due and payable,
(iii) liens for taxes not yet delinquent and (iv) liens, claims or other
encumbrances that, in the aggregate, are not material to the Business of
Company.
(b) The Company does not own any real property and does not have any
options or contractual obligations to purchase or acquire any interest in real
property. The Company has a valid leasehold interest in all of the buildings,
structures and leasehold improvements, and owns or has a valid leasehold
interest in all equipment and other tangible property material to the conduct of
its business, all of which are in good and sufficient operating condition and
repair, ordinary wear and tear excepted. There is no equipment located on the
premises of the Company that is on loan from another party.
2.16 Customers. The Company Disclosure Schedule sets forth the customers
---------
who accounted for at least 90% of the Company's revenues and 90% of the
Company's Clickstream Data collection during 1998 (the "Customers"). The
relationships of the Company with the Customers are good commercial working
relationships. No Customers have canceled or otherwise terminated their
respective relationship with the Company or have decreased their respective
usage or purchase of the services of the Company resulting in a material adverse
effect on the Business of Company. The Company does not know of any plan or
intention of any Customer, and has not received any written threat or notice
from any Customer, to terminate, cancel or otherwise materially and adversely
modify its relationship with the Company or to decrease materially or limit its
usage or purchase of the services or products of the Company.
2.17 Accounts Receivable. Subject to the allowances with respect to
-------------------
accounts receivable set forth on the December 31, 1998 balance sheet included
with the Audited Financial Statements or the January 31, 1999 balance sheet
included in the Interim Financial Statements, all accounts receivable reflected
on such balance sheets and all accounts receivable arising subsequent thereto,
have arisen in the ordinary course of business of the Company, represent valid
and enforceable obligations due to the Company and have been and are subject to
no set-off, counterclaim or future performance obligation on the part of the
Company.
20
<PAGE>
2.18 Employee Benefit Plans.
----------------------
(a) Definitions. The following terms shall have the meanings set
-----------
forth below:
(i) "Affiliate" shall mean any other person or entity
controlled by or under common control with Company within the meaning of Section
414(b), (c), (m) or (o) of the Code and the regulations thereunder;
(ii) "ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended;
(iii) "Company Employee Plan" shall refer to any plan, program,
policy, practice, contract, agreement or other arrangement providing for
compensation, deferred compensation, incentive compensation, severance,
termination pay, performance awards, stock or stock-related awards, fringe
benefits or other employee benefits or remuneration of any kind, whether formal
or informal, funded or unfunded and whether or not legally binding, including
without limitation, each "employee benefit plan", within the meaning of Section
3(3) of ERISA (A) that is or has been maintained, contributed to, or required to
be contributed to, by Company or any Affiliate for the benefit of any "Employee"
(as defined below), and (B) pursuant to which Company or any Affiliate has or
may have any material liability contingent or otherwise;
(iv) "Employee" shall mean any current, former, or retired
employee, officer, or director of Company or any Affiliate;
(v) "Employee Agreement" shall refer to each management,
employment, severance, consulting, relocation, repatriation, expatriation,
visas, work permit or similar agreement or contract between Company or any
Affiliate and any Employee or consultant; pursuant to which the Company or any
Affiliate has or may have any material liability;
(vi) "IRS" shall mean the Internal Revenue Service;
(vii) "Multiemployer Plan" shall mean any "Pension Plan" (as
defined below) that is a "multiemployer plan" as defined in Section 3(37) of
ERISA; and
(viii) "Pension Plan" shall refer to each Company Employee Plan
that is an "employee pension benefit plan" within the meaning of Section 3(2) of
ERISA.
21
<PAGE>
(b) Schedule. The Company Disclosure Schedule contains an accurate
--------
and complete list of each Company Employee Plan and each Employee Agreement
Except as may be set forth on the Company Disclosure Schedule, neither Company
nor any Affiliate has any plan or commitment, whether legally binding or not, to
establish any new Company Employee Plan or Employee Agreement, to modify any
Company Employee Plan or Employee Agreement (except to the extent required by
law or to conform any such Company Employee Plan or Employee Agreement to the
requirements of any applicable law, or as required by this Agreement), or to
enter into any Company Employee Plan or Employee Agreement.
(c) Documents. Company has provided or made available to Purchasers
---------
true and complete copies of (i) all documents comprising each written Company
Employee Plan and each written Employee Agreement, including all amendments
thereof, and any trust agreements, insurance contracts, and other funding
agreements; (ii) the three most recent annual reports (Series 5500 and all
schedules thereto), if any, required under ERISA or the Code in connection with
each Company Employee Plan or related trust; (iii) the most recent actuarial
reports prepared for each of the Company Employee Plans for which such report is
required or was prepared and the most recent certified financial statements for
each of the Company Employee Plans for which such report is required or was
prepared; (iv) the most recent summary plan description together with the most
recent summary of material modifications, if any, required under ERISA with
respect to each Company Employee Plan; (v) all IRS determination letters and
rulings relating to Company Employee Plans; (vi) all communications material to
any Employee or Employees relating to any Company Employee Plan and any proposed
Company Employee Plans, in each case that (A), relate to any amendments,
terminations, establishments, increases or decreases in benefits, acceleration
of payments or vesting schedules or other events and (B) would result in any
material liability to Company or any Affiliate; and (vii) all securities law
registration statements and prospectuses prepared in connection with each
Company Employee Plan.
(d) Employee Plan Compliance. (i) Company and each Affiliate has
------------------------
performed in all material respects all obligations required to be performed by
it under each Company Employee Plan, and each Company Employee Plan has been
established and maintained in accordance with its terms and in compliance with
all applicable laws, statutes, orders, rules and regulations, including but not
limited to ERISA or the Code; except, in each case, where the failure to do so
would not have a material adverse effect on the Business of the Company; (ii) no
"prohibited transaction," within the meaning of Section 4975 of the Code or
Section 406 of ERISA, has occurred with respect to any Company Employee Plan for
which no exemption exists under Section 4975(c) or (d) of the Code or Section
408 of ERISA that would have a material adverse effect on the Business of
Company; (iii) there are no actions, suits or claims pending, or, to the best
knowledge of Company, threatened or anticipated (other than routine claims for
benefits or actions seeking qualified
22
<PAGE>
domestic relations orders) against any Company Employee Plan or against the
assets of any Company Employee Plan; (iv) each Company Employee Plan can be
amended, terminated or otherwise discontinued alter the Effective Time in
accordance with its terms, without liability to Company, the Surviving
Corporation or any of its Affiliates (other than for ordinary administration
expenses typically incurred in a termination event and benefits accrued through
the effective date of such amendment, termination or discontinuance at a rate
not materially in excess of the amount provided in the Audited Financial
Statements); (v) there are no inquiries or proceedings pending or, to the best
knowledge of Company or any Affiliates, threatened by the IRS or DOL with
respect to any Company Employee Plan; (vi) neither Company nor any Affiliate is
subject to any penalty or tax with respect to any Company Employee Plan under
Section 406(i) of ERISA or Section 4975 through 4980 of the Code that would have
a material adverse effect on the Business of Company; (vii) all contributions,
premiums or other payments due from Company or its Affiliates with respect to
any Company Employee Plan have been fully paid or adequately provided for on the
Audited Financial Statements; and (viii) all reports required by any
governmental agency to be filed with respect to each Company Employee Plan have
been timely filed except where the failure to be so timely filed would not have
a material adverse effect on the Business of Company.
(e) Pension Plan Qualification Funding.
----------------------------------
(i) With respect to each Pension Plan which is intended to be
qualified under Section 401(a) of the Code, each such Pension Plan has received
a favorable determination as to its qualification from the IRS and, to the best
knowledge of the Company and its Affiliates, nothing has occurred, whether by
action or failure to act, which would cause the loss of such qualification.
(ii) The Audited Financial Statements of Company reflect all
employee benefit liabilities of Company in a manner satisfying the requirements
of FAS 87 and 88 .
(iii) With respect to each Pension Plan that is subject to the
provisions of Title I, Subtitle B, part 3 of ERISA, the funding method used in
connection with such Pension Plan is acceptable under ERISA, and the actuarial
assumptions used in connection with funding such Pension Plan are, in the
aggregate, reasonable. No such Pension Plan has incurred any "accumulated
funding deficiency" (as defined in Section 412 of the Code), whether or not
waived.
(f) Multiemployer Plans. At no time has Company or any Affiliate
-------------------
contributed to or been required to contribute to any Multiemployer Plan.
(g) No Post-Employment Obligations. No Company Employee Plan
------------------------------
provides, or has any liability to provide, life insurance, medical or other
employee
23
<PAGE>
welfare benefits to any Employee upon his or her retirement or termination of
employment for any reason, except for benefits accrued through the date of
termination and as may be required by statute, and neither Company nor any
Affiliate has ever represented, promised or contracted (whether in oral or
written form) to any Employee (either individually or to Employees as a group)
that such Employee(s) would be provided with life insurance, medical or other
employee welfare benefits upon their retirement or termination of employment,
except to the extent required by statute.
(h) Effect of Transaction.
---------------------
(i) The execution of this Agreement and the consummation of the
transactions contemplated hereby will not (either alone or upon the occurrence
of any additional or subsequent events) constitute an event under any Company
Employee Plan, Employee Agreement, trust or loan or applicable law that will
result in any payment (whether of severance pay or otherwise), acceleration,
forgiveness of indebtedness, vesting, distribution, increase in benefits or
obligation to fund benefits with respect to any Employee that would have a
material adverse effect on the Business of Company.
(ii) No payment or benefit that will be made by Company or any
Affiliate with respect to any Employee as a result of the transactions
contemplated by this Agreement will be characterized as an "excess parachute
payment" within the meaning of Section 280G(b)(1) of the Code.
(i) Funded Welfare Benefit Plans. Each Company Employee Plan which is
----------------------------
maintained in connection with any trust or other arrangement described in
Section 501(c)(9) of the Code or is otherwise funded within the meaning of
Section 419 of the Code has received a favorable ruling as to its tax-exempt
status and, to the best knowledge of the Company and its Affiliates, nothing has
occurred, whether by action or failure to act, which would cause the loss of
such tax-exempt status.
(j) COBRA. With respect to any group health plan within the meaning
-----
of Section 4980B(g)(2) of the Code, the provisions of Section 4980B of the Code
have been complied with in all material respects.
2.19 Employee Relations. The Company has approximately 65 full-time
------------------
equivalent employees and generally enjoys good employer employee relations. The
Company is not delinquent in payments to any of its employees or consultants for
any material wages, salaries, commissions, bonuses or other direct compensation
for any services performed by them to the date hereof or amounts required to be
reimbursed to such employees. Upon termination of the employment of any
employees, neither the Company nor the Purchasers will by reason of the Closing
or anything done prior thereto (with the parties hereto agreeing to pro rata
liability to
24
<PAGE>
the extent that any such reason relates to actions taken both prior to and
following the Closing Date) be liable to any of such employees for severance pay
or any other payments (other than accrued salary, vacation or sick pay in
accordance with the Company's normal policies). True and complete information as
to all current directors, officers, employees or consultants of the Company,
including, in each case, name, current job title, base salary, bonus potential,
commissions and termination obligations has been previously furnished to the
Purchasers.
2.20 Employment Matters. The Company is in compliance in all material
------------------
respects with all applicable foreign, federal, state and local laws, rules and
regulations respecting employment, employment practices, terms and conditions of
employment and wages and hours, in each case, with respect to Employees. No
work stoppage or labor strike against the Company or any of its Subsidiaries is
pending or, to the best knowledge of the Company, threatened. The Company is
not involved in or, to the best knowledge of the Company, threatened with, any
labor dispute, grievance, or litigation relating to labor, safety or
discrimination matters involving any Employee, including, without limitation,
charges of unfair labor practices or discrimination complaints. The Company has
not engaged in any unfair labor practices within the meaning of the National
Labor Relationships Act. The Company is not presently, nor has it been in the
past, a party to, or bound by, (i) any collective bargaining agreement or union
contract with respect to Employees and no collective bargaining agreement is
being negotiated by the Company or (ii) any statutory works council or other
agreement, statute, rule or regulation that mandates employee approval,
participation, consultation or consent with regard to the transactions
contemplated hereby.
2.21 Employee Conflicts. To the best knowledge of the Company, no employee
------------------
of the Company (a) is in violation of any term of any employment contract,
patent disclosure agreement, non-competition agreement, or any restrictive
covenant to a former employer relating to the right of any such employee to be
employed by the Company because of the nature of the business conducted or
presently proposed to be conducted by the Company or to the use of trade secrets
or proprietary information of others or (b) has given notice to the Company nor
is the Company otherwise aware, that any such employee intends to terminate his
or her employment with the Company.
2.22 Transactions with Management. No executive officer or director of the
----------------------------
Company has (whether directly or indirectly through another entity in which such
person has an interest, other than as the holder of less that 1% of a class of
securities of a publicly traded company) any interest in (a) any property or
assets of the Company (except as a shareholder or optionholder), (b) any current
competitor, customer or supplier of the Company, or (c) any person which is
currently a party to any material contract or agreement with the Company, except
for portfolio investments of venture capital entities affiliated with such
directors and executive officers.
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<PAGE>
2.23 Insurance. The Company Disclosure Schedule sets forth a list of all
---------
policies or binders of fire, liability, product liability, workmen's
compensation, vehicular, directors' and officers' and other insurance held by or
on behalf of the Company. Such policies and binders are in full force and
effect, are reasonably believed to be adequate for the businesses engaged in by
the Company, as applicable, and are in conformity with the requirements of all
leases or other agreements to which the Company is a party and, to the best
knowledge of the Company, are valid and enforceable in accordance with their
terms. The Company is not in default with respect to any material provision
contained in any such policy or binder nor has the Company failed to give any
material notice or present any material claim under any such policy or binder in
due and timely fashion. There are no outstanding unpaid claims under any such
policy or binder. The Company has not received notice of cancellation or non-
renewal of any such policy or binder.
2.24 Brokerage. Except as otherwise disclosed to the Purchasers in
---------
writing, no broker, finder, agent or similar intermediary has acted on behalf of
the Company in connection with this Agreement or the transactions contemplated
hereby, and there are no brokerage commissions, finders' fees or similar fees or
commissions payable in connection herewith based on any agreement, arrangement
or understanding with the Company, or any action taken by it.
2.25 Hazardous Materials.
-------------------
(a) There has been no generation, use, handling, storage or disposal
of any Hazardous Materials in material violation of common law or any applicable
environmental law at any site owned or premises leased by the Company during the
period of the Company's ownership or lease or to the best of Company's
knowledge, prior thereto. Nor has there been or is there threatened any release
of any Hazardous Materials on or at any such site or premises during such period
or, to the best of Company's knowledge, prior thereto in violation of common law
or any applicable environmental law or which created or will create an
obligation to report or remediate such release. "Hazardous Materials" means any
"hazardous waste" as defined in either the United States Resource Conservation
and Recovery Act or regulations adopted pursuant to said Act, and any "hazardous
substances" or "hazardous materials" as defined in the United States
Comprehensive Environmental Response, Compensation and Liability Act.
(b) To the best of the Company's knowledge, there is no environmental
or health and safety matter that would reasonably be expected to have a material
adverse effect on the Business of Company. The Company has previously furnished
to the Purchasers and copies of any environmental audits or risk
26
<PAGE>
assessments, site assessments, and material documentation prepared by or for the
Company regarding off-site disposal of Hazardous Materials, spill control plans
and material correspondence with any governmental agency regarding the
foregoing.
2.26 HSR. The Company did not report annual net sales of $10 million or
---
greater on its last annual statement nor did the Company report total assets of
$10 million or greater on its last regularly prepared balance sheet and,
therefore, does not meet the Clayton Act's "size of person" test (15 U.S.C.
Section 18a(a)(2)).
2.27 Disclosure. The representations and warranties and statements of the
----------
Company and contained in this Agreement do not contain any untrue statement of a
material fact, and, when taken together, do not omit to state any material fact
necessary to make such representations, warranties and statements, in light of
the circumstances under which they are made, not misleading. There is no fact
specifically relating to the Business of Company and known to the Company or any
Selling Stockholder that has not been disclosed to the Purchasers in this
Agreement that is reasonably likely to have a material adverse effect on the
Business of Company.
SECTION 3 - REPRESENTATIONS AND WARRANTIES OF THE SELLING
STOCKHOLDERS
Except as set forth on the disclosure schedule delivered to the Purchasers
on the date hereof (the "Stockholder Disclosure Schedule"), the section numbers
of which are numbered to correspond to the section numbers of this Agreement to
which they refer, each of the Stockholders, severally but not jointly,
represents and warrants to the Purchasers as to itself only as follows:
3.1 Authority to Execute and Perform Agreements. Such Stockholder has the
-------------------------------------------
full legal right and power and all authority and approvals required to enter
into, execute and deliver this Agreement, the Escrow Agreement and the
Stockholder Letter (as defined in Section 5.8) and to perform fully its or his
obligations hereunder and thereunder. This Agreement has been duly executed and
delivered and is the valid and binding obligation of such Stockholder
enforceable in accordance with its terms, except as enforcement thereof may be
limited by (i) bankruptcy, insolvency, reorganization, moratorium and similar
laws, both state and federal, affecting the enforcement of creditors' rights or
remedies in general as from time to time in effect or (ii) the exercise by
courts of equity powers. When executed and delivered pursuant hereto, each of
the Escrow Agreement and the Stockholder Letter will be the valid and binding
obligation of such Stockholder enforceable in accordance with its terms, except
as enforcement thereof may be limited by (i) bankruptcy, insolvency,
reorganization, moratorium and similar laws, both state and federal, affecting
the enforcement of creditors' rights or remedies in general as from time to time
in effect or (ii) the exercise by courts of equity powers.
27
<PAGE>
3.2 No Breach. The execution, delivery and performance of this Agreement,
---------
the Escrow Agreement and the Stockholder Letter and the consummation of the
transactions contemplated hereby and thereby will not (a) violate, conflict with
or result in the breach of any of the terms or conditions of, result in
modification of the effect of, or otherwise give any other contracting party the
right to terminate, or constitute (or with notice or lapse of time or both
constitute) a default under, any material instrument, contract or other
agreement to which the Stockholder is a party or to which the Stockholder or its
assets or properties are bound or subject; (b) violate any order, judgment,
injunction, award or decree of any court, arbitrator or governmental or
regulatory body against, or binding upon, the Stockholder or upon the
securities, properties or assets of the Stockholder; or (c) require the approval
or consent of any foreign, federal, state, local or other governmental or
regulatory body or the approval or consent of any other person.
3.3 Title to Shares. Such Stockholder owns (or will, as of the Closing,
---------------
own) beneficially and of record, free and clear of any lien, claim or
encumbrance, the shares of Common Stock set forth opposite such stockholder's
name on Section 3.3 of the Company Disclosure Schedule. There are no
shareholder agreements, voting trusts, proxies or other agreements or
understandings with respect to the outstanding shares of capital stock of the
Company to which such Stockholder is a party.
3.4 Absence of Control. Such Stockholder, together with all of its
------------------
affiliates, does not hold 50% or more of the outstanding voting securities of
the Company or have the contractual power to designate 50% or more of the
directors of the Company.
SECTION 4 - REPRESENTATIONS AND WARRANTIES OF PURCHASERS
Except as set forth on the disclosure schedule delivered to the Company and
the Stockholders on the date hereof (the "Purchasers Disclosure Schedule"), the
Purchasers' Certificates of Incorporation or in the documents identified in
Section 4.4 (such documents, together with the Purchasers Disclosure Schedule,
the "Purchasers Disclosure Documents"), the section numbers of which are
numbered to correspond to the section numbers of this Agreement to which they
refer, each Purchaser represents and warrants regarding itself to the
Stockholders as follows:
4.1 Organization. Each of the Purchasers is a corporation duly organized,
------------
validly existing and in good standing under the laws of its state of
incorporation with full corporate power and authority to own, lease and operate
its assets and to carry on its business as now being and as heretofore
conducted.
4.2 Authority to Execute and Perform Agreement. Each of the Purchasers
------------------------------------------
has the corporate power and authority to enter into, execute and deliver this
28
<PAGE>
Agreement, the Registration Rights Agreement and the Escrow Agreement, and to
perform fully its respective obligations hereunder and thereunder. The
execution and delivery of this Agreement, the Registration Rights Agreement and
the Escrow Agreement, and the consummation of the transactions contemplated
hereby and thereby have been duly authorized by the Board of Directors of each
of the Purchasers, which is the only required corporate action on the part of
the Purchasers. This Agreement has been duly executed and delivered by each of
Purchasers and constitutes a valid and binding obligation of each, enforceable
in accordance with its terms. The Registration Rights Agreement and the Escrow
Agreement have been duly executed and delivered by the Purchasers and each
constitutes its valid and binding obligation, enforceable in accordance with its
respective terms, except as enforcement thereof may be limited by (i)
bankruptcy, insolvency, reorganization, moratorium and similar laws, both state
and federal, affecting the enforcement of creditors' rights or remedies in
general as from time to time in effect or (ii) the exercise by courts of equity
powers.
4.3 Capitalization of CMGI.
----------------------
(a) CMGI is authorized to issue 100,000,000 shares of CMGI Common
Stock, of which 46,666,765 shares were issued and outstanding as of March 1,
1999, and 5,000,000 shares of preferred stock, $.01 par value, issuable in
series, 250 of which are designated Series A Preferred Stock none of which are
outstanding and 50,000 of which are designated Series B Preferred Stock all of
which are issued and outstanding. As of March 1, 1999, except for an aggregate
of 5,814,923 shares of CMGI Common Stock reserved for issuance under various
stock option and stock purchase plans of CMGI, there is no outstanding right,
subscription, warrant, call, preemptive right, option or other agreement of any
kind to purchase or otherwise to receive from CMGI any shares of the capital
stock or any other security of CMGI and there is no outstanding security of any
kind convertible into or exchangeable for such capital stock. There are no
agreements to repurchase, redeem or acquire shares in CMGI. There are no
stockholder agreements, voting agreements or trusts or understandings to which
CMGI is a party or by which it is bound. The Purchasers Disclosure Schedule
includes a true and complete list of all outstanding rights, subscriptions,
warrants, calls, preemptive rights, options or other agreements of any kind to
purchase or otherwise receive from the Company any shares of the capital stock
or any other security of the Company, and all outstanding securities of any kind
convertible into or exchangeable for such securities. When issued in accordance
with the terms of this Agreement, CMGI Common Stock to be issued pursuant to
this Agreement will be duly authorized, validly issued, fully paid,
nonassessable and free of any preemptive rights.
(b) Engage is authorized to issue 30,000,000 shares of Engage Common
Stock, of which 107,570 shares are issued and outstanding and 5,000,000 shares
of preferred stock, $.01 par value, issuable in series, 1,500,000 shares of
which
29
<PAGE>
are designated Series A Preferred Stock, all of which are issued and
outstanding, and 238,597 shares of which are designated Series B Preferred
Stock, all which are issued and outstanding. As of March 8, 1999, except for an
aggregate of 2,787,167 shares of Engage Common Stock reserved for issuance under
various stock option and stock purchase plans of Engage and except as provided
in this Agreement, there is no outstanding right, subscription, warrant, call,
preemptive right, option or other agreement of any kind to purchase or otherwise
to receive from Engage any shares of the capital stock or any other security of
Engage and there is no outstanding security of any kind convertible into or
exchangeable for such capital stock. There are no agreements to repurchase,
redeem or acquire shares in Engage. There are no stockholder agreements, voting
agreements or trusts or understandings to which Engage is a party or by which it
is bound. The Purchasers Disclosure Schedule includes a true and complete list
of all outstanding rights, subscriptions, warrants, calls, preemptive rights,
options or other agreements of any kind to purchase or otherwise receive from
the Company any shares of the capital stock or any other security of the
Company, and all outstanding securities of any kind convertible into or
exchangeable for such securities. When issued in accordance with the terms of
this Agreement, Engage Common Stock to be issued pursuant to this Agreement will
be duly authorized, validly issued, fully paid, nonassessable and free of any
preemptive rights.
(c) All the issued and outstanding shares of capital stock of CMGI and
of Engage, including the shares to be received by the Stockholders pursuant to
this Agreement, have been or, at the Closing, will be duly authorized and
validly issued, fully paid and nonassessable, will not have been issued in
violation of any preemptive rights. None of the issued and outstanding shares
of the Company's capital stock have been issued in violation of any federal or
state law or any preemptive right or rights to subscribe for or purchase
securities.
4.4 SEC Reports. CMGI has previously made available to the Company its
-----------
(i) Annual Report on Form 10-K for the year ended July 31, 1998 (the "CMGI 10-
K"), as filed with the SEC, (ii) all proxy statements relating to the CMGI'S
meetings of stockholders held since July 31, 1998, (iii) all other periodic and
current reports filed by CMGI with the SEC under the Securities Exchange Act of
1934 (the "Exchange Act") since July 31, 1998 and (iv) the Registration
Statement on Form S-3 (File No. 333-71863) filed by CMGI on February 5, 1999
under the Securities Act of 1933. As of their respective dates, such filings
complied in all material respects with applicable SEC requirements and did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. CMGI has
timely filed with the SEC all reports required to be filed under Sections 13, 14
or 15(d) of the Exchange Act since July 31, 1998.
30
<PAGE>
4.5 No Material Adverse Change. Since July 31, 1998, except as described
--------------------------
in a CMGI's Form 10-Q or Form 8-K, there has not been any material adverse
change in the assets, properties, business, results of operations or financial
condition of CMGI or Engage individually or CMGI and its subsidiaries, including
Engage, taken as a whole (the "Business of Purchasers").
4.6 No Breach. The execution, delivery and performance of this Agreement,
---------
the Registration Rights Agreement and the Escrow Agreement by the Purchasers and
consummation by such parties of the transactions contemplated hereby will not
(i) violate any provision of the Certificate of Incorporation or Bylaws of the
Purchasers; (ii) violate, conflict with or result in the breach of any of the
terms or conditions of, result in modification of the effect of, or otherwise
give any other contracting party the right to terminate, or constitute (or with
notice or lapse of time or both constitute) a default under, any instrument,
contract or other agreement to which the Purchasers are a party or to which
either of them or any of their assets, properties or securities is bound or
subject; (iii) violate any law, ordinance or regulation or any order, judgment,
injunction, decree or requirement of any court, arbitrator or governmental or
regulatory body applicable to the purchasers or by which any of their assets,
properties or securities is bound; (iv) except for (a) the registration with the
SEC of the CMGI Common Stock to be issued pursuant to this Agreement and (b) the
filing with the Nasdaq National Market of an application for listing of the
shares of CMGI Common Stock to be issued hereunder, require any filing with,
notice to, or permit, consent or approval of, any governmental or regulatory
body or any other person; (v) result in the creation of any lien or other
encumbrance on the assets, properties or securities of the Purchasers, excluding
from the foregoing clauses (ii), (iii), (iv) and (v) any exceptions to the
foregoing that, in the aggregate, would not have a material adverse effect on
the Business of either of the Purchasers or on the ability of the Purchasers to
consummate the transactions contemplated hereby.
4.7 Actions and Proceedings. Except as described in the filings
-----------------------
identified in Section 4.4, there are no outstanding orders, awards, judgments,
injunctions, decrees or other requirements of any court, arbitrator or
governmental or regulatory body against the Purchasers or any of its securities,
assets or properties. There are no actions, suits, investigations or claims or
legal, administrative or arbitration proceedings pending or, to the best
knowledge of the Purchasers, threatened against the Purchasers that in the
aggregate could have a material adverse effect upon the transactions
contemplated hereby or the Business of either of the Purchasers. To the best
knowledge of the Purchasers, there is no fact, event or circumstance now in
existence that reasonably could be expected to give rise to any action, suit,
claim, proceeding or investigation that individually or in the aggregate could
have a material adverse effect upon the transactions contemplated hereby or on
the Business of either of the Purchasers.
31
<PAGE>
4.8 Brokerage. Except as otherwise disclosed to the Company in writing,
---------
no broker, finder, agent or similar intermediary has acted on behalf of the
Purchasers in connection with this Agreement or the transactions contemplated
hereby, and there are no brokerage commissions, finders' fees or similar fees or
commissions payable in connection herewith based on any agreement, arrangement
or understanding with either of the Purchasers, or any action taken by either of
them.
4.9 Disclosure. The representations and warranties and statements of the
----------
Purchasers contained in this Agreement do not contain any untrue statement of a
material fact, and, when taken together, do not omit to state any material fact
necessary to make such representations and warranties and statements, in light
of the circumstances under which they are made, not misleading.
4.10 Acquisition of Purchased Stock. Purchasers are acquiring the Shares
------------------------------
for their own respective accounts and for investment, and not with a view to, or
for sale in connection with, any distribution of any of the Shares.
4.11 Engage Valuation. The documents and other information provided to
----------------
Stockholders in connection with their investigation of the valuation of Engage
represent, in the aggregate, the Purchaser's good faith estimate of the
valuation of Engage, taking into account reasonable discounts for contingencies
known or unknown, as of the date hereof and do not, to the best of the
Purchaser's knowledge, contain any material untrue statements of fact or omit to
state any facts necessary to make the statements therein not materially
misleading; provided, however, that the Company and Stockholders do hereby
acknowledge that any such estimate cannot be construed as an assurance of value
or future performance and that the actual valuation of Engage may, currently and
in the future, vary materially from such estimate.
4.12 Financial Statements. Engage has previously delivered to the
--------------------
Stockholders (i) a profit and loss statement dated for the five months ended
December 31, 1998 and (ii) a balance sheet dated as of December 31, 1998. All
of such financial statements referred to in this section are collectively
referred to herein as the "Engage Financial Statements." The Engage Financial
Statements have been prepared from, and are in accordance with, the books and
records of Engage and present fairly the financial position and the results of
operations of Engage as of the dates and for the periods indicated, in each case
in accordance with GAAP consistently applied throughout the period involved,
except as otherwise stated therein.
32
<PAGE>
SECTION 5 - COVENANTS AND AGREEMENTS
The parties covenant and agree as follows:
5.1 Conduct of Business. Except with the prior written consent of the
-------------------
Purchasers, which will not be unreasonably withheld, and except as otherwise
contemplated herein, during the period from the date hereof to the earlier of
the Closing Date and the termination of this Agreement in accordance with
Section 9 hereof, the Company shall observe the following covenants:
(a) Affirmative Covenants Pending Closing. The Company will:
-------------------------------------
(i) Preservation of Personnel. Use reasonable commercial
-------------------------
efforts to preserve intact its business organization and keep available the
services of present employees, in each case in accordance with past practice, it
being understood that termination of employees with poor performance ratings
shall not constitute a violation of this covenant;
(ii) Insurance. Use reasonable commercial efforts to keep in
---------
effect casualty, public liability, worker's compensation and other insurance
policies in coverage amounts not less than those in effect at the date of this
Agreement;
(iii) Preservation of the Business; Maintenance of Properties
-------------------------------------------------------
Contracts. Use reasonable commercial efforts to preserve its businesses,
- ---------
advertise, promote and market its services, keep its properties intact, preserve
its goodwill, and maintain all physical properties in good operating condition;
(iv) Intellectual Property Rights. Use reasonable commercial
----------------------------
efforts to preserve and protect the Company Intellectual Property; and
(v) Ordinary Course of Business. Operate its business
---------------------------
diligently and solely in the ordinary course.
(b) Negative Covenants Pending Closing. The Company will not, without
----------------------------------
the consent of the Purchasers (which consent shall not be unreasonably
withheld):
(i) Disposition of Assets. Sell or transfer, or mortgage,
---------------------
pledge or create or permit to be created any lien on, any of its assets, other
than sales or transfers in the ordinary course of business and liens existing
under arrangements disclosed herein or permitted under Section 2.15;
(ii) Liabilities. (A) Incur any obligation or liability other
-----------
than in the ordinary course of the Company's business, (B) incur any
indebtedness for
33
<PAGE>
borrowed money or (C) enter into any contract or commitment (or series of
contracts or commitments) requiring payments by the Company of $50,000 or more
per contract or commitment (or series of contracts or commitments), other than
purchase orders, licenses or commitments for inventory materials and supplies in
the ordinary course of business;
(iii) Compensation. (A) Change the compensation or fringe
------------
benefits of any officer, director, employee or consultant, except for ordinary
merit increases for employees other than officers based on periodic reviews in
accordance with past practices or (B) enter into or modify any Company Plan or
any employment, severance or other agreement with any officer, director,
employee or consultant of the Company;
(iv) Capital Stock. (A) Grant or accelerate the exercisability
-------------
of, any option, warrant or other right to purchase, or to convert any obligation
into, shares of its capital stock, (B) declare or pay any dividend or other
distribution with respect to any shares of its capital stock or (C) issue any
shares of its capital stock, except upon the exercise of options or the
conversion of Preferred Stock outstanding on the date hereof;
(v) Charter and Bylaws. Amend the Articles of Incorporation or
------------------
Bylaws of the Company;
(vi) Acquisitions. Make any acquisition of property other than
------------
in the ordinary course of the Company's business;
(vii) License Agreements. Enter into or modify any license,
------------------
technology development or technology transfer agreement with any other person or
entity, other than license agreements entered into in the ordinary course of
business on the Company's standard form as previously delivered to the
Purchasers;
(vii) Legal Action. Commence any legal action outside the
------------
ordinary course of business that would reasonably be expected to expose the
Company directly or indirectly to any material liability as a result of any
counterclaim or cross-claim or otherwise;
(ix) Other Material Changes. Take any affirmative action or
----------------------
fail to take any reasonable action within its control as a result of which any
of the changes or events listed in Section 2.8 is likely to occur.
5.2 Corporate Examinations and Investigations.
-----------------------------------------
(a) Prior to the Closing, the Purchasers shall be entitled, through
their employees and representatives, to have such access to the assets,
properties,
34
<PAGE>
business, books, records and operations of the Company as the Purchasers shall
reasonably request in connection with the Purchaser's investigation of the
Company with respect to the transaction contemplated hereby. Any such
investigation and examination shall be conducted at reasonable times and the
Company shall cooperate fully therein. No investigation by the Purchasers shall
diminish or obviate any of the representations, warranties, covenants or
agreements of the Company or the Stockholders contained in this Agreement. In
order that the Purchasers may have full opportunity to make such investigation,
the Company shall furnish the representatives of the Purchasers during such
period with all such information and copies of such documents concerning the
affairs of the Company as such representatives may reasonably request and cause
its officers, employees, consultants, agents, accountants and attorneys to
cooperate fully with such representatives in connection with such investigation.
(b) Prior to the Closing, the Company and the Stockholders shall be
entitled, through their financial advisors, to have such access to the financial
data, business plan and key executives of Engage as such advisors shall
reasonably request in connection with the valuation of Engage.
5.3 Expenses. Except as contemplated in Section 7.3 below, each of the
--------
Company, the Purchasers and each Stockholder shall bear its or his respective
expenses incurred in connection with the preparation, execution and performance
of this Agreement and the transactions contemplated hereby, including without
limitation, all fees and expenses of agents, representatives, counsel and
accountants.
5.4 Authorization from Others. Prior to the Closing Date, the parties
-------------------------
shall use all reasonable efforts to obtain all authorizations, consents and
permits required to permit the consummation of the transactions contemplated by
this Agreement.
5.5 Consummation of Agreement. Each party shall use all reasonable
-------------------------
efforts to perform and fulfill all conditions and obligations to be performed
and fulfilled by it under this Agreement and to ensure that to the extent within
its control or capable of influence by it, no breach of any of the respective
representations, warranties and agreements hereunder occurs or exists on or
prior to the Closing, all to the end that the transactions contemplated by this
Agreement shall be fully carried out in a timely fashion.
5.6 Public Announcements and Confidentiality. Any press release or other
----------------------------------------
information to the press or any third party with respect to this Agreement or
the transactions contemplated hereby shall require the prior approval of the
Purchasers and the Company, which approval shall not be unreasonably withheld,
provided that a party shall not be prevented from making such disclosure as it
shall be advised by counsel is required by law or the rules of the Nasdaq
National Market. The Company, the Stockholders and the Purchasers shall also
keep confidential and shall
35
<PAGE>
not use in any manner any information or documents obtained from the Company,
the Purchasers or Stockholders, respectively, or their representatives
concerning the Company's, the Purchasers' or Stockholders' respective assets,
properties, business and operations, unless readily ascertainable from public
information, already known or subsequently developed by the Company, the
Stockholders or the Purchasers independently, received from a third party not
under an obligation to keep such information confidential or otherwise required
by law. If this Agreement terminates, all copies of any documents obtained from
a party or its representatives will be returned to the other party, except that
one copy thereof may be retained by outside counsel to the party returning such
documents in order to evidence compliance hereunder. The obligations set forth
in the previous two sentences of this Section 5.6 shall survive termination of
this Agreement.
5.7 No Solicitation. The Company and the Stockholders will not (i)
---------------
solicit, initiate or encourage discussions with any person, other than the
Purchasers, relating to the possible acquisition of the Company or of all or a
material portion of the assets or capital stock of the Company or any merger or
other business combination with the Company (an "Acquisition Transaction") or
(ii) participate in any negotiations regarding, or furnish to any other person
information with respect to, any effort or attempt by any other person to do or
to seek any Acquisition Transaction. The Company and the Stockholders agree to
inform the Purchasers in reasonable detail within one business day of their
receipt of any offer, proposal or inquiry relating to any Acquisition
Transaction.
5.8 Investment Representation and Lock-Ups. Each Stockholder shall
--------------------------------------
deliver to the Purchasers prior to the Closing Date an investment representation
and lock-up letter substantially in the form attached hereto as Exhibit B (a
---------
"Stockholder Letter").
5.9 Employment Related Instruments. The Company shall (and the
------------------------------
Stockholders shall cause the Company to) use all reasonable efforts to deliver
to the Purchasers prior to the Closing Date from all employees of the Company a
Non-Disclosure and Developments Agreement and a Non-Competition and Non-
Solicitation Agreement in the form attached to such person's employment offer
letters from CMGI.
5.10 Disclosure Statements. Prior to the Closing, each party promptly will
---------------------
supplement or amend its Disclosure Schedule delivered pursuant hereto with
respect to any matter hereafter arising which, if existing, occurring or known
at the date of this Agreement, would have been required to be set forth or
described in such Schedule or which is necessary to correct any information in
such Schedule which has been rendered materially inaccurate thereby. No
supplement or amendment to a Disclosure Schedule shall be deemed to supplement
or amend such Disclosure Schedule for purposes of (i) determining the accuracy
of any of the representations
36
<PAGE>
and warranties made by a party in this Agreement or (ii) determining whether any
condition to a party's obligations to consummate the transaction contemplated by
this Agreement has been satisfied.
5.11 Further Assurances. Each of the parties shall execute such documents,
------------------
further instruments of transfer and assignment and other papers and take such
further actions as may be reasonably required or desirable to carry out the
provisions hereof and the transactions contemplated hereby.
5.12 Stock Options.
-------------
(a) Upon the Closing Date, except as otherwise described below, each
stock option to purchase the Company's Common Stock that is then outstanding
shall, at the election of the Company optionholder, be exchanged for an option
to purchase Engage Common Stock in accordance with the terms of an agreement to
be signed by the optionholders so electing. Upon such election, all rights with
respect to Company Common Stock under outstanding Company options shall
thereupon be converted into rights with respect to Engage Common Stock.
Accordingly, from and after the Closing Date, (i) each Company option so
exchanged may be exercised solely for shares of Engage Common Stock, (ii) the
number of shares of Engage Common Stock subject to each such exchanged Company
option shall be equal to the number of shares of Company Common Stock that were
subject to such Company option immediately prior to the Closing Date multiplied
by .050305, rounded down to the nearest whole number of shares of Engage Common
Stock, (iii) the per share exercise price for Engage Common Stock issuable upon
exercise of each such exchanged Company option shall be determined by dividing
the exercise price per share of Company Common Stock subject to such Company
option, as in effect immediately prior to the Closing Date, by .050305 and
rounding down the resulting exercise price to the nearest whole cent, and (iv)
all restrictions on the exercise of each such exchanged Company option shall
continue in full force and effect, and the term, exercisability, vesting
schedule and other provisions of such Company option shall otherwise remain
materially unchanged; provided, however, that each such exchanged Company option
shall be a nonstatutory stock option and not an incentive stock option. The
parties hereto shall take all reasonable efforts to effect the exchange of
options for those optionholders electing for such exchange, as set forth in this
Section 5.12(a).
(b) With respect to the stock options to purchase the Company's Common
Stock granted in December 1998, outside the Company's stock option plan, all
such options shall be exercised at or prior to the Closing, and holders thereof
who are accredited investors shall receive stock consideration hereunder with
respect thereto, and holders thereof who are not accredited investors shall
receive cash under a stock purchase agreement (the "Unaccredited Person Stock
Purchase Agreement") with respect thereto.
37
<PAGE>
(c) With respect to the stock options to purchase the Company's Common
Stock granted to accredited investors who exercised early-exercise provisions
applicable to such options and in connection with which the vesting criteria
have been satisfied at or prior to Closing, the holders of the Company's Common
Stock issued pursuant thereto shall receive stock consideration hereunder with
respect thereto.
(d) With respect to the stock options to purchase the Company's Common
Stock granted to unaccredited investors who exercised early-exercise provisions
applicable to such options and in connection with which the vesting criteria
have been satisfied at or prior to Closing, the holders of the Company's Common
Stock issued pursuant thereto shall receive options to purchase Engage Common
Stock with respect thereto as described in subsection (a) above.
(e) With respect to the stock options to purchase the Company's Common
Stock granted to any persons who exercised early-exercise provisions applicable
to such options and in connection with which the vesting criteria have not been
satisfied at or prior to Closing, the holders of the Company's Common Stock
issued pursuant thereto shall receive options to purchase Engage Common Stock
with respect thereto as described in subsection (a) above.
(f) With respect to the shares of the Company's Common Stock referred
to in subsections (d) and (e) above, such shares shall be cancelled and the
notes payable to the Company relating to the exercises prices therefore shall be
cancelled.
5.13 Short-Form Merger. Within two business days following the Closing
-----------------
Date, the Purchaser shall cause to be mailed to the then-existing shareholders
of record of the Company a notice of the intention to merge (the "Merger") the
Company with a newly-created subsidiary of Engage or CMGI, and the Purchasers
shall cause the Merger to be effected within 30 days following the Closing Date.
In the Merger each outstanding share of Common Stock shall be converted into the
right to receive a pro rata share of (i) $30 million minus the aggregate Initial
Consideration (without giving effect to any reduction pursuant to Section 7.3)
and (ii) for each of the two performance goals specified in Subsections
1.1(b)(v) and 1.1(b)(vi), if such goal is met, $1.5 million minus the aggregate
Contingent Consideration paid to the Stockholders in connection therewith.
5.14 Underwater Warrants. The Company represents and warrants to
-------------------
Purchasers that Schedule 3 hereto is a true and complete list of all warrants
----------
("Underwater Warrants") to purchase capital stock of the Company with exercise
prices ("Exercise Prices") per share of Common Stock (or equivalent) greater
than $0.57, together with the notice period required for termination thereof.
Prior to
38
<PAGE>
Closing, the Company shall (i) amend its Articles of Incorporation to provide
for the elimination of all series of preferred stock of the Company and the
concomitant conversion into Common Stock of all such eliminated preferred stock
and (ii) give notice of termination of all Underwater Warrants to the holders
thereof. In the event that holders of any Underwater Warrants elect to exercise
(prior to termination) such Underwater Warrants, Purchasers shall issue CMGI
Common Stock and Engage Common Stock to such holders as if such holders had so
exercised prior to the Closing Date, provided that such holders agree to be
bound by the terms of this Agreement. Anything to the contrary contained herein
notwithstanding, Stockholders shall indemnify Purchasers in full with respect to
(x) any failure to give timely notice of termination under the Underwater
Warrants and (y) the amount, if any, by which the fair market value of CMGI
Common Stock and Engage Common Stock, valued at the date of issuance (by
reference to the 20 prior trading days as relates to CMGI and the good faith
estimate of the Board of Directors as relates to Engage) issued to holders of
Underwater Warrants, or the consideration payable to such holders in the Merger
(as a result of appraisal rights or otherwise), exceeds the aggregate Exercise
Prices actually paid to the Company with respect to such Underwater Warrants in
accordance with and subject to the limitations of Section 10 herein (without
giving effect to provisions of Section 10.4 herein applicable solely to third-
party claims).
SECTION 6 - CONDITIONS PRECEDENT TO THE OBLIGATIONS
OF EACH PARTY TO CONSUMMATE THE TRANSACTION
The respective obligations of each party to consummate the transaction
contemplated by this Agreement shall be subject to the satisfaction or waiver,
at or before the Closing Date, of each of the following conditions:
6.1 Approvals. All required approvals of the stockholders of the Company
---------
and all material consents and approvals referred to in this Agreement shall have
been obtained.
6.2 Absence of Order. No restraining order or injunction of any court
----------------
which prevents consummation of the transaction contemplated by this Agreement
shall be in effect.
6.3 Due Diligence. Each party shall be reasonably satisfied with the
-------------
results of its due diligence investigation as contemplated in Section 5.2.
SECTION 7 - CONDITIONS PRECEDENT TO THE OBLIGATIONS
OF PURCHASERS TO CONSUMMATE THE TRANSACTION
The obligation of the Purchasers to consummate the transaction contemplated
by this Agreement is subject to the satisfaction or waiver by the Purchasers, at
or before the Closing Date, of the following conditions:
39
<PAGE>
7.1 Representations, Warranties and Covenants. The representations and
-----------------------------------------
warranties of the Company and the Stockholders contained in this Agreement shall
be true and correct in all material respects on and as of the Closing Date with
the same force and effect as though made on and as of the Closing Date (with
such exceptions as may be permitted under or contemplated by this Agreement) and
there shall not have been any material adverse change in the Business of the
Company since the date hereof. The Company and the Stockholders shall have
performed and complied in all material respects with all covenants and
agreements required by this Agreement to be performed or complied with by them
on or prior to the Closing Date.
7.2 Opinion of Counsel to Company. The Purchasers shall have received an
-----------------------------
opinion of counsel to the Company and the Stockholders, dated the Closing Date,
in form and substance attached hereto as Exhibit C.
---------
7.3 Fees, Bonuses and Indebtedness. The Selling Stockholders shall have
------------------------------
satisfied (a) all obligations owing under that certain Loan and Security
Agreement, dated September 25, 1996, by and between the Company and Silicon
Valley Bank, (b) all accrued obligations of the Company under all bonus and
other special cash compensation arrangements and (c) all fees and expenses of
the Company relating hereto or payable in connection herewith (including,
without limitation, all broker and financial advisory fees); provided, however,
that the Stockholders may elect, by written notice (which shall specify the
nature and dollar amount of the obligations to be assumed by the Purchasers) to
the Purchasers no later than one business day prior to the Closing Date, to have
the Purchasers assume any or all such obligations, in which event the dollar
value of the Initial Consideration shall be reduced by the amount of such
assumed obligations. Anything to the contrary contained herein notwithstanding,
all fees that become payable to W.R. Hambrecht & Co., LLC following the Closing
under this subsection 7.3(c) shall be paid by the Company as contemplated in
subsection 1.1(d) herein. Any amount by which the actual assumed obligations
may exceed the reduction to the Initial Consideration shall be promptly
reimbursed to the Purchasers by the Stockholders, with interest at 10% from the
Closing Date, in accordance with and subject to the limitations of Section 10
herein (without giving effect to provisions of Section 10.4 herein applicable
solely to third-party claims). If the actual assumed obligations are less than
the reduction to the Initial Consideration, Purchasers shall promptly reimburse
the difference to Stockholders without interest.
7.4 Stockholder Letters. The Purchasers shall have received the
-------------------
Stockholder Letters referred to in Section 5.8.
7.5 Escrow Agreements. The Escrow Agreements, substantially in the forms
-----------------
attached hereto as Exhibit A, shall have been executed and delivered by all
---------
parties thereto.
40
<PAGE>
7.6 Non-Competition and Non-Solicitation Agreements. The Purchasers shall
-----------------------------------------------
have received Non-Competition and Non-Solicitation Agreements from each employee
of the Company in the form attached to such person's offer letter from CMGI.
7.7 Non-Disclosure and Developments Agreements. The Purchasers shall have
------------------------------------------
received Non-Disclosure and Developments Agreements from each employee of the
Company in the form attached to such person's offer letter from CMGI.
7.8 Officer's Certificate. The Purchasers shall have received a
---------------------
certificate dated the Closing Date from the President of the Company stating
that (a) the representations and warranties of the Company contained in this
Agreement are true and correct in all material respects as of the Closing Date,
(b) the Company has performed and complied in all material respects with its
obligations and agreements hereunder, (c) there has not been a material adverse
change in the Business of Company since the date of this Agreement, (d) the
interim financial statements of the Company dated January 31, 1999 attached
thereto, have been prepared from, and are in accordance with, the books and
records of the Company and present fairly the financial position and the results
of operations of the Company as of the date and for the periods indicated in
accordance with GAAP consistently applied throughout the periods involved except
as otherwise stated therein, and subject to normal year end audit adjustments,
which are not, in the aggregate, material and subject to the addition of
appropriate notes and (e) there has been no material adverse change in the
Business of Company since January 31, 1999.
7.9 Secretary's Certificate. The Purchasers shall have received a
-----------------------
certificate in form reasonably satisfactory to the Purchasers dated the Closing
Date from the Secretary of the Company (i) attaching (A) the Company's Articles
of Incorporation, (B) the Company's Bylaws and (C) all corporate action taken in
connection herewith, and (ii) certifying the incumbency of the Company's
officers who execute documents in connection herewith.
7.10 1998 Audit. The Company shall have completed its audited financials
----------
at and for the year ended December 31, 1998; provided, however, and
notwithstanding anything to the contrary contained herein, the parties shall
close this Agreement into escrow (by delivering all stock certificates and other
closing documents to an escrow agent) if the above condition is not met, and
receipt by Purchasers of such audited financials without material deviation from
financial information previously provided to the Purchasers is, in any event, a
condition of closing.
7.11 Option Exchange Agreements. Each holder of Company options shall have
--------------------------
entered into an Option Exchange Agreement, in form and substance as set forth on
Exhibit D hereto (with appropriate modifications in accordance with Section
- ---------
5.12), with respect to all Company options held by such person.
41
<PAGE>
7.12 Employment Agreements. All employment agreements and consulting
---------------------
agreements to which the Company is a party shall have been terminated on terms
satisfactory to Purchasers.
7.13 Convertible Debt. The Company's Convertible Promissory Notes issued
----------------
pursuant to the Note Purchase Agreement dated as of December 1998 between the
Company and certain noteholders shall have been converted in full and satisfied.
7.14 Waivers and Consents. The Company shall have obtained all waivers and
--------------------
consents necessary to consummate the transactions contemplated hereby.
7.15 Additional Items. The Company and each Stockholder shall have
----------------
furnished the Purchasers with such other certificates and documents, such as
good standing and due qualification certificates, as have been reasonably
requested by the Purchasers.
SECTION 8 - CONDITIONS PRECEDENT TO THE OBLIGATION
OF THE COMPANY AND THE STOCKHOLDERS TO
CONSUMMATE THE TRANSACTION
The obligation of the Company and the Stockholders to consummate the
transaction contemplated by this Agreement is subject to the satisfaction or
waiver by them, at or before the Closing Date, of the following conditions:
8.1 Representations, Warranties and Covenants. The representations and
-----------------------------------------
warranties of the Purchasers contained in this Agreement shall be true and
correct in all material respects on and as of the Closing Date with the same
force and effect as though made on and as of the Closing Date (with such
exceptions as may be permitted under or contemplated by this Agreement, and
except where another date is specified in a representation or warranty) and
there shall not have been any material adverse change in the Business of either
Purchasers (considered individually) since the date hereof. Each of the
Purchasers shall have performed and complied in all material respects with all
covenants and agreements required by this Agreement to be performed or complied
with by it on or prior to the Closing Date.
8.2 Opinion of Counsel to Purchasers. The Company shall have received an
--------------------------------
opinion of counsel to the Purchasers, dated the Closing Date, in form and
substance reasonably acceptable to the Company.
42
<PAGE>
8.3 Registration Rights Agreement. A registration rights agreement
-----------------------------
substantially in the form attached hereto as Exhibit E shall have been executed
---------
and delivered by the Purchasers.
8.4 Officer's Certificate. The Company shall have received a certificate
---------------------
dated the Closing Date from the President or Chief Financial Officer of each of
the Purchasers stating that (a) the representations and warranties of such
Purchaser contained in this Agreement are true and correct in all material
respects as of the Closing Date, (b) such Purchaser has performed and complied
in all material respects with its obligations and agreements hereunder, and (c)
there has not been a material adverse change in the Business of such Purchaser
since January 31, 1999.
8.5 Secretary's Certificate. The Company shall have received a
-----------------------
certificate in form reasonably satisfactory to the Company dated the Closing
Date from the Secretary or Assistant Secretary of each of the Purchasers (a)
attaching (i) such Purchaser's certificate of incorporation, (ii) such
Purchaser's bylaws, (iii) all corporate action taken in connection herewith, and
(b) certifying the incumbency of such Purchaser's officers who execute documents
in connection herewith.
8.6 Additional Items. The Purchasers shall have furnished the Company
----------------
with such other certificates and documents as have been reasonably requested by
the Company.
SECTION 9 - TERMINATION, AMENDMENT AND WAIVER
9.1 Termination. This Agreement may be terminated at any time prior to
-----------
the Closing as follows:
(a) by the Company or the Purchasers if, without fault of the
terminating party, the Closing Date shall not have occurred on or before April
7, 1999, which date may be extended by mutual consent of the parties;
(b) by the Company and the Stockholders upon written notice to the
Purchasers if the Purchasers have materially breached any representation,
warranty, covenant or agreement contained herein and have not cured such breach
by the Closing Date;
(c) by the Purchasers upon written notice to the Company if the
Company or any Stockholder has materially breached any representation, warranty,
covenant or agreement contained herein and has not cured such breach by the
Closing Date;
(d) by any party if any court of competent jurisdiction or
governmental body shall have issued an order, decree or ruling or taken any
other
43
<PAGE>
action restraining, enjoining or otherwise prohibiting the transactions
contemplated by this Agreement and such order, decree or ruling shall have
become final and nonappealable;
(e) by the Purchasers if the Company's Board of Directors adopts
resolutions approving or otherwise authorizes or recommends to the Company's
Shareholders an Acquisition Transaction with parties other than the Purchasers
or their affiliates; or
(f) at any time with the written consent of all of the parties.
9.2 Effect of Termination. If this Agreement is terminated as provided in
---------------------
Section 9.1, this Agreement shall forthwith become void and have no effect,
without liability on the part of any party, its directors, officers or
stockholders, other than the provisions of this Section 9.2, Section 5.3
relating to expenses, Section 5.6 relating to publicity and confidentiality to
the extent provided therein and Section 9.3 relating to termination fees.
Nothing contained in this Section 9.2 shall relieve any party from liability for
any willful breach of this Agreement occurring before such termination.
9.3 Termination Fee.
---------------
(a) In order to induce the Purchasers to enter into this Agreement and
to reimburse the Purchasers for their costs and expenses related to entering
into this Agreement and seeking to consummate the transactions contemplated by
this Agreement, the Company will make a cash payment to Purchasers of $500,000
if and only if the Purchasers have terminated this Agreement pursuant to 9.1(a),
(c) or (e).
(b) In order to induce the Company and the Stockholders to enter into
this Agreement and to reimburse the Company and the Stockholders for its and
their costs and expenses related to entering into this Agreement and seeking to
consummate the transactions contemplated by this Agreement, the Purchasers will
make a cash payment to the Company of $500,000 if and only if the Company and
the Stockholders have terminated this Agreement pursuant to Section 9.1(a) or
(b).
(c) Any payment required by this section will be payable (by wire
transfer of immediately available funds to an account designated by the party
entitled to such payment) within five business days after demand by the party
entitled to such payment.
9.4 Amendment. This Agreement may not be amended except by an instrument
---------
signed by the Purchasers, the Company and Stockholders holding a majority of the
Shares set forth on Schedule 1.
----------
44
<PAGE>
9.5 Waiver. At any time prior to the Effective Time, any party hereto may
------
(a) extend the time for the performance of any of the obligations or other acts
of any other party hereto or (b) waive compliance with any of the agreements of
any other party or any conditions to its own obligations, in each case only to
the extent such obligations, agreements and conditions are intended for its
benefit; provided that any such extension or waiver shall be binding upon a
party only if such extension or waiver is set forth in a writing executed by
such party.
SECTION 10 - INDEMNIFICATION
10.1 Survival. Notwithstanding any right of any party to fully investigate
--------
the affairs of the other party and notwithstanding any knowledge of facts
determined or determinable by such party pursuant to such investigation or right
of investigation, each party has the right to rely fully upon the
representations, warranties, covenants and agreements of each other party given
or made in this Agreement or any Related Instrument. All such representations,
warranties, covenants and agreements shall survive the execution and delivery
hereof and the Closing hereunder, subject to the limitations set forth herein.
Purchasers shall have no right to recovery against any Stockholder (or any
officer, director, employee or agent of a party) other than through the exercise
of the indemnification rights set forth in Sections 10.2 and 10.3, which shall
constitute the sole and exclusive remedy after the Closing Date for any breach
of any representation, warranty or covenant of the Company or any Stockholder
contained herein or in the certificates described in Sections 7.8 and 7.9
delivered pursuant hereto, other than a fraudulent or intentional breach.
10.2 Obligation of Stockholders to Indemnify.
---------------------------------------
(a) Subsequent to the Closing, each Stockholder listed on Schedule 1
----------
indemnifies and holds harmless the Purchasers (and their respective directors,
officers, employees, agents, affiliates and assigns) from and against all
losses, liabilities, damages, deficiencies, costs or expenses, including
interest and penalties imposed or assessed by any judicial or administrative
body and reasonable attorneys' fees, whether or not arising out of third-party
claims and including all amounts reasonably paid in investigation, defense or
settlement of the foregoing pursuant to this Section 10 (the "Losses") based
upon, arising out of or otherwise in respect of (1) any inaccuracy in or breach
of any representation, warranty or covenant of the Company contained herein or
in the certificates described in Sections 7.8 and 7.9 delivered pursuant hereto
(2) the failure to obtain the consent to the transactions contemplated hereby of
the lessor under the Loft Lease between the Company and Harrow Realty, Inc.
regarding Room 1502(A), 25 West 45th Street, New York, New York and (3) subject
to the material performance by Purchasers of the covenants contained in Section
5.13, as relates to the Merger, or otherwise in connection herewith, the failure
to obtain the consent of all holders of Common Stock or of Fully
45
<PAGE>
Diluted Shares (a) for the period beginning on the Closing Date and ending on
the first anniversary of the Closing Date, up to such Stockholder's pro-rata
share (based on the Shares held by such individual as listed on Schedule 1) of
----------
One Hundred Percent (100%) of the Initial Consideration held in Escrow and (b)
for the period beginning on the day after the first anniversary of the Closing
Date and ending on the second anniversary of the Closing Date, up to such
Stockholder's pro-rata share (based on the Shares held by such individual as
listed on Schedule 1) of Fifty Percent (50%) of the Initial Consideration
----------
originally held in Escrow plus Fifty Percent (50%) of any Contingent
Consideration otherwise payable to such Stockholder.
(b) Notwithstanding the above, with respect to any indemnification
obligation arising as a result of an inaccuracy in a representation or warranty
in Sections 3.1, 3.2 or 3.3, indemnification in an amount equal to the total
consideration received by a Stockholder shall be payable by such Stockholder
without time limitation.
(c) Limitations on Indemnification. The limitations of Sections 10.2
------------------------------
with respect to a Stockholder shall not apply in the case of a fraudulent or
intentional misrepresentation or breach by that Stockholder.
10.3 Notice and Defense of Claims. Promptly after receipt of notice of any
----------------------------
claim, liability or expense for which a party seeks indemnification hereunder,
such party shall give written notice thereof to the indemnifying party, but such
notification shall not be a condition to indemnification hereunder except to the
extent of actual prejudice to the indemnifying party. The notice shall state
the information then available regarding the amount and nature of such claim,
liability or expense and shall specify the provision or provisions of this
Agreement under which the liability or obligation is asserted. If within 30
days after receiving such notice the indemnifying party gives written notice to
the indemnified party stating that it intends to defend against such claim,
liability or expense at its own cost and expense, then defense of such matter,
including selection of counsel (subject to the consent of the indemnified party
which consent shall not be unreasonably withheld), shall be by the indemnifying
party and the indemnified party shall make no payment on such claim, liability
or expense as long as the indemnifying party is conducting a good faith and
diligent defense. Notwithstanding the foregoing, the indemnified party shall at
all times have the right to fully participate in such defense at its own expense
directly or through counsel; provided, however, if the named parties to the
action or proceeding include both the indemnifying party and the indemnified
party and representation of both parties by the same counsel would be
inappropriate under applicable standards of professional conduct, the expense of
separate counsel for the indemnified party shall be paid by the indemnifying
party. If no such notice of intent to dispute and defend is given by the
indemnifying party, or if such diligent good faith defense is not being or
ceases to be conducted, the indemnified party shall, at the expense of the
indemnifying party, undertake the defense of such claim,
46
<PAGE>
liability or expense with counsel selected by the indemnified party, and shall
have the right to compromise or settle the same exercising reasonable business
judgment. The indemnified party shall make available all information and
assistance that the indemnifying party may reasonably request and shall
cooperate with the indemnifying party in such defense. No indemnifying party
shall without the prior written consent of the indemnified party (which consent
shall not be unreasonably withheld), settle or compromise or consent to the
entry of any judgment with respect to any pending or threatened claim, action,
suit or proceeding in respect of which indemnification or contribution may be
sought hereunder (whether or not the indemnified party is an actual or potential
party to such claim or action) unless such settlement, compromise or consent
includes an unconditional release of each indemnified party from all liability
arising out of such claim, action, suit or proceeding.
SECTION 11 - MISCELLANEOUS
11.1 Material Adverse Change. All references to a party or the business of
-----------------------
a party experiencing a "material adverse change" shall not include any change
that results from the announcement or pendency of the transactions contemplated
herein or the taking of any action contemplated by this Agreement.
11.2 Notices. Any notice or other communication required or permitted
-------
hereunder shall be in writing and shall be deemed given when so delivered in
person, by overnight courier, by facsimile transmission (with receipt confirmed
by telephone or by automatic transmission report) or two business days after
being sent by registered or certified mail (postage prepaid, return receipt
requested), as follows:
(a) if to the Purchasers, to:
CMGI, Inc.
100 Brickstone Square, 1st Floor
Andover, MA 01810
Attention: Chief Financial Officer
Telephone: (781) 684-3660
Facsimile: (781) 684-3172
with a copy to:
Engage Technologies, Inc.
100 Brickstone Square, 1st Floor
Andover, MA 01810
Attention: Chief Financial Officer
Telephone: (978) 684-3884
Facsimile: (978) 684-3877
47
<PAGE>
Palmer & Dodge LLP
One Beacon Street
Boston, MA 02108
Attention: Marc Rubenstein, Esq.
Telephone: (617) 573-0100
Facsimile: (617) 227-4420
(b) if to the Company, to:
Internet Profiles Corporation
1400 Bridge Parkway, Suite 202
Redwood City, CA 94065
Attention: President
Telephone: (650) 226-2700
Facsimile: (650) 226-2707
with a copy to:
Cooley Godward LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306-2155
Attention: Andrei Manoliu, Esq.
Telephone: (650) 843-5000
Facsimile: (650) 857-0663
(c) if to the Stockholders, to:
Tench Coxe
Suffer Hill Ventures
755 Page Mill Rd., Suite A-200
Palo Alto, CA 94303
Telecopy: (650) 858-1854
with a copy to:
Cooley Godward LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306-2155
Attention: Andrei Manoliu, Esq.
Telephone: (650) 843-5000
Facsimile: (650) 857-0663
48
<PAGE>
Any party may by notice given in accordance with this Section 11.2 to the other
parties designate another address or person for receipt of notices hereunder.
11.3 Entire Agreement. This Agreement includes the exhibits and schedules
----------------
hereto, contains the entire agreement among the parties with respect to the
Merger and related transactions, and supersedes all prior agreements, written or
oral, with respect thereto.
11.4 Governing Law. This Agreement is governed by the laws of the State of
-------------
Delaware.
11.5 Binding Effect; No Assignment. This Agreement shall be binding upon
-----------------------------
and inure to the benefit of the parties and their respective successors and
permitted assigns. This Agreement is not assignable without the prior written
consent of the other parties hereto.
11.6 Variations in Pronouns. All pronouns and any variations thereof refer
----------------------
to the masculine, feminine or neuter, singular or plural, as the context may
require.
11.7 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 and the same instrument.
11.8 Disclosure Schedules. The Disclosure Schedules are a part of this
--------------------
Agreement as if fully set forth herein.
11.9 Arbitration. Except with respect to an action seeking specific
-----------
performance or another equitable remedy, any dispute relating to or arising out
of this Agreement, or to a breach of this Agreement, arising among the parties
or their successors, shall be settled by arbitration in accordance with the
commercial arbitration rules of the American Arbitration Association ("AAA").
The arbitration proceeding, including the rendering of an award, shall take
place in Boston, Massachusetts and be administered by the AAA. The parties
agree to act in good faith to mutually select an arbitrator. The decision of
the arbitrator shall be binding on the parties hereto or their successors and
any judgment rendered by such arbitrator may be enforced by any court of
competent jurisdiction. Each party shall bear its own expenses in connection
with such arbitration unless otherwise ordered by the arbitrator.
11.10 Letter Agreement. This Agreement supersedes and replaces the letter
----------------
agreement between the parties dated February 21, 1999, which shall be of no
further force and effect.
49
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement under seal as
of the date first stated above.
CMGI, INC.
By: /s/ Andrew J. Hajducky
-----------------------------------
Name: Andrew J. Hajducky III
Title: Chief Financial Officer
ENGAGE TECHNOLOGIES, INC.
By:
-----------------------------------
Name: Stephen A. Royal
Title: Chief Financial Officer
50
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement under seal as
of the date first stated above.
CMGI, INC.
By:
------------------------------------------
Name: Andrew J. Hajducky III
Title: Chief Financial Officer
ENGAGE TECHNOLOGIES
By: /s/ Stephen A. Royal
------------------------------------------
Name: Stephen A. Royal
Title: Chief Financial Officer
51
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement under seal as
of the date first stated above.
CMGI, INC.
By:
------------------------------------------
Name: Andrew J. Hajducky III
Title: Chief Financial Officer
ENGAGE TECHNOLOGIES
By:
------------------------------------------
Name: Stephen A. Royal
Title: Chief Financial Officer
INTERNET PROFILES CORPORATION
By: /s/ Bradley C. Rode
------------------------------------------
Name: Bradley C. Rode
Title: President & CEO
52
<PAGE>
THE STOCKHOLDERS
Foundation Capital, L.P.
By: Foundation Capital Management, L.L.C.
By: /s/ [signature illegible]
------------------------------------------
Manager
------------------------------------------
Print Name
Foundation Capital Entrepreneurs Fund, L.L.C.
By Foundation Capital Management, L.L.C.
By: /s/ [signature illegible]
------------------------------------------
Manager
-----------------------------------------
Print Name
53
<PAGE>
Information Associates, L.P.
Trident Capital Management L.L.C.
-----------------------------------
(Name of Stockholder)
/s/ John H. Morgan
-----------------------------------
(Signature)
John H. Morgan
-----------------------------------
(Print Name)
Managing Director
-----------------------------------
(Title if applicable)
54
<PAGE>
Information Associates C.V.
Trident Capital Management L.L.C.
---------------------------------------------
(Name of Stockholder)
/s/ John H. Morgan
---------------------------------------------
(Signature)
Managing Director
---------------------------------------------
(Title if applicable)
55
<PAGE>
David L. Anderson
---------------------------------------------
(Name of Stockholder)
/s/ David L. Anderson
---------------------------------------------
(Signature)
---------------------------------------------
(Print Name)
---------------------------------------------
(Title if applicable)
56
<PAGE>
THE ANDERSON LIVING TRUST
---------------------------------------------
(Name of Stockholder)
/s/ David L. Anderson
---------------------------------------------
(Signature)
DAVID L. ANDERSON
---------------------------------------------
(Print Name)
Trustee
---------------------------------------------
(Title if applicable)
57
<PAGE>
ANVEST, L.P.
---------------------------------------------
(Name of Stockholder)
/s/ David L. Anderson
---------------------------------------------
(Signature)
---------------------------------------------
(Print Name)
GENERAL PARTNER
---------------------------------------------
(Title if applicable)
58
<PAGE>
G. LEONARD BAKER, JR.
---------------------------------------------
(Name of Stockholder)
/s/ G. Leonard Baker, Jr.
---------------------------------------------
(Signature)
---------------------------------------------
(Print Name)
---------------------------------------------
(Title if applicable)
59
<PAGE>
Tench Coxe
---------------------------------------------
(Name of Stockholder)
/s/ Tench Coxe
---------------------------------------------
(Signature)
---------------------------------------------
(Print Name)
---------------------------------------------
(Title if applicable)
60
<PAGE>
James C. Gaither
---------------------------------------------
(Name of Stockholder)
/s/ James C. Gaither
---------------------------------------------
(Signature)
---------------------------------------------
(Print Name)
---------------------------------------------
(Title if applicable)
61
<PAGE>
Genstar Investment Corporation
---------------------------------------------
(Name of Stockholder)
/s/ Richard D. Paterson
---------------------------------------------
(Signature)
Richard D. Paterson
---------------------------------------------
(Print Name)
Executive Vice President
---------------------------------------------
(Title if applicable)
62
<PAGE>
David R. Golob
---------------------------------------------
(Name of Stockholder)
/s/ Sherryl W. Hossack
---------------------------------------------
(Signature)
By Sherryl W. Hossack
Under Power of Attorney
---------------------------------------------
(Print Name)
---------------------------------------------
(Title if applicable)
63
<PAGE>
Timothy Haley
---------------------------------------------
(Name of Stockholder)
/s/ Timothy Haley
---------------------------------------------
(Signature)
Timothy Haley
---------------------------------------------
(Print Name)
---------------------------------------------
(Title if applicable)
64
<PAGE>
Ronald L. Perkins
---------------------------------------------
(Name of Stockholder)
/s/ Sherryl W. Hossack
---------------------------------------------
(Signature)
By Sherryl W. Hossack
Under Power of Attorney
---------------------------------------------
(Print Name)
------------------------------------
(Title if applicable)
65
<PAGE>
William Sahlman
---------------------------------------------
(Name of Stockholder)
/s/ William Sahlman
---------------------------------------------
(Signature)
William Sahlman
---------------------------------------------
(Print Name)
---------------------------------------------
(Title if applicable)
66
<PAGE>
SAUNDERS HOLDINGS, L.P.
---------------------------------------------
(Name of Stockholder)
/s/ G. Leonard Baker, Jr.
---------------------------------------------
(Signature)
G. LEONARD BAKER, JR.
---------------------------------------------
(Print Name)
GENERAL PARTNER
---------------------------------------------
(Title if applicable)
67
<PAGE>
SUTTER HILL VENTURES,
A CALIFORNIA LIMITED PARTNERSHIP
---------------------------------------------
(Name of Stockholder)
/s/ Paul M. Wythes
---------------------------------------------
(Signature)
Paul M. Wythes
---------------------------------------------
(Print Name)
Managing Director of the General Partner
---------------------------------------------
(Title if applicable)
68
<PAGE>
TOW PARTNERS, A CALIFORNIA
LIMITED PARTNERSHIP
---------------------------------------------
(Name of Stockholder)
/s/ Paul M. Wythes
---------------------------------------------
(Signature)
Paul M. Wythes
---------------------------------------------
(Print Name)
GENERAL PARTNER
---------------------------------------------
(Title of applicable)
69
<PAGE>
WYTHES LIVING TRUST
---------------------------------------------
(Name of Stockholder)
/s/ Paul M. Wythes
---------------------------------------------
(Signature)
Paul M. Wythes
---------------------------------------------
(Print Name)
TRUSTEE
---------------------------------------------
(Title if applicable)
70
<PAGE>
Wells Fargo Bank, Trustee SHV
M/P/T fbo Tench Coxe
---------------------------------------------
(Name of Stockholder)
/s/ Vicki M. Bandel /s/ S. Matson
---------------------------------------------
(Signature)
Vicki M. Bandel S. Matson
---------------------------------------------
(Print Name)
AVP & TO AVP & TO
---------------------------------------------
(Title if applicable)
71
<PAGE>
Wells Fargo Bank, Trustee SHV
M/P/T fbo William Younger, Jr.
---------------------------------------------
(Name of Stockholder)
/s/ Vicki M. Bandel /s/ S. Matson
---------------------------------------------
(Signature)
Vicki M. Bandel S. Matson
---------------------------------------------
(Print Name)
AVP & TO AVP & TO
---------------------------------------------
(Title if applicable)
72
<PAGE>
WILLIAM H. YOUNGER, JR.
---------------------------------------------
(Name of Stockholder)
/s/ William H. Younger, Jr.
---------------------------------------------
(Signature)
---------------------------------------------
(Print Name)
---------------------------------------------
(Title if applicable)
73
<PAGE>
YOUNGER LIVING TRUST
---------------------------------------------
(Name of Stockholder)
/s/ William H. Younger, Jr.
---------------------------------------------
(Signature)
WILLIAM H. YOUNGER, JR.
---------------------------------------------
(Print Name)
Trustee
---------------------------------------------
(Title if applicable)
74
<PAGE>
SOFTBANK Ventures, Inc.
---------------------------------------------
(Name of Stockholder)
/s/ Yoshitaka Kitao
---------------------------------------------
(Signature)
Yoshitaka Kitao
---------------------------------------------
(Print Name)
President and CEO
---------------------------------------------
(Title if applicable)
75
<PAGE>
THE HEARST CORPORATION
----------------------------------------------
(Name of Stockholder)
/s/ Alfred C. Sikes
----------------------------------------------
(Signature)
Alfred C. Sikes
----------------------------------------------
(Print Name)
President Hearst New Media
----------------------------------------------
(Title if applicable)
76
<PAGE>
GANNETT INTERNATIONAL
COMMUNICATIONS, INC.
50 West Liberty St., Suite 802
Reno, NV 89501
----------------------------------------------
(Name of Stockholder)
/s/ Brooks Johnson
----------------------------------------------
(Signature)
Brooks Johnson
----------------------------------------------
(Print Name)
President
----------------------------------------------
(Title if applicable)
77
<PAGE>
INTEL CORPORATION
----------------------------------------------
(Name of Stockholder)
By: /s/ Arvind Sodhani
----------------------------------------------
ARVIND SODHANI
----------------------------------------------
(Print Name)
Vice President and Treasurer
----------------------------------------------
(Title)
78
<PAGE>
ITOCHU CORPORATION
----------------------------------------------
(Name of Stockholder)
/s/ Eizo Kobayashi
----------------------------------------------
(Signature)
Eizo Kobayashi
----------------------------------------------
(Print Name)
General Manager, Information Technology
Business Department
----------------------------------------------
(Title if applicable)
79
<PAGE>
Itochu Technology, Inc.
----------------------------------------------
(Name of Stockholder)
/s/ Hiroo Inoue
----------------------------------------------
(Signature)
Hiroo Inoue
----------------------------------------------
(Print Name)
President
----------------------------------------------
(Title if applicable)
80
<PAGE>
Zuleima Aguilar
----------------------------------------------
(Name of Stockholder)
/s/ Zuleima Aguilar
----------------------------------------------
(Signature)
Zuleima Aguilar
----------------------------------------------
(Print Name)
----------------------------------------------
(Title if applicable)
81
<PAGE>
Homer
----------------------------------------------
(Name of Stockholder)
/s/ Homer Luther, Jr.
----------------------------------------------
(Signature)
----------------------------------------------
(Print Name)
----------------------------------------------
(Title if applicable)
82
<PAGE>
John E. Maxfield
----------------------------------------------
(Name of Stockholder
/s/ John E. Maxfield
----------------------------------------------
(Signature)
John E. Maxfield
----------------------------------------------
(Print Name)
----------------------------------------------
(Title if applicable)
83
<PAGE>
Scocimara GST Trust
----------------------------------------------
(Name of Stockholder)
/s/ David W. Laughlin
----------------------------------------------
(Signature)
David W. Laughlin
----------------------------------------------
(Print Name)
Trustee
----------------------------------------------
(Title if applicable)
84
<PAGE>
----------------------------------------------
(Name of Stockholder)
/s/ R.T. Artemenko /s/ Sherry Y. Artemenko
---------------------------------------------
(Signature)
R.T. Artemenko Sherry Y. Artemenko
---------------------------------------------
(Print Name)
---------------------------------------------
(Title if applicable)
85
<PAGE>
Stu Berman
(Stuart Jed Berman)
---------------------------------------------
(Name of Stockholder)
/s/ Stu Berman
---------------------------------------------
(Signature)
Stu Berman
(Stuart Jed Berman)
---------------------------------------------
(Print Name)
---------------------------------------------
(Title if applicable)
86
<PAGE>
John R. Mackau
----------------------------------------------
(Name of Stockholder)
/s/ John R. Mackau
----------------------------------------------
(Signature)
John R. Mackau
----------------------------------------------
(Print Name)
----------------------------------------------
(Title if applicable)
87
<PAGE>
Todd R. McIntyre
----------------------------------------------
(Name of Stockholder)
/s/ Todd R. McIntyre
----------------------------------------------
(Signature)
Todd R. McIntyre
----------------------------------------------
(Print Name)
----------------------------------------------
(Title if applicable)
88
<PAGE>
Stanford University
----------------------------------------------
(Name of Stockholder)
/s/ Carol Gilmer
----------------------------------------------
(Signature)
Carol Gilmer
Gift Administrator, Standford Management Co.
On behalf of the Board of Trustees of the
Leland Stanford Junior University
----------------------------------------------
(Print Name)
----------------------------------------------
(Title if applicable)
89
<PAGE>
Seth M. Skolnik
----------------------------------------------
(Name of Stockholder)
/s/ Seth Skolnik
----------------------------------------------
(Signature)
Seth M. Skolnik
----------------------------------------------
(Print Name)
----------------------------------------------
(Title if applicable)
90
<PAGE>
Leonard J. Washington, II
----------------------------------------------
(Name of Stockholder)
/s/ Leonard J. Washington, II
----------------------------------------------
(Signature)
Leonard J. Washington, II
----------------------------------------------
(Print Name)
----------------------------------------------
(Title if applicable)
91
<PAGE>
----------------------------------------------
(Name of Stockholder)
/s/ Ariel Poler
----------------------------------------------
(Signature)
Ariel Poler
----------------------------------------------
(Print Name)
----------------------------------------------
(Title if applicable)
92
<PAGE>
Hewlett-Packard Co.
----------------------------------------------
/s/ Ann O. Baskins
----------------------------------------------
(Signature)
Ann O. Baskins
----------------------------------------------
(Print Name)
Assistant Secretary and
Senior Managing Counsel
----------------------------------------------
(Title if applicable)
93
<PAGE>
Mark Ashida
----------------------------------------------
(Name of Stockholder)
/s/ Mark Ashida
----------------------------------------------
(Signature)
Mark Ashida
----------------------------------------------
(Print Name)
----------------------------------------------
(Title if applicable)
94
<PAGE>
R. Alan Chase
----------------------------------------------
(Name of Stockholder)
/s/ R. Alan Chase
----------------------------------------------
(Signature)
R. Alan Chase
----------------------------------------------
(Print Name)
----------------------------------------------
(Title if applicable)
95
<PAGE>
David Tillinghast
----------------------------------------------
(Name of Stockholder)
/s/ David Tillinghast
----------------------------------------------
(Signature)
David Tillinghast
----------------------------------------------
(Print Name)
----------------------------------------------
(Title if applicable)
96
<PAGE>
Charles Askanas
----------------------------------------------
(Name of Stockholder)
/s/ Charles Askanas
----------------------------------------------
(Signature)
Charles Askanas
----------------------------------------------
(Print Name)
----------------------------------------------
(Title if applicable)
97
<PAGE>
Trevor Blumenau
----------------------------------------------
(Name of Stockholder)
/s/ Trevor Blumenau
----------------------------------------------
(Signature)
Trevor Blumenau
----------------------------------------------
(Print Name)
----------------------------------------------
(Title if applicable)
98
<PAGE>
Gregory L. Waldorf
----------------------------------------------
(Name of Stockholder)
/s/ Gregory L. Waldorf
----------------------------------------------
(Signature)
Gregory L. Waldorf
----------------------------------------------
(Print Name)
----------------------------------------------
(Title if applicable)
99
<PAGE>
Tak Woon Yan
----------------------------------------------
(Name of Stockholder)
/s/ Tak Woon Yan
----------------------------------------------
(Signature)
Tak Woon Yan
----------------------------------------------
(Print Name)
----------------------------------------------
(Title if applicable)
100
<PAGE>
Jon A. Bode
----------------------------------------------
(Name of Stockholder)
/s/ Jon A. Bode
----------------------------------------------
(Signature)
Jon A. Bode
----------------------------------------------
(Print Name)
----------------------------------------------
(Title if applicable)
101
<PAGE>
Olivia Dillan
----------------------------------------------
(Name of Stockholder)
/s/ Olivia Dillan
----------------------------------------------
(Signature)
Olivia Dillan
----------------------------------------------
(Print Name)
----------------------------------------------
(Title if applicable)
102
<PAGE>
John M. Kremer
----------------------------------------------
(Name of Stockholder)
/s/ John Kremer
----------------------------------------------
(Signature)
John Kremer
----------------------------------------------
(Print Name)
----------------------------------------------
(Title if applicable)
103
<PAGE>
Kevin P. Doerr
----------------------------------------------
(Name of Stockholder)
/s/ Kevin P. Doerr
----------------------------------------------
(Signature)
Kevin P. Doerr
----------------------------------------------
(Print Name)
----------------------------------------------
(Title if applicable)
104
<PAGE>
Marc Kenig
----------------------------------------------
(Name of Stockholder)
/s/ Marc E. Kenig
----------------------------------------------
(Signature)
Marc E. Kenig
----------------------------------------------
(Print Name)
----------------------------------------------
(Title if applicable)
105
<PAGE>
----------------------------------------------
(Name of Stockholder)
/s/ Benjamin E. Godley
----------------------------------------------
(Signature)
Benjamin E. Godley
----------------------------------------------
(Print Name)
----------------------------------------------
(Title if applicable)
106
<PAGE>
Noel Poler
----------------------------------------------
(Name of Stockholder)
/s/ Noel Poler
----------------------------------------------
(Signature)
Noel Poler
----------------------------------------------
(Print Name)
----------------------------------------------
(Title if applicable)
107
<PAGE>
Maximillian Pollak
----------------------------------------------
(Name of Stockholder)
/s/ Maximillian Pollak
----------------------------------------------
(Signature)
Maximillian Pollak
----------------------------------------------
(Print Name)
----------------------------------------------
(Title if applicable)
108
<PAGE>
----------------------------------------------
(Name of Stockholder)
/s/ Paul M. Norwood
----------------------------------------------
(Signature)
Paul M. Norwood
----------------------------------------------
(Print Name)
----------------------------------------------
(Title if applicable)
109
<PAGE>
John Garner
----------------------------------------------
(Name of Stockholder)
/s/ John Garner
----------------------------------------------
(Signature)
----------------------------------------------
(Print Name)
----------------------------------------------
(Title if applicable)
110
<PAGE>
Kevin Poler
----------------------------------------------
(Name of Stockholder)
/s/ Noel Poler
----------------------------------------------
(Signature)
Noel Poler
----------------------------------------------
(Print Name)
Guardian
----------------------------------------------
(Title if applicable)
111
<PAGE>
Dylan Poler
----------------------------------------------
(Name of Stockholder)
/s/ Dylan Poler
----------------------------------------------
(Signature)
Noel Poler
----------------------------------------------
(Print Name)
Guardian
----------------------------------------------
(Title if applicable)
112
<PAGE>
Katherine N. Wang
----------------------------------------------
(Name of Stockholder)
/s/ Katherine N. Wang
----------------------------------------------
(Signature)
Katherine N. Wang
----------------------------------------------
(Print Name)
----------------------------------------------
(Title if applicable)
113
<PAGE>
----------------------------------------------
(Name of Stockholder)
/s/ Michael L. Connell
----------------------------------------------
(Signature)
Michael L. Connell
----------------------------------------------
(Print Name)
----------------------------------------------
(Title if applicable)
114
<PAGE>
Barbara Gore
----------------------------------------------
(Name of Stockholder)
/s/ Barbara Gore
----------------------------------------------
(Signature)
Barbara Gore
----------------------------------------------
(Print Name)
----------------------------------------------
(Title if applicable)
115
<PAGE>
Robert Spoer
----------------------------------------------
(Name of Stockholder)
/s/ Robert Spoer
----------------------------------------------
(Signature)
Robert Spoer
----------------------------------------------
(Print Name)
----------------------------------------------
(Title if applicable)
116
<PAGE>
John H. Steinhart
----------------------------------------------
(Name of Stockholder)
/s/ John H. Steinhart
----------------------------------------------
(Signature)
John H. Steinhart
----------------------------------------------
(Print Name)
----------------------------------------------
(Title if applicable)
117
<PAGE>
Webster Augustine III
----------------------------------------------
(Name of Stockholder)
/s/ Webster Augustine III
----------------------------------------------
(Signature)
Webster Augustine III
----------------------------------------------
(Print Name)
----------------------------------------------
(Title if applicable)
118
<PAGE>
James L. Brock
----------------------------------------------
(Name of Stockholder)
/s/ James L. Brock
----------------------------------------------
(Signature)
James L. Brock
----------------------------------------------
(Print Name)
----------------------------------------------
(Title if applicable)
119
<PAGE>
Frida Alter
----------------------------------------------
(Name of Stockholder)
/s/ Frida Alter
----------------------------------------------
(Signature)
Frida Alter
----------------------------------------------
(Print Name)
----------------------------------------------
(Title if applicable)
120
<PAGE>
The Interpublic Group of Cos., Inc.
----------------------------------------------
(Name of Stockholder)
/s/ Nicholas J. Camera
----------------------------------------------
(Signature)
Nicholas J. Camera
----------------------------------------------
(Print Name)
Vice President, General Counsel
----------------------------------------------
(Title if applicable)
121
<PAGE>
David Carlick
----------------------------------------------
(Name of Stockholder)
/s/ David Carlick
----------------------------------------------
(Signature)
----------------------------------------------
(Print Name)
Director
----------------------------------------------
(Title if applicable)
122
<PAGE>
Comdisco, Inc.
----------------------------------------------
(Name of Stockholder)
/s/ Jill C. Hanses
----------------------------------------------
(Signature)
Jill C. Hanses
----------------------------------------------
(Print Name)
Senior Vice President
----------------------------------------------
(Title if applicable)
123
<PAGE>
Bradley C. Rode
----------------------------------------------
(Name of Stockholder)
/s/ Bradley C. Rode
----------------------------------------------
(Signature)
Bradley C. Rode
----------------------------------------------
(Print Name)
----------------------------------------------
(Title if applicable)
124
<PAGE>
Nielsen Media Research, Inc.
----------------------------------------------
(Name of Stockholder)
/s/ Stephen J. Boutti
----------------------------------------------
(Signature)
Stephen J. Boutti
----------------------------------------------
(Print Name)
Senior Vice President
----------------------------------------------
(Title if applicable)
125
<PAGE>
Patrizia Owen
----------------------------------------------
(Name of Stockholder)
/s/ Patrizia Owen
----------------------------------------------
(Signature)
Patrizia Owen
----------------------------------------------
(Print Name)
VP, Finance & Corporate
Development
----------------------------------------------
(Title if applicable)
126
<PAGE>
William L. Matthews
----------------------------------------------
(Name of Stockholder)
/s/ William L. Matthews
----------------------------------------------
(Signature)
William L. Matthews
----------------------------------------------
(Print Name)
Executive Director of Sales
----------------------------------------------
(Title if applicable)
127
<PAGE>
Schedule 1 to Stock Purchase Agreement
<TABLE>
<CAPTION>
Whole Whole
Shares of Shares of
I/PRO CMGI to Engage to
Shares Shareholder Shareholder
Shareholder Tendered at Closing at Closing
---------- -------- ---------- ----------
<C> <S> <C> <C> <C>
1 Foundation Capital, L.P. 12,270,258 32,326 90,577
2 Foundation Capital Entrepreneurs Fund, L.L.C. 1,363,362 3,591 10,064
3 Information Associates, C.V. 289,817 763 2,139
4 Information Associates, L.P. 10,541,776 27,772 77,817
5 David L. Anderson 78,770 207 581
6 Anderson Living Trust 317,163 835 2,341
7 Anvest, L.P. 496,019 1,306 3,661
8 G. Leonard Baker, Jr. 530,497 1,397 3,916
9 Tench Coxe 218,098 574 1,609
10 James C. Gaither 22,776 60 168
11 Genstar Investment Corporation 193,775 510 1,430
12 David Golob 18,545 48 136
13 Timothy M. Haley and Ethna C. McGourty, Trustees of 13,174 34 97
the Haley McGourty Family Trust U/D/T dated
September 27, 1996
14 Ronald Perkins 74,517 196 550
15 William Sahlman 13,174 34 97
16 Saunders Holdings, L.P. 361,455 952 2,668
17 Sutter Hill Ventures, a California Limited Partnership 6,119,379 16,121 45,172
18 Tow Partners, a California Limited Partnership 262,152 690 1,935
19 Paul M. and Marsha R. Wythes, Trustees of the Wythes 139,410 367 1,029
Living Trust dated 7/21/87
20 Wells Fargo, Trustee SHV M/P/T Tench Coxe 296,966 782 2,192
21 Wells Fargo, Trustee SHV M/P/T William H. Younger, 166,858 439 1,231
Jr.
22 William H. Younger, Jr. 121,434 319 896
23 William H. Younger, Jr., Trustee, The Younger Living 448,900 1,182 3,313
Trust
</TABLE>
128
<PAGE>
<TABLE>
<CAPTION>
Whole Whole
Shares of Shares of
I/PRO CMGI to Engage to
Shares Shareholder Shareholder
Shareholder Tendered at Closing at Closing
---------- -------- ---------- ----------
<C> <S> <C> <C> <C>
24 SOFTBANK Ventures, Inc. 3,608,505 9,506 26,637
25 The Hearst Corporation 1,543,851 4,067 11,396
26 Gannett International Communications, Inc. 1,292,897 3,406 9,543
27 Intel Corporation 809,202 2,131 5,973
28 ITOCHU Corporation 323,679 852 2,389
29 ITOCHU Technology, Inc. 80,918 213 597
30 Zuleima Aguilar 11,825 31 87
31 Homer Luther, Jr. 17,568 46 129
32 John E. Maxfield 10,465 27 77
33 Eriberto R. Scocimara GST U/A 12-21-92 60,232 158 444
34 Robert T. & Sherry Y. Artemenko 17,568 46 129
35 Stu Berman 17,568 46 129
36 John R. Mackall 17,568 46 129
37 Todd McIntyre 17,568 46 129
38 Stanford University 52,631 138 388
39 Seth M. Skolnik 12,299 32 90
40 Leonard J. Washington II 5,269 13 38
41 Ariel Poler 969,000 2,552 7,153
42 Hewlett-Packard Company 253,510 667 1,871
43 Mark Ashida 236,804 623 1,748
44 R. Alan Chase 216,000 569 1,594
45 David Tillinghast 68,923 181 508
46 Charles Askanas 44,486 117 328
47 Trevor Blumenau 44,486 117 328
48 Gregory L. Waldorf 24,000 63 177
49 Tak Woon Yan 20,000 52 147
50 Jon Bode 18,476 48 136
</TABLE>
129
<PAGE>
<TABLE>
<CAPTION>
Whole Whole
Shares of Shares of
I/PRO CMGI to Engage to
Shares Shareholder Shareholder
Shareholder Tendered at Closing at Closing
---------- -------- ---------- ----------
<C> <S> <C> <C> <C>
51 Olivia V. Dillan 14,876 39 109
52 John Kremer 14,688 38 108
53 Kevin Doerr 9,476 24 69
54 Marc Kenig 6,250 16 46
55 Benjamin E. Godley 5,355 14 39
56 Noel Poler 5,000 13 36
57 Maximillian Pollak 3,955 10 29
58 Paul M. Norwood 3,145 8 23
59 John Garner 3,048 8 22
60 Kevin Poler 2,500 6 18
61 Dylan Poler 2,500 6 18
62 Katharine N. Wang 1,214 3 8
63 Michael L. Connell 1,500 3 11
64 Barbara Gore 60,000 158 442
65 Robert Spoer 25,000 65 184
66 John Steinhart 5,000 13 36
67 Webster Augustine III 22,242 58 164
68 James L. Brock 6,148 16 45
69 Frida Alter 66,140 173 487
70 Interpublic Group of Companies 2,000,430 5,268 14,765
71 David Carlick 120,175 315 887
72 Comdisco, Inc. 359,875 947 2,655
73 Bradley Rode 2,604,860 6,862 19,227
74 Nielsen Media Research, Inc. 2,536,188 6,681 18,720
75 Patrizia Owen 273,457 720 2,018
76 William Matthews 37,813 99 278
---------- ---------- ----------
Totals 52,344,408 137,861 386,357
========== ========== ==========
</TABLE>
130
<PAGE>
EXHIBIT 10.27
TAX ALLOCATION AGREEMENT
TAX ALLOCATION AGREEMENT (the "Agreement") is made as of _________, 1999,
by and among CMGI, Inc., a Delaware corporation ("Parent"), and Engage
Technologies, Inc., a Delaware corporation ("Sub").
WHEREAS, prior to the Closing Date (as defined below) Sub was a member of
the Parent Group (as defined below);
WHEREAS, Parent will cause to be sold to the public a portion of the common
stock of Sub in a Public Offering (as defined below);
WHEREAS, the parties desire to provide for the allocation of
responsibilities, liabilities and benefits in respect of Taxes (as defined
below).
NOW, THEREFORE, the parties agree as follows:
ARTICLE I
DEFINITIONS
"Closing Date" means the close of business on the date on which Sub ceases
to be a member of the Parent Group.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated Returns" means any consolidated, combined, or unitary Tax
Returns required to be filed by Parent with respect to United States federal,
state, or local Taxes imposed or based on net income, net worth or gross
receipts.
"Parent Group" means an affiliated group (within the meaning of Section
1504(a) of the Code, and any corresponding provisions of state, local, or
foreign tax law) having Parent as its common parent.
"Parent Subsidiary" or "Parent Subsidiaries" mean each corporation of which
Parent owns, directly or indirectly, capital stock representing more than 50% of
the outstanding voting stock. Parent Subsidiary or Parent Subsidiaries shall
not include Sub or any Sub Subsidiary.
"Public Offering" means either the sale to the public by Parent or the
issuance to the public by Sub of common stock of Sub.
<PAGE>
"Returns" means all returns, reports and information statements (including
all exhibits and schedules thereto) required to be filed with a taxing authority
with respect to any Taxes.
"Sub Subsidiary" or "Sub Subsidiaries" means each corporation of which Sub
owns on the Closing Date or thereafter, directly or indirectly, capital stock
representing more than 50% of the outstanding voting stock.
"Sub Taxes" means United States federal, state and local Taxes imposed or
based on net income, net worth or gross receipts (including interest and
penalties relating thereto) attributable to the operations of Sub and Sub
Subsidiaries.
"Taxes" means all federal, state, local and foreign income, profits,
franchise, sales, use, occupation, property, severance, excise, payroll,
withholding, and any other taxes (including interest and penalties thereon).
ARTICLE II
REPRESENTATIONS
Section 2.1 Parent represents and warrants to the Sub that all
Consolidated Returns for any taxable year or Tax period ending on or before the
Closing Date have been or shall be timely filed in accordance with all
applicable laws, and all Taxes shown as due on such Consolidated Returns have
been or shall be paid, and any proposed deficiency asserted by any taxing
authority with respect thereto has been paid or properly protested.
Section 2.2 Sub represents and warrants to Parent that all Tax Returns
for any taxable year or Tax period ending on or before the Closing Date with
respect to Sub and Sub Subsidiaries, excluding any Consolidated Returns, have
been or shall be timely filed in accordance with all applicable laws, and all
Taxes shown as due on such Returns have been or shall be paid, and any proposed
deficiency asserted by any taxing authority with respect thereto has been paid
or properly protested.
ARTICLE III
TAX MATTERS
Section 3.1 Parent shall include (to the extent required by law) in
Consolidated Returns the taxable income or loss and all other Tax items of Sub
for the taxable years or Tax periods ending on or before the Closing Date. For
the period commencing on August 1 immediately preceding the Closing Date and
ending on the Closing Date the following arrangement shall apply to ensure that
<PAGE>
the correct amount of Sub Taxes due in respect of the Consolidated Returns is
billed to and paid by Sub:
(a) An estimate of the amount of such Sub Taxes due, which estimate shall
be determined in good faith and shall reflect amounts, if any, previously paid
by Sub with respect to Sub Taxes through the Closing Date, shall be billed to
Sub and paid to Parent prior to the Closing Date.
(b) Upon filing of the Consolidated Returns for the taxable year which
shall include the period commencing on August 1 and ending on the Closing Date,
either
(i) the unpaid amount, if any, of Sub Taxes due in respect of such
Consolidated Returns shall be billed to Sub, and Sub or its designee shall pay
such amount to Parent within 30 days after receiving written notice from Parent
of such amount, or,
(ii) if the amount of such Sub Taxes paid to Parent, if any, exceeds
the amount of the Sub Taxes due in respect of such Consolidated Returns, Parent
or its designee shall pay such excess to Sub or its designee within 30 days
after filing the Consolidated Returns for the taxable year which includes the
Closing Date.
(c) Sub Taxes due in respect of Consolidated Returns shall be determined
in accordance with (i) the method set forth in Section 1552(a)(1) of the Code
and U.S. Federal Income Tax Regulation Sections 1.1552-1(a)(1) and 1.1552-1(b),
(ii) none of the three methods of allocation under Section 1.1502-33(d)
(sometimes referred to as the three "Complementary Methods"), and (iii) the
practices of the parties for Tax periods ended prior to the Closing Date.
(d) Except as provided in Section 3.7 and the last sentence of this
subsection (d), no party shall have any obligation to make any payments to
another party for the use of such other party's Tax attributes pursuant to U.S.
Federal Income Tax Regulation Section 1.1502-33(d), or otherwise.
Notwithstanding the preceding sentence, Parent shall be required to reimburse
Sub for any payments required to be made in respect of periods ending on or
before the Closing Date by Sub to Sumitomo pursuant to Section 3.4.1 of the
License Agreement between Sub and Sumitomo dated as of July 31, 1998.
Section 3.2 Subject to the provisions of Section 3.1, Parent shall be
liable for any and all Sub Taxes in respect of all Consolidated Returns due or
payable by Parent for any taxable year or Tax period ending on or before the
Closing Date.
Section 3.3 Subject to the provisions of Section 3.1, Sub and Sub
Subsidiaries shall be liable for (i) any and all Sub Taxes in respect of
Consolidated Returns due or payable to Parent by Sub under Section 3.1, and (ii)
any and all Taxes (other than Sub Taxes in respect of Consolidated Returns)
<PAGE>
due or payable by Sub or Sub Subsidiaries for any taxable year or Tax period
(whether ending before, on or after the Closing Date).
Section 3.4 Any Taxes (other than ad valorem, personal property and real
property Taxes) for any Tax period beginning before the Closing Date and ending
after the Closing Date shall be apportioned between Sub as a member of the
Parent Group and Sub as a separate company which is not a member of the Parent
Group, respectively, based on the actual operations of Sub and/or Sub
Subsidiaries, as the case may be, during the portion of such period ending on
the Closing Date, and the portion of such period beginning on the day following
the Closing Date, and each portion of such period shall be deemed to be a Tax
period subject to the provisions of Sections 3.2 and 3.3. In the case of ad
valorem, personal property and real property Taxes such apportionment shall be
on a per diem basis.
Section 3.5 Sub shall file or cause to be filed all required state,
local and foreign non-Consolidated Returns with respect to Sub and Sub
Subsidiaries for the Tax period beginning before the Closing Date and ending
after the Closing Date, and any such unfiled Tax Returns for periods ending on
or before the Closing Date, and Sub shall pay or cause its Subsidiaries to pay
all Taxes shown as due on any such Tax Returns.
Section 3.6 Any refunds or credits of Sub Taxes in respect of
Consolidated Returns for any taxable year or Tax period ending on or before the
Closing Date shall be for the account of Parent and Parent Subsidiaries. Any
refunds or credits of Taxes (other than Sub Taxes in respect of Consolidated
Returns) paid by Sub or Sub Subsidiaries for any taxable year or Tax period
(whether ending before, on or after the Closing Date) shall be for the account
of Sub and its Subsidiaries.
Section 3.7
(a) Parent shall promptly pay to Sub the amount of any incremental Tax
savings generated by (i) a deduction, credit or exclusion that (A) is actually
realized by the Parent Group with respect to Taxes for a taxable period ending
on or before the Closing Date and (B) relates to or is based on an item that is
the basis for a similar deduction, credit or exclusion taken on a Return with
respect to Taxes of Sub or Sub Subsidiaries for a taxable period ending after
the Closing Date that is denied, disallowed, forfeited, or accelerated prior to
the Closing Date, or (ii) a reduction in the amount of any gross income or
revenue that (A) is actually realized by the Parent Group with respect to Taxes
for a taxable period ending on or before the Closing Date and (B) relates to, or
is based on, a similar item of gross income or revenue that Sub or Sub
Subsidiaries are required to include on a Return or otherwise required to
include in its computation of taxable income as a result of an audit, other
administrative proceeding or otherwise with respect to Taxes for a taxable
period ending after the Closing Date.
<PAGE>
(b) Sub shall promptly pay to Parent the amount of any incremental Tax
savings generated by (i) a deduction, credit or exclusion that (A) is actually
realized by the Sub or Sub Subsidiaries with respect to Taxes for a taxable
period ending after the Closing Date and (B) relates to or is based on an item
that is the basis for a similar deduction, credit or exclusion taken on a
Consolidated Return with respect to Taxes for a taxable period ending on or
before the Closing Date that is denied, disallowed, forfeited, or deferred until
after the Closing Date, or (ii) a reduction in the amount of any gross income or
revenue that (A) is actually realized by Sub or Sub Subsidiaries with respect to
Taxes for a taxable period ending after the Closing Date and (B) relates to, or
is based on, a similar item of gross income or revenue that the Parent Group is
required to include on a Consolidated Return or otherwise required to include in
its computation of taxable income as a result of an audit, other administrative
proceeding or otherwise.
Section 3.8 Parent or Parent designee shall exercise, at Parent's
expense, complete control of the audit, appeal, litigation and/or settlement of
any issues raised in any official inquiry, examination or proceeding that could
result in an official determination with respect to Taxes due or payable by the
Parent Group, Parent Subsidiaries, Sub or Sub Subsidiaries for any taxable year
or Tax period (including a period deemed to be a Tax period under Section 3.4)
ending on or before the Closing Date, except in respect of Taxes for which Sub
or Sub Subsidiaries are responsible in connection with non-Consolidated Returns
required to be filed by Sub or Sub Subsidiaries, in which case Sub shall
exercise, at Sub's expense, complete control of the audit, appeal, litigation
and/or settlement. The parties shall cooperate in any such inquiry, examination
or proceeding.
Section 3.9 Sub irrevocably designates Parent (and shall cause each Sub
Subsidiary to irrevocably designate Parent) as its agent and attorney in fact
(and shall execute any necessary powers of attorney) for the purpose of taking
any and all actions necessary or incidental to the filing of Consolidated Tax
Returns. Parent and Sub will each furnish to the other any and all information
which the other may reasonably request in order to carry out the provisions of
this Agreement to determine the amount of any Tax liability.
<PAGE>
ARTICLE IV
INDEMNIFICATION
Section 4.1
(a) Except to the extent of any due and unpaid obligations of Sub with
respect to its payment obligations under Article III, Parent shall indemnify and
hold harmless Sub against the amount of any and all liability, loss, expense or
damage Sub may suffer or incur as a result of any or all claims, demands, costs
or expenses (including, without limitation, attorneys' and accountants' fees),
interest, penalties, or judgments made against it arising from or incurred in
relation to all Taxes in respect of all Consolidated Returns, and shall make any
payment, remove any lien, and take any action reasonably necessary to prevent
Sub from incurring such liabilities, losses, expenses, or damages.
(b) Except to the extent of any due and unpaid obligations of Parent with
respect to its payment obligations under Article III, Sub shall indemnify and
hold harmless Parent and each Parent Subsidiary against the amount of any and
all liability, loss, expense or damage any such company may suffer or incur as a
result of any or all claims, demands, costs or expenses (including, without
limitation, attorneys' and accountants' fees), interest, penalties, or judgments
made against it arising from or incurred in relation to (i) any failure of Sub
to pay any amount to Parent with respect to Sub's obligations under Article III,
and (ii) any and all Taxes (other than Taxes in respect of Consolidated Returns)
due or payable by Sub or Sub Subsidiaries for any taxable year or Tax period
beginning before, on or after the Closing Date.
Section 4.2 Payments under this Agreement shall be due no later than
thirty (30) days after the date written demand therefor, with a reasonably
detailed explanation for the basis of the claim, is actually received by Parent
or Sub.
Section 4.3 In the event that any party fails to pay any amount owed
pursuant to this Agreement within ten (10) days after the date when such amount
is due, interest shall accrue on the unpaid amount at the rate applicable to
underpayments of the Tax with respect to which such amount relates from the due
date until such amounts are fully paid.
<PAGE>
ARTICLE V
MISCELLANEOUS
Section 5.1 For all purposes of this Agreement, Sub shall be the agent
for each Sub Subsidiary, with full power to give any consent and/or exercise any
right provided for herein on behalf of such Sub Subsidiary.
Section 5.2 Any dispute concerning the calculation or basis of
determination of any payment provided for hereunder shall be resolved by a law
firm or "big five" accounting firm, selected jointly by Parent and Sub, whose
judgment shall be conclusive and binding upon the parties in the absence of
manifest error. The fees and other expenses of such law or accounting firm
shall be paid 50% by Parent and 50% by Sub.
Section 5.3 This Agreement shall be binding upon the parties hereto and
shall inure to the benefit of and be binding upon any of their successors or
assigns; provided, however, that none of Parent, Sub, or any of the Sub
Subsidiaries may assign or delegate any of its obligations hereunder without the
consent of Sub (in the case of a proposed assignment or delegation by Parent) or
Parent (in the case of a proposed assignment or delegation by Sub or any of the
Sub Subsidiaries).
Section 5.4 This Agreement embodies the entire understanding between the
parties relating to its subject matter and supersedes and terminates all prior
agreements and understandings among the parties with respect to such subject
matter. Any and all prior correspondence, conversations and memoranda with
respect to such subject matter are merged herein and shall be without effect
hereon. No promises, covenants or representations of any kind, other than those
expressly stated herein, have been made to induce any party to enter into this
Agreement. This Agreement shall not be modified or terminated except by a
writing duly signed by each of the parties (or, in the case of a Sub Subsidiary,
by Sub acting as its agent on its behalf), and no waiver of any provisions of
this Agreement shall be effective unless in a writing duly signed by the party
sought to be bound (or, in the case of a Sub Subsidiary, by Sub acting as its
agent on its behalf).
Section 5.5 Any payment, notice or communication required or permitted
to be given under this Agreement shall be in writing (including telegraphic,
telecopy, telex or cable communication) and mailed, telegraphed, telecopied,
telexed, cabled or delivered:
<PAGE>
If to Parent, to:
100 Brickstone Square
Andover, Massachusetts 01810
Attention: Mr. Don Combs, Vice President for Finance
If to Sub on its own behalf, or as agent for the Sub Subsidiaries, to:
100 Brickstone Square
Andover, Massachusetts 01810
Attention: Mr. Stephen A. Royal, Chief Financial Officer
or to such other person or address as a party shall furnish in writing to all
the other parties. All such notices and communications shall be effective
(i) when received, if mailed or delivered, or (ii) when delivered to the
telegraph company, transmitted by telecopier, confirmed by telex answerback or
delivered to the cable company, respectively.
Section 5.6 This Agreement may be executed in two or more counterparts,
each of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
Section 5.7 This Agreement shall be governed by the laws applicable to
contracts entered into and to be fully performed within the State of Delaware by
residents thereof.
Section 5.8. Each of Parent, Sub, and any of the Sub Subsidiaries agree
that, in the event of any legal suit or proceeding arising in connection with
this Agreement and the obligations of the parties hereunder, it shall submit to
the jurisdiction of the United States District Court of Delaware and further
agrees to venue in such court.
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed by its respective duly authorized officer as of the date first set
forth above.
CMGI, INC.
By:
-------------------------------------------
Title:
----------------------------------------
ENGAGE TECHNOLOGIES, INC.
By:
-------------------------------------------
Title:
----------------------------------------
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Engage Technologies, Inc.:
We consent to the use of our report included herein and to the references to
our firm under the headings "Selected Financial Data" and "Experts" in the
prospectus.
/s/ KPMG LLP
KPMG LLP
Boston, Massachusetts
June 11, 1999
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Accipiter, Inc.:
We consent to the inclusion of our report on Accipiter, Inc. dated March 26,
1998 in the prospectus constituting part of this Registration Statement on
Form S-1 of Engage Technologies, Inc. and to the reference to our firm under
the heading "Experts" in the prospectus.
/s/ KPMG LLP
KPMG LLP
Raleigh, North Carolina
June 11, 1999
<PAGE>
Exhibit 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the prospectus constituting part of this
Registration Statement on Form S-1 of Engage Technologies, Inc. of our report
dated March 1, 1999 relating to the financial statements of Internet Profiles
Corporation, a California corporation, which appears in such prospectus. We
also consent to the reference to us under the heading "Experts" in such
prospectus.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
San Jose, California
June 11, 1999
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