<PAGE> 1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM 10-Q
[X] QUARTERLY Report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED JANUARY 31, 2000
[ ] Transition Report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
FOR THE TRANSITION PERIOD FROM ___ TO ____
----------
COMMISSION FILE NUMBER 000-26671
ENGAGE TECHNOLOGIES, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 04-3281378
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 BRICKSTONE SQUARE, ANDOVER, MASSACHUSETTS 01810
(Address of principal executive offices) (Zip Code)
(978) 684-3884
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
The number of shares outstanding of the registrant's Common Stock as of March 1,
2000 was 54,176,543.
================================================================================
<PAGE> 2
ENGAGE TECHNOLOGIES, INC.
FORM 10-Q
FOR THE QUARTER ENDED JANUARY 31, 2000
----------
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
a) Consolidated Balance Sheets as of July 31, 1999 and
January 31, 2000 (unaudited) ................................. 3
b) Consolidated Statements of Operations (unaudited) for
the three and six months ended January 31, 1999
and 2000 ..................................................... 4
c) Consolidated Statements of Cash Flows (unaudited) for
the six months ended January 31, 1999 and 2000 ............... 5
d) Notes to Interim Consolidated Financial Statements ........... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ......................................... 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk ........ 20
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds ......................... 21
Item 4. Submission of Matters to a Vote of Security Holders ............... 21
Item 6. Exhibits and Reports on Form 8-K .................................. 22
SIGNATURES
EXHIBIT INDEX
<PAGE> 3
ENGAGE TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PAR VALUE)
<TABLE>
<CAPTION>
JULY 31, JANUARY 31,
1999 2000
-------- ---------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................................ $112,034 $ 44,010
Available-for-sale securities ............................ 1,067 44,678
Accounts receivable, less allowance for doubtful
accounts of $986 and $1,621 at July 31, 1999 and
January 31, 2000, respectively ......................... 5,632 12,861
Prepaid expenses ......................................... 595 1,978
-------- --------
Total current assets .................................. 119,328 103,527
-------- --------
Property and equipment, net ................................ 1,801 7,168
Investment in joint venture ................................ 1,047 415
Intangible assets, net of accumulated amortization
of $7,903 and $22,191 at July 31, 1999 and
January 31, 2000, respectively ......................... 41,401 193,765
Restricted cash ............................................ -- 1,661
Other assets ............................................... 371 3,010
-------- --------
Total assets .......................................... $163,948 $309,546
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt ........................ $ -- $ 2,028
Obligation under capital lease ........................... 302 1,041
Due to CMGI and affiliates ............................... 131 1,878
Accounts payable ......................................... 1,002 3,118
Accrued expenses and other current liabilities ........... 10,047 19,751
Deferred revenue ......................................... 4,293 5,162
-------- --------
Total current liabilities ............................. 15,775 32,978
-------- --------
Deferred revenue ........................................... 1,508 1,067
Long-term debt, net of current portion ..................... -- 2,812
Obligation under capital lease, net of current portion ..... 367 1,768
Other long-term liabilities ................................ -- 443
Commitments and contingencies
Stockholders' equity:
Preferred Stock, $.01 par value, 5,000 shares
authorized, 0 issued and outstanding .................. -- --
Common Stock, $.01 par value, 150,000 shares
authorized, 97,349 and 108,153 shares issued
and outstanding at July 31, 1999 and
January 31, 2000, respectively ........................ 973 1,082
Additional paid-in capital ............................... 208,183 367,361
Deferred compensation .................................... (4,024) (2,025)
Accumulated other comprehensive (loss) income ............ (353) 442
Accumulated deficit ...................................... (58,481) (96,382)
-------- --------
Total stockholders' equity ............................ 146,298 270,478
-------- --------
Total liabilities and stockholders' equity ............ $163,948 $309,546
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
ENGAGE TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JANUARY 31, JANUARY 31,
-------------------- -------------------
1999 2000 1999 2000
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue:
Product revenue .................................... $ 1,599 $ 11,088 $ 2,744 $ 16,322
Product revenue, related parties ................... 658 463 844 2,045
Services and support revenue ....................... 393 1,115 627 2,283
Services and support revenue, related parties ...... 29 103 50 421
-------- -------- -------- --------
Total revenue .................................. 2,679 12,769 4,265 21,071
-------- -------- -------- --------
Cost of revenue:
Cost of product revenue ............................ 961 7,434 1,543 10,622
Cost of services and support revenue ............... 892 1,749 1,517 2,911
-------- -------- -------- --------
Total cost of revenue .......................... 1,853 9,183 3,060 13,533
-------- -------- -------- --------
Gross profit ................................... 826 3,586 1,205 7,538
-------- -------- -------- --------
Operating expenses:
In-process research and development ................ -- 2,317 -- 2,317
Research and development ........................... 1,828 4,592 3,788 7,885
Selling and marketing .............................. 1,846 10,040 3,704 18,071
General and administrative ......................... 629 3,170 1,316 4,985
Amortization of goodwill and other intangibles ..... 1,043 11,445 2,086 13,728
Stock compensation ................................. 195 224 391 326
-------- -------- -------- --------
Total operating expenses ....................... 5,541 31,788 11,285 47,312
-------- -------- -------- --------
Loss from operations .................................... (4,715) (28,202) (10,080) (39,774)
Other income (expense):
Equity in loss of joint venture .................... (150) (374) (160) (700)
Other expense ...................................... -- (33) -- (25)
Interest income .................................... -- 1,421 -- 2,777
Interest expense ................................... (179) (167) (339) (179)
-------- -------- -------- --------
Net loss ................................................ $ (5,044) $(27,355) $(10,579) $(37,901)
======== ======== ======== ========
Basic and diluted net loss per share .................... $ (0.26) $ (0.38)
======== ========
Weighted average number of basic and diluted
shares outstanding ................................... 104,489 100,935
======== ========
Pro forma basic and diluted net loss per share .......... $ (0.07) $ (0.16)
======== ========
Pro forma weighted average number of basic and
diluted shares outstanding ........................... 67,550 67,297
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
ENGAGE TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JANUARY 31,
---------------------------
1999 2000
-------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss ............................................................ $(10,579) $ (37,901)
Adjustments to reconcile net loss to net cash used for
operating activities:
Depreciation and amortization ..................................... 2,488 15,328
Equity in loss of joint venture ................................... 160 721
Provision for bad debts ........................................... 41 571
Stock compensation ................................................ 391 326
Amortization of discount on available-for-sales securities ........ -- (767)
Gain on sale of available-for-sale securities ..................... -- (40)
In-process research and development ............................... -- 2,317
Changes in operating assets and liabilities, net of impact
of acquisitions:
Accounts receivable ........................................... (120) (5,778)
Prepaid expenses and other assets ............................. 13 (2,238)
Net change in due to CMGI and affiliates ...................... -- 1,782
Accounts payable .............................................. 358 122
Accrued expenses .............................................. 1,681 533
Deferred revenue .............................................. 3,472 52
-------- ---------
Net cash used for operating activities ...................... (2,095) (24,972)
-------- ---------
Cash flows from investing activities:
Purchase of available-for-sale securities ........................... -- (54,016)
Proceeds from redemption of available-for-sale securities ........... -- 11,800
Net cash acquired on acquisition of subsidiary ...................... -- 3,044
Investment in joint venture ......................................... (1,424) --
Long-term investment at cost ........................................ -- (2,000)
Purchases of property and equipment ................................. (118) (2,104)
Proceeds from sale of property and equipment ........................ -- 8
-------- ---------
Net cash used for investing activities ...................... (1,542) (43,268)
-------- ---------
Cash flows from financing activities:
Net change in debt to CMGI and affiliates ........................... 1,598 --
Proceeds from stock option exercises ................................ 9 384
Proceeds from stock issued under Employee Stock Purchase Plan ....... -- 298
Issuance of preferred stock, net of issuance costs .................. 1,934 --
Repayment of capital lease obligations .............................. -- (155)
Repayment of long-term borrowings ................................... -- (313)
-------- ---------
Net cash provided by financing activities ................... 3,541 214
-------- ---------
Effect of exchange rate changes on cash and cash equivalents ........... -- 2
-------- ---------
Net decrease in cash and cash equivalents .............................. (96) (68,024)
Cash and cash equivalents, beginning of period ......................... 96 112,034
-------- ---------
Cash and cash equivalents, end of period ............................... $ -- $ 44,010
======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
ENGAGE TECHNOLOGIES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
A. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared by Engage Technologies, Inc. ("Engage" or the "Company") in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, these unaudited consolidated financial statements do not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, the
accompanying consolidated financial statements contain all adjustments,
consisting only of those of a normal recurring nature, necessary for a fair
presentation of the Company's financial position, results of operations and cash
flows at the dates and for the periods indicated. While the Company believes
that the disclosures presented are adequate to make the information not
misleading, these consolidated financial statements should be read in
conjunction with the audited financial statements and related notes for the year
ended July 31, 1999 which are contained in the Company's Annual Report on Form
10-K filed with the Securities and Exchange Commission ("the SEC") on October
29, 1999. The results for the three and six-month periods ended January 31, 2000
are not necessarily indicative of the results to be expected for the full fiscal
year. Certain prior year amounts in the consolidated financial statements have
been reclassified in accordance with generally accepted accounting principles to
conform with current year presentation.
B. CASH AND SHORT-TERM INVESTMENTS
Engage's cash is invested in debt instruments of financial institutions
and corporations, and in a money market mutual fund. Engage has established
guidelines relative to credit ratings, diversification, and maturities that it
believes help maintain safety and liquidity. Cash equivalents include highly
liquid investments with maturity periods of three months or less when purchased.
Short-term investments include those investments with maturities in excess of
three months but less than one year. Short-term investments and marketable
equity securities are classified as available for sale and reported at fair
value with unrealized gains and losses included within stockholders' equity as a
component of comprehensive income. Engage has not had any significant realized
or unrealized losses related to its investments.
C. EARNINGS PER SHARE
The Company calculates earnings per share in accordance with Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per Share". Basic
earnings per share is computed based on the weighted average number of common
shares outstanding during the period. The dilutive effect of common stock
equivalents are included in the calculation of diluted earnings per share only
when the effect of their inclusion would be dilutive.
Pro forma basic loss per share is based upon the weighted average number
of common shares outstanding during the period. Pro forma diluted loss 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.
Conversion of all preferred stock and debt to CMGI occurred upon the
completion of the Company's initial public offering in July 1999. The pro forma
basic and diluted net loss per share information included in the accompanying
statements of operations for the three and six months ended January 31, 1999
reflect the impact on 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
has not been presented for the three and six-month periods ended January 31,
1999 because it is irrelevant due to the change in the Company's capital
structure and resultant basic and diluted loss per share that resulted upon
conversion of the convertible preferred stock and debt to CMGI. Pro forma basic
and diluted net loss per share has been presented for comparative purposes.
The reconciliation of the numerators and denominators of the basic and
diluted loss per share computation for the Company's reported net loss is as
follows:
6
<PAGE> 7
ENGAGE TECHNOLOGIES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
BASIC AND DILUTED NET LOSS PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JANUARY 31, 2000 JANUARY 31, 2000
------------------ ----------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
NUMERATOR:
Net loss........................................................ $(27,355) $(37,901)
-------- --------
DENOMINATOR:
Weighted average shares outstanding............................. 104,489 100,935
-------- --------
Basic and diluted net loss per share ........................... $ (0.26) $ (0.38)
======== ========
</TABLE>
At January 31, 2000, the Company had outstanding stock options to purchase
20,668,182 shares of common stock at a weighted average exercise price of $7.30
that could potentially dilute earnings per share. The dilutive effect of the
exercise of these options has been excluded from the computation of diluted net
loss per share, as the effect would have been antidilutive for the periods
presented.
The reconciliation of the numerators and denominators of the pro forma
basic and pro forma diluted loss per share computation for the Company's
reported net loss is as follows:
PRO FORMA BASIC AND DILUTED NET LOSS PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JANUARY 31, 1999 JANUARY 31, 1999
------------------ ----------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
NUMERATOR:
Net loss....................................................... $ (5,044) $(10,579)
-------- --------
DENOMINATOR:
Weighted average shares outstanding............................ 430 416
Assumed conversion of preferred stock.......................... 60,954 60,856
Assumed conversion of debt to CMGI............................. 6,166 6,025
-------- --------
Weighted average number of diluted shares outstanding.......... 67,550 67,297
-------- --------
Pro forma basic and diluted net loss per share ................ $ (0.07) $ (0.16)
======== ========
</TABLE>
At January 31, 1999, the Company had outstanding stock options to purchase
9,709,120 shares of common stock at a weighted average exercise price of $0.82
that could potentially dilute earnings per share. The dilutive effect of the
exercise of these options has been excluded from the computation of diluted net
loss per share, as the effect would have been antidilutive for the periods
presented.
D. ACQUISITION
On December 22, 1999, Engage completed its acquisition of AdKnowledge Inc.
("AdKnowledge"), a provider of products and services which allow online
marketers and ad agencies to plan, target, serve, track and analyze advertising
campaigns. Previously, on September 23, 1999, Engage, CMGI, AK Acquisition
Corp., a wholly-owned subsidiary of CMGI, AdKnowledge, and Steve Findley, John
Mracek and Kevin Wandryk (collectively, the "Shareholder Representative")
executed an Agreement and Plan of Merger and Contribution (the "Merger
Agreement"). Upon the completion of the transactions contemplated by the Merger
Agreement, AdKnowledge became a wholly-owned subsidiary of Engage. Specifically,
the Merger Agreement contemplated:
7
<PAGE> 8
ENGAGE TECHNOLOGIES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
First, a merger of Transitory Sub with and into AdKnowledge, with
AdKnowledge being the surviving corporation (the "Surviving Corporation"). In
this merger, all the AdKnowledge preferred shareholders received CMGI common
stock and a new class of AdKnowledge common stock ("Surviving Corporation Common
Stock"), and all common shareholders of AdKnowledge received shares of Surviving
Corporation Common Stock. Upon completion of this merger on November 30, 1999,
CMGI owned approximately 88% of the Surviving Corporation Common Stock.
Second, CMGI and other shareholders of Surviving Corporation contributed
their Surviving Corporation Common Stock to Engage in exchange for approximately
10.3 million shares of Engage common stock (the "Contribution"). Engage issued
common stock from its authorized but unissued capital stock.
Third, Engage consummated a California short-form merger (the "Short-Form
Merger") between Surviving Corporation and a wholly-owned subsidiary of Engage
("Engage Sub"), pursuant to which Engage Sub merged with and into Surviving
Corporation, with Surviving Corporation being the surviving corporation in such
merger. Any remaining holders of Surviving Corporation Common Stock received
Engage common stock in this merger.
Total purchase consideration was valued at approximately $161 million, net
of cash acquired of $3.0 million. Included in the purchase consideration was
$3.8 million in direct acquisition costs. In connection with the contribution
and the Short-Form Merger, Engage issued approximately 9.8 million shares of its
common stock to CMGI for CMGI's 88% interest in Surviving Corporation and
approximately 506,000 shares of its common stock directly to shareholders of
Surviving Corporation, valued at approximately $142.4 million in the aggregate.
Additionally, stock options to acquire Engage's common stock issued in the
contribution, valued at approximately $18 million, have been included in the
purchase consideration.
Contingent consideration, comprised of approximately 414,000 shares of
CMGI common stock (adjusted for stock splits), has been placed in escrow (the
"Escrow Shares") to satisfy certain performance goals and indemnifications. The
value of the Escrow Shares has not been reflected in the aggregate purchase
consideration and will be recorded as additional purchase price at the then-fair
value upon the attainment of certain performance goals measured through November
30, 2000. Engage issued approximately 1,116,000 of its common shares to CMGI in
consideration for the Escrow Shares. No value has been ascribed to the value of
these shares. If the performance goals are met and the Escrow Shares are
released to the AdKnowledge shareholders, Engage will record the fair value of
the CMGI shares issued to AdKnowledge shareholders on the release date as
additional purchase price. Any difference in the fair value of Engage shares at
the release date compared to the value of the Escrow Shares will be recorded as
a capital transaction between entities under common control. Under the terms of
an Intercompany Agreement between Engage and CMGI, in the event that any Escrow
Shares are returned to CMGI, CMGI shall pay Engage, in cash or other property, a
sum equal to the value of the returned Escrow Shares.
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 $2,317,000, or
approximately 1.2% of the total purchase price. At the acquisition date,
AdKnowledge's major in-process projects were: (1) the development of the
AdKnowledge System Architecture Upgrade, which was intended to scale its
software to handle more customers, internationalize the AdKnowledge System, and
help AdKnowledge deploy new features more rapidly; (2) the development of the
AdServer Network Capacity Upgrade, which was intended to allow the AdKnowledge
System to handle more volume; (3) the AdServer Network Operating System Change,
which was intended to improve the managing of AdKnowledge's advertising
campaigns; (4) the development of the Optimal Global Domain Name Service, which
was intended to optimize traffic flow, deliver advertisements faster, and
improve the performance of the AdKnowledge System; and (5) the development of QA
Automation Procedures, which was intended to allow AdKnowledge to release
features on the AdKnowledge System more quickly and with better quality.
At the date of the acquisition, management estimated that completion of
the Architecture Upgrade technology would be accomplished by August 2000. The
initial development effort had commenced in November 1998. At the acquisition
date, technological feasibility of the Architecture Upgrade had not been
reached. At the time of the AdKnowledge purchase, the Architecture Upgrade
project was approximately 57% complete.
8
<PAGE> 9
ENGAGE TECHNOLOGIES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
At the date of the acquisition, management estimated that completion of
the Capacity Upgrade technology would be accomplished by January 2000. The
initial development effort had commenced in October 1999. At the acquisition
date, technological feasibility of the Capacity Upgrade had not been reached. At
the time of the AdKnowledge purchase, the Capacity Upgrade project was
approximately 65% complete.
At the date of the acquisition, management estimated that completion of
the Operating System technology would be accomplished by March 2000. The initial
development effort had commenced in October 1999. At the acquisition date,
technological feasibility of the Operating System Change had not been reached.
At the time of the AdKnowledge purchase, the Operating System Change project was
approximately 28% complete.
At the date of the acquisition, management estimated that completion of
the Optimal Global Domain Name Service technology would be accomplished by June
2000. The initial development effort had commenced in September 1999. At the
acquisition date, technological feasibility of the Optimal Global Domain Name
Service had not been reached. At the time of the AdKnowledge purchase, the
Optimal Global Domain Name Service project was approximately 23% complete.
At the date of the acquisition, management estimated that completion of
the QA Automation Procedures technology would be accomplished by June 2000. The
initial development effort had commenced in June 1999. At the acquisition date,
technological feasibility of the QA Automation Procedures had not been reached.
At the time of the AdKnowledge purchase, the QA Automation Procedures project
was approximately 75% 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, trade names/trademarks, database, 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 rates used for in-process
research and development range from 25% to 30%, reflecting a 10% to 15% premium
over the estimated weighted-average cost of capital of 15%. These different
discount rates reflect the relative risk of the technologies, and their stage of
completion.
The resulting net cash flows to which the discount rates were 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 technologies. 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
AdKnowledge to successfully implement its in-process research and development
projects. These growth rates were based on the expected growth of Internet users
and online activity and the impact such growth would have on Internet
advertising. Revenues related to each of the in-process research and development
projects were identified.
AdKnowledge's estimated cost of sales as a percentage of revenue is
expected to decrease on a stand-alone basis, as efficiencies due to economies of
scale are realized. The estimated cost of sales as a percentage of revenue is
expected to decrease to a low of 30% in the third forecast year.
AdKnowledge's estimated selling and marketing expenses are expected to be
30% as a percentage of revenues for the entire forecast period. Similarly,
general and administrative expenses remained constant at 10%, as a percentage of
revenues, for the entire forecast period.
The acquisition of AdKnowledge 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 amount of the purchase price allocated to goodwill, developed
technology and other identifiable intangible assets is being amortized on a
straight-line basis over three years. Amortization of developed technology is
charged to cost of product revenue, while amortization of goodwill and other
identifiable intangible assets is reflected as a separate component within
operating expenses.
9
<PAGE> 10
ENGAGE TECHNOLOGIES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
The purchase price of the AdKnowledge acquisition was allocated as
follows:
<TABLE>
(IN THOUSANDS)
<S> <C>
Working capital deficit, net of cash acquired of $3,044........... $ (7,954)
Property and equipment............................................ 4,311
Other assets...................................................... 515
In-process research and development............................... 2,317
Long-term obligations............................................. (4,809)
Goodwill.......................................................... 160,144
Developed technology.............................................. 1,763
Other identifiable intangible assets.............................. 4,745
--------
Purchase price, net of cash acquired.............................. $161,032
========
</TABLE>
The following table represents the unaudited pro forma results of
operations of the Company for the six months ended January 31, 1999 and 2000 as
if the AdKnowledge acquisition had occurred on August 1, 1998. These pro forma
results include adjustments for the amortization of goodwill and other
intangibles and deferred compensation and the elimination of amounts expensed
for in-process research and development. They have been prepared for comparative
purposes only and do not purport to be indicative of what would have occurred
had the acquisitions been made at the beginning of the periods noted or of
results that may occur in the future.
<TABLE>
<CAPTION>
1999 2000
-------- --------
<S> <C> <C>
Net revenues............................................ $ 5,615 $ 24,250
Net loss................................................ (42,677) (64,884)
Net loss per share...................................... (0.55) (0.60)
</TABLE>
E. COMPREHENSIVE LOSS
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 components of comprehensive loss, net of income taxes, are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JANUARY 31, JANUARY 31,
------------------ --------------------
1999 2000 1999 2000
------- -------- -------- --------
<S> <C> <C> <C> <C>
Net loss................................... $(5,044) $(27,355) $(10,579) $(37,901)
Foreign currency adjustments............... 2 (18) 345 91
Net unrealized holding gain arising
during the period....................... 945 698 1,113 704
------- -------- -------- --------
Comprehensive loss......................... $(4,097) $(26,675) $ (9,121) $(37,106)
======= ======== ======== ========
</TABLE>
F. INVESTMENTS
The fair value of investments has been determined through information
obtained from market sources. Engage uses a specific identification cost method
to determine the gross realized gains and losses on the sale of securities.
During the three months ended January 31, 2000, the Company sold its investment
in Informix, Inc. The Company's cash and cash equivalents and available-for-sale
securities at January 31, 2000 were as follows:
10
<PAGE> 11
ENGAGE TECHNOLOGIES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Cash and money market mutual fund ...... $21,247 $ -- $ -- $21,247
Commercial paper ....................... 62,442 12 -- 62,454
Certificate of deposit ................. 4,991 -- (4) 4,987
------- ---- ---- -------
Total investments .................. $88,680 $ 12 $ (4) $88,688
======= ==== ==== =======
AMOUNTS INCLUDED IN:
Cash and cash equivalents .............. $44,010 $ -- $ -- $44,010
Available-for-sale securities .......... 44,670 12 (4) 44,678
------- ---- ---- -------
Total .............................. $88,680 $ 12 $ (4) $88,688
======= ==== ==== =======
</TABLE>
At July 31, 1999, the Company had available-for sale securities recorded
at amortized cost totaling $1,067,000.
G. NON-CASH TRANSACTIONS
During the six months ended January 31, 2000, as the result of the
termination of employment of certain employees prior to the vesting of their
stock options, unvested stock options for which deferred compensation costs had
been recorded in a prior period were cancelled. As a result of these
cancellations, the Company has recorded a reduction of $1,673,000 in both
deferred compensation and additional paid-in capital.
During the six months ended January 31, 2000, the Company acquired
AdKnowledge through the issuance of common stock. See Note D.
H. PENDING ACQUISITIONS
On January 19, 2000, Engage and CMGI, the majority stockholder of the
Engage, executed an Agreement and Plan of Merger and Contribution (the
"Agreement") pursuant to which Engage will acquire Adsmart Corporation
("Adsmart") and Flycast Communications Corporation ("Flycast"). Under the terms
of the Agreement, Engage will acquire Flycast and Adsmart from CMGI and will
issue to CMGI approximately 65 million shares of common stock of Engage. The
transaction will be accounted for as a combination of entities under common
control (i.e., "as if pooling"), and is subject to customary conditions,
including the approval of Engage's stockholders. CMGI has agreed to vote the
shares of common stock of Engage held by it in favor of the transaction. The
fair value of Engage's purchase consideration to be issued to CMGI in excess of
CMGI's carrying values of the net assets of Flycast and Adsmart on the
consummation date will be charged to equity. The transaction is expected to be
completed in April or May 2000. Direct costs of the Adsmart and Flycast
acquisition, consisting primarily of investment banker, legal and accounting
fees, approximating $4.7 million will be expensed upon the closing of the
acquisitions.
The following table represents the unaudited pro forma results of
operations of the Company for the six months ended January 31, 1999 and 2000 as
if the completed AdKnowledge acquisition and the probable Flycast and Adsmart
acquisitions had all occurred on August 1, 1998. These pro forma results include
adjustments for the amortization of goodwill and other intangibles and deferred
compensation and the elimination of amounts expensed for in-process research and
development. The accompanying pro forma results are based on Flycast results for
the six months ended December 31, 1998 and 1999. Additionally, the results of
Adsmart used in the accompanying unaudited pro forma results are based upon
estimates. Net loss and pro forma basic and diluted net loss per share exclude
the actual and estimated impact of in-process research and development charges.
In addition, pro forma basic and diluted net loss per share excludes the impact
of the fair value of Engage's estimated purchase consideration issued to CMGI in
excess of CMGI's carrying values of the net assets of Flycast and Adsmart to be
charged to equity; such excess will be charged to equity in the period in which
the pending acquisitions close. The estimated charge to equity is approximately
$2.3 billion, and is subject to change upon the finalization of purchase
accounting.
11
<PAGE> 12
1999 2000
--------- ---------
Net revenues...................................... $ 12,174 $ 86,231
Net loss.......................................... (193,844) (235,300)
Net loss per share................................ (1.36) (1.36)
I. NEW ACCOUNTING PRONOUNCEMENTS
In December 1999, the SEC issued SAB No. 101, "Revenue Recognition in
Financial Statements." SAB No. 101 expresses the view of the SEC staff in
applying generally accepted accounting principles to certain revenue recognition
issues. Although the Company is still in process of analyzing the impact of SAB
No. 101, if any, on its consolidated statements and related disclosures, the
Company expects that there will be no material impact on its financial position
or its results of operations.
J. SUBSEQUENT EVENT
In February 2000, the Company's Board of Directors approved a two-for-one
stock split of the Company's common stock, effected in the form of a stock
dividend of one share of common stock for each share of common stock
outstanding. The stock dividend is payable on April 3, 2000 to stockholders of
record at the close of business on March 20, 2000. Accordingly, the consolidated
financial statements have been retroactively adjusted for all periods presented
to reflect this event.
K. RECLASSIFICATIONS
Certain reclassification have been made to the prior year financial
statements to conform to the current period presentation.
12
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain statements contained in this Quarterly Report on Form 10-Q,
including information with respect to the Company's future business plans, the
Company's expectation that it will continue to expand its services and support
staff, the Company's belief that costs will continue to exceed revenues for
several more quarters, the Company's liquidity, the Company's Year 2000
readiness and the Company's disclosure about market risk, constitute
"forward-looking statements" within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act. For this purpose, any statements
contained herein that are not statements of historical fact may be deemed to be
forward-looking statements. Without limiting the foregoing, the words
"believes," "plans," "expects" and similar expressions are intended to identify
forward-looking statements. There are a number of important factors that could
cause the results of the Company to differ materially from those indicated by
such forward-looking statements. These factors include those set forth in this
section, the "Risk Factors" section included in the Company's Annual Report on
Form 10-K filed with the SEC on October 29, 1999, and the risk factors discussed
in the Company's other filings with the SEC.
RESULTS OF OPERATIONS
Engage is a leading provider of profile-based Internet marketing
solutions. At January 31, 2000, Engage was an approximately 81% owned subsidiary
of CMGI, Inc ("CMGI"). The Company 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 local profiling and advertising management software and
outsourced services, as well as its services for measuring and analyzing Web
site traffic. In July 1999, Engage commercially introduced its Engage Knowledge
data service to customers. Engage Knowledge provides real-time access to
Engage's database of more than 52 million anonymous profiles of Web users for
more effective targeting of online advertising, promotions and content. In
October 1999, Engage introduced Engage AudienceNet, the first Web-wide profile
driven advertising and marketing network that uses Engage's anonymous, behavior
based profiles to deliver substantial benefits to media buyers, Web sites and ad
networks.
In February 2000, the Company's Board of Directors approved a two-for-one
common stock split, effected in the form of a stock dividend of one share of
common stock for each share of common stock outstanding. The stock dividend is
payable on April 3, 2000 to stockholders of record at the close of business on
March 20, 2000. Accordingly, the consolidated financial statements have been
retroactively adjusted for all periods presented to reflect this event. Unless
otherwise indicated, all share information in this Management's Discussion and
Analysis of Financial Condition and Results of Operations reflect the
two-for-one stock split.
In April 1999, Engage acquired Internet Profiles Corporation ("I/PRO"),
which provides Web site traffic measurement and audit services. 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.
In December 1999, Engage acquired AdKnowledge Inc. ("AdKnowledge"), a
provider of products and services which allow online marketers and ad agencies
to plan, target, serve, track and analyze advertising campaigns. 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.
In January 2000, Engage and CMGI executed an Agreement and Plan of Merger
and Contribution (the "Agreement") pursuant to which Engage will acquire Adsmart
Corporation ("Adsmart") and Flycast Communications Corporation ("Flycast").
Under the terms of the Agreement, Engage will acquire Flycast and Adsmart from
CMGI and will issue to CMGI approximately 65 million shares of common stock of
Engage. The transaction will be accounted for as a combination of entities under
common control (i.e., "as if pooling"), and is subject to customary conditions,
including the approval of Engage's stockholders. CMGI has agreed to vote the
shares of common stock of Engage held by it in favor of the transaction. The
transaction is expected to be completed in April or May 2000.
13.
<PAGE> 14
BASIS OF PRESENTATION
Certain amounts for prior periods in the accompanying consolidated
financial statements, and in the discussion below have been reclassified to
conform with current period presentations.
COMPARISON OF THE THREE MONTHS ENDED JANUARY 31, 1999 AND JANUARY 31, 2000
REVENUE
Total revenue increased from $2.7 million for the three months ended
January 31, 1999 to $12.8 million for the three months ended January 31, 2000.
Revenue from the Company's product offerings accounted for approximately 84% of
total revenue for the three months ended January 31, 1999, compared to 90% of
total revenue for the three months ended January 31, 2000. Approximately 49% of
the increase in total revenue was the result of inclusion of I/PRO's and
AdKnowledge's revenue in product revenue for the quarter ended January 31, 2000.
The remainder of the increase in total revenue was the result of an increase in
revenue from products available in both periods, and to a lesser extent, from
new product releases and an increase in services and support revenue.
Product revenue increased from $2.3 million for the three months ended
January 31, 1999 to $11.6 million for the three months ended January 31, 2000.
Approximately 53% of this increase was the result of inclusion of I/PRO's and
AdKnowledge's revenue in the quarter ended January 31, 2000. The remainder of
the increase was the result of an increase in revenues from products available
in both periods, and to a lesser extent, from new product releases.
Service and support revenue increased from $422,000 for the three months
ended January 31, 1999 to $1.2 million for the three months ended January 31,
2000. The 189% increase quarter-over-quarter was the result of increased
software support and maintenance revenue resulting from increased product
revenue and a large consulting arrangement during the three months ended January
31, 2000.
COST OF REVENUE
Cost of product revenue includes royalties paid to various parties for the
incorporation of their technology into Engage's products, costs associated with
the I/PRO, AdKnowledge, Engage Knowledge and AudienceNet product offerings, as
well as fees paid for outsourced data center operations and the amortization of
developed technology acquired in the Accipiter, I/PRO and AdKnowledge
acquisitions. Cost of support and services revenue is primarily comprised of
payroll and benefits, and allocated overhead costs associated with Engage's
customer support and consulting groups.
Cost of product revenue increased from $961,000 for the three months ended
January 31, 1999 to $7.4 million for the three months ended January 31, 2000. Of
the total dollar increase, approximately $5.3 million was due to the I/PRO and
AdKnowledge acquisitions and the resultant three months and two months,
respectively, of incremental operational costs associated with I/PRO's and
AdKnowledge's product offerings. In addition, a significant portion of the
increase was associated with Engage's AdBureau, Engage Knowledge and AudienceNet
products. Finally, a portion of the increase was the result of increased
amortization costs resulting from the amortization of developed technology
acquired in the I/PRO and AdKnowledge acquisitions. Cost of product revenue was
43% of product revenue for the three months ended January 31, 1999, compared to
64% of product revenue for the three months ended January 31, 2000. The increase
in cost of product revenue as a percentage of product revenue was the result of
the inclusion of costs and revenues from I/PRO and AdKnowledge for the quarter
ended January 31, 2000. The decrease in margins was primarily impacted by lower
margins associated with AdKnowledge product sales.
Cost of service and support revenue increased from $892,000 for the three
months ended January 31, 1999 to $1.7 million for the three months ended January
31, 2000. Cost of service and support revenue was 211% of service and support
revenue for the three months ended January 31, 1999, compared to 144% of service
and support revenue for the three months ended January 31, 2000. Cost of service
and support revenue for the three months ended January 31, 1999 and 2000
exceeded the related revenue due to Engage's continued investment in service and
support staff in advance of anticipated product sales. Overall, including the
acquisition of I/PRO and AdKnowledge, Engage's service and support staff
increased 220% from January 31, 1999 to January 31, 2000. Engage expects to
continue to expand its service and support staff and anticipates that costs may
exceed revenue for several more
14.
<PAGE> 15
quarters. As a percentage of service and support revenue, the improvement in
costs reflects the continued growth of the Company's service and support
business and the spreading of fixed costs over a growing revenue base.
OPERATING EXPENSES
IN-PROCESS RESEARCH AND DEVELOPMENT. In-process research and development
expense was $2.3 million for the three months ended January 31, 2000, resulting
from the AdKnowledge 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 expense. Research and development expenses increased from $1.8
million for the three months ended January 31, 1999 to $4.6 million for the
three months ended January 31, 2000, a 151% increase. This increase was
primarily due to the I/PRO and AdKnowledge acquisitions and the inclusion of
their operations for the quarter ended January 31, 2000, and to a lesser extent,
the expansion of the Company's research and development activities. Overall,
including the acquisition of I/PRO and AdKnowledge, Engage's research and
development staff increased 425% from January 31, 1999 to January 31, 2000.
These increases were offset somewhat by a decrease in spending on the
translation of Engage's products into certain foreign languages, projects which
were substantially completed during fiscal 1999. Research and development
expenses were 68% of total revenue for the three months ended January 31, 1999,
compared to 36% of total revenue for the three months ended January 31, 2000.
This decrease is the direct result of the increase in quarter over quarter
revenue.
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 $1.8 million for the
three months ended January 31, 1999 to $10.0 million for the three months ended
January 31, 2000, a 444% increase. The increase in costs was primarily due to
increases in product advertising costs resulting from the release of several new
products subsequent to January 31, 1999. In addition, a portion of the increase
was related to the continuing expansion of Engage's sales force, as well as
approximately $2.6 million resulting from the I/PRO and AdKnowledge acquisitions
and the inclusion of their operations for the quarter ended January 31, 2000.
Finally, a portion of the increase is due to continued expansion in
international markets and the costs of maintaining sales and marketing efforts
in foreign markets. Overall, including the acquisition of I/PRO and AdKnowledge,
Engage's sales and marketing staff increased 392% from January 31, 1999 to
January 31, 2000. Sales and marketing expenses were 69% of total revenues for
the three months ended January 31, 1999, compared to 79% for the three months
ended January 31, 2000. The increase as a percentage of revenue is the result of
the Company's continued efforts to increase market awareness of the Company's
product lines.
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 $629,000 for the three months ended January 31, 1999 to
$3.2 million for the three months ended January 31, 2000, a 404% increase. The
increase was primarily due to an increase in payroll and related costs
associated with developing an administrative infrastructure to support growing
operations in advance of anticipated revenues and from the inclusion of I/PRO's
and AdKnowledge's operations for the quarter ended January 31, 2000. General and
administrative costs were 23% of total revenue for the three months ended
January 31, 1999, compared to 25% for the three months ended January 31, 2000.
AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES. Amortization of intangible
assets increased from $1.0 million for the three months ended January 31, 1999
to $11.4 million for the three months ended January 31, 2000. The increase was
due to the acquisition of I/PRO in April 1999 and AdKnowledge in December 1999.
Intangible assets from the I/PRO acquisition are being amortized over three to
five years, while intangible assets from the AdKnowledge acquisition are being
amortized over three years.
STOCK COMPENSATION. Stock compensation costs increased from $195,000 for
the three months ended January 31, 1999 to $224,000 for the three months ended
January 31, 2000. Beginning in April 1998, Engage commenced the recognition of
compensation expense relating to approximately 346,160 shares of CMGI common
stock held in escrow to be issued to the employee stockholders of Accipiter who
satisfy a two-year employment continuation provision. Additionally, beginning in
February 1999, Engage began to recognize stock compensation costs as a result of
stock options granted during fiscal 1999 with exercise prices below the
estimated fair market value of the common stock at the date of grant. During the
first quarter of fiscal 2000, as the result of the termination of
15.
<PAGE> 16
employment of certain employees prior to the vesting of their stock options, the
Company reversed $122,000 of stock compensation expense that had been recorded
in prior quarters and ceased monthly stock compensation expense recognition
related to the terminated employees.
EQUITY IN LOSS OF JOINT VENTURE
Equity in loss of Engage's 46% interest in a Japanese joint venture was
$150,000 for the three months ended January 31, 1999, compared to $374,000 for
the three months ended January 31, 2000. The increase in Engage's share of
losses in the joint venture represents the joint venture's continued investment
in expanding its sales and marketing presence within its market.
INTEREST INCOME
Interest income was $1.4 million for the three months ended January 31,
2000. During the three months ended January 31, 2000, interest income was
primarily earned from investing the proceeds of the Company's initial public
offering completed in July 1999.
INTEREST EXPENSE
Interest expense was $179,000 for the three months ended January 31, 1999,
compared to $167,000 for the three months ended January 31, 2000. During fiscal
1998, Engage entered into an arrangement with CMGI which required Engage to
accrue interest on intercompany debt at a rate of 7% per annum. During the three
months ended January 31, 1999, interest expense was recorded on this debt, all
of which was converted into equity in connection with Engage's initial public
offering in July 1999. During the three months ended January 31, 2000, interest
expense was recorded on the Company's long-term debt and capital lease
obligations. Interest expense for the three months ended January 31, 2000 was
primarily related to interest paid on long-term debt and capital lease
obligations maintained by AdKnowledge.
COMPARISON OF THE SIX MONTHS ENDED JANUARY 31, 1999 AND JANUARY 31, 2000
REVENUE
Total revenue increased from $4.3 million for the six months ended January
31, 1999 to $21.1 million for the six months ended January 31, 2000. Revenue
from the Company's product offerings accounted for approximately 84% of total
revenue for the six months ended January 31, 1999, compared to 87% of total
revenue for the six months ended January 31, 2000. Approximately 44% of the
increase in total revenue was the result of inclusion of I/PRO's and
AdKnowledge's revenue in product revenue for the six months ended January 31,
2000. The remainder of the increase in total revenue was the result of an
increase in revenues from products available in both periods, and to a lesser
extent, from new product releases and an increase in services and support
revenue.
Product revenue increased from $3.6 million for the six months ended
January 31, 1999 to $18.4 million for the six months ended January 31, 2000.
Approximately 50% of this increase was the result of inclusion of I/PRO's and
AdKnowledge's revenue in the quarter ended January 31, 2000. The remainder of
the increase was the result of an increase in revenues from products available
in both periods, and to a lesser extent, from new product releases.
Service and support revenue increased from $677,000 for the six months
ended January 31, 1999 to $2.7 million for the six months ended January 31,
2000. The 299% increase in year to date revenue was the result of increased
software support and maintenance revenue resulting from increased product
revenue and two large consulting arrangements during the six months ended
January 31, 2000.
COST OF REVENUE
Cost of product revenue increased from $1.5 million for the six months
ended January 31, 1999 to $10.6 million for the six months ended January 31,
2000. Of the total dollar increase, $5.2 million was due to the I/PRO and
AdKnowledge acquisitions and the resultant six and two months, respectively, of
incremental operational costs associated with I/PRO's and AdKnowledge's product
offerings. In addition, a significant portion of the increase was associated
with Engage's AdBureau, Engage Knowledge and AudienceNet products. Finally, a
portion of the
16.
<PAGE> 17
increase was the result of increased amortization costs resulting from the
amortization of developed technology acquired in the I/PRO and AdKnowledge
acquisitions. Cost of product revenue was 43% of product revenue for the six
months ended January 31, 1999, compared to 58% of product revenue for the six
months ended January 31, 2000. The increase in cost of product revenue as a
percentage of product revenue was the result of the inclusion of costs and
revenues from I/PRO and AdKnowledge. The decrease in margins was primarily
impacted by lower margins associated with AdKnowledge product sales.
Cost of service and support revenue increased from $1.5 million for the
six months ended January 31, 1999 to $2.9 million for the six months ended
January 31, 2000. Cost of service and support revenue was 224% of service and
support revenue for the six months ended January 31, 1999, compared to 108% of
service and support revenue for the six months ended January 31, 2000. Cost of
service and support revenue for the six months ended January 31, 1999 and 2000
exceeded the related revenue due to Engage's continued investment in service and
support staff in advance of anticipated product sales. As a percentage of
service and support revenue, the improvement in costs reflects the continued
growth of the Company's service and support business and the spreading of
fixed costs over a growing revenue base.
OPERATING EXPENSES
IN-PROCESS RESEARCH AND DEVELOPMENT. In-process research and development
expense was $2.3 million for the six months ended January 31, 2000, resulting
from the AdKnowledge acquisition.
RESEARCH AND DEVELOPMENT. Research and development expenses increased from
$3.8 million for the six months ended January 31, 1999 to $7.9 million for the
six months ended January 31, 2000, a 108% increase. This increase was due to the
I/PRO and AdKnowledge acquisitions and the inclusion of their operations for the
six months ended January 31, 2000, and to a lesser extent, the expansion of the
Company's research and development activities. These increases were offset
somewhat by a decrease in spending on the translation of Engage's products into
certain foreign languages, projects which were substantially completed during
fiscal 1999. Research and development expenses were 89% of total revenue for the
six months ended January 31, 1999, compared to 37% of total revenue for the six
months ended January 31, 2000. This decrease is the direct result of the
increase in year to date revenue.
SELLING AND MARKETING. Selling and marketing expenses increased from $3.7
million for the six months ended January 31, 1999 to $18.1 million for the six
months ended January 31, 2000, a 388% increase. The increase in costs was
primarily due to increases in product advertising costs resulting from the
release of several new products subsequent to January 31, 1999. In addition, a
portion of the increase was related to the continuing expansion of Engage's
sales force, as well as approximately $4.3 million resulting from the I/PRO and
AdKnowledge acquisitions, and the inclusion of their operations for the six and
two months, respectively. Finally, a portion of the increase is due to continued
expansion in international markets and the costs of maintaining sales and
marketing efforts in foreign markets. Overall, including the acquisition of
I/PRO and AdKnowledge, Engage's sales and marketing staff increased 392% from
January 31, 1999 to January 31, 2000. Sales and marketing expenses were 87% of
total revenues for the six months ended January 31, 1999, compared to 86% for
the six months ended January 31, 2000. The decrease as a percentage of revenue
is the result of the increase in revenue during the period, offset somewhat by
costs incurred in the Company's continued efforts to increase market awareness
of the Company's products.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
from $1.3 million for the six months ended January 31, 1999 to $5.0 million for
the six months ended January 31, 2000, a 279% increase. The increase was
primarily due to an increase in payroll and related costs associated with the
support of growing operations and from the inclusion of I/PRO's and
AdKnowledge's operations for the six months ended January 31, 2000. General and
administrative costs were 31% of total revenue for the six months ended January
31, 1999, compared to 24% for the six months ended January 31, 2000. The
decrease as a percentage of total revenue is the result of spreading fixed costs
over a larger revenue base.
17.
<PAGE> 18
AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES. Amortization of intangible
assets increased from $2.1 million for the six months ended January 31, 1999 to
$13.7 million for the six months ended January 31, 2000. The increase was due to
the acquisition of I/PRO in April 1999 and AdKnowledge in December 1999.
Intangible assets from the I/PRO acquisition are being amortized over three to
five years, while intangible assets from the AdKnowledge acquisition are being
amortized over three years.
STOCK COMPENSATION. Stock compensation costs decreased from $391,000 for
the six months ended January 31, 1999 to $326,000 for the six months ended
January 31, 2000. During the six months ended January 31, 2000, as the result of
the termination of employment of certain employees prior to the vesting of their
stock options, the Company reversed $122,000 of stock compensation expense that
had been recorded in prior quarters. As such, for the six months ended January
31, 2000, the increase in stock compensation costs resulting from the stock
options issued in February 1999 was somewhat offset by the reversal of
compensation costs recorded in prior periods.
EQUITY IN LOSS OF JOINT VENTURE
Equity in loss of Engage's 46% interest in a Japanese joint venture was
$160,000 for the six months ended January 31, 1999, compared to $700,000 for the
six months ended January 31, 2000. The increase in Engage's share of losses in
the joint venture represents the joint venture's continued investment in
expanding its sales and marketing presence within its market.
INTEREST INCOME
Interest income was $2.8 million for the six months ended January 31,
2000. During the six months ended January 31, 2000, interest income was
primarily earned from investing the proceeds of the Company's initial public
offering completed in July 1999.
INTEREST EXPENSE
Interest expense was $339,000 for the six months ended January 31, 1999,
compared to $179,000 for the six months ended January 31, 2000. During fiscal
1998, Engage entered into an arrangement with CMGI which required Engage to
accrue interest on intercompany debt at a rate of 7% per annum. During the six
months ended January 31, 1999, interest expense was recorded on this debt, all
of which was converted into equity in connection with Engage's initial public
offering in July 1999. During the six months ended January 31, 2000, interest
expense was recorded on the Company's long-term debt and capital lease
obligations. Interest expense for the six months ended January 31, 2000 was
primarily related to interest paid on long-term debt and capital lease
obligations maintained by AdKnowledge.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents decreased from $112.0 million at
July 31, 2000 to $44.0 million at January 31, 2000, primarily the result of
investing $42.2 million in available-for-sale securities and investing $2.0
million in a strategic partner of the Company. The Company recorded the $2.0
million investment at cost, and has classified the investment within Other
Assets. In addition, a portion of the decrease is the result of $25.0 million
used to fund operating activities and $2.1 used to acquire property and
equipment. Historically, the Company has funded its operations and capital
expenditures through funds received from CMGI and since its initial public
offering in July 1999, from the proceeds of the initial public offering.
The Company has experienced a substantial increase in its expenditures
since inception consistent with its growth in operations and staffing. The
Company anticipates that expenditures will continue to increase for the
foreseeable future as the Company accelerates the growth of its business.
Additionally, the Company will continue to evaluate investment opportunities in
businesses that management believes will complement its technologies and
marketing strategies.
Assuming the closing of the acquisitions of Adsmart and Flycast, the
Company currently anticipates that its available cash resources will only be
sufficient to meet its anticipated needs for working capital and capital
expenditures for approximately the next 3-4 quarters. Included in this estimate
is the payment of approximately $4.7 million of fees associated with the
acquisitions of Adsmart and Flycast. Therefore, the Company will need to raise
additional funds in order to fund operations. In addition, the Company may
require additional funding in order to fund more rapid
18.
<PAGE> 19
expansion, to develop new or enhance existing services or products, to respond
to competitive pressures or to acquire complementary products, businesses or
technologies. The Company believes that additional external financing will be
available through credit facilities or sales of additional equity or other debt
instruments. If additional funds are raised through the issuance of equity or
convertible debt securities, the percentage ownership of the Company's
stockholders will be reduced and its stockholders may experience dilution of
their interest in the Company. If adequate funds are not available or are not
available on acceptable terms, the Company's ability to continue as a going
concern, to fund its expansion, take advantage of unanticipated opportunities,
develop or enhance services or products or otherwise respond to competitive
pressures may be significantly limited.
FOREIGN OPERATIONS
The results of the Company's international operations are subject to
currency fluctuations. As of January 31, 2000, the Company had subsidiaries in
the United Kingdom, Germany and Australia, and had a joint venture in Japan. To
date, the Company's financial condition and results of operations have not been
materially affected by exchange rate fluctuations. However, as these operations
continue to grow, and operations are commenced in additional countries, there
can be no guarantee that the Company's financial condition and results of
operations will not be adversely affected by exchange rate fluctuations.
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. The Company has not experienced any material Year
2000 problems or disruptions.
STATE OF READINESS
The Company completed its assessment of the Year 2000 readiness of its
operating, financial and administrative systems, including the hardware and
software that support the Company's systems.
For its currently marketed software products, the Company has completed
its Year 2000 compliance testing efforts and believes that its products are Year
2000 compliant in all material respects. The Company also conducted less
extensive testing of older versions of its products. While the Company is not
aware of any material respect in which its older products are not Year 2000
compliant, it has offered customers using older products the option to upgrade
to current versions at no additional charge. The Company also tested its
internal and third party provided systems that are used to deliver customer
services.
COSTS
At January 31, 2000, the Company had spent approximately $1.5 million on
Year 2000 compliance issues and does not expect to incur any significant
additional expenses in connection with identifying, evaluating and addressing
any future Year 2000 compliance issues. Most of the Company's expenses were
related to the operating costs associated with time spent by employees and
consultants in the evaluation process and Year 2000 compliance matters and costs
to replace non-compliant equipment.
19.
<PAGE> 20
RISKS
The Company 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 the Company's efforts to avoid or fix such problems. There can be no
assurance that the Company 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 the Company's material systems will not need to be revised or
replaced, all of which could be time-consuming and expensive. The failure of the
Company 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 the
Company'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.
The Company is heavily dependent on NaviSite, a major third party vendor
and affiliate, to provide outsourced data services. A significant Year 2000
related disruption of the outsourced data services that NaviSite provides to the
Company could cause customers to consider canceling services with the Company or
cause an unmanageable burden on the Company's technical support, which in turn
could materially and adversely affect the Company's business, financial
condition and results of operations.
To date, the Company has not experienced any significant Year 2000
disruptions and estimated Year 2000 expenses approximated the actual costs
incurred. The Company does not expect to incur any significant additional
expenses related to the Year 2000 issue. The Company continues to monitor its
systems for Year 2000 issues but is not currently aware of any material Year
2000 problems.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The carrying values of financial instruments including cash and cash
equivalents, available-for-sale securities, accounts receivable, accounts
payable and notes payable, approximate fair value because of the short maturity
of these instruments.
The Company has historically had very low exposure to changes in foreign
currency exchange rates, and as such, has not used derivative financial
instruments to manage foreign currency fluctuation risk. As the Company expands
globally, the risk of foreign currency exchange rate fluctuation may increase.
Therefore, in the future, the Company may consider utilizing derivative
instruments to mitigate such risks.
20
<PAGE> 21
<PAGE> 22
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In November 1999, four former employees exercised options to purchase an
aggregate of 30,615 shares of the Company's Common Stock for an aggregate
purchase price of $55,285. No underwriters were involved in the foregoing offers
and sales of securities. Such offers and sales were made in reliance upon an
exemption from the registration provisions of the Securities Act of 1933, as
amended (the "Securities Act"), set forth in Rule 701 under the Securities Act.
On December 22, 1999, in connection with the Company's acquisition of
AdKnowledge Inc., the Company issued 5,168,106 shares of Common Stock as
consideration for acquiring all of the capital stock of AdKnowledge Inc. No
underwriters were involved in the foregoing offer and sale of securities. Such
offer and sale was made in reliance upon an exemption from the registration
provisions of the Securities Act, set forth in Rule 3(a)(10) under the
Securities Act.
In connection with the Company's initial public offering, the Company
received net proceeds of approximately $94.8 million reflecting gross proceeds
of $103.5 million net of underwriter commissions of approximately $7.2 million
and other estimated offering costs of approximately $1.5 million. On July 19,
1999, the Securities and Exchange Commission declared the Company's Registration
Statement on Form S-1 (File No. 333-78015) effective.
The following table sets forth the Company's cumulative use of proceeds as
of January 31, 2000:
<TABLE>
(IN THOUSANDS)
<S> <C>
Construction of plant, building and facilities $ --
Purchase and installation of machinery and equipment 2,104
Purchases of real estate --
Acquisition of other businesses --
Repayment of indebtedness --
Working capital 28,096
Temporary investments: cash and cash equivalents 8,539
Temporary investments: available for sale securities 54,016
Temporary investments: other 2,000
All other purposes --
</TABLE>
The foregoing use of net offering proceeds does not represent a material
change in the use of proceeds described in the Company's Registration Statement
on Form S-1.
All of the foregoing share information in Item 2 does not reflect the
Company's recently announced two-for-one stock split, to be effected as a 100%
stock dividend. Such stock dividend is payable on April 3, 2000 to all
stockholders of record at the close of business on March 20, 2000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Stockholders on December 17, 1999,
and the following matters were voted on at that meeting:
1. The election of Edward A. Bennett, Christopher A. Evans, Craig D. Goldman,
Andrew J. Hajducky, III, Fredric D. Rosen, Paul L. Schaut and David S.
Wetherell, each to serve until the next annual meeting of stockholders or
until their successors are duly elected and qualified. The following chart
shows the number of votes cast for or against each director, as well as
the number of abstentions and broker nonvotes:
21.
<PAGE> 23
<TABLE>
<CAPTION>
BROKER
NAME FOR AGAINST ABSTAIN NONVOTE
<S> <C> <C> <C> <C>
Edward Bennett 46,907,980 18,955 N/A N/A
Christopher Evans 46,867,710 59,225 N/A N/A
Craig Goldman 46,867,710 59,225 N/A N/A
Andrew Hajducky 46,868,010 58,925 N/A N/A
Fredric Rosen 46,867,410 59,525 N/A N/A
Paul Schaut 46,867,910 59,025 N/A N/A
David Wetherell 46,868,110 58,825 N/A N/A
</TABLE>
2. The proposal to approve the interested party transaction between the
Company and CMGI, pursuant to which CMGI will receive shares of the
Company's Common Stock in connection with CMGI's contribution of stock of
AdKnowledge Inc. The following chart shows the number of votes cast for or
against the proposal, as well as the number of abstentions and broker
nonvotes:
BROKER
FOR AGAINST ABSTAIN NONVOTE
44,039,090 598,742 35,373 2,253,730
3. The proposal to ratify the selection of KPMG LLP as the Company's
independent auditors for the fiscal year ended July 31, 2000. The
following chart shows the number of votes cast for or against the
proposal, as well as the number of abstentions and broker nonvotes:
BROKER
FOR AGAINST ABSTAIN NONVOTE
46,916,199 3,225 7,511 N/A
All of the foregoing share information in Item 4 does not reflect the
Company's recently announced two-for-one stock split, to be effected as a 100%
stock dividend. Such stock dividend is payable on April 3, 2000 to all
stockholders of record at the close of business on March 20, 2000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Agreement and Plan of Merger and Contribution by and among
CMGI, Inc., Adsmart Corporation, Flycast Communications
Corporation, FCET Corp. and the Registrant, dated January 19,
2000.
10.2 Lease Agreement by and between TST 555/575 Market, L.L.C. as
landlord and the Registrant as tenant, dated December 22,
1999.
27.2 Financial Data Schedule
(b) Reports on Form 8-K
On January 6, 2000, the Company filed a report on
Form 8-K announcing that on December 22, 1999, the Company had
completed its acquisition of AdKnowledge Inc.
On January 25, 2000, the Company filed a report on
Form 8-K announcing that on January 19, 2000, the Company and
CMGI, the majority stockholder of the Company, executed an
Agreement and Plan of Merger and Contribution pursuant to
which the Company will acquire Adsmart Corporation and Flycast
Communications Corporation from CMGI.
22.
<PAGE> 24
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in Andover, Massachusetts
on March 16, 2000.
By: /s/ Paul L. Schaut
---------------------------------------
Paul L. Schaut
Chief Executive Officer and President
By: /s/ Stephen A. Royal
---------------------------------------
Stephen A. Royal
Chief Financial Officer and Treasurer
(Principal Accounting and Financial
Officer of the Registrant)
<PAGE> 25
EXHIBIT INDEX
EXHIBIT NO. EXHIBIT
- ----------- -------
10.1 Agreement and Plan of Merger and Contribution by and among
CMGI, Inc., Adsmart Corporation, Flycast Communications
Corporation, FCET Corp. and the Registrant dated January 19,
2000.
10.2 Lease Agreement by and between TST 555/575 Market, L.L.C. as
landlord and the Registrant as tenant, dated December 22,
1999.
27 Financial Data Schedule
<PAGE> 1
Exhibit 10.1
AGREEMENT AND PLAN OF MERGER AND CONTRIBUTION
BY AND AMONG
CMGI, INC., ADSMART CORPORATION, FLYCAST COMMUNICATIONS CORPORATION
AND
ENGAGE TECHNOLOGIES, INC., AND FCET CORP.
January 19, 2000
<PAGE> 2
TABLE OF CONTENTS
PAGE
----
ARTICLE I - THE MERGER.........................................................1
1.1 The Merger..........................................................1
1.2 The Merger Closing..................................................1
1.3 Actions at the Merger Closing.......................................1
1.4 Additional Action...................................................2
1.5 Conversion of Shares................................................2
1.6 Dissenting Shares...................................................2
1.7 Fractional Shares...................................................3
1.8 Options.............................................................3
1.9 Conversion of Notes Held by CMGI....................................4
1.10 Conversion of Preferred Stock.......................................4
1.11 Notes...............................................................4
1.12 Certificate of Incorporation and By-laws............................5
1.13 No Further Rights...................................................5
1.14 Closing of Transfer Books...........................................5
ARTICLE II - THE CONTRIBUTION..................................................5
2.1 The Contribution....................................................5
2.2 The Contribution Closing............................................5
2.3 Actions at the Contribution Closing.................................5
2.4 Conversion of Shares................................................5
2.5 Options.............................................................6
2.6 InterStep Escrow....................................................6
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF CMGI...........................7
3.1 Organization, Qualification and Corporate Power.....................7
3.2 Authorization.......................................................7
3.3 Noncontravention....................................................7
3.4 No Broker...........................................................8
3.5 Investment..........................................................8
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF CMGI AND
ADSMART AS TO ADSMART..........................................................8
4.1 Organization, Qualification and Corporate Power.....................8
4.2 Capitalization......................................................9
4.3 Authorization of Transaction........................................9
4.4 Noncontravention...................................................10
4.5 Subsidiaries.......................................................10
4.6 Financial Statements...............................................11
4.7 Absence of Certain Changes.........................................11
4.8 Undisclosed Liabilities............................................12
4.9 Tax Matters........................................................12
4.10 Assets.............................................................13
4.11 Owned Real Property................................................13
4.12 Real Property Leases...............................................13
<PAGE> 3
PAGE
----
4.13 Intellectual Property..............................................13
4.14 Contracts..........................................................14
4.15 Insurance..........................................................16
4.16 Litigation.........................................................16
4.17 Employees..........................................................16
4.18 Employee Benefits..................................................16
4.19 Environmental Matters..............................................18
4.20 Legal Compliance...................................................19
4.21 Permits............................................................19
4.22 Business Activity Restrictions.....................................18
4.23 Year 2000 Compliance...............................................18
4.24 Customers..........................................................21
4.25 Absence of Improper Payments.......................................21
4.26 Brokers' Fees......................................................21
4.27 Proxy Statement....................................................21
ARTICLE V - REPRESENTATIONS AND WARRANTIES OF CMGI AND FLYCAST
AS TO FLYCAST 21
5.1 Flycast Merger Agreement...........................................22
5.2 Capitalization.....................................................22
5.3 Flycast-CMGI Option................................................22
5.4 Non-competition Agreements.........................................22
5.5 Intercompany Balance...............................................22
ARTICLE VI - REPRESENTATIONS AND WARRANTIES OF THE BUYER AND
THE TRANSITORY SUBSIDIARY.....................................................23
6.1 Organization, Qualification and Corporate Power....................23
6.2 Capitalization.....................................................23
6.3 Authorization of Transaction.......................................23
6.4 Noncontravention...................................................24
6.5 Reports and Financial Statements...................................24
6.6 Absence of Material Adverse Change.................................25
6.7 Litigation.........................................................25
6.8 Interim Operations of the Transitory Subsidiary....................25
6.9 Brokers' Fees......................................................25
6.10 Proxy Statement....................................................25
ARTICLE VII - COVENANTS.......................................................25
7.1 Closing Efforts....................................................25
7.2 Governmental and Third-Party Notices and Consents..................25
7.3 Operation of Adsmart and Flycast Businesses........................27
7.4 Expenses...........................................................29
7.5 Indemnification....................................................29
7.6 Listing of Merger Shares...........................................30
7.7 Rights Arising From Prior Acquisitions.............................30
7.8 Buyer Management Agreement.........................................29
7.9 Non-Solicitation...................................................29
ii
<PAGE> 4
PAGE
----
ARTICLE VIII - CONDITIONS TO CLOSING..........................................30
8.1 Condition to Each Party's Obligations..............................30
8.2 Conditions to Obligations of the Buyer and the
Transitory Subsidiary..............................................26
8.3 Conditions to Obligations of CMGI and Adsmart......................32
ARTICLE IX - INDEMNIFICATION..................................................32
9.1 Indemnification by CMGI............................................32
9.2 Indemnification Claims.............................................32
9.3 Survival of Representations and Warranties.........................33
9.4 Limitations........................................................33
ARTICLE X - TERMINATION.......................................................35
10.1 Termination of Agreement...........................................35
10.2 Effect of Termination..............................................36
ARTICLE XI -DEFINITIONS.......................................................36
ARTICLE XII - MISCELLANEOUS...................................................39
12.1 Press Releases and Announcements...................................39
12.2 No Third Party Beneficiaries.......................................39
12.3 Entire Agreement...................................................39
12.4 Succession and Assignment..........................................39
12.5 Counterparts Facsimile Signature...................................39
12.6 Headings...........................................................39
12.7 Notices............................................................39
12.8 Governing Law......................................................40
12.9 Amendments and Waivers.............................................40
12.10 Severability.....................................................40
12.11 Construction.....................................................41
iii
<PAGE> 5
AGREEMENT AND PLAN OF MERGER
Agreement entered into as of January 19, 2000 by and among Engage
Technologies, Inc., a Delaware corporation (the "Buyer"), FCET Corp., a Delaware
corporation and a wholly-owned subsidiary of Buyer (the "Transitory
Subsidiary"), CMGI, Inc., a Delaware corporation ("CMGI"), ADSmart Corporation,
a Delaware corporation ("Adsmart") and Flycast Communications Corporation, a
Delaware corporation ("Flycast"). The Buyer, the Transitory Subsidiary, CMGI and
Adsmart are referred to collectively herein as the "Parties."
This Agreement contemplates (i) a merger of the Transitory Subsidiary into
Adsmart, pursuant to which the stockholders of Adsmart will receive common stock
of Buyer in exchange for their capital stock and (ii) a contribution of all of
the outstanding shares of common stock of Flycast by CMGI to Buyer in exchange
for shares of common stock of Buyer.
Now, therefore, in consideration of the representations, warranties and
covenants herein contained, the Parties agree as follows.
ARTICLE I
THE MERGER
1.1 THE MERGER. Upon and subject to the terms and conditions of this
Agreement, the Transitory Subsidiary shall merge with and into Adsmart (with
such merger referred to herein as the "Merger") at the Effective Time (as
defined below). From and after the Effective Time, the separate corporate
existence of the Transitory Subsidiary shall cease and Adsmart shall continue as
the surviving corporation in the Merger (the "Surviving Corporation"). The
"Effective Time" shall be the time at which the Surviving Corporation files a
certificate of merger or other appropriate documents prepared and executed in
accordance with Section 251(c) of the Delaware General Corporation Law (the
"Certificate of Merger") with the Secretary of State of the State of Delaware.
The Merger shall have the effects set forth in Section 259 of the Delaware
General Corporation Law.
1.2 THE MERGER CLOSING. The closing of the Merger (the "Merger Closing")
shall take place at the offices of Hale and Dorr LLP in Boston, Massachusetts,
on a date agreed upon by CMGI and Buyer, which shall not be later than three
business days after the satisfaction or waiver of all conditions (excluding the
delivery of any documents to be delivered at the Closing by any of the Parties)
set forth in Article VIII hereof (the "Closing Date"). The Merger Closing shall
take place concurrently with and is conditioned upon the Contribution Closing
(as defined below).
1.3 ACTIONS AT THE MERGER CLOSING. At the Merger Closing:
(a) the Surviving Corporation shall file with the Secretary of State of
the State of Delaware the Certificate of Merger;
1
<PAGE> 6
(b) each of the stockholders of record of Adsmart immediately prior to
the Effective Time (the "Adsmart Stockholders") shall deliver to the Buyer the
certificate(s) representing his, her or its Adsmart Shares (as defined below),
and
(c) the Buyer shall deliver certificates for the Merger Shares (as
defined below) to each Adsmart Stockholder in accordance with Section 1.5.
1.4 ADDITIONAL ACTION. The Surviving Corporation may, at any time after the
Effective Time, take any action, including executing and delivering any
document, in the name and on behalf of either Adsmart or the Transitory
Subsidiary, in order to consummate the transactions contemplated by this
Agreement.
1.5 CONVERSION OF SHARES. At the Effective Time, by virtue of the Merger
and without any action on the part of any Party or the holder of any of the
following securities:
(a) Each share of common stock, $.01 par value per share, of Adsmart
("Adsmart Common Shares") issued and outstanding immediately prior to the
Effective Time (other than Adsmart Common Shares owned beneficially by the Buyer
or the Transitory Subsidiary, Dissenting Shares (as defined below) and Adsmart
Common Shares held in Adsmart's treasury) shall be converted into and represent
the right to receive such number of shares (the "Merger Shares") of common
stock, $.01 par value per share, of the Buyer ("Buyer Common Stock") as is
determined by dividing 5,611,852 by the sum of the number of Adsmart Common
Shares outstanding immediately prior to the Effective Time and the number of
Adsmart Common Shares subject to outstanding Adsmart Options (as defined below)
immediately prior to the Effective Time (the "Conversion Ratio").
(b) The Conversion Ratio shall be subject to equitable adjustment in
the event of any stock split, stock dividend, reverse stock split or similar
event affecting the Buyer Common Stock between the date of this Agreement and
the Effective Time.
(c) Each Adsmart Share held in Adsmart's treasury immediately prior to
the Effective Time and each Adsmart Share owned beneficially by the Buyer or the
Transitory Subsidiary shall be cancelled and retired without payment of any
consideration therefor.
(d) Each share of common stock, $.01 par value per share, of the
Transitory Subsidiary issued and outstanding immediately prior to the Effective
Time shall be converted into and thereafter evidence one share of common stock,
$.01 par value per share, of the Surviving Corporation.
1.6 DISSENTING SHARES.
(a) For purposes of this Agreement, "Dissenting Shares" means Adsmart
Common Shares held as of the Effective Time by an Adsmart Stockholder who has
not voted such Adsmart Common Shares in favor of the adoption of this Agreement
and the Merger and with respect to which appraisal shall have been duly demanded
and perfected in accordance with Section 262 of the Delaware General Corporation
Law and not effectively withdrawn or forfeited prior to the Effective Time.
Dissenting Shares shall not be converted into or represent
2
<PAGE> 7
the right to receive shares of Buyer Common Stock in the Merger, unless such
Adsmart Stockholder shall have forfeited his, her or its right to appraisal
under the Delaware General Corporation Law or properly withdrawn, his, her or
its demand for appraisal. If such Adsmart Stockholder has so forfeited or
withdrawn his, her or its right to appraisal of Dissenting Shares, then (i) as
of the occurrence of such event, such holder's Dissenting Shares shall cease to
be Dissenting Shares and shall be converted into and represent the right to
receive the shares of Buyer Common Stock issuable in respect of such Adsmart
Common Shares pursuant to Section 1.5, and (ii) promptly following the
occurrence of such event, the Buyer shall deliver to the holder thereof a
certificate representing shares of Buyer Common Stock to which such holder is
entitled pursuant to Section 1.5.
(b) Adsmart shall give the Buyer (i) prompt notice of any written
demands for appraisal of any Adsmart Common Shares, withdrawals of such demands,
and any other instruments that relate to such demands received by Adsmart and
(ii) the opportunity to direct all negotiations and proceedings with respect to
demands for appraisal under the Delaware General Corporation Law. Adsmart shall
not, except with the prior written consent of the Buyer, make any payment with
respect to any demands for appraisal of Adsmart Common Shares or offer to settle
or settle any such demands.
1.7 FRACTIONAL SHARES. No certificates or scrip representing fractional
shares shall be issued to former Adsmart Stockholders upon the surrender for
exchange of certificates, and such former Adsmart Stockholders shall not be
entitled to any voting rights, rights to receive any dividends or distributions
or other rights as a stockholder of the Buyer with respect to any fractional
shares that would have otherwise been issued to such former Adsmart
Stockholders. In lieu of any fractional shares that would have otherwise been
issued, each former Adsmart Stockholder that would have been entitled to receive
a fractional share shall, upon proper surrender of such person's certificates,
receive a cash payment equal to the closing price per share of the Buyer Common
Stock on the Nasdaq National Market, as reported by Nasdaq, on the business day
immediately preceding the Closing Date, multiplied by the fraction of a share
that such Adsmart Stockholder would otherwise be entitled to receive.
1.8 OPTIONS.
(a) As of the Effective Time, all options to purchase Adsmart Common
Shares issued by Adsmart pursuant to its stock option plans or otherwise
("Adsmart Options"), whether vested or unvested, shall be assumed by the Buyer.
Immediately after the Effective Time, each Adsmart Option outstanding
immediately prior to the Effective Time shall be deemed to constitute an option
to acquire, on the same terms and conditions as were applicable under such
Adsmart Option at the Effective Time, such number of shares of Buyer Common
Stock as is equal to the number of Adsmart Common Shares subject to the
unexercised portion of such Adsmart Option multiplied by the Conversion Ratio
(with any fraction resulting from such multiplication to be rounded down to the
nearest whole number). The exercise price per share of each such assumed Adsmart
Option shall be equal to the exercise price of such Adsmart Option immediately
prior to the Effective Time, divided by the Conversion Ratio (rounded up to the
nearest whole cent). The term, exercisability, vesting schedule, status as an
"incentive stock
3
<PAGE> 8
option" under Section 422 of the Internal Revenue Code of 1986 (as amended, the
"Code"), if applicable, and all of the other terms of Adsmart Options shall
otherwise remain unchanged.
(b) As soon as practicable after the Effective Time, the Buyer or the
Surviving Corporation shall deliver to the holders of Adsmart Options
appropriate notices setting forth such holders' rights pursuant to such Adsmart
Options, as amended by this Section 1.8, and the agreements evidencing such
Adsmart Options shall continue in effect on the same terms and conditions
(subject to the amendments provided for in this Section 1.8 and such notice).
(c) The Buyer shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of Buyer Common Stock for delivery upon
exercise of Adsmart Options assumed in accordance with this Section 1.8. As soon
as practicable after the Effective Time (subject to the availability of all
required financial statements), the Buyer shall file a Registration Statement on
Form S-8 (or any successor form) under the Securities Act of 1933 (as amended,
the "Securities Act") with respect to all shares of Buyer Common Stock subject
to such Adsmart Options that may be registered on a Form S-8, and shall use
reasonable efforts to maintain the effectiveness of such Registration Statement
for so long as such Adsmart Options remain outstanding.
1.9 CONVERSION OF NOTES HELD BY CMGI. Prior to the Effective Time, CMGI
shall convert all of the convertible promissory notes of Adsmart held by it into
shares of Series B Convertible Preferred Stock, $.01 par value per share (the
"Adsmart Series B Preferred Stock"), of Adsmart.
1.10 CONVERSION OF PREFERRED STOCK. Prior to the Effective Time, CMGI shall
convert all of its shares of Series A Convertible Preferred Stock, $.01 par
value per share (the "Adsmart Series A Preferred Stock"), and the Adsmart Series
B Preferred Stock (collectively, the "Adsmart Preferred Shares") into Adsmart
Common Shares.
1.11 [Reserved]
1.12 CERTIFICATE OF INCORPORATION AND BY-LAWS.
(a) The Certificate of Incorporation of the Surviving Corporation
immediately following the Effective Time shall be the same as the Certificate of
Incorporation of the Transitory Subsidiary immediately prior to the Effective
Time, except that (1) the name of the corporation set forth therein shall be
changed to the name of Adsmart and (2) the identity of the incorporator shall be
deleted.
(b) The By-laws of the Surviving Corporation immediately following the
Effective Time shall be the same as the By-laws of the Transitory Subsidiary
immediately prior to the Effective Time, except that the name of the corporation
set forth therein shall be changed to the name of Adsmart.
1.13 NO FURTHER RIGHTS. From and after the Effective Time, no Adsmart
Common Shares shall be deemed to be outstanding, and holders of certificates
therefor shall cease to have any rights with respect thereto, except as provided
herein or by law.
4
<PAGE> 9
1.14 CLOSING OF TRANSFER BOOKS. At the Effective Time, the stock transfer
books of Adsmart shall be closed and no transfer of Adsmart Common Shares shall
thereafter be made.
ARTICLE II
THE CONTRIBUTION
2.1 THE CONTRIBUTION. Upon and subject to the terms and conditions of this
Agreement, CMGI shall contribute to the Buyer all of the outstanding shares of
common stock, $.01 par value, of Flycast ("Flycast Common Stock") in exchange
for shares of Buyer Common Stock, at the Contribution Closing (as defined below)
(the "Contribution"). The Contribution is intended to qualify as a transaction
under Section 351 of the Code.
2.2 THE CONTRIBUTION CLOSING. The closing of the Contribution (the
"Contribution Closing") shall take place concurrently with and is conditioned
upon the Merger Closing. The Contribution Closing and Merger Closing are
referred to collectively as the "Closing."
2.3 ACTIONS AT THE CONTRIBUTION CLOSING. At the Contribution Closing:
(a) CMGI shall deliver to Buyer a stock certificate for all of the then
outstanding shares of Flycast Common Stock; and
(b) Buyer shall deliver a certificate for the Contribution Shares (as
defined below) to CMGI (or any designated subsidiary thereof).
2.4 CONVERSION OF SHARES. At the Contribution Closing, Buyer shall issue to
CMGI 26,886,965 shares of Buyer Common Stock (the "Contribution Shares"). The
number of Contribution Shares shall be subject to equitable adjustment in the
event of any stock split, stock dividend, reverse stock split or similar event
affecting the Buyer Common Stock between the date of this Agreement and the date
of the Contribution Closing.
2.5 OPTIONS. If (i) prior to the Closing any of the employees and
consultants of Flycast holding options to purchase shares of CMGI Common Stock
("Flycast-CMGI Options") elect to exchange, with the consent of CMGI and Buyer,
such options for options to purchase Buyer Common Stock upon terms mutually
acceptable to CMGI and the Buyer or (ii) following the date of this Agreement
any such Flycast-CMGI Options expire unexercised, in whole or in part, CMGI
shall be obligated to deliver to the Buyer a number of shares of Buyer Common
Stock equal to the number of shares of CMGI Common Stock subject to the
exchanged or expired option multiplied by 1.441 (subject to equitable adjustment
for any stock splits or other recapitalizations or exchanges affecting shares of
CMGI Common Stock or Buyer Common Stock), rounded down to the nearest share. In
addition, upon any exercise of a Flycast-CMGI Option that has not been exchanged
for an option to purchase shares of Buyer Common Stock, CMGI shall deliver to
Buyer the amount of the exercise price received by CMGI upon such exercise. If
such exercise price is paid in cash, CMGI shall deliver the amount of such
exercise price to Buyer in cash. If the amount of such exercise price is paid to
CMGI through surrender of shares of CMGI Common Stock or any other method, CMGI
shall deliver the amount of such exercise price in the form of shares of Buyer
Common Stock valued at $77.96 per share (subject to equitable adjustment for any
stock splits, stock dividends or other recapitalizations or
5
<PAGE> 10
exchanges affecting such shares). Commencing on the last day of the first fiscal
quarter of CMGI ending after the Closing Date and on the last day of each fiscal
quarter of CMGI thereafter, CMGI shall deliver to the Buyer the shares of Buyer
Common Stock and any exercise price required to be delivered to the Buyer
pursuant to this Section 2.5 for transactions occurring in that quarter. If CMGI
is required to deliver any shares of Buyer Common Stock to Buyer hereunder, it
shall concurrently deliver to Buyer any dividends or distributions received by
it with respect to such shares or any securities into which such shares have
been changed, recapitalized or reclassified. Notwithstanding the foregoing, if
any Flycast-CMGI Option is exercised for shares of CMGI Common Stock after any
merger, consolidation, sale of assets or other similar transaction in which more
than 50% of the outstanding shares of Buyer Common Stock are exchanged for
stock, cash or other property of an acquiring or successor entity (an "Engage
Sale"), then upon such exercise, CMGI shall cause to be delivered to Buyer (or
its successor), in lieu of shares of Buyer Common Stock, the stock, cash or
other property issued in such Engage Sale with respect to the number of shares
of Buyer Common Stock otherwise deliverable by CMGI under this Section 2.5.
2.6 INTERSTEP ESCROW. To the extent that after the Closing, any shares of
CMGI Common Stock held in escrow under the Escrow Agreement dated as of August
30, 1999 by and between Flycast, the representatives of certain shareholders of
InterStep, Inc. ("InterStep") and others are released to Flycast from such
escrow, Flycast shall deliver and transfer all of such shares to CMGI in
exchange for the transfer and delivery by CMGI to Buyer of a number of shares of
Buyer Common Stock equal to the number of shares of CMGI Common Stock so
transferred, multiplied by 1.441 (subject to equitable adjustment for any stock
splits or other recapitalizations or exchanges affecting shares of CMGI Common
Stock or Buyer Common Stock).
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF CMGI
CMGI represents and warrants to the Buyer that the statements contained in
this Article III are true and correct.
3.1 ORGANIZATION, QUALIFICATION AND CORPORATE POWER. CMGI is a corporation
duly organized, validly existing and in corporate and tax good standing under
the laws of the State of Delaware. CMGI is duly qualified to conduct business
and is in corporate and tax good standing under the laws of the Commonwealth of
Massachusetts. CMGI has all requisite corporate power and authority to carry on
the businesses in which it is engaged and to own and use the properties owned
and used by it.
3.2 AUTHORIZATION. CMGI has all requisite power and authority to execute
and deliver this Agreement and to perform its obligations hereunder. The
execution and delivery by CMGI of this Agreement and the consummation by CMGI of
the transactions contemplated hereby have been duly and validly authorized by
all necessary corporate action on the part of CMGI. This Agreement has been duly
and validly executed and delivered by CMGI and constitutes a valid and binding
obligation of CMGI, enforceable against CMGI in accordance with its terms.
6
<PAGE> 11
3.3 NONCONTRAVENTION. Subject to the filing of the Certificate of Merger as
required by the Delaware General Corporation Law, neither the execution and
delivery by CMGI of this Agreement, nor the consummation by CMGI of the
transactions contemplated hereby, will (a) conflict with or violate any
provision of the Certificate of Incorporation or By-laws of CMGI, (b) require on
the part of CMGI any filing with, or any permit, authorization, consent or
approval of, any court, arbitrational tribunal, administrative agency or
commission or other governmental or regulatory authority or agency (a
"Governmental Entity"), (c) conflict with, result in a breach of, constitute
(with or without due notice or lapse of time or both) a default under, result in
the acceleration of obligations under, create in any party the right to
terminate, modify or cancel, or require any notice, consent or waiver under, any
contract or instrument to which CMGI is a party or by which CMGI is bound or to
which any of its assets is subject, except for (i) any conflict, breach,
default, acceleration, termination, modification or cancellation which would not
have a CMGI Material Adverse Effect (as defined below) and would not adversely
affect the consummation of the transactions contemplated hereby or (ii) any
notice, consent or waiver the absence of which would not have a CMGI Material
Adverse Effect and would not adversely affect the consummation of the
transactions contemplated hereby, or (d) violate any order, writ, injunction,
decree, statute, rule or regulation applicable to CMGI or any of its properties
or assets. For purposes of this Agreement, "CMGI Material Adverse Effect" means
a material adverse effect on the assets, business, condition (financial or
otherwise), or results of operations of CMGI and its subsidiaries, taken as
whole.
3.4 NO BROKER. None of CMGI, Adsmart or Flycast has entered into any
contract, arrangement or understanding with any person or firm which may result
in the obligation of Adsmart, Flycast or Buyer to pay any fee or commission to
any broker, finder or agent with respect to the transactions contemplated by
this Agreement.
3.5 INVESTMENT. CMGI is acquiring shares of Buyer Common Stock pursuant to
Merger and Contribution for investment and not with a view to the distribution
thereof.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF CMGI
AND ADSMART AS TO ADSMART
CMGI and Adsmart represent and warrant to the Buyer that the statements
contained in this Article IV are true and correct, except as set forth in the
disclosure schedule provided by CMGI and Adsmart to the Buyer on the date hereof
and accepted in writing by the Buyer (the "Disclosure Schedule"). The Disclosure
Schedule shall be arranged in paragraphs corresponding to the numbered and
lettered paragraphs contained in this Article IV, and the disclosures in any
paragraph of the Disclosure Schedule shall qualify other paragraphs in this
Article IV only to the extent it is clear from a reading of the disclosure that
such disclosure is applicable to such other paragraphs. For purposes of this
Article IV, the phrase "to the knowledge of Adsmart" or any phrase of similar
import shall be deemed to refer to matters which the executive officers of
Adsmart actually know.
4.1 ORGANIZATION, QUALIFICATION AND CORPORATE POWER. Adsmart is a
corporation duly organized, validly existing and in corporate and tax good
standing under the laws of the State of
7
<PAGE> 12
Delaware. Adsmart is duly qualified to conduct business and is in corporate and
tax good standing under the laws of each jurisdiction in which the nature of its
businesses or the ownership or leasing of its properties requires such
qualification, except where the failure to be so qualified or in good standing,
individually or in the aggregate, has not had and would not reasonably be
expected to have an Adsmart Material Adverse Effect (as defined below). Adsmart
has all requisite corporate power and authority to carry on the businesses in
which it is engaged and to own and use the properties owned and used by it.
Adsmart has furnished to the Buyer complete and accurate copies of its Restated
Certificate of Incorporation and Amended and Restated By-laws. For purposes of
this Agreement, "Adsmart Material Adverse Effect" means a material adverse
effect on the assets, business, condition (financial or otherwise) or results of
operations of Adsmart and its Subsidiaries (as defined below), taken as a whole,
excluding any material adverse effect (a) demonstrably shown to have been
proximately caused by the public announcement of this Agreement or any of the
transactions contemplated thereby, or (b) arising or resulting from general
industry, economic or stock market conditions that affect Adsmart (or the
markets in which Adsmart competes) in a manner not disproportionate to the
manner in which such conditions affect other companies in the industries or
markets in which Adsmart competes.
4.2 CAPITALIZATION. The authorized capital stock of Adsmart consists of (a)
160,000,000 Adsmart Common Shares, of which, as of the date of this Agreement,
749,910 shares were issued and outstanding and no shares were held in the
treasury of Adsmart and (b) 15,000,000 Adsmart Preferred Shares, of which (i)
800,000 shares have been designated as Adsmart Series A Preferred Stock, of
which, as of the date of this Agreement, all shares were issued and outstanding
and (ii) 14,200,000 shares have been designated as Adsmart Series B Preferred
Stock, of which, as of the date of this Agreement, none of which shares were
issued and outstanding. Section 4.2 of the Disclosure Schedule sets forth a
complete and accurate list of (i) all stockholders of Adsmart, indicating the
number and class or series of shares held by each stockholder and (for shares
other than Adsmart Common Shares) the number of Adsmart Common Shares (if any)
into which such shares are convertible, (ii) all outstanding Adsmart Options,
indicating (A) the holder thereof, (B) the number and class or series of Adsmart
Shares subject to each Adsmart Option and (for Adsmart Common Shares other than
Common Shares) the number of Adsmart Common Shares (if any) into which such
Adsmart Company Shares are convertible, (C) the exercise price, date of grant,
vesting schedule and expiration date for each Adsmart Option, and (D) any terms
regarding the acceleration of vesting, and (iii) all stock option plans and
other stock or equity-related plans of Adsmart. All of the issued and
outstanding Adsmart Common Shares are, and all Adsmart Common Shares that may be
issued upon exercise of Adsmart Options or Adsmart Warrants will be (upon
issuance in accordance with their terms), duly authorized, validly issued, fully
paid, nonassessable and free of all preemptive rights. Other than Adsmart
Options listed in Section 4.2 of the Disclosure Schedule, there are no
outstanding or authorized options, warrants, rights, agreements or commitments
to which Adsmart is a party or which are binding upon Adsmart providing for the
issuance or redemption of any of its capital stock. There are no outstanding or
authorized stock appreciation, phantom stock or similar rights with respect to
Adsmart. There are no agreements to which Adsmart is a party or by which it is
bound with respect to the voting (including without limitation voting trusts or
proxies), registration under the Securities Act, or sale or transfer (including
without limitation agreements relating to pre-emptive rights, rights of first
refusal, co-
8
<PAGE> 13
sale rights or "drag-along" rights) of any securities of Adsmart. To the
knowledge of Adsmart, there are no agreements among other parties, to which
Adsmart is not a party and by which it is not bound, with respect to the voting
(including without limitation voting trusts or proxies) or sale or transfer
(including without limitation agreements relating to rights of first refusal,
co-sale rights or "drag-along" rights) of any securities of Adsmart.
4.3 AUTHORIZATION OF TRANSACTION. Adsmart has all requisite power and
authority to execute and deliver this Agreement and to perform its obligations
hereunder. The execution and delivery by Adsmart of this Agreement and, subject
to the adoption of this Agreement and approval of the Merger by a majority of
the votes represented by the outstanding Adsmart Common Shares entitled to vote
on this Agreement and the Merger ("Adsmart Stockholder Approval"), the
consummation by Adsmart of the transactions contemplated hereby have been duly
and validly authorized by all necessary corporate action on the part of Adsmart.
This Agreement has been duly and validly executed and delivered by Adsmart and
constitutes a valid and binding obligation of Adsmart, enforceable against
Adsmart in accordance with its terms.
4.4 NONCONTRAVENTION. Subject to the filing of the Certificate of Merger as
required by the Delaware General Corporation Law, neither the execution and
delivery by Adsmart of this Agreement, nor the consummation by Adsmart of the
transactions contemplated hereby, will (a) conflict with or violate any
provision of the Restated Certificate of Incorporation or Amended and Restated
By-laws of Adsmart or the charter, By-laws or other organizational document of
any Subsidiary (as defined below), (b) require on the part of Adsmart or any
Subsidiary any filing with, or any permit, authorization, consent or approval
of, any Governmental Entity, (c) conflict with, result in a breach of,
constitute (with or without due notice or lapse of time or both) a default
under, result in the acceleration of obligations under, create in any party the
right to terminate, modify or cancel, or require any notice, consent or waiver
under, any contract or instrument to which Adsmart or any Subsidiary is a party
or by which Adsmart or any Subsidiary is bound or to which any of their assets
is subject, except for (i) any conflict, breach, default, acceleration,
termination, modification or cancellation which would not have an Adsmart
Material Adverse Effect and would not adversely affect the consummation of the
transactions contemplated hereby or (ii) any notice, consent or waiver the
absence of which would not have an Adsmart Material Adverse Effect and would not
adversely affect the consummation of the transactions contemplated hereby, (d)
result in the imposition of any Security Interest (as defined below) upon any
assets of Adsmart or any Subsidiary or (e) violate any order, writ, injunction,
decree, statute, rule or regulation applicable to Adsmart, any Subsidiary or any
of their properties or assets. For purposes of this Agreement: "Security
Interest" means any mortgage, pledge, security interest, encumbrance, charge or
other lien (whether arising by contract or by operation of law), other than (i)
mechanic's, materialmen's, and similar liens, (ii) liens arising under worker's
compensation, unemployment insurance, social security, retirement, and similar
legislation, and (iii) liens on goods in transit incurred pursuant to
documentary letters of credit, in each case arising in the Ordinary Course of
Business (as defined below) of Adsmart and not material to Adsmart; and
"Ordinary Course of Business" means the ordinary course of Adsmart's business,
consistent with past custom and practice.
4.5 SUBSIDIARIES.
9
<PAGE> 14
(a) Section 4.5 of the Disclosure Schedule sets forth: (i) the name of
each corporation, partnership, joint venture or other entity in which Adsmart
has, directly or indirectly, an equity interest representing 50% or more of the
capital stock thereof or other equity interests therein (individually, a
"Subsidiary" and, collectively, the "Subsidiaries"); (ii) the number and type of
outstanding equity securities of each Subsidiary and a list of the holders
thereof; (iii) the jurisdiction of organization of each Subsidiary; (iv) the
names of the officers and directors of each Subsidiary; and (v) the
jurisdictions in which each Subsidiary is qualified or holds licenses to do
business as a foreign corporation.
(b) Each Subsidiary is a corporation duly organized, validly existing
and in corporate and tax good standing under the laws of the jurisdiction of its
incorporation. Each Subsidiary is duly qualified to conduct business and is in
corporate and tax good standing under the laws of each jurisdiction in which the
nature of its businesses or the ownership or leasing of its properties requires
such qualification, except where the failure to be so qualified or in good
standing, individually or in the aggregate, has not had and would not reasonably
be expected to have an Adsmart Material Adverse Effect. Each Subsidiary has all
requisite power and authority to carry on the businesses in which it is engaged
and to own and use the properties owned and used by it. Adsmart has delivered to
the Buyer complete and accurate copies of the charter, By-laws or other
organizational documents of each Subsidiary. No Subsidiary is in default under
or in violation of any provision of its charter, By-laws or other organizational
documents. All of the issued and outstanding shares of capital stock of each
Subsidiary are duly authorized, validly issued, fully paid, nonassessable and
free of preemptive rights. All shares of each Subsidiary that are held of record
or owned beneficially by either Adsmart or any Subsidiary are held or owned free
and clear of any restrictions on transfer (other than restrictions under the
Securities Act and state securities laws), claims, Security Interests, options,
warrants, rights, contracts, calls, commitments, equities and demands. There are
no outstanding or authorized options, warrants, rights, agreements or
commitments to which Adsmart or any Subsidiary is a party or which are binding
on any of them providing for the issuance, disposition or acquisition of any
capital stock of any Subsidiary. There are no outstanding stock appreciation,
phantom stock or similar rights with respect to any Subsidiary. There are no
voting trusts, proxies or other agreements or understandings with respect to the
voting of any capital stock of any Subsidiary.
(c) Adsmart does not control directly or indirectly or have any direct
or indirect equity participation or similar interest in any corporation,
partnership, limited liability company, joint venture, trust or other business
association which is not a Subsidiary.
4.6 FINANCIAL STATEMENTS. Adsmart has provided to the Buyer (a) the
unaudited consolidated balance sheets and statements of income, changes in
stockholders' equity and cash flows of Adsmart as of and for each of the last
two fiscal years; and (b) the unaudited consolidated balance sheet and
statements of income, changes in stockholders' equity and cash flows as of and
for the three months ended as of October 31, 1999 (the "Most Recent Balance
Sheet Date") (collectively, the "Adsmart Financial Statements"). Prior to the
Closing, Adsmart shall provide to the Buyer the audited financial statements
shown on Section 4.6 of the Disclosure Schedule (the "Adsmart Audited Financial
Statements"), which shall include an audited balance sheet of Adsmart as of
October 31, 1999 (the "Most Recent Audited Balance Sheet"). Any Adsmart Audited
Financial Statements (i) shall be prepared in accordance with
10
<PAGE> 15
generally accepted accounting principles ("GAAP") applied on a consistent basis
throughout the period presented (except with respect to the notes to such
financial statements) and (ii) shall fairly present the consolidated financial
position of Adsmart and its Subsidiaries as of such dates and the consolidated
results of its operations and cash flows for the periods indicated, except for
the interim financial statements shall be subject to the normal and recurring
year and adjustments which are not expected to be material in amount.
4.7 ABSENCE OF CERTAIN CHANGES. Since the Most Recent Balance Sheet Date,
(a) there has occurred no event or development which has had, or could
reasonably be expected to have in the future, an Adsmart Material Adverse
Effect, and (b) neither Adsmart nor any Subsidiary has taken any of the actions
set forth in paragraphs (a) through (l) of Section 7.3.
4.8 UNDISCLOSED LIABILITIES. None of Adsmart and its Subsidiaries has any
liability (whether known or unknown, whether absolute or contingent, whether
liquidated or unliquidated and whether due or to become due), except for (a)
liabilities shown on the Most Recent Audited Balance Sheet, (b) liabilities
which have arisen since the date of the Most Recent Audited Balance Sheet (the
"Most Recent Audited Balance Sheet Date") in the Ordinary Course of Business and
(c) contractual and other liabilities incurred in the Ordinary Course of
Business which are not required by GAAP to be reflected on a balance sheet.
4.9 TAX MATTERS.
(a) For purposes of this Agreement, the following terms shall have the
following meanings:
(i) "Taxes" means all taxes, charges, fees, levies or other
similar assessments or liabilities, including without limitation income, gross
receipts, ad valorem, premium, value-added, excise, real property, personal
property, sales, use, transfer, withholding, employment, unemployment insurance,
social security, business license, business organization, environmental, workers
compensation, payroll, profits, license, lease, service, service use, severance,
stamp, occupation, windfall profits, customs, duties, franchise and other taxes
imposed by the United States of America or any state, local or foreign
government, or any agency thereof, or other political subdivision of the United
States or any such government, and any interest, fines, penalties, assessments
or additions to tax resulting from, attributable to or incurred in connection
with any tax or any contest or dispute thereof.
(ii) "Tax Returns" means all reports, returns, declarations,
statements or other information required to be supplied to a taxing authority in
connection with Taxes.
(b) Each of Adsmart and the Subsidiaries has filed on a timely basis
all Tax Returns that it was required to file, and all such Tax Returns were
correct and accurate, except for any errors and omissions that would not,
individually or in the aggregate, have an Adsmart Material Adverse Effect. Each
of Adsmart and the Subsidiaries has paid on a timely basis all Taxes that were
due and payable. The unpaid Taxes of Adsmart and the Subsidiaries for tax
periods through the Most Recent Balance Sheet Date do not exceed in any material
respect the accruals and reserves for Taxes (excluding accruals and reserves for
deferred Taxes established
11
<PAGE> 16
to reflect timing differences between book and Tax income) set forth on the Most
Recent Balance Sheet. All Taxes that Adsmart or any Subsidiary is or was
required by law to withhold or collect have been duly withheld or collected and,
to the extent required, have been paid to the proper Governmental Entity.
(c) No examination or audit of any Tax Return of Adsmart or any
Subsidiary by any Governmental Entity is currently in progress or, to the
knowledge of Adsmart, threatened or contemplated. Neither Adsmart nor any
Subsidiary has waived any statute of limitations with respect to Taxes or agreed
to an extension of time with respect to a Tax assessment or deficiency.
4.10 ASSETS. Each of Adsmart and the Subsidiaries owns or leases all
tangible assets necessary for the conduct of its businesses as presently
conducted and as presently proposed to be conducted. Each such tangible asset is
free from material defects, has been maintained in accordance with normal
industry practice, is in good operating condition and repair (subject to normal
wear and tear) and is suitable for the purposes for which it presently is used.
No asset of Adsmart or any Subsidiary (tangible or intangible) is subject to any
Security Interest.
4.11 OWNED REAL PROPERTY. Neither Adsmart nor or any Subsidiary currently
owns or, to the knowledge of Adsmart, has ever owned any real property.
4.12 REAL PROPERTY LEASES. Section 4.12 of the Disclosure Schedule lists
all real property leased or subleased to or by Adsmart or any Subsidiary. With
respect to each lease and sublease listed in Section 4.12 of the Disclosure
Schedule:
(a) the lease or sublease is legal, valid, binding, enforceable and in
full force and effect;
(b) the lease or sublease will continue to be legal, valid, binding,
enforceable and in full force and effect immediately following the Closing in
accordance with the terms thereof as in effect immediately prior to the Closing;
and
(c) neither Adsmart nor any Subsidiary nor, to the knowledge of
Adsmart, any other party, is in breach or violation of, or default under, any
such lease or sublease, and no event has occurred, is pending or, to the
knowledge of Adsmart, is threatened, which, after the giving of notice, with
lapse of time, or otherwise, would constitute a material breach or default by
Adsmart or any Subsidiary or, to the knowledge of Adsmart, any other party under
such lease or sublease.
4.13 INTELLECTUAL PROPERTY.
(a) Adsmart and its Subsidiaries own, or are licensed or otherwise
posses legally enforceable rights to use, without any obligation to make any
fixed or contingent payments, including any royalty payments, all patents,
trademarks, trade names, domain names, service marks and copyrights, any
applications for and registrations of such patents, trademarks, trade names,
domain names, service marks and copyrights, and all processes, formulae,
methods, schematics, technology, know-how, computer software programs or
applications and tangible or
12
<PAGE> 17
intangible proprietary information or material that are used or necessary to
conduct the business of Adsmart and its Subsidiaries as currently conducted or
as presently proposed to be conducted, except any whose absence would not have
an Adsmart Material Adverse Effect (the "Adsmart Intellectual Property Rights").
(b) The execution and delivery of this Agreement and consummation of
the Merger and the other transactions contemplated hereby will not result in the
breach of, or create on behalf of any third party the right to terminate, modify
or enter into any material license, sublicense or other agreement relating to
the Adsmart Intellectual Property Rights, or any license, sublicense and other
agreement as to which Adsmart or any of its Subsidiaries is a party and pursuant
to which Adsmart or any of its Subsidiaries is authorized to use any third party
patents, trademarks, copyrights or trade secrets, including software that is
used in the manufacture of, incorporated in, or forms a part of any product or
service sold by or expected to be sold by Adsmart or any of its Subsidiaries.
(c) All patents, registered trademarks, service marks and copyrights
which are held by Adsmart or any of its Subsidiaries and which are material to
the business of Adsmart and its Subsidiaries, taken as a whole, are valid and
subsisting. Adsmart and its Subsidiaries have taken reasonable measures to
protect the proprietary nature of the Adsmart Intellectual Property Rights that
are material to the business of Adsmart and its Subsidiaries, taken as a whole,
and to maintain in confidence all trade secrets and confidential information
owned or used by Adsmart or any of its Subsidiaries and that are material to the
business of Adsmart and its Subsidiaries, taken as a whole. To the knowledge of
Adsmart, no other person or entity is infringing, violating or misappropriating
any of Adsmart Intellectual Property Rights and none of the activities or
business previously or currently conducted by Adsmart or any of the Subsidiaries
infringes, violates or constitutes a misappropriation of, any patents,
trademarks, trade names, service marks and copyrights or any processes,
formulae, methods, schematics, technology, know-how, computer software programs
or applications and tangible or intangible proprietary information or material
of any other person or entity, except for any infringement, violation or
misappropriation that would not have an Adsmart Material Adverse Effect. Neither
Adsmart nor any of its Subsidiaries has received any written complaint, claim or
notice alleging any such infringement, violation or misappropriation.
4.14 CONTRACTS.
(a) Section 4.14 of the Disclosure Schedule lists the following
agreements (written or oral) to which Adsmart or any Subsidiary is a party as of
the date of this Agreement:
(i) any agreement (or group of related agreements) for the lease of
personal property from or to third parties providing for lease payments in
excess of $250,000 per annum or having a remaining term longer than twelve (12)
months;
(ii) any agreement (or group of related agreements) for the
purchase or sale of products or for the furnishing or receipt of services (A)
which calls for performance over a period of more than one year or (B) which
involves more than the sum of $250,000 (other than (x) campaign insertion orders
with customers of Adsmart entered into in the ordinary course of
13
<PAGE> 18
business and (y) standard representation agreements, which agreements have been
made available to Buyer and the standard form of which is provided in Section
4.14 of the Disclosure Schedule);
(iii) any agreement establishing a partnership or joint venture;
(iv) any agreement (or group of related agreements) under which it
has created, incurred, assumed or guaranteed (or may create, incur, assume or
guarantee) indebtedness (including capitalized lease obligations) involving more
than $250,000 or under which it has imposed (or may impose) a Security Interest
on any of its assets, tangible or intangible;
(v) any agreement concerning noncompetition or containing terms
that stipulate Adsmart must sell its products and services to such other person
on the most advantageous terms that Adsmart sells products or services to any
other person;
(vi) any employment or consulting agreement;
(vii) any agreement involving any officer or director of Adsmart;
(viii) any agreement under which the consequences of a default or
termination would reasonably be expected to have an Adsmart Material Adverse
Effect;
(b) Except for the agreements listed in Section 4.13 or Section 4.14 of
the Disclosure Schedule, neither Adsmart nor any of its Subsidiaries is a party
to or bound by any other agreement which would have to be disclosed in an annual
report on Form 10-K pursuant to Item 601 of SEC Regulation S-K if Adsmart were
subject to the reporting requirements under the Securities Exchange Act of 1934,
as amended (the "Exchange Act").
(c) Section 4.14 of the Disclosure Schedule sets forth (i) a complete
list of each contract or agreement to which Adsmart or any of its Subsidiaries
is a party or bound with CMGI or any majority-owned subsidiary of CMGI (other
than any subsidiary which is a direct, wholly-owned Subsidiary of Adsmart) which
resulted in revenue or expenses of Adsmart of more than $100,000 for the year
ended July 31, 1999, and (ii) the revenue recognized by Adsmart on a
consolidated basis for the year ended July 31, 1999 and the three months ended
October 31, 1999 as a result of such contract or agreement. Except as disclosed
in Section 4.14 of the Disclosure Schedule, neither Adsmart nor any of its
Subsidiaries has entered into any transaction with any officer, director or
other affiliate (other than any Subsidiary which is a direct, wholly-owned
Subsidiary of Adsmart) that would be subject to proxy statement disclosure
pursuant to Item 404 of SEC Regulation S-K if Adsmart were subject to the
reporting requirements under the Exchange Act.
(d) Adsmart has made available to the Buyer a complete and accurate
copy of each agreement listed in Section 4.13 or Section 4.14 of the Disclosure
Schedule. With respect to each agreement so listed: (i) the agreement is legal,
valid, binding and enforceable and in full force and effect; (ii) the agreement
will continue to be legal, valid, binding and enforceable and in full force and
effect immediately following the Closing in accordance with the terms thereof
14
<PAGE> 19
as in effect immediately prior to the Closing; and (iii) neither Adsmart nor any
Subsidiary nor, to the knowledge of Adsmart, any other party, is in material
breach or violation of, or material default under, any such agreement, and no
event has occurred, is pending or, to the knowledge of Adsmart, is threatened,
which, after the giving of notice, with lapse of time, or otherwise, would
constitute a material breach or default by Adsmart or any Subsidiary or, to the
knowledge of Adsmart, any other party under such contract.
4.15 INSURANCE. Section 4.15 of the Disclosure Schedule lists each
insurance policy (including fire, theft, casualty, general liability, workers
compensation, business interruption, environmental, product liability and
automobile insurance policies and bond and surety arrangements) to which Adsmart
or any Subsidiary is a party. Such insurance policies are of the type and in
amounts customarily carried by organizations conducting businesses or owning
assets similar to those of Adsmart and the Subsidiaries. There is no material
claim pending under any such policy as to which coverage has been questioned,
denied or disputed by the underwriter of such policy.
4.16 LITIGATION. As of the date of this Agreement, there is no action,
suit, proceeding, claim, arbitration or investigation before any Governmental
Entity or before any arbitrator (a "Legal Proceeding") which is pending or, to
the knowledge of Adsmart, threatened in writing against Adsmart or any
Subsidiary which (a) could reasonably be expected to have an Adsmart Material
Adverse Effect or (b) in any manner challenges or seeks to prevent, enjoin,
alter or delay the transactions contemplated by this Agreement. There are no
judgments, orders or decrees outstanding against Adsmart or any of its
Subsidiaries.
4.17 EMPLOYEES.
(a) Section 4.17 of the Disclosure Schedule contains a list of all
employees of Adsmart and each Subsidiary whose annual rate of compensation
exceeds $75,000 per year, along with the position and the annual rate of
compensation of each such person. Each such employee has entered into a
confidentiality/assignment of inventions agreement with Adsmart or a Subsidiary,
a copy of which has previously been delivered to the Buyer. To the knowledge of
Adsmart, no officer or other key employee or group of employees has any plans to
terminate employment with Adsmart or any Subsidiary.
(b) Neither Adsmart nor any Subsidiary is a party to or bound by any
collective bargaining agreement, nor has any of them experienced any strikes,
grievances, claims of unfair labor practices or other collective bargaining
disputes. Adsmart has no knowledge of any organizational effort made or
threatened, either currently or within the past two years, by or on behalf of
any labor union with respect to employees of Adsmart or any Subsidiary.
4.18 EMPLOYEE BENEFITS.
(a) For purposes of this Agreement, the following terms shall have the
following meanings:
(i) "Employee Benefit Plan" means any "employee pension benefit
plan" (as defined in Section 3(2) of ERISA), any "employee welfare benefit plan"
(as defined in
15
<PAGE> 20
Section 3(1) of ERISA), and any other written or oral plan, agreement or
arrangement involving direct or indirect compensation, including without
limitation insurance coverage, severance benefits, disability benefits, deferred
compensation, bonuses, stock options, stock purchase, phantom stock, stock
appreciation or other forms of incentive compensation or post-retirement
compensation.
(ii) "ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
(iii) "ERISA Affiliate" means any entity which is, or at any
applicable time was, a member of (1) a controlled group of corporations (as
defined in Section 414(b) of the Code), (2) a group of trades or businesses
under common control (as defined in Section 414(c) of the Code), or (3) an
affiliated service group (as defined under Section 414(m) of the Code or the
regulations under Section 414(o) of the Code), any of which includes or included
Adsmart or a Subsidiary.
(b) Section 4.18(b) of the Disclosure Schedule contains a complete and
accurate list of all Employee Benefit Plans maintained, or contributed to, by
Adsmart, any Subsidiary or any ERISA Affiliate. Each Employee Benefit Plan has
been administered in all material respects in accordance with its terms and each
of Adsmart, the Subsidiaries and the ERISA Affiliates has in all material
respects met its obligations with respect to such Employee Benefit Plan and has
made all required contributions thereto. Adsmart, each Subsidiary, each ERISA
Affiliate and each Employee Benefit Plan are in compliance in all material
respects with the currently applicable provisions of ERISA and the Code and the
regulations thereunder.
(c) There are no Legal Proceedings (except claims for benefits payable
in the normal operation of the Employee Benefit Plans and proceedings with
respect to qualified domestic relations orders) against or involving any
Employee Benefit Plan or asserting any rights or claims to benefits under any
Employee Benefit Plan that could give rise to any material liability.
(d) There are no unfunded obligations under any Employee Benefit Plan
providing benefits after termination of employment to any employee of Adsmart or
any Subsidiary (or to any beneficiary of any such employee), including but not
limited to retiree health coverage and deferred compensation, but excluding
continuation of health coverage required to be continued under Section 4980B of
the Code or other applicable law and insurance conversion privileges under state
law. The assets of each Employee Benefit Plan which is funded are reported at
their fair market value on the books and records of such Employee Benefit Plan.
(e) No act or omission has occurred and no condition exists with
respect to any Employee Benefit Plan maintained by Adsmart, any Subsidiary or
any ERISA Affiliate that would subject Adsmart, any Subsidiary or any ERISA
Affiliate to any material fine, penalty, tax or liability of any kind imposed
under ERISA or the Code.
16
<PAGE> 21
(f) Section 4.18(f) of the Disclosure Schedule discloses each: (i)
agreement with any stockholder, director, executive officer or other key
employee of Adsmart or any Subsidiary (A) the benefits of which are contingent,
or the terms of which are materially altered, upon the occurrence of a
transaction involving Adsmart or any Subsidiary of the nature of any of the
transactions contemplated by this Agreement, (B) providing any term of
employment or compensation guarantee or (C) providing severance benefits or
other benefits after the termination of employment of such director, executive
officer or key employee; (ii) agreement, plan or arrangement under which any
person may receive payments from Adsmart or any Subsidiary that may be subject
to the tax imposed by Section 4999 of the Code or included in the determination
of such person's "parachute payment" under Section 280G of the Code; and (iii)
agreement or plan binding Adsmart or any Subsidiary, including without
limitation any stock option plan, stock appreciation right plan, restricted
stock plan, stock purchase plan, severance benefit plan or Employee Benefit
Plan, any of the benefits of which will be increased, or the vesting of the
benefits of which will be accelerated, by the occurrence of any of the
transactions contemplated by this Agreement or the value of any of the benefits
of which will be calculated on the basis of any of the transactions contemplated
by this Agreement.
(g) All of the Employee Benefit Plans that are intended to be qualified
under Section 401(a) of the Code have received determination letters from the
Internal Revenue Service to the effect that such Employee Benefit Plans are
qualified and the plans and trusts related thereto are exempt from federal
income taxes under Sections 401(a) and 501(a), respectively, of the Code, no
such determination letter has been revoked and revocation has not been
threatened, and no such Employee Benefit Plan has been amended or operated since
the date of its most recent determination letter or application therefor in any
respect, and no act or omission has occurred, that would adversely affect its
qualification or materially increase its cost.
4.19 ENVIRONMENTAL MATTERS.
(a) To the knowledge of Adsmart, each of Adsmart and the Subsidiaries
has complied with all applicable Environmental Laws (as defined below), except
for violations of Environmental Laws that, individually or in the aggregate,
have not had and would not reasonably be expected to have an Adsmart Material
Adverse Effect. There is no pending or, to the knowledge of Adsmart, threatened
civil or criminal litigation, written notice of violation, formal administrative
proceeding, or investigation, inquiry or information request by any Governmental
Entity, relating to any Environmental Law involving Adsmart or any Subsidiary.
For purposes of this Agreement, "Environmental Law" means any federal, state or
local law, statute, rule or regulation or the common law relating to the
environment, including without limitation any statute, regulation,
administrative decision or order pertaining to (i) treatment, storage, disposal,
generation and transportation of industrial, toxic or hazardous materials or
substances or solid or hazardous waste; (ii) air, water and noise pollution;
(iii) groundwater and soil contamination; (iv) the release or threatened release
into the environment of industrial, toxic or hazardous materials or substances,
or solid or hazardous waste, including without limitation emissions, discharges,
injections, spills, escapes or dumping of pollutants, contaminants or chemicals;
(v) the protection of wild life, marine life and wetlands, including without
limitation all endangered and threatened species; (vi) storage tanks, vessels,
containers, abandoned or
17
<PAGE> 22
discarded barrels, and other closed receptacles; and (vii) manufacturing,
processing, using, distributing, treating, storing, disposing, transporting or
handling of materials regulated under any law as pollutants, contaminants, toxic
or hazardous materials or substances or oil or petroleum products or solid or
hazardous waste. As used above, the terms "release" and "environment" shall have
the meaning set forth in the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended ("CERCLA").
(b) To the knowledge of Adsmart, there have been no releases of any
Materials of Environmental Concern (as defined below) into the environment at
any parcel of real property or any facility formerly or currently owned,
operated or controlled by Adsmart or a Subsidiary. For purposes of this
Agreement, "Materials of Environmental Concern" means any chemicals, pollutants
or contaminants, hazardous substances (as such term is defined under CERCLA),
solid wastes and hazardous wastes (as such terms are defined under the Resource
Conservation and Recovery Act), toxic materials, oil or petroleum and petroleum
products or any other material subject to regulation under any Environmental
Law.
4.20 LEGAL COMPLIANCE. Each of Adsmart and the Subsidiaries, and the
conduct and operations of their respective businesses, are in compliance with
each applicable law (including rules and regulations thereunder) of any federal,
state, local or foreign government, or any Governmental Entity, except for any
violations or defaults that, individually or in the aggregate, have not had and
would not reasonably be expected to have an Adsmart Material Adverse Effect.
4.21 PERMITS. Section 4.21 of the Disclosure Schedule sets forth a list of
all permits, licenses, registrations, certificates, orders or approvals from any
Governmental Entity (including without limitation those issued or required under
Environmental Laws and those relating to the occupancy or use of owned or leased
real property) ("Permits") issued to or held by Adsmart or any Subsidiary. Such
listed Permits are the only Permits that are required for Adsmart and the
Subsidiaries to conduct their respective businesses as presently conducted or as
proposed to be conducted, except for those the absence of which, individually or
in the aggregate, have not had and would not reasonably be expected to have an
Adsmart Material Adverse Effect. Each such Permit is in full force and effect
and, to the knowledge of Adsmart, no suspension or cancellation of such Permit
is threatened and there is no basis for believing that such Permit will not be
renewable upon expiration. Each such Permit will continue in full force and
effect immediately following the Closing.
4.22 BUSINESS ACTIVITY RESTRICTIONS. There is no non-competition or other
similar agreement, commitment, judgement, injunction or order to which Adsmart
or any Subsidiary of Adsmart is a party or subject to that has or could
reasonably be expected to have the effect of prohibiting or impairing the
conduct of the business by Adsmart in any material respect. Adsmart has not
entered into any agreement under which it is restricted in any material respect
from selling, licensing or otherwise distributing any of its technology or
products, or providing services to customers or potential customers or any class
of customers, in any geographic area, during any period of time or any segment
of the market or line of business.
18
<PAGE> 23
4.23 YEAR 2000 COMPLIANCE.
(a) Adsmart has conducted "year 2000" audits with respect to (i) all of
the internal systems of Adsmart and each of its Subsidiaries used in the
business or operations of Adsmart or any of its Subsidiaries, including, without
limitation, computer hardware systems, software applications, firmware,
equipment firmware and other embedded systems, and (ii) the software, hardware,
firmware and other technology which constitute part of the products and services
marketed or sold by Adsmart or any of its Subsidiaries or licensed by Adsmart or
any of its Subsidiaries to third parties. Adsmart has obtained "year 2000"
certificates with respect to all material third-party systems used in connection
with the business or operations of Adsmart and its Subsidiaries.
(b) All of (i) the material internal systems of Adsmart and each of its
Subsidiaries used in the business or operations of Adsmart or any of its
Subsidiaries, as the case may be, including, without limitation, computer
hardware systems, software applications, firmware, equipment containing embedded
microchips and other embedded systems, and (ii) the software, hardware, firmware
and other technology which constitute part of the products and services marketed
or sold by Adsmart or any of its Subsidiaries or licensed by Adsmart or any of
its Subsidiaries to third parties are Year 2000 Compliant.
(c) Adsmart has no knowledge of any failure to be Year 2000 Compliant
of any material third-party system used in connection with the business or
operations of Adsmart and its Subsidiaries.
(d) For purposes of this Agreement, "Year 2000 Compliant" means that
the applicable system or item:
(i) accurately receives, records, stores, provides, recognizes and
processes all date and time data from, during, into and between the twentieth
and twenty-first centuries, the years 1999 and 2000 and all leap years;
(ii) accurately performs all date-dependent calculations and
operations (including, without limitation, mathematical operations, sorting,
comparing and reporting) from, during, into and between the twentieth and
twenty-first centuries, the years 1999 and 2000 and all leap years; and
(iii) does not malfunction, cease to function or provide invalid or
incorrect results as a result of (x) the change of years from 1999 to 2000 or
from 2000 to 2001, (y) date data, including date data which represents or
references different centuries, different dates during 1999 and 2000, or more
than one century or (z) the occurrence of any particular date;
in each case without human intervention, other than original data entry;
provided, in each case, that all applications, hardware and other systems used
in conjunction with such system or item which are not owned or licensed by
Adsmart or any of its Subsidiaries correctly exchange date data with or provide
data to such system or item.
19
<PAGE> 24
(e) Neither Adsmart nor any of its Subsidiaries has provided any
guarantee or warranty for any product sold or licensed, or service provided, by
Adsmart or any Subsidiary to the effect that such product or service (i)
complies with or accounts for the fact of the arrival of the year 2000, (ii)
will not be adversely affected with respect to functionality, interoperability,
performance or volume capacity (including, without limitation, the processing
and reporting of data) by virtue of the arrival of the year 2000 or (iii) is
otherwise Year 2000 Compliant.
4.24 CUSTOMERS. Section 4.24 of the Disclosure Schedule lists the ten (10)
customers from which Adsmart derived the greatest amount of revenue on a
consolidated basis during the year ended July 31, 1999, and during the three
months ended October 31 1999 and the amount of revenue attributable to each. No
customer of Adsmart or any of its Subsidiaries that represented 5% or more of
Adsmart's consolidated revenues in the year ended July 31, 1999 or the three
months ended October 31, 1999 has indicated to Adsmart or any of its
Subsidiaries that it will stop, or decrease the rate of, buying products or
services for Adsmart or any of its Subsidiaries.
4.25 ABSENCE OF IMPROPER PAYMENTS. Neither Adsmart nor any of its
Subsidiaries (a) has made any contributions, payments or gifts of its property
to or for the private use of any governmental official, employee or agent where
either the payment or the purpose of such contribution, payments or gift is
illegal under the laws of the United States, any state thereof or any other
jurisdiction (foreign or domestic); (b) has established or maintained any
unrecorded fund or asset for any purpose, or has any purpose, or has made any
false or artificial entries on its books or records for any reason; (c) has made
any payments to any person with the intention or understanding that any part of
such payment was to be used for any other purpose other than that described in
the documents supporting the payment; or (d) has made any contribution, or has
reimbursed any political gift or contribution made by any other person, to
candidates for public office, whether Federal, state or local, where such
contribution would be in violation of applicable law.
4.26 BROKERS' FEES. Neither Adsmart nor any Subsidiary has any liability or
obligation to pay any fees or commissions to any broker, finder or agent with
respect to the transactions contemplated by this Agreement.
4.27 PROXY STATEMENT. The information to be supplied by CMGI and Adsmart
for inclusion in the Proxy Statement (as defined in Section 7.2(b)) shall not at
the time the Proxy Statement is first mailed to stockholders of Buyer and at the
time of the meeting of Buyer's stockholders to vote upon the transactions
contemplated hereby contain any untrue statement of a material fact or omit to
state any material fact required to be stated in the Proxy Statement or
necessary in order to make the statements in the Proxy Statement not misleading.
If at any time prior to the Closing any event relating to CMGI or Adsmart should
be discovered by CMGI or Adsmart which should be set forth in a supplement to
the Proxy Statement, CMGI shall promptly so inform the Buyer.
20
<PAGE> 25
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF CMGI AND FLYCAST
AS TO FLYCAST
CMGI and Flycast represent and warrant to the Buyer as follows:
5.1 FLYCAST MERGER AGREEMENT. CMGI has provided to Buyer true and complete
copies of (i) the Agreement and Plan of Merger by and among CMGI, Freemont
Corporation and Flycast, dated as of September 29, 1999 (the "Flycast Merger
Agreement"), (ii) the Disclosure Schedules pertaining to the Flycast Merger
Agreement and any amendment or supplement thereto, and (iii) the officers'
certificate delivered pursuant to Section 7.2(a) of the Flycast Merger
Agreement. For purposes of this Article V, the phrase "to the knowledge of
Flycast" or any phrase of similar import shall be deemed to refer to matters
which the executive officers of Flycast actually know. The Merger Agreement is
in full force and effect, and CMGI has not waived any breaches or defaults by
Flycast thereunder. To the knowledge of Flycast, all of the representations and
warranties made by Flycast in Article III of the Flycast Merger Agreement are
true and correct (except as set forth in the Disclosure Schedule delivered by
Flycast to CMGI, a copy of which has been provided to Buyer).
5.2 CAPITALIZATION. At the Contribution Closing, CMGI will have good and
marketable title to all of the outstanding shares of Flycast Common Stock and
will have the full right, power and authority to sell, transfer, convey, assign
and deliver to Buyer at the Contribution Closing all of such outstanding shares
of Flycast Common Stock. At the Contribution Closing, Buyer will acquire from
CMGI good and marketable title to all of such shares of Flycast Common Stock,
free and clear of all Security Interests other than those created or arising by
reason of any action of the Buyer. At the Contribution Closing, there will be no
outstanding options, warrants, rights, agreements, obligations or commitments
providing for the issuance, disposition or acquisition of any shares of capital
stock of Flycast, or any securities exercisable for, or convertible into, shares
of capital stock of Flycast. At the Contribution Closing, there will be no
outstanding or authorized stock appreciation, phantom stock or similar rights
with respect to Flycast, and there will be no agreements, voting trusts, proxies
or understandings with respect to the voting, or registration under the
Securities Act, of any capital stock of Flycast.
5.3 FLYCAST-CMGI OPTIONS. As of January 13, 2000, there are outstanding
Flycast-CMGI Options, held by the individuals and in the amounts shown on
Section 5.3 of the Disclosure Schedule.
5.4 NON-COMPETITION AGREEMENTS. CMGI has delivered to Buyer true and
complete copies of those certain non-competition agreements between current and
former employees of Flycast and CMGI executed in connection with Flycast Merger
Agreement (the "Flycast Non-competition Agreements").
5.5 INTERCOMPANY BALANCE. From the closing under the Flycast Merger
Agreement to the date hereof, CMGI has not withdrawn any cash from the accounts
of Flycast. As of the Closing Date, the aggregate amount of the cash and cash
equivalents of Flycast and the
21
<PAGE> 26
intercompany payable from CMGI to Flycast shall not be less than the amount of
cash and cash equivalents of Flycast as of the date of this Agreement, less any
amounts expended by Flycast in the ordinary course of business.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF
THE BUYER AND THE TRANSITORY SUBSIDIARY
Each of the Buyer and the Transitory Subsidiary represents and warrants to
CMGI and Adsmart as follows:
6.1 ORGANIZATION, QUALIFICATION AND CORPORATE POWER. Each of the Buyer and
the Transitory Subsidiary is a corporation duly organized, validly existing and
in good standing under the laws of the state of its incorporation. The Buyer is
duly qualified to conduct business and is in corporate and tax good standing
under the laws of each jurisdiction in which the nature of its businesses or the
ownership or leasing of its properties requires such qualification, except where
the failure to be so qualified or in good standing would not have a Buyer
Material Adverse Effect (as defined below). The Buyer has all requisite
corporate power and authority to carry on the businesses in which it is engaged
and to own and use the properties owned and used by it. For purposes of this
Agreement, "Buyer Material Adverse Effect" means a material adverse effect on
the assets, business, condition (financial or otherwise) or results of
operations prospects of the Buyer and its subsidiaries, taken as a whole,
excluding any material adverse effect (a) demonstrably shown to have been
proximately caused by the public announcement of this Agreement or any of the
transactions contemplated thereby, (b) attributable to any legal proceeding
brought by or on behalf of stockholders of Buyer alleging that the Board of
Directors of Buyer breached its fiduciary duties in connection with its approval
of this Agreement and the transaction contemplated hereby, or (c) arising or
resulting from general industry, economic or stock market conditions that affect
Buyer (or the markets in which the Buyer competes) in a manner not
disproportionate to the manner in which such conditions affect other companies
in the industries or markets in which Buyer competes.
6.2 CAPITALIZATION. The authorized capital stock of the Buyer consists of
(a) 150,000,000 shares of Buyer Common Stock, of which 48,762,837 shares were
issued and outstanding as of November 30, 1999, and (b) 5,000,000 shares of
Preferred Stock, $.01 par value per share, of which no shares are issued or
outstanding. All of the issued and outstanding shares of Buyer Common Stock are
duly authorized, validly issued, fully paid, nonassessable and free of all
preemptive rights. All of the Merger Shares and Contribution Shares
(collectively, the "Transaction Shares") will be, when issued in accordance with
this Agreement, duly authorized, validly issued, fully paid, nonassessable and
free of all preemptive rights.
6.3 AUTHORIZATION OF TRANSACTION. Each of the Buyer and the Transitory
Subsidiary has all requisite power and authority to execute and deliver this
Agreement and to perform its obligations hereunder and thereunder. The execution
and delivery by the Buyer and the Transitory Subsidiary of this Agreement and,
subject to the adoption of this Agreement and the approval of the Merger by the
stockholders of Buyer in accordance with the requirements of the Nasdaq National
Market (the "Engage Stockholder Approval"), the consummation by the Buyer
22
<PAGE> 27
and the Transitory Subsidiary of the transactions contemplated hereby have been
duly and validly authorized by all necessary corporate action on the part of the
Buyer and Transitory Subsidiary, respectively. This Agreement has been duly and
validly executed and delivered by the Buyer and the Transitory Subsidiary and
constitutes a valid and binding obligation of the Buyer and the Transitory
Subsidiary, enforceable against them in accordance with its terms.
6.4 NONCONTRAVENTION. Subject to compliance with the applicable
requirements of the Securities Act and any applicable state securities laws, the
Exchange Act and the filing of the Certificate of Merger as required by the
Delaware General Corporation Law, neither the execution and delivery by the
Buyer or the Transitory Subsidiary of this Agreement, nor the consummation by
the Buyer or the Transitory Subsidiary of the transactions contemplated hereby
or thereby, will (a) conflict with or violate any provision of the charter or
By-laws of the Buyer or the Transitory Subsidiary, (b) require on the part of
the Buyer or the Transitory Subsidiary any filing with, or permit,
authorization, consent or approval of, any Governmental Entity, (c) conflict
with, result in breach of, constitute (with or without due notice or lapse of
time or both) a default under, result in the acceleration of obligations under,
create in any party any right to terminate, modify or cancel, or require any
notice, consent or waiver under, any contract or instrument to which the Buyer
or the Transitory Subsidiary is a party or by which either is bound or to which
any of their assets are subject, except for (i) any conflict, breach, default,
acceleration, termination, modification or cancellation which would not have a
Buyer Material Adverse Effect or adversely affect the consummation of the
transactions contemplated hereby or (ii) any notice, consent or waiver the
absence of which would not have a Buyer Material Adverse Effect or adversely
affect the consummation of the transactions contemplated hereby, or (d) violate
any order, writ, injunction, decree, statute, rule or regulation applicable to
the Buyer or the Transitory Subsidiary or any of their properties or assets.
6.5 REPORTS AND FINANCIAL STATEMENTS. The Buyer has previously furnished or
made available to CMGI and Adsmart complete and accurate copies, as amended or
supplemented, and all reports filed by the Buyer under Section 13 or subsections
(a) or (c) of Section 14 of the Exchange Act with the Securities Exchange
Commission (collectively, the "Buyer Reports"). The Buyer Reports constitute all
of the documents required to be filed by the Buyer under Section 13 or
subsections (a) or (c) of Section 14 of the Exchange Act with the SEC through
the date of this Agreement. The Buyer Reports complied as to form in all
material respects with the requirements of the Exchange Act and the rules and
regulations thereunder when filed. As of their respective dates, the Buyer
Reports 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. The audited financial statements (if any) and unaudited interim
financial statements of the Buyer included in the Buyer Reports (i) complied as
to form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto when filed, (ii)
were prepared in accordance with GAAP applied on a consistent basis throughout
the periods covered thereby (except as may be indicated therein or in the notes
thereto, and in the case of quarterly financial statements, as permitted by Form
10-Q under the Exchange Act), (iii) fairly present the consolidated financial
condition, results of operations and cash flows of the Buyer as of the
respective dates thereof and for the periods referred to therein, and (iv) are
consistent with the books and records of the Buyer.
23
<PAGE> 28
6.6 ABSENCE OF MATERIAL ADVERSE CHANGE. Since October 31, 1999, there has
occurred no event or development which has had, or could reasonably be expected
to have in the future, a Buyer Material Adverse Effect.
6.7 LITIGATION. Except as disclosed in the Buyer Reports there is no Legal
Proceeding which is pending or has been, to the knowledge of Buyer, threatened
against the Buyer or any subsidiary of the Buyer which (a) could reasonably be
expected to have a Buyer Material Adverse Effect or (b) in any manner challenges
or seeks to prevent, enjoin, alter or delay the transactions contemplated by
this Agreement.
6.8 INTERIM OPERATIONS OF THE TRANSITORY SUBSIDIARY. The Transitory
Subsidiary was formed solely for the purpose of engaging in the transactions
contemplated by this Agreement and has engaged in no business activities other
than as contemplated by this Agreement.
6.9 BROKERS' FEES. Neither the Buyer nor the Transitory Subsidiary has any
liability or obligation to pay any fees or commissions to any broker, finder or
agent with respect to the transactions contemplated by this Agreement.
6.10 PROXY STATEMENT. The information in the Proxy Statement (as defined in
Section 7.2(b)) (except for information supplied by CMGI, Adsmart or Flycast for
inclusion in the Proxy Statement, as to which the Buyer makes no representation)
shall not at the time the Proxy Statement is first mailed to stockholders of
Buyer and at the time of the meeting of Buyer's stockholders to vote upon the
transactions contemplated hereby contain any untrue statement of a material fact
or omit to state any material fact required to be stated in the Proxy Statement
or necessary in order to make the statements in the Proxy Statement not
misleading. If at any time prior to the Closing any event relating to the Buyer
should be discovered by the Buyer which should be set forth in a supplement to
the Proxy Statement, the Buyer shall promptly so inform CMGI.
ARTICLE VII
COVENANTS
7.1 CLOSING EFFORTS. Each of the Parties shall use its best efforts, to the
extent commercially reasonable ("Reasonable Best Efforts"), to take all actions
and to do all things necessary, proper or advisable to consummate the
transactions contemplated by this Agreement.
7.2 GOVERNMENTAL AND THIRD-PARTY NOTICES AND CONSENTS.
(a) Each Party shall use its Reasonable Best Efforts to obtain, at its
expense, all waivers, permits, consents, approvals or other authorizations from
Governmental Entities, and to effect all registrations, filings and notices with
or to Governmental Entities, as may be required for such Party to consummate the
transactions contemplated by this Agreement and to otherwise comply with all
applicable laws and regulations in connection with the consummation of the
transactions contemplated by this Agreement.
(b) The Buyer shall use its Reasonable Best Efforts to obtain, as
promptly as practicable, the Engage Stockholder Approval at a special meeting of
stockholders. In
24
<PAGE> 29
connection with such special meeting of stockholders, the Buyer shall provide to
its stockholders a written proxy or information statement (the "Proxy
Statement") which complies with the requirements of the Exchange Act.
(c) The Board of Directors of the Buyer shall recommend that the
stockholders of the Buyer vote in favor of the issuance of its shares to CMGI
pursuant to the Merger and Contribution, which recommendation shall be supported
by the special committee of the directors of the Buyer who are not directors or
executive officers of or otherwise affiliated with CMGI (the "Special
Committee").
(d) With respect to the stockholder approval of the issuance of Buyer
shares to CMGI pursuant to the Merger and Contribution, CMGI agrees as follows:
(i) Until the termination of this Agreement in accordance with the
terms hereof, at any meeting of the stockholders of the Buyer, however called,
and in any action by written consent of the stockholders of the Buyer, CMGI
shall vote, or cause to be voted, all shares of Buyer stock beneficially owned
by CMGI (the "CMGI Buyer Shares") in favor of the issuance of Buyer shares to
CMGI pursuant to the Merger and Contribution. CMGI shall be present, in person
or by proxy, at any such meeting so that all CMGI Buyer Shares may be counted
for the purpose of determining the presence of a quorum at such meeting.
(ii) Until the termination of this Agreement in accordance with the
terms hereof, CMGI will not directly or indirectly, (1) sell, assign, transfer
(including by merger or otherwise by operation of law), pledge, encumber or
otherwise dispose of any of CMGI Buyer Shares owned by CMGI, or (2) deposit any
of such shares into a voting trust or enter into a voting agreement or
arrangement with respect to such shares or grant any proxy or power of attorney
with respect thereto which is inconsistent with this Agreement, unless in each
case the transferee first executes an instrument, in form and substance
reasonably acceptable to the Buyer, whereby such transferee agrees to be bound
by the terms of this subsection (d).
(e) With respect to Adsmart Stockholder Approval:
(i) Adsmart shall use its Reasonable Best Efforts to obtain, as
promptly as possible, the Adsmart Stockholder Approval at a special meeting of
stockholders or in an action by written consent of stockholders.
(ii) Until the termination of this Agreement in accordance with the
terms hereof, CMGI will not directly or indirectly, (1) except as set forth on
Schedule 7.2(e)(ii) of the Disclosure Schedule, sell, assign, transfer
(including by merger or otherwise by operation of law), pledge, encumber or
otherwise dispose of any of Adsmart Common Shares owned by CMGI, or (2) deposit
any of such shares into a voting trust or enter into a voting agreement or
arrangement with respect to such shares or grant any proxy or power of attorney
with respect thereto which is inconsistent with this Agreement, unless in each
case the transferee first executes an instrument, in form and substance
reasonably acceptable to the Buyer, whereby such transferee agrees to be bound
by the terms of this subsection (e).
25
<PAGE> 30
(iii) Until the termination of this Agreement in accordance with
the terms hereof, if required by law or requested by the Buyer, at any meeting
of the stockholders of Adsmart, however called, or in any action by written
consent of the stockholders of Adsmart, CMGI shall vote, or cause to be voted,
all shares of Adsmart common stock beneficially owned by CMGI (the "CMGI Adsmart
Shares") in favor of the adoption and approval of this Agreement and the Merger.
CMGI shall be present, in person or by proxy, at any such meeting of Adsmart
stockholders so that all CMGI Adsmart Shares may be counted for the purpose of
determining the presence of a quorum at such meeting.
7.3 OPERATION OF ADSMART AND FLYCAST BUSINESSES. Except as expressly
contemplated by this Agreement, during the period from the date of this
Agreement to the Closing, each of Adsmart and Flycast shall (and shall cause
each of its Subsidiaries to) conduct its operations in the Ordinary Course of
Business and in compliance with all applicable laws and regulations and, to the
extent consistent therewith, use its Reasonable Best Efforts to preserve intact
its current business organization, keep its physical assets in good working
condition, keep available the services of its current officers and employees and
preserve its relationships with customers, suppliers and others having business
dealings with it to the end that its goodwill and ongoing business shall not be
impaired in any material respect. With respect to Flycast, "Ordinary Course of
Business" shall mean the ordinary course of Flycast's business, consistent with
past custom and practice. Without limiting the generality of the foregoing,
prior to the Effective Time, each of Adsmart and Flycast shall not (and shall
cause each of its Subsidiaries not to), without the written consent of the
Buyer, which shall not be unreasonably withheld:
(a) except as set forth on Section 7.3 of the Disclosure Schedule,
issue or sell, or redeem or repurchase, any of its stock or other securities or
any rights, warrants or options to acquire any such stock or other securities
(except pursuant to the conversion or exercise of convertible securities or
Adsmart Options outstanding on the date hereof), or amend any of the terms of
(including without limitation the vesting of) any such convertible securities or
Adsmart Options;
(b) split, combine or reclassify any shares of its capital stock;
declare, set aside or pay any dividend or other distribution (whether in cash,
stock or property or any combination thereof) in respect of its capital stock;
(c) create, incur or assume any indebtedness for borrowed money
(including obligations in respect of capital leases), other than indebtedness
which either does not exceed $100,000 in the aggregate or is converted into
Adsmart Common Shares prior to the Effective Time; assume, guarantee, endorse or
otherwise become liable or responsible (whether directly, contingently or
otherwise) for the obligations of any other person or entity; or make any loans,
advances or capital contributions to, or investments in, any other person or
entity;
(d) acquire, sell, lease, license or dispose of any assets or property
(including without limitation any shares or other equity interests in or
securities of any Subsidiary or any corporation, partnership, association or
other business organization or division thereof), other than purchases and sales
of assets in the Ordinary Course of Business;
26
<PAGE> 31
(e) mortgage or pledge any of its property or assets;
(f) amend its charter, by-laws or other organizational documents;
(g) change in any material respect its accounting methods, principles
or practices, except insofar as may be required by a generally applicable change
in GAAP;
(h) make or commit to make any capital expenditure in excess of
$250,000 per item or $4,000,000 in the aggregate;
(i) institute, compromise or settle any Legal Proceeding;
(j) enter into an agreement with respect to any merger, consolidation,
liquidation or business combination, or any acquisition or disposition of all or
substantially all of its assets or securities or any of its Subsidiaries;
(k) issue or sell any of its (or its Subsidiaries') debt securities or
warrants or other rights to acquire any debt securities, guarantee any debt
securities of another person, enter into any "keep well" or other agreement to
maintain any financial statement condition of another person or enter into any
arrangement having the economic effect of any of the foregoing;
(l) (A) pay, discharge, settle or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction, in the Ordinary
Course of Business consistent with past practice or in accordance with their
terms, of liabilities reflected or reserved against in, or contemplated by, its
most recent consolidated financial statements (or the notes thereto)(to the
extent so reflected or reserved against) or incurred thereafter in the Ordinary
Course of Business, or (B) waive any material benefits of any confidentiality,
standstill or similar agreements to which it or any of its Subsidiaries is a
party;
(m) modify, amend or terminate any material contract or agreement to
which it or any of its Subsidiaries is party, or knowingly waive, release or
assign any material rights or claims (including any write-off or other
compromise of any of its (or its Subsidiaries') accounts receivable);
(n) except in the Ordinary Course of Business, (A) enter into any
material contract or agreement or (B) license any material intellectual property
rights to or from any third party;
(o) except as required to comply with applicable law or agreements,
plans or arrangements existing on the date hereof, (A) adopt, enter into,
terminate or amend any employment, severance or similar agreement or benefit
plan described in Section 4.18 of this Agreement or Section 3.13 of the Flycast
Merger Agreement, as the case maybe, for the benefit or welfare of any current
or former director, officer or employee or any collective bargaining agreement,
(B) increase in any respect the compensation or fringe benefits of, or pay any
bonus to, any director, officer or key employee, (C) accelerate the payment,
right to payment or vesting of any compensation or benefits, including any
outstanding options or restricted stock awards,
27
<PAGE> 32
(D) pay any benefit not provided for as of the date of this Agreement under any
benefit plan, (E) grant any awards under any bonus, incentive, performance or
other compensation plan or arrangement or benefit plan (including the grant of
stock options, stock appreciation rights, stock based or stock related wards,
performance units or restricted stock, or the removal of existing restrictions
in any benefit plans or agreements or awards made thereunder), or (F) take any
action other than in the Ordinary Course of Business to fund or in any other way
secure the payment of compensation or benefits under any employee plan,
agreement, contract or arrangement or benefit plan;
(p) take any action or fail to take any action permitted by this
Agreement with the knowledge that such action or failure to take action would
result in (i) any of the representations and warranties of Adsmart set forth in
this Agreement becoming untrue or (ii) any of the conditions to the Merger set
forth in Article 8.2 not being satisfied; or
(q) agree in writing or otherwise to take any of the foregoing actions.
7.4 EXPENSES. Each of the Parties shall bear its own costs and expenses
(including legal fees and expenses) incurred in connection with this Agreement
and the transactions contemplated hereby.
7.5 INDEMNIFICATION.
(a) The Buyer shall comply fully with the provisions of Section 6.13 of
the Flycast Merger Agreement relating to the indemnification of former directors
of Flycast.
(b) From and after the Effective Time, Buyer agrees that it will, and
will cause the Surviving Corporation to, indemnify and hold harmless each
present and former director and officer of Adsmart (the "Adsmart Indemnified
Parties"), against any costs or expenses (including attorneys' fees), judgments,
fines, losses, claims, damages, liabilities or amounts paid in settlement
incurred in connection with any claim, action, suit, proceedings or
investigation, whether civil, criminal, administrative or investigative, arising
out of or pertaining to matters existing or occurring at or prior to the
Effective Time, whether asserted or claimed prior to, at or after the Effective
Time, to the fullest extent permitted under Delaware law (and Buyer and the
Surviving Corporation shall also advance expenses as incurred to the fullest
extent permitted under applicable law, provided the Adsmart Indemnified Party to
whom expenses are advanced provides an undertaking to repay such advances if it
is ultimately determined that such Adsmart Indemnified Party is not entitled to
indemnification). The provisions of this Section 7.5(b) are intended to be an
addition to the rights otherwise available to the current officers and directors
of Adsmart by law, charter, statute, bylaw or agreement, and shall operate for
the benefit of, and shall be enforceable by, each of the Adsmart Indemnified
Parties, their heirs and their representatives.
7.6 LISTING OF MERGER SHARES. The Buyer shall use its best efforts to list
the Merger Shares and the Contribution Shares on the Nasdaq National Market.
7.7 RIGHTS ARISING FROM PRIOR ACQUISITIONS.
28
<PAGE> 33
(a) Effective as of the Effective Time, CMGI hereby releases any and
all claims that it or any of its Subsidiaries may have against Flycast arising
out of the Flycast Merger Agreement and the transactions contemplated thereby.
Effective as of the Effective Time, CMGI hereby assigns to the Buyer, to the
extent assignable, any and all claims that it or any of its Subsidiaries may
have against any party other than Flycast arising out of the Flycast Merger
Agreement and the transactions contemplated thereby.
(b) Effective as of the Effective Time, CMGI hereby assigns to the
Buyer, to the extent assignable, any and all claims that it or any of its
Subsidiaries may have against 2Can or any other party arising out of the
Agreement and Plan of Merger, dated as of February 10, 1999, among CMGI, 2Can
Acquisition Corporation, 2Can Media, Inc. and certain stockholders of 2Can Media
(the "2Can Merger Agreement"), including without limitation, to the extent
assignable, CMGI's claims to indemnification under the 2Can Merger Agreement.
7.8 BUYER MANAGEMENT AGREEMENT. CMGI and the Buyer shall amend that certain
Management Agreement between them such that effective as of the Effective Time
Adsmart, Flycast and their respective subsidiaries shall receive from CMGI the
same management services that CMGI provides to the Buyer, which services shall
be provide on the same terms that apply to the Buyer as of the date of this
Agreement.
7.9 NON-SOLICITATION. For a period of eighteen (18) months after the date
of this Agreement, CMGI shall not, and shall use reasonable efforts to cause its
majority-owned Subsidiaries not to, solicit the employment of any employee of
Adsmart or Flycast, other than as a result of a general solicitation not
directed specifically to employees of Adsmart or Flycast.
ARTICLE VIII
CONDITIONS TO CLOSING
8.1 CONDITION TO EACH PARTY'S OBLIGATIONS. The respective obligations of
each Party to consummate the Transactions are subject to the satisfaction of the
following conditions:
(a) the Engage Stockholder Approval shall have been obtained;
(b) the Adsmart Stockholder Approval shall remain in full force and
effect;
(c) the Merger Shares and Contribution Shares shall have been
authorized for listing on the Nasdaq National Market upon official notice of
issuance; and
(d) No Government Entity of competent jurisdiction shall have enacted,
issued, promulgated, enforced or entered any order, executive order, stay,
decree judgment or injunction (each an "Order") or statute, rule or regulation
which is in effect and which has the effect of making the Merger or the
Contribution illegal or otherwise prohibiting consummation of the Merger or the
Contribution.
8.2 CONDITIONS TO OBLIGATIONS OF THE BUYER AND THE TRANSITORY SUBSIDIARY.
The obligation of each of the Buyer and the Transitory Subsidiary to consummate
the Transactions is subject to the satisfaction (or waiver by the Buyer) of the
following additional conditions:
29
<PAGE> 34
(a) all outstanding convertible promissory notes of Adsmart held by
CMGI shall have been converted into Adsmart Series B Preferred Stock;
(b) all outstanding Adsmart Preferred Shares shall have converted into
Adsmart Common Shares;
(c) the number of Dissenting Shares shall not exceed 3% of the number
of outstanding Adsmart Common Shares as of the Effective Time;
(d) Adsmart and the Subsidiaries shall have obtained (and shall have
provided copies thereof to the Buyer) all of the waivers, permits, consents,
approvals or other authorizations, and effected all of the registrations,
filings and notices, referred to in Section 4.4 which are required on the part
of Adsmart or the Subsidiaries, except for any the failure of which to obtain or
effect would not have an Adsmart Company Material Adverse Effect or a material
adverse effect on the ability of the Parties to consummate the transactions
contemplated by this Agreement;
(e) the representations and warranties set forth in Articles III, IV
and V of this Agreement shall be true and correct as of the date of this
Agreement and as of the Closing as though made as of the Closing, except to the
extent that such representations and warranties are specifically made as of a
particular date (in which case such representations and warranties should be
true and correct as of such date) and except for any failures to be true and
correct (without regard to any materiality, material adverse effect or knowledge
qualification contained therein) that would not have a material adverse effect
on the ability of the Parties to consummate the transactions contemplated by
this Agreement, an Adsmart Material Adverse Effect or a "Company Material
Adverse Effect" (as defined in the Flycast Merger Agreement) and the Buyer shall
have received a certificate signed on behalf of the Company, Adsmart and Flycast
by an executive officer of CMGI, Adsmart and Flycast, respectively, to such
effect;
(f) each of CMGI, Adsmart and Flycast shall have performed or complied
with in all material respects its agreements and covenants required to be
performed or complied with under this Agreement as of or prior to the Closing;
(g) The Adsmart Audited Financial Statements shall have been delivered
to the Buyer and the revenue, net income (loss) and stockholders' equity
reflected in the Adsmart Audited Financial Statements shall not differ from the
same line items reflected in the Adsmart Financial Statements as of the same
dates and for the same periods in a manner that would have an Adsmart Material
Adverse Effect; and
(h) there shall have been no Company Material Adverse Effect (as
defined above) from the date of the Flycast Closing to the date of the
Contribution Closing.
8.3 CONDITIONS TO OBLIGATIONS OF CMGI AND ADSMART. The obligations of CMGI
and Adsmart to consummate the Transactions is subject to the satisfaction of the
following additional conditions:
30
<PAGE> 35
(a) the representations and warranties of the Buyer and the Transitory
Subsidiary set forth in this Agreement shall be true and correct, as of the date
of this Agreement and as of the Closing as though made as of the Closing, except
to the extent such representations and warranties are specifically made as of a
particular date (in which case such representations and warranties shall be true
and correct as of such date) and except for failures to be true and correct
(without regard to any materiality, material adverse effect or knowledge
qualification contained therein) that would not have a material adverse effect
on the ability of the Parties to consummate the transactions contemplated by
this Agreement or a Buyer Material Adverse Effect and CMGI shall have received a
certificate signed on behalf of the Buyer by an executive officer of the Buyer
to such effect ; and
(b) each of the Buyer and the Transitory Subsidiary shall have
performed or complied with in all material respects its agreements and covenants
required to be performed or complied with under this Agreement as of or prior to
the Closing.
ARTICLE IX
INDEMNIFICATION
9.1 INDEMNIFICATION BY CMGI. CMGI shall indemnify the Buyer in respect of,
and hold it harmless against, any and all debts, obligations and other
liabilities (whether absolute, accrued, contingent, fixed or otherwise, or
whether known or unknown, or due or to become due or otherwise), monetary
damages, fines, fees, penalties, interest obligations, deficiencies, losses and
expenses (including without limitation amounts paid in settlement, interest,
court costs, costs of investigators, reasonable fees and expenses of attorneys,
accountants, financial advisors and other experts, and other reasonable expenses
of litigation) ("Damages") incurred by the Surviving Corporation or the Buyer
resulting from, relating to or constituting any breach by CMGI or Adsmart of any
representation, warranty or covenant set forth in Articles III or IV or, solely
as to Adsmart, Article VII of this Agreement, net of any insurance proceeds
collectible by the Surviving Corporation or the Buyer with respect thereto.
9.2 INDEMNIFICATION CLAIMS.
(a) A party entitled, or seeking to assert rights, to indemnification
under this Article IX (an "Indemnified Party") shall give written notification
to the party from whom indemnification is sought (an "Indemnifying Party") of
the commencement of any suit or proceeding relating to a third party claim for
which indemnification pursuant to this Article IX may be sought. Such
notification shall be given within 20 business days after receipt by the
Indemnified Party of notice of such suit or proceeding, and shall describe in
reasonable detail (to the extent known by the Indemnified Party) the facts
constituting the basis for such suit or proceeding and the amount of the claimed
damages; provided, however, that no delay on the part of the Indemnified Party
in notifying the Indemnifying Party shall relieve the Indemnifying Party of any
liability or obligation hereunder except to the extent of any damage or
liability caused by or arising out of such failure. Within 20 days after
delivery of such notification, the Indemnifying Party may, upon written notice
thereof to the Indemnified Party, assume control of the defense of such suit or
proceeding with counsel reasonably satisfactory to the Indemnified Party
provided that the Indemnifying Party in such notice acknowledges that any Damage
31
<PAGE> 36
resulting therefrom is subject to the provisions of this Article IX. If the
Indemnifying Party does not so assume control of such defense, the Indemnified
Party shall control such defense. The party not controlling such defense (the
"Non-controlling Party") may participate therein at its own expense. The party
controlling such defense (the "Controlling Party") shall keep the
Non-controlling Party advised of the status of such suit or proceeding and the
defense thereof and shall consider in good faith recommendations made by the
Non-controlling Party with respect thereto. The Non-controlling Party shall
furnish the Controlling Party with such information as it may have with respect
to such suit or proceeding (including copies of any summons, complaint or other
pleading which may have been served on such party and any written claim, demand,
invoice, billing or other document evidencing or asserting the same) and shall
otherwise cooperate with and assist the Controlling Party in the defense of such
suit or proceeding. The Indemnifying Party shall not agree to any settlement of,
or the entry of any judgment arising from, any such suit or proceeding without
the prior written consent of the Indemnified Party, which shall not be
unreasonably withheld or delayed; provided that the consent of the Indemnified
Party shall not be required if the Indemnifying Party agrees in writing to pay
any amounts payable pursuant to such settlement or judgment and such settlement
or judgment includes a complete release of the Indemnified Party from further
liability and has no other adverse effect on the Indemnified Party. The
Indemnified Party shall not agree to any settlement of, or the entry of any
judgment arising from, any such suit or proceeding without the prior written
consent of the Indemnifying Party, which shall not be unreasonably withheld or
delayed.
(b) In order to seek indemnification under this Article IX, an
Indemnified Party shall give written notification (a "Claim Notice") to the
Indemnifying Party which contains (i) a description and the amount (the "Claimed
Amount") of any Damages incurred or reasonably expected to be incurred by the
Indemnified Party, (ii) a statement that the Indemnified Party is entitled to
indemnification under this Article IX for such Damages and a reasonable
explanation of the basis therefor, and (iii) a demand for payment (in the manner
provided in paragraph (c) below) in the amount of such Damages.
(c) Within 20 days after delivery of a Claim Notice, the Indemnifying
Party shall deliver to the Indemnified Party a written response (the "Response")
in which the Indemnifying Party shall: (i) agree that the Indemnified Party is
entitled to receive all of the Claimed Amount (in which case the Response shall
be accompanied by a payment by the Indemnifying Party to the Indemnified Party
of the Claimed Amount, by check or by wire transfer, (ii) agree that the
Indemnified Party is entitled to receive part, but not all, of the Claimed
Amount (the "Agreed Amount") (in which case the Response shall be accompanied by
a payment by the Indemnifying Party to the Indemnified Party of the Agreed
Amount, by check or by wire transfer, or (iii) dispute that the Indemnified
Party is entitled to receive any of the Claimed Amount. If the Indemnifying
Party in the Response disputes its liability for all or part of the Claimed
Amount, the Indemnifying Party and the Indemnified Party shall follow the
procedures set forth in Section 9.2(d) for the resolution of such dispute (a
"Dispute").
(d) During the 60-day period following the delivery of a Response that
reflects a Dispute, the Indemnifying Party and the Indemnified Party shall use
good faith efforts to resolve the Dispute. If the Dispute is not resolved within
such 60-day period, the Indemnifying Party and the Indemnified Party shall
discuss in good faith the submission of the
32
<PAGE> 37
Dispute to a mutually acceptable alternative dispute resolution procedure (which
may be non-binding or binding upon the parties, as they agree in advance) (the
"ADR Procedure"). In the event the Indemnifying Party and the Indemnified Party
agree upon an ADR Procedure, such parties shall, in consultation with the chosen
dispute resolution service (the "ADR Service"), promptly agree upon a format and
timetable for the ADR Procedure, agree upon the rules applicable to the ADR
Procedure, and promptly undertake the ADR Procedure. The provisions of this
Section 9.2(d) shall not obligate the Indemnifying Party and the Indemnified
Party to pursue an ADR Procedure or prevent either such party from pursuing the
Dispute in a court of competent jurisdiction; provided that, if the Indemnifying
Party and the Indemnified Party agree to pursue an ADR Procedure, neither the
Indemnifying Party nor the Indemnified Party may commence litigation or seek
other remedies with respect to the Dispute prior to the completion of such ADR
Procedure. Any ADR Procedure undertaken by the Indemnifying Party and the
Indemnified Party shall be considered a compromise negotiation for purposes of
federal and state rules of evidence, and all statements, offers, opinions and
disclosures (whether written or oral) made in the course of the ADR Procedure by
or on behalf of the Indemnifying Party, the Indemnified Party or the ADR Service
shall be treated as confidential and, where appropriate, as privileged work
product. Such statements, offers, opinions and disclosures shall not be
discoverable or admissible for any purposes in any litigation or other
proceeding relating to the Dispute (provided that this sentence shall not be
construed to exclude from discovery or admission any matter that is otherwise
discoverable or admissible). The fees and expenses of any ADR Service used by
the Indemnifying Party and the Indemnified Party shall be shared equally by the
Indemnifying Party and the Indemnified Party.
9.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties in Articles III and IV of this Agreement shall survive the Closing
and shall expire on the date one year following the Closing Date. All other
representations and warranties in this Agreement shall expire upon the Closing,
except that the representation and warranty in Section 5.2 shall survive
indefinitely. If an Indemnified Party delivers to an Indemnifying Party, before
expiration of a representation or warranty, either a Claim Notice based upon a
breach of such representation or warranty, or a notice that, as a result a legal
proceeding instituted by or written claim made by a third party, the Indemnified
Party reasonably expects to incur Damages as a result of a breach of such
representation or warranty (an "Expected Claim Notice"), then such
representation or warranty shall survive until, but only for purposes of, the
resolution of the matter covered by such notice.
9.4 LIMITATIONS.
(a) Notwithstanding anything to the contrary herein, the aggregate
liability of CMGI, for Damages under this Article IX shall not exceed
$437,500,000, and CMGI shall not be liable under this Article IX unless and to
the extent that the aggregate Damages for which it would otherwise be liable
exceed $10,000,000. In no event shall CMGI have any liability for any incidental
or consequential damages claimed by Buyer or any third party. If the Damages
indemnified against under this Article IX do not involve the payment of cash by
the Indemnified Party to a third party, the Indemnifying Party may elect to
satisfy any indemnification claim with respect to such Damages by transferring
to the Indemnified Party shares of Buyer Common
33
<PAGE> 38
Stock (valued at $77.96 per share, subject to equitable adjustment for stock
splits, stock dividends, recapitalizations and other similar events affecting
such shares).
(b) Notwithstanding anything to the contrary in this Agreement, if any
facts or circumstances giving rise to a claim for indemnification under this
Agreement also serve as a basis for a claim by the Surviving Corporation
pursuant to the indemnification provisions of the 2Can Merger Agreement, the
Surviving Corporation shall take reasonable steps to exhaust its remedies under
the 2Can Merger Agreement before seeking to recover any amounts under this
Article IX, and any amounts collected pursuant to the 2Can Merger Agreement
shall be offset against any Damages otherwise indemnified against hereunder.
(c) Except with respect to claims based on fraud, after the Closing,
the rights of the Buyer under this Article IX shall be the exclusive remedy of
the Buyer with respect to claims resulting from or relating to any
misrepresentation, breach of warranty or failure to perform any covenant or
agreement contained in this Agreement.
(d) CMGI shall not have any right of contribution against Adsmart or
the Surviving Corporation with respect to any breach by Adsmart of any of its
representations, warranties, covenants or agreements in this Agreement.
ARTICLE X
TERMINATION
10.1 TERMINATION OF AGREEMENT. The Parties may terminate this Agreement
prior to the Closing (whether before or after the Engage Stockholder Approval),
as provided below:
(a) the Parties may terminate this Agreement by mutual written consent;
(b) the Buyer may terminate this Agreement by giving written notice to
CMGI in the event CMGI, Adsmart or Flycast is in breach of any representation,
warranty or covenant contained in this Agreement, and such breach, individually
or in combination with any other such breach, (i) would cause the conditions set
forth in clauses (e) or (f) of Section 8.2 not to be satisfied and (ii) is not
cured within 20 days following delivery by the Buyer to CMGI of written notice
of such breach;
(c) CMGI may terminate this Agreement by giving written notice to the
Buyer in the event the Buyer or the Transitory Subsidiary is in breach of any
representation, warranty or covenant contained in this Agreement, and such
breach, individually or in combination with any other such breach, (i) would
cause the conditions set forth in clauses (a) or (b) of Section 8.3 not to be
satisfied and (ii) is not cured within 20 days following delivery by CMGI to the
Buyer of written notice of such breach;
(d) any Party may terminate this Agreement by giving written notice to
the other Parties at any time after the Buyer stockholders have voted on whether
to approve the Merger and the Contribution in the event the Merger and the
Contribution failed to receive the Engage Stockholder Approval;
34
<PAGE> 39
(e) any Party may terminate this Agreement if a Governmental Entity of
competent jurisdiction shall have issued a nonappealable final order, decree or
ruling or taken any other nonappealable final action, in each case having the
effect of permanently restraining, enjoining or otherwise prohibiting the Merger
or the Contribution;
(f) the Buyer may terminate this Agreement by giving written notice to
Adsmart if the Closing shall not have occurred on or before August 30, 2000 by
reason of the failure of any condition precedent under Section 8.1 or 8.2 hereof
(unless the failure results primarily from a breach by the Buyer or the
Transitory Subsidiary of any representation, warranty or covenant contained in
this Agreement); or
(g) CMGI may terminate this Agreement by giving written notice to the
Buyer and the Transitory Subsidiary if the Closing shall not have occurred on or
before August 30, 2000 by reason of the failure of any condition precedent under
Section 8.1 or 8.3 hereof (unless the failure results primarily from a breach by
CMGI, Adsmart or Flycast of any representation, warranty or covenant contained
in this Agreement).
10.2 EFFECT OF TERMINATION. If any Party terminates this Agreement pursuant
to Section 10.1, all obligations of the Parties hereunder shall terminate
without any liability of any Party to any other Party (except for any liability
of any Party for willful breaches of this Agreement).
ARTICLE XI
DEFINITIONS
For purposes of this Agreement, each of the following defined terms is defined
in the Section of this Agreement indicated below.
DEFINED TERM SECTION
- ------------ -------
2Can Merger Agreement 1.11(b)
ADR Procedure 9.2(d)
ADR Service 9.2(d)
Adsmart Introduction
Adsmart Audited Financial Statements 4.6
Adsmart Common Shares 1.5(a)
Adsmart Financial Statements 4.6
Adsmart Indemnified Parties 7.5(b)
Adsmart Intellectual Property 4.13(a)
Adsmart Material Adverse Effect 4.1
Adsmart Notes 1.11(a)
Adsmart Options 1.8(a)
Adsmart Preferred Shares 1.10
Adsmart Series A Preferred Stock 1.10
Adsmart Series B Preferred Stock 1.19
Adsmart Stockholder Approval 4.3
35
<PAGE> 40
Adsmart Stockholders 1.3(b)
Agreed Amount 9.2(c)
Buyer Introduction
Buyer Common Stock 1.5(a)
Buyer Material Adverse Effect 6.1
Buyer Reports 6.5
CERCLA 4.19(a)
Certificate of Merger 1.1
Claim Notice 9.2(b)
Claimed Amount 9.2(b)
Closing 2.2
Closing Date 1.2
CMGI Introduction
CMGI Adsmart Shares 7.2(e)
CMGI Buyer Shares 7.2(d)(i)
CMGI Material Adverse Effect 3.3
Code 1.8(a)
Company Material Adverse Effect 8.2(e)
Contribution 2.1
Contribution Closing 2.2
Contribution Shares 2.4
Controlling Party 9.2(a)
Conversion Ratio 1.5(a)
Damages 9.1
Disclosure Schedule Article IV
Dispute 9.2(c)
Dissenting Shares 1.6(a)
Effective Time 1.1
Employee Benefit Plan 4.18(a)(i)
Engage Sale 2.5
Engage Stockholder Approval 6.3
Environmental Law 4.19(a)
ERISA 4.18(a)(ii)
ERISA Affiliate 4.18(a)(iii)
Exchange Act 4.14(b)
Expected Claim Notice 9.3
Flycast Introduction
Flycast-CMGI Options 2.5
Flycast Common Stock 2.1
Flycast Merger Agreement 5.1
Flycast Noncompetition Agreements 5.4
Financial Statements 4.6
GAAP 4.6
Governmental Entity 3.3
Indemnified Party 9.2(a)
36
<PAGE> 41
Indemnifying Party 9.2(a)
InterStep 2.6
Legal Proceeding 4.16
Materials of Environmental Concern 4.19(a)
Merger 1.1
Merger Closing 1.2
Merger Shares 1.5(a)
Most Recent Audited Balance Sheet 4.6
Most Recent Audited Balance Sheet Date 4.8
Most Recent Balance Sheet Date 4.6
Non-controlling Party 9.2(a)
Order 8.1(d)
Ordinary Course of Business 4.4
Parties Introduction
Permits 4.21
Proxy Statement 7.2(b)
Reasonable Best Efforts 7.1
Response 9.2(c)
Securities Act 1.8(c)
Security Interest 4.4
Special Committee 7.2(c)
Subsidiary 4.5(a)
Substitute Options 2.5(a)
Surviving Corporation 1.1
Taxes 4.9(a)(i)
Tax Returns 4.9(a)(ii)
Transaction Shares 6.2
Transitory Subsidiary Introduction
Year 2000 Compliant 4.23(d)
ARTICLE XII
MISCELLANEOUS
12.1 PRESS RELEASES AND ANNOUNCEMENTS. No Party shall issue any press
release or public announcement relating to the subject matter of this Agreement
without the prior written approval of the other Parties; PROVIDED, HOWEVER, that
any Party may make any public disclosure it believes in good faith is required
by applicable law, regulation or stock market rule.
12.2 NO THIRD PARTY BENEFICIARIES. This Agreement shall not confer any
rights or remedies upon any person other than the Parties and their respective
successors and permitted assigns.
12.3 ENTIRE AGREEMENT. This Agreement (including the Disclosure Schedule
and other documents referred to herein) constitutes the entire agreement among
the Parties and supersedes
37
<PAGE> 42
any prior understandings, agreements or representations by or among the Parties,
written or oral, with respect to the subject matter hereof.
12.4 SUCCESSION AND ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of its
rights, interests or obligations hereunder without the prior written approval of
the other Parties; provided that the Transitory Subsidiary may assign its
rights, interests and obligations hereunder to an Affiliate of the Buyer.
12.5 COUNTERPARTS FACSIMILE SIGNATURE. 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. This Agreement may
be executed by facsimile signature.
12.6 HEADINGS. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
12.7 NOTICES. All notices, requests, demands, claims, and other
communications hereunder shall be in writing. Any notice, request, demand, claim
or other communication hereunder shall be deemed duly delivered four business
days after it is sent by registered or certified mail, return receipt requested,
postage prepaid, or one business day after it is sent for next-day delivery via
a reputable nationwide overnight courier service, in each case to the intended
recipient as set forth below:
IF TO CMGI: COPY TO:
----------- --------
CMGI, Inc. Hale and Dorr LLP
100 Brickstone Square, 1st Floor 60 State Street
Andover, MA 01810 Boston, MA 02109
Attn: General Counsel Attn: Mark G. Borden, Esq.
IF TO ADSMART: COPY TO:
-------------- --------
Adsmart, Inc. Hale and Dorr LLP
100 Brickstone Square, 5th Floor 60 State Street
Andover, MA 01810 Boston, MA 02109
Attn: President Attn: Susan W. Murley, Esq.
IF TO THE BUYER OR
THE TRANSITORY SUBSIDIARY: COPY TO:
-------------------------- --------
Engage Technologies, Inc. Nutter, McClennen & Fish, LLP
100 Brickstone Square, 1st Floor One International Place
Andover, MA 01810 Boston, MA 02110
Attn: General Counsel Attn: Constantine Alexander, Esq.
38
<PAGE> 43
Any Party may give any notice, request, demand, claim or other communication
hereunder using any other means (including personal delivery, expedited courier,
messenger service, telecopy, telex, ordinary mail or electronic mail), but no
such notice, request, demand, claim or other communication shall be deemed to
have been duly given unless and until it actually is received by the party for
whom it is intended. Any Party may change the address to which notices,
requests, demands, claims, and other communications hereunder are to be
delivered by giving the other Parties notice in the manner herein set forth.
12.8 GOVERNING LAW. Except to the extent expressly governed by the Delaware
General Corporation Law, this Agreement shall be governed by and construed in
accordance with the internal laws of the Commonwealth of Massachusetts without
giving effect to any choice or conflict of law provision or rule (whether of the
Commonwealth of Massachusetts or any other jurisdiction) that would cause the
application of laws of any jurisdictions other than those of the Commonwealth of
Massachusetts.
12.9 AMENDMENTS AND WAIVERS. The Parties may mutually amend any provision
of this Agreement at any time prior to the Effective Time; PROVIDED, HOWEVER,
that any amendment effected subsequent to Engage Stockholder Approval or Adsmart
Stockholder Approval shall be subject to any restrictions contained in the
Delaware General Corporation Law. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by all
of the Parties. No waiver of any right or remedy hereunder shall be valid unless
the same shall be in writing and signed by the Party giving such waiver. No
waiver by any Party with respect to any default, misrepresentation or breach of
warranty or covenant hereunder shall be deemed to extend to any prior or
subsequent default, misrepresentation or breach of warranty or covenant
hereunder or affect in any way any rights arising by virtue of any prior or
subsequent such occurrence.
12.10 SEVERABILITY. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction. If the final judgment of a court of
competent jurisdiction declares that any term or provision hereof is invalid or
unenforceable, the Parties agree that the court making the determination of
invalidity or unenforceability shall have the power to limit the term or
provision, to delete specific words or phrases, or to replace any invalid or
unenforceable term or provision with a term or provision that is valid and
enforceable and that comes closest to expressing the intention of the invalid or
unenforceable term or provision, and this Agreement shall be enforceable as so
modified.
39
<PAGE> 44
12.11 CONSTRUCTION.
(a) The language used in this Agreement shall be deemed to be the
language chosen by the Parties to express their mutual intent, and no rule of
strict construction shall be applied against any Party.
(b) Any reference to any federal, state, local or foreign statute or
law shall be deemed also to refer to all rules and regulations promulgated
thereunder, unless the context requires otherwise.
40
<PAGE> 45
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
date first above written.
ENGAGE TECHNOLOGIES, INC.
By: /s/ Paul Schaut
Title: CEO
FCET CORP.
By: /s/ Paul Schaut
Title: CEO
CMGI, INC.
By: /s/ Andrew Hajducky
Title: CFO
ADSMART CORPORATION
By: /s/ John Federman
Title: CEO
FLYCAST COMMUNICATIONS CORPORATION
By: Andrew Hajducky
Title: CFO
<PAGE> 1
EXHIBIT 10.2
LEASE
TST 555/575 MARKET, L.L.C.,
A DELAWARE LIMITED LIABILITY COMPANY,
LANDLORD
AND
ENGAGE TECHNOLOGIES, INC.,
A DELAWARE CORPORATION,
TENANT
FOR
575 MARKET STREET
SAN FRANCISCO, CALIFORNIA
DECEMBER 22, 1999
<PAGE> 2
TABLE OF CONTENTS
PAGE
ARTICLE 1 BASIC LEASE PROVISIONS..............................................1
ARTICLE 2 PREMISES, TERM, RENT................................................3
ARTICLE 3 USE AND OCCUPANCY...................................................5
ARTICLE 4 CONDITION OF THE PREMISES...........................................5
ARTICLE 5 ALTERATIONS.........................................................5
ARTICLE 6 REPAIRS.............................................................8
ARTICLE 7 INCREASES IN TAXES AND OPERATING EXPENSES...........................9
ARTICLE 8 REQUIREMENTS OF LAW................................................13
ARTICLE 9 SUBORDINATION......................................................15
ARTICLE 10 SERVICES..........................................................17
ARTICLE 11 INSURANCE; PROPERTY LOSS OR DAMAGE................................18
ARTICLE 12 EMINENT DOMAIN....................................................22
ARTICLE 13 ASSIGNMENT AND SUBLETTING.........................................23
ARTICLE 14 ELECTRICITY.......................................................28
ARTICLE 15 ACCESS TO PREMISES................................................29
ARTICLE 16 DEFAULT...........................................................31
ARTICLE 17 LANDLORD'S RIGHT TO CURE; FEES AND EXPENSES.......................34
ARTICLE 18 NO REPRESENTATIONS BY LANDLORD; LANDLORD'S APPROVAL...............35
ARTICLE 19 END OF TERM.......................................................35
ARTICLE 20 QUIET ENJOYMENT...................................................36
ARTICLE 21 NO SURRENDER; NO WAIVER...........................................36
ARTICLE 22 WAIVER OF TRIAL BY JURY, COUNTERCLAIM.............................36
ARTICLE 23 NOTICES...........................................................37
ARTICLE 24 RULES AND REGULATIONS.............................................37
ARTICLE 25 BROKER............................................................37
ARTICLE 26 INDEMNITY.........................................................38
ARTICLE 27 MISCELLANEOUS.....................................................39
ARTICLE 28 SECURITY DEPOSIT..................................................43
ARTICLE 29 PARKING...........................................................45
<PAGE> 3
SCHEDULE OF EXHIBITS
--------------------
Exhibit A Floor Plan
Exhibit B Definitions
Exhibit C Workletter
Exhibit D Design Standards
Exhibit E Cleaning Specifications
Exhibit F Rules and Regulations
Exhibit G Form of Letter of Credit
ii
<PAGE> 4
LEASE
THIS LEASE is made as of the 22nd day of December, 1999 ("EFFECTIVE DATE"),
between TST 555/575 market, l.l.c. ("LANDLORD"), a Delaware limited liability
company, and Engage Technologies, Inc. ("TENANT"), a Delaware corporation.
Landlord and Tenant hereby agree as follows:
ARTICLE 1
BASIC LEASE PROVISIONS
The 5th and 6th floors of the Building,
BLOCK ONE as more particularly described on
Exhibit A-1 and A-2 attached hereto.
BLOCK TWO The 4th floor of the Building, as more
particularly described on Exhibit A-3
attached hereto.
PREMISES Block One and Block Two.
BUILDING The building, fixtures, equipment and
other improvements and appurtenances now
located or hereafter erected, located or
placed upon the land known as 575 Market
Street, San Francisco, California.
REAL PROPERTY The Building, together with the plot of
land upon which it stands.
SCHEDULED COMMENCEMENT DATE December 15, 1999
COMMENCEMENT DATE The Effective Date.
SCHEDULED RENT COMMENCEMENT DATE February 1, 2000
(BLOCK ONE)
RENT COMMENCEMENT DATE (BLOCK ONE) The earlier to occur of (a) the 46th
calendar day following the Commencement
Date; and (b) the date Tenant physically
occupies Block One for purposes of
commencing the conducting of its business
operations therein.
SCHEDULED RENT COMMENCEMENT DATE July 15, 2000
(BLOCK TWO)
RENT COMMENCEMENT DATE (BLOCK TWO) The earlier to occur of (a) the date
Tenant physically occupies Block Two for
purposes of commencing the conducting of
its business operations therein; and (b)
46 calendar days following the vacation of
Block Two by the existing tenant thereof.
EXPIRATION DATE July 31, 2005.
TERM The period commencing on the Commencement
Date (Block One) and ending on the
Expiration Date.
<PAGE> 5
PERMITTED USES Executive and general offices including
computer data and laboratory rooms for the
transaction of Tenant's business in
keeping with Comparable Buildings.
BASE YEAR Calendar year 2000.
TENANT'S PROPORTIONATE SHARE Block One: 5.0950%
Block Two: 2.5475%
Premises: 7.6425%
AGREED AREA OF BUILDING 458,136 rentable square feet.
Block One: 23,342 rentable square feet
AGREED AREA OF Block Two: 11,671 rentable square feet.
PREMISES Premises: 35,013 rentable square feet
FIXED RENT From the Rent Commencement Date (Block
One) through the day preceding the Rent
Commencement Date (Block Two),
$1,120,416.00 per annum ($93,368.00 per
month) and from the Rent Commencement Date
(Block Two) through the Expiration Date,
$1,680,624.00 ($140,052.00 per month).
ADDITIONAL RENT All sums other than Fixed Rent payable by
Tenant to Landlord under this Lease,
including Tenant's Tax Payment, Tenant's
Operating Payment, late charges, overtime
or excess service charges, damages, and
interest and other costs related to
Tenant's failure to perform any of its
obligations under this Lease.
RENT Fixed Rent and Additional Rent,
collectively.
INTEREST RATE The lesser of (i) 4% per annum above the
then-current Base Rate, or (ii) the
maximum rate permitted by applicable law.
SECURITY DEPOSIT $1,500,000.00 (subject to reduction as
described in Article 28).
TENANT'S ADDRESS FOR NOTICES Engage Technologies, Inc.
100 Brickstone Square
Andover, Massachusetts 01810
Attn: General Counsel
Copies to:
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
Attn: Pamela Coravos, Esq.
2
<PAGE> 6
and
CMGI, Inc.
100 Brickstone Square
Andover, Massachusetts 01810
Attn: General Counsel
LANDLORD'S ADDRESS FOR NOTICES TST 555/575, L.L.C.
c/o Tishman Speyer Properties, L.P.
520 Madison Avenue, Sixth Floor
New York, New York 10022
Attn: Chief Financial Officer
Copies to:
TST 555/575 Market, L.L.C.
c/o Tishman Speyer Properties, L.P.
575 Market Street, 20th Floor
San Francisco, California 94105
Attn: Property Manager
and:
Tishman Speyer Properties, L.P.
520 Madison Avenue, Sixth Floor
New York, New York 10022
Attn: General Counsel
TENANT'S BROKER Cushman Realty Corporation and CRF
Partners, Inc.
LANDLORD'S AGENT Tishman Speyer Properties, L.P. or any
other person designated at any time and
from time to time by Landlord as
Landlord's Agent and their successors and
assigns.
LANDLORD'S CONTRIBUTION (BLOCK ONE) $350,130.00 ($15.00 per rentable square
foot).
LANDLORD'S CONTRIBUTION (BLOCK TWO) $233,420.00 ($20.00 per rentable square
foot).
PARKING PRIVILEGES 3
ALL CAPITALIZED TERMS USED IN THIS LEASE WITHOUT DEFINITION ARE DEFINED IN
EXHIBIT B.
ARTICLE 2
PREMISES, TERM, RENT
SECTION 2.1 LEASE OF PREMISES. Subject to the terms of this Lease, Landlord
leases to Tenant and Tenant leases from Landlord the Premises for the Term. In
addition, Landlord grants to
3
<PAGE> 7
Tenant the right to use, on a non-exclusive basis and in common with other
tenants, the Common Areas.
SECTION 2.2 COMMENCEMENT DATE. Upon the Effective Date, the terms and
provisions hereof shall be fully binding on Landlord and Tenant prior to the
occurrence of the Commencement Date. The Term of this Lease shall commence on
that date (the "COMMENCEMENT DATE") which is the earlier to occur of (i) the
Effective Date or (ii) the date on which Landlord completes the acquisition of
title to the Real Property. Immediately following the close of escrow of
Landlord's purchase of the Real Property, Landlord shall advise Tenant in
writing of the same. Unless sooner terminated or extended as hereinafter
provided, the Term shall end on the "EXPIRATION DATE" specified in Article 1. If
Landlord does not tender possession of Block One to Tenant on or before the
Scheduled Rent Commencement Date (Block One) or Block Two by the Scheduled Rent
Commencement Date (Block Two), for any reason whatsoever, Landlord shall not be
liable for any damage thereby, and this Lease shall not be void or voidable
thereby. . No failure to tender possession of the applicable portion of the
Premises to Tenant on or before the Scheduled Rent Commencement Date (Block One)
or the Scheduled Rent Commencement Date (Block Two), as the case may be, shall
in any way affect any other obligations of Tenant hereunder, provided, however,
that Landlord shall use its commercially reasonable efforts to recover
possession of Block Two on May 31, 2000, or as soon thereafter as is reasonably
feasible (without any obligation to commence any unlawful detainer proceedings
against Chevron Corporation). In addition, Landlord covenants and agrees not to
amend the lease with Chevron Corporation in order to grant Chevron Corporation
the right to remain in possession of Block Two after May 31, 2000. In addition,
if Landlord is unable to tender Block Two to Tenant on or before May 31, 2000,
but Landlord has other available units of space within the Building (the
"TEMPORARY SPACE"), then Landlord may (if Landlord elects to do so in its sole
discretion), make such Temporary Space available for Tenant's use and occupancy
for a period not to exceed 60 days. If Tenant elects to occupy such Temporary
Space, Tenant shall do so on all of the terms and provisions of this Lease
(including those with respect to Rent) for such period as Landlord may specify.
Landlord shall tender such Temporary Space in its then As-Is condition and shall
have no obligation to ready the space for Tenant's use and occupancy. Once the
respective Rent Commencement Dates are determined, Landlord and Tenant shall
execute an agreement stating the Commencement Date, Rent Commencement Date
(Block One), Rent Commencement Date (Block Two) and Expiration Date, but the
failure to do so will not affect the determination of such dates. For purposes
of determining whether Tenant has accepted possession of the Premises, Tenant
shall be deemed to have done so when Tenant first moves Tenant's Property and/or
any of its personnel into the Premises, except to the extent that Tenant is
authorized in this Lease or by Landlord's agreement to do any of the foregoing
without being deemed to have accepted possession of the Premises. \
SECTION 2.3 PAYMENT OF RENT. Tenant shall pay to Landlord, without notice
or demand, and without any set-off, counterclaim, abatement or deduction
whatsoever, except as may be expressly set forth in this Lease, in lawful money
of the United States by wire transfer of funds or by check drawn upon a bank
approved by Landlord, (i) Fixed Rent in equal monthly installments, in advance,
on the first day of each calendar month during the Term, commencing on the Rent
Commencement Date (Block One), and (ii) Additional Rent, at the times and in the
manner set forth in this Lease.
SECTION 2.4 FIRST MONTH'S RENT. Tenant shall pay one month's Fixed Rent
applicable to Block One upon the execution of this Lease ("ADVANCE RENT"). If
the Rent Commencement Date (Block One) is on the first day of a month, the
Advance Rent shall be credited towards the first month's Fixed Rent payment. If
the Rent Commencement Date (Block One) is not the first day of a month, then on
the Rent Commencement Date (Block One) Tenant shall pay Fixed Rent for the
period from the Rent Commencement Date (Block One) through the last day of such
month, and the Advance Rent shall be credited towards Fixed Rent for the next
succeeding calendar month.
SECTION 2.5 EARLY ACCESS. Provided that no Tenant Parties unreasonably
interfere with Landlord's work in the Premises, Landlord shall allow Tenant
access to the Premises to install cabling, furniture and equipment which shall
not be deemed acceptance of possession for purposes of
4
<PAGE> 8
Section 2.2. Before Tenant's entry into the Premises as permitted
hereunder, Tenant shall submit a schedule to Landlord (and Landlord's
contractor, if so requested by Landlord), for their reasonable approval, which
schedule shall detail the timing and purpose of Tenant's entry. Tenant shall
hold Landlord harmless from and indemnify and protect and defend Landlord
against any loss or damage to the Premises and against injury to any person
caused by Tenant's actions as a result of such entry.
ARTICLE 3
USE AND OCCUPANCY
Tenant shall use and occupy the Premises for the Permitted
Uses and for no other purpose. Tenant shall not use or occupy or permit the use
or occupancy of any part of the Premises in a manner constituting a Prohibited
Use. If Tenant uses the Premises for a purpose constituting a Prohibited Use,
violating any Requirement, or causing the Building to be in violation of any
Requirement, then Tenant shall promptly discontinue such use upon notice of such
violation. Tenant, at its expense, shall procure and at all times maintain and
comply with the terms and conditions of all licenses and permits required for
the lawful conduct of the Permitted Uses in the Premises.
ARTICLE 4
CONDITION OF THE PREMISES
Tenant has inspected the Premises and agrees (a) to accept
possession of each portion of the Premises in the condition existing on the
respective Rent Commencement Date "as is", but subject to Landlord's obligation
to maintain the Premises as expressly provided herein, (b) that neither Landlord
nor Landlord's agents have made any representations or warranties with respect
to the Premises or the Building except as expressly set forth herein, and (c)
except for Landlord's Contribution described in Exhibit "C" attached hereto,
Landlord has no obligation to perform any work, supply any materials, incur any
expense or make any alterations or improvements to prepare the Premises for
Tenant's occupancy. Tenant's occupancy of any part of the Premises shall be
conclusive evidence, as against Tenant, that Tenant has accepted possession of
the Premises in its then current condition and at the time such possession was
taken, the Premises and the Building were in a good and satisfactory condition
as required by this Lease. Tenant agrees and acknowledges that it shall be
responsible, at its sole cost and expense, for ensuring that the core hardware
to be installed on all doors within the Premises by Tenant shall be Building
Standard lever-type where required by the Americans With Disabilities Act of
1990 (the "ADA") and for bringing the Block Two toilet rooms into compliance
with the ADA.
ARTICLE 5
ALTERATIONS
SECTION 5.1 TENANT'S ALTERATIONS. (a) Tenant shall not make any
alterations, additions or other physical changes in or about the Premises
(collectively, "ALTERATIONS") other than decorative Alterations such as
painting, wall coverings and floor coverings (collectively, "DECORATIVE
ALTERATIONS"), without Landlord's prior consent, which consent shall not be
unreasonably withheld or delayed so long as such Alterations (i) are
non-structural and do not affect any Building Systems, (ii) affect only the
Premises and are not visible from outside of the Premises, (iii) do not affect
the certificate of occupancy issued for the Building or the Premises, and (iv)
do not violate any Requirement.
(b) PLANS AND SPECIFICATIONS. Prior to making any Alterations,
Tenant, at its expense, shall (i) submit to Landlord for its written approval,
detailed plans and specifications ("PLANS") of each proposed Alteration (other
than Decorative Alterations), and with respect to any Alteration affecting
5
<PAGE> 9
any Building System, evidence that the Alteration has been designed by, or
reviewed and approved by, Landlord's designated engineer for the affected
Building System, (ii) obtain all permits, approvals and certificates required by
any Governmental Authorities, (iii) furnish to Landlord duplicate original
policies or certificates of worker's compensation (covering all persons to be
employed by Tenant, and Tenant's contractors and subcontractors in connection
with such Alteration) and commercial general liability (including property
damage coverage) insurance and Builder's Risk coverage (as described in Article
11) all in such form, with such companies, for such periods and in such amounts
as Landlord may reasonably require, naming Landlord, Landlord's Agent any Lessor
and any Mortgagee as additional insureds, and (iv) furnish to Landlord
reasonably satisfactory evidence of Tenant's ability to complete and to fully
pay for such Alterations (other than Decorative Alterations). Tenant shall give
Landlord not less than 5 Business Days' notice prior to performing any
Decorative Alteration, which notice shall contain a description of such
Decorative Alteration.
(c) GOVERNMENTAL APPROVALS. Tenant, at its expense,
shall, as and when required, promptly obtain certificates of partial and final
approval of such Alterations required by any Governmental Authority and shall
furnish Landlord with copies thereof, together with "as-built" Plans for such
Alterations prepared on an AutoCAD Computer Assisted Drafting and Design System
(or such other system or medium as Landlord may accept), using naming
conventions issued by the American Institute of Architects in June, 1990 (or
such other naming conventions as Landlord may accept) and magnetic computer
media of such record drawings and specifications translated in DFX format or
another format acceptable to Landlord.
SECTION 5.2 MANNER AND QUALITY OF ALTERATIONS. All Alterations shall be
performed (a) in a good and workmanlike manner and materially free from defects,
(b) substantially in accordance with the Plans, and by contractors approved by
Landlord, and (c) in compliance with all Requirements, the terms of this Lease
and all construction procedures and regulations then prescribed by Landlord. All
materials and equipment shall be of first quality and at least equal to the
applicable standards for the Building then established by Landlord, and no such
materials or equipment (other than Tenant's Property) shall be subject to any
lien or other encumbrance.
SECTION 5.3 REMOVAL OF TENANT'S PROPERTY. Tenant's Property shall remain
the property of Tenant and Tenant may remove the same at any time on or before
the Expiration Date. On or prior to the Expiration Date, Tenant shall, unless
otherwise directed by Landlord, at Tenant's expense, remove any Specialty
Alteration designated in writing by Landlord to be removed at the time consent
thereto was granted and close up any slab penetrations in the Premises. Tenant
shall repair and restore, in a good and workmanlike manner, any damage to the
Premises or the Building caused by Tenant's removal of any Specialty Alterations
or Tenant's Property or by the closing of any slab penetrations, and upon
default thereof, Tenant shall reimburse Landlord, within 30 days of delivery of
an invoice therefor, for Landlord's cost of repairing and restoring such damage.
Any Above Building Standard Installations (as hereinafter defined) or Tenant's
Property not so removed shall be deemed abandoned and Landlord may remove and
dispose of same, and repair and restore any damage caused thereby, at Tenant's
cost and without accountability to Tenant. Tenant shall not be required to
remove any of the Improvements or any subsequent Alterations unless, in either
case, the same constitute Specialty Alterations which Landlord advises Tenant in
writing must be removed at the time consent thereto was granted. If requested by
Tenant prior to the installation of any component of the Improvements or of any
Alterations, Landlord will notify Tenant in writing whether (i) any such
component of the Improvements or any such Alterations, or any material component
thereof (including, without limitation, any oversized or exposed conduit) not
expressly included within the definition of Specialty Alterations is considered
by Landlord to be such and (ii) Landlord will waive any requirement that Tenant
remove the same upon the expiration or earlier termination of this Lease.
SECTION 5.4 MECHANIC'S LIENS. Tenant, at its expense, shall discharge any
lien or charge filed against the Real Property in connection with any work done
or claimed to have been done by or on behalf of, or materials furnished or
claimed to have been furnished to, Tenant, within 10 days after
6
<PAGE> 10
Tenant's receipt of notice thereof by payment, filing the bond required by law
or otherwise in accordance with law.
SECTION 5.5 LABOR RELATIONS. Tenant shall not employ, or permit the
employment of, any contractor, mechanic or laborer, or permit any materials to
be delivered to or used in the Building, if, in Landlord's reasonable judgment,
such employment, delivery or use will interfere or cause any conflict with other
contractors, mechanics or laborers engaged in the construction, maintenance or
operation of the Building by Landlord, Tenant or others. If such interference or
conflict occurs, upon Landlord's request, Tenant shall cause all contractors,
mechanics or laborers causing such interference or conflict to leave the
Building immediately.
SECTION 5.6 TENANT'S COSTS. Tenant shall pay to Landlord, within 30 days of
demand therefor, all out-of-pocket costs actually incurred by Landlord in
connection with Tenant's Alterations, including costs incurred in connection
with (a) Landlord's review of the Alterations (including review of requests for
approval thereof) and (b) the provision of Building personnel during the
performance of any Alteration, to operate elevators or otherwise to facilitate
Tenant's Alterations. In addition, if Tenant's Alterations (exclusive of
Decorative Alterations and the installation of furniture, fixtures and
equipment, data wiring and computer equipment) cost more than $25,000.00, Tenant
shall pay to Landlord, within 30 days of demand therefor, an administrative fee
in an amount equal to 5% of the total cost of such Alterations.
SECTION 5.7 TENANT'S EQUIPMENT. Tenant shall provide notice to Landlord
prior to moving any heavy machinery, heavy equipment, freight, bulky matter or
fixtures (collectively, "EQUIPMENT") into or out of the Building and shall pay
to Landlord any costs actually incurred by Landlord in connection therewith. If
such Equipment requires special handling, Tenant agrees (a) to employ only
persons holding all necessary licenses to perform such work, (b) all work
performed in connection therewith shall comply with all applicable Requirements
and (c) such work shall be done only during hours designated by Landlord.
SECTION 5.8 LEGAL COMPLIANCE. The approval of Plans, or consent by Landlord
to the making of any Alterations, does not constitute Landlord's representation
that such Plans or Alterations comply with any Requirements. Landlord shall not
be liable to Tenant or any other party in connection with Landlord's approval of
any Plans, or Landlord's consent to Tenant's performing any Alterations. If any
Alterations made by or on behalf of Tenant, require Landlord to make any
alterations or improvements to any part of the Building in order to comply with
any Requirements, Tenant shall pay all costs and expenses incurred by Landlord
in connection with such alterations or improvements. SECTION 5.9 FLOOR LOAD.
Tenant shall not place a load upon any floor of the Premises that exceeds 50
pounds per square foot "live load". Landlord reserves the right to reasonably
designate the position of all Equipment which Tenant wishes to place within the
Premises, and to place limitations on the weight thereof.
ARTICLE 6
REPAIRS
SECTION 6.1 LANDLORD'S REPAIR AND MAINTENANCE. Landlord shall operate,
maintain and, except as provided in Section 6.2 hereof, make all necessary
repairs (both structural and nonstructural) to (i) the Building Systems, (ii)
the Common Areas and (iii) the toilet rooms located within the Premises (other
than any executive restrooms installed by Tenant), in conformance with standards
applicable to Comparable Buildings and in compliance with all Requirements.
SECTION 6.2 TENANT'S REPAIR AND MAINTENANCE. Tenant shall promptly, at its
expense and in compliance with Article 5, make all nonstructural repairs to the
Premises (including the toilet rooms and elevator lobbies) and the fixtures,
equipment and/or and appurtenances therein other than the Building Systems
(collectively, "BUILDING FIXTURES") as and when needed to preserve the Premises
7
<PAGE> 11
in good working order and condition, except for reasonable wear and tear and
damage for which Tenant is not responsible. All damage to the Building or to any
portion thereof, or to any Building Fixtures requiring structural or
nonstructural repair caused by or resulting from the negligence or willful
misconduct or improper conduct of or the moving of Tenant's Property or
Equipment into, within or out of the Premises by a Tenant Party, shall be
repaired at Tenant's expense by (i) Tenant, if the required repairs are
nonstructural in nature and do not affect any Building System, or (ii) Landlord,
if the required repairs are structural in nature, involve replacement of
exterior window glass or affect any Building System. All Tenant repairs shall be
of good quality utilizing new construction materials. If Tenant fails after 10
days' notice (or such shorter period as may be required in an emergency) to
proceed with due diligence to make any repairs required to be made by Tenant,
Landlord may make such repairs and all costs and expenses incurred by Landlord
on account thereof, plus interest thereon at the Interest Rate, shall be paid by
Tenant within 10 days after delivery of an invoice therefor.
SECTION 6.3 INTERRUPTIONS DUE TO REPAIRS. Landlord reserves the right to
make all changes, alterations, additions, improvements, repairs or replacements
to the Building, including the Building Systems (collectively, "RESTORATIVE
WORK"), as Landlord deems necessary or desirable, provided that in no event
shall the level of any Building service decrease in any material respect from
the level required of Landlord in this Lease as a result thereof (other than
temporary changes in the level of such services during the performance of any
such Restorative Work). Landlord shall use reasonable efforts to minimize
interference with Tenant's use and occupancy of the Premises during the
performance of such Restorative Work. There shall be no Rent abatement or
allowance to Tenant for a diminution of rental value, no actual or constructive
eviction of Tenant, in whole or in part, no relief from any of Tenant's other
obligations under this Lease, and no liability on the part of Landlord by reason
of inconvenience, annoyance or injury to business arising from Landlord, Tenant
or others performing, or failing to perform, any Restorative Work.
Notwithstanding any contrary provision of this Lease, if Tenant is prevented
from using for the conduct of its business, and does not use for the conduct of
its business, the Premises or any material portion thereof, for fifteen (15)
consecutive Business Days (the "ELIGIBILITY PERIOD") as a result of (i) any
construction, repair, maintenance or alteration performed by Landlord after the
Commencement Date and not necessitated by the negligence or willful misconduct
of any Tenant Party, or (ii) the failure in any material respect of Landlord or
its agents or contractors to provide to the Premises any of the utilities and
services required to be provided under this Lease (including Articles 10 and 14
below) and not caused by the negligence or willful misconduct of any Tenant
Party or otherwise due to the occurrence of a casualty or condemnation, or (iii)
any failure to provide access to the Premises and not caused by the negligence
or willful misconduct of any Tenant Party or otherwise due to the occurrence of
a casualty or condemnation, then, in any and all such events, Tenant's
obligation to pay Fixed Rent, Tenant's Operating Payment and Tenant's Tax
Payment shall be abated or reduced, as the case may be, from and after the first
(1st) day following the last day of the Eligibility Period and continuing for
such time that Tenant continues to be so prevented from using for the conduct of
its business, and does not so use for the conduct of its business, the Premises
or a material portion thereof, in the proportion that the rentable square feet
of the portion of the Premises that Tenant is prevented from using, and does not
so use, bears to the total rentable square feet of the Premises.
ARTICLE 7
INCREASES IN TAXES AND OPERATING EXPENSES
SECTION 7.1 DEFINITIONS. For the purposes of this Article 7, the following
terms shall have the meanings set forth below:
(a) "ASSESSED VALUATION" shall mean the amount for which the
Real Property is assessed by the County Assessor of the City and County of San
Francisco for the purpose of imposition of Taxes.
8
<PAGE> 12
(b) "BASE OPERATING EXPENSES" shall mean the Operating Expenses
for the Base Year.
(c) "BASE TAXES" shall mean the Taxes payable on account of the
Base Year.
(d) "COMPARISON YEAR" shall mean any calendar year commencing
subsequent to the Base Year.
(e) "OPERATING EXPENSES" shall mean the aggregate of all costs
and expenses paid or incurred by or on behalf of Landlord in connection with the
ownership, operation, repair and maintenance of the Real Property, including
capital improvements only if such capital improvement either (i) is reasonably
intended to result in a reduction in Operating Expenses (as for example, a
labor-saving improvement) provided, the amount included in Operating Expenses in
any Comparison Year shall not exceed an amount equal to the savings reasonably
anticipated to result from the installation and operation of such improvement,
and/or (ii) is made during any Comparison Year in compliance with Requirements
enacted or imposed after the Effective Date (including the interpretation,
amendment or modification after the Effective Date of Requirements enacted or
imposed prior to the Effective Date). Such capital improvements shall be
amortized (with interest at the Base Rate) on a straight-line basis over such
period as Landlord shall reasonably determine, and the amount included in
Operating Expenses in any Comparison Year shall be equal to the annual amortized
amount. Operating Expenses shall not include any Excluded Expenses. If during
all or part of the Base Year or any Comparison Year, Landlord shall not furnish
any particular item(s) of work or service (which would otherwise constitute an
Operating Expense) to any leasable portions of the Building for any reason,
then, for purposes of computing Operating Expenses for such period, the amount
included in Operating Expenses for such period shall be increased by an amount
equal to the costs and expenses that would have been reasonably incurred by
Landlord during such period if Landlord had furnished such item(s) of work or
service to such portion of the Building. In determining the amount of Operating
Expenses for the Base Year or any Comparison Year, if less than 95% of the
Building rentable area is occupied by tenants at any time during any such Base
Year or Comparison Year, Operating Expenses shall be determined for such Base
Year or Comparison Year to be an amount equal to the like expenses which would
normally be expected to be incurred had such occupancy been 95% throughout such
Base Year or Comparison Year. Tenant understands and acknowledges that, from
time to time during the Term, the Building may be operated by Landlord as part
of a larger office complex, comprising the Building, the Plaza and Common Areas
adjacent to the Building and that certain other office building commonly known
as 555 Market Street ("555 Market"). For purposes of this Article 7, the
Building and 555 Market are sometimes hereinafter jointly referred to as the
"Project." Landlord shall have the right, from time to time during the Term, to
operate the Project in an integrated fashion, and to include within Operating
Expenses and Real Property Taxes the amount of Operating Expenses and Real
Property Taxes paid or incurred by Landlord with respect to the Project. During
such periods of time as Landlord so elects, "Base Year Operating Expenses" and
"Base Year Taxes" shall be deemed to mean Operating Expenses and Real Estate
Taxes incurred by Landlord for the Project during the Base Year, and "Tenant's
Percentage Share" shall mean the product of (a) the Rentable Area of the
Premises, and (b) a fraction, the numerator of which is one and the denominator
of which is the Rentable Area of the Project. In addition, during such periods
of time as Landlord does not elect to determine Operating Expenses and Real
Property Taxes on a Project-wide basis, Operating Expenses and Real Estate Taxes
for the Building shall include a reasonable allocation of such costs and
expenses as Landlord may incur in the maintenance, operation, administration and
repair of the Common Areas servicing the Project.
(f) "STATEMENT" shall mean a statement containing a comparison
of (i) the Taxes payable for the Base Year and for any Comparison Year, or (ii)
the Base Operating Expenses and the Operating Expenses payable for any
Comparison Year.
(g) "TAXES" shall mean (i) all real estate taxes, assessments,
sewer and water rents, rates and charges and other governmental levies,
impositions or charges, whether general, special, ordinary, extraordinary,
foreseen or unforeseen, which may be assessed, levied or imposed upon all
9
<PAGE> 13
or any part of the Real Property, and (ii) all expenses (including reasonable
attorneys' fees and disbursements and experts' and other witnesses' fees)
incurred in contesting any of the foregoing or the Assessed Valuation of the
Real Property; provided that Landlord's determination to prosecute such contest
is reasonable under the prevailing circumstances as measured by the reasonably
anticipated cost and Landlord's determination of the reasonable scope of
potential savings). Taxes shall not include (x) interest or penalties incurred
by Landlord as a result of Landlord's late payment of Taxes, or (y) any
franchise, net income, excess profits, gift, capital stock, inheritance,
succession or estate taxes imposed upon Landlord. If Landlord elects to pay any
assessment in annual installments, then (i) such assessment shall be deemed to
have been so divided and to be payable in the maximum number of installments
permitted by law, and (ii) there shall be deemed included in Taxes for each
Comparison Year the installments of such assessment becoming payable during such
Comparison Year, together with interest payable during such Comparison Year on
such installments and on all installments thereafter becoming due as provided by
law, all as if such assessment had been so divided. If at any time the methods
of taxation prevailing on the Effective Date shall be altered so that in lieu of
or as an addition to the whole or any part of Taxes, there shall be assessed,
levied or imposed (1) a tax, assessment, levy, imposition or charge based on the
income or rents received from the Real Property whether or not wholly or
partially as a capital levy or otherwise, (2) a tax, assessment, levy,
imposition or charge measured by or based in whole or in part upon all or any
part of the Real Property and imposed upon Landlord, (3) a license fee measured
by the rents, or (4) any other tax, assessment, levy, imposition, charge or
license fee however described or imposed, then all such taxes, assessments,
levies, impositions, charges or license fees or the part thereof so measured or
based shall be deemed to be Taxes.
SECTION 7.2 TENANT'S TAX PAYMENT. (a) If the Taxes payable for any
Comparison Year exceed the Base Taxes, Tenant shall pay to Landlord Tenant's
Proportionate Share of such excess ("TENANT'S TAX PAYMENT"). On or about the
start of each Comparison Year, Landlord shall furnish to Tenant a Statement of
the Taxes. Tenant shall pay Tenant's Tax Payment to Landlord, in monthly
installments, on the first day of each month during each Comparison Year, an
amount equal to 1/12 of Tenant's Tax Payment due for each Comparison Year. If
there is any increase or decrease in Taxes payable for any Comparison Year,
whether levied during or after such Comparison Year, Landlord may furnish a
revised Statement for such Comparison Year, Tenant's Tax Payment for such
Comparison Year shall be adjusted and, within 30 days after delivery of such
revised Statement (a) with respect to any increase in Taxes payable for such
Comparison Year, Tenant shall pay such increase in Tenant's Tax Payment to
Landlord, or (b) with respect to any decrease in Taxes payable for such
Comparison Year, Landlord shall credit such decrease in Tenant's Tax Payment
against the next installment of Rent payable by Tenant.
(b) Only Landlord may institute proceedings to reduce the
Assessed Valuation of the Real Property and the filings of any such proceeding
by Tenant without Landlord's consent shall constitute an Event of Default. If
the Taxes payable for the Base Year are reduced, the Base Taxes shall be
correspondingly revised, the Additional Rent previously paid or payable on
account of Tenant's Tax Payment hereunder for all Comparison Years shall be
recomputed on the basis of such reduction, and Tenant shall pay to Landlord
within 30 days after being billed therefor, any deficiency between the amount of
such Additional Rent previously computed and paid by Tenant to Landlord, and the
amount due as a result of such recomputations. If Landlord receives a refund of
Taxes for any Comparison Year, Landlord shall, at its election, either pay to
Tenant, or credit against subsequent payments of Rent due hereunder, an amount
equal to Tenant's Proportionate Share of the refund, net of any expenses
incurred by Landlord in achieving such refund and not otherwise included within
Taxes, which amount shall not exceed Tenant's Tax Payment paid for such
Comparison Year. Landlord shall not be obligated to file any application or
institute any proceeding seeking a reduction in Taxes or the Assessed Valuation.
(c) Tenant shall be responsible for any applicable occupancy or
rent tax now in effect or hereafter enacted and, if payable by Landlord, Tenant
shall pay such amounts to Landlord, within 30 days of Landlord's demand
therefor.
10
<PAGE> 14
SECTION 7.3 TENANT'S OPERATING PAYMENT. (a) If the Operating Expenses
payable for any Comparison Year exceed the Base Operating Expenses, Tenant shall
pay to Landlord Tenant's Proportionate Share of such excess ("TENANT'S OPERATING
PAYMENT"). For each Comparison Year, Landlord shall furnish to Tenant a
statement setting forth Landlord's reasonable estimate of Tenant's Operating
Payment for such Comparison Year (the "ESTIMATE"). Tenant shall pay to Landlord
on the 1st day of each month during such Comparison Year an amount equal to 1/12
of Landlord's estimate of Tenant's Operating Payment for such Comparison Year.
If Landlord furnishes an Estimate for a Comparison Year subsequent to the
commencement thereof, then (a) until the 1st day of the month following the
month in which the Estimate is furnished to Tenant, Tenant shall pay to Landlord
on the 1st day of each month an amount equal to the monthly sum payable by
Tenant to Landlord under this Section 7.3 during the last month of the preceding
Comparison Year, (b) promptly after the Estimate is furnished to Tenant or
together therewith, Landlord shall give notice to Tenant stating whether the
installments of Tenant's Operating Payment previously made for such Comparison
Year were greater or less than the installments of Tenant's Operating Payment to
be made for such Comparison Year in accordance with the Estimate, and (i) if
there shall be a deficiency, Tenant shall pay the amount thereof within 10
Business Days after demand therefor, or (ii) if there shall have been an
overpayment, Landlord shall credit the amount thereof against subsequent
payments of Rent due hereunder, and (c) on the 1st day of the month following
the month in which the Estimate is furnished to Tenant, and on the 1st day of
each month thereafter throughout the remainder of such Comparison Year, Tenant
shall pay to Landlord an amount equal to 1/12 of Tenant's Operating Payment
shown on the Estimate.
(b) On or before May 1st of each Comparison Year, Landlord
shall furnish to Tenant a Statement for the immediately preceding Comparison
Year. If the Statement shows that the sums paid by Tenant under Section 7.3(a)
exceeded the actual amount of Tenant's Operating Payment for such Comparison
Year, Landlord shall credit the amount of such excess against subsequent
payments of Rent due hereunder. If the Statement shows that the sums so paid by
Tenant were less than Tenant's Operating Payment for such Comparison Year,
Tenant shall pay the amount of such deficiency within 10 Business Days after
delivery of the Statement to Tenant.
SECTION 7.4 NON-WAIVER; DISPUTES. (a) Landlord's failure to render any
Statement on a timely basis with respect to any Comparison Year within 3 years
of the end thereof shall not prejudice Landlord's right to thereafter render a
Statement with respect to such Comparison Year prior to the expiration of such 3
year period or any subsequent Comparison Year, nor shall the rendering of a
Statement prejudice Landlord's right to thereafter render a corrected Statement
for that Comparison Year within 3 years of the end thereof.
(b) Each Statement sent to Tenant shall be conclusively binding
upon Tenant unless Tenant (i) pays to Landlord when due the amount set forth in
such Statement, without prejudice to Tenant's right to dispute such Statement,
and (ii) within 90 days after such Statement is sent, sends a notice to Landlord
objecting to such Statement and specifying the reasons therefor. Tenant agrees
that Tenant will not employ, in connection with any dispute under this Lease,
any person who is to be compensated in whole or in part, on a contingency fee
basis. If the parties are unable to resolve any dispute as to the correctness of
such Statement within 30 days following such notice of objection, either party
may refer the issues raised to one of the "Big Five" public accounting firms
selected by Landlord and reasonably acceptable to Tenant, and the decision of
such accountants shall be conclusively binding upon Landlord and Tenant. In
connection therewith, Tenant and such accountants shall execute and deliver to
Landlord a confidentiality agreement, in form and substance reasonably
satisfactory to Landlord, whereby such parties agree not to disclose to any
third party any of the information obtained in connection with such review.
Tenant shall pay the fees and expenses relating to such procedure, unless such
accountants determine that Landlord overstated Operating Expenses by more than
5% for such Comparison Year, in which case Landlord shall pay such fees and
expenses.
11
<PAGE> 15
SECTION 7.5 FINAL YEAR OF TERM. If the Expiration Date occurs on a date
other than December 31st, any Additional Rent under this Article 7 for the
Comparison Year in which such Expiration Date occurs shall be apportioned on the
basis of the number of days in the period from January 1st to the Expiration
Date. Upon the expiration or earlier termination of this Lease, any Additional
Rent under this Article 7 shall be paid or adjusted within thirty (30) days
after submission of the Statement.
SECTION 7.6 NO REDUCTION IN RENT. In no event shall any decrease in
Operating Expenses or Taxes in any Comparison Year below the Base Operating
Expenses or Base Taxes, as the case may be, result in a reduction in the Fixed
Rent or any other component of Additional Rent payable hereunder.
SECTION 7.7 COMPUTATION OF OPERATING EXPENSES. Operating Expenses shall be
computed in accordance with the following general principles:
(a) RECOVERY LIMITED TO ACTUAL COSTS. In no event shall Tenant
pay more during any calendar year than one hundred percent (100%) of Tenant's
Proportionate Share of the actual increase in Operating Expenses incurred by
Landlord during such calendar year, as adjusted pursuant to Section 7.1(e), and
Landlord shall not recover the cost of any items more than once;
(b) ARM'S LENGTH. All services rendered to and materials
supplied to the Building shall be rendered or supplied at a cost comparable to
those charged in arm's-length transactions for similar services or materials
rendered or supplied for similar purposes to Comparable Buildings;
(c) ACCOUNTING POLICIES. The accrual basis of accounting used
in determining Base Year Direct Expenses shall be consistently applied in
determining Operating Expenses in subsequent calendar years; and
(d) ASSESSMENTS. All assessments and premiums which are not
specifically charged to Tenant because of what Tenant has done, which can be
paid by Landlord in installments, shall be paid by Landlord in the maximum
number of installments permitted by law and not included in Operating Expenses
except in the year in which the assessment or premium installment is due
actually paid; provided, however, that if the prevailing practice in other
Comparable Buildings is to pay such assessments or premiums on an earlier basis,
and Landlord pays on such basis, such assessments or premiums shall be included
in Operating Expenses as paid by Landlord; in no event, however, shall Landlord
include any accrued interest (resulting from such assessments or premiums) in
its computation of Operating Expenses.
ARTICLE 8
REQUIREMENTS OF LAW
SECTION 8.1 COMPLIANCE WITH REQUIREMENTS.
(a) TENANT'S COMPLIANCE. Tenant, at its expense, shall comply
with all Requirements applicable to the Premises; provided, however, that Tenant
shall not be obligated to comply with any Requirements requiring any structural
alterations to the Building or alterations to the Building Systems or to the
Common Areas unless the application of such Requirements arises from (i) the
specific manner and nature of Tenant's use or occupancy of the Premises, as
distinct from general office use, (ii) Alterations made by Tenant, or (iii) a
breach by Tenant of any provisions of this Lease. Any such repairs or
alterations shall be made at Tenant's expense by Tenant (1) in compliance with
Article 5 if such repairs or alterations are nonstructural and do not affect any
Building System, or (2) by Landlord if such repairs or alterations are
structural or affect any Building System. If Tenant obtains knowledge of any
failure to comply with any Requirements applicable to the Premises, Tenant shall
give Landlord prompt written notice thereof.
12
<PAGE> 16
(b) HAZARDOUS MATERIALS. Tenant shall not cause or permit (i)
any Hazardous Materials to be brought into the Building, (ii) the storage or use
of Hazardous Materials in any manner not permitted by any Requirements, or (iii)
the escape, disposal or release of any Hazardous Materials within or in the
vicinity of the Building (exclusive of the accidental release by any Tenant
Parties of any Hazardous Materials not introduced to the Premises by a Tenant
Party and as to which such Tenant Party has no knowledge of the presence
thereof). Nothing herein shall be deemed to prevent Tenant's use of any
Hazardous Materials customarily used in the ordinary course of office work,
provided such use is in accordance with all Requirements. Tenant shall be
responsible, at its expense, for all matters directly or indirectly based on, or
arising or resulting from the presence of Hazardous Materials in the Building
which is caused or permitted by a Tenant Party. Tenant shall provide to Landlord
copies of all communications received by Tenant with respect to any Requirements
relating to Hazardous Materials, and/or any claims made in connection therewith.
Landlord or its agents may perform environmental inspections of the Premises at
any time in accordance with Section 15.1. Landlord hereby represents to Tenant
that to Landlord's current actual knowledge, the Building does not contain any
asbestos or asbestos-containing building materials (ACBM).
(c) LANDLORD'S COMPLIANCE. Landlord shall comply with (or cause
to be complied with) all Requirements applicable to the Building which are not
the obligation of Tenant, to the extent that non-compliance would unreasonably
impair Tenant's use and occupancy of the Premises for the Permitted Use. In
addition, Landlord shall be responsible, at its sole cost and expense, for
performing any alterations necessary to bring the toilet rooms in Block One into
compliance with the provisions of the Americans with Disabilities applicable as
of the Effective Date.
(d) LANDLORD'S INSURANCE. Tenant shall not cause or permit any
action or condition that would (i) invalidate or conflict with Landlord's
insurance policies, (ii) violate applicable rules, regulations and guidelines of
the Fire Department, Fire Insurance Rating Organization or any other authority
having jurisdiction over the Building, (iii) cause an increase in the premiums
of fire insurance for the Building over that payable with respect to Comparable
Buildings, or (iv) result in Landlord's insurance companies' refusing to insure
the Building or any property therein in amounts and against risks as reasonably
determined by Landlord. If fire insurance premiums increase as a result of
Tenant's failure to comply with the provisions of this Section 8.1, Tenant shall
promptly cure such failure and shall reimburse Landlord for the increased fire
insurance premiums paid by Landlord as a result of such failure by Tenant.
SECTION 8.2 FIRE AND LIFE SAFETY. If the Fire Insurance Rating Organization
or any Governmental Authority or any of Landlord's insurers requires or
recommends any modifications and/or alterations be made or any additional
equipment be supplied in connection with the sprinkler system or fire alarm and
life-safety system serving the Building by reason of Tenant's business, any
Alterations performed by Tenant or the location of the partitions, Tenant's
Property, or other contents of the Premises, Landlord (to the extent outside of
the Premises) or Tenant (to the extent within the Premises) shall make such
modifications and/or Alterations, and supply such additional equipment, in
either case at Tenant's expense.
ARTICLE 9
SUBORDINATION
SECTION 9.1 SUBORDINATION AND ATTORNMENT. (a) This Lease is subject and
subordinate to all Mortgages and Superior Leases, and, at the request of any
Mortgagee or Lessor, Tenant shall attorn to such Mortgagee or Lessor, its
successors in interest or any purchaser in a foreclosure sale; provided such
parties agree to recognize Tenant's interest in this Lease so long as no Event
of Default then exists.
13
<PAGE> 17
(b) If a Lessor or Mortgagee or any other person or entity
shall succeed to the rights of Landlord under this Lease, whether through
possession or foreclosure action or the delivery of a new lease or deed, then at
the request of the successor landlord and upon such successor landlord's written
agreement to accept Tenant's attornment and to recognize Tenant's interest under
this Lease, Tenant shall be deemed to have attorned to and recognized such
successor landlord as Landlord under this Lease. The provisions of this Section
9.1 are self-operative and require no further instruments to give effect hereto;
provided, however, that Tenant shall promptly execute and deliver any instrument
that such successor landlord may reasonably request evidencing such attornment,
and containing such commercially reasonable terms and conditions as may be
required by such Mortgagee or Lessor, provided such terms and conditions do not
increase the Rent, materially increase Tenant's obligations or materially and
adversely affect Tenant's rights under this Lease. Upon such attornment this
Lease shall continue in full force and effect as a direct lease between such
successor landlord and Tenant upon all of the terms, conditions and covenants
set forth in this Lease except that such successor landlord shall not be
(i) liable for any act or omission of Landlord (except to
the extent such act or omission continues beyond the date when such successor
landlord succeeds to Landlord's interest and Tenant gives notice of such act or
omission);
(ii) subject to any defense, claim, counterclaim, set-off
or offsets which Tenant may have against Landlord;
(iii) bound by any prepayment of more than one month's Rent
to any prior landlord;
(iv) bound by any obligation to make any payment to Tenant
which was required to be made prior to the time such successor landlord
succeeded to Landlord's interest;
(v) bound by any obligation to perform any work or to
make improvements to the Premises except for (x) repairs and maintenance
required to be made by Landlord under this Lease, and (y) repairs to the
Premises as a result of damage by fire or other casualty or a partial
condemnation pursuant to the provisions of this Lease, but only to the extent
that such repairs can reasonably be made from the net proceeds of any insurance
or condemnation awards, respectively, actually made available to such successor
landlord;
(vi) bound by any modification, amendment or renewal of
this Lease made without successor landlord's consent;
(vii) liable for the repayment of any security deposit or
surrender of any letter of credit, unless and until such security deposit
actually is paid or such letter of credit is actually delivered to such
successor landlord; or
(viii) liable for the payment of any unfunded tenant
improvement allowance, refurbishment allowance or similar obligation.
(c) Tenant shall from time to time within 10 Business Days of
request from Landlord execute and deliver any documents or instruments that may
be reasonably required by any Mortgagee or Lessor to effectuate any
subordination.
SECTION 9.2 MORTGAGE OR SUPERIOR LEASE DEFAULTS. Any Mortgagee may elect
that this Lease shall have priority over the Mortgage and, upon notification to
Tenant by such Mortgagee, this Lease shall be deemed to have priority over such
Mortgage, regardless of the date of this Lease.
SECTION 9.3 TENANT'S TERMINATION RIGHT. As long as any Superior Lease or
Mortgage exists, Tenant shall not seek to terminate this Lease by reason of any
act or omission of Landlord until (a) Tenant shall have given notice of such act
or omission to all Lessors and/or Mortgagees, and (b) a reasonable period of
time shall have elapsed following the giving of notice of such default and the
expiration of any applicable notice or grace periods (unless such act or
omission is not capable of being remedied within a reasonable period of time),
during which period such Lessors and/or
14
<PAGE> 18
Mortgagees shall have the right, but not the obligation, to remedy such act or
omission and thereafter diligently proceed to so remedy such act or obligation.
If any Lessor or Mortgagee elects to remedy such act or omission of Landlord,
Tenant shall not seek to terminate this Lease so long as such Lessor or
Mortgagee is proceeding with reasonable diligence to effect such remedy and such
remedy is effected within the later to occur of (x) 90 days or (y) 30 days after
such Lessor or Mortgagee obtains possession of the Real Property if such
possession is reasonably required to effect such cure.
SECTION 9.4 PROVISIONS. The provisions of this Article 9 shall (a) inure to
the benefit of Landlord, any future owner of the Building or the Real Property,
Lessor or Mortgagee and any sublessor thereof and (b) apply notwithstanding
that, as a matter of law, this Lease may terminate upon the termination of any
such Superior Lease or Mortgage.
SECTION 9.5 NON-DISTURBANCE AGREEMENTS. Landlord hereby agrees to use
reasonable efforts to obtain for Tenant a subordination, non-disturbance and
attornment agreement (an "SNDA") from all existing Mortgagees and Lessors, in
the standard form customarily employed by such Mortgagee and/or Lessor, provided
that Landlord shall have no liability to Tenant in the event that it is unable
to obtain any such agreements. Tenant shall reimburse Landlord, within 30 days
after demand therefor, for Landlord's out-of-pocket costs, including reasonable
attorney's fees and disbursements, incurred in connection with such efforts. As
a condition to Tenant's agreement hereunder to subordinate Tenant's interest in
this Lease to any future Mortgage and/or any Superior Lease made between
Landlord and such Mortgagee and/or Lessor, Landlord shall obtain from each
Mortgagee or Lessor an agreement, in recordable form and in the standard form
customarily employed by such Mortgagee or Lessor, pursuant to which such
Mortgagee or Lessor shall agree that if and so long as no Event of Default
hereunder shall have occurred and be continuing, the leasehold estate granted to
Tenant and the rights of Tenant pursuant to this Lease to quiet and peaceful
possession of the Premises shall not be terminated, modified, affected or
disturbed by any action which such Mortgagee may take to foreclose any such
Mortgage, or which such Lessor shall take to terminate such Superior Lease, as
applicable, and that any successor landlord shall recognize this Lease as being
in full force and effect as if it were a direct lease between such successor
landlord and Tenant upon all of the terms, covenants, conditions and options
granted to Tenant under this Lease, except as otherwise provided in Section
9.1(b) hereof (any such agreement, a "Non-Disturbance Agreement").
ARTICLE 10
SERVICES
SECTION 10.1 ACCESS TO THE PREMISES; ELEVATORS. Landlord shall provide
access to the Premises and passenger and freight elevator service to the
Premises 24 hours per day, 7 days per week; provided, however, Landlord may
reasonably limit elevator service during times other than Ordinary Business
Hours.
SECTION 10.2 HEATING. VENTILATION AND AIR CONDITIONING. Landlord shall
furnish to the Premises heating, ventilation and air-conditioning ("HVAC") in
accordance with the Design Standards set forth in EXHIBIT D during Ordinary
Business Hours. Landlord shall have access to all air-cooling, fan, ventilating
and machine rooms and electrical closets and all other mechanical installations
of Landlord (collectively, "MECHANICAL INSTALLATIONS"), and Tenant shall not
construct partitions or other obstructions which may interfere with Landlord's
access thereto or the moving of Landlord's equipment to and from the Mechanical
Installations. No Tenant Party shall at any time enter the Mechanical
Installations or tamper with, adjust, or otherwise affect such Mechanical
Installations. Landlord shall not be responsible if the HVAC System fails to
provide cooled or heated air, as the case may be, to the Premises in accordance
with the Design Standards by reason of (i) any equipment installed by, for or on
behalf of Tenant, which has an electrical load in excess of the average
electrical load and human occupancy factors for the HVAC System as designed, or
(ii) any rearrangement of partitioning or other Alterations made or performed
by, for or on behalf of Tenant
15
<PAGE> 19
other than as constructed pursuant to (A) the Final Plans (as such term is
defined in the Workletter), or (B) plans and specifications for Alterations
proposed by Tenant which are approved by Landlord and where such approval is not
conditioned upon the installation of supplemental HVAC Equipment. Tenant shall
cooperate with Landlord and shall abide by the rules and regulations which
Landlord may reasonably prescribe for the proper functioning and protection of
the HVAC System.
SECTION 10.3 OVERTIME FREIGHT ELEVATORS AND HVAC. The Fixed Rent does not
include any charge to Tenant for the furnishing of any freight elevator service
or HVAC to the Premises during any periods other than Ordinary Business Hours
("OVERTIME PERIODS"). If Tenant desires any such services during Overtime
Periods, Tenant shall deliver notice to the Building office requesting such
services at least 24 hours prior to the time Tenant requests such services to be
provided; provided, however, that Landlord shall use reasonable efforts to
arrange such service on such shorter notice as Tenant shall provide. If Landlord
furnishes freight elevator or HVAC service during Overtime Periods, Tenant shall
pay to Landlord the cost thereof at the then established rates for such services
in the Building.
SECTION 10.4 CLEANING. Landlord shall cause the Premises (excluding any
portions thereof used for the storage, preparation, service or consumption of
food or beverages) to be cleaned, substantially in accordance with the standards
set forth in EXHIBIT E. Any areas of the Premises requiring additional cleaning
such as areas used for preparation or consumption of food, computer rooms, mail
rooms and trading floors shall be cleaned, at Tenant's expense, by Landlord's
cleaning contractor, at rates which shall be competitive with rates of other
cleaning contractors providing comparable services to Comparable Buildings.
Landlord's cleaning contractor and its employees shall have access to the
Premises at all times except during Ordinary Business Hours.
SECTION 10.5 WATER. Landlord shall provide water in the core lavatories on
each floor of the Building and to the pantries within the Premises; provided
that the cost of installing any water lines to such pantries and the cost of
acquiring and installing any necessary hot water boosters, shall be solely for
the account of Tenant. If Tenant requires water for any additional purposes,
Tenant shall pay for the cost of bringing water to the Premises and Landlord may
install a meter to measure the water. Tenant shall pay the cost of such
installation, and for all maintenance, repairs and replacements thereto, and for
the reasonable charges of Landlord for the water consumed.
SECTION 10.6 REFUSE REMOVAL. Landlord shall provide refuse removal services
at the Building. Tenant shall pay to Landlord, within 10 Business Days after
delivery of an invoice therefor, Landlord's reasonable charge for such removal
to the extent that the refuse generated by Tenant exceeds the refuse customarily
generated by general office tenants. Tenant shall not dispose of any refuse in
the Common Areas, and if Tenant does so, Tenant shall be liable for Landlord's
reasonable charge for such removal.
SECTION 10.7 TELECOMMUNICATIONS RISER CAPACITY. Landlord shall make
available to Tenant for its non-exclusive use reasonably sufficient
telecommunication riser access at a riser terminating at the telecommunications
closets located on each floor of the Premises. The riser provided to Tenant
shall provide reasonably sufficient access to allow Tenant to bring T1/T3 lines
to the Premises. Tenant shall be responsible, at its sole cost and expense
(including the cost of installing any required conduits) of installing such
T1/T3 lines.
SECTION 10.8 DIRECTORY. Within a reasonable time following the Commencement
Date (Block One), which may not be until March 31, 2000, Landlord shall install
in the lobby a computerized directory wherein the Building's tenants shall be
listed with a capacity for up to 25 listings per floor for Tenant (including its
operating divisions, including Internet Profiles Corporation ("I/PRO") and
others permitted to occupy the Premises hereunder. Until such time as the
computerized directory is so installed, Landlord shall identify Tenant's
presence within the Building through other reasonable means. Tenant shall be
entitled to a proportionate share of such listings. From time to time, but not
more frequently than monthly, Landlord shall reprogram the computerized
directory to reflect such changes in the listings therein as Tenant shall
request.
16
<PAGE> 20
SECTION 10.9 SERVICE INTERRUPTIONS. Landlord reserves the right to suspend
any service when necessary, by reason of Unavoidable Delays, accidents or
emergencies, or for Restorative Work which, in Landlord's reasonable judgment,
are necessary or appropriate until such Unavoidable Delay, accident or emergency
shall cease or such Restorative Work is completed and Landlord shall not be
liable for any interruption, curtailment or failure to supply services. Landlord
shall use reasonable efforts to restore such service, remedy such situation and
minimize any interference with Tenant's business. The exercise of any such right
or the occurrence of any such failure by Landlord shall not constitute an actual
or constructive eviction, in whole or in part, entitle Tenant to any
compensation, abatement or diminution of Rent, relieve Tenant from any of its
obligations under this Lease, or impose any liability upon Landlord or its
agents by reason of inconvenience to Tenant, or interruption of Tenant's
business, or otherwise.
ARTICLE 11
INSURANCE; PROPERTY LOSS OR DAMAGE
SECTION 11.1 TENANT'S INSURANCE. (a) Tenant, at its expense, shall obtain
and keep in full force and effect during the Term:
(i) a policy of commercial general liability insurance on
an occurrence basis against claims for personal injury, death and/or property
damage occurring in or about the Building, under which Tenant is named as the
insured and Landlord, Landlord's Agent and any Lessors and any Mortgagees whose
names have been furnished to Tenant are named as additional insureds (the
"INSURED PARTIES"). Such insurance shall provide primary coverage without
contribution from any other insurance carried by or for the benefit of the
Insured Parties, and Tenant shall obtain blanket broad-form contractual
liability coverage to insure its indemnity obligations set forth in Article 26.
The minimum limits of liability shall be a combined single limit with respect to
each occurrence in an amount of not less than $5,000,000.00; provided, however,
that Landlord shall retain the right to require Tenant to increase such coverage
from time to time to that amount of insurance which in Landlord's reasonable
judgment is then being customarily required by landlords for similar office
space in Comparable Buildings. The deductible or self insured retention for such
policy shall not exceed $10,000.00;
(ii) insurance against loss or damage by fire, and such
other risks and hazards as are insurable under then available standard forms of
"all risk" property insurance policies with extended coverage, insuring Tenant's
Property and all Alterations and improvements to the Premises (including the
Improvements constructed pursuant to the Workletter) to the extent such
Alterations and improvements exceed the cost of the Improvements typically
performed in connection with the initial occupancy of general office tenants in
Comparable Buildings ("Building Standard Installations"), for the full insurable
value thereof or replacement cost thereof, having a deductible amount, if any,
as reasonably determined by Landlord;
(iii) during the performance of any Alteration, until
completion thereof, Builder's Risk insurance on an "all risk" basis and on a
completed value form including a Permission to Complete and Occupy endorsement,
for full replacement value covering the interest of Landlord and Tenant (and
their respective contractors and subcontractors) in all work incorporated in the
Building and all materials and equipment in or about the Premises;
(iv) Workers' Compensation Insurance, as required by law;
(v) Business Interruption Insurance; and
(vi) such other insurance in such amounts as the Insured
Parties may reasonably require from time to time.
(b) All insurance required to be carried by Tenant (i) shall
contain a provision that (x) no act or omission of Tenant shall affect or limit
the obligation of the insurance company to pay the
17
<PAGE> 21
amount of any loss sustained, and (y) shall be noncancellable and/or no material
change in coverage shall be made thereto unless the Insured Parties receive 30
days' prior notice of the same, by certified mail, return receipt requested, and
(ii) shall be effected under valid and enforceable policies issued by reputable
insurers permitted to do business in the State of California and rated in Best's
Insurance Guide, or any successor thereto as having a "Best's Rating" of "A-"
and a "Financial Size Category" of at least "X" or, if such ratings are not then
in effect, the equivalent thereof or such other financial rating as Landlord may
at any time consider appropriate.
(c) On or prior to the Commencement Date (Block One), Tenant
shall deliver to Landlord appropriate policies of insurance, including evidence
of waivers of subrogation required to be carried pursuant to this Article 11.
Evidence of each renewal or replacement of a policy shall be delivered by Tenant
to Landlord at least 10 days prior to the expiration of such policy. In lieu of
the policy of insurance required to be delivered to Landlord pursuant to this
Article 11 (the "POLICY"), Tenant may deliver to Landlord a certification from
Tenant's insurance company (on the form currently designated "Acord 27", or the
equivalent) which shall be binding on Tenant's insurance company, and which
shall expressly provide that such certification (i) conveys to the Insured
Parties all the rights and privileges afforded under the Policy as primary
insurance, and (ii) contains an unconditional obligation of the insurance
company to advise all Insured Parties in writing by certified mail, return
receipt requested, at least 30 days in advance of any termination or change to
the Policy that would affect the interest of any of the Insured Parties.
SECTION 11.2 WAIVER OF SUBROGATION. Landlord and Tenant shall each procure
an appropriate clause in or endorsement to any property insurance covering the
Premises, the Building and personal property, fixtures and equipment located
therein, wherein the insurer waives subrogation or consents to a waiver of right
of recovery, and Landlord and Tenant agree not to make any claim against, or
seek to recover from, the other for any loss or damage to its property or the
property of others resulting from fire or other hazards to the extent covered by
such property insurance; provided, however, that the release, discharge,
exoneration and covenant not to sue contained herein shall be limited by and be
coextensive with the terms and provisions of the waiver of subrogation or waiver
of right of recovery. Tenant acknowledges that Landlord shall not carry
insurance on, and shall not be responsible for, (i) damage to any Above Building
Standard Installations, (ii) Tenant's Property, and (iii) any loss suffered by
Tenant due to interruption of Tenant's business.
SECTION 11.3 RESTORATION. (a) If the Premises are damaged by fire or other
casualty, or if the Building is damaged such that Tenant is deprived of
reasonable access to the Premises, the damage shall be repaired by Landlord, to
substantially the condition of the Premises prior to the damage (or to such
other condition as Tenant may prescribe which is reasonably acceptable to
Landlord, but in no event less than restoring Building Standard Installations) ,
subject to the provisions of any Mortgage or Superior Lease, but Landlord shall
have no obligation to repair or restore (i) Tenant's Property or (ii) except as
provided in Section 11.3(b), any Above Building Standard Installations. So long
as Tenant is not in default beyond applicable grace or notice provisions in the
payment or performance of its obligations under this Section 11.3, and provided
Tenant timely delivers to Landlord either Tenant's Restoration Payment (as
hereinafter defined) or the Restoration Security (as hereinafter defined) or
Tenant expressly waives any obligation of Landlord to repair or restore any of
Tenant's Above Building Standard Installations, then until the restoration of
the Premises is Substantially Completed or would have been Substantially
Completed but for Tenant Delay, Fixed Rent, Tenant's Tax Payment and Tenant's
Operating Payment shall be reduced in the proportion by which the area of the
part of the Premises which is not usable (or accessible ) and is not used by
Tenant bears to the total area of the Premises.
(b) As a condition precedent to Landlord's obligation to repair
or restore any Above Building Standard Installations, Tenant shall (i) pay to
Landlord within 30 days of written demand a sum ("Tenant's Restoration Payment")
equal to the amount, if any, by which (A) the cost, as estimated by a reputable
independent contractor designated by Landlord, of repairing and restoring all
Alterations and improvements in the Premises to their condition prior to the
damage, exceeds (B) the
18
<PAGE> 22
cost of restoring the premises with Building Standard Installations, or (ii)
furnish to Landlord security (the "Restoration Security") in form and amount
reasonably acceptable to Landlord to secure Tenant's obligation to pay all costs
in excess of restoring the Premises with Building Standard Installations. To the
extent practicable, the Restoration Security may be converted to cash and
utilized to fund Tenant's obligation for Tenant's Above Building Standard
Installations. If Tenant shall fail to deliver to Landlord either (1) Tenant's
Restoration Payment or the Restoration Security, as applicable, or (2) a written
waiver by Tenant, in form satisfactory to Landlord, of all of Landlord's
obligations to repair or restore any of the Above Building Standard
Installations, in either case within 30 days after Landlord's demand therefore,
Landlord shall have no obligation to restore any Above Building Standard
Installations and Tenant's abatement of Fixed Rent, Tenant's Tax Payment and
Tenant's Operating Payment shall cease when the restoration of the Premises
(other than any Above Building Standard Installations) is Substantially
Complete.
SECTION 11.4 LANDLORD'S TERMINATION RIGHT. Notwithstanding anything to the
contrary contained in Section 11.3, if the Premises are totally damaged or are
rendered wholly untenantable, or if the Building shall be so damaged that, in
Landlord's reasonable opinion, substantial alteration, demolition, or
reconstruction of the Building shall be required (whether or not the Premises
are so damaged or rendered untenantable), then in either of such events,
Landlord may, not later than 60 days following the date of the damage, terminate
this Lease by notice to Tenant, provided that if the Premises are not damaged,
Landlord may not terminate this Lease unless Landlord similarly terminates the
leases of other tenants in the Building aggregating at least 50% of the portion
of the Building occupied for office purposes immediately prior to such damage.
If this Lease is so terminated, (a) the Term shall expire upon the 30th day
after such notice is given, (b) Tenant shall vacate the Premises and surrender
the same to Landlord, (c) Tenant's liability for Rent shall cease as of the date
of the damage, and (d) any prepaid Rent for any period after the date of the
damage shall be refunded by Landlord to Tenant.
SECTION 11.5 TENANT'S TERMINATION RIGHT. If the Premises are totally
damaged and are thereby rendered wholly untenantable, or if the Building shall
be so damaged that Tenant is deprived of reasonable access to the Premises, and
if Landlord elects to restore the Premises, Landlord shall, within 60 days
following the date of the damage, cause a contractor or architect selected by
Landlord to give notice (the "RESTORATION NOTICE") to Tenant of the date by
which such contractor or architect estimates the restoration of the Premises
(excluding any Above Building Standard Installations) shall be Substantially
Completed. If such date, as set forth in the Restoration Notice, is more than 12
months from the date of such damage, then Tenant shall have the right to
terminate this Lease by giving notice (the "TERMINATION NOTICE") to Landlord not
later than 30 days following delivery of the Restoration Notice to Tenant. If
Tenant delivers a Termination Notice, this Lease shall be deemed to have
terminated as of the date of the giving of the Termination Notice, in the manner
set forth in the second sentence of Section 11.4.
SECTION 11.6 FINAL 18 MONTHS. Notwithstanding anything to the contrary in
this Article 11, if any damage during the final 18 months of the Term renders
the Premises wholly untenantable, either Landlord or Tenant may terminate this
Lease by notice to the other party within 30 days after the occurrence of such
damage and this Lease shall expire on the 30th day after the date of such
notice. For purposes of this Section 11.6, the Premises shall be deemed wholly
untenantable if Tenant shall be precluded from using more than 50% of the
Premises for the conduct of its business and Tenant's inability to so use the
Premises is reasonably expected to continue for more than 90 days.
SECTION 11.7 LANDLORD'S LIABILITY. Any Building employee to whom any
property shall be entrusted by or on behalf of Tenant shall be deemed to be
acting as Tenant's agent with respect to such property and neither Landlord nor
its agents shall be liable for any damage to such property, or for the loss of
or damage to any property of Tenant by theft or otherwise. None of the Insured
Parties shall be liable for any injury or damage to persons or property or
interruption of Tenant's business resulting from fire or other casualty, any
damage caused by other tenants or persons in the Building or by construction of
any private, public or quasi-public work, or any latent defect in the Premises
or in
19
<PAGE> 23
the Building (except that Landlord shall be required to repair the same to the
extent provided in Article 5). No penalty shall accrue for delays which may
arise by reason of adjustment of fire insurance on the part of Landlord or
Tenant, or for any Unavoidable Delays arising from any repair or restoration of
any portion of the Building, provided that Landlord shall use reasonable efforts
to minimize interference with Tenant's use and occupancy of the Premises during
the performance of any such repair or restoration.
SECTION 11.8 LANDLORD'S INSURANCE. Landlord shall, from and after the
Effective Date and until the Expiration Date, maintain in effect the following
insurance: (i) fire and "all risk" insurance providing coverage in the event of
fire, vandalism, malicious mischief and all other risks normally covered by "all
risk" policies in the area of the Building, covering the Building (excluding the
property required to be insured by Tenant pursuant to Section 11.1) in an amount
not less than ninety-five percent (95%) of the full replacement value (less
commercially reasonable deductibles which as of the Effective Date is
Twenty-Five Thousand Dollars ($25,000.00) but is subject to periodic change over
the Term) of the Building excluding foundations, footings and other below-grade
structural elements; and (ii) commercial general liability insurance or the
equivalent in the amount of at least Five Million Dollars ($5,000,000.00),
against claims of bodily injury, personal injury or property damage arising out
of Landlord's operations, assumed liabilities, contractual liabilities, or use
of the Building and Common Areas. Such insurance may be carried under blanket or
umbrella insurance policies. Upon written request from Tenant, but no more than
one (1) time during any calendar year, Landlord shall provide Tenant with
evidence that Landlord is carrying the insurance Landlord is required to
maintain pursuant to this Section 11.8
ARTICLE 12
EMINENT DOMAIN
SECTION 12.1 TAKING. (a) TOTAL TAKING. If all or substantially all of the
Real Property, the Building or the Premises shall be acquired or condemned for
any public or quasi-public purpose (a "TAKING"), this Lease shall terminate and
the Term shall end as of the date of the vesting of title and Rent shall be
prorated and adjusted as of such date.
(b) PARTIAL TAKING. Upon a Taking of only a part of the Real
Property, the Building or the Premises then, except as hereinafter provided in
this Article 12, this Lease shall continue in full force and effect, provided
that from and after the date that is the earlier of Tenant's deprivation of use
or the date of the vesting of title, Fixed Rent and Tenant's Proportionate Share
shall be modified to reflect the reduction of the Premises and/or the Building
as a result of such Taking.
(c) LANDLORD'S TERMINATION RIGHT. Whether or not the Premises
are affected, Landlord may, by notice to Tenant, within 60 days following the
date upon which Landlord receives notice of the Taking of all or a material
portion of the Real Property, the Building or the Premises, terminate this
Lease, provided that Landlord elects to terminate leases (including this Lease)
affecting at least 50% of the rentable area of the Building.
(d) TENANT'S TERMINATION RIGHT. If the part of the Real
Property so Taken contains more than 20% of the total area of the Premises
occupied by Tenant immediately prior to such Taking, or if, by reason of such
Taking, Tenant no longer has reasonable means of access to the Premises, Tenant
may terminate this Lease by notice to Landlord given within 30 days following
the date upon which Tenant is given notice of such Taking. If Tenant so notifies
Landlord, this Lease shall end and expire upon the 30th day following the giving
of such notice. If a part of the Premises shall be so Taken and this Lease is
not terminated in accordance with this Section 12.1 Landlord, without being
required to spend more than it collects as an award, shall, subject to the
provisions of any Mortgage or Superior Lease, restore that part of the Premises
not so Taken to a self-contained rental unit substantially equivalent (with
respect to character, quality, appearance and services) to that
20
<PAGE> 24
which existed immediately prior to such Taking, excluding Tenant's Property and
any Above Building Standard Installations.
(e) APPORTIONMENT OF RENT. Upon any termination of this Lease
pursuant to the provisions of this Article 12, Rent shall be apportioned as of,
and shall be paid or refunded up to and including, the date of such termination.
SECTION 12.2 AWARDS. Upon any Taking, Landlord shall receive the entire
award for any such Taking, and Tenant shall have no claim against Landlord or
the condemning authority for the value of any unexpired portion of the Term or
Tenant's Alterations; and Tenant hereby assigns to Landlord all of its right in
and to such award. Nothing contained in this Article 12 shall be deemed to
prevent Tenant from making a separate claim in any condemnation proceedings for
the then value of any Tenant's Property or Above Building Standard Installations
included in such Taking and for any moving expenses, provided any such award is
in addition to, and does not result in a reduction of, the award made to
Landlord.
SECTION 12.3 TEMPORARY TAKING. If all or any part of the Premises is Taken
temporarily during the Term for any public or quasi-public use or purpose,
Tenant shall give prompt notice to Landlord and the Term shall not be reduced or
affected in any way and Tenant shall continue to pay all Rent payable by Tenant
without reduction or abatement and to perform all of its other obligations under
this Lease, except to the extent prevented from doing so by the condemning
authority, and Tenant shall be entitled to receive any award or payment from the
condemning authority for such use, which shall be received, held and applied by
Tenant as a trust fund for payment of the Rent falling due.
ARTICLE 13
ASSIGNMENT AND SUBLETTING
SECTION 13.1 CONSENT REQUIREMENTS.
(a) NO ASSIGNMENT OR SUBLETTING. Except as expressly set forth
herein, Tenant shall not assign, mortgage, pledge, encumber, or otherwise
transfer this Lease, whether by operation of law or otherwise, and shall not
sublet, or permit, or suffer the Premises or any part thereof to be used or
occupied by others (whether for desk space, mailing privileges or otherwise),
without Landlord's prior consent in each instance. Any assignment, sublease,
mortgage, pledge, encumbrance or transfer in contravention of the provisions of
this Article 13 shall be void and shall constitute an Event of Default.
(b) COLLECTION OF RENT. If, without Landlord's consent, this
Lease is assigned, or any part of the Premises is sublet or occupied by anyone
other than Tenant or this Lease is encumbered (by operation of law or
otherwise), Landlord may collect rent from the assignee, subtenant or occupant,
and apply the net amount collected to the Rent herein reserved. No such
collection shall be deemed a waiver of the provisions of this Article 13, an
acceptance of the assignee, subtenant or occupant as tenant, or a release of
Tenant from the performance of Tenant's covenants hereunder, and in all cases
Tenant shall remain fully liable for its obligations under this Lease.
(c) FURTHER ASSIGNMENT/SUBLETTING. Landlord's consent to any
assignment or subletting shall not relieve Tenant from the obligation to obtain
Landlord's consent to any further assignment or subletting. In no event shall
any permitted subtenant assign or encumber its sublease or further sublet any
portion of its sublet space, or otherwise suffer or permit any portion of the
sublet space to be used or occupied by others.
SECTION 13.2 TENANT'S NOTICE. If Tenant desires to assign this Lease or
sublet all or any portion of the Premises, Tenant shall give notice thereof to
Landlord, which shall be accompanied by (a) with respect to an assignment of
this Lease, the date Tenant desires the assignment to be effective, and (b) with
respect to a sublet of all or a part of the Premises, a description of the
portion of
21
<PAGE> 25
the Premises to be sublet. Such notice shall be deemed an offer from Tenant to
Landlord of the right, at Landlord's option, (1) to terminate this Lease with
respect to such space as Tenant proposes to sublease (the "PARTIAL SPACE"), upon
the terms and conditions hereinafter set forth, or (2) if the proposed
transaction is an assignment of this Lease or a subletting of two (2) full
floors or more of the Premises, to terminate this Lease with respect to the
entire Premises. Such option may be exercised by notice from Landlord to Tenant
within 30 days after delivery of Tenant's notice. If Landlord exercises its
option to terminate all or a portion of this Lease, (a) this Lease shall end and
expire with respect to all or a portion of the Premises, as the case may be, on
the date that such assignment or sublease was to commence, (b) Rent shall be
apportioned, paid or refunded as of such date, (c) Tenant, upon Landlord's
request, shall enter into an amendment of this Lease ratifying and confirming
such total or partial termination, and setting forth any appropriate
modifications to the terms and provisions hereof, and (d) Landlord shall be free
to lease the Premises (or any part thereof) to Tenant's prospective assignee or
subtenant. Tenant shall pay all costs to make the Partial Space a self-contained
rental unit.
SECTION 13.3 CONDITIONS TO ASSIGNMENT/SUBLETTING. (a) If Landlord does not
exercise its termination option provided under Section 13.2, and provided that
no Event of Default then exists, Landlord's consent to the proposed assignment
or subletting shall not be unreasonably withheld or delayed. Such consent shall
be granted or denied as soon as practicable and in no case more than 30 days
after delivery to Landlord of (i) a true and complete statement reasonably
detailing the identity of the proposed assignee or subtenant ("TRANSFEREE"), the
nature of its business and its proposed use of the Premises, (ii) current
financial information with respect to the Transferee, including its most recent
financial statements, and (iii) any other information Landlord may reasonably
request, provided that:
(A) in Landlord's reasonable judgment, the Transferee is
engaged in a business or activity, and the Premises will be used in a
manner, which (1) is in keeping with the then standards of the
Building, (2) is for the Permitted Uses, and (3) does not violate any
restrictions set forth in this Lease, any Mortgage or Superior Lease
or any negative covenant as to use of the Premises required by any
other lease in the Building;
(B) the Transferee is reputable with sufficient financial
means to perform all of its obligations under this Lease or the
sublease, as the case may be;
(C) if Landlord has, or reasonably expects to have within 2
months thereafter, comparable space available in the Building (it
being understood that floors 17 through 40 are not comparable space),
neither the Transferee nor any person which, directly or indirectly,
controls, is controlled by, or is under common control with, the
Transferee is then an occupant of the Building;
(D) the Transferee is not a person or entity (or affiliate
of a person or entity) with whom Landlord is then or has been within
the prior 6 months negotiating in connection with the rental of space
in the Building;
(E) there shall be not more than 2 subtenants in each floor
of the Premises;
(F) the aggregate consideration to be paid by the Transferee
under the terms of the proposed sublease shall not be less than 90% of
the fixed rent at which Landlord is then offering to lease other space
in the Building (the "MARKET SUB-RENT") determined as though the
Premises were vacant and taking into account (1) the length of the
term of the proposed sublease, (2) any rent concessions granted to
Transferee, and (3) the cost of any Alterations being performed for
the Transferee;
22
<PAGE> 26
(G) Tenant shall, within 30 days of demand, reimburse
Landlord for all reasonable expenses incurred by Landlord in
connection with such assignment or sublease, including any
investigations as to the acceptability of the Transferee and all legal
costs reasonably incurred in connection with the granting of any
requested consent;
(H) Tenant shall not list the Premises to be sublet or
assigned with a broker, agent or other entity or otherwise offer the
Premises for subletting at a rental rate less than the Market
Sub-rent; and
(I) the Transferee shall not be entitled, directly or
indirectly, to diplomatic or sovereign immunity, regardless of whether
the Transferee agrees to waive such diplomatic or sovereign immunity,
and shall be subject to the service of process in, and the
jurisdiction of the courts of, the City and County of San Francisco
and State of California.
(b) With respect to each and every subletting and/or assignment
approved by Landlord under the provisions of this Lease:
(i) the form of the proposed assignment or sublease shall
be reasonably satisfactory to Landlord;
(ii) no sublease shall be for a term ending later than one
day prior to the Expiration Date;
(iii) except as otherwise provided in Section 13.7, no
Transferee shall take possession of any part of the Premises, until an executed
counterpart of such sublease or assignment has been delivered to Landlord and
approved by Landlord as provided in Section 13.3(a);
(iv) if an Event of Default occurs prior to the effective
date of such assignment or subletting and is continuing and yet uncured on the
date that would otherwise be such effective date, then Landlord's consent
thereto, if previously granted, shall be immediately deemed revoked without
further notice to Tenant, and any such deemed unconsented to assignment or
subletting shall constitute a further Event of Default hereunder; and
(v) each sublease shall be subject and subordinate to this
Lease and to the matters to which this Lease is or shall be subordinate; and
Tenant and each Transferee shall be deemed to have agreed that upon the
occurrence and during the continuation of an Event of Default hereunder, Tenant
has hereby assigned to Landlord, and Landlord may, at its option, accept such
assignment of, all right, title and interest of Tenant as sublandlord under such
sublease, together with all modifications, extensions and renewals thereof then
in effect and such Transferee shall, at Landlord's option, attorn to Landlord
pursuant to the then executory provisions of such sublease, except that Landlord
shall not be (A) liable for any previous act or omission of Tenant under such
sublease, (B) subject to any counterclaim, offset or defense not expressly
provided in such sublease, which theretofore accrued to such Transferee against
Tenant, (C) bound by any previous modification of such sublease not consented to
by Landlord or by any prepayment of more than one month's rent, (D) bound to
return such Transferee's security deposit, if any, except to the extent Landlord
shall receive actual possession of such deposit and such Transferee shall be
entitled to the return of all or any portion of such deposit under the terms of
its sublease, or (E) obligated to make any payment to or on behalf of such
Transferee, or to perform any work in the subleased space or the Building, or in
any way to prepare the subleased space for occupancy, beyond Landlord's
obligations under this Lease. The provisions of this Section 13.3(b)(v) shall be
self-operative, and no further instrument shall be required to give effect to
this provision, provided that the Transferee shall execute and deliver to
Landlord any instruments Landlord may reasonably request to evidence and confirm
such subordination and attornment.
SECTION 13.4 BINDING ON TENANT; INDEMNIFICATION OF LANDLORD.
Notwithstanding any assignment or subletting or any acceptance of rent by
Landlord from any Transferee, Tenant shall remain fully liable for the payment
of all Rent due and for the performance of all the covenants, terms
23
<PAGE> 27
and conditions contained in this Lease on Tenant's part to be observed and
performed, and any default under any term, covenant or condition of this Lease
by any Transferee or anyone claiming under or through any Transferee shall be
deemed to be a default under this Lease by Tenant. Tenant shall indemnify,
defend, protect and hold harmless Landlord from and against any and all Losses
resulting from any claims that may be made against Landlord by the Transferee or
anyone claiming under or through any Transferee or by any brokers or other
persons claiming a commission or similar compensation in connection with the
proposed assignment or sublease, irrespective of whether Landlord shall give or
decline to give its consent to any proposed assignment or sublease, or if
Landlord shall exercise any of its options under this Article 13.
SECTION 13.5 TENANT'S FAILURE TO COMPLETE. If Landlord consents to a
proposed assignment or sublease and Tenant fails to execute and deliver to
Landlord such assignment or sublease within 90 days after the giving of such
consent, then Tenant shall again comply with all of the provisions and
conditions of Section 13.2 before assigning this Lease or subletting all or part
of the Premises.
SECTION 13.6 PROFITS. If Tenant enters into any assignment or sublease
permitted hereunder or consented to by Landlord, Tenant shall, within 60 days of
Landlord's consent to such assignment or sublease, deliver to Landlord a list of
Tenant's reasonable third-party brokerage fees, legal fees and architectural
fees paid or to be paid in connection with such transaction and any actual costs
incurred by Tenant in separately demising the subleased space (collectively,
"TRANSACTION COSTS"), together with a list of all of Tenant's Property to be
transferred to such Transferee. The Transaction Costs shall be amortized, on a
straight-line basis, over the term of any sublease. Tenant shall deliver to
Landlord evidence of the payment of such Transaction Costs promptly after the
same are paid. In consideration of such assignment or subletting, Tenant shall
pay to Landlord:
(a) In the case of an assignment, as and when paid, 50% of all
sums and other consideration paid to Tenant by the Transferee for or by reason
of such assignment (including sums paid for the sale or rental of Tenant's
Property, less, in the case of a sale thereof, the then fair market value
thereof, as reasonably determined by Landlord) after first deducting the
Transaction Costs; or
(b) In the case of a sublease, 50% of any consideration payable
under the sublease to Tenant by the Transferee which exceeds on a per square
foot basis the Fixed Rent accruing during the term of the sublease in respect of
the subleased space (together with any sums paid for the sale or rental of
Tenant's Property, less, in the case of the sale thereof, the then fair market
value thereof, as reasonably determined by Landlord) after first deducting the
monthly amortized amount of Transaction Costs. The sums payable under this
clause shall be paid by Tenant to Landlord monthly as and when paid by the
subtenant to Tenant.
SECTION 13.7 TRANSFERS. (a) RELATED ENTITIES. Sections 13.1, 13.2 or
13.3(a) do not apply to Section 13.7 Transfers. If Tenant is a corporation, the
transfer (by one or more transfers) of a majority of the stock of Tenant shall
be deemed a voluntary assignment of this Lease; provided, however, that the
provisions of this Article 13 shall not apply to the transfer of shares of stock
of Tenant if and so long as Tenant is publicly traded on a nationally recognized
stock exchange. For purposes of this Section 13.7 the term "transfers" shall be
deemed to include the issuance of new stock which results in a majority of the
stock of Tenant being held by a person or entity which does not hold a majority
of the stock of Tenant on the Effective Date. If Tenant is a limited liability
company, partnership, trust, or any other legal entity, the transfer (by one or
more transfers) of a majority of the beneficial ownership interests in such
entity, however characterized, shall be deemed a voluntary assignment of this
Lease. The provisions of Sections 13.1, 13.2 or 13.3(a) shall not apply to
transactions with a corporation into or with which Tenant is merged or
consolidated or to which substantially all of Tenant's assets are transferred so
long as (i) such transfer was made for a legitimate independent business purpose
and not for the purpose of transferring this Lease, (ii) either the successor to
Tenant has a net worth computed in accordance with generally accepted accounting
principles at least equal to the net worth of Tenant immediately prior to such
merger, consolidation or transfer, or if Engage Technologies, Inc. is the
surviving entity and subsequent to such transaction the financial condition of
Tenant will not be materially impaired, and (iii) proof satisfactory to Landlord
of
24
<PAGE> 28
such net worth is delivered to Landlord at least 10 days prior to the effective
date of any such transaction. Tenant may also, upon prior notice to Landlord,
permit any corporation or other business entity which controls, is controlled
by, or is under common control with the original Tenant (a "RELATED
CORPORATION") to sublet all or part of the Premises for the Permitted Uses,
provided the Related Corporation is in Landlord's reasonable judgment of a
character and engaged in a business which is in keeping with the standards for
the Building and for so long as such entity remains a Related Corporation. For
so long as I/PRO is a Related Corporation, Landlord hereby consents to I/PRO's
use and occupancy of the Premises. Such sublease shall not be deemed to vest in
any such Related Corporation any right or interest in this Lease nor shall it
relieve, release, impair or discharge any of Tenant's obligations hereunder. For
the purposes hereof, "control" shall be deemed to mean ownership of not less
than 50% of all of the voting stock of such corporation or not less than 50% of
all of the legal and equitable interest in any other business entity if Tenant
is not a corporation. Notwithstanding the foregoing, Tenant shall have no right
to assign this Lease or sublease all or any portion of the Premises without
Landlord's consent pursuant to this Section 13.7 if Tenant is not the initial
Tenant herein named or a person or entity who acquired Tenant's interest in this
Lease in a transaction approved by Landlord pursuant to this Section 13.7.
(b) APPLICABILITY. The limitations set forth in this Section
13.7 shall apply to Transferee(s) of this Lease, if any, and any transfer by any
such entity in violation of this Section 13.7 shall be a transfer in violation
of Section 13.1.
(c) MODIFICATIONS, TAKEOVER AGREEMENTS. Any modification,
amendment or extension of a sublease and/or any other agreement by which a
landlord of a building other than the Building agrees to assume the obligations
of Tenant under this Lease shall be deemed a sublease for the purposes of
Section 13.1 hereof.
SECTION 13.8 ASSUMPTION OF OBLIGATIONS. No assignment or transfer shall be
effective unless and until the Transferee executes, acknowledges and delivers to
Landlord an agreement in form and substance reasonably satisfactory to Landlord
whereby the assignee (a) assumes Tenant's obligations under this Lease and (b)
agrees that, notwithstanding such assignment or transfer, the provisions of
Section 13.1 hereof shall be binding upon it in respect of all future
assignments and transfers subject to the rights afforded by Section 13.7.
SECTION 13.9 TENANT'S LIABILITY. The joint and several liability of Tenant
and any successors-in-interest of Tenant and the due performance of Tenant's
obligations under this Lease shall not be discharged, released or impaired by
any agreement or stipulation made by Landlord, or any grantee or assignee of
Landlord, extending the time, or modifying any of the terms and provisions of
this Lease, or by any waiver or failure of Landlord, or any grantee or assignee
of Landlord, to enforce any of the terms and provisions of this Lease.
SECTION 13.10 LISTINGS IN BUILDING DIRECTORY. The listing of any name other
than that of Tenant on the doors of the Premises, the Building directory or
elsewhere shall not vest any right or interest in this Lease or in the Premises,
nor be deemed to constitute Landlord's consent to any assignment or transfer of
this Lease or to any sublease of the Premises or to the use or occupancy thereof
by others. Any such listing shall constitute a privilege revocable in Landlord's
discretion by notice to Tenant.
SECTION 13.11 LEASE DISAFFIRMANCE OR REJECTION. If at any time after an
assignment by Tenant named herein, this Lease is not affirmed or is rejected in
any bankruptcy proceeding or any similar proceeding, or upon a termination of
this Lease due to any such proceeding, Tenant named herein, upon request of
Landlord given after such disaffirmance, rejection or termination (and actual
notice thereof to Landlord in the event of a disaffirmance or rejection or in
the event of termination other than by act of Landlord), shall (a) pay to
Landlord all Rent and other charges due and owing by the assignee to Landlord
under this Lease to and including the date of such disaffirmance, rejection or
termination, and (b) as "tenant," enter into a new lease of the Premises with
Landlord for a term commencing on the effective date of such disaffirmance,
rejection or termination and ending on the
25
<PAGE> 29
Expiration Date, at the same Rent and upon the then executory terms, covenants
and conditions contained in this Lease, except that (i) the rights of Tenant
named herein under the new lease shall be subject to the possessory rights of
the assignee under this Lease and the possessory rights of any persons claiming
through or under such assignee or by virtue of any statute or of any order of
any court, (ii) such new lease shall require all defaults existing under this
Lease to be cured by Tenant named herein with due diligence, and (iii) such new
lease shall require Tenant named herein to pay all Rent which, had this Lease
not been so disaffirmed, rejected or terminated, would have become due under the
provisions of this Lease after the date of such disaffirmance, rejection or
termination with respect to any period prior thereto. If Tenant named herein
defaults in its obligations to enter into such new lease for a period of 10 days
after Landlord's request, then, in addition to all other rights and remedies by
reason of default, either at law or in equity, Landlord shall have the same
rights and remedies against Tenant named herein as if it had entered into such
new lease and such new lease had thereafter been terminated as of the
commencement date thereof by reason of Tenant's default thereunder.
ARTICLE 14
ELECTRICITY
SECTION 14.1 ELECTRICITY. Subject to any Requirements or any public utility
rules or regulations governing energy consumption, Landlord shall make or cause
to be made, customary arrangements with public utilities and/or public agencies
to furnish electric current to the Premises for Tenant's use in accordance with
the Design Standards. If Landlord reasonably determines by the use of an
electrical consumption survey or by other reasonable means that Tenant is using
electric current (including overhead fluorescent fixtures) in excess of .60
kilowatt hours per square foot of usable area in the Premises per month ("EXCESS
ELECTRICAL USAGE"), then Landlord shall have the right to charge Tenant an
amount equal to Landlord's reasonable estimate of Tenant's Excess Electrical
Usage, and either Landlord or Tenant shall have the further right to install an
electric current meter, sub-meter or check meter in the Premises (a "METER") to
measure the amount of electric current consumed in the Premises. The cost of
such Meter special conduits, wiring and panels needed in connection therewith
and the installation, maintenance and repair thereof shall be paid by Tenant.
Tenant shall pay to Landlord, from time to time, but no more frequently than
monthly, for its Excess Electrical Usage at the Premises, plus Landlord's charge
equal to 10% of Tenant's Excess Electrical Usage for Landlord's costs of
maintaining, repairing and reading such Meter. The rate to be paid by Tenant for
submetered electricity shall include any taxes or other charges in connection
therewith.
SECTION 14.2 EXCESS ELECTRICITY. Tenant shall at all times comply with the
rules and regulations of the utility company supplying electricity to the
Building. Tenant shall not use any electrical equipment which, in Landlord's
reasonable judgment, would exceed the capacity of the electrical equipment
serving the Premises. If Landlord reasonably determines that Tenant's electrical
requirements necessitate installation of any additional risers, feeders or other
electrical distribution equipment (collectively, "ELECTRICAL EQUIPMENT"), or if
Tenant provides Landlord with evidence reasonably satisfactory to Landlord of
Tenant's need for excess electricity and requests that additional Electrical
Equipment be installed, Landlord shall, at Tenant's expense, install such
additional Electrical Equipment, provided that Landlord, in its sole judgment,
determines that (a) such installation is practicable and necessary, (b) such
additional Electrical Equipment is permissible under applicable Requirements,
and (c) the installation of such Electrical Equipment will not cause permanent
damage or injury to the Building or the Premises, cause or create a hazardous
condition, entail excessive or unreasonable alterations, interfere with or limit
electrical usage by other tenants or occupants of the Building or exceed the
limits of the switchgear or other facilities serving the Building, or require
power in excess of that available from the utility company serving the Building.
Any costs incurred by Landlord in connection therewith shall be paid by Tenant
within 30 days after the rendition of a bill therefor.
26
<PAGE> 30
SECTION 14.3 SERVICE DISRUPTION. Landlord shall not be liable in any way to
Tenant for any failure, defect or interruption of, or change in the supply,
character and/or quantity of electric service furnished to the Premises for any
reason except if attributable to the gross negligence or willful misconduct of
Landlord, nor shall there be any abatement of Rent or allowance to Tenant for
diminution of rental value, nor shall the same constitute an actual or
constructive eviction of Tenant, in whole or part, or relieve Tenant from any of
its Lease obligations, and no liability shall arise on the part of Landlord by
reason of inconvenience, annoyance or injury to business. Landlord shall use
reasonable efforts to minimize interference with Tenant's use and occupancy of
the Premises as a result of any such failure, defect or interruption of, or
change in the supply, character and/or quantity of, electric service.
ARTICLE 15
ACCESS TO PREMISES
SECTION 15.1 LANDLORD'S ACCESS. (a) Landlord, Landlord's agents and utility
service providers servicing the Building may erect, use and maintain concealed
ducts, pipes and conduits in and through the Premises provided such use does not
cause the usable area of the Premises to be reduced beyond a de minimis amount.
Landlord shall promptly repair any damage to the Premises caused by any work
performed pursuant to this Article 15.
(b) Landlord, any Lessor or Mortgagee and any other party
designated by Landlord and their respective agents shall have the right to enter
the Premises at all reasonable times, upon reasonable notice (which notice may
be oral) except in the case of emergency, to examine the Premises, to show the
Premises to prospective purchasers, Mortgagees, Lessors or tenants and their
respective agents and representatives or others, to perform Restorative Work to
the Premises or the Building, and Landlord shall be allowed to take all material
into the Premises that may be required for the performance of such Restorative
Work without the same constituting an actual or constructive eviction of Tenant
in whole or in part and without any abatement of Rent; provided, however, that
all such work shall be done as promptly as reasonably possible and so as to
cause as little interference to Tenant as reasonably possible and shall be
subject to the provisions of Section 15.4 below.
(c) All parts (except surfaces facing the interior of the
Premises) of all walls, windows and doors bounding the Premises, all balconies,
terraces and roofs adjacent to the Premises, all space in or adjacent to the
Premises used for shafts, stacks, stairways, mail chutes, conduits and other
mechanical facilities, Building Systems; Building facilities and Common Areas
are not part of the Premises, and Landlord shall have the use thereof and access
thereto through the Premises for the purposes of Building operation,
maintenance, alteration and repair.
SECTION 15.2 ALTERATIONS TO BUILDING. Landlord has the right at any time to
(a) change the name, number or designation by which the Building is commonly
known, and (b) alter the Building to change the arrangement or location of
entrances or passageways, doors and doorways, corridors, elevators, stairs,
toilets or other Common Areas without any such acts constituting an actual or
constructive eviction and without incurring any liability to Tenant, so long as
such changes do not materially and adversely affect Tenant's access to the
Premises.
SECTION 15.3 LIGHT AND AIR. If at any time any windows of the Premises are
temporarily darkened or covered over by reason of any Restorative Work, any of
such windows are permanently darkened or covered over due to any Requirement or
there is otherwise a diminution of light, air or view by another structure which
may hereinafter be erected (whether or not by Landlord), Landlord shall not be
liable for any damages and Tenant shall not be entitled to any compensation or
abatement of any Rent, nor shall the same release Tenant from its obligations
hereunder or constitute an actual or constructive eviction.
SECTION 15.4 TENANT'S SECURITY REQUIREMENTS. Landlord acknowledges that
Tenant has advised Landlord that Tenant's business at the Premises involves
sensitive information and
27
<PAGE> 31
operations and that Tenant has security requirements to protect such information
and operations. Landlord and any person entering the Premises with, at the
direction of or under the authority of, Landlord shall, subject to Tenant's
compliance with its obligations pursuant to this Section 15.4, follow Tenant's
commercially reasonable security requirements, which include the requirement
that all persons entering the Premises be attended by a representative of
Tenant, Tenant shall make a representative available upon 24-hours prior
telephone notice by Landlord. Tenant acknowledges that to the extent Tenant does
not facilitate Landlord's access to the Premises or certain portions thereof,
Landlord shall be absolved from the obligation to perform any services within
such portion of the Premises including cleaning services. In the event of an
emergency that could cause damage to health, safety or property Landlord shall
use good faith efforts to follow Tenant's security requirements and in such
event Landlord will be required to give only such notice that it in good faith
believes is feasible under the circumstances and need not wait to be accompanied
by Tenant or its employees or representatives (although these parties may still
accompany Landlord if they are available and wish to do so).
ARTICLE 16
DEFAULT
SECTION 16.1 TENANT'S DEFAULTS. Each of the following events shall be an
"EVENT OF DEFAULT" hereunder:
(a) Tenant fails to pay when due any installment of Fixed Rent
(including any recurring payments of Tenant's Operating Payment or Tax Payment)
and such default shall continue for 5 Business Days after notice of such default
is given to Tenant, except that if Landlord shall have given one such notice of
default in the payment of Fixed Rent in any 12 month period, Tenant shall not be
entitled to any further notice of its delinquency in the payment of Fixed Rent
or an extended period in which to make payment until such time as 12 consecutive
months shall have elapsed without Tenant having failed to make any such payment
when due, and the occurrence of any default in the payment of Fixed Rent within
such 12 month period after giving one such notice shall constitute an Event of
Default; or
(b) Tenant fails to make any other payment of Rent within the
period required by any provision of this Lease and such failure continues for 10
days following receipt of notice from Landlord;
(c) Tenant fails to observe or perform any other term, covenant
or condition of this Lease and such failure continues for more than 30 days (10
days with respect to a default under Article 3) after notice by Landlord to
Tenant of such default, or if such default is of a nature that it cannot be
completely remedied within 30 days, failure by Tenant to commence to remedy such
failure within said 30 days, and thereafter diligently prosecute to completion
all steps necessary to remedy such default, provided in all events the same is
completed within 90 days or as soon thereafter as is commercially practicable
unless Tenant's failure to cure such defaults within such 90 day period would
constitute a default under any Mortgage or Superior Lease; or
(d) if Landlord applies or retains any part of the Security
Deposit, and Tenant fails to deposit with Landlord the amount so applied or
retained by Landlord, or to provide Landlord with a replacement Letter of Credit
(as hereinafter defined), if applicable, within 5 days after notice by Landlord
to Tenant stating the amount applied or retained.
SECTION 16.2 LANDLORD'S REMEDIES. (a) Upon the occurrence of an Event of
Default, Landlord, at its option, and without limiting the exercise of any other
right or remedy Landlord may have on account of such Event of Default, and
without any further demand or notice, may give to Tenant 3 days' notice of
termination of this Lease, in which event this Lease and the Term shall come to
an end and expire (whether or not the Term shall have commenced) upon the
expiration of such 3 day period with the same force and effect as if the date
set forth in the notice was the Expiration Date
28
<PAGE> 32
stated herein; and Tenant shall then quit and surrender the Premises to
Landlord, but Tenant shall remain liable for damages as provided in this Article
16, and/or, to the extent permitted by law, Landlord may remove all persons and
property from the Premises, which property shall be stored by Landlord at a
warehouse or other commercially reasonable location at the risk, expense and for
the account of Tenant.
(b) If Landlord elects to terminate this Lease, pursuant to
Section 1951.2 of the California Civil Code, Landlord shall be entitled to
recover from Tenant the aggregate of:
(i) The worth at the time of award of the unpaid Rent and
charges equivalent to Rent earned as of the date of the termination hereof;
(ii) The worth at the time of award of the amount by which
the unpaid Rent and charges equivalent to Rent which would have been earned
after the date of termination hereof until the time of award exceeds the amount
of such rental loss that Tenant proves could have been reasonably avoided;
(iii) The worth at the time of award of the amount by which
the unpaid Rent and charges equivalent to Rent for the balance of the Term after
the time of award exceeds the amount of such rental loss that Tenant proves
could have been reasonably avoided;
(iv) Any other amount necessary to compensate Landlord for
the detriment proximately caused by Tenant's failure to perform its obligations
under this Lease or which, in the ordinary course of things, would be likely to
result therefrom; and
(v) Any other amount which Landlord may hereafter be
permitted to recover from Tenant to compensate Landlord for the detriment caused
by Tenant's default.
For the purposes of this Section 16.2(b), the "time of award" shall mean the
date upon which the judgment in any action brought by Landlord against Tenant by
reason of such Event of Default is entered or such earlier date as the court may
determine; the "worth at the time of award" of the amounts referred to in
Sections 16.2(b)(i) and 16.2(b)(ii) shall be computed by allowing interest on
such amounts at the Interest Rate; and the "worth at the time of award" of the
amount referred to in Section 16.2(b)(iii) shall be computed by discounting such
amount at the discount rate of the Federal Reserve Bank of San Francisco at the
time of award plus one percent per annum. Tenant agrees that such charges shall
be recoverable by Landlord under California Code of Civil Procedure Section
1174(b) or any similar, successor or related provision of law.
SECTION 16.3 RECOVERING RENT AS IT COMES DUE. Upon any Event of Default, in
addition to any other remedies available to Landlord at law or in equity or
under this Lease, Landlord shall have the remedy described in California Civil
Code Section 1951.4. Accordingly, if Landlord does not elect to terminate this
Lease, Landlord may, from time to time, enforce all of its rights and remedies
under this Lease, including the right to recover all Rent as it becomes due.
Such remedy may be exercised by Landlord without prejudice to its right
thereafter to terminate this Lease in accordance with the other provisions
contained in this Article 16. Landlord's reentry to perform acts of maintenance
or preservation of, or in connection with efforts to relet, the Premises, or any
portion thereof, or the appointment of a receiver upon Landlord's initiative to
protect Landlord's interest under this Lease shall not terminate Tenant's right
to possession of the Premises or any portion thereof and, until Landlord elects
to terminate this Lease, this Lease shall continue in full force and Landlord
may pursue all its remedies hereunder. Nothing in this Article 16 shall be
deemed to affect Landlord's right to indemnification, under the indemnification
clauses contained in this Lease, for Losses arising from events occurring prior
to the termination of this Lease. Landlord covenants and agrees to use its
commercially reasonable efforts to mitigate its damages upon the occurrence of
an Event of Default, provided that in no event shall the foregoing be deemed to
require Landlord to elect any available remedy.
SECTION 16.4 RELETTING ON TENANT'S BEHALF. To the extent enforceable under
California law, Landlord shall have its remedy as provided in this Section 16.4.
If Tenant abandons the
29
<PAGE> 33
Premises or if Landlord elects to reenter or takes possession of the Premises
pursuant to any legal proceeding or pursuant to any notice provided by
Requirements, and until Landlord elects to terminate this Lease, Landlord may,
from time to time, without terminating this Lease, recover all Rent as it
becomes due pursuant to Section 16.3 and/or relet the Premises or any part
thereof for the account of and on behalf of Tenant, on any terms, for any term
(whether or not longer than the Term), and at any rental as Landlord in its
reasonable discretion may deem advisable, and Landlord may make any Restorative
Work to the Premises in connection therewith. Tenant hereby irrevocably
constitutes and appoints Landlord as its attorney-in-fact, which appointment
shall be deemed coupled with an interest and shall be irrevocable, solely for
purposes of reletting the Premises pursuant to the immediately preceding
sentence. If Landlord elects to so relet the Premises on behalf of Tenant, then
rentals received by Landlord from such reletting shall be applied:
(a) First, to reimburse Landlord for the costs and expenses of
such reletting (including costs and expenses of retaking or repossessing the
Premises, removing persons and property therefrom, securing new tenants, and, if
Landlord maintains and operates the Premises, the costs thereof) and necessary
or reasonable Restorative Work.
(b) Second, to the payment of any indebtedness of Tenant to
Landlord other than Rent due and unpaid hereunder.
(c) Third, to the payment of Rent due and unpaid hereunder, and
the residue, if any, shall be held by Landlord and applied in payment of other
or future obligations of Tenant to Landlord as the same may become due and
payable.
Should the rentals received from such reletting, when applied in the manner
and order indicated above, at any time be less than the total amount owing from
Tenant pursuant to this Lease, then Tenant shall pay such deficiency to
Landlord, and if Tenant does not pay such deficiency within (5) days of delivery
of written notice thereof to Tenant, Landlord may bring an action against Tenant
for recovery of such deficiency or pursue its other remedies hereunder or under
California Civil Code Section 1951.8, California Code of Civil Procedure Section
1161 et seq., or any similar, successor or related Requirements.
SECTION 16.5 GENERAL. (a) All rights, powers and remedies of Landlord
hereunder and under any other agreement now or hereafter in force between
Landlord and Tenant shall be cumulative and not alternative and shall be in
addition to all rights, powers and remedies given to Landlord at law or in
equity. The exercise of any one or more of such rights or remedies shall not
impair Landlord's right to exercise any other right or remedy including any and
all rights and remedies of Landlord under California Civil Code Section 1951.8,
California Code of Civil Procedure Section 1161 et seq., or any similar,
successor or related Requirements.
(b) If, after Tenant's abandonment of the Premises, Tenant
leaves behind any of Tenant's Property, then Landlord shall store such Tenant's
Property at a warehouse or any other commercially reasonable location at the
risk, expense and for the account of Tenant, and such property shall be released
only upon Tenant's payment of such charges, together with moving and other costs
relating thereto and all other sums due and owing under this Lease. If Tenant
does not reclaim such Tenant's Property within the period permitted by law,
Landlord may sell such Tenant's Property in accordance with law and apply the
proceeds of such sale to any sums due and owing hereunder, or retain said
Property, granting Tenant credit against sums due and owing hereunder for the
reasonable value of such Property.
(c) To the extent permitted by law, Tenant hereby waives all
provisions of, and protections under, any Requirement to the extent same are
inconsistent and in conflict with specific terms and provisions hereof.
SECTION 16.6 INTEREST. If any payment of Rent is not paid when due,
interest shall accrue on such payment, from the date such payment became due
until paid at the Interest Rate. In addition to interest, if any amount is not
paid when due, within 5 days after same is due, a late charge equal to
30
<PAGE> 34
5% of such amount shall be assessed, which late charge Tenant agrees is a
reasonable estimate of the damages Landlord shall suffer as a result of Tenant's
late payment, which damages include Landlord's additional administrative and
other costs associated with such late payment; provided, however, that on 2
occasions during any calendar year of the Term, Landlord shall give Tenant
notice of such late payment and Tenant shall have a period of 5 days thereafter
in which to make such payment before any late charge is assessed. The parties
agree that it would be impracticable and difficult to fix Landlord's actual
damages in such event. Such interest and late charges are separate and
cumulative and are in addition to and shall not diminish or represent a
substitute for any of Landlord's rights or remedies under any other provision of
this Lease.
SECTION 16.7 OTHER RIGHTS OF LANDLORD. If Tenant fails to pay any
Additional Rent when due, Landlord, in addition to any other right or remedy,
shall have the same rights and remedies as in the case of a default by Tenant in
the payment of Fixed Rent. If Tenant is in arrears in the payment of Rent,
Tenant waives Tenant's right, if any, to designate the items against which any
payments made by Tenant are to be credited, and Landlord may apply any payments
made by Tenant to any items Landlord sees fit, regardless of any request by
Tenant. Landlord reserves the right, without liability to Tenant and without
constituting any claim of constructive eviction, to suspend furnishing or
rendering to Tenant any property, material, labor, utility or other service,
whenever Landlord is obligated to furnish or render the same at the expense of
Tenant, in the event that (but only for so long as) Tenant is in arrears in
paying Landlord for such items for more than 5 days after notice from Landlord
to Tenant demanding the payment of such arrears.
ARTICLE 17
LANDLORD'S RIGHT TO CURE; FEES AND EXPENSES
If Tenant defaults in the performance of its obligations under this Lease,
Landlord, without waiving such default, may perform such obligations at Tenant's
expense: (a) immediately, and without notice, in the case of emergency or if the
default (i) materially interferes with the use by any other tenant of the
Building, (ii) materially interferes with the efficient operation of the
Building, (iii) results in a violation of any Requirement, or (iv) results or
will result in a cancellation of any insurance policy maintained by Landlord,
and (b) in any other case if such default continues after 10 days from the date
Landlord gives notice of Landlord's intention to perform the defaulted
obligation. All costs and expenses incurred by Landlord in connection with any
such performance by it and all costs and expenses, including reasonable counsel
fees and disbursements, incurred by Landlord in any action or proceeding
(including any unlawful detainer proceeding) brought by Landlord to enforce any
obligation of Tenant under this Lease and/or right of Landlord in or to the
Premises, shall be paid by Tenant to Landlord within 30 days of demand, with
interest thereon at the Interest Rate from the date incurred by Landlord. Except
as expressly provided to the contrary in this Lease, all costs and expenses
which, pursuant to this Lease are incurred by Landlord and payable to Landlord
by Tenant, and all charges, amounts and sums payable to Landlord by Tenant for
any property, material, labor, utility or other services which, pursuant to this
Lease or at the request and for the account of Tenant, are provided, furnished
or rendered by Landlord, shall become due and payable by Tenant to Landlord in
accordance with the terms of the bills rendered by Landlord to Tenant.
ARTICLE 18
NO REPRESENTATIONS BY LANDLORD; LANDLORD'S APPROVAL
SECTION 18.1 NO REPRESENTATIONS. Except as expressly set forth herein,
Landlord and Landlord's agents have made no warranties, representations,
statements or promises with respect to the Building, the Real Property or the
Premises and no rights, easements or licenses are acquired by Tenant by
implication or otherwise. Tenant is entering into this Lease after full
investigation and is not relying upon any statement or representation made by
Landlord not embodied in this Lease.
31
<PAGE> 35
SECTION 18.2 NO MONEY DAMAGES. Wherever in this Lease Landlord's consent or
approval is required, if Landlord refuses to grant such consent or approval,
whether or not Landlord expressly agreed that such consent or approval would not
be unreasonably withheld, Tenant shall not make, and Tenant hereby waives, any
claim for money damages (including any claim by way of set-off, counterclaim or
defense) based upon Tenant's claim or assertion that Landlord unreasonably
withheld or delayed its consent or approval. Tenant's sole remedy shall be an
action or proceeding to enforce such provision, by specific performance,
injunction or declaratory judgment. In no event shall Landlord be liable for,
and Tenant, on behalf of itself and all other Tenant Parties, hereby waives any
claim for, any indirect, consequential or punitive damages, including loss or
profits or business opportunity, arising under or in connection with this Lease,
even if due to the gross negligence or willful misconduct of Landlord or its
agents or employees.
SECTION 18.3 REASONABLE EFFORTS. For purposes of this Lease, "reasonable
efforts" by Landlord shall not include an obligation to employ contractors or
labor at overtime or other premium pay rates or to incur any other overtime
costs or additional expenses whatsoever.
ARTICLE 19
END OF TERM
SECTION 19.1 EXPIRATION. Upon the expiration or other termination of this
Lease, Tenant shall quit and surrender the Premises to Landlord vacant, broom
clean and in good order and condition, ordinary wear and tear and damage for
which Tenant is not responsible under the terms of this Lease excepted, and
Tenant shall remove all of Tenant's Property and Tenant's Alterations (exclusive
of the Improvements described on Exhibit C) as may be required pursuant to
Article 5.
SECTION 19.2 HOLDOVER RENT. Landlord and Tenant recognize that Landlord's
damages resulting from Tenant's failure to timely surrender possession of the
Premises may be substantial, may exceed the amount of the Rent payable
hereunder, and will be impossible to accurately measure. Accordingly, if
possession of the Premises is not surrendered to Landlord on the Expiration Date
or sooner termination of this Lease, in addition to any other rights or remedies
Landlord may have hereunder or at law, Tenant shall (a) pay to Landlord for each
month (or any portion thereof) during which Tenant holds over in the Premises
after the Expiration Date or sooner termination of this Lease, a sum equal to
150% of the Rent payable under this Lease for the last full calendar month of
the Term, (b) be liable to Landlord for (i) any payment or rent concession which
Landlord may be required to make to any third-party tenant not affiliated with
Landlord which is obtained by Landlord for all or any part of the Premises (a
"NEW TENANT") in order to induce such New Tenant not to terminate its lease by
reason of the holding-over by Tenant, and (ii) the loss of the benefit of the
bargain if any New Tenant shall terminate its lease by reason of the
holding-over by Tenant, and (c) if any such nonconsensual holding over continues
for more than 30 days, indemnify Landlord against all claims for actual damages
(but in no event any consequential damages) by any New Tenant. No holding-over
by Tenant, nor the payment to Landlord of the amounts specified above, shall
operate to extend the Term hereof. Nothing herein contained shall be deemed to
permit Tenant to retain possession of the Premises after the Expiration Date or
sooner termination of this Lease, and no acceptance by Landlord of payments from
Tenant after the Expiration Date or sooner termination of this Lease shall be
deemed to be other than on account of the amount to be paid by Tenant in
accordance with the provisions of this Section 19.2.
ARTICLE 20
QUIET ENJOYMENT
Provided this Lease is in full force and effect and no Event of Default
then exists, Tenant (and any person lawfully claiming through and under Tenant)
may peaceably and quietly enjoy
32
<PAGE> 36
the Premises without hindrance by Landlord or any person lawfully claiming
through or under Landlord, subject to the terms and conditions of this Lease and
to all Superior Leases and Mortgages.
ARTICLE 21
NO SURRENDER; NO WAIVER
SECTION 21.1 NO SURRENDER OR RELEASE. No act or thing done by Landlord or
Landlord's agents or employees during the Term shall be deemed an acceptance of
a surrender of the Premises, and no provision of this Lease shall be deemed to
have been waived by Landlord, unless such waiver is in writing and is signed by
Landlord.
SECTION 21.2 NO WAIVER. The failure of either party to seek redress for
violation of, or to insist upon the strict performance of, any covenant or
condition of this Lease, or any of the Rules and Regulations, shall not be
construed as a waiver or relinquishment for the future performance of such
obligations of this Lease or the Rules and Regulations, or of the right to
exercise such election but the same shall continue and remain in full force and
effect with respect to any subsequent breach, act or omission. The receipt by
Landlord of any Rent payable pursuant to this Lease or any other sums with
knowledge of the breach of any covenant of this Lease shall not be deemed a
waiver of such breach. No payment by Tenant or receipt by Landlord of a lesser
amount than the monthly Rent herein stipulated shall be deemed to be other than
a payment on account of the earliest stipulated Rent, or as Landlord may elect
to apply such payment, nor shall any endorsement or statement on any check or
any letter accompanying any check or payment as Rent be deemed an accord and
satisfaction, and Landlord may accept such check or payment without prejudice to
Landlord's right to recover the balance of such Rent or pursue any other remedy
provided in this Lease.
ARTICLE 22
WAIVER OF TRIAL BY JURY, COUNTERCLAIM
SECTION 22.1 JURY TRIAL WAIVER. THE PARTIES HEREBY AGREE THAT THIS LEASE
CONSTITUTES A WRITTEN CONSENT TO WAIVER OF TRIAL BY JURY PURSUANT TO THE
PROVISIONS OF CALIFORNIA CODE OF CIVIL PROCEDURE SECTION 631 AND EACH PARTY DOES
HEREBY CONSTITUTE AND APPOINT THE OTHER PARTY ITS TRUE AND LAWFUL
ATTORNEY-IN-FACT, WHICH APPOINTMENT IS COUPLED WITH AN INTEREST, AND EACH PARTY
DOES HEREBY AUTHORIZE AND EMPOWER THE OTHER PARTY, IN THE NAME, PLACE AND STEAD
OF SUCH PARTY, TO FILE THIS LEASE WITH THE CLERK OR JUDGE OF ANY COURT OF
COMPETENT JURISDICTION AS A STATUTORY WRITTEN CONSENT TO WAIVER OF TRIAL BY
JURY.
LANDLORD'S INITIALS: _____ TENANT'S INITIALS: _____
SECTION 22.2 WAIVER OF COUNTERCLAIM. If Landlord commences any summary
proceeding against Tenant, Tenant will not interpose any counterclaim of any
nature or description in any such proceeding (unless failure to impose such
counterclaim would preclude Tenant from asserting in a separate action the claim
which is the subject of such counterclaim), and will not seek to consolidate
such proceeding with any other action which may have been or will be brought in
any other court by Tenant.
ARTICLE 23
NOTICES
Except as otherwise expressly provided in this Lease, all consents,
notices, demands, requests, approvals or other communications given under this
Lease shall be in writing and shall be
33
<PAGE> 37
deemed sufficiently given or rendered if delivered by hand (provided a signed
receipt is obtained) or if sent by registered or certified mail (return receipt
requested) or by a nationally recognized overnight delivery service making
receipted deliveries, addressed to Landlord and Tenant as set forth in Article
1, and to any Mortgagee or Lessee who shall require copies of notices and whose
address is provided to Tenant, or to such other address(es) as Landlord, Tenant
or any Mortgagee or Lessor may designate as its new address(es) for such purpose
by notice given to the other in accordance with the provisions of this Article
23. Any such approval, consent, notice, demand, request or other communication
shall be deemed to have been given on the date of receipted delivery, refusal to
accept delivery or when delivery is first attempted but cannot be made due to a
change of address for which no notice is given or 3 Business Days after it shall
have been mailed as provided in this Article 23, whichever is earlier.
ARTICLE 24
RULES AND REGULATIONS
All Tenant Parties shall observe and comply with the Rules and Regulations,
as supplemented or amended from time to time. Landlord reserves the right, from
time to time, to adopt additional Rules and Regulations and to amend the Rules
and Regulations then in effect. Nothing contained in this Lease shall impose
upon Landlord any obligation to enforce the Rules and Regulations or terms,
covenants or conditions in any other lease against any other Building tenant,
and Landlord shall not be liable to Tenant for violation of the same by any
other tenant, its employees, agents, visitors or licensees, provided that
Landlord shall enforce the Rules or Regulations against Tenant in a
non-discriminatory fashion.
ARTICLE 25
BROKER
Landlord has retained Landlord's Agent as leasing agent in connection with
this Lease and Landlord will be solely responsible for any fee that may be
payable to Landlord's Agent. Landlord agrees to pay a commission to Cushman
Realty Corporation pursuant to a separate agreement. Each of Landlord and Tenant
represents and warrants to the other that it has not dealt with any broker in
connection with this Lease other than Landlord's Agent and Tenant's Broker and
that no other broker, finder or like entity procured or negotiated this Lease or
is entitled to any fee or commission in connection herewith. Each of Landlord
and Tenant shall indemnify, defend, protect and hold the other party harmless
from and against any and all Losses which the indemnified party may incur by
reason of any claim of or liability to any broker, finder or like agent (other
than Landlord's Agent and Tenant's Broker) arising out of any dealings claimed
to have occurred between the indemnifying party and the claimant in connection
with this Lease, and/or the above representation being false.
ARTICLE 26
INDEMNITY
SECTION 26.1 TENANT'S INDEMNITY. Tenant shall not do or permit to be done
any act or thing upon the Premises or the Building which may subject Landlord to
any liability or responsibility for injury, damages to persons or property or to
any liability by reason of any violation of any Requirement (the responsibility
for which Requirement is Tenant's under this Lease), and shall exercise such
control over the Premises as to fully protect Landlord against any such
liability. Tenant shall indemnify, defend, protect and hold harmless each of the
Indemnitees from and against any and all Losses, resulting from any claims (i)
against the Indemnitees arising from any act, omission or negligence of all
Tenant Parties, (ii) against the Indemnitees, to the extent arising from any
accident,
34
<PAGE> 38
injury or damage whatsoever caused to any person or to the property of any
person and occurring in or about the Premises, except to the extent caused by
the gross negligence or willful misconduct of the Indemnitees, and (iii) against
the Indemnitees resulting from any breach, violation or nonperformance of any
covenant, condition or agreement of this Lease on the part of Tenant to be
fulfilled, kept, observed or performed.
SECTION 26.2 LANDLORD'S INDEMNITY. Landlord shall indemnify, defend and
hold harmless Tenant from and against all Losses incurred by Tenant arising from
any accident, injury or damage whatsoever caused to any person or the property
of any person in or about the Common Areas and, with respect to claims for
personal injury, the Premises, to the extent attributable to the gross
negligence or willful misconduct of Landlord or its employees or agents.
SECTION 26.3 DEFENSE AND SETTLEMENT. If any claim, action or proceeding is
made or brought against any Indemnitee, then upon demand by an Indemnitee,
Tenant, at its sole cost and expense, shall resist or defend such claim, action
or proceeding in the Indemnitee's name (if necessary), by attorneys approved by
the Indemnitee, which approval shall not be unreasonably withheld (attorneys for
Tenant's insurer shall be deemed approved for purposes of this Section 26.3).
Notwithstanding the foregoing, an Indemnitee may retain its own attorneys to
participate or assist in defending any claim, action or proceeding involving
potential liability in excess of the amount available under Tenant's liability
insurance carried under Section 11.1 for such claim and Tenant shall pay the
reasonable fees and disbursements of such attorneys. If Tenant fails to
diligently defend or if there is a conflict, then Landlord may retain separate
counsel at Tenant's expense. Notwithstanding anything herein contained to the
contrary, Tenant may direct the Indemnitee to settle any claim, suit or other
proceeding provided that (a) such settlement shall involve no obligation on the
part of the Indemnitee other than the payment of money, (b) any payments to be
made pursuant to such settlement shall be paid in full exclusively by Tenant at
the time such settlement is reached, (c) such settlement shall not require the
Indemnitee to admit any liability, and (d) the Indemnitee shall have received an
unconditional release from the other parties to such claim, suit or other
proceeding.
ARTICLE 27
MISCELLANEOUS
SECTION 27.1 DELIVERY. This Lease shall not be binding upon Landlord or
Tenant unless and until both Landlord and Tenant shall have executed and
delivered a fully executed copy of this Lease to each other.
SECTION 27.2 TRANSFER OF REAL PROPERTY. Landlord's obligations under this Lease
shall not be binding upon the Landlord named herein after the sale, conveyance,
assignment or transfer (collectively, a "TRANSFER") by such Landlord (or upon
any subsequent landlord after the Transfer by such subsequent landlord) of its
interest in the Building or the Real Property, as the case may be, and in the
event of any such Transfer, Landlord (and any such subsequent Landlord) shall be
entirely freed and relieved of all covenants and obligations of Landlord
hereunder arising from and after the date of Transfer, and the transferee of
Landlord's interest (or that of such subsequent Landlord) in the Building or the
Real Property, as the case may be, shall be deemed to have assumed all
obligations under this Lease arising from and after the date of Transfer.
SECTION 27.3 LIMITATION ON LIABILITY. The liability of Landlord for
Landlord's obligations under this Lease shall be limited to Landlord's interest
in the Real Property and Tenant shall not look to any other property or assets
of Landlord or the property or assets of any direct or indirect partner, member,
manager, shareholder, director, officer, principal, employee or agent of
Landlord (collectively, the "PARTIES") in seeking either to enforce Landlord's
obligations under this Lease or to satisfy a judgment for Landlord's failure to
perform such obligations; and none of the Parties shall be personally liable for
the performance of Landlord's obligations under this Lease.
35
<PAGE> 39
SECTION 27.4 RENT. All amounts payable by Tenant to or on behalf of
Landlord under this Lease, whether or not expressly denominated Fixed Rent,
Tenant's Tax Payment, Tenant's Operating Payment, Additional Rent or Rent, shall
constitute rent for the purposes of Section 502(b)(6) of the United States
Bankruptcy Code.
SECTION 27.5 ENTIRE DOCUMENT. This Lease (including any Schedules and
Exhibits referred to herein and all supplementary agreements provided for
herein) contains the entire agreement between the parties and all prior
negotiations and agreements are merged into this Lease. All of the Schedules and
Exhibits attached hereto are incorporated in and made a part of this Lease,
provided that in the event of any inconsistency between the terms and provisions
of this Lease and the terms and provisions of the Schedules and Exhibits hereto,
the terms and provisions of this Lease shall control.
SECTION 27.6 GOVERNING LAW. This Lease shall be governed in all respects by
the laws of the State of California.
SECTION 27.7 UNENFORCEABILITY. If any provision of this Lease, or its
appLication to any Person or circumstance, shall ever be held to be invalid or
unenforceable, then in each such event the remainder of this Lease or the
application of such provision to any other Person or any other circumstance
(other than those as to which it shall be invalid or unenforceable) shall not be
thereby affected, and each provision hereof shall remain valid and enforceable
to the fullest extent permitted by law.
SECTION 27.8 LEASE DISPUTES. (a) Tenant agrees that all disputes arising,
directly or indirectly, out of or relating to this Lease, and all actions to
enforce this Lease, shall be dealt with and adjudicated in the state courts of
the State of California or the United States District Court for the Northern
District of California and for that purpose hereby expressly and irrevocably
submits itself to the jurisdiction of such courts. Tenant agrees that so far as
is permitted under applicable law, this consent to personal jurisdiction shall
be self-operative and no further instrument or action, other than service of
process in one of the manners specified in this Lease, or as otherwise permitted
by law, shall be necessary in order to confer jurisdiction upon it in any such
court.
(b) To the extent that Tenant has or hereafter may acquire any
immunity from jurisdiction of any court or from any legal process (whether
through service or notice, attachment prior to judgment, attachment in aid of
execution, execution or otherwise) with respect to itself or its property,
Tenant irrevocably waives such immunity in respect of its obligations under this
Lease.
SECTION 27.9 LANDLORD'S AGENT. Unless Landlord delivers written notice to
Tenant to the contrary, Landlord's Agent is authorized to act as Landlord's
agent in connection with the performance of this Lease, and Tenant shall direct
all correspondence and requests to, and shall be entitled to rely upon
correspondence received from Landlord's Agent. Tenant acknowledges that
Landlord's Agent is acting solely as agent for Landlord in connection with the
foregoing; and neither Landlord's Agent nor any of its direct or indirect
partners, members, managers, officers, shareholders, directors, employees,
principals, agents or representatives shall have any liability to Tenant in
connection with the performance of this Lease, and Tenant waives any and all
claims against any and all of such parties arising out of, or in any way
connected with, this Lease, the Building or the Real Property.
SECTION 27.10 ESTOPPEL. (A) Within 7 Business Days following request from
Landlord, any Mortgagee or any Lessor, Tenant shall deliver to Landlord a
statement executed and acknowledged by Tenant, in form reasonably satisfactory
to Landlord, (a) stating the Commencement Date, the Rent Commencement Date and
the Expiration Date, and that this Lease is then in full force and effect and
has not been modified (or if modified, setting forth all modifications), (b)
setting forth the date to which the Fixed Rent and any Additional Rent have been
paid, together with the amount of monthly Fixed Rent and Additional, Rent then
payable, (c) stating whether or not, to the best of Tenant's knowledge, Landlord
is in default under this Lease, and, if Landlord is in default, setting forth
the specific nature of all such defaults, (d) stating the amount of the Security
Deposit, if any, under this Lease, (e) stating whether there are any subleases
or assignments affecting the Premises, (f) stating the address of
36
<PAGE> 40
Tenant to which all notices and communications under the Lease shall be sent,
and (g) responding to any other matters reasonably requested by Landlord, such
Mortgagee or such Lessor. Tenant acknowledges that any statement delivered
pursuant to this Section 27.10 may be relied upon by any purchaser or owner of
the Real Property or the Building, or all or any portion of Landlord's interest
in the Real Property or the Building or any Superior Lease, or by any Mortgagee,
or assignee thereof or by any Lessor, or assignee thereof.
(b) Landlord shall, within 7 Business Days after Tenant's
request, execute and deliver to Tenant an estoppel certificate in favor of
Tenant and such other persons as Tenant shall request, setting forth the
following: (a) a ratification of this Lease; (b) the Commencement Date and
Expiration Date; (c) that this Lease is in full force and effect and has not
been assigned, modified, supplemented or amended (except by such writing as
shall be stated); (d) that all conditions under this Lease to be performed by
Tenant have, to Landlord's knowledge, been satisfied, or, in the alternative,
those claimed by Landlord to be unsatisfied; (e) that, to Landlord's knowledge,
no defenses or offsets exist against the enforcement of this Lease by Landlord,
or in the alternative, those claimed by Landlord; (f) that the amount of advance
rent, if any (or none if such is the case), has been paid by Tenant; (g) the
date to which Fixed Rent has been paid; (h) the amount of the Security Deposit
(if any); and (i) such other information as Tenant may reasonably request.
SECTION 27.11 CERTAIN INTERPRETATIONAL RULES. For purposes of this Lease,
whenever the words "include", "includes", or "including" are used, they shall be
deemed to be followed by the words "without limitation" and, whenever the
circumstances or the context requires, the singular shall be construed as the
plural, the masculine shall be construed as the feminine and/or the neuter and
vice versa. This Lease shall be interpreted and enforced without the aid of any
canon, custom or rule of law requiring or suggesting construction against the
party drafting or causing the drafting of the provision in question. The
captions in this Lease are inserted only as a matter of convenience and for
reference and in no way define, limit or describe the scope of this Lease or the
intent of any provision hereof.
SECTION 27.12 PARTIES BOUND. The terms, covenants, conditions and
agreements contained in this Lease shall bind and inure to the benefit of
Landlord and Tenant and, except as otherwise provided in this Lease, to their
respective legal representatives, successors, and assigns.
SECTION 27.13 MEMORANDUM OF LEASE. This Lease shall not be recorded;
however, at Landlord's request, Landlord and Tenant shall promptly execute,
acknowledge and deliver a memorandum with respect to this Lease sufficient for
recording and Landlord may record the Memorandum.
SECTION 27.14 COUNTERPARTS. This Lease may be executed in 2 or more
counterparts, each of which shall constitute an original, but all of which, when
taken together, shall constitute but one instrument.
SECTION 27.15 SURVIVAL. All obligations and liabilities of Landlord or
Tenant to the other which accrued before the expiration or other termination of
this Lease, and all such obligations and liabilities which by their nature or
under the circumstances can only be, or by the provisions of this Lease may be,
performed after such expiration or other termination, shall survive the
expiration or other termination of this Lease. Within 90 days following the
Expiration Date or earlier termination of this Lease and the vacation of the
Premises by Tenant, Landlord shall advise Tenant of the existence of any claims
by Landlord that Tenant's surrender of the Premises was not in accordance with
Section 19.1. Without limiting the generality of the foregoing, the rights and
obligations of the parties with respect to any indemnity under this Lease, and
with respect to any Rent and any other amounts payable under this Lease, shall
survive the expiration or other termination of this Lease, provided that
Tenant's obligation for any Rent shall end on the 3rd anniversary of the
Expiration Date or earlier termination of this Lease (unless such claims are
then the subject of any lawsuit or other proceeding filed by Landlord prior to
the expiration of such 3-year period). If Landlord reasonably determines that a
claim against Tenant exists, Landlord shall promptly advise Tenant of the same.
37
<PAGE> 41
SECTION 27.16 CODE WAIVERS. Tenant hereby waives any and all rights under
and benefits of Subsection 1 of Section 1931, 1932, Subdivision 2, 1933,
Subdivision 4, 1941 and 1942 of the California Civil Code, Section 1265.130 of
the California Code of Civil Procedure (allowing either party to petition a
court to terminate a lease in the event of a partial taking), and Section
1174(c) of the California Code of Civil Procedure and Section 1951.7 of the
California Civil Code (providing for Tenant's right to satisfy a judgment in
order to prevent a forfeiture of this Lease or requiring Landlord to deliver
written notice to Tenant of any reletting of the Premises), and any similar law,
statute or ordinance now or hereinafter in effect.
SECTION 27.17 ROOFTOP COMMUNICATIONS EQUIPMENT. During the Term of this
Lease, Tenant shall have the right, upon payment of a fee in the amount of
$500.00 per month (the "Roof Fee") to install and operate one microwave
transmitter-receivers, satellite dish or antenna (the "SATELLITE DISH") of a
weight, height and width reasonably acceptable to Landlord and as reasonably
necessary for Tenant's use of the Premises and conduct of its business therein.
The Roof Fee shall be payable to Landlord concurrently with Tenant's payment of
Fixed Rent commencing as of the month Tenant first installs such Satellite Dish.
Tenant's rights pursuant to this Section 27.17 may not be assigned independent
of this Lease or sublet other than to a subtenant in occupancy of, and
conducting business operations within, at least one floor of the Premises and
are subject to the following:
(a) The precise location of the Satellite Dish shall be as
approved by Landlord in its reasonable discretion within ten (10) days following
receipt of Tenant's request to install such Satellite Dish on the roof of the
Building.
(b) Tenant shall pay any federal, state and local taxes
applicable to the installation and use of the Satellite Dish and Tenant shall
procure, maintain and pay for and obtain all fees, permits and governmental
agency licenses necessary in connection with the installation, maintenance and
operation of such Satellite Dish; provided, however, that Landlord shall
reasonably cooperate with the efforts of Tenant in connection with any
governmental application or filing required thereby.
(c) Tenant shall be permitted, at its expense, but without
separate charge other than any charges permitted to be imposed by Landlord under
Article 5 hereof, to install, modify, alter, repair, maintain, operate and
replace in one existing chaseway of the Building in an area in the core of the
Building one non-dedicated one-inch conduit for its cabling use (and the use of
the cables contained therein connecting to the Building's roof for operation of
Tenant's Satellite Dish). All installations required in connection with the
Satellite Dish shall be made by means of conduits, wires or cables that will
pass through existing openings in the walls or roof decks of the Building, and
all cables and wires located on the roof of the Building used in connection with
the Satellite Dish shall be covered by rust-proof conduits and attachments. In
no event shall any of Tenant's installations be made through the roof surface or
membrane of the Building without the prior written consent of Landlord, which
consent may be withheld in Landlord's sole and absolute discretion, exercised in
good faith. The installation of the Satellite Dish shall be subject to
Landlord's review and approval and shall conform to the engineering standards
commonly used for installing similar microwave and satellite dishes on
comparable buildings.
(d) Tenant, at its sole cost and expense, shall comply with all
present and future laws and with any reasonable requirements of any applicable
fire rating bureau relating to the maintenance, use, installation and operation
of the Satellite Dish. Tenant shall install, maintain and operate all of its
equipment used in connection with the Satellite Dish in conformity with all laws
and all regulations of all government agencies having jurisdiction over the
installation, use and operation of such Satellite Dish, including, without
limitation, the Federal Aviation Administration and the Federal Communications
Commission; provided, however, that if compliance with such laws or regulations
would require a change in the size, configuration or location of the Satellite
Dish, such changes shall be subject to Landlord's prior written consent in
accordance with subsection (a) above.
(e) Within 5 Business Days after the expiration or earlier
termination of the Term of this Lease, Tenant shall remove the Satellite Dish
and all wires and cables used in connection with
38
<PAGE> 42
such Satellite Dish, and shall restore and repair all damage to the Building
occasioned by the installation, maintenance or removal of such Satellite Dish.
If Tenant fails to timely complete such removal, restoration and repair, all
sums incurred by Landlord to complete such work shall be paid by Tenant to
Landlord within 10 Days of demand.
(f) Landlord makes no representations or warranties whatsoever
with respect to the fitness or suitability of the Building for the installation,
maintenance and operation of the Satellite Dish, including, without limitation,
with respect to the quality and clarity of any receptions and transmissions to
or from the Satellite Dish and the presence of any interference with such
signals, whether emanating from the Building or otherwise.
(g) Tenant must contact the manager of the Building prior to
the date Tenant proposes to install the Satellite Dish on the roof of the
Building in order to make arrangements for the movement of any materials needed
in connection with the installation of such Satellite Dish.
(h) Tenant shall provide adequate maintenance personnel in
order to ensure the safe operation of the Satellite Dish. In addition, Tenant
shall install, maintain and operate all of its equipment used in connection with
the Satellite Dish in a fashion and manner so as not to interfere with the use
and operation of any: (i) other television or radio equipment in the Building;
(ii) present or future electronic control system for any of the Building Systems
or the operation of the elevators in the Building; (iii) other transmitting,
receiving or master television, telecommunications or microwave antenna
equipment currently located on the roof of the Building; or (iv) any radio
communication system now used by Landlord. In addition, Tenant shall use its
commercially reasonable efforts to ensure that Tenant will not interfere with
any equipment installed by Landlord in the future. Landlord shall use its
commercially reasonable efforts to ensure that Tenant's equipment will not be
unreasonably interfered with.
SECTION 27.18 INABILITY TO PERFORM. This Lease (and the obligation of the
parties hereunder (including the obligation of Tenant to pay Rent and to perform
all of the other covenants and agreements of Tenant hereunder) shall not be
affected, impaired or excused by any Unavoidable Delays, except as otherwise
expressly set forth herein. Each party shall use reasonable efforts to promptly
notify the other of any Unavoidable Delay which prevents such party from
fulfilling any of its obligations under this Lease. Notwithstanding the
foregoing, no Unavoidable Delay shall excuse the timely performance of any
obligation under this Lease which is to be performed or discharged by the
payment of money.
ARTICLE 28
SECURITY DEPOSIT
SECTION 28.1 SECURITY DEPOSIT. Tenant shall deposit the Security Deposit
with Landlord upon the execution of this Lease in cash as security for the
faithful performance and observance by Tenant of the terms, covenants and
conditions of this Lease.
SECTION 28.2 LETTER OF CREDIT. In lieu of a cash Security Deposit, Tenant
may deliver the Security Deposit to Landlord in the form of a clean,
irrevocable, non-documentary and unconditional letter of credit (the "LETTER OF
CREDIT") issued by and drawable upon any commercial bank which is a member of
the New York Clearing House Association or other bank satisfactory to Landlord,
trust company, national banking association or savings and loan association (the
"ISSUING BANK"), which has outstanding unsecured, uninsured and unguaranteed
indebtedness, or shall have issued a letter of credit or other credit facility
that constitutes the primary security for any outstanding indebtedness (which is
otherwise uninsured and unguaranteed), that is then rated, without regard to
qualification of such rating by symbols such as "+" or "-" or numerical
notation, "Aa" or better by Moody's Investors Service and "AA" or better by
Standard & Poor's Rating Service, and has combined capital, surplus and
undivided profits of not less than $500,000,000.00. Landlord hereby approves
Bank Boston or Fleet Bank as the issuer of the Letters of Credit and the form of
Letter of Credit attached hereto as
39
<PAGE> 43
Exhibit G. Such Letter of Credit shall (a) name Landlord as beneficiary, (b) be
in the amount of the Security Deposit, (c) have a term of not less than one
year, (d) permit multiple drawings, (e) be fully transferable by Landlord
without the payment of any fees or charges by Landlord, and (f) otherwise be in
form and content reasonably satisfactory to Landlord. If upon any transfer of
the Letter of Credit, any fees or charges shall be so imposed, then such fees or
charges shall be payable solely by Tenant. The Letter of Credit shall provide
that it shall be deemed automatically renewed, without amendment, for
consecutive periods of one year each thereafter during the Term (and in no event
shall the Letter of Credit expire prior to the 30th day following the Expiration
Date) unless the Issuing Bank sends a notice (the "NON-RENEWAL NOTICE") to
Landlord by certified mail, return receipt requested, not less than 30 days next
preceding the then expiration date of the Letter of Credit stating that the
Issuing Bank has elected not to renew the Letter of Credit. Landlord shall have
the right, upon receipt of the Non-Renewal Notice, to draw the full amount of
the Letter of Credit, by sight draft on the Issuing Bank, and shall thereafter
hold or apply the cash proceeds of the Letter of Credit pursuant to the terms of
this Article 28, until Tenant delivers to Landlord a substitute Letter of Credit
which meets the requirements of this Section 28.2. The Issuing Bank shall agree
with all drawers, endorsers and bona fide holders that drafts drawn under and in
compliance with the terms of the Letter of Credit will be duly honored upon
presentation to the Issuing Bank (in person, by courier or otherwise provided in
the attached approved form of Letter of Credit) at an office location in San
Francisco, California, Boston, Massachusetts or the location of BankBoston's or
Fleet Bank's letter of credit department. The Letter of Credit shall be subject
in all respects to the Uniform Customs and Practice for Documentary Credits
(1993 revision), International Chamber of Commerce Publication No. 500.
SECTION 28.3 APPLICATION OF SECURITY. If (a) an Event of Default by Tenant
occurs in the payment or performance of any of the terms, covenants or
conditions of this Lease, including the payment of Rent, Landlord may apply or
retain the whole or any part of the cash Security Deposit necessary for the
curing of the Event of Default or may notify the Issuing Bank and thereupon
receive all or a portion of the Security Deposit represented by the Letter of
Credit and use, apply, or retain the whole or any part of such proceeds, as the
case may be, to the extent required for the payment of any Fixed Rent or any
other sum as to which Tenant is in default including (i) any sum which Landlord
may reasonably expend or may be required to expend by reason of Tenant's
default, and/or (i) any damages to which Landlord is entitled pursuant to this
Lease, whether such damages accrue before or after summary proceedings or other
reentry by Landlord. If Landlord applies or retains any part of the Security
Deposit, Tenant, within 10 Days of demand, shall deposit with Landlord the
amount so applied or retained so that Landlord shall have the full Security
Deposit on hand at all times during the Term. If Tenant shall fully and
faithfully comply with all of the terms, covenants and conditions of this Lease,
the Security Deposit shall be returned to Tenant within 30 days after the
Expiration Date and after delivery of possession of the Premises to Landlord in
the manner required by this Lease.
SECTION 28.4 TRANSFER. Upon a sale or other transfer of the Real Property
or the Building, or any financing of Landlord's interest therein, Landlord shall
have the right to transfer the Security Deposit to its transferee or lender.
With respect to the Letter of Credit, within 10 days after notice of such
transfer or financing, Tenant, at its sole cost, shall arrange for the transfer
of the Letter of Credit to the new landlord or the lender, as designated by
Landlord in the foregoing notice or have the Letter of Credit reissued in the
name of the new landlord or the lender. Upon such Transfer Tenant shall look
solely to the new landlord or lender for the return of such cash Security
Deposit or Letter of Credit and the provisions hereof shall apply to every
transfer or assignment made of the Security Deposit to a new landlord. Tenant
shall not assign or encumber or attempt to assign or encumber the cash Security
Deposit or Letter of Credit and neither Landlord nor its successors or assigns
shall be bound by any such action or attempted assignment, or encumbrance.
SECTION 28.5 REDUCTION. If no Event of Default then exists, then, provided
that Tenant complies with the provisions of this Section 28.5, then (i) on the
second (2nd) anniversary of the Rent Commencement Date (Block One), the Security
Deposit shall be reduced to $1,256,256.00, (ii) provided the Security Deposit
shall have previously been reduced pursuant to the preceding clause (i)
40
<PAGE> 44
on the third (3rd) anniversary of the Rent Commencement Date (Block One) the
Security Deposit shall be reduced to $837,504.00; and (iii) provided the
Security Deposit shall have previously been reduced pursuant to the preceding
clauses (i) and (ii), on the 4th anniversary of the Rent Commencement Date
(Block One) the Security Deposit shall be reduced to $418,752.00. The Security
Deposit shall be reduced as follows: (A) if the Security Deposit is in the form
of cash, Landlord shall, within 10 Business Days following notice by Tenant to
Landlord that Tenant is entitled to reduce the Security Deposit pursuant to this
Section 28.5, deliver to Tenant the amount by which the Security Deposit is
reduced, or (B) if the Security Deposit is in the form of a Letter of Credit,
Tenant shall deliver to Landlord an amendment to the Letter of Credit (which
amendment must be reasonably accepted to Landlord in all respects), reducing the
amount of the Letter of Credit by the amount of the permitted reduction, and
Landlord shall execute the amendment and such other documents as are reasonably
necessary to reduce the amount of the Letter of Credit in accordance with the
terms hereof. If Tenant delivers to Landlord an amendment to the Letter of
Credit in accordance with the terms hereof, Landlord shall, within 10 Business
Days after delivery of such amendment, either (1) provide its reasonable
objections to such amendment or (2) execute such amendment of the Letter of
Credit in accordance with the terms hereof.
ARTICLE 29
PARKING
Located in the lower level of 555 Market is the parking garage serving the
Project (the "Garage"). Except as otherwise provided below, the Garage is open
24 hours a day, 7 days a week to tenants and their Building employees holding
valid Building/Garage passes. Subject to such access control systems as Landlord
may from time to time reasonably establish (which system may ultimately be based
upon a card key system integrated with the Building's access control system),
the Garage allows monthly parking with unlimited 24 hours access. During the
Term of this Lease and subject to Unavoidable Delays and other causes beyond
Landlord's reasonable control, including any limitations on the grant of monthly
parking rights imposed by the City and County of San Francisco, Landlord shall
make available or cause to be available to Tenant through-out the Term during
the hours of operation set forth above, 3 parking privileges which shall be on a
must-take must-pay basis; provided, however, that Tenant, upon not less than 30
days notice to Landlord, may reduce the number of parking privileges provided
that once so reduced by Tenant, Tenant shall have no right to later increase
such number of privileges. For each parking privilege made available to Tenant,
Tenant shall pay monthly in advance to the operator of the parking garage, on or
before the 25th day of the preceding calendar month, a parking charge in an
amount which is currently equal to $375.00 per month per car and is subject to
periodic change in accordance with Landlord's publicly announced monthly parking
charge.
Tenant shall at all times comply with (and the provisions hereof shall be
expressly subject to) all applicable Requirements regarding the use of the
Garage. Landlord reserves the right to adopt, modify and enforce reasonable
rules (the "Garage Rules") governing the use of the Garage from time to time,
including any key card, sticker or other identification or entrance system.
Landlord may refuse to permit any person who violates any such Garage Rules to
park in the Garage, and any violation of the Rules shall subject the car to
removal, at such person's expense from the Garage. The use of all parking
privileges shall be solely for use by Tenant's employees (or the employees of a
permitted subtenant) working in the Building.
The parking privileges hereunder may be provided on an unreserved valet
parking basis. Tenant acknowledges that Landlord has arranged for the Garage to
be operated by an independent contractor. Accordingly, Tenant acknowledges that
Landlord shall have no liability for claims arising through acts or omissions of
such independent contractor except to the extent due to Landlord's negligence or
willful misconduct. Except when caused by the gross negligence, willful
misconduct or criminal acts of Landlord or Landlord's Agent or their respective
employees, agents or
41
<PAGE> 45
contractors, Landlord shall have no liability whatsoever for any damage to
property or any other items located in the Garage, nor for any personal injuries
or death arising out of any matter relating to the Garage, and in all events,
Tenant agrees to look first to its insurance carrier for payment of any losses
sustained in connection with any use of the Garage and secondly to the operator
of the Garage. Landlord reserves the right to assign specific spaces, and to
reserve spaces for visitors, small cars, handicapped persons and for other
tenants, guests of tenants or other parties, and Tenant shall not park in any
such assigned or reserved spaces. If Landlord utilizes a card-key access system,
Landlord's charge for any replacement cards shall be reasonable. Landlord also
reserves the right to close all or any portion of the Garage in order to make
repairs or perform maintenance services, or to alter, modify, re-stripe or
renovate the Garage, or if required by casualty, condemnation, or Unavoidable
Delay. In such event, Landlord shall refund any prepaid parking rent hereunder,
prorated on a per diem basis and shall use its reasonable efforts to complete
such maintenance or repair as soon as reasonably possible.
Tenant agrees to acquaint all persons to whom Tenant assigns parking
privilege of any Garage Rules promulgated by Landlord with respect to the Garage
and the parking privileges granted to Tenant herein.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the
day and year first above written.
LANDLORD: TENANT:
TST 555/575 market, l.l.c., ENGAGE TECHNOLOGIES,INC.,
a Delaware limited liability company a Delaware corporation
By: /s/ Andrew Nathan By: /s/ Stephen Royal
Its: Vice President Its: CFO
By: /s/ Michael Baker
Its: V.P. and General Counsel
42
<PAGE> 46
EXHIBIT A
FLOOR PLAN
The floor plan which follows is intended solely to identify the location of the
Premises, and should not be used for any other purpose. All areas and
dimensions are approximate, and any physical conditions indicated may not exist
as shown.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-2000
<PERIOD-START> AUG-01-1999
<PERIOD-END> JAN-31-2000
<EXCHANGE-RATE> 1
<CASH> 44,010
<SECURITIES> 44,678
<RECEIVABLES> 14,482
<ALLOWANCES> 1,621
<INVENTORY> 0
<CURRENT-ASSETS> 103,527
<PP&E> 9,446
<DEPRECIATION> 2,278
<TOTAL-ASSETS> 309,546
<CURRENT-LIABILITIES> 32,978
<BONDS> 0
0
0
<COMMON> 1,082
<OTHER-SE> 269,396
<TOTAL-LIABILITY-AND-EQUITY> 309,546
<SALES> 18,367
<TOTAL-REVENUES> 21,071
<CGS> 10,622
<TOTAL-COSTS> 13,533
<OTHER-EXPENSES> 47,312
<LOSS-PROVISION> (39,774)
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (37,901)
<INCOME-TAX> 0
<INCOME-CONTINUING> (37,901)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (37,901)
<EPS-BASIC> (0.38)
<EPS-DILUTED> (0.38)
</TABLE>
