<PAGE>
As filed with the Securities and Exchange Commission on July 22, 1999
Registration Statement No. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
NaviSite, Inc.
(Exact name of registrant as specified in its charter)
---------------------
<TABLE>
<S> <C>
Delaware 7379 52-2137343
(State or other (Primary Standard (I.R.S. Employer
jurisdiction Industrial Identification No.)
of incorporation or Classification Code
organization) Number)
</TABLE>
NaviSite, Inc.
100 Brickstone Square
Andover, Massachusetts 01810
(978) 552-3300
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
---------------------
Joel B. Rosen
Chief Executive Officer
NaviSite, Inc.
100 Brickstone Square
Andover, Massachusetts 01810
(978) 552-3300
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
---------------------
Copies to:
<TABLE>
<S> <C>
Peter B. Tarr, Esq.
David T. Brewster, Esq. Joseph E. Mullaney III, Esq.
Skadden, Arps, Slate, Meagher & Flom Hale and Dorr LLP
LLP 60 State Street
One Beacon Street Boston, Massachusetts 02109
Boston, Massachusetts 02108 (617) 526-6000
(617) 573-4800
</TABLE>
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
<CAPTION>
Proposed Maximum
Title of Each Class of Aggregate Offering Amount of Registration
Securities to be Registered Price(1)(2) Fee(2)
- -------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, par value $0.01 per share... $70,000,000 $19,460
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
</TABLE>
(1) Includes shares of common stock which the underwriters have the option to
purchase from NaviSite solely to cover over-allotments, if any.
(2) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(o) under the Securities Act of 1933,
as amended. The registration fee was paid on June 11, 1999.
---------------------
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
The inside front cover page contains the following:
[Centered on the lower third of the page, a picture of the control room in
a NaviSite data center. Directly above it, covering the top two-thirds of the
page, is the NaviSite logo with the following text super-imposed on top of it:]
NaviSite, Inc., an Internet application service provider, offers Web site
and Internet application hosting and management services. Our enhanced,
integrated service offerings, high level of customer service and state-of-the-
art infrastructure allow us to offer service levels backed by guarantees that
we believe are among the highest and most comprehensive in the industry. With
our services, customers can focus on their core competencies, assured that
their Web sites and Internet applications are being managed 24 hours-a-day,
seven-days-a-week.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ INTEGRATED APPLICATION SERVICES +
+ TO MATCH CUSTOMERS' PROCESS LIFE CYCLE +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
The inside front cover page also contains the following:
[Customer logos]
rent
- --------------------
We rent Internet We help companies
applications to cost-effectively
make it easier for run their Internet
customers to gain applications with
cost-effective greater speed,
access to key security,
online efficiency. . .
capabilities.
. . . and less
deploy worry.
- --------------------
We are able to
rapidly deploy
Internet
applications,
saving customers
critical time by
avoiding lengthy
staffing,
configuration and
deployment cycles.
advise
- --------------------
We provide expert
advice and
planning support
for determining
the optimal
hardware and
software
configurations to
meet a customer's
performance goals.
host
- --------------------
With a world-class
infrastructure,
private transit
Internet
connections and
state-of-the-art
facilities, we are
able to offer
service levels
backed by
guarantees that we
believe are among
the highest and
most comprehensive
in the industry.
manage
- --------------------
We manage not only
Web site and
application
servers, but also,
in many cases, the
Internet
applications
themselves.
Services include
custom reporting,
load balancing,
mirroring, system
security, advanced
back-up options,
remote management
and problem
resolution.
support
- --------------------
Our network
operations centers
are fully staffed
24-hours-a-day,
seven-days-a-week,
and are designed
for rapid response
to ensure that our
customers' Web
sites and Internet
applications
operate reliably.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell securities, and we are not soliciting offers to buy these +
+securities, in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JULY 22, 1999
[LOGO]
Shares
Common Stock
NaviSite, Inc. is offering shares of its common stock. This is NaviSite's
initial public offering. We have applied to have the shares we are offering
approved for quotation on the Nasdaq National Market under the symbol "NAVI."
We anticipate that the initial public offering price will be between $ and
$ per share.
At the request of NaviSite, the underwriters have reserved at the initial
public offering price up to shares of common stock for sale to officers,
directors, employees and other business associates of NaviSite and up to
shares of common stock for sale to stockholders of CMGI, Inc.
Upon completion of this offering, CMGI will directly own approximately % of
the outstanding shares of NaviSite common stock and will continue to control
NaviSite.
--------------
Investing in our common stock involves risks.
See "Risk Factors" beginning on page 7.
--------------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public Offering Price........................................... $ $
Underwriting Discounts and Commissions.......................... $ $
Proceeds to NaviSite............................................ $ $
</TABLE>
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved these securities, or determined if this prospectus
is truthful or complete. Any representation to the contrary is a criminal
offense.
NaviSite has granted the underwriters a 30-day option to purchase up to an
additional shares of common stock to cover over-allotments. BancBoston
Robertson Stephens Inc. expects to deliver the shares of common stock to
purchasers on , 1999.
--------------
BancBoston Robertson Stephens
ING Barings
FAC/Equities
The date of this prospectus is , 1999.
<PAGE>
You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus. In this prospectus, references to "NaviSite,"
"we," "us" and "our" refer to NaviSite, Inc., a Delaware corporation, and its
consolidated subsidiary, Servercast Communications, L.L.C., a Delaware limited
liability company. References to fiscal 1998, fiscal 1997 and fiscal 1996 mean
the fiscal years ended July 31, 1998 and 1997 and the period from July 1, 1996
through July 31, 1996, respectively.
Until , 1999 (25 days after the date of this prospectus), all dealers
that buy, sell or trade our common stock, whether or not participating in this
offering, may be required to deliver a prospectus. This requirement is in
addition to the dealers' obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary.................................................................. 4
Risk Factors............................................................. 7
Forward Looking Statements............................................... 18
Use of Proceeds.......................................................... 19
Dividend Policy.......................................................... 19
Capitalization........................................................... 20
Dilution................................................................. 21
Selected Consolidated Financial Data..................................... 22
Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 23
Business................................................................. 32
Management............................................................... 43
Certain Transactions..................................................... 50
Ownership of Principal Stockholder and Management........................ 55
Description of Capital Stock............................................. 57
Shares Eligible For Future Sale.......................................... 61
Underwriting............................................................. 63
Legal Matters............................................................ 65
Experts.................................................................. 65
Where You Can Find Additional Information................................ 65
Index to Financial Statements............................................ F-1
</TABLE>
---------------------
"NaviSite" and the NaviSite logo are service marks of our company for which
service mark applications are pending. This prospectus also contains
trademarks, trade names and service marks of other companies which are the
property of their respective owners.
3
<PAGE>
SUMMARY
Because this is only a summary, it does not contain all of the information
that may be important to you. You should read this entire prospectus, including
"Risk Factors" and our consolidated financial statements and the accompanying
notes appearing elsewhere in this prospectus, before deciding to invest in our
common stock.
NaviSite, Inc.
NaviSite is an Internet application service provider offering Web site and
application hosting and management services. Our Internet application service
offerings allow businesses to outsource the deployment, configuration, hosting,
management and support of their Web sites and Internet applications in a cost-
effective and rapid manner. Our focus on enhanced management services, beyond
basic co-location services, allows us to meet the expanding needs of businesses
as their Web sites and Internet applications become more complex. We also
provide our customers with access to our state-of-the-art data centers and the
benefit of our direct private transit Internet connections to major Internet
backbone providers. We only use direct private transit Internet connections,
which differentiates our network infrastructure from that of most of our
competitors. These connections increase reliability and download speeds. Our
enhanced, integrated services enable our clients to realize the following key
benefits.
. Cost-Effective Application Services. Our scalable infrastructure,
repeatable Internet application services and hosting and management
expertise enable us to offer our customers application services on a
cost-effective basis.
. Rapid Deployment. We are able to rapidly deploy Internet applications,
allowing our customers to quickly launch Web sites and Internet
applications, often in a matter of weeks.
. High-Performance, World-Class Infrastructure. Our infrastructure has
been designed expressly to meet the more demanding technical
requirements of increasingly sophisticated Web sites and Internet
applications.
The scalability of our infrastructure and cost-effectiveness of our
services allow us to offer a comprehensive suite of services to meet the
current and future hosting and management needs of our customers. Our suite of
service offerings includes:
. Web site and Internet application hosting, which includes access to our
state-of-the-art data centers, bandwidth and basic back-up, storage and
monitoring services;
. Enhanced server management, which includes custom reporting, hardware
options, load balancing and mirroring, system security, advanced back-
up options, remote management and the services of our business solution
managers;
. Specialized application management, which includes management of e-
commerce and other sophisticated applications and their underlying
services, including ad-serving, streaming, databases and transaction
processing; and
. Application rentals and related consulting and other professional
services.
The dramatic growth in Internet usage in recent years, combined with the
Internet's enhanced functionality, accessibility and security, has made the
Internet increasingly attractive to businesses as a medium for communication
and commerce. As more businesses have incorporated the Internet into their
business strategy, a growing number of them have chosen to outsource Internet
application development, implementation and support, particularly the hosting
and management of their Web sites and Internet applications. Forrester
Research, Inc., a leading market research firm, has estimated that the market
for managed Web site hosting in the United States will grow from less than $1.0
billion in 1998 to over $14.0 billion in 2003. In January 1998, Forrester
Research estimated that the market for branded application outsourcing services
in the United States will grow to $21.1 billion by 2001.
4
<PAGE>
Our objective is to be the leading Internet application service provider.
We plan to achieve this goal by continuing to enhance and leverage our
expertise, service offerings and infrastructure to provide customers with
integrated, reliable and secure Internet-based business solutions. Key elements
of our strategy are to:
. expand the number and vary the kind of applications and management
services we offer to our customers;
. meet the evolving needs of our customers by offering multiple service
levels;
. increase awareness of the NaviSite brand in key business markets and
associate our brand with the highest quality solutions and service;
. maintain the competitive advantage that our infrastructure and
expertise provide so that we can grow our business;
. continue to leverage a number of key industry relationships which we
have developed, as well as develop new relationships to expand the
scope and scale of the services we offer;
. take advantage of foreign market opportunities; and
. continue to pursue focused, complementary acquisitions.
Since our inception, we have experienced operating losses and negative cash
flows for each quarterly and annual period. We expect to continue to incur
operating losses for the foreseeable future. In addition, the market we serve
is highly competitive, and our revenue could be adversely affected by increased
competition. To date, a material portion of our revenue has been derived from
CMGI, Inc. and CMGI affiliates. CMGI affiliates include all entities in which
CMGI holds an equity interest. CMGI and CMGI affiliates accounted for 68% of
our revenue for the quarter ended April 30, 1999 as compared to 97% of our
revenue for the quarter ended April 30, 1998.
CMGI will own approximately % of our outstanding common stock upon
completion of this offering. Accordingly, CMGI will have the power, acting
alone, to elect a majority of our board of directors and will have the ability
to determine the outcome of any corporate actions requiring stockholder
approval, regardless of how our other stockholders may vote. CMGI may exercise
its voting power by written consent, without convening a meeting of the
stockholders, meaning that CMGI will be able to effect a sale or merger of
NaviSite without prior notice to, or the consent of, our other stockholders.
CMGI's ownership may have the effect of delaying, deferring or preventing a
change in control of NaviSite. CMGI's interests could conflict with the
interests of our other stockholders.
--------------------
We were incorporated in Delaware in December 1998. At that time, we
received a contribution of assets from our predecessor, NaviSite Internet
Services Corporation. NaviSite Internet Services Corporation was incorporated
in Delaware in February 1997 under the name CMG Information Technology, Inc.
and changed its name to NaviSite Internet Services Corporation in May 1997. Our
principal investors include CMGI, Dell Computer Corporation and Microsoft
Corporation.
Our principal executive offices are located at 100 Brickstone Square,
Andover, Massachusetts 01810, and our telephone number is (978) 552-3300. Our
Web site address is www.navisite.com. The information on our Web site is not
incorporated by reference into this prospectus and should not be considered as
part of this prospectus.
--------------------
Except as otherwise noted, all information in this prospectus:
. assumes the conversion of all debt held by CMGI as of April 30, 1999
into shares of convertible preferred stock and the conversion of all
convertible preferred stock outstanding as of April 30, 1999 into an
aggregate of 18,142,850 shares of common stock upon completion of this
offering; and
. assumes no exercise of the underwriters' over-allotment option.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by NaviSite..... shares
Common stock to be outstanding after
this offering...................... shares
Use of proceeds...................... For enhancement and expansion of our
network infrastructure, expansion of
sales and marketing efforts, enhancement
of application management and technical
expertise and possible acquisitions of
complimentary businesses and
technologies, and for working capital
and general corporate purposes. See "Use
of Proceeds."
Proposed Nasdaq National Market
symbol............................. NAVI
</TABLE>
Summary Consolidated Financial Data
(In thousands, except per share data)
<TABLE>
<CAPTION>
Period from Nine months ended
July 1, 1996 Year ended July 31, April 30,
to July 31, -------------------- -------------------
1996 1997 1998 1998 1999
------------ --------- --------- -------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Total revenue........... $ -- $ 3,361 $ 4,029 $ 2,836 $ 6,817
Gross profit (loss)..... (6) (133) (4,847) (3,587) (6,477)
Loss from operations.... (27) (947) (9,076) (6,052) (15,070)
Net loss................ (27) (948) (9,172) (6,080) (15,436)
Unaudited pro forma
basic and diluted net
loss per share........ $ (1.02) $ (1.01)
Pro forma weighted
average number of
basic and diluted
shares outstanding.... 9,027 15,248
</TABLE>
The following table is a summary of our balance sheet at April 30, 1999 (i)
on an actual basis, (ii) on a pro forma basis after giving effect to the
conversion of all debt held by CMGI into shares of convertible preferred stock
and the conversion of all outstanding shares of convertible preferred stock
into shares of common stock and (iii) on a pro forma as adjusted basis to
reflect the sale of shares of common stock at an assumed initial public
offering price of $ per share, after deducting underwriting discounts and
commissions and estimated offering expenses payable by us.
<TABLE>
<CAPTION>
April 30, 1999
--------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(unaudited)
<S> <C> <C> <C> <C>
Balance Sheet
Data:
Cash and
equivalents.... $ -- $ --
Working capital
(deficit)...... (15,268) (4,507)
Total assets..... 10,286 10,286
Debt to CMGI..... 10,761 --
Total
stockholders'
equity
(deficit)...... (9,815) 946
</TABLE>
6
<PAGE>
RISK FACTORS
You should carefully consider the following risks before making an
investment decision. The risks and uncertainties described below are not the
only ones that we face. Additional risks that generally apply to publicly
traded companies, that are not yet identified or that we currently think are
immaterial may also impair our business operations. Our financial condition and
operating results could be materially adversely affected by any of the risks
set forth below. The market price of our common stock could decline due to any
of these risks, and you could lose all or part of your investment. You should
also refer to the other information set forth in this prospectus, including our
consolidated financial statements and the accompanying notes appearing
elsewhere in this prospectus.
Risks Related to Our Company and Our Operations
Because we have a limited operating history, there is limited information upon
which you can evaluate our business
We have a limited operating history upon which you can evaluate our
business. NaviSite was organized in 1996 by CMGI, Inc., formerly known as CMG
Information Services, Inc., to support the networks and host the Web sites of
CMGI and a number of CMGI affiliates. It was not until the Fall of 1997 that we
began providing Web site hosting and Internet application management services
to companies unaffiliated with CMGI. As an early stage company in the new and
rapidly evolving Web site and Internet application hosting and management
service market, we face numerous risks. Some of these risks relate to our
ability to:
. expand our Web site and Internet application hosting and management
expertise;
. respond to technological developments or service offerings of our
competitors;
. develop and offer new, successful services and differentiate our
services from those offered by our competitors, in particular Internet
application service providers;
. expand our infrastructure to keep pace with our anticipated growth;
. continue to attract and retain qualified personnel;
. enter into industry relationships with Web site design firms, Internet
application developers, system integrators, Internet application
software vendors and key technology providers;
. build a more comprehensive sales and marketing structure to support
our business and achieve broader brand recognition in the Internet
application service market; and
. build, maintain and expand our distribution channels.
We may not be successful in addressing these risks, and, if we are not
successful, our financial condition and operating results could be materially
adversely affected.
We have a history of operating losses and expect future losses
We cannot assure you that we will ever achieve profitability on a quarterly
or annual basis or, if we achieve profitability, that it will be sustainable.
Since our inception in 1996, we have experienced operating losses and negative
cash flows for each quarterly and annual period. As of April 30, 1999, we had
an accumulated deficit of $25.6 million. The income potential of our business
is unproven, and our limited operating history makes it difficult to evaluate
our prospects. We anticipate increased expenses as we continue to expand and
improve our infrastructure, invest in additional applications, enhance our
application management expertise, expand our sales and marketing efforts and
pursue additional industry relationships. As a result, we expect to incur
operating losses for the foreseeable future.
7
<PAGE>
Fluctuations in our quarterly operating results may negatively impact our stock
price
Our quarterly operating results may fluctuate significantly in the future
as a result of a variety of factors, many of which are outside our control.
These factors include:
. the demand for and market acceptance of our Web site and Internet
application hosting and management services;
. our ability to develop, market and introduce new services on a timely
basis;
. downward price adjustments by our competitors;
. changes in the mix of services provided by our competitors;
. technical difficulties or system downtime affecting the Internet
generally or our hosting operations specifically;
. the ability to meet any increased technological demands of our
customers;
. the amount and timing of costs related to our marketing efforts and
service introductions; and
. economic conditions specific to the Internet application service
provider industry.
Our operating results for any particular quarter may fall short of our
expectations or those of investors or securities analysts. In this event, the
market price of our common stock would be likely to fall.
We are controlled by our principal stockholder
As of June 30, 1999, CMGI, through its ownership of NaviSite Internet
Services Corporation, beneficially owned approximately 89.4% of our outstanding
common stock, assuming the conversion of all outstanding shares of convertible
preferred stock as of June 30, 1999, and upon completion of this offering will
beneficially own approximately % of our outstanding common stock. Accordingly,
CMGI will continue to have the power, acting alone, to elect a majority of our
board of directors and will have the ability to determine the outcome of any
corporate actions requiring stockholder approval, regardless of how our other
stockholders may vote. Under Delaware law, CMGI may exercise its voting power
by written consent, without convening a meeting of the stockholders, meaning
that CMGI will be able to effect a sale or merger of NaviSite without prior
notice to, or the consent of, our other stockholders. CMGI's interests could
conflict with the interests of our other stockholders. The possible need of
CMGI to maintain control of NaviSite in order to avoid becoming a registered
investment company could influence future decisions by CMGI as to the
disposition of any or all of its ownership position in NaviSite. CMGI would be
subject to numerous regulatory requirements with which it would have difficulty
complying if it were required to register as an investment company. As a
result, CMGI may be motivated to maintain at least a majority ownership
position in NaviSite, even if other stockholders of NaviSite might consider a
sale of control of NaviSite to be in their best interests. As long as it is a
majority stockholder, CMGI has contractual rights to purchase shares in any
future financing of NaviSite, other than this offering, sufficient to maintain
its majority ownership position. CMGI's ownership may have the effect of
delaying, deferring or preventing a change in control of our company or
discouraging a potential acquiror from attempting to obtain control of us,
which in turn could adversely affect the market price of our common stock.
Our business is dependent on revenues generated by CMGI and companies
affiliated with CMGI
NaviSite was organized by CMGI in 1996 to support the networks and host the
Web sites of CMGI and a number of CMGI affiliates. In the Fall of 1997, we
began providing hosting and management services to unaffiliated customers. We
have serviced unaffiliated customers for a limited time period and have
generated limited revenue from these unaffiliated customers. CMGI and CMGI
affiliates accounted for 96% of our revenue in fiscal 1998 and 70% of our
revenue for the nine months ended April 30, 1999. We currently are
substantially dependent on revenues generated by services provided to CMGI and
CMGI affiliates, and we anticipate that we will continue to receive a
significant portion of our revenue in the future from CMGI and CMGI affiliates.
We cannot assure you that these revenues will continue or that we will be able
to secure business from unaffiliated customers to replace these revenues in the
future. The loss of revenue from CMGI and CMGI affiliates, or our inability to
replace this revenue, would materially adversely affect our financial
condition.
8
<PAGE>
If the market for Internet commerce and communication does not continue to
grow, there may not be sufficient market demand for our services, and as a
result, our business could be adversely affected
The increased use of the Internet for retrieving, sharing and transferring
information among businesses and consumers has developed only recently, and the
market for the purchase of products and services over the Internet is new and
emerging. Demand for our Web site and Internet application hosting and
management services will depend, in part, on the acceptance and continued
growth of the Internet as a medium for commerce and communication solutions. We
cannot assure you that businesses or consumers will continue to use the
Internet for commerce or communication. If acceptance and growth of the
Internet as a medium for commerce and communication does not continue, our
business could be materially adversely affected because there may not be a
market demand for our Web site and Internet application hosting and management
services. Our success will depend, in large part, on the willingness of
businesses to continue to turn to outsourced Web site and Internet application
hosting and management service providers to enable their Web sites for commerce
and communication. In addition, in order for the market for our services to
grow, consumers who have historically purchased and communicated through
traditional means must elect to purchase products and services and conduct
their communication online. These transitions must continue to ensure a growing
market for our Web site and Internet application hosting and management
services.
Our ability to grow may be limited if the market for Internet application
services fails to develop or if we cannot achieve broad market acceptance
The market for Internet application services has only developed recently
and is evolving rapidly. There is significant uncertainty as to whether the
Internet application service market will ultimately prove to be viable or, if
it becomes viable, that it will continue to grow. Historically, businesses have
been reluctant to outsource the hosting and management of sophisticated
applications and have considered third-party service vendors to be unequipped
to manage Internet applications critical to their businesses. Our future growth
will depend on the willingness of businesses to outsource the system and
network management of their Web sites and Internet applications. If this market
fails to develop, or develops more slowly than we expect, or if our Web site
and Internet application hosting and management services do not achieve broad
market acceptance, our growth may be substantially limited.
Our ability to market our services could be materially adversely affected if
any of the Internet applications deployed by us have reliability, quality or
compatibility problems
We have experienced difficulties with Internet applications in the past and
we cannot assure you that we will not experience difficulties that could delay
or prevent the successful development, introduction or marketing of Internet
application services in the future. In addition, if any newly introduced
Internet applications suffer from reliability, quality or compatibility
problems, market acceptance of our services could be greatly hindered and our
ability to attract new customers could be adversely affected. We cannot assure
you that new applications deployed by us will be free from any reliability,
quality or compatibility problems. If we incur increased costs or are unable,
for technical or other reasons, to host and manage new Internet applications or
enhancements of existing applications, our ability to grow our business would
be materially adversely affected.
Our failure to successfully execute our business strategy could result in
continued operating losses and negative cash flows
Our business strategy is multi-tiered and requires that we successfully
complete many diverse tasks. In order to be successful, we will need to:
. differentiate our company and our service offerings from other
Internet application service providers and their service offerings;
. leverage and expand our existing infrastructure;
9
<PAGE>
. attract and retain highly skilled employees with Web site and Internet
application hosting and management expertise;
. establish and maintain relationships or negotiate and sustain
partnerships with industry-leading Web design firms, Internet
application developers, system integrators, application software
vendors and others with brand recognition and established sales and
support channels; and
. utilize our marketing and direct sales force, supplemented by our
channel sales relationships, to penetrate the market for Web site and
Internet application hosting and management services.
The future success of our business will depend, in large part, on our
ability to host and manage Internet applications that are scalable and can be
deployed for a large number of customers at an acceptable cost. We cannot
assure you that we will be able to identify and deploy a sufficient number of
Internet applications meeting these criteria, or that any of these applications
will receive the market acceptance necessary for the profitable conduct of our
business.
Moreover, we cannot assure you that we will be able to successfully execute
our business strategy. If we are unable to successfully execute our business
strategy, we may continue to experience operating losses and negative cash
flows.
The market we serve is highly competitive, and we may lack the resources needed
to compete successfully
We compete in the Internet application service market. This market is
rapidly evolving, highly competitive and likely to be characterized by an
increasing number of market entrants and by industry consolidation. Because
there are no substantial barriers to entry, we expect that we will face
competition from both existing competitors and new market entrants in the
future. We believe that participants in our market must grow rapidly and
achieve a significant presence to compete effectively. We may lack the
financial and other resources, expertise or capability to compete successfully.
Our current and prospective competitors include other providers of Web site
hosting and related services, national and regional Internet service providers,
companies that focus on customized Internet application services, application
developers, Internet application software vendors, large system integrators and
information technology outsourcing firms and global, regional and local
telecommunications companies. Many of these competitors have substantially
greater financial, technical and marketing resources, larger customer bases,
longer operating histories, greater name recognition and more established
relationships in the industry than we have. As a result, many of these
competitors may be able to develop and expand their network infrastructures and
service offerings more rapidly, adapt to new or emerging technologies and
changes in customer requirements more quickly, take advantage of acquisitions
and other opportunities more readily, devote greater resources to the marketing
and sale of their services and adopt more aggressive pricing policies than we
can. Because of these competitive factors, and due to our comparatively small
size and lack of financial resources, we may be unable to successfully compete
in the Internet application service market.
In addition, we believe that there will be continued consolidation within
the Internet application service market in which we compete. Our competitors
may consolidate with one another, or acquire or be acquired by application
software vendors or technology providers, enabling them to more effectively
compete with us. This consolidation could affect prices and other competitive
factors in ways which would impede our ability to compete successfully in the
Internet application service market.
Additional information regarding the competition we face is included in
this prospectus under the heading "Business--Competition."
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<PAGE>
The future success of our business will depend on our ability to maintain
numerous third-party industry relationships
We depend on telecommunications network suppliers for the availability and
reliability of our private transit Internet connections
Our customers rely on our ability to move their digital content as
efficiently as possible to the people accessing their Web sites and Internet
applications. We depend on our direct private transit Internet connections
to major backbone providers as a means of avoiding congestion and resulting
performance degradation at public Internet exchange points. We rely on these
telecommunications network suppliers to maintain the operational integrity
of their backbones so that our private transit Internet connections operate
effectively. Any interruptions in, or degradation of, our private transit
Internet connections could damage relationships with our customers and
hinder our ability to attract new customers.
Our private transit Internet connections are already more costly than
alternative arrangements commonly utilized to move Internet traffic. If our
providers increase the pricing associated with utilizing their bandwidth, we
may be required to identify alternative methods to distribute our customers'
digital content. We cannot assure you that our customers will continue to be
willing to pay the higher costs associated with direct private transit, or
that we could effectively move to another network approach. If we are unable
to access alternative networks to distribute our customers' digital content
on a cost-effective basis or to pass any additional costs on to our
customers, our operating costs would increase significantly.
We depend on Internet application software vendors for the sale, marketing and
provision of our Internet application services
We believe that our success in penetrating the market for our Web site and
Internet application hosting and management services will depend in large
part on our ability to maintain existing and develop additional
relationships with industry-leading Internet application software vendors
and other third parties. We license or lease our software applications from
Internet application software vendors. The loss of any of these applications
could materially impair our ability to provide services to our customers or
require us to obtain substitute software applications of lower quality or
performance standards or at greater cost. In addition, because we generally
license applications on a non-exclusive basis, our competitors may license
and utilize the same software applications. In fact, many of the companies
with which we have strategic relationships currently have, or could enter
into, similar license agreements with our competitors or prospective
competitors. We cannot assure you that software applications will continue
to be available to us from Internet application software vendors on
commercially reasonable terms. If we are unable to identify and license
software applications which meet our targeted criteria for new application
introductions, we may have to discontinue or delay introduction of services
relating to these applications unless we can find, license and launch
equivalent software applications.
We depend on a limited number of suppliers for key components of our
infrastructure
We depend on a limited number of suppliers for key components of our
infrastructure, including networking equipment, that are available only from
limited sources in the quantities and with the quality that we demand. For
example, we purchase most of the routers and switches used in our
infrastructure from Cisco Systems Inc. and most of the intelligent Web
switching technology from ArrowPoint Communications Inc. We cannot assure
you that we will have the necessary hardware or parts on hand or that our
suppliers will be able to provide them in a timely manner in the event of
equipment failure. Our inability or failure to obtain the necessary hardware
or parts on a timely basis could result in a loss of revenue due to customer
loss or claims for service credits under our service level guarantees.
We cannot assure you that one or more of our third-party agreements or
industry relationships will not be terminated in the future. In order to
provide services to our growing customer base, we also intend to seek
additional industry relationships. We can not assure you that we will be able
to enter into favorable new
11
<PAGE>
relationships or that we will be able to effectively manage multiple
relationships with a growing number of third parties. If any of our strategic
agreements or relationships are terminated or not renewed or we otherwise are
unable to use some or all of the software applications or technology tools on
which our business depends, we may be unable to successfully execute our
business strategy.
If we are unable to manage our anticipated growth and the related expansion of
our operations, our business could be materially adversely affected
We have experienced rapid growth in our service offerings and our customer
base. As of April 30, 1998, we were a Web site hosting provider with
approximately 22 customers. As of April 30, 1999, we were providing Web site
and Internet application hosting and management services to approximately 101
customers. In order to service our growing customer base, we will need to
continue to improve and expand our network infrastructure, in particular
through the expansion of one of our existing data centers and the construction
of new data centers. The ability of our network to connect and manage a
substantial number of customers at high transmission speeds while maintaining
superior performance is largely unproven. If our network infrastructure is not
scalable, we may not be able to provide our services to additional customers,
which would result in decreased revenue.
In addition, between April 30, 1998 and April 30, 1999, we increased the
number of our employees from 64 to 171. This growth has placed, and will likely
continue to place, a significant strain on our financial, management,
operational and other resources. To effectively manage our anticipated growth,
we will be required to continue to enhance our operating and financial
procedures and controls, to upgrade or replace our operational, financial and
management information systems and to attract, train, motivate, manage and
retain key employees. If we are unable to effectively manage our rapid growth,
our financial condition and operating results would be materially adversely
affected.
Our historical source of funding is expected to change, and other funding may
not be available to us on favorable terms, if at all, and as a result, you may
experience additional dilution
CMGI has historically funded our operations as needed, increasing our
obligations to CMGI and allowing us to maintain a zero-balance cash account. We
expect this source and manner of funding to continue until completion of this
offering. At that time, we expect that our net obligations to CMGI, together
with all convertible preferred stock held by CMGI, will be converted into
common stock.
After completion of, and the application of the net proceeds from, this
offering, we may need to raise additional funds. We cannot assure you that
additional financing will be available on terms favorable to us, if at all. If
adequate funds are not available or are not available on acceptable terms, our
ability to respond to competitive pressures would be significantly limited.
Moreover, if additional funds are raised through the issuance of equity or
convertible debt securities, your percentage ownership in us will be reduced,
and you may experience additional dilution.
Our network infrastructure could fail, which would damage our ability to
provide guaranteed levels of service and could result in significant losses
To be successful, we must operate our network infrastructure on a 24-hour-
a-day, seven-day-a-week basis without interruption. Our operations depend upon
our ability to protect our network infrastructure, equipment and customer files
against damage from human error, natural disasters, unexpected equipment
failure, power loss or telecommunications failures, sabotage or other
intentional acts of vandalism. Even if we take precautions, the occurrence of a
natural disaster, equipment failure or other unanticipated problem at our data
centers could result in interruptions in the services we provide to our
customers. We cannot assure you that our disaster recovery plan will address
all, or even most, of the problems we may encounter in the event of such a
disaster.
12
<PAGE>
We have experienced service interruptions in the past and any future
service interruptions could:
. require us to spend substantial amounts of money to replace equipment
or facilities;
. entitle customers to claim service credits under our service level
guarantees;
. cause customers to seek damages for losses incurred; or
. make it more difficult for us to attract new customers or enter into
additional strategic relationships.
Any of these occurrences could result in significant operating losses.
We must protect our proprietary rights
Our business could be materially adversely affected by the misappropriation
of our proprietary rights
We rely on a combination of trademark, service mark, copyright and trade
secret laws and contractual restrictions to establish and protect our
proprietary rights. We do not own any patents that would prevent or inhibit
competitors from using our technology or entering our market. We cannot
assure you that the contractual arrangements or other steps taken by us to
protect our proprietary rights will prove sufficient to prevent
misappropriation of our proprietary rights or to deter independent, third-
party development of similar proprietary assets. In addition, we provide our
services in other countries where the laws may not afford adequate
protection for our proprietary rights.
We depend on proprietary rights, and our business could be materially
adversely affected by third-party infringement claims against our technology
suppliers, our customers or us
We license or lease most technologies used in the Internet application
services that we offer. Our technology suppliers may become subject to
third-party infringement claims which could result in their inability or
unwillingness to continue to license their technology to us. We expect that
we and our customers increasingly will be subject to third-party
infringement claims as the number of Web sites and third-party service
providers for Web-based businesses grows. In addition, we have received
notices alleging that our service marks infringe the trademark rights of
third parties. We cannot assure you that third parties will not assert
claims against us in the future or that these claims will not be successful.
Any infringement claim as to our technologies or services, regardless of its
merit, could be time-consuming, result in costly litigation, cause delays in
service, installation or upgrades, adversely impact our relationships with
suppliers or customers or require us to enter into royalty or licensing
agreements.
The future success of our business will depend on our ability to retain key
officers and personnel and to continue to recruit additional skilled personnel
The loss of key officers and personnel could materially adversely affect our
business
The future success of our business will depend, in large part, upon the
continued service of key personnel, including Joel B. Rosen, our recently
elected Chief Executive Officer, and Robert B. Eisenberg, our founder and
President. None of our key officers or personnel is currently a party to an
employment agreement with us. This means that any officer or employee can
terminate his or her relationship with us at any time. In addition, we do
not carry life insurance for any of our key personnel to insure our business
in the event of their death. The loss of any of our key officers or
personnel could impair our ability to successfully execute our business
strategy, because we substantially rely on their experience and management
skills.
Our positive relations with our customers significantly depend upon members
of our sales and marketing teams and key technical service personnel. In
addition, any loss of key technical personnel would jeopardize the stability
of our infrastructure and our ability to provide the guaranteed service
levels our customers expect. Any loss of key personnel with important
customer relationships or technical expertise could materially adversely
affect our financial condition and operating results.
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<PAGE>
Our failure to recruit additional skilled personnel could materially
adversely affect our business
We believe our future success will depend in large part upon our ability to
attract, train, motivate and retain highly skilled technical, managerial and
sales personnel, particularly in the areas of Web site and Internet
application management and technical support. Our business requires
individuals with significant levels of Internet application expertise, in
particular to win consumer confidence in outsourcing the hosting and
management of mission-critical applications. Competition for such personnel
is intense, and qualified technical personnel are likely to remain a limited
resource for the foreseeable future. Locating candidates with the
appropriate qualifications, particularly in the desired geographic location,
can be costly and difficult. We may not be able to hire the necessary
personnel to implement our business strategy, or we may need to provide
higher compensation to such personnel than we currently anticipate. Our
inability to continue to attract and retain sufficient numbers of highly
skilled employees could limit our growth and, as a result, our business may
not be successful.
Our business could be materially adversely affected as a result of the risks
associated with potential acquisitions
Our business strategy contemplates future acquisitions of complementary
businesses or technologies. If we do pursue additional acquisitions, our risks
may increase because our ongoing business may be disrupted and management's
attention and resources may be diverted from other business concerns. In
addition, through acquisitions, we may enter into markets or market segments in
which we have limited prior experience.
Once we complete an acquisition, we will face additional risks. These risks
include:
. difficulty assimilating acquired operations, technologies and
personnel;
. inability to retain management and other key personnel of the acquired
business; and
. changes in management or other key personnel that may harm
relationships with the acquired business's customers and employees.
In addition, for at least the next two years, our acquisitions must be
accounted for using the purchase method of accounting, which could materially
adversely effect our financial condition and operating results. We cannot
assure you that any acquisitions will be successfully identified and completed
or that, if one or more acquisitions are completed, the acquired business,
assets or technologies will generate sufficient revenue to offset the
associated costs or other adverse effects.
Our expansion into international markets may not be successful
One component of our long-term strategy is to expand into international
markets. We have entered into a bilateral agreement for Internet hosting
services with Planet Online Limited, a network access and Web site hosting
company in the United Kingdom, and we plan to pursue additional strategic
relationships with other companies in Europe and Asia to provide worldwide
capabilities to our customer base. Our financial condition and operating
results could be materially adversely affected if the revenue generated by any
current or future international data center or other operations is not adequate
to offset the expense of establishing and maintaining those international
operations. The international market for Web site and Internet application
hosting and management services is unproven, and we cannot assure you that we
will be able to market, sell and provide our services successfully outside the
United States.
In addition, there are risks inherent in doing business in international
markets, including different regulatory requirements, trade barriers,
challenges in staffing and managing foreign operations, currency risk,
different technology standards, different tax structures which may adversely
impact earnings, different privacy, censorship and service provider liability
standards and regulations, and foreign political and economic instability, any
of which could adversely affect the success of our international operations.
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<PAGE>
Problems relating to the "Year 2000 issue" could materially adversely affect
our business
Because we offer computer-related services and because of the business-
critical nature of many of our customers' applications, our risk of lawsuits
related to Year 2000 issues is likely to be greater than that of companies in
some other industries. We confront the Year 2000 problem in several contexts:
Our Facilities and Services. Because our network infrastructure
incorporates components from multiple hardware and software providers, we may
be unable to determine whether any of these components will cause unexpected
Year 2000 problems or whether different components will interact in a way that
causes malfunctions. In most cases we do not independently verify the Year 2000
compliance of vendors' products, and we cannot offer any assurance that
vendors' guarantees, if and when provided, are true or sufficient or that we
will not encounter Year 2000 compliance problems associated with those
products. While we expect that our network infrastructure and all other
material components of our facilities will be Year 2000 compliant on or before
September 30, 1999, we cannot assure you that we will meet this goal or that we
will not discover any compliance problems in the future. Our failure to
adequately address Year 2000 compliance issues in our network infrastructure
could result in claims of mismanagement, misrepresentation or breach of
contract and related litigation, which could be costly and time-consuming for
us to defend.
Our Customers. We also face risks from customer-provided hardware or
software that we host in our data centers. The failure of our customers and
third-party providers to ensure that this hardware and software is Year 2000
compliant could result in unforeseen problems within our network
infrastructure, which could materially adversely affect our financial condition
and operating results. In addition, we cannot give any assurances that our
customers will upgrade their internal networks which interface with our network
infrastructure or will otherwise provide appropriate remediation for Year 2000
compliance.
Our Suppliers. Our business could be materially adversely affected if we
cannot obtain products, services or systems that are Year 2000 compliant when
we need them. In addition, if vendors and service providers cannot deliver
their products because of their own Year 2000 compliance problems, our
financial condition and operating results could be materially adversely
affected.
Information on our state of readiness, costs and contingency plans
regarding the Year 2000 issue is included in this prospectus under the heading
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000 Considerations."
Risks Related to the Internet Industry
The growth of our business will depend on continued development of the Internet
infrastructure
The recent growth in the use of the Internet has caused frequent periods of
performance degradation, requiring the upgrade of routers and switches,
telecommunications links and other components forming the infrastructure of the
Internet by Internet service providers and other organizations with links to
the Internet. Any perceived degradation in the performance of the Internet as a
means to transact business and communicate could undermine the benefits and
market acceptance of our Web site and Internet application hosting and
management services. Our services are ultimately limited by, and dependent
upon, the speed and reliability of hardware, communications services and
networks operated by third parties. Consequently, the emergence and growth of
the market for our Internet application services will depend in part on
improvements being made to the entire Internet infrastructure to alleviate
overloading and congestion.
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<PAGE>
We face risks associated with Internet security and the security of our systems
A significant barrier to the growth of e-commerce and communications over
the Internet has been the need for secure transmission of confidential
information. Several of our Internet application services rely on encryption
and authentication technology licensed from third parties to provide the
protections necessary to effect secure transmission of confidential
information. We also rely on security systems designed by third parties and the
personnel in our network operations centers to secure our data centers. Any
unauthorized access, computer viruses, accidental or intentional actions and
other disruptions could materially adversely affect our financial condition and
operating results. We may incur significant costs to protect against these
interruptions and the threat of security breaches or to alleviate problems
caused by such interruptions or breaches, and we expect to expend significant
financial resources in the future to equip our new and existing data centers
with state-of-the-art security measures. If a third party were able to
misappropriate a consumer's personal or proprietary information, including
credit card information, during the use of an application solution provided by
us, we could be subject to claims, litigation or other potential liability.
We may become subject to burdensome government regulation and legal
uncertainties
It is likely that laws and regulations directly applicable to the Internet
or to Internet application service providers may be adopted. These laws may
cover a variety of issues, including user privacy and the pricing,
characteristics and quality of products and services. The adoption or
modification of laws or regulations relating to commerce over the Internet
could materially adversely affect our financial condition and operating
results. Moreover, the applicability of existing laws to the Internet and
Internet application service providers is uncertain. These existing laws could
expose us to substantial liability if they are found to be applicable to our
business. For example, we provide services over the Internet in many states in
the United States and in the United Kingdom, and we facilitate the activities
of our customers in these jurisdictions. As a result, we may be required to
qualify to do business, be subject to taxation or be subject to other laws and
regulations in these jurisdictions, even if we do not have a physical presence,
employees or property there.
We may be subject to legal claims in connection with the information
disseminated through our network
As an Internet application service provider, we may face potential direct
and indirect liability for claims of defamation, negligence, copyright, patent
or trademark infringement, violation of securities laws and other claims based
on the nature and content of the materials disseminated through our network.
For example, lawsuits may be brought against us claiming that content
distributed by some of our current or future customers may be regulated or
banned. In these and other instances, we may be required to engage in
protracted and expensive litigation, which could have the effect of diverting
management's attention and require us to expend significant financial
resources. Our general liability insurance may not necessarily cover any of
these claims or may not be adequate to protect us against all liability that
may be imposed.
In addition, on a limited number of occasions in the past, businesses,
organizations and individuals have sent unsolicited commercial e-mails from
servers hosted at our facilities to massive numbers of people, typically to
advertise products or services. This practice, known as "spamming," can lead to
complaints against service providers that enable such activities, particularly
where recipients view the materials received as offensive. We have in the past
received, and may in the future receive, letters from recipients of information
transmitted by our customers objecting to such transmission. Although we
prohibit our customers by contract from spamming, we cannot assure you that our
customers will not engage in this practice, which could subject us to claims
for damages.
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<PAGE>
Risks Related to this Offering
There is no prior public market for our common stock, and you may not be able
to resell shares of our common stock for a profit
Prior to this offering, there has been no public market for our common
stock. We, together with the underwriters, will determine the initial public
offering price, and this price may not be the price at which the common stock
will trade after this offering. The market price of the common stock may
decline below the initial public offering price. Although the common stock
will be quoted on the Nasdaq National Market, an active trading market may not
develop after this offering. We cannot assure you of the extent to which
investor interest in NaviSite will lead to the development of an active
trading market or how liquid that market may become. A more detailed
discussion of factors to be considered in determining the initial public
offering price is included in this prospectus under the heading
"Underwriting."
The market price of our common stock may experience extreme price and volume
fluctuations
The market price of the common stock may fluctuate substantially due to a
variety of factors, including:
. any actual or anticipated fluctuations in our financial condition and
operating results;
. public announcements concerning us or our competitors, or the Internet
industry;
. the introduction or market acceptance of new service offerings by us
or our competitors;
. changes in industry research analysts' earnings estimates;
. changes in accounting principles;
. sales of our common stock by existing stockholders; and
. the loss of any of our key personnel.
In addition, the stock market has experienced extreme price and volume
fluctuations. The market prices of the securities of technology and Internet-
related companies have been especially volatile. This volatility has often
been unrelated to the operating performance of particular companies. In the
past, securities class action litigation has often been brought against
companies that experience volatility in the market price of their securities.
Whether or not meritorious, litigation brought against us could result in
substantial costs and a diversion of management's attention and resources,
which could materially adversely affect our financial condition.
If our existing stockholders sell a substantial number of shares of our common
stock in the public market, the market price of our common stock will likely
fall
If our stockholders sell substantial amounts of our common stock in the
public market following this offering, including shares issuable upon the
exercise of outstanding options, the market price of our common stock will
likely fall. CMGI, Dell and Microsoft will directly own approximately %, %
and %, respectively, of the outstanding shares of our common stock upon
completion of this offering and will have registration rights which will
permit them to sell all of these shares in the public market approximately 180
days after completion of this offering. These sales also might make it more
difficult for us to sell equity securities in the future at a time and price
that we deem appropriate. After this offering, we will have outstanding
shares of common stock. Of these shares, the shares being offered in this
offering will be freely tradeable. Our directors, executive officers and
stockholders have agreed that they will not sell, directly or indirectly, any
common stock without the prior written consent of BancBoston Robertson
Stephens Inc. for a period of 180 days after the completion of this offering.
However, BancBoston Robertson Stephens Inc. may, in its sole discretion and at
any time or from time to time, without notice, release all or any portion of
the securities subject to the lock-up agreements. Additional information
regarding the market for our common stock is included in this prospectus under
the headings "Shares Eligible for Future Sale" and "Underwriting."
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<PAGE>
We may spend a substantial portion of the net proceeds of this offering in ways
with which you may not agree
We plan to use the net proceeds of this offering for investment in the
growth of our business, including enhancement and expansion of our network
infrastructure, expansion of our sales and marketing efforts, including the
hiring of additional personnel, enhancement of our application management and
technical expertise and possible acquisitions of complementary businesses and
technologies, and for working capital and general corporate purposes. Our
management will have broad discretion to allocate the net proceeds from this
offering. As a result, investors in this offering will be relying upon
management's judgment with only limited information about its specific
intentions regarding the use of proceeds. We cannot assure you that the
proceeds will be invested to yield a favorable return. Additional information
regarding the ways in which we intend to spend the proceeds of this offering is
included in this prospectus under the heading "Use of Proceeds."
Investors in this offering will experience immediate and substantial dilution
of their investment
The initial public offering price is expected to be substantially higher
than the book value per share of the outstanding common stock. You will
therefore incur immediate substantial dilution in the amount of $ per share
based upon an assumed initial public offering price of $ per share. In
addition, to the extent outstanding stock options are exercised, you will incur
further dilution. Additional information regarding the dilution to investors in
our initial public offering is included in this prospectus under the heading
"Dilution."
The reliability of the market data included in this prospectus is uncertain
Since we are a relatively new company and operate in a new and rapidly
changing market, we have included market data in this prospectus from industry
publications, including Forrester Research, Inc. Industry publications
generally state that the information contained in these publications has been
obtained from sources believed to be reliable, but that its accuracy and
completeness is not guaranteed. Although we believe market data used in this
prospectus are reliable, it has not been independently verified and we cannot
assure you of its reliability.
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements which involve risks and
uncertainties. These forward-looking statements are often accompanied by words
such as "believes," "anticipates," "plans," "expects" and similar expressions.
These statements include, without limitation, statements about the market
opportunity for Web site and Internet application hosting and management
services, our business strategy, competition and expected expense levels. Our
actual results could differ materially from those expressed or implied by these
forward-looking statements as a result of various factors, including the risk
factors described above and elsewhere in this prospectus.
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<PAGE>
USE OF PROCEEDS
We expect to receive net proceeds from the sale of the shares of common
stock offered by us of approximately $ , or $ if the over-allotment option
granted to the underwriters is exercised in full, based on an assumed initial
public offering price of $ per share, and after deducting underwriting
discounts and commissions and estimated offering expenses payable by us.
The principal purposes of this offering are:
. to increase our equity capital;
. to facilitate future access by us to public equity markets;
. to provide increased visibility and credibility in the marketplace;
and
. to enhance our ability to use common stock as consideration for
acquisitions and as a means of attracting and retaining key employees.
We currently intend to use the net proceeds of this offering for the
following:
. enhancement and expansion of our network infrastructure;
. expansion of our sales and marketing efforts, including the hiring of
additional personnel;
. enhancement of our application management and technical expertise; and
. working capital and general corporate purposes.
In addition, we may also use a portion of the net proceeds of this offering
for the acquisition of businesses or technologies that are complementary to
those we currently possess. While we evaluate these types of opportunities from
time to time, there are currently no agreements with respect to any specific
acquisitions.
We have not yet determined the actual expected expenditures and therefore
cannot estimate the amounts to be used for each purpose set forth above. The
amounts and timing of these expenditures will vary significantly depending upon
a number of factors, including, but not limited to, the amount of cash
generated by our operations and the market response to our Web site and
Internet application hosting and management services. Accordingly, our
management will retain broad discretion as to the allocation of the proceeds of
this offering.
Pending use of the net proceeds as described above, we intend to invest the
net proceeds of this offering in short-term, interest-bearing, investment-grade
securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock, and
we do not currently intend to pay any cash dividends on the common stock in the
foreseeable future. We expect to retain future earnings, if any, to fund the
development and growth of our business. Future dividends, if any, will be
determined by our board of directors. In addition, the terms of our outstanding
preferred stock restrict the payment of dividends on our common stock. As a
result of not collecting a dividend, there is a risk that stockholders will not
experience a positive return on their investment, unless they sell their shares
of common stock at a profit.
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CAPITALIZATION
The following table is a summary of our balance sheet at April 30, 1999:
. on an actual basis;
. on a pro forma basis after giving effect to the conversion of all debt
held by CMGI into shares of convertible preferred stock and the
conversion of all outstanding shares of convertible preferred stock
into shares of common stock; and
. on a pro forma as adjusted basis to reflect the sale of shares of
common stock at an assumed initial public offering price of $ per
share, after deducting underwriting discounts and commissions and
estimated offering expenses payable by us.
This information should be read in conjunction with the section of this
prospectus with the heading "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our consolidated financial statements
and the accompanying notes appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
April 30, 1999
--------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(In thousands)
<S> <C> <C> <C>
Debt to CMGI................................... $ 10,761 $ -- $
-------- -------- ----
Stockholders' equity (deficit):
Series A convertible preferred stock, par
value $0.01 per share: 1,323,953 shares
authorized, issued and outstanding
(actual); no shares authorized, issued or
outstanding (pro forma and pro forma as
adjusted).................................. 13 --
Common stock, par value $0.01 per share:
30,000,000 shares authorized (actual);
shares authorized (pro forma and pro forma
as adjusted); 69,338 shares issued and
outstanding (actual); 18,212,188 and
shares issued and outstanding (pro forma
and pro forma as adjusted)................. 1 182
Additional paid-in capital..................... 15,754 26,347
Accumulated deficit............................ (25,583) (25,583)
-------- -------- ----
Total stockholders' equity (deficit)......... (9,815) 946
-------- -------- ----
Total capitalization...................... $ 946 $ 946 $
======== ======== ====
</TABLE>
The number of shares of common stock set forth in the table above as
outstanding after the completion of this offering excludes (i) 2,287,058 shares
of common stock issuable upon exercise of stock options outstanding under the
NaviSite, Inc. 1998 Equity Incentive Plan as of April 30, 1999, with a weighted
average exercise price of $2.27 per share, (ii) 50,000 shares of common stock
issuable upon exercise of stock options outstanding under the NaviSite, Inc.
1998 Director Stock Option Plan as of April 30, 1999, with a weighted average
exercise price of $0.49 per share, and (iii) an additional 43,604 shares of
common stock reserved for issuance under the 1998 Equity Incentive Plan and
75,000 shares of common stock reserved for issuance under the 1998 Director
Stock Option Plan.
20
<PAGE>
DILUTION
Our pro forma net tangible book value as of April 30, 1999 was $ , or
$ per share of common stock. Pro forma net tangible book value per share
represents the amount of our total tangible assets less total liabilities,
divided by , the pro forma number of shares of common stock outstanding as
of April 30, 1999. Pro forma net tangible book value dilution per share
represents the difference between the amount per share paid by new investors
purchasing shares of common stock in this offering and the pro forma net
tangible book value per share of common stock immediately after completion of
this offering on a pro forma as adjusted basis. After giving effect to the sale
of the shares of common stock offered by us at an assumed initial public
offering price of $ per share of common stock, and after deducting
underwriting discounts and commissions and estimated offering expenses payable
by us, our pro forma net tangible book value as of April 30, 1999 would have
been $ , or $ per share of common stock. This represents an immediate
increase in net tangible book value of $ per share of common stock to
existing stockholders and an immediate dilution in pro forma net tangible book
value of $ per share of common stock to new investors purchasing shares of
common stock in this offering. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share........................ $
----
Pro forma net tangible book value per share as of April 30, 1999..... $
Increase per share attributable to new investors.....................
----
Pro forma net tangible book value per share after this offering........
----
Dilution per share to new investors.................................... $
====
</TABLE>
The following table summarizes, on a pro forma basis as of April 30, 1999,
the number of shares of common stock purchased from us, the total cash
consideration paid and the average price per share paid to us by the existing
stockholders and by new investors purchasing shares of common stock in this
offering.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------- --------------------- Average Price
Number Percent Amount Percent Per Share
------- --------- --------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders... % $ % $
New investors........... $
------- --------- --------- ----------
Total................. 100.0% $ 100.0%
======= ========= ========= ==========
</TABLE>
The foregoing tables and calculations assume no exercise of options
outstanding under our 1998 Equity Incentive Plan or our 1998 Director Stock
Option Plan. As of April 30, 1999, there were 2,337,058 shares of common stock
reserved for issuance upon exercise of outstanding options with a weighted
average exercise price of $2.23 per share. To the extent that any of these
options are exercised, there will be further dilution to new investors.
21
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected financial data should be read in conjunction with
our consolidated financial statements and the accompanying notes appearing
elsewhere in this prospectus and with the section of this prospectus under the
heading "Management's Discussion and Analysis of Financial Condition and
Results of Operations." Our statement of operations for the period from July 1,
1996 through July 31, 1996 and for the years ended July 31, 1997 and 1998, and
our balance sheet data as of July 31, 1997 and 1998, are derived from our
consolidated financial statements that have been audited by KPMG LLP and appear
elsewhere in this prospectus. Our balance sheet data as of July 31, 1996 are
derived from our audited consolidated financial statements that are not
included herein. Our statement of operations data for the nine months ended
April 30, 1998 and 1999, and the balance sheet data as of April 30, 1999 are
derived from our unaudited consolidated financial statements appearing
elsewhere in this prospectus. Our unaudited financial statements have been
prepared on the same basis as our audited financial statements and, in the
opinion of management, include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the results of
operations for such periods. Historical results are not necessarily indicative
of the results to be expected in the future and results of interim periods are
not necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
Period from Year ended Nine months ended
July 1, 1996 July 31, April 30,
through -------------- -------------------
July 31, 1996 1997 1998 1998 1999
------------- ----- ------- -------- ---------
(unaudited)
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenue:
Revenue.................... $ -- $ -- $ 158 $ 39 $ 2,052
Revenue, related parties... -- 3,361 3,871 2,797 4,765
---- ----- ------- -------- ---------
Total revenue............. -- 3,361 4,029 2,836 6,817
Cost of revenue............. 6 3,494 8,876 6,423 13,294
---- ----- ------- -------- ---------
Gross profit (loss)....... (6) (133) (4,847) (3,587) (6,477)
---- ----- ------- -------- ---------
Operating expenses:
Selling and marketing...... -- 347 2,530 1,424 4,052
General and
administrative........... 21 467 1,412 927 2,271
Product development........ -- -- 287 114 2,270
---- ----- ------- -------- ---------
Total operating expenses.. 21 814 4,229 2,465 8,593
---- ----- ------- -------- ---------
Loss from operations........ (27) (947) (9,076) (6,052) (15,070)
Other income (expense):
Interest expense, net...... -- (1) (85) (28) (330)
Other expense, net......... -- -- (11) -- (36)
---- ----- ------- -------- ---------
Net loss.................... $(27) $(948) $(9,172) $ (6,080) $ (15,436)
==== ===== ======= ======== =========
Unaudited pro forma basic
and diluted net loss per
share..................... $ (1.02) $ (1.01)
======= =========
Pro forma weighted average
number of basic and
diluted shares
outstanding............... 9,027 15,248
======= =========
</TABLE>
<TABLE>
<CAPTION>
July 31,
------------------------ April 30,
1996 1997 1998 1999
----- ------- -------- -----------
(unaudited)
Balance Sheet Data: (In thousands)
<S> <C> <C> <C> <C>
Cash and equivalents...................... $ -- $ -- $ -- $ --
Working capital (deficit)................. (157) (2,566) (13,522) (15,268)
Total assets.............................. 130 2,010 5,479 10,286
Debt to CMGI.............................. 155 2,273 11,439 10,761
Stockholders' equity (deficit)............ (27) (895) (10,066) (9,815)
</TABLE>
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion contains forward-looking statements that involve
risks and uncertainties. Our actual results could differ materially from those
discussed in the forward-looking statements as a result of a number of factors,
including those set forth in the section of this prospectus under the heading
"Risk Factors" and elsewhere in this prospectus. The following information
should be read in conjunction with the "Selected Consolidated Financial Data"
and our consolidated financial statements and the accompanying notes, each of
which appears elsewhere in this prospectus.
Overview
We provide enhanced, integrated hosting and management services for
business Web sites and Internet applications. We also provide application
rentals to customers and developers and supply related consulting services. Our
Internet application service offerings allow businesses to outsource the
deployment, configuration, hosting, management and support of their Web sites
and Internet applications in a cost-effective and rapid manner. Our focus on
enhanced management services, beyond basic co-location services, allows us to
meet the expanding needs of businesses as their Web sites and Internet
applications become more complex. The cost for our services varies from
customer to customer based on the number of hosted or managed servers and the
nature and level of services provided.
We were incorporated in Delaware in December 1998 as a wholly owned
subsidiary of NaviSite Internet Services Corporation as part of a corporate
reorganization of NaviSite Internet Services Corporation. At that time, we
received a contribution of assets from NaviSite Internet Services Corporation
in exchange for 60,589 shares of our common stock and 1,323,953 shares of our
Series A convertible preferred stock. At the same time, NaviSite Internet
Services Corporation contributed the remainder of its assets to NaviNet, Inc.,
another newly formed subsidiary of NaviSite Internet Services Corporation. We
expect the NaviSite Internet Services Corporation reorganization to be
completed prior to the completion of this offering, at which time NaviSite
Internet Services Corporation will be merged with and into CMGI, leaving
NaviSite and NaviNet, Inc. as direct subsidiaries of CMGI.
Our predecessor, NaviSite Internet Services Corporation, was incorporated
in Delaware in February 1997 under the name CMG Information Technology, Inc.
and changed its name to NaviSite Internet Services Corporation in May 1997. We
commenced operations in July 1996, funded by CMGI, to support the networks and
host the Web sites of CMGI and a number of CMGI affiliates. CMGI affiliates
include all entities in which CMGI holds an equity interest. We began providing
Web site hosting and Internet application management services to companies
unaffiliated with CMGI in the Fall of 1997.
All financial information presented here refers only to NaviSite, including
the hosting and Internet application management segments of NaviSite Internet
Services Corporation, and does not include the financial condition or results
of operations of NaviNet, Inc., including the dial-up operations of NaviSite
Internet Services Corporation.
In July 1998, we acquired Servercast Communications, L.L.C., a developer
and integrator of Internet applications, for $1.0 million in notes, plus bridge
notes receivable of $25,000 and $20,000 in acquisition costs. We acquired
Servercast principally for its expertise in online advertising, e-commerce,
content management and streaming media. The purchase price plus associated
costs of the acquisition were recorded as goodwill and are being amortized on a
straight-line basis over five years.
23
<PAGE>
We intend to expand domestically and internationally and currently have two
new data centers under construction. In addition, we are converting 3,200
square feet of office space at our current data center location in Andover,
Massachusetts into data center space. In May 1999, we executed a 12-year lease
for a new 150,000 square foot facility located in Andover, Massachusetts,
currently being constructed to our specifications, which will include a new
data center. We anticipate that work will be completed on the new Massachusetts
facility in the Spring of 2000. Construction also has started on a new 66,000
square foot facility located in San Jose, California, which will include a new
data center. In May 1999, we executed a seven-year lease for this facility,
which should be available for occupation in the Fall of 1999. The procurement,
development and equipping of these facilities will significantly increase our
costs and operating expenses.
Our corporate headquarters are currently shared with CMGI and several other
CMGI affiliates. CMGI allocates rent, facility maintenance and service costs
among these affiliates based upon headcount within each affiliate and within
each department of each affiliate. Services provided by CMGI include support
for human resources, systems, business development and marketing. Actual
expenses could have varied had we been operating on a stand-alone basis. Costs
are allocated to us on the basis of the fair market value for the facilities
used and the services provided. We intend to relocate our executive offices to
our new facility, also located in Andover, Massachusetts, upon completion of
that facility, and upon that relocation, we will no longer share space with
CMGI.
We derive our revenue from a variety of services, including: Web site and
Internet application hosting, which includes access to our state-of-the-art
data centers, bandwidth and basic back-up, storage and monitoring services;
enhanced server management, which includes custom reporting, hardware options,
load balancing and mirroring, system security, advanced back-up options, remote
management and the services of our business solution managers; specialized
application management, which includes management of e-commerce and other
sophisticated applications and their underlying services, including ad-serving,
streaming, databases and transaction processing; and application rentals and
related consulting and other professional services. Revenue also includes
income from the rental of equipment to customers and one-time installation
fees. Revenue is recognized in the period in which the services are performed
and installation fees are recognized in the period of installation. Our
contracts generally are a one-year commitment.
Our revenue from sales to related parties principally consists of sales of
services to CMGI and other customers that are CMGI affiliates. In the nine
months ended April 30, 1999, we sold services to CMGI and 19 CMGI affiliates
totaling approximately $4.8 million, or 70% of revenue. Two of these customers
accounted for approximately 24% and 18% of revenue, respectively, for the nine
months ended April 30, 1999. As of April 30, 1999, through its ownership of
NaviSite Internet Services Corporation, CMGI owned approximately 90% of our
outstanding common stock on a fully diluted basis with the balance owned by
employees and directors.
Cost of revenue consists primarily of salaries and benefits for operations
personnel, bandwidth fees and related Internet connectivity charges, equipment
costs and related depreciation and costs to run our two data centers, such as
rent and utilities. We expect these costs to increase in dollar terms, but
decline on a percentage of revenue basis, with the growth of our overall
business. We also expect to achieve economies of scale as a result of spreading
more volume over fixed assets, increasing productivity and using new
technological tools.
Selling and marketing expenses consist primarily of salaries and related
benefits, commissions and marketing expenses such as advertising, product
literature, trade shows, marketing and direct mail programs. We expect selling
and marketing expenses to increase significantly in dollar terms, but decline
on a percentage of revenue basis, as we continue to invest in these areas to
promote brand recognition and to acquire new customers. We intend to accomplish
this by hiring additional sales and marketing personnel, opening additional
sales offices and increasing spending on public relations, advertising and
marketing programs.
General and administrative expenses include the costs of financial, leasing
and administrative personnel, professional services and corporate overhead.
Also included are intercompany charges from CMGI for
24
<PAGE>
facilities, human resource support and business development. We expect the
dollar value of these expenses to increase in future periods but decline on a
percentage of revenue basis as we hire additional personnel and incur
additional costs related to the growth of our business and our operations as a
public company.
Product development expenses consist mainly of salaries and related costs.
Our product development staff is comprised of four separate operating groups:
Internet applications; network architecture; security architecture and
planning; and information systems. The Internet applications group identifies
new Internet application software offerings, incorporates these new offerings
into our suite of service offerings and positions these new offerings for
marketing, sale and deployment. The network architecture group identifies,
selects and implements the various technologies, including network storage and
back-up, that provide the basic infrastructure for both our internal network
and the solutions we offer our customers. The security architecture and
planning group plans for and implements the technologies which secure the
confidential information and infrastructures belonging to us and our customers
against unauthorized access, computer viruses, accidental or intentional
actions and other disruptions. The information systems group develops, manages
and maintains our internal business systems, including financial software
systems and our corporate databases. As with sales and marketing, we believe
that increased investment in product development is critical to attaining our
strategic objectives and maintaining our competitive edge. We expect the dollar
value of product development expenses to increase significantly in future
periods but decline on a percentage of revenue basis.
We have incurred significant net losses and negative cash flows from
operations since our inception and, as of April 30, 1999, had an accumulated
deficit of approximately $25.6 million. These losses primarily have been funded
by CMGI through the issuance of convertible preferred stock and convertible
debt and by equipment lease financing. We intend to continue to invest heavily
in sales, marketing, promotion, technology and infrastructure development as we
grow. As a result, we believe that we will continue to incur operating losses
and negative cash flows from operations for the foreseeable future and that the
rate at which such losses will be incurred may increase.
Results of Operations
The following table sets forth the consolidated statement of operations
data for the periods indicated as a percentage of revenues:
<TABLE>
<CAPTION>
Nine months
Year ended ended
July 31, April 30,
-------------- ---------------
1997 1998 1998 1999
----- ------ ------ ------
(unaudited)
<S> <C> <C> <C> <C>
Revenue:
Revenue................. 0.0% 3.9% 1.4% 30.1%
Revenue, related
parties............... 100.0 96.1 98.6 69.9
----- ------ ------ ------
Total revenue........... 100.0 100.0 100.0 100.0
Cost of revenue.......... 104.0 220.3 226.5 195.0
----- ------ ------ ------
Gross profit (loss)..... (4.0) (120.3) (126.5) (95.0)
----- ------ ------ ------
Operating expenses:
Selling and marketing... 10.3 62.8 50.2 59.4
General and
administrative........ 13.9 35.0 32.7 33.3
Product development..... 0.0 7.1 4.0 33.3
----- ------ ------ ------
Total operating
expenses.............. 24.2 104.9 86.9 126.1
----- ------ ------ ------
Loss from operations..... (28.2) (225.2) (213.4) (221.1)
Other income (expense):
Interest expense........ 0.0 (2.1) (1.0) (4.8)
Other expense, net...... 0.0 (0.3) 0.0 (0.5)
----- ------ ------ ------
Total other income
(expense)............. 0.0 (2.4) (1.0) (5.3)
----- ------ ------ ------
Net loss................. (28.2)% (227.6)% (214.4)% (226.4)%
===== ====== ====== ======
</TABLE>
25
<PAGE>
Comparison of the Nine Months Ended April 30, 1999 and April 30, 1998
Revenue
Total revenue increased 140% to approximately $6.8 million for the nine
months ended April 30, 1999, from approximately $2.8 million for the nine
months ended April 30, 1998. The increase in revenue is due to additional
business with CMGI and CMGI affiliates and the increase in the number of non-
affiliated customers to 82 as of April 30, 1999 (including customers of
Servercast, acquired by us on July 1, 1998) from 10 as of April 30, 1998.
Customers of Servercast accounted for $934,000, or 14%, of total revenue for
the nine months ended April 30, 1999.
Cost of Revenue
Cost of revenue increased 107% to approximately $13.3 million for the nine
months ended April 30, 1999, from approximately $6.4 million for the nine
months ended April 30, 1998. As a percentage of revenue, cost of revenue
decreased to 195% for the nine months ended April 30, 1999, from 227% for the
nine months ended April 30, 1998. The dollar-value increase in each period is
due primarily to the costs associated with increased investment in our existing
data centers. These costs principally include labor and headcount expenses,
additional equipment and maintenance costs and increased bandwidth and
connectivity charges.
Operating Expenses
Selling and Marketing. Selling and marketing expenses increased 185% to
approximately $4.1 million for the nine months ended April 30, 1999, from
approximately $1.4 million for the nine months ended April 30, 1998. This
increase is due primarily to the development of NaviSite's sales and marketing
capability in connection with the commencement of sales to non-affiliated
customers. These costs primarily include salaries and commissions and expenses
for marketing programs, advertising and product literature.
General and Administrative. General and administrative expenses increased
145% to approximately $2.3 million for the nine months ended April 30, 1999,
from approximately $927,000 for the nine months ended April 30, 1998. The
dollar-value increase in general and administrative expenses is due primarily
to the hiring of additional administrative and finance personnel to support our
growing operations and due to intercompany charges from CMGI for human resource
support, business development and corporate overhead. Other expenses
contributing to the dollar-value increase include moving and rental costs
associated with the occupation of our current corporate headquarters and
increased legal and professional fees.
Product Development. Product development expenses increased to $2.3 million
for the nine months ended April 30, 1999, from approximately $114,000 for the
nine months ended April 30, 1998. This increase is due primarily to the costs
associated with an increase in product development personnel by April 30, 1999
from one person at the inception of our product development operations in 1998.
This growth in product development personnel reflects our increased service
offerings and emphasis on application services.
Interest Expense, net
Interest expense, net increased to approximately $330,000 for the nine
months ended April 30, 1999, from $28,000 for the nine months ended April 30,
1998. This increase is due primarily to the inclusion in interest expense, net
for the nine months ended April 30, 1999 of interest on intercompany debt at a
rate of 7% per annum pursuant to an arrangement entered into between NaviSite
and CMGI in the second half of fiscal 1998. Interest expense associated with
the issuance of term notes in connection with our acquisition, in July 1998, of
Servercast Communications, L.L.C. totaled approximately $41,000 during the nine
months ended April 30, 1999. Interest expense on long-term capital lease
obligations is also included in interest expense, net.
Comparison of Fiscal Years Ended July 31, 1998, 1997 and 1996
Revenue
Total revenue increased 20% to approximately $4.0 million in fiscal 1998,
from approximately $3.4 million in fiscal 1997. Total revenue was zero in
fiscal 1996. Because NaviSite first sold its services to
26
<PAGE>
unaffiliated customers in the Fall of 1997, almost all of NaviSite's revenue in
fiscal 1998 and fiscal 1997 came from CMGI and CMGI affiliates. The dollar-
value increase in revenue in fiscal 1998 from fiscal 1997 is due to a growth in
revenue of approximately $510,000 from services provided to affiliated
customers and the addition of commercial customers with revenue totaling
$158,000. In fiscal 1998, three customers, all affiliates of CMGI, accounted
for 40%, 19% and 11% of revenue, respectively. In fiscal 1997, these same three
customers accounted for 46%, 28% and 14% of revenue, respectively.
Cost of Revenue
Cost of revenue increased 154% to approximately $8.9 million in fiscal
1998, from approximately $3.5 million in fiscal 1997. As a percentage of
revenue, cost of revenue increased to 220%, from 104%, reflecting costs
associated with the build-out of the Andover data center and the opening of the
Scotts Valley data center in anticipation of future growth.
Operating Expenses
Selling and Marketing. Selling and marketing expenses increased to $2.5
million in fiscal 1998, from $347,000 in fiscal 1997. Selling and marketing
expenses were zero in fiscal 1996. The increases are the result of significant
growth in our sales force and marketing group during this period as we
commenced sales to unaffiliated customers. Advertising costs and significant
initial costs for product literature also are components of the increase in
fiscal 1998 over fiscal 1997.
General and Administrative. General and administrative expenses increased
202% to approximately $1.4 million in fiscal 1998, from approximately $467,000
in fiscal 1997, and increased from $21,000 in fiscal 1996. These increases are
the result of increased payroll and related costs and professional fees
required to support our growing operations.
Product Development. Product development expenses increased to $287,000 in
fiscal 1998 due to initial hiring in our product development group at its
inception in fiscal 1998. Product development expenses were zero in fiscal 1997
and fiscal 1996. The introduction of product development personnel reflects our
increased service offerings and emphasis on application services.
Interest Expense, net
Interest expense, net increased to $85,000 in fiscal 1998, from $1,000 in
fiscal 1997. Interest expense, net was zero in fiscal 1996. The increase in
fiscal 1998 from fiscal 1997 is due primarily to the inclusion in interest
expense, net in fiscal 1998 of interest on intercompany debt at a rate of 7%
per annum pursuant to an arrangement entered into between NaviSite and CMGI in
the second half of fiscal 1998. Interest expense on long-term capital lease
obligations is also included in interest expense, net in fiscal 1998 and is the
sole component of interest expense, net in fiscal 1997.
Income Taxes
NaviSite is part of the CMGI consolidated group for tax purposes and as
such, all benefits of federal tax losses from inception through July 31, 1998
have been used to the benefit of CMGI in its consolidated return. As a result,
NaviSite has no federal tax loss carryforwards or carrybacks as of April 30,
1999. NaviSite has net operating loss carryforwards for Massachusetts state tax
purposes of approximately $728,000 as of July 31, 1998. In addition, NaviSite
has net operating loss carryforwards for California state tax purposes of
approximately $475,000 as of July 31, 1998. These state tax loss carryforwards
will expire from 2001 through 2003.
27
<PAGE>
Selected Unaudited Quarterly Results of Operations
The following table sets forth unaudited quarterly statements of operations
data for each of the six quarters in the 18-month period ended April 30, 1999.
In the opinion of management, the unaudited financial results include all
adjustments, consisting only of normal recurring adjustments, necessary for the
fair presentation of our results of operations for those periods. The quarterly
data should be read in conjunction with the audited consolidated financial
statements and the accompanying notes appearing elsewhere in this prospectus.
The results of operations for any quarter are not necessarily indicative of the
results of operations for any future period.
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------------------------------
Jan. 31, April 30, July 31, Oct. 31, Jan. 31, April 30,
1998 1998 1998 1998 1999 1999
-------- --------- -------- -------- -------- ---------
Statement of Operations
Data: (In thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Revenue................ $ 11 $ 28 $ 119 $ 490 $ 604 $ 958
Revenue, related
parties.............. 941 1,024 1,074 1,178 1,562 2,025
------- ------- ------- ------- ------- -------
Total revenue......... 952 1,052 1,193 1,668 2,166 2,983
Cost of revenue......... 2,098 2,584 2,453 3,760 3,909 5,625
------- ------- ------- ------- ------- -------
Gross profit (loss).... (1,146) (1,532) (1,260) (2,092) (1,743) (2,642)
------- ------- ------- ------- ------- -------
Operating expenses:
Selling and marketing.. 422 762 1,106 1,350 1,039 1,663
General and
administrative....... 282 378 485 505 758 1,008
Product development.... 10 104 173 410 584 1,276
------- ------- ------- ------- ------- -------
Total operating
expenses............ 714 1,244 1,764 2,265 2,381 3,947
------- ------- ------- ------- ------- -------
Loss from operations.... (1,860) (2,776) (3,024) (4,357) (4,124) (6,589)
Other income (expense):
Interest expense, net
..................... (4) (24) (57) (156) (39) (135)
Other expense, net..... 0 0 (11) 4 0 (40)
------- ------- ------- ------- ------- -------
Total other income
(expense)........... (4) (24) (68) (152) (39) (175)
------- ------- ------- ------- ------- -------
Net loss................ $(1,864) $(2,800) $(3,092) $(4,509) $(4,163) $(6,764)
======= ======= ======= ======= ======= =======
<CAPTION>
Percentage of Total Revenues
Three Months Ended
----------------------------------------------------------------
Jan. 31, April 30, July 31, Oct. 31, Jan. 31, April 30,
1998 1998 1998 1998 1999 1999
-------- --------- -------- -------- -------- ---------
Statement of Operations
Data:
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Revenue................ 1.2 % 2.7 % 10.0 % 29.4 % 27.9 % 32.1 %
Revenue, related
parties.............. 98.8 97.3 90.0 70.6 72.1 67.9
------- ------- ------- ------- ------- -------
Total revenue......... 100.0 100.0 100.0 100.0 100.0 100.0
Cost of revenue......... 220.4 245.6 205.6 225.4 180.5 188.6
------- ------- ------- ------- ------- -------
Gross profit (loss).... (120.4) (145.6) (105.6) (125.4) (80.5) (88.6)
------- ------- ------- ------- ------- -------
Operating expenses:
Selling and marketing.. 44.3 72.4 92.7 80.9 48.0 55.7
General and
administrative....... 29.6 35.9 40.7 30.3 35.0 33.8
Product development.... 1.1 9.9 14.5 24.6 27.0 42.8
------- ------- ------- ------- ------- -------
Total operating
expenses............ 75.0 118.3 147.9 135.8 109.9 132.3
------- ------- ------- ------- ------- -------
Loss from operations ... (195.4) (263.9) (253.5) (261.2) (190.4) (220.9)
Other income (expense):
Interest expense, net
..................... (0.4) (2.3) (4.8) (9.4) (1.8) (4.5)
Other expense, net..... 0.0 0.0 (0.9) 0.2 0.0 (1.3)
------- ------- ------- ------- ------- -------
Total other income
(expense)........... (0.4) (2.3) (5.7) (9.1) (1.8) (5.9)
------- ------- ------- ------- ------- -------
Net loss................ (195.8)% (266.2)% (259.2)% (270.3)% (192.2)% (226.8)%
======= ======= ======= ======= ======= =======
</TABLE>
28
<PAGE>
Liquidity and Capital Resources
Since our inception, our operations have been funded primarily by CMGI
through the issuance of preferred stock and convertible debt.
Net cash used in operating activities amounted to $7.9 million, $644,000
and $19,000 for fiscal 1998, fiscal 1997 and fiscal 1996, respectively, and
amounted to $11.8 million and $4.8 million for the nine months ended April 30,
1999 and 1998, respectively. The increase in cash used in operations has
primarily been caused by increasing net operating losses, which are partially
offset by non-cash depreciation and amortization charges included in the
applicable net loss and increases in accrued expenses.
Net cash used in investing activities amounted to $1.2 million, $1.6
million and $137,000 during fiscal 1998, fiscal 1997 and fiscal 1996,
respectively, and amounted to $2.4 million and $901,000 for the nine months
ended April 30, 1999 and 1998, respectively. The net cash used for investing
activities was utilized to acquire property and equipment required to support
the growth of the business and to expand data center infrastructure.
Net cash provided by financing activities amounted to $9.1 million, $2.2
million and $156,000 for fiscal 1998, fiscal 1997 and fiscal 1996,
respectively, and amounted to $14.2 million and $5.7 million for the nine
months ended April 30, 1999 and 1998, respectively. Our current interest rate
for our financing activities is 7.0%. Cash provided in each period primarily
was related to funds advanced from CMGI to fund our operations. Non-cash
financing transactions included capital lease financing for equipment and
software licenses payable in fiscal 1998 and the nine months ended April 30,
1999.
CMGI has historically funded our operations as needed, increasing our
obligations to CMGI and allowing us to maintain a zero-balance cash account.
Customer and other receipts have been remitted to CMGI and have been applied to
reduce our obligations to CMGI. The outstanding balance of our obligations to
CMGI at the end of each fiscal quarter through April 30, 1999 has been
evidenced by a demand promissory note convertible into shares of our
convertible preferred stock. The amount of each borrowing represented by the
note is convertible as of the end of the fiscal quarter in which the borrowing
was made into the number of shares of Series B convertible preferred stock
equal to one-tenth of the quotient of the aggregate amount of principal and
interest to be so converted, divided by the applicable conversion price for
that fiscal quarter. The conversion price applicable for any fiscal quarter,
except the fiscal quarter during which a qualified initial public offering
occurs, is determined by dividing our total enterprise value as of the fiscal
quarter end (as determined in good faith by our board of directors) by the
number of shares of common stock outstanding on a fully diluted, as-if-
converted basis. As of April 30, 1999, there was $10.8 million in principal
amount outstanding to CMGI under this note. We expect that we will continue to
borrow funds from CMGI under this arrangement until completion of this offering
and that the net obligations incurred after the end of the fiscal quarter
preceding completion, to the extent outstanding, will be converted into common
stock at the initial public offering price.
We have experienced a substantial increase in our expenditures since
inception consistent with our growth in operations and staffing. We anticipate
that expenditures will continue to increase for the foreseeable future as we
accelerate the growth of our business. Additionally, we will continue to
evaluate investment opportunities in businesses that management believes will
complement our technologies and market strategies.
We currently anticipate that our available cash resources, together with
the net proceeds from this offering, will be sufficient to meet our anticipated
needs for working capital and capital expenditures for at least the twelve
months following the date of this prospectus. However, we may need to raise
additional funds in order to fund more rapid expansion, to develop new or
enhance existing services or products, to respond to competitive pressures or
to acquire complementary businesses, products or technologies. If additional
funds are raised through the issuance of equity or convertible debt securities,
the percentage ownership of our stockholders will be reduced and our
stockholders may experience additional dilution. We cannot assure you that
additional financing will be available on terms favorable to us, if at all. If
adequate funds are not available or are not available on acceptable terms, our
ability to fund our expansion, take advantage of unanticipated opportunities,
develop or enhance services or products or otherwise respond to competitive
pressures would be significantly limited.
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Quantitative and Qualitative Disclosure About Market Risk
We are exposed to market risk related to changes in interest rates. We
intend to invest excess cash balances in cash equivalents. We believe that the
effect, if any, of reasonably possible near-term changes in interest rates on
our financial position, results of operations and cash flows will not be
material.
Year 2000 Considerations
Currently, many installed computer systems and software products are coded
to accept only two-digit entries in the date code field. Beginning in the year
2000, 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 continue to function properly into the Year 2000 and beyond. We
recognize the need to assure that our operations will not be adversely impacted
by Year 2000 software and computer system failures. We confront the Year 2000
problem in several contexts:
Our Facilities and Services. We are a hosting and application management
services provider and we rely on our network infrastructure, software and
hardware to provide our services. Because we offer computer-related services
and because of the business-critical nature of many of our customers'
applications, our risk of lawsuits related to Year 2000 issues is likely to be
greater than that of companies in some other industries. We currently have 14
full-time employees and consultants dedicated to completing our internal Year
2000 project plan. As of June 30, 1999, we have spent nearly $600,000 on our
Year 2000 compliance effort and we have budgeted up to an additional $700,000
to complete our internal Year 2000 project plan. We have completed the
awareness, inventory and assessment phases of our Year 2000 project plan and we
anticipate completing the remediation and contingency planning phases in July
1999. However, because our infrastructure incorporates components from
different providers, we may be unable to determine whether any of these
components will cause unexpected Year 2000 problems or whether different
components will interact in a way that causes malfunctions. While we expect
that our network infrastructure and all other material components of our
facilities will not experience any Year 2000-related failures, we cannot assure
you that we will not experience such failures or that we will not discover any
compliance problems in the future. Our failure timely and adequately to address
Year 2000 compliance issues in our business could result in lost revenues and
claims of mismanagement, misrepresentation or breach of contract and related
litigation, which could be costly and time-consuming for us to defend.
Our Customers. We also face risks from customer-provided hardware and
software that we host in our data centers that in many cases has been
customized by outside service providers or customer personnel. While we inform
our customers that they are responsible for the Year 2000 compliance of their
hosted hardware and software, we cannot assure you that our customers will take
the steps necessary to achieve Year 2000 compliance. The failure of our
customers and third-party providers to ensure that their hosted hardware and
software is Year 2000 compliant could disrupt our operations and materially
adversely affect our financial condition and operating results. In addition,
our customers maintain their internal operations on networks which may be
impacted by Year 2000 complications, which could in turn affect our internal
structure or our ability to provide services to them. We cannot assure you that
our customers will upgrade their internal networks or otherwise provide
appropriate remediation for Year 2000 compliance. In addition, in the event
that a significant number of our customers experience Year 2000-related
problems, whether due to our products or not, demand for technical support and
assistance may increase dramatically. In this case, our costs for providing
technical support may rise and the quality of our service or our ability to
manage incoming requests may be impaired.
Our Suppliers. In addition, we depend on software and hardware supplied by
numerous vendors to provide our application hosting and management services,
rental services and consulting services. We are currently seeking assurances
from our existing vendors that their products are Year 2000 compliant, and we
require that all new software application providers certify that they are Year
2000 compliant before we enter into agreements with them. However, because in
most cases we do not independently verify the Year 2000 compliance of vendors'
products, we cannot assure you that these vendors' guarantees are true or
sufficient or that we will not encounter Year 2000 compliance problems
involving their products.
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Our business could be materially adversely affected if we cannot obtain
products, services or systems that are Year 2000 compliant when we need them.
In addition, if vendors and service providers cannot deliver their products
because of their own Year 2000 compliance problems or as a result of systemic
failures such as power outages relating to the Year 2000, our financial
condition and operating results could be materially adversely affected.
Inflation
We believe that our revenues and results of operations have not been
significantly impacted by inflation during the past three fiscal years.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information." SFAS 131
establishes standards for the way that public business enterprises report
selected information about operating segments in annual and interim financial
statements. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. SFAS 131 requires
the use of the "management approach" in disclosing segment information, based
largely on how senior management generally analyzes the business operations.
SFAS 131 is effective for the Company beginning in fiscal 1999. The Company is
in the process of determining the impact of these standards, if any, on its
consolidated financial statements and related disclosures.
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants, issued Statement of Position 98-1,
"Accounting for the Cost of Computer Software Developed or Obtained for
Internal Use." SOP 98-1 requires the capitalization of certain internal costs
related to the implementation of computer software obtained for internal use.
The Company is required to adopt this standard in the first quarter of fiscal
year 2000, and expects that the adoption of SOP 98-1 will not have a material
impact on its financial position or its results of operations.
In April 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-5, "Reporting Costs of Start-Up Activities." Under SOP
98-5, the cost of start-up activities should be expensed as incurred. Start-up
activities are broadly defined as those one-time activities related to opening
a new facility, introducing a new product or service, conducting business in a
new territory, conducting business with a new class of customer, commencing
some new operation or organizing a new entity. SOP 98-5 is effective for the
Company's fiscal 2000 consolidated financial statements. The Company does not
expect its adoption to have a material impact on its financial position or
results of operations.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities. SFAS 133
requires the recognition of all derivatives as either assets or liabilities in
the statement of financial position and the measurement of those instruments at
fair value. The Company is required to adopt this standard in the first quarter
of fiscal year 2000, and expects that the adoption of SFAS 133 will not have a
material impact on the its financial position or its results of operations. On
May 20, 1999 a proposed Statement of Financial Accounting Standards was issued
for public comment in which the FASB proposed delaying the effective date of
SFAS 133, with the effect that the Company would not be acquired to adopt this
standard until the first quarter of fiscal year 2001.
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BUSINESS
Company Overview
NaviSite is an Internet application service provider offering Web site and
application hosting and management services. Our Internet application service
offerings allow businesses to outsource the deployment, configuration, hosting,
management and support of their Web sites and Internet applications in a cost-
effective and rapid manner. Our focus on enhanced management services, beyond
basic co-location services, allows us to meet the expanding needs of businesses
as their Web sites and Internet applications become more complex. We also
provide our customers with access to our state-of-the-art data centers and the
benefit of our direct private transit Internet connections to major Internet
backbone providers. We only use direct private transit Internet connections,
which differentiates our network infrastructure from that of most of our
competitors. These connections increase reliability and download speeds.
The scalability of our infrastructure and cost-effectiveness of our
solutions allow us to offer a comprehensive suite of services to meet the
current and future hosting and management needs of our customers. Our suite of
service offerings includes:
. Web site and Internet application hosting, which includes access to
our state-of-the-art data centers, bandwidth and basic back-up,
storage and monitoring services;
. Enhanced server management, which includes custom reporting, hardware
options, load balancing and mirroring, system security, advanced back-
up options, remote management and the services of our business
solution managers;
. Specialized application management, which includes management of e-
commerce and other sophisticated applications and their underlying
services, including ad-serving, streaming, databases and transaction
processing; and
. Application rentals and related consulting and other professional
services.
Industry Background
Growth of Business Use of the Internet. The dramatic growth in Internet
usage in recent years, combined with enhanced functionality, accessibility and
security, has made the Internet increasingly attractive to businesses as a
medium for communication and commerce. Forrester Research, Inc. has estimated
that the number of U.S. enterprise businesses online will increase from
approximately 1.8 million in 1998 to approximately 4.3 million in 2002.
As business use of the Internet grows, we believe those businesses which
are utilizing the Internet are seeking to identify and implement increasingly
sophisticated Internet applications. These new applications permit businesses
to:
. engage in business-to-business and business-to-consumer e-commerce;
. enhance business sales efforts through Web-based technologies such as
ad-serving and streaming;
. build and enhance customer relationships by providing Internet-based
customer service and technical support; and
. communicate and conduct business more rapidly and cost-effectively
with customers, suppliers and employees worldwide.
As a result, the proliferation of business Web sites and Internet
applications has created a strong demand for specialized information technology
support and application expertise.
Movement Toward Outsourcing. A growing number of businesses using the
Internet as part of their business strategy have chosen to outsource Internet
application development, implementation and support, particularly the hosting
and management of their Web sites and Internet applications. This follows an
overall movement toward outsourcing of information technology services.
According to Forrester Research, businesses
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in the United States are now spending approximately 25% of their overall
information technology budgets on outsourced services. The growth in outsourced
hosting and management of Web sites and Internet applications is driven by a
number of factors, including:
. the desire of businesses to improve the reliability, availability and
overall performance of their Web sites and Internet applications as
those applications increase in complexity and importance;
. the desire of businesses to reduce time to market;
. the challenges faced by businesses in hiring, training and retaining
application engineers and information technology employees with
Internet expertise;
. the increased costs associated with developing and maintaining
business networks and software applications; and
. deployment risk and the risk of technological obsolescence as they
attempt to capitalize on leading-edge technologies.
Forrester Research has estimated that the market for managed Web site
hosting in the United States will grow from less than $1.0 billion in 1998 to
over $14.0 billion in 2003. In January 1998, Forrester Research estimated that
the market for branded application outsourcing services in the United States
will grow to $21.1 billion by 2001.
Need for Providers of Enhanced, Integrated Hosting and Application
Management Services. Many businesses have outsourced hosting and management of
their Web sites and Internet applications. However, many Web site hosting
providers lack the requisite expertise to implement and manage increasingly
sophisticated Internet applications. Moreover, many of these providers lack the
scalable capacity, high-speed connectivity, monitoring capabilities and level
of reliability and availability which businesses demand. System integrators and
turnkey application developers often have the requisite expertise and resources
to supply businesses with highly customized application solutions, but these
solutions are expensive and time consuming to implement. Some businesses
attempt to reduce cost and shorten time to deployment by utilizing multiple
vendors, each of which provides only a partial solution. This has created
significant opportunity for an application service provider which can offer Web
site and Internet application deployment, configuration, hosting, management
and support.
The NaviSite Solution
We provide a range of integrated, scalable Web site and Internet
application hosting and management services that can be deployed in a cost-
effective and rapid manner. Our Internet application service offerings allow
customers to outsource the deployment, configuration, hosting, management and
support of Web sites and Internet applications. Our focus on enhanced
management services, beyond basic co-location services, allows us to meet the
expanding needs of businesses as their Web sites and Internet applications
become more complex. Key components of our services include:
Cost-Effective Application Services. The scalable nature of our
infrastructure, the repeatability of our Internet application services and our
hosting and management expertise allow us to provide our customers with Web
site and Internet application hosting and management services on a cost-
effective basis. We believe that our customers would otherwise be required to
make significant expenditures to replicate our performance, reliability and
expertise either internally or by using outside vendors.
Rapid Deployment. We offer our customers the ability to rapidly deploy
Internet applications, often in a matter of weeks, instead of months. We
believe that we can deploy sophisticated Internet applications much more
rapidly than businesses can deploy the same applications in-house. Moreover,
our Internet application solutions can be deployed more rapidly than highly
customized applications. This is crucial as our customers develop a Web
presence and need to have their Web sites and Internet applications online as
quickly as possible.
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High-Performance, World-Class Infrastructure. Our infrastructure has been
designed expressly to meet the more demanding technical requirements of
sophisticated Web sites and Internet applications and to provide capacity ahead
of customer demand. We believe that this approach to capacity facilitates the
high-speed data transmission, reliability and availability which our customers'
Web sites and Internet applications demand. In addition, our direct private
transit Internet connections to major Internet backbone providers increase
reliability and download speeds and differentiate our network infrastructure
from that of most of our competitors. Our high-performance infrastructure
together with our trained and experienced staff enable us to offer levels of
service which are backed by guarantees which we believe are among the highest
and most comprehensive in the industry.
Strategy
NaviSite's objective is to be the leading Internet application service
provider. We plan to achieve this goal by continuing to enhance and leverage
our expertise, service offerings and infrastructure to provide customers with
integrated, reliable and secure Internet-based business solutions. Key
components of our strategy include:
Expand Our Suite of Internet Applications. We intend to both increase the
number and vary the kind of applications and application management services we
offer and increase revenue from application rentals. We continue to introduce
Internet business applications which enable customers to develop a Web-based
business presence. Currently, we offer our customers e-commerce and other
sophisticated applications and their underlying services, including ad-serving,
streaming, databases and transaction processing. We focus on application
services which are repeatable, meaning services that we can provide to
customers with minimal additional customization and integration. We believe
that this repeatability decreases our time to market, reduces our operating
risks and produces a higher return on our investment.
Offer Multiple Service Levels to Meet the Evolving Needs of Customers. We
offer multiple service levels to customers so that we can meet their needs for
Internet application services at each stage in the development of their Web-
based operations. For example, a customer initially may use our Web site or
Internet application hosting services or enhanced server management. Later, as
its operations grow and the Internet becomes more of an integral part of its
business strategy, the customer may use our specialized application management
services or application rentals. We believe we have created a competitive
advantage by offering multiple service levels to meet the evolving needs of
customers.
Increase Brand Awareness. We intend to increase awareness of the NaviSite
brand in key business markets and associate the NaviSite brand with the highest
quality Web site and Internet application hosting and management services, high
performance, world-class infrastructure and superior customer service. We
believe that this awareness and association is essential to the continued
expansion of our customer base. We plan to aggressively build the NaviSite
brand through our industry relationships and the use of marketing and co-
marketing programs.
Enhance Our Expertise and Technological Capabilities. We have acquired, and
intend to continue to enhance, the expertise and technological capabilities
required to conduct and grow our business ahead of customer demand. This means
hiring and training application experts before introducing a new application to
customers. This also means expanding existing data centers, adding data
centers, keeping current with key technological trends and increasing
bandwidth. We intend to enhance our expertise by training existing personnel
and by hiring and retaining new application service professionals. We believe
the combination of our Web site and Internet application hosting and management
expertise and our scalable infrastructure provide us with a competitive
advantage.
Continue to Develop and Leverage Industry Relationships. We believe our
industry relationships with Internet application software vendors and
developers, application and system integrators, hardware suppliers and others
provide us with enhanced market opportunities. Through these relationships, we
purchase, license or
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lease services or products to expand our application service offerings or
infrastructure. We also intend to expand our channel sales capability by
working with an increasing number of system integrators and Internet
application software developers and providers. By leveraging our current and
future industry relationships, we intend to not only increase our market
visibility and credibility but also offer our clients more fully integrated
Web site and Internet application hosting and management services.
Access Foreign Markets. We continually assess the need for foreign
operations based on opportunities in specific geographic locations. We
currently have data center capacity in Europe through a bilateral agreement
for Internet hosting services with Planet Online. This arrangement was
established to meet the overseas demands of existing domestic customers. As
the needs of our existing and prospective customers evolve, we intend to take
advantage of foreign market opportunities as they arise.
Pursue Strategic Acquisitions. As opportunities arise, we intend to
continue to pursue strategic acquisitions that can provide complementary
capabilities, technical personnel, established customer relationships and
geographic presence in domestic and international markets.
Services
We offer a comprehensive suite of services to meet the current and future
hosting and management needs of our customers.
Web Site and Internet Application Hosting. Our Web site and application
hosting services provide customers with access to our state-of-the-art data
centers, bandwidth and basic back-up, storage and monitoring services.
Customers are able to access their servers 24-hours-a-day, seven-days-a-week.
These co-located servers are securely housed in separate, limited-access rooms
in our data centers. For the nine months ended April 30, 1999, approximately
7.2% of our revenue was derived from basic co-location customers to which we
provide no enhanced or specialized management services.
Web Site and Application Management. We provide both enhanced server
management and specialized application management. Both types of management
services permit us to provide customers with comprehensive problem-solving
solutions, from identification to resolution to post-resolution analysis. To
provide these services, our trained technical personnel utilize advanced
network monitoring and management tools for Web site and application
troubleshooting, together with internal policies and procedures designed to
ensure rapid, effective solutions to technical problems.
Our enhanced server management services include custom reporting, hardware
options, load balancing and mirroring, system security, advanced back-up
options, remote management and the services of our business solution managers.
We also provide specialized application management services for select
software applications, such as:
. ad-serving, which allows customers to conduct advertising and
profiling over the Internet; and
. e-commerce, which enables customers to implement online stores,
customer ordering, payment and fulfillment.
Application Rentals. We offer Internet application rentals to customers
and application developers who need to access sophisticated Internet
applications or application components which can be customized by developers
as part of a complete software solution. Often, obtaining a full license for
these applications is too expensive for customers or application developers,
especially for short-term or single-project use. In addition, these
applications may require experienced personnel to deploy and configure them.
Applications which we currently offer to customers on a rental basis include
Engage Technologies, Inc.'s ad-serving application and a number of Oracle
Corporation's database applications. Internet application components that we
offer to application developers include streaming, personalization,
statistical reporting and imaging services.
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Professional Services. We supply consulting and other professional services
to our customers. These services include network and system configuration and
architecture, project implementation, bandwidth planning and, in limited cases,
basic software development and system integration.
Sales and Marketing
Our sales and marketing objective is to leverage our Web site and Internet
application hosting and management expertise to become the leading provider of
Internet application services. We have developed a sales and marketing strategy
that initially has targeted businesses that have adopted the Internet as an
integral part of their business strategy. We intend to increasingly target more
traditional enterprises as they incorporate the Internet into their business
models.
Our sales efforts focus on direct sales, as well as channel sales through
various industry relationships. We plan to establish a leading position in our
target markets by aggressively expanding our sales force, continuing to
establish and leverage industry relationships to increase channel sales and
expanding our marketing staff.
Direct Sales. Our direct sales professionals include:
. sales representatives, who conduct sales campaigns, identify targeted
prospects, oversee sales territories and manage customer
relationships;
. sales engineers, who discuss with prospective customers their Web site
and Internet application hosting and management needs and technical
requirements; and
. telesales representatives, who qualify customer leads.
Our direct sales teams currently are located in: Andover, Massachusetts;
New York, New York; and San Jose and Los Angeles, California. We plan to expand
our sales force to provide geographic presence in other key markets.
Channel Sales. We have developed important industry relationships to
enhance our channel sales and marketing capabilities. In 1998, we began
pursuing channel sales relationships through our Alliance Partner Program and
also have generated leads or referrals on an informal basis from application
and system integrators and Internet application software vendors. We intend to
continue to leverage our industry relationships to develop customer referrals,
mutual referral relationships, enhanced service offerings, and in some cases,
co-selling and cross-selling opportunities. Although our industry relationships
have not yet matured into significant sources of new customers, we expect these
relationships to generate more referrals and leads in the future.
Marketing. Our marketing group is responsible for corporate and product
marketing, product management, corporate communications, public relations, lead
generation and marketing communications. As with our sales approach, our
overall marketing strategy focuses on supporting both direct sales and channel
sales. The key goals for our current marketing efforts are to establish a
national and local awareness of the NaviSite brand and our services, position
ourselves as a leading Web site and Internet application hosting and management
partner, develop and enhance channel sales relationships and demonstrate to
potential customers how our services differentiate us from our competition. Our
marketing efforts include:
. comprehensive lead generation through telemarketing, direct marketing,
direct mail programs, electronic and print advertising, seminars and
targeted shows and events;
. interactive, online marketing programs;
. marketing communications and public relations materials to sustain
press coverage in both trade and business publications;
. market development activities targeted to Web site design firms,
Internet application developers and consultants;
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. lead generation, referrals, mutual Web site links or co-marketing
through industry relationships with technology vendors such as Cisco
Systems Inc., Oracle Corporation, BMC Software Distribution, Inc., EMC
Corporation and ArrowPoint Communications, Inc.; and
. strategic marketing relationships with Dell Computer Corporation and
Microsoft Corporation, which are principal stockholders of NaviSite.
We expect to make significant investments in these and other marketing
programs to increase awareness of the NaviSite brand. We also intend to
continue to leverage our advantageous relationship with CMGI as a source of
lead generation and referrals for our services.
Industry Relationships
In our sales and marketing efforts, we are pursuing industry relationships
targeted by our Alliance Partner Program.
Web and Application Developers. We have developed relationships with
multiple small- to medium-sized Web site design firms, Internet application
developers, consultants and other similar companies that have established
relationships with our target customers. These companies generally lack the
infrastructure and expertise needed to offer their customers a complete, cost-
effective solution and, as a result, turn to us to provide hosting and
management services and expertise to enhance their own product and service
offerings. These relationships provide us with greater market reach through
referrals, without the related overhead costs. In return, we offer these
companies discounts on our services, participation in networking events and
trade shows, joint marketing and promotional campaigns and Web site linkage.
Application and System Integrators. We have developed relationships with
several high-end network integration companies and system integrators that
assist us with complex development, integration and project management, and to
whom we provide application hosting and management solutions. These
relationships enable us to deliver more comprehensive Internet application
solutions to meet the needs of our customers.
Internet Application Software Vendors. We have developed relationships with
some of the leading Internet application software vendors. We target Internet
application software vendors with brand name recognition and established sales
and support channels. These relationships are mutually beneficial, providing us
with additional applications to sell or rent to our customers, and the software
vendors with a distribution channel for their applications. We also benefit
from cross-selling and co-marketing opportunities and specialized product
training to enhance our application management expertise.
Customers
We were organized in 1996 by CMGI to support the networks and host the Web
sites of CMGI and a number of CMGI affiliates. In the Fall of 1997, we began
supplying Web site hosting and management services to companies unaffiliated
with CMGI. As of April 30, 1999, we had approximately 101 customers, up from 22
as of April 30, 1998. CMGI and CMGI affiliates accounted for 68% of our revenue
for the quarter ended April 30, 1999 as compared to 97% of our revenue for the
quarter ended April 30, 1998. CMGI and CMGI affiliates accounted for 19% of our
customer base as of April 30, 1999 as compared to 55% of our customer base as
of April 30, 1998.
A representative list of our customers as of April 30, 1999 includes:
AltaVista Company; Ancestry.com, Inc.; Catalog City, Inc.; CIO Communications,
Inc.; Engage Technologies, Inc.; FairMarket, Inc.; Furniture.com, Inc.;
PlanetAll.com, Inc.; Planet Direct Corporation; Raging Bull, Inc.; Send.com;
ThingWorld.com; and TribalVoice.
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Product Development
Our product development staff is comprised of four separate operating
groups: Internet applications; network architecture; security architecture and
planning; and information systems. Our Internet applications group identifies
new Internet applications, incorporates these applications into our suite of
service offerings and positions them for marketing, sale and rapid deployment.
We focus on Internet applications that permit us to offer our customers
repeatable, scalable services. Our goal is to introduce services capable of
utilization by a large number of customers, maximizing revenue production and
minimizing the incremental operating cost for each additional customer
utilizing that service. As new applications are introduced, our personnel
integrate the application into our management and billing systems, provide
technical documentation and training and ensure the security of the offering.
This process is critical to our ability to provide integrated, scalable
applications to our customers and is designed to result in increased operating
margins, faster product delivery and improved customer service.
The remaining operating groups involved in product development perform the
following functions:
Network architecture. This group identifies, selects and implements the
various technologies, including network storage and back-up, that provide the
basic infrastructure for both our internal network and the solutions we offer
our customers.
Security architecture and planning. This group plans for and implements the
technologies which secure the confidential information and infrastructures
belonging to us and our customers against unauthorized access, computer
viruses, accidental or intentional actions and other disruptions.
Information systems. This group develops, manages and maintains our
internal business systems, including financial software systems and our
corporate databases.
Customer Service and Support
We believe customer service and support is critical to our future success
and growth. Our customer care group is focused on direct and indirect customer
service and support. We have developed a customized, life-cycle project
management approach to our operations. For some of our customers, we assign a
single business solutions manager who services the customer from deployment
through the entire customer relationship. This approach is designed to enhance
our responsiveness to customer requests, problem troubleshooting and technology
upgrades. In servicing and supporting our customers, we utilize a number of
state-of-the-art automated systems, including a knowledge-based problem-
resolution and trouble-ticketing system, an enterprise system monitoring
platform, sophisticated data storage, an enterprise tape backup system and a
corporate intranet with a built-in document management and source control
system.
We believe that our approach to customer service and support and our
ability to rapidly respond to customer needs provides us with a significant
competitive advantage. Our rapid response abilities were favorably recognized
in a recent study performed by and published in Data Communications Magazine.
Network Infrastructure, Technology and Operations
NaviSite entered the Internet application service market with the advantage
of a well developed infrastructure established by CMGI to support CMGI and a
number of its affiliates. We have differentiated our infrastructure from
competing application service providers through our direct private transit
Internet connections to five major Internet backbone providers. We designed our
infrastructure specifically to provide superior performance for our Web site
and Internet application hosting and management services, including multi-level
network redundancy to provide the highest levels of network uptime, reliable
and customized network security, and fast, guaranteed response time and
availability of customers' content, which we deliver through our private
transit Internet connections. Our infrastructure is also designed to scale to
support continued growth. We believe that our sophisticated and highly
redundant infrastructure provides us with a
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<PAGE>
competitive advantage over other hosting vendors and most Internet service
providers. Key elements of our infrastructure include:
Data Centers. Our strategy is to build a select number of high performance
data centers in order to provide our customers with a critical mass of
expertise in Internet applications and management services from each data
center, while capturing the benefits of centralized infrastructure and
staffing. We currently have data centers located in Andover, Massachusetts and
Scotts Valley, California. These state-of-the-art data centers incorporate
technically sophisticated components and are designed to be completely fault-
tolerant. The components used in our data centers include Cisco redundant core
routers, Cisco redundant core switching hubs and secure, virtual local area
networks. We obtain the equipment and tools necessary for our data center
operations, including our infrastructure hardware, networking and software
products from industry leaders such as ArrowPoint Communications, Cisco
Systems, Compaq Computer Corporation, Dell, EMC and Oracle.
We are adding new data centers, including an additional data center in
Andover and a new data center in San Jose, California. Construction is
currently underway at both of these new sites.
Private Transit Internet Connectivity. Our use of direct private transit
Internet connections to five major Internet backbone providers differentiates
our network infrastructure from that of our competitors. We have redundant
high-capacity Internet connections to UUNet, CERFnet and MCI on the East Coast
and UUNet, BBN, MCI and SprintLink on the West Coast. We have deployed direct
private transit Internet connections specifically to avoid congestion and data
loss at public Internet exchange points and the resulting degradation of
performance. Our private transit system enables us to provide fast, reliable
access for our customers' Web sites and Internet applications. Because we have
direct private transit links to Internet providers, we can directly monitor the
capacity of all of our connections and guarantee that we will have the
aggregate bandwidth to move large quantities of data at high transmission
speeds. Our private transit Internet connections also enable us to more
effectively launch new applications, such as streaming, which require high
bandwidth availability and run more effectively in a private transit model.
Service Level Guarantees. The combination of our state-of-the-art
infrastructure, our customer-focused operations group and our hosting and
management expertise enable us to offer our customers service levels backed by
guarantees that we believe are among the highest and most comprehensive in the
industry. For example, we offer our customers 99.99% guarantees for network
segments, our facility and facility components. These guarantees translate into
no more than five minutes of consecutive, unscheduled downtime per month.
Network Security. Our network incorporates host-based security with
CheckPoint back-end firewalls and Cisco router access control lists, as well as
SecurID token-based authentication. In addition to these physical security
measures, we have a formal security policy in place, including employee
training, that governs all facets of our business and guidelines governing
internal and external access to information housed in our network system.
Network Operations Centers. Each NaviSite data center has its own network
operations center on site. Each network operations center is fully staffed 24-
hours-a-day, seven-days-a-week with Windows NT, UNIX, application and support
personnel. Our network operations centers perform first-level problem
identification and resolution. The design of our network operations centers
allows network engineers and support personnel to be promptly alerted to
problems, and we have established procedures for rapidly resolving any
technical issues that arise. Network management and monitoring tools
continuously monitor the network and server performance.
Competition
We compete in the Internet application service market. This market is
evolving rapidly, is highly competitive and is likely to be characterized by an
increasing number of market entrants and by industry
39
<PAGE>
consolidation. Because there are no substantial barriers to entry, we expect
that we will face competition from both existing competitors and new market
entrants in the future. We believe that participants in this market must grow
rapidly and achieve a significant presence to compete effectively. We believe
that the primary competitive factors determining success in our market include:
. a state-of-the-art infrastructure providing availability, speed,
scalability and security;
. Web site and Internet application hosting and management expertise;
. fast and reliable Internet connectivity;
. a reputation for high-quality service and superior customer service
and support;
. numerous and diverse service offerings and timely addition of value-
added services;
. brand recognition;
. competitive pricing; and
. adequate capital to permit continued investment in infrastructure,
customer service and support, and sales and marketing.
We may lack the financial and other resources, expertise or capabilities to
compete successfully in this environment in the future.
Our current and prospective competitors include:
. other providers of co-location or high-end Web site hosting and
related services, including AboveNet Communications, Inc., Digex
Corporation, Exodus Communications, Inc., Frontier GlobalCenter Inc.,
Globix Corporation, Interliant, Inc. and a large number of local and
regional hosting providers;
. national and regional Internet service providers, including Concentric
Network Corporation, MindSpring Enterprises, Inc., PSINet Inc., UUNet,
WorldCom and Verio Inc.;
. companies that focus on customized Internet application services,
including AppNet Systems, Inc., CORIO, Inc., IBM Global Services,
USinternetworking, Inc. and USWeb/CKS;
. application developers and Internet application software vendors,
including Open Market, Inc., DoubleClick Inc. and broadcast.com inc.;
. large system integrators and information technology outsourcing firms,
including Electronic Data Systems Corporation and International
Business Machines Corporation; and
. global telecommunications companies, including AT&T Corp., MCI
WorldCom, Inc. and Sprint Corporation, and regional and local
telecommunications companies, including MediaOne Group, Inc. and
regional Bell operating companies, such as Bell Atlantic Corporation.
Many of these competitors have substantially greater financial, technical
and marketing resources, larger customer bases, longer operating histories,
greater name recognition and more established relationships in the industry
than we have. As a result, many of these competitors may be able to develop and
expand their network infrastructures and service offerings more rapidly, adapt
to new or emerging technologies and changes in customer requirements more
quickly, take advantage of acquisitions and other opportunities more readily,
devote greater resources to the marketing and sale of their services and adopt
more aggressive pricing policies than we can. Because of these competitive
factors and due to our comparatively small size and our lack of financial
resources, we may be unable to successfully compete in the Internet application
service market.
In addition, we believe that there will be continued consolidation within
the Internet application service market in which we compete. Our competitors
may consolidate with one another, or acquire software application vendors or
technology providers, enabling them to more effectively compete with us. This
consolidation could affect prices and other competitive factors in ways which
would impede our ability to compete successfully in the Internet application
service market.
40
<PAGE>
Proprietary Rights
We rely on a combination of trademark, service mark, copyright and trade
secret laws and contractual restrictions to establish and protect our
proprietary rights and promote our reputation and the growth of our business.
We do not own any patents that would prevent or inhibit competitors from using
our technology or entering our market. While it is our practice to require all
of our employees, consultants and independent contractors to enter into
agreements containing non-disclosure, non-competition and non-solicitation
restrictions and covenants, and while our agreements with some of our customers
and suppliers include provisions prohibiting or restricting the disclosure of
proprietary information, we can not assure you that these contractual
arrangements or the other steps taken by us to protect our proprietary rights
will prove sufficient to prevent misappropriation of our proprietary rights or
to deter independent, third-party development of similar proprietary assets. In
addition, we provide our services in other countries where the laws may not
afford adequate protection for our proprietary rights.
We license or lease most technologies used in our Internet application
services. Our technology suppliers may become subject to third-party
infringement claims which could result in their inability or unwillingness to
continue to license their technology to us. The loss of certain of our
technologies could impair our ability to provide services to our customers or
require us to obtain substitute technologies of lower quality or performance
standards or at greater cost. We expect that we and our customers increasingly
will be subject to third-party infringement claims as the number of Web sites
and third-party service providers for Web-based businesses grows. In addition,
we have received notices alleging that our use of our service marks infringes
the trademark rights of third parties. Although we do not believe that any of
these allegations have merit, or that our technologies or services otherwise
infringe the proprietary rights of any third parties, we cannot assure you that
third parties will not assert claims against us in the future or that these
claims will not be successful. Any infringement claim as to our technologies or
services, regardless of its merit, could be time-consuming, result in costly
litigation, cause delays in service, installation or upgrades, adversely impact
our relationships with suppliers or customers or require us to enter into
royalty or licensing agreements.
Government Regulation
While there currently are few laws or regulations directly applicable to
the Internet or to Internet application service providers, due to the
increasing popularity of the Internet and Web-based applications it is likely
that such laws and regulations may be adopted. These laws may cover a variety
of issues including, for example, user privacy, and the pricing,
characteristics and quality of products and services. The adoption or
modification of laws or regulations relating to commerce over the Internet
could materially adversely affect our financial condition and operating
results. Moreover, the applicability of existing laws to the Internet and
Internet application service providers is uncertain. These existing laws could
expose us to substantial liability if they are found to be applicable to our
business. For example, we provide services over the Internet in many states in
the United States and in the United Kingdom, and we facilitate the activities
of our customers in those jurisdictions. As a result, we may be required to
qualify to do business, be subject to taxation or be subject to other laws and
regulations in these jurisdictions, even if we do not have a physical presence
or employees or property there. The application of existing laws and
regulations to the Internet or our business, or the adoption of any new
legislation or regulations applicable to the Internet or our business, could
materially adversely affect our financial condition and operating results.
Employees
As of April 30, 1999, we had 171 employees. Of these employees, 86 were
principally engaged in operations, 40 were principally engaged in sales and
marketing, 27 were principally engaged in product development and 18 were
principally engaged in finance and administration. None of our employees are
party to a collective bargaining agreement and we believe our relationship with
our employees is good. We also employ consultants and independent contractors
on a regular basis to assist in the completion of projects and we outsource our
direct telemarketing sales force. It is our practice to require all of our
employees, consultants
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<PAGE>
and independent contractors to enter into agreements containing non-disclosure,
non-competition and non-solicitation restrictions or covenants.
Facilities
Existing Facilities. Our executive offices are located at 100 Brickstone
Square, Andover, Massachusetts and occupy approximately 11,000 square feet of
the space leased by CMGI at that location. We also occupy approximately 22,000
square feet at 300 Federal Street, Andover, Massachusetts, pursuant to an
agreement that expires in 2007. Part of this facility is utilized for our East
Coast data center, currently under expansion. We anticipate that work will be
completed on the East Coast data center expansion in July 1999. We believe that
this facility has sufficient growth capacity for the next nine to 12 months.
We also occupy approximately 14,100 square feet at 1700 Greens Hill Road,
Scotts Valley, California, part of which is utilized for our West Coast data
center, pursuant to an agreement that expires in 2002. We believe that this
facility has sufficient growth capacity for the next 12 to 18 months. We do not
have any current intention to expand the Scotts Valley facility.
In addition, we occupy three offices at 304 Park Avenue South, 11th Floor,
New York, New York, pursuant to an agreement that expires in October 1999. This
office space is utilized by sales and marketing personnel.
New Facilities. In May 1999, we executed a 12-year lease for a new 150,000
square foot facility located at 400 Minuteman Road, Andover, Massachusetts,
which is currently being constructed to our specifications. Part of this
facility will be utilized for a new data center. We anticipate that work will
be completed on the new Massachusetts facility in the Spring of 2000, and we
believe that this facility will have sufficient growth capacity for the next
four to five years. Construction also has started on a new 66,000 square foot
facility located in the Valley Technology Centre, 2720 Zanker Road, San Jose,
California, part of which will be utilized for a new data center. This facility
should be available for occupation in the Fall of 1999. In May 1999, we
executed a seven-year lease for this facility. We believe that this facility
will have sufficient growth capacity for three years.
We believe that upon completion of the two new facilities currently under
construction, our facilities will be adequate for the foreseeable future, and
that we will be able to obtain additional space as needed on commercially
reasonable terms.
Legal Proceedings
NaviSite is not currently a party to any material legal proceedings.
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MANAGEMENT
Executive Officers and Directors
The executive officers and directors of NaviSite, and their ages and
positions with NaviSite as of June 30, 1999, are as follows:
<TABLE>
<CAPTION>
Name Age Position(s)
- ---- --- -----------
<S> <C> <C>
Joel B. Rosen............. 41 Chief Executive Officer and Director
Robert B. Eisenberg....... 48 President and Director
Kenneth W. Hale........... 46 Chief Financial Officer, Treasurer and Secretary
Thomas W. Culver.......... 52 Vice President, Operations
Barbara H. Fortier........ 44 Vice President, Facilities
Peter C. Kirwan, Jr....... 35 Chief Technology Officer
Jonathan Rodin............ 41 Vice President, Product Development
Jay S. Seaton............. 44 Vice President, Marketing
J. Andrew Sherman......... 44 Vice President, Sales
David S. Wetherell........ 44 Chairman of the Board of Directors
Craig D. Goldman.......... 55 Director
Andrew J. Hajducky III.... 45 Director
</TABLE>
Joel B. Rosen has served as NaviSite's Chief Executive Officer and as one
of its Directors since April 1999. From January 1996 to August 1998, Mr. Rosen
served as Executive Vice President of Aspen Technology, Inc., a publicly traded
enterprise software and services provider, where he was responsible for
managing two of Aspen Technology's three business units. From August 1988 to
January 1996, Mr. Rosen held several management positions within Aspen
Technology, including Director of Marketing, Vice President of Marketing and
Senior Vice President of Marketing and New Businesses. From 1984 to 1988, Mr.
Rosen was a Consultant and Manager at Bain & Company.
Robert B. Eisenberg founded NaviSite in July 1996 while an employee of
CMGI, Inc. He has served as NaviSite's President and as one of its Directors
since NaviSite was incorporated as a separate entity in February 1997, and also
served as its Chief Executive Officer from February 1997 to April 1999. From
March 1995 to July 1996, Mr. Eisenberg served as Vice President of Information
Technology at MediaOne Group, Inc. (formerly Continental Cablevision), a cable
television provider. From September 1991 to March 1995, Mr. Eisenberg served as
the Director of Information Technology at New England Business Services, Inc.,
a provider of business forms and software for small businesses.
Kenneth W. Hale has served as NaviSite's Chief Financial Officer since
March 1997 and as the Treasurer and Secretary since March 1998. From May 1989
to September 1996, Mr. Hale served as Chief Financial Officer and Treasurer of
Media/Communications Partners, a telecommunications and media venture capital
firm, where he was responsible for overseeing the financial management of
multiple venture capital funds and related entities. From June 1980 to April
1989, Mr. Hale was a Senior Manager, Audit and Tax, at Ernst & Whinney, which
merged with Arthur Young & Co. to form Ernst & Young LLP. Mr. Hale is a
Certified Public Accountant.
Thomas W. Culver has served as NaviSite's Vice President of Operations
since June 1999. From June 1997 to May 1999, Mr. Culver worked as an
independent consultant. From September 1995 to June 1997, Mr. Culver served as
Group Manager of Information Technology at Paymentech, Inc., formerly known as
First USA Paymentech, a national credit card payment processor, where he was
responsible for systems development, database and systems administration and
operations. From October 1986 to September 1995, Mr. Culver was Chief
Information Officer of DMGT Corp., a credit card payment processor, where he
managed the information technology department.
Barbara H. Fortier has served as NaviSite's Vice President of Facilities
since June 1999 and served as NaviSite's Vice President of Operations from July
1997 to June 1999. From November 1995 to June 1997,
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Ms. Fortier served as Senior Manager of Communications at Staples, Inc., a
national retailer of office supplies, where she was responsible for all
telecommunications services, local area networking and wide area networking
services. From January 1993 to November 1995, Ms. Fortier served as
Communications Manager at New England Business Services, Inc., a provider of
business forms and software for small businesses.
Peter C. Kirwan, Jr. has served as NaviSite's Chief Technology Officer
since July 1998. In the five years prior to joining NaviSite, Mr. Kirwan was an
entrepreneur in the commercial Internet field, founding two Internet service
providers. The first, Media Access Systems, Inc., was a New York based Internet
service provider focusing on high-speed business Internet connections and one
of the first companies to provide Web server hosting in the United States. The
second, Servercast Communications, L.L.C., focused exclusively on application
management and hosting and was acquired by NaviSite in July 1998.
Jonathan Rodin has served as NaviSite's Vice President of Product
Development since February 1999. From October 1997 to July 1998, Mr. Rodin
served as Vice President of Engineering at ADSmart Corporation, a developer and
marketer of online ad sales and ad-serving solutions and a subsidiary of CMGI.
From July 1991 to September 1997, Mr. Rodin served as the Vice President of
Engineering at FTP Software, Inc., an independent vendor of software and
related applications for the personal computer market.
Jay S. Seaton has served as NaviSite's Vice President of Marketing since
December 1997. From November 1996 to December 1997, Mr. Seaton served as Vice
President of Sales and Marketing at Radnet, Inc., a provider of application
tools. From June 1991 to November 1996, Mr. Seaton served as Director of
Marketing and Product Management at Banyan Systems Incorporated, a provider of
distributed networking software.
J. Andrew Sherman has served as NaviSite's Vice President of Sales since
August 1997. From March 1996 to August 1997, Mr. Sherman served as Vice
President of U.S. Sales for Fulcrum Technologies Inc., a software firm focused
on providing knowledge management capabilities to large enterprises on intranet
platforms. From September 1994 to March 1996, Mr. Sherman served as Regional
Manager at Sybase, Inc., a database and application development tools company.
Prior to 1994, Mr. Sherman also held senior positions at Apple Computer, Inc.
and MCI WorldCom, Inc.
David S. Wetherell has served as a Director and Chairman of the Board of
Directors of NaviSite since February 1997. Mr. Wetherell has served as Chairman
of the Board, President, Chief Executive Officer and Secretary of CMGI, Inc.
since 1986 and as a member of CMG@Ventures I, LLC, a venture capital firm
subsidiary of CMGI, and President of CMG@Ventures, Inc., the managing partner
of CMG@Ventures I, LLC, since January 1995. He is also a managing member of
CMG@Ventures II, LLC, CMG@Ventures III, LLC and @Ventures Management, LLC,
which also are strategic investment and development venture capital
subsidiaries or CMGI affiliates. From 1982 until joining CMGI in 1986, Mr.
Wetherell was a co-founder and President of Softrend, Inc., a microcomputer
software publisher. Mr. Wetherell is also the founder of BookLink Technologies,
Inc., a CMGI subsidiary that was sold to America Online, Inc. in 1994. Mr.
Wetherell also serves as the Chairman of the Board of Directors of Engage
Technologies, Inc., a subsidiary of CMGI.
Craig D. Goldman has served as a Director of NaviSite since February 1997.
Mr. Goldman has served as President and Chief Executive Officer for Cyber
Consulting Services Corp., a technology consulting firm, since March 1996. From
October 1991 to March 1996, Mr. Goldman served with Chase Manhattan Bank as
Senior Vice President and Chief Information Officer. Mr. Goldman served with
Chase Manhattan Bank as Senior Vice President, Technology and Operations from
March 1988 to October 1991, after having started with Chase Manhattan in June
1985. Mr. Goldman also serves as a director of CMGI, Inc., Engage Technologies,
Inc. and PRT Group Inc.
Andrew J. Hajducky III has served as a Director of NaviSite since February
1997. Mr. Hajducky has served as the Chief Financial Officer and Treasurer of
CMGI, Inc. since October 1995 and as a member of CMG@Ventures I, LLC, a venture
capital firm subsidiary of CMGI, since January 1995. He is also a managing
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member of CMG@Ventures II, LLC, CMG@Ventures III, LLC and @Ventures Management,
LLC, which are strategic investment and development venture capital
subsidiaries or CMGI affiliates. From 1990 to October 1995, Mr. Hajducky was
the Entrepreneurial Services Partner of the Merger and Acquisition division of
the public accounting firm of Ernst & Young LLP. From 1983 through 1990, he
held various positions with Arthur Young & Co., which merged with Ernst &
Whinney to form Ernst & Young LLP. Previously, Mr. Hajducky was the Chief
Financial Officer of Mountain International Company/AccuTel, Inc., a
telecommunications and software company. Mr. Hajducky is a Certified Public
Accountant. Mr. Hajducky also serves as a director of Engage Technologies, Inc.
Each executive officer of NaviSite is elected by, and serves at the
discretion of, the board of directors. Each executive officer serves for a term
of one year. There are no family relationships among any of the directors or
executive officers of NaviSite. We intend to appoint one additional outside
director prior to completion of this offering.
Board Committees
NaviSite's board of directors has an audit committee and a compensation
committee. The audit committee determines our accounting policies and practices
and financial reporting and internal control structures, recommends to the
board of directors the appointment of independent auditors to audit our
financial statements each year and confers with the auditors and oversees our
officers for purposes of reviewing our system of internal accounting and
financial controls.
The compensation committee of the board of directors is responsible for
determining salaries, incentives and other forms of compensation for officers
and other key employees of NaviSite and administers our incentive compensation
and benefit plans.
Director Compensation
We do not currently pay any cash compensation to members of our board for
attending meetings of the board of directors or committee meetings, but we do
reimburse directors for their reasonable travel expenses incurred in connection
with attending these meetings. Any board member who is not also an officer or
employee of NaviSite, any subsidiary of NaviSite or CMGI is entitled to non-
statutory stock options under our 1998 Director Stock Option Plan.
NaviSite has reserved for issuance 125,000 shares of common stock under the
1998 Director Stock Option Plan. Commencing on December 28, 1998, the date that
the Director Stock Option Plan was adopted, each non-employee director of
NaviSite is entitled to receive, upon the date of his or her election, a non-
statutory option to purchase 25,000 shares of common stock, with the exception
of Craig Goldman, who was granted an option to purchase 50,000 shares of common
stock pursuant to the terms of the Director Stock Option Plan. Each automatic
grant will have an exercise price equal to the fair market value of the common
stock at the time of grant and will have a maximum term of ten years, subject
to earlier termination following the optionee's cessation of service on the
board of directors. Each automatic option grant will vest and become
exercisable with respect to 5,000 shares of common stock on the first
anniversary of the date of the grant, with the exception of the grant to Mr.
Goldman, whose option vested and became exercisable as to 10,000 shares on the
date of grant. The remaining option grant will become exercisable with respect
to an additional 5,000 shares (10,000 shares with respect to Mr. Goldman) on
the date of each annual stockholders' meeting at which the option holder is re-
elected as a director. No options will be granted under the Director Stock
Option Plan after December 28, 2008. As of April 30, 1999, options to purchase
50,000 shares of common stock, with an exercise price of $0.49 per share, were
outstanding under the Director Stock Option Plan.
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<PAGE>
Executive Compensation
The following table sets forth all compensation earned during the fiscal
year ended July 31, 1998 by Robert B. Eisenberg, who was our Chief Executive
Officer at the end of fiscal 1998, and our other three most highly compensated
executive officers whose total annual salary and bonuses exceeded $100,000 in
fiscal 1998. Joel B. Rosen, our new Chief Executive Officer, who was appointed
in April 1999, receives salary of $200,000 per year and is eligible to receive
a quarterly bonus of up to $25,000 based upon mutually agreed upon objectives.
In addition, Mr. Rosen was granted options to purchase 534,166 shares of
NaviSite common stock, at an exercise price per share of $7.40 per share, and
options to purchase 100,000 shares of CMGI common stock, at an exercise price
of $123.375 per share.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
----------------------- ------------------
Securities All Other
Name and Principal Position Salary Bonus Underlying Options Compensation
- --------------------------- ---------- --------- ------------------ ------------
<S> <C> <C> <C> <C>
Robert B. Eisenberg(1).. $ 123,500 $ 20,833 80,000(2) $ 1,752(3)
President and Director
Barbara H. Fortier(4)... $100,312 $ 5,000 -- $ 90(3)
Vice President,
Facilities
Kenneth W. Hale......... $117,983(5) $ 20,000(5) -- $ 2,400(3)(5)
Chief Financial
Officer
J. Andrew Sherman....... $126,910 -- -- $82,848(3)(6)
Vice President, Sales
</TABLE>
- --------
(1) Mr. Eisenberg served as our Chief Executive Officer from February 1997 to
April 1999.
(2) Represents shares of CMGI common stock underlying options to purchase CMGI
common stock. Gives effect to two two-for-one stock splits of CMGI's common
stock, effective January 11, 1999 and May 27, 1999.
(3) Represents the amount of matching contributions made by NaviSite under the
CMGI 401(k) plan.
(4) Ms. Fortier served as our Vice President of Operations from July 1997 to
June 1999.
(5) Includes salary, bonus payments and 401(k) matching contributions of
$89,383, $15,000 and $1,728, respectively, from Engage Technologies, Inc.,
an affiliate of CMGI.
(6) Includes $82,704 in commission payments.
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<PAGE>
Stock Option Grants
The following table sets forth information regarding options granted to Mr.
Eisenberg during the fiscal year ended July 31, 1998. The exercise price of
each option is equal to the fair market value of the common stock on the date
of grant as determined by the board of directors. Mr. Eisenberg received no
options to purchase our common stock in fiscal 1998. Ms. Fortier and Messrs.
Hale and Sherman received no options to purchase either our common stock or
CMGI common stock in fiscal 1998. We have never granted any stock appreciation
rights.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants
------------------------------------------------
Potential Realizable
Value at Assumed
Percent of Annual Rates of
Number of Total Stock Price
Securities Options Appreciation for
Underlying Granted to Exercise Option Term (2)
Options Employees in Price Per Expiration --------------------
Name Granted (1) Fiscal Year Share Date 5% 10%
---- ----------- ------------ --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Robert B. Eisenberg..... 80,000(3) 2.9% $2.313(3) 10/26/02 $ 51,116 $ 112,943
</TABLE>
- --------
(1) The term of the option is five years from the date of grant.
(2) Potential gains are net of the exercise price but before taxes associated
with the exercise. These numbers are calculated based on the rules of the
Securities and Exchange Commission and do not represent an estimate or
projection of future common stock prices. Actual gains, if any, on stock
option exercises are dependent on the future performance of CMGI's common
stock, overall stock market conditions and the option-holders' continued
employment with NaviSite through the vesting period. The amounts reflected
in the table may not necessarily be achieved.
(3) Represents a grant of options to purchase CMGI common stock, 25% of which
vest and become exercisable after the first year and the remaining 75% of
which vest and become exercisable in equal monthly traunches over the 36
months thereafter. Gives effect to two two-for-one stock splits of CMGI's
common stock, effective January 11, 1999 and May 27, 1999.
The following table sets forth information concerning options to purchase
common stock exercised by the executive officers named in the "Summary
Compensation Table" appearing above during the fiscal year ended July 31, 1998
and the number and value of unexercised options held as of July 31, 1998. None
of these executive officers exercised any options in fiscal 1998.
Aggregated Option Exercises in Last Fiscal Year and
Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money Options at
Options at July 31, 1998 July 31, 1998 (2)
------------------------- -------------------------
Name Company Exercisable Unexercisable Exercisable Unexercisable
---- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Robert B. Eisenberg..... NaviSite 149,999 150,001 $ $
CMGI -- 80,000 (3) -- $1,177,400 (4)
Barbara H. Fortier...... NaviSite 18,750 56,250
Kenneth W. Hale......... NaviSite 37,499 37,501
J. Andrew Sherman....... NaviSite 25,000 75,000 --
</TABLE>
- --------
(1) Based upon fair market value per share on the date of exercise, minus the
per share exercise price, multiplied by the number of shares of common
stock underlying such option.
(2) With respect to the NaviSite options, based upon an assumed initial public
offering price of $ per share, minus the per share exercise price,
multiplied by the number of shares of common stock underlying the option.
(3) Gives effect to two two-for-one stock splits of CMGI's common stock,
effective January 11, 1999 and May 27, 1999.
(4) Based on the difference between the option exercise price and $17.03, which
was the closing price of CMGI common stock on July 31, 1998, as adjusted
for subsequent stock splits of CMGI's common stock.
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<PAGE>
Employment and Non-Competition Agreements
None of our executive officers has an employment agreement, although all of
our executive officers have entered into agreements that contain non-
disclosure, non-competition and non-solicitation restrictions and covenants,
including a provision prohibiting these officers from competing with NaviSite
during their employment with us and for a period of 12 months after termination
of their employment with us.
In addition, each executive officer is party to an offer letter with CMGI
which sets forth their annual salary, annual bonus eligibility, option grants
and other benefits. Joel Rosen's offer letter, dated April 14, 1999, provides
that if he is terminated without cause or there is a substantive change in his
job title, responsibilities or location of employment, or a reduction in his
compensation, following a change of control of either NaviSite or CMGI, then
his options to purchase 534,166 shares of NaviSite common stock and 100,000
shares of CMGI common stock will immediately become fully vested and
exercisable.
1998 Equity Incentive Plan
NaviSite has reserved for issuance 2,400,000 shares of common stock under
the NaviSite 1998 Equity Incentive Plan, as amended as of April 20, 1999. Under
the Equity Incentive Plan, NaviSite is authorized to grant incentive stock
options, non-statutory stock options, stock appreciation rights and restricted
stock awards to employees, directors and consultants of NaviSite, or any
affiliate, who is capable of contributing significantly to our successful
performance. In general, options granted pursuant to the 1998 Equity Incentive
Plan are exercisable within four years of the original grant date. The board of
directors or an appropriate committee of the board has the right, at its
discretion, to accelerate the vesting of any award or provide for cash payment
to the participants in exchange for their awards upon a change of control of
NaviSite. Options are not assignable or transferable except by will or the laws
of descent or distribution. Our board of directors may amend, suspend or
terminate the Equity Incentive Plan at any time, subject to any required
stockholder approval.
As of April 30, 1999, options to purchase an aggregate of 2,287,058 shares
of common stock at a weighted average exercise price of $2.27 per share were
outstanding under the Equity Incentive Plan. As of April 30, 1999, we had not
granted any stock appreciation rights or issued any shares of restricted stock
under the Equity Incentive Plan.
1999 Employee Stock Purchase Plan
The 1999 Employee Stock Purchase Plan is expected to be adopted by our
board of directors and approved by our stockholders in August 1999, to be
effective upon completion of this offering. The 1999 Employee Stock Purchase
Plan provides for the issuance of a maximum of shares of our common stock.
The 1999 Employee Stock Purchase Plan will be administered by the
compensation committee. All employees of NaviSite whose customary employment is
for more than 30 hours per week and for more than three months in any calendar
year are eligible to participate in the 1999 Employee Stock Purchase Plan.
Employees who would own five percent or more of the total combined voting power
or value of NaviSite's stock immediately after having subscribed for shares
under the 1999 Employee Stock Purchase Plan may not participate in the 1999
Employee Stock Purchase Plan. To participate in the 1999 Employee Stock
Purchase Plan, an employee must authorize us to deduct an amount (not less than
one percent nor more than 10% of a participant's total cash compensation) from
his or her pay during quarterly payment periods. At the end of each quarterly
payment period, the participant's funds are used to purchase shares of our
common stock, at a price equal to 85% of the lesser of the last reported sale
price of the common stock on the first or last business day of the payment
period.
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<PAGE>
401(k) Plan
NaviSite is a participating employer in the 401(k) defined contribution
profit sharing savings and retirement plan sponsored by CMGI, Inc. All NaviSite
employees who are at least 21 years of age and have satisfied the necessary
service eligibility requirements, except for nonresident aliens with no United
States source of income, are eligible to participate in the plan. Under our
401(k) plan, a participant employee may elect to reduce his or her current
compensation by up to the lower of 15% or the statutorily prescribed limit
($10,000 in 1998) and have the amount of the reduction contributed to the plan
on the employee's behalf as salary deferral contributions. The 401(k) plan
permits additional discretionary matching contributions by us with respect to
our employees' pre-tax contributions up to the first six percent of each
employee's salary contributed to the plan. The 401(k) plan also permits us to
make discretionary profit sharing contributions to the plan on behalf of our
employees. All contributions to the 401(k) plan by or on behalf of employees
are subject to aggregate annual limits prescribed by the Internal Revenue
Service.
Compensation Committee Interlocks and Insider Participation
Prior to this offering, we had no separate compensation committee or other
board committee performing equivalent functions. These functions were performed
by our board of directors, which consisted of Joel B. Rosen and Robert B.
Eisenberg, our Chief Executive Officer and President, respectively, David S.
Wetherell, Chairman of the Board, President, Chief Executive Officer and
Secretary of CMGI, Craig D. Goldman, a director of CMGI, and Andrew J. Hajducky
III, Chief Financial Officer and Treasurer of CMGI.
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<PAGE>
CERTAIN TRANSACTIONS
Relationship and Transactions between NaviSite and CMGI, Inc.
Our predecessor was incorporated in February 1997 as a wholly owned
subsidiary of CMGI. As of June 30, 1999, CMGI owned approximately 89.4% of our
common stock, assuming the conversion or exchange of all outstanding shares of
convertible preferred stock as of June 30, 1999, including shares of
convertible preferred stock held by CMGI indirectly through our predecessor.
CMGI will directly own % upon completion of this offering.
CMGI has the power to elect our entire board of directors and to approve or
disapprove any corporate transactions or other matters submitted to our
stockholders for approval, including the approval of mergers or other
significant corporate transactions. CMGI may exercise its voting power by
written consent, without convening a meeting of the stockholders, meaning that
CMGI will be able to effect a sale or merger of NaviSite without prior notice
to, or the consent of, our other stockholders. CMGI also holds a majority
equity ownership position in many of our customers.
NaviSite and CMGI have entered into or, upon or prior to completion of this
offering, will enter into the present and prospective arrangements and
transactions described below. These agreements were or will be negotiated
between CMGI, as a corporate parent, and NaviSite, its subsidiary, and
therefore are not the result of negotiations between independent parties.
NaviSite and CMGI intend that these agreements and the transactions provided
for in these agreements, taken as a whole, accommodate their respective
interests in a manner that is fair to both NaviSite and CMGI. However, because
of the complex nature of the various relationships among NaviSite, CMGI and
various CMGI affiliates, we cannot assure you that each of the agreements
described below, or the transactions provided for in these agreements, were or
will be effected on terms at least as favorable to NaviSite as NaviSite could
have obtained from unaffiliated third parties.
NaviSite and CMGI or its affiliates may enter into additional or modified
arrangements and transactions in the future. NaviSite, CMGI or its affiliates,
as the case may be, will negotiate the terms of such arrangements and
transactions. Upon or prior to completion of this offering, NaviSite expects to
adopt a policy that all future arrangements between NaviSite and CMGI or its
affiliates will be on terms that NaviSite believes are no less favorable to it
than the terms NaviSite believes would be available from unaffiliated parties
and must be approved by a majority of NaviSite's directors who are not
employees of CMGI (even though such directors may be less than a quorum).
The following is a summary of the material arrangements and transactions
between NaviSite and CMGI or its affiliates.
Lease Guarantees
In connection with our execution of three of our real property leases, CMGI
has provided our landlords with guarantees of all of our obligations under the
leases. In connection with the execution of the lease for our Scotts Valley,
California facility, CMGI guaranteed the full performance of all of our
obligations through the expiration of the lease term. In connection with the
execution of the lease for our new Andover, Massachusetts facility, CMGI
executed an unconditional guaranty of the lease and an accompanying letter of
credit to ensure the full and punctual payment, as well as performance of all
of our obligations, under the lease. CMGI will be released from the Andover
guaranty upon the occurrence of the earlier of the closing of this offering or
the date on which we occupy the premises and begin to pay rent. CMGI also
executed an unconditional and irrevocable guaranty in connection with the
execution of the lease for our new facility in San Jose, California. CMGI will
be released from the San Jose guaranty within 15 days of the later of the
closing of this offering or the landlord's receipt of a letter of credit, in
the form specified in the guaranty, in the amount of $2,388,660.
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<PAGE>
Debt Conversion
We have issued a secured convertible demand note to CMGI in exchange for
the cancellation of all intercompany debt incurred by us to CMGI prior to April
30, 1999. This note also provides for additional advances by CMGI to us after
April 30, 1999. CMGI may elect to convert amounts payable under the note into
Series B convertible preferred stock at any time. Additional intercompany debt
incurred after April 30, 1999 accrues interest at a rate of seven percent per
year, compounded monthly until the day CMGI elects to convert the debt into
shares of Series B convertible preferred stock. The amount of each borrowing
represented by the note is convertible as of the end of the fiscal quarter in
which the borrowing was made into the number of shares of Series B convertible
preferred stock equal to one-tenth of the quotient of:
. the aggregate amount of principal and interest to be so converted,
divided by
. the applicable conversion price for that fiscal quarter.
The conversion price applicable for any fiscal quarter, except the fiscal
quarter during which a qualified initial public offering occurs, is determined
by dividing our total enterprise value as of the fiscal quarter end, as
determined in good faith by our board of directors, by the number of shares of
common stock outstanding on a fully diluted, as-if-converted basis. It is
expected that all debt due to CMGI prior to the closing of this offering will
be converted into Series B convertible preferred stock no later than the
closing of this offering. Each share of Series B convertible preferred stock
issued and outstanding will convert into ten shares of common stock upon the
completion of this offering.
Under this note, intercompany debt in the aggregate amount of $10,760,822,
representing $5,347,705 advanced during the quarter ended January 31, 1999 and
an additional $5,413,117 advanced during the quarter ended April 30, 1999, in
each case including interest accrued during the applicable fiscal quarter, was
converted into 490,332 shares of Series B convertible preferred stock (based
upon applicable conversion prices of $12.74 and $76.68, respectively). Upon the
completion of this offering, such preferred shares will convert into 4,903,320
shares of common stock.
We expect to borrow additional amounts from CMGI to fund our operations
prior to the closing of this offering. To the extent that additional advances
are made during the fiscal quarter in which the closing of this offering
occurs, such borrowings and accrued interest, net of any repayments, will be
converted into additional shares of common stock at the initial public offering
price upon the closing of this offering.
This note is secured by all of our intellectual property and other assets,
whether now owned or hereafter acquired, under the terms of an intellectual
property security agreement and a security agreement between us and CMGI.
Facilities and Administrative Support Agreement
Upon or prior to completion of this offering, we will enter into a
facilities and administrative support agreement with CMGI under which CMGI will
continue to make available to us space at its headquarters in Andover,
Massachusetts and will provide various services to us, including accounting,
tax administration, computer and information systems, telecommunications,
property and casualty insurance, utilities and employee benefits
administration.
Under this agreement, CMGI also will agree to make available to us at least
11,000 square feet of space at its headquarters until completion of our new
Andover, Massachusetts facility. We intend to relocate our executive offices to
our new facility upon completion of that facility.
The initial term of this agreement will be one year from the date of the
agreement, with automatic renewals at the end of the initial term and each
renewal term for successive one-year periods. Either party will be permitted to
terminate the facilities and administrative support agreement upon prior
written notice. The facilities and administrative support agreement will
automatically terminate upon the date CMGI owns less than 50% of our
outstanding common stock.
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<PAGE>
The fees payable by us for the availability of space and other services are
typically determined through an allocation of CMGI's costs based upon the
proportion of our employee headcount to the total headcount of CMGI and other
CMGI affiliates located in the same facility or using the same services. Under
the facilities and administrative support agreement, we will pay CMGI a monthly
fee reflecting the cost of the services provided by CMGI based on the total
number of our employees and consultants on the last day of that month.
In fiscal 1997, fiscal 1998 and the nine months ended April 30, 1999, we
paid CMGI $48,000, $218,000 and $246,000, respectively, for services similar to
those to be provided under the facilities and administrative support agreement.
Tax Allocation Agreement
Upon or prior to completion of this offering, we will enter into a tax
allocation agreement with CMGI to allocate responsibilities, liabilities and
benefits relating to taxes. We will be required to pay our share of income
taxes shown as due on any consolidated, combined or unitary tax returns filed
by CMGI for tax periods ending on or before or including the date as of which
we will no longer be a member of CMGI's group for federal, state or local tax
purposes, as the case may be. CMGI will indemnify us against liability for all
taxes in respect of consolidated, combined or unitary tax returns for periods
as to which CMGI is filing group returns which include us. Accordingly, any
redetermined tax liabilities for those periods will be the responsibility of
CMGI, and any refunds or credits of taxes attributable to us or our
subsidiaries in respect of consolidated, combined or unitary tax returns for
those periods will be for the account of CMGI. We will be responsible for
filing any separate tax returns for any taxable period and will be responsible
for any tax liabilities, and entitled to any refunds or credits of taxes, with
respect to separately filed tax returns. We will indemnify CMGI against any tax
liability with respect to separately filed tax returns.
Neither CMGI nor us will have any obligation to make any payment to the
other party for the use of the other party's tax attributes, such as net
operating losses. However, if one party realizes a windfall tax benefit because
of an adjustment to items on the other party's tax return, the party that
realizes the windfall tax benefit will be required to pay to the other party
the actual incremental tax savings it has realized. For example, if an expense
deducted by CMGI for a period prior to the closing date were disallowed and
required to be capitalized by us for a period after the closing date, thereby
generating future depreciation deductions to us, we would be required to pay to
CMGI any incremental tax savings as a result of the depreciation deductions
when those tax savings are actually realized by us.
Each of Navisite and CMGI has control of any audit, appeal, litigation or
settlement of any issue raised with respect to a tax return for which it has
filing responsibility. Payments of claims under the agreement must be made
within 30 days of the date that a written demand for the claim is delivered.
Interest accrues on payments that are not made within 10 days of the final due
date at the rate applicable to underpayments of the applicable tax. Any dispute
concerning the calculation or basis of determination of any payment provided
under the tax allocation agreement will be resolved by a law firm or "big five"
accounting firm selected and paid for jointly by the parties.
Investor Rights Agreement
Upon or prior to completion of this offering, we will enter into an
investor rights agreement with CMGI under which we will grant CMGI registration
rights and rights to purchase shares to maintain its majority ownership. Under
this agreement, CMGI and its assignees will have the right to demand, on up to
two occasions, that NaviSite register the sale of all or part of their shares
of our common stock having an aggregate value of at least $10.0 million under
the Securities Act. In addition, at any time after we become eligible to file a
registration statement on Form S-3 under the Securities Act, CMGI and its
assignees will have the right to request, on up to five occasions, that we
effect a registration of their shares of our common stock having an aggregate
value of at least $2.5 million on Form S-3. CMGI and its assignees also are
entitled to include shares of our common stock in a registered offering by us
of our securities for our own account, subject to the
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<PAGE>
underwriters' right to reduce the number of included shares. We will pay all
costs associated with the registration of shares by us pursuant to this
agreement, other than underwriting discounts and commissions and various other
expenses.
Also under this agreement, until such time as CMGI, or any permitted
transferee, owns less than a majority of voting power of the outstanding shares
of our capital stock, we will permit CMGI, or the transferee, to purchase a
portion of any shares that we may in the future issue so that CMGI or the
transferee will maintain its majority ownership position. Any such purchases
will be at the same price as is paid by third parties for the shares. This
right is transferable by CMGI to any party that acquires directly from CMGI
shares of common stock representing at least a majority of the outstanding
shares of our common stock.
Other Transactions with CMGI Affiliates
We have agreements with numerous CMGI affiliates under which we provide
these affiliates with Web site and Internet application hosting services,
together with enhanced server management for both Web sites and Internet
applications and specialized application management services. We also rent
sophisticated software applications to a number of these affiliates and provide
consulting services to each of these affiliates on an as-needed basis.
The chart set forth below lists the CMGI affiliates from which we derived
revenue in excess of $60,000 in either of the last two fiscal years or the nine
months ended April 30, 1999 and the revenue derived from these CMGI affiliates
for the fiscal years ended July 31, 1997 and 1998 and for the nine months ended
April 30, 1999, as applicable. Our total revenue was $3,361,480, $4,029,099 and
$6,817,055, for the fiscal years ended July 31, 1997 and 1998 and for the nine
months ended April 30, 1999, respectively.
<TABLE>
<CAPTION>
Nine months ended
Name of affiliate Fiscal 1997(1) Fiscal 1998(1) April 30, 1999(1)
----------------- -------------- -------------- -----------------
<S> <C> <C> <C>
Planet Direct
Corporation........... $1,545,948 $1,593,618 $1,652,507
Engage Technologies,
Inc................... 949,046 751,714 1,223,550
ADSmart Corporation..... 456,673 430,248 358,078
InfoMation.............. 158,059 350,312 293,080
Ancestry.com, Inc....... -- -- 258,798
ZineZone Corp.(2)....... -- 117,946 173,458
Vicinity Corporation.... 236,004 137,226 154,185
Raging Bull, Inc........ -- -- 129,611
ThingWorld.com.......... -- 66,080 118,884
CMG Direct Corporation.. -- 191,300 115,280(3)
Furniture.com, Inc...... -- -- 78,259
Universal Learning
Technology............ -- -- 74,293
MotherNature.com, Inc... -- -- 67,383
PlanetAll.com, Inc...... -- 182,495 --(4)
</TABLE>
- --------
(1) Dashes indicate periods in which the listed customers were not our
affiliates, but do not indicate that no revenues were derived in those
periods.
(2) Known as Password Internet Publishing Corp. until February 1999.
(3) All of the issued and outstanding capital stock of CMG Direct Corporation
was sold by CMGI to Marketing Services Group, Inc. in May 1999. CMGI holds
approximately 12% of the outstanding common stock of Marketing Services
Group.
(4) Effective as of August 1998, PlanetAll is no longer our affiliate.
We also have provided services to CMGI and other CMGI affiliates, including
NextMonet.com, Inc., Lycos, Inc., On-Demand Solutions, Inc., SalesLink
Corporation and TicketsLive Corporation. Aggregate sales to CMGI and these
affiliates totaled $15,750, $50,560 and $67,733 for fiscal 1997, fiscal 1998
and the nine months ended April 30, 1999, respectively.
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<PAGE>
Servercast Communications, L.L.C. Acquisition
Term Notes
In connection with our acquisition in July 1998 of Servercast, we issued
four term notes to the members of Servercast in the aggregate principal amount
of $1.0 million, payable on or before January 2, 2000, in exchange for all of
the membership interests in Servercast. CMGI has guaranteed the payment of each
of these term notes. CMGI's guarantee will terminate upon the earlier of (i)
the closing of this offering, (ii) the sale of NaviSite to an acquiror with a
net worth of at least $15 million and (iii) the payment by us of all amounts
owed under the term notes.
One of these term notes, in the principal amount of $279,100, was issued to
Peter C. Kirwan, Jr., our Chief Technology Officer, in exchange for his 27.91%
membership interest in Servercast. The note bears interest at the rate of 5.5%
per year (calculated on the basis of a 365-day year and the actual number of
days elapsed). The note provides that accrued interest will be paid in three
equal installments of $7,675.25 each, to be paid on January 2, 1999, July 2,
1999 and January 2, 2000. The first and second scheduled payments of $7,675.25
each were made in full on January 2, 1999 and July 2, 1999, respectively. Mr.
Kirwan has agreed that payment of accrued interest or principal may be offset
by claims for indemnification that we may have pursuant to the terms of the
related purchase agreement and that 20% of any principal amount paid prior to
July 1, 2000 shall be delivered into an escrow fund for the purpose of
indemnification.
Bonus Agreement
In connection with our acquisition of Servercast, we also entered into a
bonus agreement dated as of July 1, 1998 with Mr. Kirwan. The bonus agreement
provides that Mr. Kirwan will receive an incentive bonus payment if established
targets are met relating to the revenues and operating losses of Servercast for
the one-year period ended July 1, 1999. The maximum amount which Mr. Kirwan
could receive pursuant to the bonus agreement is $231,187. Pursuant to the
terms of the bonus agreement and the related purchase agreement, 20% of any
bonus amount due to Mr. Kirwan as of July 1, 1999 shall be delivered into the
escrow fund described above. In order to be eligible for the incentive bonus
and the return of any escrowed amount, Mr. Kirwan must remain an employee of
NaviSite through July 1, 1999 and July 1, 2000, respectively, unless he either
terminates his employment with just cause or is terminated by us without cause,
in which case he remains entitled to any bonus payments or escrowed amounts
due. Mr. Kirwan remains an employee of NaviSite, and we are currently in the
process of comparing actual revenues and operating losses against the targets
established in the bonus agreement to determine any bonus payment due to Mr.
Kirwan as of July 1, 1999.
Pursuant to the bonus agreement, we also granted Mr. Kirwan non-statutory
stock options to purchase 50,000 shares of our common stock, at an exercise
price of $0.93 per share. One fourth, or 12,500, of the options vested and
became fully exercisable on July 1, 1999, and the remainder vest ratably at the
end of each month for 36 months, provided that Mr. Kirwan continues to be
employed by us.
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<PAGE>
OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. Except as indicated by the footnotes below,
we believe, based on the information furnished to us, that the persons and
entities named in the tables below have sole voting and investment power with
respect to all shares of common stock shown as beneficially owned by them,
subject to applicable community property laws. Percentage of outstanding shares
of NaviSite common stock is based on 20,300,903 shares of common stock
outstanding as of June 30, 1999, after giving effect to the conversion of all
outstanding convertible preferred stock as of June 30, 1999, and shares of
common stock outstanding upon completion of this offering. Percentage of
beneficial ownership of CMGI common stock is based on 95,383,222 shares of
common stock outstanding as of June 30, 1999. In computing the number of shares
of common stock beneficially owned by a person and the percentage ownership of
that person, shares of common stock subject to options held by that person that
are currently exercisable or exercisable within 60 days of June 30, 1999 are
deemed outstanding. These shares, however, are not deemed outstanding for the
purpose of computing the percentage ownership of any other person.
Principal Stockholders
The following table sets forth information with respect to the beneficial
ownership of our common stock by our principal stockholders as of June 30, 1999
and as adjusted to reflect the sale of the shares of common stock offered in
this offering. The outstanding shares of common stock shown as held by CMGI
include shares issuable upon completion of the corporate reorganization of
NaviSite Internet Services Corporation and conversion of convertible preferred
stock held by CMGI as of June 30, 1999.
<TABLE>
<CAPTION>
Percentage of
Outstanding
Shares
Number of Shares -----------------
of Common Stock Before After
Name and Address of Beneficial Owner Beneficially Owned Offering Offering
- ------------------------------------ ------------------ -------- --------
<S> <C> <C> <C>
CMGI, Inc. ............................... 18,142,850 89.4% %
100 Brickstone Square
Andover, Massachusetts 01810
Dell Computer Corporation ................ 1,095,472(1) 5.4
One Dell Way
Round Rock, Texas 78682
Microsoft Corporation .................... 993,243 4.9
1 Microsoft Way
Redmond, Washington 98052-8300
</TABLE>
- --------
(1) Consists of shares held of record by Dell USA L.P., a subsidiary of Dell
Computer Corporation.
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<PAGE>
Management
The following table sets forth information known to us regarding both the
beneficial ownership of our common stock as of June 30, 1999 and as adjusted to
reflect the sale of the shares of common stock in this offering and the
beneficial ownership of common stock of CMGI as of June 30, 1999 by:
. each of our directors;
. each of our executive officers named in the "Summary Compensation
Table" appearing above; and
. all of our directors and executive officers as a group.
Unless otherwise indicated, the address of each beneficial owner listed
below is c/o NaviSite, Inc., 100 Brickstone Square, Andover, Massachusetts
01810.
<TABLE>
<CAPTION>
NaviSite Common Stock CMGI Common Stock
------------------------------------------ ----------------------------
Percentage of Percentage of
Outstanding Outstanding Percentage of
Number of Shares Before Shares After Number of Common
Name Shares Offering Offering Shares (1) Stock
---- ---------- ------------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Joel B. Rosen........... 0 * * 0 *
Robert B. Eisenberg..... 231,249 (2) 1.1% 9,342 (3) *
Barbara H. Fortier...... 39,062 (2) * * 548 *
Kenneth W. Hale......... 57,812 (2) * * 842 *
David S. Wetherell...... 18,142,850 (4) 89.4 10,772,224 (5) 11.0%
Craig D. Goldman........ 10,000 (2) * * 195,200 (6) *
Andrew J. Hajducky III.. 18,142,850 (4) 89.4 95,749 (7) *
J. Andrew Sherman....... 52,083 (2) * * 872 *
All current directors
and executive officers
as a group (12
persons).............. 18,605,272 (8) 89.6% 11,074,777 (9) 11.3%
</TABLE>
- --------
* Represents beneficial ownership of less than one percent of the common
stock.
(1) Reflects two two-for-one stock splits effective January 11, 1999 and May
27, 1999.
(2) Consists of shares issuable upon the exercise of options exercisable within
60 days of June 30, 1999.
(3) Includes 8,334 shares issuable upon the exercise of outstanding options
that are exercisable within 60 days of June 30, 1999.
(4) Consists of shares owned by CMGI on an as-converted basis. Messrs.
Wetherell and Hajducky disclaim beneficial ownership of all 18,142,850
shares owned by CMGI.
(5) Includes 2,305,888 shares issuable upon the exercise of outstanding options
that are exercisable within 60 days of June 30, 1999, 1,701,732 shares held
in trust for the benefit of Mr. Wetherell's minor children and 23,372
shares held by Mr. Wetherell and his wife as trustees for the David S.
Wetherell Charitable Trusts. Mr. Wetherell disclaims beneficial ownership
of the 1,725,104 shares held in trust for his children and as trustee for
the charitable trust.
(6) Includes 75,200 shares issuable upon the exercise of outstanding options
that are exercisable within 60 days of June 30, 1999.
(7) Includes 74,997 shares issuable upon the exercise of outstanding options
that are exercisable within 60 days of June 30, 1999.
(8) Includes 462,422 shares issuable upon the exercise of outstanding options
that are exercisable within 60 days of June 30, 1999 and 18,142,850 shares
owned by CMGI on an as-converted basis. Messrs. Wetherell and Hajducky
disclaim beneficial ownership of all 18,142,850 shares owned by CMGI.
(9) Includes 2,464,419 shares issuable upon the exercise of outstanding options
that are exercisable within 60 days of June 30, 1999, 1,701,732 shares held
in trust for the benefit of Mr. Wetherell's minor children and 23,372
shares held by Mr. Wetherell and his wife as trustees for the David S.
Wetherell Charitable Trusts. Mr. Wetherell disclaims beneficial ownership
of the 1,725,104 shares held in trust for his children and as trustee for
the charitable trust.
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DESCRIPTION OF CAPITAL STOCK
The following description of our capital stock and various provisions of
our revised certificate of incorporation and our revised by-laws is a summary.
Statements contained in this prospectus relating to such provisions are not
necessarily complete, and reference is made to the revised certificate of
incorporation and the revised by-laws that will be in effect upon the
completion of this offering, copies of which have been filed with the
Securities and Exchange Commission as exhibits to our registration statement of
which this prospectus constitutes a part. The revised certificate of
incorporation and the revised by-laws will become effective upon completion of
this offering.
Upon completion of this offering, our authorized capital stock will consist
of shares of common stock, par value $0.01 per share, and shares of
preferred stock, par value $0.01 per share.
Common Stock
As of June 30, 1999, there were 20,300,903 shares of common stock
outstanding, assuming the conversion of all outstanding shares of convertible
preferred stock as of June 30, 1999. As of June 30, 1999, our outstanding
common stock was held of record by four stockholders. Upon completion of this
offering, there will be shares of common stock outstanding. In addition, as
of April 30, 1999, there were outstanding stock options for the purchase of a
total of 2,337,058 shares of common stock. Shares of common stock have the
following rights, preferences and privileges:
Voting Rights. Each outstanding share of common stock is entitled to one
vote on all matters submitted to a vote of NaviSite's stockholders, including
the election of directors. There are no cumulative voting rights, and therefore
the holders of a plurality of the shares of common stock voting for the
election of directors may elect all of NaviSite's directors standing for
election.
Dividends. Holders of common stock are entitled to receive dividends at the
same rate if and when dividends are declared by NaviSite's board of directors
out of assets legally available for the payment of dividends, subject to
preferential rights of any outstanding shares of preferred stock.
Liquidation. In the event of a liquidation, dissolution or winding up of
the affairs of NaviSite, whether voluntary or involuntary, after payment of the
debts and other liabilities of NaviSite and making provision for the holders of
any outstanding shares of preferred stock, the remaining assets of NaviSite
will be distributed ratably among the holders of shares of common stock.
Rights and Preferences. The common stock has no preemptive, redemption,
conversion or subscription rights. The rights, powers, preferences and
privileges of holders of common stock are subject to, and may be adversely
affected by, the rights of the holders of shares of any series of preferred
stock that we may designate and issue in the future.
Fully Paid and Nonassessable. All outstanding shares of common stock are,
and the shares of common stock to be issued pursuant to this offering will be,
fully paid and nonassessable.
Preferred Stock
Upon completion of this offering, it is expected that all outstanding
shares of preferred stock will be converted into common stock. Pursuant to the
terms of our revised certificate of incorporation, the board of directors will
be authorized, subject to any limitations prescribed by Delaware law, without
further stockholder approval, to issue from time to time up to an aggregate of
shares of preferred stock, in one or more classes or series, and to fix the
voting powers, full or limited, or no voting powers, and the distinctive
designations, preferences and relative, participating, optional or other
special rights and the qualifications, limitations or restrictions of these
rights, of the shares of each such class or series. The board of directors is
authorized to issue preferred stock with voting, conversion and other rights
and preferences that could adversely affect the voting power or other rights of
the holders of common stock.
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<PAGE>
We have no current plans to issue any preferred stock. However, the
issuance of preferred stock or of rights to purchase preferred stock could have
the effect of making it more difficult for a third party to acquire, or of
discouraging a third party from attempting to acquire, a majority of our
outstanding common stock.
Registration Rights
Under the terms of the Series C and the Series D convertible preferred
stock purchase agreements entered into between us and each of the Series C
stockholder and the Series D stockholder, respectively, effective upon
completion of this offering, assuming the conversion of the preferred stock
held by the Series C stockholder and the Series D stockholder into common
stock, these stockholders, together with their permitted assignees,
collectively the holders of an aggregate of 2,088,715 shares of our common
stock, will have the right to register some or all of their shares under the
Securities Act under specified conditions. At any time after the six-month
anniversary of the closing of this offering, the holders of at least 50% of the
Series C shares or at least 50% of the Series D shares, as applicable, are
entitled to demand that we file a registration statement under the Securities
Act covering the registration of some or all of their shares, subject to
specified limitations. Under these demand registration rights, we are only
obligated to effect two registrations for each of the Series C stockholder,
together with its permitted assignees, and the Series D stockholder, together
with its permitted assignees. In addition, pursuant to the terms of the Series
C convertible preferred stock purchase agreement and the Series D convertible
preferred stock purchase agreement, after the completion of this offering, the
Series C and Series D stockholders will have unlimited incidental registration
rights in the event that we propose to register any shares of common stock
under the Securities Act, either for our own account or for the account of
other security holders. The Series C and Series D stockholders having
incidental registration rights are entitled to receive notice of any such
registration and are entitled to include their shares in the registration,
subject to specified limitations.
In addition, at any time after the earlier of the one-year anniversary of
the closing of this offering and such time as we become eligible to file a
registration statement on Form S-3, the holders of at least 50% of the Series C
shares or at least 50% of the Series D shares, as applicable, are entitled to
require us to file a registration statement on Form S-3 covering their shares
of common stock. We will not be obligated to effect more than two Form S-3
registrations on behalf of either the Series C stockholder or the Series D
stockholder. These registration rights are subject to customary conditions and
limitations, including the right of the underwriters of an offering to limit
the number of shares of common stock held by security holders with registration
rights to be included in that registration. We also may defer a request for
registration for a period of not more than 90 days, subject to specified
conditions, if our board of directors determines that the requested
registration would be materially detrimental to us and our stockholders. We
generally are required to bear all of the expenses of all of the registrations
effected under the convertible preferred stock purchase agreements, excluding
underwriting discounts and commissions.
The registration of any of the shares of common stock held by stockholders
with registration rights would result in these shares becoming freely tradeable
without restriction under the Securities Act immediately upon effectiveness of
that registration statement. Information regarding the registration rights of
CMGI is included in this prospectus under the heading "Certain Transactions--
Investor Rights Agreement."
Participation Rights
Under the terms of the Series C convertible preferred stock purchase
agreement and the Series D convertible preferred stock purchase agreement
entered into between us and each of the Series C stockholder and the Series D
stockholder, respectively, we agreed that, in connection with certain
underwritten public offerings of our common stock, which would include this
offering assuming the conversion of the preferred stock held by the Series C
and the Series D stockholders into common stock, we would use all commercially
reasonable efforts to require that the underwriters offer to each of the Series
C stockholder and the Series D stockholder shares of the common stock to be
sold in the offering. Under these agreements, each of the Series C stockholder
and the Series D stockholder would be permitted to purchase, at the gross price
per share
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<PAGE>
negotiated by us with the underwriters of the offering as reflected in the
final prospectus, up to an aggregate of 0.5% of the outstanding shares of our
common stock on a fully diluted basis, after giving effect to the sale of
shares of common stock in the offering. In connection with an offering to which
these participation rights are applicable, we agreed to deliver or cause to be
delivered a copy of the preliminary prospectus for the offering to both the
Series C stockholder and the Series D stockholder simultaneously with the
distribution of same to the public at large by the underwriters. The Series C
stockholder and the Series D stockholder each then are entitled to exercise its
respective right of participation by delivering written notice to us not later
than five business days prior to the pricing of the offering. The underwriters
of the offering then are entitled to reduce the number of shares of common
stock to be offered to the Series C stockholder and the Series D stockholder to
the extent deemed necessary in the underwriters' reasonable judgment to ensure
the success of such offering or to comply with applicable rules and
regulations. We intend to comply with these procedures in connection with this
offering.
Delaware Anti-Takeover Statute
Our revised certificate of incorporation contains a provision expressly
electing not to be governed by Section 203 of the Delaware General Corporation
Law. In general, Section 203 restricts some business combinations involving
interested stockholders or their affiliates. An interested stockholder is
defined as any person or entity that is the beneficial owner of at least 15% of
a corporation's voting stock or is an affiliate or associate of the corporation
or the owner of 15% or more of the outstanding voting stock of the corporation
at any time in the past three years. Because of this election, Section 203 will
not apply to us.
Limitation of Liability and Indemnification
Our revised certificate of incorporation limits the liability of our
directors to the maximum extent permitted by Delaware law. Delaware law
provides that directors will not be personally liable for monetary damages for
breach of their fiduciary duties as directors, except liability for:
. any breach of their duty of loyalty to the corporation or its
stockholders;
. acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
. any transaction from which the director derived an improper personal
benefit.
This provision has no effect on any non-monetary remedies that may be available
to us or our stockholders, nor does it relieve us or our officers or directors
from compliance with federal or state securities laws.
Our revised certificate of incorporation also generally provides that we
will indemnify, to the fullest extent permitted by Section 145 of the Delaware
General Corporation Law, any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit,
investigation, administrative hearing or any other proceeding by reason of the
fact that he or she is or was a director or officer of ours, or is or was
serving at our request as a director, officer, employee or agent of another
entity, against expenses incurred by him or her in connection with that
proceeding. An officer or director will not be entitled to indemnification by
us if:
. the officer or director did not act in good faith and in a manner
reasonably believed to be in, or not opposed to, our best interests;
or
. with respect to any criminal action or proceeding, the officer or
director had reasonable cause to believe his or her conduct was
unlawful.
In addition, we plan to enter into indemnification agreements with our
directors containing provisions which may require us, among other things, to
indemnify our directors against various liabilities that may arise
59
<PAGE>
by virtue of their status or service as directors and to advance their expenses
incurred as a result of any proceeding against them as to which they could be
indemnified. Insofar as indemnification for liabilities arising under the
Securities Act, may be permitted to directors, officers or persons controlling
NaviSite pursuant to the foregoing provisions or otherwise, NaviSite has been
informed that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
NaviSite's revised certificate of incorporation also permits NaviSite to
secure insurance on behalf of any officer or director for any liability arising
out of his or her actions in such capacity, regardless of whether our revised
certificate of incorporation would otherwise permit indemnification for that
liability. Our officers and directors are currently insured under a policy
procured by CMGI that provides coverage against losses arising from claims
against them for any actual or alleged act, omission, misstatement, misleading
statement, neglect, error or breach of duty by them in their capacity as
officers or directors of NaviSite. We are in the process of obtaining our own
liability insurance for our officers and directors.
At the present time, there is no pending litigation or proceeding involving
any director, officer, employee or agent of NaviSite in which indemnification
will be required or permitted. We are not aware of any threatened litigation or
proceeding which may result in a claim for such indemnification.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is EquiServe L.P.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Effect of Sales of Shares
Prior to this offering, no public market existed for our common stock, and
we can make no prediction as to the effect, if any, that sales of shares of
common stock or the availability of shares of our common stock for sale will
have on the market price of the common stock prevailing from time to time.
Nevertheless, sales of substantial amounts of our common stock in the public
market, or the perception that such sales occur, could adversely affect the
market price of our common stock and could impair our future ability to raise
capital through an offering of our equity securities.
Sale of Restricted Shares
Upon completion of this offering, based upon the number of shares
outstanding as of June 30, 1999, we will have an aggregate of shares of
common stock outstanding, assuming no exercise of the underwriters' over-
allotment option and no exercise of outstanding options. Of these outstanding
shares, the shares sold in this offering will be freely tradable without
restriction or further registration under the Securities Act, except that any
shares purchased by our "affiliates," as that term is defined in Rule 144 under
the Securities Act, generally only may be sold in compliance with the
limitations of Rule 144 described below. All of the remaining 20,300,903 shares
of common stock that will be outstanding after this offering will be
"restricted securities" as that term is defined under Rule 144. Restricted
securities may be sold in the public market only if they qualify for an
exemption from registration under Rule 144, including Rule 144(k), or 701 under
the Securities Act.
Lock-Up Agreements
Our directors, executive officers and all of our other stockholders,
holding 20,300,903 shares in the aggregate, have agreed that they will not
sell, directly or indirectly, any shares of common stock without the prior
written consent of BancBoston Robertson Stephens Inc. for a lock-up period of
180 days from the date of this prospectus. Upon expiration of the lock-up
period, 180 days after the date of this prospectus, shares will be
available for resale to the public in accordance with Rule 144, whether under
Rule 144, including Rule 144(k), or Rule 701.
Rule 144
In general, under Rule 144 as currently in effect, commencing 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year is entitled to sell within any three-month
period a number of shares that does not exceed the greater of:
. 1% of the number of shares of common stock then outstanding, which is
expected to be approximately shares upon completion of this
offering; or
. the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of
a notice on Form 144 with respect to such sale, subject to the
restrictions specified in Rule 144.
Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
us.
Rule 144(k)
Under Rule 144(k), a person who is not one of our affiliates at any time
during the three months preceding a sale and who has beneficially owned the
shares proposed to be sold for at least two years, is entitled to sell such
shares under Rule 144(k) without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144. Therefore,
unless otherwise restricted, Rule 144(k) shares may be sold immediately upon
completion of this offering.
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Rule 701
In general, under Rule 701 of the Securities Act as currently in effect,
any of our employees, consultants or advisors who purchases shares from us in
connection with a compensatory stock plan or other written agreement is
eligible to resell such shares 90 days after the effective date of this
offering in reliance on Rule 144, but without compliance with various
restrictions, including the holding period, contained in Rule 144.
Stock Options
As of April 30, 1999, options to purchase a total of 2,337,058 shares of
common stock were outstanding, of which 547,559 were then exercisable. Upon
completion of this offering, we intend to file a registration statement to
register for resale an aggregate of 2,525,000 shares of common stock reserved
for issuance under our 1998 Equity Incentive Plan and our 1998 Director Stock
Option Plan. That registration statement will become effective immediately upon
filing. Accordingly, shares covered by that registration statement will become
eligible for sale in the public markets, subject to vesting restrictions, Rule
144 volume limitations applicable to our affiliates or the lock-up agreements
with BancBoston Robertson Stephens Inc. Holders of options to purchase
shares of common stock have entered into lock-up agreements.
We have agreed not to sell or otherwise dispose of any shares of common
stock during the 180-day period following the date of the prospectus, except we
may issue and grant options to purchase shares of common stock under the 1998
Equity Incentive Plan and the 1998 Director Stock Option Plan. In addition, we
may issue shares of common stock in connection with an acquisition of another
company if the terms of such issuance provide that the common stock so issued
shall not be resold prior to the expiration of the 180-day lock-up period.
Registration Rights
Upon completion of this offering, under specified circumstances and subject
to customary conditions, the holders of an aggregate of 20,231,565 shares of
our common stock, including CMGI, which will directly own approximately
18,142,850 shares upon completion of this offering, or their permitted
assignees, will be entitled to rights with respect to the registration under
the Securities Act of some or all of their shares, subject to the 180-day lock-
up period described above. Under the agreements providing for these
registration rights, these stockholders are subject to lock-up periods of not
more than 180 days following the date of this prospectus or any subsequent
prospectus. A more detailed discussion of these registration rights is included
in this prospectus under the headings "Certain Transactions--Registration
Rights Agreement" and "Description of Capital Stock--Registration Rights."
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<PAGE>
UNDERWRITING
The underwriters named below, acting through their representatives,
BancBoston Robertson Stephens Inc., ING Barings LLC and FAC/Equities, a
division of First Albany Corporation, have severally agreed with us, subject to
the terms and conditions of the underwriting agreement, to purchase from us the
number of shares of common stock set forth opposite their names below. The
underwriters are committed to purchase and pay for all shares if any are
purchased.
<TABLE>
<CAPTION>
Number
Underwriter of Shares
----------- ---------
<S> <C>
BancBoston Robertson Stephens Inc..................................
ING Barings LLC....................................................
FAC/Equities, a division of First Albany Corporation ..............
---
Total...........................................................
===
</TABLE>
The representatives have advised us that the underwriters propose to offer
the shares of common stock to the public at the public offering price on the
cover page of this prospectus and to some dealers at that price less a
concession of not in excess of $ per share, of which $ may be reallowed
to other dealers. After this offering, the public offering price, concession
and reallowance to dealers may be reduced by the representatives. This
reduction will not change the amount of proceeds to be received by us as stated
on the cover page of this prospectus. The common stock is offered by the
underwriters as stated herein, subject to receipt and acceptance by them and
subject to their right to reject any order in whole or in part.
Over-Allotment Option. We have granted to the underwriters an option,
exercisable during the 30-day period after the date of this prospectus, to
purchase up to additional shares of common stock at the same price per
share as we will receive for the shares that the underwriters have agreed
to purchase. To the extent that the underwriters exercise this option, each of
the underwriters will have a firm commitment to purchase approximately the same
percentage of the additional shares that the number of shares of common stock
to be purchased by it shown in the above table represents as a percentage of
the shares offered in this offering. If purchased, these additional shares
will be sold by the underwriters on the same terms as those on which the
shares are being sold. We will be obligated, pursuant to the option, to sell
shares to the extent the option is exercised. The underwriters may exercise
this option only to cover over-allotments made in connection with the sale of
the shares of common stock offered hereby. If this option is exercised in full,
the total price to the public, underwriting discounts and commissions and
proceeds to us will be $ , $ and $ , respectively. The underwriting
discount and commission per share is equal to the public offering price per
share of common stock less the amount paid by the underwriters to us per share
of common stock.
NaviSite estimates total expenses payable by us in connection with this
offering, other than the underwriting discounts and commissions referred to
above, will be approximately $ .
Indemnity. The underwriting agreement contains covenants of indemnity among
the underwriters and us against various civil liabilities, including
liabilities under the Securities Act and liabilities arising from breaches of
representations and warranties contained in the underwriting agreement.
Lock-Up Agreements. Each executive officer and director and all of our
stockholders have agreed, during the period of 180 days after the date of this
prospectus, subject to various exceptions, not to offer to sell, contract to
sell, or otherwise sell, dispose of, loan, pledge or grant any rights with
respect to any shares of common stock or any options or warrants to purchase
any shares of common stock, or any securities convertible into or exchangeable
for shares of common stock owned as of the date of this prospectus or
thereafter acquired directly by these holders or with respect to which they
have the power of disposition, without the prior written consent of BancBoston
Robertson Stephens Inc. However, BancBoston Robertson Stephens Inc. may, in its
sole discretion and at any time or from time to time, without notice, release
all or any portion of securities subject to the lock-up agreements. There are
no existing agreements between the representatives and any of our stockholders
who have executed a lock-up agreement providing consent to the sale of shares
prior to the expiration of the lock-up period.
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In addition, we have agreed that during the lock-up period we will not,
without the prior written consent of BancBoston Robertson Stephens Inc.,
subject to various exceptions,
. consent to the disposition of any shares held by stockholders subject
to lock-up agreements prior to the expiration of the lock-up period: or
. issue, sell, contract to sell, or otherwise dispose of, any shares of
common stock, any options to purchase any shares of common stock or any
securities convertible into, exercisable for or exchangeable for shares
of common stock other than our sale of shares in this offering, the
issuance of our common stock upon the exercise of outstanding options,
and the issuance of options under existing stock option and incentive
plans provided the options do not vest prior to the expiration of the
lock-up period. Please refer to the information in this prospectus
under the heading "Shares Eligible for Future Sale."
The underwriters have advised us that they do not intend to confirm sales
to any accounts over which they exercise discretionary authority.
Public Offering Price. Prior to this offering, there has been no public
market for the common stock. Consequently, the public offering price for the
common stock offered by this prospectus will be determined through negotiations
among the representatives and us. Among the factors to be considered in such
negotiations, the primary factors are prevailing market conditions, some of our
financial information, market valuations of other companies that we and the
representatives believe to be comparable to us, estimates of our business
potential, the present state of our development and other factors deemed
relevant.
Directed Share Program. The underwriters have reserved an aggregate of
shares of common stock to be issued by us and offered for sale in this offering
for purchase from the underwriters through a directed share program by
officers, directors, employees and other business associates of NaviSite. The
underwriters have reserved an aggregate of shares of common stock to be
issued by us and offered for sale in this offering for purchase from the
underwriters through a directed share program by United States stockholders of
CMGI who hold more than 100 shares of CMGI stock as of , 1999 and who have
access to the Internet and a personal e-mail address. These sales will be at
the initial public offering price. We cannot assure you that any of the
reserved shares will be so purchased. The number of these shares of common
stock available for sale to the general public in this offering will be reduced
by the number of reserved shares sold. Any reserved shares not purchased will
be offered to the general public on the same basis as the other shares offered
in this offering.
Participation Rights. NaviSite has agreed to use all commercially
reasonable efforts to require that the underwriters offer Dell and Microsoft up
to % of the shares of the common stock to be sold in this offering, assuming
the conversion of our preferred stock held by them into common stock in
connection with this offering.
Listing. Application has been made to have the shares of common stock
approved for quotation on the Nasdaq National Market under the symbol "NAVI."
Stabilization. The representatives have advised us that, pursuant to
Regulation M under the Securities Act, some persons participating in this
offering may engage in transactions, including stabilizing bids, syndicate
covering transactions or the imposition of penalty bids, that may have the
effect of stabilizing or maintaining the market price of the common stock at a
level above that which might otherwise prevail in the open market. A
"stabilizing bid" is a bid for or the purchase of shares of common stock on
behalf of the underwriters for the purpose of fixing or maintaining the price
of the common stock. A "syndicate covering transaction" is the bid for or the
purchase of common stock on behalf of the underwriters to reduce a short
position incurred by the underwriters in connection with this offering. A
"penalty bid" is an arrangement permitting the representatives to reclaim the
selling concession otherwise accruing to an underwriter or syndicate member in
connection with this offering if the common stock originally sold by such
underwriter or syndicate member is
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purchased by the representatives in a syndicate covering transaction and has
therefore not been effectively placed by such underwriter or syndicate member.
The Representatives have advised us that these transactions may be effected on
the Nasdaq National Market or otherwise and, if commenced, may be discontinued
at any time.
LEGAL MATTERS
The validity of the common stock offered by this prospectus will be passed
upon for us by Skadden, Arps, Slate, Meagher & Flom LLP, Boston, Massachusetts.
Various legal matters in connection with this offering will be passed upon for
the underwriters by Hale and Dorr LLP, Boston, Massachusetts.
EXPERTS
The consolidated financial statements of the Company as of July 31, 1997
and 1998, and for the period from July 1, 1996 through July 31, 1996, and for
the years ended July 31, 1997 and 1998, have been included in this prospectus
and in the registration statement, of which this prospectus is a part, in
reliance on the reports of KPMG LLP, independent auditors, appearing elsewhere
herein, and upon the authority of said firm as experts in auditing and
accounting.
The financial statements of Servercast Communications, L.L.C., as of
December 31, 1997 and June 30, 1998, and for the year ended December 31, 1997
and for the six months ended June 30, 1998, have been included in this
prospectus and in the registration statement, of which this prospectus is a
part, in reliance on the report of KPMG LLP, independent auditors, appearing
elsewhere herein, and upon the authority of said firm as experts in auditing
and accounting.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the shares of
common stock offered by this prospectus. This prospectus, which is part of the
registration statement, does not contain all of the information set forth in
the registration statement or the exhibits and schedules which are part of the
registration statement; certain parts of the registration statement are omitted
in accordance with the rules and regulations of the Securities and Exchange
Commission. For further information about us and the shares of our common stock
to be sold in this offering, please refer to the registration statement and the
exhibits and schedules which are part of the registration statement. Statements
in this prospectus regarding the contents of any contract or any other document
to which we refer are not necessarily complete, and in each instance where a
copy of the contract or other document has been filed as an exhibit to the
registration statement, we refer to the copy so filed. Each statement in this
prospectus regarding the contents of the referenced contract or other document
is qualified in all respects by our reference to the filed copy.
You may read and copy any contract, agreement or other document referred to
in this prospectus and any portion of our registration statement or any other
information from our Securities and Exchange Commission filings at the
Securities and Exchange Commission's public reference room at 450 Fifth Street,
N.W., Washington, D.C. 20549. You can request copies of these documents, upon
payment of a duplicating fee, by writing to the Securities and Exchange
Commission. Please call the Securities and Exchange Commission at 1-800-SEC-
0330 for further information about the public reference rooms. Our Securities
and Exchange Commission filings, including our registration statement, are also
available to you on the Securities and Exchange Commission's Web site
(http://www.sec.gov). As a result of this offering, we will become subject to
the information and reporting requirements of the Securities Exchange Act of
1934, as amended, and will file periodic reports, proxy statements and other
information with the Securities and Exchange Commission.
We intend to furnish our stockholders with annual reports containing
audited financial statements and make available to our stockholders quarterly
reports for the first three quarters of each fiscal year containing unaudited
interim financial information.
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NAVISITE, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
NaviSite, Inc.
<S> <C>
Independent Auditors' Report.............................................. F-2
Consolidated Balance Sheets as of July 31, 1997 and 1998, and April 30,
1999 (unaudited)........................................................ F-3
Consolidated Statements of Operations for the period from July 1, 1996
through July 31, 1996, the years ended July 31, 1997, 1998, and for the
nine months ended April 30, 1998 and 1999 (unaudited)................... F-4
Consolidated Statements of Changes in Stockholders' Equity (Deficit) for
the period from July 1, 1996 through July 31, 1996, the years ended July
31, 1997, 1998, and for the nine months ended April 30, 1999
(unaudited)............................................................. F-5
Consolidated Statements of Cash Flows for the period from July 1, 1996
through July 31, 1996, the years ended July 31, 1997, 1998, and for the
nine months ended April 30, 1998 and 1999 (unaudited)................... F-6
Notes to Consolidated Financial Statements................................ F-7
Servercast Communications, L.L.C.
Independent Auditors' Report.............................................. F-21
Balance Sheets as of December 31, 1997 and June 30, 1998.................. F-22
Statements of Operations for the years ended December 31, 1997 and for the
six months ended June 30, 1998.......................................... F-23
Statements of Members' Equity (Deficit) for the year ended December 31,
1997 and the six months ended June 30, 1998............................. F-24
Statements of Cash Flows for the year ended December 31, 1997 and for the
six months ended June 30, 1998.......................................... F-25
Notes to Financial Statements............................................. F-26
Unaudited Pro forma Combined Financial Data for NaviSite, Inc. and
Servercast Communications, L.L.C.
Unaudited Pro forma Condensed Consolidated Statement of Operations for the
year ended July 31, 1998................................................ F-29
Notes To Pro Forma Condensed Consolidated Statement of Operations......... F-29
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
NaviSite, Inc.:
We have audited the accompanying consolidated balance sheets of NaviSite,
Inc. as of July 31, 1997 and 1998, and the related consolidated statements of
operations, changes in stockholders' equity (deficit), and cash flows for the
period from July 1, 1996 through July 31, 1996 and each of the years in the
two-year period ended July 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of NaviSite, Inc. as of July
31, 1997 and 1998, and the results of its operations and its cash flows for the
period from July 1, 1996 through July 31, 1996 and for each of the years in the
two-year period ended July 31, 1998, in conformity with generally accepted
accounting principles.
KPMG LLP
/s/ KPMG LLP
May 28, 1999, except as
to note 12(d) which
is as of June 3, 1999
Boston, Massachusetts
F-2
<PAGE>
NAVISITE, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
July 31, April Pro Forma
---------------- 30, April 30,
1997 1998 1999 1999
------ -------- -------- ---------
(unaudited)
(In thousands, except par value)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Accounts receivable, less allowance
for doubtful accounts of $0, $7 and
$100 at July 31, 1997 and 1998 and
April 30, 1999, respectively........ $ 245 $ 489 $ 1,335
Prepaid expenses...................... 94 444 1,504
------ -------- --------
Total current assets.................... 339 933 2,839
------ -------- --------
Property and equipment, net............. 1,557 3,392 6,318
Deposits................................ 114 157 284
Goodwill, net of accumulated
amortization of $17 and $169 at
July 31, 1998 and April 30, 1999,
respectively.......................... -- 997 845
------ -------- --------
Total assets............................ $2,010 $ 5,479 $ 10,286
====== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Debt to CMGI.......................... $2,273 $ 11,439 $ 10,761
Accounts payable...................... 544 728 2,656
Accrued expenses...................... 88 1,410 2,844
Capital lease obligations, current
portion............................. -- 61 143
Software license payable, current
portion ............................ -- 817 703
Notes payable, current portion........ -- -- 1,000
------ -------- --------
Total current liabilities............... 2,905 14,455 18,107
------ -------- --------
Capital lease obligations, less current
portion............................... -- 90 170
Software license payable, less current
portion............................... -- -- 1,824
Notes payable, less current portion..... -- 1,000 --
------ -------- --------
Total liabilities....................... 2,905 15,545 20,101
------ -------- --------
Commitments and contingencies
Stockholders' equity (deficit):
Series A Preferred Stock, $.01 par
value, 1,324 shares authorized;
1,324 and 0 shares issued and
outstanding at April 30, 1999 and
April 30, 1999 (pro forma),
respectively (liquidating preference
of $16,135)......................... -- -- 13 --
Common Stock, $.01 par value, 30,000
shares authorized; 8,000, 8,051, 69
and 18,212 shares issued and
outstanding at July 31, 1997 and
1998, April 30, 1999, and April 30,
1999 (pro forma), respectively...... 80 81 1 182
Additional paid-in capital............ -- -- 15,754 26,347
Accumulated deficit................... (975) (10,147) (25,583) (25,583)
------ -------- -------- --------
Total stockholders' equity (deficit).... (895) (10,066) (9,815) $ 946
------ -------- -------- ========
Total liabilities and stockholders'
equity (deficit)...................... $2,010 $ 5,479 $ 10,286
====== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
NAVISITE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period from
July 1, 1996 Nine months ended
through Year ended July 31, April 30,
July 31, --------------------- -------------------
1996 1997 1998 1998 1999
------------ --------- ---------- -------- ---------
(unaudited)
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Revenue:
Revenue............... $ -- $ -- $ 158 $ 39 $ 2,052
Revenue, related
parties............. -- 3,361 3,871 2,797 4,765
---- --------- ---------- -------- ---------
Total revenue...... -- 3,361 4,029 2,836 6,817
Cost of revenue......... 6 3,494 8,876 6,423 13,294
---- --------- ---------- -------- ---------
Gross profit (loss)... (6) (133) (4,847) (3,587) (6,477)
---- --------- ---------- -------- ---------
Operating expenses:
Selling and
marketing........... -- 347 2,530 1,424 4,052
General and
administrative...... 21 467 1,412 927 2,271
Product development... -- -- 287 114 2,270
---- --------- ---------- -------- ---------
Total operating
expenses......... 21 814 4,229 2,465 8,593
---- --------- ---------- -------- ---------
Loss from operations.... (27) (947) (9,076) (6,052) (15,070)
Other income (expense):
Interest expense,
net................. -- (1) (85) (28) (330)
Other expense, net.... -- -- (11) -- (36)
---- --------- ---------- -------- ---------
Net loss................ $(27) $ (948) $ (9,172) $ (6,080) $ (15,436)
==== ========= ========== ======== =========
Unaudited pro forma
basic and diluted net
loss per share........ $ (1.02) $ (1.01)
========== =========
Pro forma weighted
average number of
basic and diluted
shares outstanding.... 9,027 15,248
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
NAVISITE, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Series A
Preferred Stock Common Stock Additional
----------------- --------------- Paid-In Accumulated Stockholders'
Shares Amount Shares Amount Capital Deficit Equity (Deficit)
-------- ------- ------- ------ ---------- ----------- ----------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Inception, July 1,
1996.................. -- $ -- -- $ -- $ -- $ -- $ --
Net loss.............. -- -- -- -- -- (27) (27)
-------- ------- ------- ---- ------- -------- --------
Balance at July 31,
1996.................. -- -- -- -- -- (27) (27)
Issuance of common
stock............... -- -- 8,000 80 -- -- 80
Net loss.............. -- -- -- -- -- (948) (948)
-------- ------- ------- ---- ------- -------- --------
Balance at July 31,
1997.................. -- -- 8,000 80 -- (975) (895)
Exercise of stock
options............. -- -- 51 1 -- -- 1
Net loss.............. -- -- -- -- -- (9,172) (9,172)
-------- ------- ------- ---- ------- -------- --------
Balance at July 31,
1998.................. -- -- 8,051 81 -- (10,147) (10,066)
Reorganization
(unaudited)......... 1,324 13 (8,000) (80) 15,754 -- 15,687
Exercise of stock
options
(unaudited)......... -- -- 18 -- -- -- --
Net loss (unaudited).. -- -- -- -- -- (15,436) (15,436)
-------- ------- ------- ---- ------- -------- --------
Balance at April 30,
1999 (unaudited)...... 1,324 $ 13 69 $ 1 $15,754 $(25,583) $ (9,815)
======== ======= ======= ==== ======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE>
NAVISITE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period from
July 1, 1996 Nine months ended
through Years ended July 31, April 30,
July 31, ---------------------- -------------------
1996 1997 1998 1998 1999
------------ ---------- ---------- -------- ---------
(unaudited)
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Cash flows from
operating
activities:
Net loss............. $ (27) $ (948) $ (9,172) $ (6,080) $ (15,436)
Adjustments to
reconcile net loss
to net cash used
for operating
activities:
Depreciation and
amortization...... 7 126 574 350 1,328
Loss on disposal of
assets............ -- -- 11 -- 39
Provision for bad
debts............. -- -- 7 -- 93
Changes in operating
assets and
liabilities, net
of impact of
acquisition:
Accounts
receivable....... -- (245) (154) (85) (939)
Prepaid expenses... -- (94) (334) (221) (137)
Deposits........... -- (114) (43) (41) (127)
Accounts payable... -- 544 (17) (146) 1,928
Accrued expenses... 1 87 1,271 1,395 1,434
----- ---------- ---------- -------- ---------
Net cash used for
operating
activities..... (19) (644) (7,857) (4,828) (11,817)
----- ---------- ---------- -------- ---------
Cash flows from
investing
activities:
Purchases of property
and equipment...... (137) (1,553) (1,181) (901) (2,364)
Acquisition of
business........... -- -- (45) -- --
----- ---------- ---------- -------- ---------
Net cash used for
investing
activities..... (137) (1,553) (1,226) (901) (2,364)
----- ---------- ---------- -------- ---------
Cash flows from
financing
activities:
Proceeds from
increase in debt to
CMGI, net.......... 156 2,197 9,166 5,746 15,009
Proceeds from
exercise of
option............. -- -- 1 1 --
Payments of capital
lease obligations.. -- -- (46) (18) (76)
Payments for software
licenses .......... -- -- (38) -- (752)
----- ---------- ---------- -------- ---------
Net cash provided
by financing
activities..... 156 2,197 9,083 5,729 14,181
----- ---------- ---------- -------- ---------
Net change in cash.... -- -- -- -- --
Cash, beginning of
period.............. -- -- -- -- --
----- ---------- ---------- -------- ---------
Cash, end of period... $ -- $ -- $ -- $ -- $ --
===== ========== ========== ======== =========
Supplemental
disclosure of cash
flow information:
Cash paid during the
period for:
Interest.............. $ -- $ -- $ 15 $ 7 $ 43
===== ========== ========== ======== =========
</TABLE>
See accompanying notes to consolidated financial statements
F-6
<PAGE>
NAVISITE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
All Information Included in these Footnotes as of April 30, 1999 and for the
Nine Months Ended April 30, 1998 and 1999 is Unaudited
(1) Description of Business
NaviSite, Inc. (the "Company") is a leading provider of business critical
Internet outsourcing solutions, specializing in high-end web hosting and
application services for companies conducting business on the Internet.
Substantially all revenues are generated from customers in the United States.
(2) Summary of Significant Accounting Policies
(a) Basis of Presentation
The Company is a majority owned subsidiary of CMGI, Inc. ("CMGI" or
"Parent"). The Company commenced operations in July 1996 and was incorporated
on February 3, 1997 as CMG Information Technology, Inc. (subsequently renamed
NaviSite Internet Services Corporation). On December 28, 1998, the assets and
liabilities of the Company were contributed to a newly-formed subsidiary,
NaviSite, Inc. The assets and liabilities were recorded at historical amounts
as the entities were under common control. The accompanying consolidated
financial statements, which have been prepared as if the Company had operated
as a separate stand-alone entity for all periods presented, include only
revenue and expenses attributable to the Company since it commenced operations
in July 1996.
The consolidated financial statements include certain allocations from CMGI
for certain general and administrative expenses such as rent, legal services,
insurance, and employee benefits. Allocations are based primarily on headcount.
Management believes that the method used to allocate the costs and expenses is
reasonable; however, such allocated amounts may or may not necessarily be
indicative of what actual expenses would have been incurred had the Company
operated independently of CMGI.
(b) Principles of Consolidation
The accompanying financial statements include the accounts of the Company
and its wholly owned subsidiary, Servercast Communications, L.L.C.
("Servercast") after elimination of all significant intercompany balances and
transactions.
(c) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
(d) Revenue Recognition
Revenue consists of monthly fees for server hosting, systems
administration, application rentals and web site management services. Revenue
(other than installation fees) is generally billed and recognized over the term
of the contract, based on actual usage, generally one year. Installation fees
are typically recognized at the time that installation occurs. Payments
received in advance of providing services are deferred until the period such
services are provided.
F-7
<PAGE>
NAVISITE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
All Information Included in these Footnotes as of April 30, 1999 and for the
Nine Months Ended April 30, 1998 and 1999 is Unaudited
(e) Cash
Under an arrangement with CMGI, the Company maintains a zero balance cash
account. Cash required by the Company for the funding of its operations is
provided as needed with a corresponding increase to the "Debt to CMGI" account.
Customer receipts and other cash receipts of the Company are remitted to CMGI
upon receipt by the Company and serve to reduce the "Debt to CMGI" account.
During fiscal 1998 non-cash investing activities included the acquisition
of Servercast (see note 4) in exchange for term notes totaling $1,000,000.
During the nine months ended April 30, 1999, non-cash financing activities
included the issuance of 1,323,953 shares of the Company's Series A Convertible
Preferred Stock in exchange for 8,000,000 shares of the Company's common stock
and $15,767,600 reduction in debt to CMGI (see note 7).
During the nine months ended April 30, 1999, non-cash financing activities
included a software licensing arrangement including services and maintenance,
for an aggregate of $2.5 million, payable over a three year period.
During fiscal 1998 and the nine months ended April 30, 1999, the Company
purchased $197,000 and $238,000 of equipment under capital lease obligations,
respectively.
(f) Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets.
Leasehold improvements and assets acquired under capital leases are amortized
using the straight-line method over the shorter of the lease term or estimated
useful life of the asset. Expenditures for maintenance and repairs are charged
to expense as incurred.
(g) Goodwill
Goodwill relates to the Company's purchase of it's wholly-owned subsidiary,
Servercast, in July 1998 (see note 4). Such costs are being amortized on a
straight-line basis over five years, the period expected to be benefited.
(h) Accounting for Impairment of Long-Lived Assets
The Company assesses the need to record impairment losses on long-lived
assets used in operations when indicators of impairment are present. On an on-
going basis, management reviews the value and period of amortization or
depreciation of long-lived assets, including goodwill. During this review, the
significant assumptions used in determining the original cost of long-lived
assets are reevaluated. Although the assumptions may vary from transaction to
transaction, they generally include revenue growth, operating results, cash
flows and other indicators of value. Management then determines whether there
has been a permanent impairment of the value of long-lived assets by comparing
future undiscounted cash flows to the asset's carrying value. If the estimated
future undiscounted cash flows exceed the carrying value of the asset, a loss
is recorded as the excess of the asset's carrying value over fair value.
F-8
<PAGE>
NAVISITE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
All Information Included in these Footnotes as of April 30, 1999 and for the
Nine Months Ended April 30, 1998 and 1999 is Unaudited
(i) Income Taxes
The Company accounts for income taxes under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date. The Company is currently greater than 80% owned by CMGI, and as
such, CMGI realizes the full benefit of all federal and part of the state net
operating losses that have been incurred by the Company. Therefore, such net
operating losses incurred by the Company will have no future benefit to the
Company. The tax sharing agreement between the Company and CMGI requires the
Company to reimburse CMGI for the amounts it contributes to the consolidated
tax liability of the CMGI group; however, under the policy, CMGI is not
obligated to reimburse the Company for any losses utilized in the consolidated
CMGI group.
(j) Advertising Costs
The Company recognizes advertising costs as incurred. The Company did not
incur any advertising costs during the period from July 1, 1996 through July
31, 1996 or during the fiscal year ended July 31, 1997. Advertising expense was
approximately $266,000 for the fiscal year ended July 31, 1998.
(k) Stock-Based Compensation Plans
The Company has adopted SFAS No. 123, Accounting for Stock-Based
Compensation ("SFAS 123"). As permitted by SFAS 123, the Company measures
compensation cost in accordance with in Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees ("APB No. 25"), and related
interpretations. Accordingly, no accounting recognition is given to stock
options granted at fair market value until they are exercised. Upon exercise,
net proceeds, including income tax benefits realized, are credited to equity.
Therefore, the adoption of SFAS 123 was not material to the Company's financial
condition or results of operations; however, the pro forma impact on earnings
has been disclosed in the notes to the Consolidated Financial Statements as
required by SFAS 123 (see note 8).
(l) Unaudited Pro Forma Basic and Diluted Net Loss per Share
Unaudited pro forma basic earnings (loss) per share is based upon the
weighted average number of common shares outstanding during the period.
Unaudited pro forma diluted earnings (loss) per share is based upon the
weighted average number of common shares outstanding during the period plus
additional weighted average common equivalent shares outstanding during the
period, computed using the "if-converted method". Common equivalent shares have
been excluded from the computation of diluted loss per share in each period, as
their effect would have been anti-dilutive in each period presented.
As described in note 7, conversion of all preferred stock and amounts due
to CMGI will occur upon the completion of a qualified public offering of the
Company's common stock. The unaudited pro forma basic and diluted net loss per
share information included in the accompanying consolidated statements of
operations for the fiscal year ended July 31, 1998 and for the nine months
ended April 30, 1999 reflects the impact on unaudited pro forma basic and
diluted net loss per share of such conversion as of the beginning of each
period or date of issuance, if later, using the if-converted method.
F-9
<PAGE>
NAVISITE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
All Information Included in these Footnotes as of April 30, 1999 and for the
Nine Months Ended April 30, 1998 and 1999 is Unaudited
Historical basic and diluted net loss per share has not been presented
because they are irrelevant due to the significant change in the Company's
capital structure and resultant basic and diluted loss per share that will
result upon conversion of the convertible preferred stock and Debt to CMGI.
The reconciliation of the numerators and denominators of the unaudited pro
forma basic and diluted net loss per share computation for the Company's
reported net loss is as follows:
<TABLE>
<CAPTION>
Year ended Nine months ended
July 31, 1998 April 30, 1999
------------- -----------------
(In thousands, except per share
data)
<S> <C> <C>
Numerator:
Net loss................................. $(9,172) $(15,436)
------- --------
Denominator:
Common shares outstanding.............. 8,016 4,450
Assumed conversion of preferred stock
and debt to CMGI..................... 1,011 10,798
------- --------
Weighted average number of pro forma
basic and diluted shares
outstanding....................... 9,027 15,248
======= ========
Pro forma basic and diluted net loss per
share.................................. $ (1.02) $ (1.01)
======= ========
</TABLE>
(m) New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information" ("SFAS
131"). SFAS 131 establishes standards for the way that public business
enterprises report selected information about operating segments in annual and
interim financial statements. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
SFAS 131 requires the use of the "management approach" in disclosing segment
information, based largely on how senior management generally analyzes the
business operations. SFAS 131 is effective for the Company beginning in fiscal
1999. The Company is in the process of determining the impact of these
standards, if any, on its consolidated financial statements and related
disclosures.
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants ("AcSEC") issued Statement of
Position 98-1, "Accounting for the Cost of Computer Software Developed or
Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 requires the capitalization
of certain internal costs related to the implementation of computer software
obtained for internal use. The Company is required to adopt this standard in
the first quarter of fiscal year 2000, and expects that the adoption of SOP 98-
1 will not have a material impact on its financial position or its results of
operations.
In April 1998, the AcSEC issued Statement of Position 98-5, "Reporting
Costs of Start-Up Activities" ("SOP 98-5"). Under SOP 98-5, the cost of start-
up activities should be expensed as incurred. Start-up activities are broadly
defined as those one-time activities related to opening a new facility,
introducing a new product or service, conducting business in a new territory,
conducting business with a new class of customer, commencing some new operation
or organizing a new entity. SOP 98-5 is effective for the Company's fiscal 2000
consolidated financial statements. The Company does not expect its adoption to
have a material impact on its financial position or results of operations.
F-10
<PAGE>
NAVISITE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
All Information Included in these Footnotes as of April 30, 1999 and for the
Nine Months Ended April 30, 1998 and 1999 is Unaudited
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133").
SFAS 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives) and for hedging activities.
SFAS 133 requires the recognition of all derivatives as either assets or
liabilities in the statement of financial position and the measurement of those
instruments at fair value. The Company is required to adopt this standard in
the first quarter of fiscal year 2000, and expects that the adoption of SFAS
133 will not have a material impact on the its financial position or its
results of operations. On May 20, 1999, a proposed Statement of Financial
Accounting Standards ("SFAS") was issued for public comment in which the FASB
proposal, if approved, will delay this standard until the first quarter of
fiscal year 2001.
(n) Unaudited Interim Financial Information
The consolidated financial statements as of April 30, 1999 and for the nine
months ended April 30, 1998 and 1999 are unaudited; however, in the opinion of
management, all adjustments (consisting of normal recurring adjustments)
necessary for a fair presentation of the financial statements for the interim
periods have been included. Results of operations for the interim periods
presented are not necessarily indicative of the results that may be expected
for the full fiscal year or any other future period.
(3) Property and Equipment
<TABLE>
<CAPTION>
July 31,
Estimated --------------
Useful Life 1997 1998
-------------------------- ------ ------
(In
thousands)
<S> <C> <C> <C>
Office furniture and equipment..... 5 years $ 50 $ 232
Computer equipment................. 3 years 717 1,197
Software licenses.................. 3 years or life-of-license 192 1,390
Leasehold improvements............. 4 years or life-of-lease 731 1,256
------ ------
1,690 4,075
Less: Accumulated depreciation and
amortization..................... (133) (683)
------ ------
$1,557 $3,392
====== ======
</TABLE>
The cost and related accumulated amortization of property and equipment
held under capital leases is as follows:
<TABLE>
<CAPTION>
July 31,
-----------
1997 1998
----- -----
(In
thousands)
<S> <C> <C>
Cost............................................................ $ -- $ 197
Accumulated amortization........................................ -- 60
---- -----
Net book value.................................................. $ -- $ 137
==== =====
</TABLE>
(4) Acquisition of Servercast Communications, L.L.C.
In July 1998, the Company acquired Servercast Communications, L.L.C.
("Servercast"), a provider of high-performance Internet outsourcing solutions.
The Company issued $1,000,000 in term notes with principal
F-11
<PAGE>
NAVISITE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
All Information Included in these Footnotes as of April 30, 1999 and for the
Nine Months Ended April 30, 1998 and 1999 is Unaudited
payable on January 2, 2000. CMGI has guaranteed the payment of these term
notes. Interest accrues at the rate of 5.5% and is payable in three equal
installments on January 2, 1999, July 2, 1999, and January 2, 2000. The total
purchase price for Servercast was valued at $1,045,000, including acquisition
costs of $20,000, and bridge notes receivable of $25,000.
Total purchase price was allocated as follows:
<TABLE>
<CAPTION>
(In thousands)
--------------
<S> <C>
Working capital deficit ...... $ (140)
Property and equipment........ 171
Goodwill...................... 1,014
------
Purchase price................ $1,045
======
</TABLE>
The acquisition has been accounted for using the purchase method, and,
accordingly, the purchase price has been allocated to the assets purchased and
liabilities assumed based upon their fair values at the dates of acquisition.
The results of operations of Servercast have been included in the Company's
consolidated financial statements from July 1, 1998.
The portion of the purchase price allocated to goodwill is being amortized
on a straight-line basis over five years. Amortization of goodwill resulting
from the acquisition of Servercast was approximately $17,000 for the one month
period in the fiscal year ended July 31, 1998 in which Servercast was owned by
the Company.
The following table represents the unaudited pro forma results of
operations of the Company for the years ended July 31, 1997 and 1998, as if the
Servercast purchase had occurred at the beginning of the respective periods.
These pro forma results include adjustments for the amortization of goodwill
and increased interest expense on debt related to the acquisition. They have
been prepared for comparative purposes only and do not purport to be indicative
of what would have occurred had the acquisition been made at the beginning of
the respective periods or of results that may occur in the future.
<TABLE>
<CAPTION>
Year ended Year ended
July 31, 1997 July 31, 1998
------------- -------------
(unaudited)
(In thousands)
<S> <C> <C>
Revenues................ $ 3,640 $ 4,390
======= =======
Net loss................ (1,437) (9,704)
======= =======
Pro forma basic and
diluted net loss per
share................. $ (0.18) $ (1.07)
======= =======
</TABLE>
(5) Commitments and Contingencies
(a) Leases
The Company has entered into noncancelable operating leases covering
certain of its office facilities and equipment which expire through 2002. In
addition, the Company pays CMGI for office facilities used as the Company's
headquarters for which it is charged based upon an allocation of the total
costs for the facilities at market rates. Substantially all leases for real
property have been guaranteed by CMGI.
Total rent expense amounted to $1,722,000 and $3,567,000 for the years
ended July 31, 1997 and 1998, respectively.
Additionally, the Company leases certain property and equipment under
capital lease obligations expiring through 2001.
F-12
<PAGE>
NAVISITE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
All Information Included in these Footnotes as of April 30, 1999 and for the
Nine Months Ended April 30, 1998 and 1999 is Unaudited
Minimum annual rental commitments are as follows as of July 31, 1998:
<TABLE>
<CAPTION>
Operating Capital
Leases Leases
--------- -------
(In thousands)
<S> <C> <C>
1999...................................................... $ 4,993 $ 72
2000...................................................... 4,081 86
2001...................................................... 1,977 6
2002...................................................... 561 --
------- ----
$11,612 164
=======
Less amounts representing interest........................ 13
----
Present value of future minimum lease payments............ 151
Less current installments of capital lease obligations.... 61
----
Long-term portion of capital lease obligations............ $ 90
====
</TABLE>
(b) Litigation
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. In the opinion of management, the amount of
ultimate liability with respect to these actions will not materially affect the
consolidated financial position or results from operations of the Company.
(6) Income Taxes
No provision for federal or state income taxes has been recorded as the
Company incurred net operating losses for all periods presented. At July 31,
1998, the Company had no significant federal net operating loss carryforwards
available to offset future taxable income as the Company's parent, CMGI, has
utilized substantially all of the Company's federal net operating losses
through July 31, 1998. The Company has recorded a full valuation allowance
against its deferred tax assets since management believes that, after
considering all the available objective evidence, both positive and negative,
historical and prospective, with greater weight given to historical evidence,
it is more likely than not that these assets will not be realized. No income
tax benefit has been recorded for all periods presented because of the
valuation allowance.
Temporary differences between the financial statement carrying amounts and
tax bases of assets and liabilities that give rise to significant portions of
federal deferred tax assets (liabilities) are comprised of the following:
<TABLE>
<CAPTION>
July 31,
-----------
1997 1998
---- -----
(In
thousands)
<S> <C> <C>
Deferred tax assets:
Accruals and reserves........................................ $ 16 $ 247
State net operating loss..................................... 77 111
Depreciation and amortization ............................... 12 37
---- -----
Total deferred tax assets...................................... 105 395
Less: Valuation allowance...................................... (64) (395)
---- -----
Net deferred tax assets........................................ 41 --
---- -----
Deferred tax liabilities:
Other........................................................ (41) --
---- -----
(41) --
---- -----
Net deferred taxes ............................................ $ -- $ --
==== =====
</TABLE>
F-13
<PAGE>
NAVISITE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
All Information Included in these Footnotes as of April 30, 1999 and for the
Nine Months Ended April 30, 1998 and 1999 is Unaudited
The Company has net operating loss carryforwards for Massachusetts State
tax purposes of approximately $728,000 as of July 31, 1998. The net operating
loss carryforwards will expire from 2001 through 2003. In addition, the Company
has net operating loss carryforwards for California tax purposes of
approximately $475,000 as of July 31, 1998, which will expire from 2001 through
2003.
(7) Stockholders' Equity
In October 1998, the Company's stockholders authorized 5,000,000 shares of
preferred stock of which 1,323,953 shares have been designated as Series A
convertible preferred stock ("Series A Preferred Stock"). The remaining shares
have not been designated. See note 12.
(a) Series A Preferred Stock
In December 1998, the Board of Directors authorized and issued 1,323,953
shares of Series A Preferred Stock in exchange for 8,000,000 shares of common
stock and $15,767,600 in principal amount of Debt to CMGI. The Series A
Preferred Stock is entitled to receive annual dividends at 7% commencing
November 1, 1998, as and if declared. No dividends have been declared or paid
by the Company. The Series A Convertible Preferred Stock is voting and is
convertible into 10 shares of common stock subject to certain adjustments. In
the event of any liquidation, dissolution or winding up of the Company, the
Series A Preferred Stock has a liquidation preference of $11.91 per share plus
dividends of 7% compounded annually beginning on November 1, 1998. The Series A
Preferred Stock is convertible into common stock immediately at the option of
the holder, and automatically converts into common stock upon the completion of
a qualifying initial public offering.
At April 30, 1999, 13,239,530 shares of common stock have been reserved for
issuance upon the conversion of the Series A Preferred Stock.
(b) Unaudited Pro Forma Balance Sheet
Upon the closing of a qualifying initial public offering, amounts due to
CMGI will convert into Series B convertible preferred stock ("Series B
Preferred Stock"), and all the outstanding shares of Series A Preferred Stock
and Series B Preferred Stock will automatically convert to 18,143,000 shares of
the Company's common stock. This conversion has been reflected in the unaudited
pro forma balance sheet as of April 30, 1999. See also notes 10 and 12.
(8) Stock Option Plans
(a) NaviSite 1998 Equity Incentive Plan
In December 1998, the Company's Board of Directors and Stockholders
approved the 1998 Equity Incentive Plan, as amended as of April 20, 1999 (the
"1998 Plan"). The 1998 plan replaced the NaviSite Internet Services
Corporation's 1997 Equity Incentive Plan (the "1997 Plan"). All options
outstanding under the 1997 Plan were cancelled and replaced with an equivalent
amount of options issued in accordance with the 1998 Plan. Under the 1998 Plan,
non-qualified stock options or incentive stock options may be granted to the
Company's or its affiliates' employees, directors and consultants, as defined,
up to a maximum number of shares of common stock not to exceed 2,400,000
shares. The Board of Directors administers this plan, selects the individuals
to whom options will be granted, and determines the number of shares and
exercise price of each option. Options granted under
F-14
<PAGE>
NAVISITE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
All Information Included in these Footnotes as of April 30, 1999 and for the
Nine Months Ended April 30, 1998 and 1999 is Unaudited
the 1998 Plan typically vest over a four year period, with 25% of options
granted becoming exercisable one year from the date of grant and the remaining
75% vesting monthly for the next thirty-six (36) months. The following table
reflects activity and historical exercise prices of stock options under the
Company's 1998 Plan for the two years ended July 31, 1998.
<TABLE>
<CAPTION>
1997 1998
------------------ -------------------
Weighted Weighted
Average Average
Number of Exercise Number of Exercise
Shares Price Shares Price
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Options outstanding, beginning of
year................................. -- $ -- 1,073,000 $0.01
Granted................................ 1,073,000 0.01 842,500 0.45
Exercised.............................. -- -- (51,019) 0.01
Cancelled.............................. -- -- (318,731) 0.05
--------- ----- --------- -----
Options outstanding, end of year....... 1,073,000 $0.01 1,545,750 $0.24
========= ===== ========= =====
Options exercisable, end of year....... 96,250 $0.01 297,083 $0.01
========= ===== ========= =====
Options available for grant, end of
year................................. 927,000 454,250
========= =========
</TABLE>
The following table summarizes information about the Company's stock
options outstanding at July 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------- -----------------------
Weighted
Average
Remaining Weighted Weighted
Range of Contractual Average Average
Exercise Number Life Exercise Number Exercise
Prices Outstanding (years) Price Outstanding Price
-------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.00--$0.25 1,215,250 3.9 $0.08 297,083 $0.01
$0.26--$0.93 330,500 4.8 $0.83 -- --
--------- ------- -----
1,545,750 4.1 $0.24 297,083 $0.01
========= ======= =====
</TABLE>
(b) Director Stock Option Plan
In December 1998, the Company's Board of Directors and Stockholders
approved the 1998 Director Stock Option Plan (the "1998 Director Plan"). Under
the 1998 Director Plan, the NaviSite directors (who are not also employees of
NaviSite) any subsidiary of NaviSite or of CMGI, are entitled to receive, upon
the date of his or her election, a non-statutory option to purchase common
stock as defined, up to a maximum number of shares of common stock not to
exceed 125,000 shares. Each automatic grant will have an exercise price equal
to the current fair market value of the common stock at the time of grant and
will have a maximum term of ten years, subject to earlier termination following
the optionee's cessation of service on the board of directors. Each automatic
option grant shall vest and become exercisable with respect to 20% of the
options granted on the first anniversary of the date of the grant, and shall
become exercisable with respect to an additional 20% on the date of each annual
stockholders' meeting at which the option-holder is re-elected as director.
No options were outstanding under the 1998 Director Plan as of July 31,
1998.
F-15
<PAGE>
NAVISITE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
All Information Included in these Footnotes as of April 30, 1999 and for the
Nine Months Ended April 30, 1998 and 1999 is Unaudited
(c) CMGI 1986 Stock Option Plan
Certain NaviSite employees have been granted stock options under the CMGI
1986 Stock Option Plan (the "1986 Plan"). Options under the 1986 Plan are
granted at fair market value on the date of the grant and are generally
exercisable in equal cumulative installments over a four-to-ten year period
beginning one year after the date of grant. Outstanding options under the 1986
Plan expire through 2007. Under the 1986 Plan, non-qualified stock options or
incentive stock options may be granted to CMGI's or its subsidiaries'
employees, as defined. The Board of Directors of CMGI administers this plan,
selects the individuals to whom options will be granted, and determines the
number of shares and exercise price of each option. The following table
reflects activity and historical exercise prices of stock options granted to
Company employees under the 1986 Plan for all periods through July 31, 1998.
<TABLE>
<CAPTION>
1996 1997 1998
------------------ ------------------ ------------------
Weighted Weighted Weighted
Average Average Average
Number Exercise Number Exercise Number Exercise
of Shares Price of Shares Price of Shares Price
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding,
beginning of year..... 37,740 $0.19 36,080 $0.51 20,880 $1.41
Granted................. 8,000 1.61 8,000 1.95 80,000 2.32
Exercised............... (9,360) 0.19 (23,200) 0.19 (12,040) 1.11
------ ------- -------
Options outstanding, end
of year............... 36,080 $0.51 20,880 $1.41 88,840 $2.27
====== ======= ===== ======= =====
Options exercisable, end
of year............... 14,430 $0.19 6,426 $0.97 1,670 $1.78
====== ======= ===== ======= =====
</TABLE>
The following table summarizes information about stock options under the
1986 Plan outstanding at July 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------- --------------------
Weighted
Average
Remaining Weighted Weighted
Range of Contractual Average Average
Exercise Number Life Exercise Number Exercise
Prices Outstanding (years) Price Outstanding Price
-------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$1.61 3,336 2.2 $1.61 834 $1.61
$1.95 5,504 3.3 $1.95 836 1.95
$2.32 80,000 4.2 $2.32 -- 2.32
------ -----
88,840 4.1 $2.27 1,670 $1.78
====== =====
</TABLE>
SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), sets
forth a fair-value based method of recognizing stock-based compensation
expense. As permitted by SFAS No. 123, the Company has elected to continue to
apply APB No. 25 to account for its stock-based compensation plans. Had
compensation cost for awards in fiscal 1997 and 1998 under the Company's stock-
based compensation plans been determined based on the fair value method set
forth under SFAS 123, the pro forma effect on the Company's net loss would have
been as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
July 31, 1997 July 31, 1998
-------------- -----------------
As Pro As Pro
Reported Forma Reported Forma
-------- ----- -------- -------
(In thousands)
<S> <C> <C> <C> <C>
Net loss................................... $(948) $(955) $(9,172) $(9,261)
</TABLE>
F-16
<PAGE>
NAVISITE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
All Information Included in these Footnotes as of April 30, 1999 and for the
Nine Months Ended April 30, 1998 and 1999 is Unaudited
The fair value of each stock option grant has been estimated on the date of
grant using the Black-Scholes option pricing model with the following weighted
average assumptions for fiscal 1997 and 1998, respectively: volatility of
59.00%, and 75.50%; risk-free interest rate of 6.19% and 5.48%; 4 year expected
life of options for all years; and 0% dividend yield for all years. The
weighted average fair value per share of options granted during fiscal 1997 and
1998 was $0.01 and $0.21, respectively.
The fair value of each stock option granted under the 1986 Plan has been
estimated on the date of grant using the Black-Scholes option pricing model
with the following weighted average assumptions for fiscal 1996, 1997 and 1998,
respectively: volatility of 80.30%, 66.69% and 90.07%; risk-free interest rate
of 5.81%, 6.19% and 5.50%; expected life of options of 4.0, 6.2 and 4.2 years;
and 0% dividend yield for all years. The weighted average fair value per share
of options granted during fiscal 1996, 1997 and 1998 was $1.01, $1.30 and
$1.58, respectively.
(9) Comprehensive Income
Effective July 1, 1996, the Company adopted Statement of Financial
Accounting Standard ("SFAS") No. 130, "Reporting Comprehensive Income." This
statement requires that all components of comprehensive income be reported in
the financial statements in the period in which they are recognized. For each
year reported, comprehensive loss under SFAS No. 130 was equivalent to the
Company's net loss reported in the accompanying consolidated statements of
operations.
(10) Related Party Transactions
CMGI has provided the Company with accounting, systems and related services
("enterprise services") at amounts that approximated the fair value of services
received in each of the periods presented in these financial statements. The
Company also occupies facilities that are leased by CMGI, whereby CMGI charges
the Company for its share of rent and related facility costs through an
allocation based upon the company's headcount in relation to total headcount
for all CMGI companies located in the premises. The Company has also purchased
certain employee benefits (including 401(k) plan participation by employees of
the Company) and insurance (including property and casualty insurance) through
CMGI. Amounts due CMGI are included in "Debt to CMGI" on the consolidated
balance sheets. The following summarizes the expenses allocated to the Company
by CMGI for enterprise services, rent and facilities, and human resources:
<TABLE>
<CAPTION>
Year Ended
July 31,
-----------
1997 1998
----- -----
(In
thousands)
<S> <C> <C>
Enterprise Services.............................................. $ 48 $ 157
Rent and Facilities.............................................. -- $ 15
Human Resources.................................................. -- $ 46
</TABLE>
The Company sells its products and services to companies in which CMGI has
an investment interest or a significant ownership interest. The Company sold no
services to related parties during the period from July 1, 1996 through July
31, 1996. Total revenue realized from services to related parties were
$3,361,000 and $3,871,000 for the fiscal year ended July 31, 1997 and 1998,
respectively, and $2,797,000 and $4,765,000 for the nine months ended April 30,
1998 and 1999, respectively. The related cost of revenue is consistent with the
costs incurred on similar transactions with unrelated parties.
F-17
<PAGE>
NAVISITE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
All Information Included in these Footnotes as of April 30, 1999 and for the
Nine Months Ended April 30, 1998 and 1999 is Unaudited
The Company provides administrative services related to the leasing of
equipment on behalf of CMGI and related entities. These services include the
negotiation of lease terms and conditions and payment of lessors monthly lease
charges. Under this arrangement, total payments made by NaviSite to lessors
during the fiscal years ending July 31, 1997 and 1998 totaled $77,072 and
$462,167, respectively. CMGI or the related entity is then charged the actual
lease fees. Under this arrangement, CMGI bears all liability for payment, and
NaviSite is not financially obligated under the leases.
(11) Concentration of Credit Risk
Amounts included in the consolidated balance sheets for accounts
receivable, debt to CMGI, accounts payable, accrued expenses and note payable
approximate their fair value due to their short maturities. Financial
instruments that potentially subject the Company to concentration of credit
risk consist primarily of trade receivables. The Company performs periodic
credit evaluations of its customers' financial condition and generally does not
require collateral or other security against trade receivable balances;
however, it does maintain an allowance for potential credit losses and such
losses have been within management's expectations.
For the year ended July 31, 1997, all of the Company's revenue was earned
from related parties. Three of these related parties accounted for 46%, 28% and
14% of revenue earned during the year ended July 31, 1997. For the fiscal year
ended July 31, 1998, 96% ($3,871,000) of the Company's revenue was earned from
related parties. Three of these related parties accounted for 40%, 19% and 11%
of revenue earned for the fiscal year ended July 31, 1998. For the nine months
ended April 30, 1999, 70% ($4,765,000) of the Company's revenue was earned from
related parties. Two of these related parties accounted for 24% and 18% of
revenue earned during the nine months ended April 30, 1999.
Accounts receivable at July 31, 1997 was comprised solely of balances due
from related parties, with one related party comprising 96%. Accounts
receivable at July 31, 1998 included 63% due from related parties, with two
related entities comprising 37% and 15%. At April 30, 1999, 28% of accounts
receivables were due from related entities with no related entity comprising
10% or more.
(12) Subsequent Events
(a) Leases
In May 1999 the Company agreed to lease an additional 150,000 square feet
in Andover, Massachusetts for a lease term of 12 years. Further, the Company
has agreed to make a cash payment to the developers of $5.7 million to fund
construction, maintain a letter of credit for $4.0 million as a construction
and lease security deposit and provide an additional $2.5 million in the form
of a letter of credit or secured deposit. In connection with this lease
arrangement, CMGI loaned the Company $8.15 million through a secured demand
note dated May 28, 1999 which was subsequently repaid from the proceeds of the
Series C and D preferred stock sales discussed in note 12(d).
In May 1999 the Company agreed to lease a 66,000 square feet facility in
San Jose, California for a lease term of seven years. Further, the Company
agreed to make a lease deposit of $252,000 and provide a letter of credit for
$2.4 million lease security deposit to be reduced annually based on the
remaining term of the lease. CMGI has guaranteed both of these leases.
F-18
<PAGE>
NAVISITE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
All Information Included in these Footnotes as of April 30, 1999 and for the
Nine Months Ended April 30, 1998 and 1999 is Unaudited
(b) Debt to CMGI
In May 1999, the Company formalized its borrowing arrangement with CMGI and
executed a secured convertible demand note with CMGI dated May 1, 1999.
Advances accrue interest at the annual rate of 7%, and advances and accrued
interest may be prepaid without penalty. Advances outstanding under this note
are secured by substantially all assets and intellectual property of the
Company, and principal and accrued interest may be converted at the option of
CMGI into shares of Series B Preferred Stock. The number of Series B Preferred
shares to be issued upon conversion of each borrowing represented by the note
is based on the estimated fair value of the Company at the end of the quarter
in which such borrowing is made.
In accordance with this arrangement, in June 1999, CMGI elected to convert
advances and accrued interest outstanding at April 30, 1999 in the amount of
$10,761,000 into 490,332 shares of Series B Preferred Stock.
(c) Designation of Convertible Redeemable Preferred Stock
In May 1999, the Board of Directors approved the designation of 1,000,000
shares of the Company's preferred stock as Series B convertible redeemable
preferred stock ("Series B Preferred Stock"). The Series B Preferred Stock is
entitled to receive noncumulative annual dividends, payable when, as and if
declared at the rate of 7% per annum. In the event of liquidation, dissolution
or winding up of the Company, the Series B Preferred Stock ranks pari passu to
the Series A Preferred Stock, and has a liquidation preference equal to its
purchase price plus dividends computed at 7% per annum. The Series B Preferred
Stock is fully participating, voting and is convertible at the option of the
holder into ten shares of common stock at enterprise value, subject to certain
adjustments. Upon the closing of a qualifying initial public offering, all
outstanding shares of Series B Preferred Stock will convert into common stock.
In May 1999, the Board of Directors approved the designation of 1,095,472
shares of the Company's preferred stock as Series C convertible redeemable
preferred stock ("Series C Preferred Stock"). The Series C Preferred Stock is
entitled to receive noncumulative annual dividends, payable when, as and if
declared at the rate of 7% per annum. In the event of liquidation, dissolution
or winding up of the Company, the Series C Preferred Stock ranks pari passu to
the Series A and B Preferred Stock, and has a liquidation preference equal to
its purchase price plus dividends computed at 7% per share per annum. The
Series C Preferred Stock is fully participating, voting and is convertible at
the option of the holder into shares of common stock at $7.40 per share,
subject to certain adjustments. Upon the closing of a qualifying initial public
offering, all outstanding shares of Series C Preferred Stock will convert into
common stock. Such shares are subject to certain demand registration rights. On
or after the fifth anniversary of the purchase date, and upon a written
majority of the holders of Series C Preferred Stock, the Company must redeem
all of the outstanding shares of Series C Preferred Stock at a price equal to
its purchase price plus dividends computed at 7% per annum. Holders of the
Series C Preferred Stock may participate in future issuances of equity
instruments, as defined.
In May 1999, the Board of Directors approved the designation of 993,243
shares of the Company's preferred stock as Series D covertible redeemable
preferred stock ("Series D Preferred Stock"). The Series D Preferred Stock is
entitled to receive noncumulative annual dividends, payable when, as and if
declared at the rate of 7% per annum. In the event of liquidation, dissolution
or winding up of the Company, the Series D Preferred Stock ranks pari passu to
the Series A, B and C Preferred Stock, and has a liquidation preference equal
to its purchase price plus dividends computed at 7% per share per annum. The
Series D Preferred Stock is fully participating, voting and is convertible at
the option of the holder into shares of common stock at $7.40
F-19
<PAGE>
NAVISITE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
All Information Included in these Footnotes as of April 30, 1999 and for the
Nine Months Ended April 30, 1998 and 1999 is Unaudited
per share, subject to certain adjustments. Such shares are subject to certain
demand registration rights. Upon the closing of a qualifying initial public
offering, all outstanding shares of Series D Preferred Stock will convert into
common stock. On or after the fifth anniversary of the purchase date, and upon
a written majority of the holders of Series D Preferred Stock, the Company must
redeem all of the outstanding shares of Series D Preferred Stock at a price
equal to its purchase price plus dividends computed at 7% per annum. Holders of
the Series D Preferred Stock may participate in future issuances of equity
instruments, as defined.
(d) Issuance of Series C and D Preferred Stock
In June 1999, the Company issued 1,095,472 shares of Series C Preferred
Stock and 993,243 shares of Series D Preferred Stock for aggregate cash
proceeds of $8,106,000 and $7,350,000, respectively.
F-20
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Members
Servercast Communications, L.L.C.:
We have audited the accompanying balance sheets of Servercast
Communications, L.L.C. as of December 31, 1997 and June 30, 1998, and the
related statements of operations, members' equity (deficit), and cash flows for
the period from inception (February 6, 1997) through December 31, 1997 and for
the six months ended June 30, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Servercast Communications,
L.L.C. as of December 31, 1997 and June 30, 1998, and the results of its
operations and its cash flows for the period from inception (February 6, 1997)
through December 31, 1997 and for the six months ended June 30, 1998, in
conformity with generally accepted accounting principles.
KPMG LLP
/s/ KPMG LLP
May 28, 1999
Boston, Massachusetts
F-21
<PAGE>
SERVERCAST COMMUNICATIONS, L.L.C.
BALANCE SHEETS
DECEMBER 31, 1997 AND JUNE 30, 1998
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
------------ --------
<S> <C> <C>
ASSETS
Current assets:
Cash.................................................. $ 13,354 $ --
Accounts receivable, net of allowance for doubtful
accounts of $0 and $1,650, respectively............. 28,432 82,777
Prepaid expenses and other current assets............... 2,598 1,299
Members contributions receivable........................ 3,500 3,500
-------- --------
Total current assets............................... 47,884 87,576
-------- --------
Property and equipment:
Servers and related equipment......................... 135,559 152,864
Software licenses..................................... 6,387 12,308
Office computer equipment............................. 2,667 3,437
Furniture............................................. 1,581 1,581
-------- --------
146,194 170,190
Less accumulated depreciation and amortization.......... 12,762 35,300
-------- --------
133,432 134,890
-------- --------
Other assets............................................ 1,079 1,004
-------- --------
Total assets............................................ $182,395 $223,470
======== ========
LIABILITIES AND MEMBERS' EQUITY (DEFICIT)
Current liabilities:
Cash overdraft........................................ $ -- $ 7,621
Note payable to NaviSite.............................. -- 25,000
Accounts payable...................................... 87,334 188,162
Accrued expenses...................................... 50,700 42,360
-------- --------
Total current liabilities............................... 138,034 263,143
Commitments and contingencies
Members' equity (deficit)............................... 44,361 (39,673)
-------- --------
Total liabilities and members' equity (deficit)......... $182,395 $223,470
======== ========
</TABLE>
See accompanying notes to financial statements.
F-22
<PAGE>
SERVERCAST COMMUNICATIONS, L.L.C.
STATEMENTS OF OPERATIONS
For the period from inception (February 6, 1997) through December 31, 1997
and for the six months ended June 30, 1998
<TABLE>
<CAPTION>
Period from
inception
(February 6,
1997) through Six months
December 31, ended June
1997 30, 1998
------------- ----------
<S> <C> <C>
Net revenue........................................... $ 255,622 $ 224,674
Cost of revenue....................................... 171,923 154,773
--------- ---------
Gross profit........................................ 83,699 69,901
--------- ---------
Selling, general and administrative expenses.......... 295,794 203,852
--------- ---------
Loss from operations................................ (212,095) (133,951)
Interest expense...................................... -- 83
--------- ---------
Net loss............................................ $(212,095) $(134,034)
========= =========
</TABLE>
See accompanying notes to financial statements.
F-23
<PAGE>
SERVERCAST COMMUNICATIONS, L.L.C.
STATEMENTS OF MEMBERS' EQUITY (DEFICIT)
For the Period from Inception (February 6, 1997) through December 31, 1997
and For the Six Months Ended June 30, 1998
<TABLE>
<CAPTION>
Members'
Equity (Deficit)
----------------
<S> <C>
Members' contributions..................................... $ 256,456
Net loss for the period from inception (February 6, 1997)
through December 31, 1997................................ (212,095)
---------
Balance at December 31, 1997................................. 44,361
Members' contributions..................................... 50,000
Net loss for the six months ended June 30, 1998............ (134,034)
---------
Balance at June 30, 1998..................................... $ (39,673)
=========
</TABLE>
See accompanying notes to financial statements.
F-24
<PAGE>
SERVERCAST COMMUNICATIONS, L.L.C.
STATEMENTS OF CASH FLOWS
For the Period from Inception (February 6, 1997) through December 31, 1997
and for the Six Months Ended June 30, 1998
<TABLE>
<CAPTION>
Period from
inception
(February 6,
1997) through Six months
December 31, ended June 30,
1997 1998
------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net loss......................................... $(212,095) $(134,034)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization................... 13,512 22,613
Provision for doubtful accounts................. -- 1,650
Changes in operating assets and liabilities:
Accounts receivable............................ (28,432) (55,995)
Prepaid expenses and other current assets...... (2,598) 1,299
Deposits....................................... (1,079) --
Accounts payable............................... 87,334 100,828
Accrued expenses............................... 50,700 (8,340)
--------- ---------
Net cash used by operating activities........ (92,658) (71,979)
--------- ---------
Cash flows from investing activities:
Acquisitions of property and equipment........... (146,194) (23,996)
Other assets..................................... (750) --
--------- ---------
Net cash used by investing activities........ (146,944) (23,996)
--------- ---------
Cash flows from financing activities:
Cash overdraft................................... -- 7,621
Proceeds from note payable to NaviSite........... -- 25,000
Members' contributions........................... 252,956 50,000
--------- ---------
Net cash provided by financing activities.... 252,956 82,621
--------- ---------
Change in cash.................................... 13,354 (13,354)
Cash at beginning of period....................... -- 13,354
--------- ---------
Cash at end of period............................. $ 13,354 $ --
========= =========
Supplemental disclosure of cash flow information:
Cash paid for interest........................... $ -- $ 83
========= =========
</TABLE>
Supplemental disclosure of non-cash investing and financing activities:
During the period from inception (February 6, 1997) through December 31,
1997, the Company issued $3,500 in membership interests to an individual,
in exchange for a subscription to contribute the same amount. Such amount
was received in cash subsequent to June 30, 1998.
See accompanying notes to financial statements.
F-25
<PAGE>
SERVERCAST COMMUNICATIONS, L.L.C.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND JUNE 30, 1998
(1) Organization
Servercast Communications, L.L.C., ("Servercast" or the "Company") was
incorporated on February 6, 1997 as a Delaware limited liability company. The
Company's operating agreement indicates that Servercast will cease to operate
no later than December 1, 2050. Profits and losses are allocated to members in
accordance with the proportionate percentage interest as determined by the fair
market value of their original capital contribution. As a limited liability
company, the members' liability is limited to the amounts of their investment
in the Company.
The Company provides web site hosting and maintenance for a variety of
companies engaging in electronic commerce. Servercast also develops web sites.
Servercast's customers are located throughout the United States.
(2) Summary of Significant Accounting Policies
(a) Revenue Recognition
Revenue for hosting and maintaining web sites is recognized ratably over
the life of the contract, typically one year. Revenue from the development of
web sites is recognized as the services are performed.
(b) Cash Equivalents
For purposes of the statement of cash flows, Servercast considers all
highly liquid debt instruments with an original maturity of three months or
less to be cash equivalents.
(c) Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization
are provided for on the straight-line basis over the estimated useful lives of
the related assets. The depreciation period is generally three to seven years.
(d) Income Taxes
The Company is treated as a partnership for federal and state tax purposes
and thus is not subject to income taxes. The members of the Company must
include their proportionate share of the Company's profits and losses in their
respective personal tax returns. Accordingly, no provision has been made for
income taxes.
For income tax purposes, the Company has elected to report under the
accrual basis of accounting. At December 31, 1997 and June 30, 1998, the tax
bases of the Company's assets and liabilities are $8, $167 and $9,092 less,
respectively, than the financial reporting bases of these assets and
liabilities. The difference results from the use of different methods related
to reporting depreciation, and the Company's allowance for doubtful accounts
which is not deductible until the accounts are written-off.
(e) Long-Lived Asset Impairment
The Company adopted Statement of Financial Accounting Standards No. 121
Accounting for the Impairment of Long-Lived Assets to be Disposed Of ("SFAS No.
121"). SFAS No. 121 addresses the accounting for the impairment of long-lived
assets, certain identifiable intangible assets and goodwill when events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. The Company adoption of SFAS No. 121 had no material impact on
its results of operations or financial condition.
F-26
<PAGE>
SERVERCAST COMMUNICATIONS, L.L.C.
NOTES TO FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1997 AND JUNE 30, 1998
(f) Fair Value of Financial Instruments
The Company adopted Statement of Financial Accounting Standards No. 107,
Disclosures About Fair Value of Financial Statements ("SFAS No. 107"), which
requires that the Company estimate and disclose the fair value of each material
class of financial instrument for which it is practicable to estimate that
value. In accordance with SFAS 107, the Company has identified its material
financial instruments as cash, trade receivables and payables, and notes
payable. The carrying amount of cash, trade receivables, trade payables and
notes payable approximate fair value because of the short-term nature of these
financial instruments.
(g) Concentration of Credit Risk
Financial instruments which subject the Company to credit risk consist
principally of trade receivables. The Company's policy with respect to the
credit risk of trade receivables is to evaluate, prior to the extension of
credit, each customer's financial condition and to determine the amount of open
credit to be extended.
(h) Management's Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(i) Comprehensive Income
On January 1, 1998, the Company adopted the provisions of Statement of
Financial Accounting Standard No. 131, Reporting Comprehensive Income ("SFAS
No. 131"). SFAS 131 requires that the components of comprehensive income be
reported in the financial statements. For the period from inception (February
6, 1997) through December 31, 1997 and for the six months ended June 30, 1998,
the Company's net loss was equal to its total comprehensive loss.
(3) Commitments
The Company leases certain office facilities under operating leases with an
initial term of less than one year. Additionally, the Company leases certain
floor space at facilities, which house its equipment used for web site hosting.
The lessors of these locations provide the Company with web hosting and
maintenance services for the benefit of the Company's customers. These
agreements also have initial terms of one year or less.
For period from inception (February 6, 1997) through December 31, 1997 and
during the six months ended June 30, 1998, rent and web hosting expenses under
these agreements amounted to $102,117 and $68,901, respectively. Of these
amounts, $64,352 and $47,769 were included in cost of revenues in the
accompanying statements of operations, respectively. For the period from
inception (February 6, 1997) through December 31, 1997 and during the six
months ended June 30, 1998, $33,305 and $12,175 of the rents included in
selling, general and administrative expenses, were paid to a related party who
is a member of the Company. Subsequent to the sale of the Company on July 1,
1998 (see note 6), the Company relocated its web hosting equipment to sites
maintained by the purchaser, and accordingly, the Company no longer leases
these web hosting sites from unrelated third parties.
F-27
<PAGE>
SERVERCAST COMMUNICATIONS, L.L.C.
NOTES TO FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1997 AND JUNE 30, 1998
(4) Note Payable
At June 30, 1998, note payable represented a $25,000 note payable, due upon
demand, to NaviSite Internet Services, Inc. ("NaviSite") (see note 6). The note
is secured by substantially all assets of the Company and bears interest at a
rate of 5.50% per annum.
(5) Major Customers
At December 31, 1997, three customers accounted for 31%, 34% and 26% of
accounts receivable, respectively. Revenue earned from these customers for the
period from inception (February 6, 1997) through December 31, 1997 amounted to
36%, 22% and 12%, respectively, of total revenue during the period.
At June 30, 1998, three customers accounted for 30%, 20% and 18% of
accounts receivable, respectively. Revenue earned from these customers for the
six months ended June 30, 1998 amounted to 28%, 5% and 6% of total revenue
during the period.
(6) Subsequent Event
Effective July 1, 1998, NaviSite purchased the outstanding membership
interests of all members in exchange for a $1,000,000 note payable. The
acquisition will be recorded using the purchase method of accounting.
F-28
<PAGE>
SERVERCAST COMMUNICATIONS, L.L.C.
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA
The unaudited pro forma combined condensed statement of operations of the
Company for the year ended July 31, 1998 gives pro forma effect to the July 1,
1998 acquisition of Servercast Communications, L.L.C. ("Servercast") as if it
had occurred on August 1, 1997. The results of operations of the Company for
the fiscal year ended July 31, 1998 have been combined with the results of
operations of Servercast for the period from August 1, 1997 through June 30,
1998 (the results of operations of Servercast for the period July 1, 1998
through July 31, 1998 are included in the consolidated statement of operations
of the Company).
The Company has accounted for the acquisition under the purchase method of
accounting. The total cost of the acquired business of $1,045,000, including
direct acquisition costs, has been allocated to the underlying tangible and
intangible assets acquired and liabilities assumed based on their respective
fair values, resulting in goodwill of $1,014,000.
The unaudited pro forma financial data are not necessarily indicative of
the results of operations of the Company had the transaction occurred on August
1, 1997, nor are they necessarily indicative of the results of operations which
may be expected to occur in the future. Furthermore, the unaudited pro forma
financial data should be read in conjunction with the consolidated financial
statements and notes thereto included elsewhere in this prospectus.
F-29
<PAGE>
NAVISITE, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the year ended July 31, 1998
<TABLE>
<CAPTION>
Year ended July 31, 1998
--------------------------------
Pro Forma
NaviSite Servercast Adjustments Total
-------- ---------- ----------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenue:
Revenue........................ $ 158 $ 361 $ $ 524
Revenue, related parties....... 3,871 -- -- 3,866
-------- ------ ------ --------
Total revenue............... 4,029 361 -- 4,390
Cost of revenue.................. 8,876 310 -- 9,186
-------- ------ ------ --------
Gross loss..................... (4,847) 51 -- (4,796)
-------- ------ ------ --------
Operating expenses:
Selling and marketing.......... 2,530 93 -- 2,623
General and Administrative..... 1,412 254 186 (a) 1,852
Product development............ 287 -- -- 287
-------- ------ ------ --------
Total operating expenses.... 4,229 347 186 4,762
-------- ------ ------ --------
Loss from operations............. (9,076) (296) (186) (9,558)
Other income (expense):
Interest expense, net.......... (85) -- (50)(b) (135)
Other expense, net............. (11) -- -- (11)
-------- ------ ------ --------
Net loss......................... $ (9,172) $ (296) $ (236) $ (9,704)
======== ====== ====== ========
Pro forma basic and diluted net
loss per share................. $ (1.02) $ (1.07)
======== ========
Pro forma weighted average number
of basic and diluted shares
outstanding.................... 9,027 9,027
======== ========
</TABLE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended July 31, 1998
(a) Reflects goodwill amortization recorded by NaviSite for the eleven month
period ending June 30, 1998 prior to the acquisition of Servercast.
Goodwill is being amortized over five years, using the straight-line
method.
(b) Reflects interest expense related to 5.5% notes payable in the amount of
one million dollars for the eleven month period ending June 30, 1998 prior
to the acquisition of Servercast.
F-30
<PAGE>
[INSIDE BACK COVER]
<PAGE>
[Back Cover]
[LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The expenses, other than underwriting discounts and commissions, expected
to be incurred by us in connection with the issuance and distribution of the
securities being registered under this registration statement are estimated to
be as follows:
<TABLE>
<S> <C>
SEC registration fee............................................. $19,460
NASD filing fees................................................. 7,500
Nasdaq National Market listing fee............................... *
Printing and engraving expenses.................................. 125,000
Legal fees and expenses.......................................... *
Accounting fees and expenses..................................... *
Blue Sky fees and expenses (including legal fees)................ 12,500
Transfer agent fees.............................................. 5,000
Miscellaneous.................................................... *
-------
Total.......................................................... $ *
=======
</TABLE>
- --------
* To be filed by Amendment.
Item 14. Indemnification of Directors and Officers.
The Delaware General Corporation Law and our revised certificate of
incorporation provide for indemnification of our officers and directors for
liabilities and expenses that they may incur in such capacities.
Our revised certificate of incorporation generally provides that we shall
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit, investigation,
administrative hearing or any other proceeding by reason of the fact that he or
she is or was a director or officer of ours, or is or was serving at our
request as a director, officer, employee or agent of another entity, against
expenses incurred by him or her in connection with such proceeding. An officer
or director shall not be entitled to indemnification by us if:
. the officer or director did not act in good faith and in a manner
reasonably believed to be in, or not opposed to, our best interests;
or
. with respect to any criminal action or proceeding, the officer or
director had reasonable cause to believe his conduct was unlawful.
Our revised certificate of incorporation limits the liability of our
directors to the maximum extent permitted by Delaware law. Section 145 of the
Delaware General Corporation Law provides that directors will not be personally
liable for monetary damages for breach of their fiduciary duties as directors,
except liability for:
. any breach of their duty of loyalty to the corporation or its
stockholders;
. acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
. any transaction from which the director derived an improper personal
benefit.
This provision has no effect on any non-monetary remedies that may be
available to us or our stockholders, nor does it relieve us or our officers or
directors from compliance with federal or state securities laws.
II-1
<PAGE>
The underwriting agreement provides that the underwriters are obligated,
under certain circumstances, to indemnify directors, officers and controlling
persons of NaviSite against some liabilities, including liabilities under the
Securities Act. Reference is made to the form of underwriting agreement filed
as Exhibit 1.1 hereto.
Our officers and directors are currently insured under a policy procured by
CMGI that provides coverage against losses arising from claims against them for
any actual or alleged act, omission, misstatement, misleading statement,
neglect, error or breach of duty by them in their capacity as officers or
directors of NaviSite. We are in the process of obtaining our own liability
insurance for our officers and directors. At the present time, there is no
pending litigation or proceeding involving any director, officer, employee or
agent of NaviSite in which indemnification will be required or permitted. We
are not aware of any threatened litigation or proceeding that may result in a
claim for such indemnification.
Item 15. Recent Sales of Unregistered Securities.
In the three fiscal years preceding the filing of this registration
statement, NaviSite has issued the following securities that were not
registered under the Securities Act:
(a) Issuance of Capital Stock.
In December 1998, NaviSite issued 60,589 shares of common stock and
1,323,953 shares of Series A convertible preferred stock to NaviSite Internet
Services Corporation, our predecessor and a wholly owned subsidiary of CMGI,
Inc., in exchange for a contribution of assets from NaviSite Internet Services
Corporation. In April 1999, NaviSite issued an additional 8,749 shares of
common stock to NaviSite Internet Services Corporation. Upon the merger of
NaviSite Internet Services Corporation with and into CMGI, which is expected to
occur prior to the completion of this offering, the 69,338 shares of common
stock held of record by NaviSite Internet Services Corporation will be
exchanged for outstanding shares of NaviSite Internet Services Corporation
which were issued to NaviSite employees pursuant to option exercises under the
1997 NaviSite Internet Services Corporation Equity Incentive Plan. The 1998
NaviSite, Inc. Equity Incentive Plan replaces the 1997 NaviSite Internet
Services Corporation Equity Incentive Plan. Upon the merger of NaviSite
Internet Services Corporation with and into CMGI, all of the outstanding
options granted under the 1997 Equity Incentive Plan are being cancelled and
replaced with an equivalent amount of options issued in accordance with our
1998 Equity Incentive Plan.
The shares of Series A convertible preferred stock will be distributed to
CMGI upon the consummation of the merger. Every one share of Series A
convertible preferred stock will convert into 10 shares of common stock upon
completion of this offering.
In June 1999, NaviSite issued 490,332 shares of its Series B convertible
preferred stock to CMGI in exchange for cancellation of an aggregate of
$10,760,822 of intercompany debt pursuant to a secured convertible demand note
to CMGI dated May 1, 1999. It is expected that every one share of Series B
convertible preferred stock will convert into 10 shares of common stock upon
completion of this offering.
In June 1999, pursuant to the Series C Preferred Stock Purchase Agreement
between NaviSite and Dell USA L.P., NaviSite issued 1,095,472 shares of Series
C convertible preferred stock to Dell at a purchase price of $7.40 per share or
$8,106,493, in the aggregate. It is expected that upon completion of this
offering, the 1,095,472 shares of Series C convertible preferred stock will
convert into 1,095,472 shares of common stock.
In June 1999, pursuant to the Series D Convertible Preferred Stock Purchase
Agreement between NaviSite and Microsoft Corporation, NaviSite issued 993,243
shares of its Series D convertible preferred stock to Microsoft, at a purchase
price of $7.40 per share or $7,350,000, in the aggregate. It is expected that
upon completion of this offering, the 993,243 shares of Series D convertible
preferred stock will convert into 993,243 shares of common stock.
II-2
<PAGE>
(b) Grants of Stock Options.
In December 1998, the NaviSite, Inc. 1998 Equity Incentive Plan replaced
the 1997 NaviSite Internet Services Corporation Equity Incentive Plan. As noted
in Item 15(a) above, as part of the corporate restructuring of NaviSite
Internet Services Corporation, all options outstanding under the 1997 NaviSite
Internet Services Corporation Equity Incentive Plan are being cancelled and
replaced with an equivalent amount of options issued in accordance with our
1998 Equity Incentive Plan upon the merger of NaviSite Internet Services
Corporation with and into CMGI, which is expected to occur prior to completion
of this offering. As of April 30, 1999, we had granted options to purchase an
aggregate of 2,287,058 shares of common stock under the 1998 Equity Incentive
Plan (which number includes options granted in replacement of options granted
by NaviSite Internet Services Corporation under the 1997 NaviSite Internet
Services Corporation Equity Incentive Plan), exercisable at a weighted average
exercise price of $2.28 per share.
On December 28, 1998, we granted options to purchase 50,000 shares of
common stock under our 1998 Director Stock Option Plan exercisable at $0.49 per
share.
No underwriters were involved in the foregoing sales of securities. These
sales were made in reliance upon an exemption from the registration provisions
of the Securities Act set forth in Section 4(2) thereof relative to sales by an
issuer not involving any public offering or the rules and regulations
thereunder or, in the case of options to purchase common stock, Rule 701 under
the Securities Act. All of the foregoing securities are deemed restricted
securities for purposes of the Securities Act.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
------- -------
<C> <S>
1.1* Form of Underwriting Agreement
2.1 Asset Assignment Agreement dated December 28, 1998 among NaviSite
Internet Services Corporation and NaviSite, Inc.
2.2 Purchase Agreement dated as of July 1, 1998 among NaviSite Internet
Services Corporation, Neil Black, in his capacity as Managing Member
of Servercast Communications, L.L.C. and all of the other members of
Servercast Communications, L.L.C. individually, as named therein
(Exhibits and schedules have been omitted. The Registrant hereby
undertakes to furnish supplementally copies of the exhibits and
schedules to the Commission upon request.)
3.1 Certificate of Incorporation, as amended
3.2* Form of Amended and Restated Certificate of Incorporation (to become
effective upon the closing of this offering)
3.3 By-Laws, as amended
3.4* Form of Amended and Restated By-Laws (to become effective upon the
closing of this offering)
4.1* Specimen certificate representing shares of common stock
4.2 Series C Convertible Preferred Stock Purchase Agreement dated as of
June 3, 1999 by and between NaviSite, Inc. and Dell USA L.P.
4.3 Series D Convertible Preferred Stock Purchase Agreement dated as of
June 3, 1999 by and between NaviSite, Inc. and Microsoft Corporation
5.1* Opinion of Skadden, Arps, Slate, Meagher & Flom LLP
10.1* 1998 Equity Incentive Plan
10.2* 1998 Director Stock Option Plan
10.3* 1999 Employee Stock Purchase Plan
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
------- -------
<C> <S>
10.4 Net Lease Agreement dated as of March 20, 1997 by and between CMG
Information Technologies, Inc. and Borland International, Inc., as
amended by First Amendment dated June 1, 1998
10.5 Lease dated as of March, 1997 by and between William J. Callahan and
William J. Callahan, Jr., as trustees of Andover Park Realty Trust,
and CMG Information Services, Inc.
10.6 Lease dated as of May 14, 1999 by and between 400 River Limited
Partnership and NaviSite, Inc.
10.7 Lease made as of April 30, 1999 by and between CarrAmerica Realty
Corporation and NaviSite, Inc.
10.8 Term Note in favor of Peter C. Kirwan, Jr. dated July 1, 1998,
executed by NaviSite Internet Services Corporation
10.9 Bonus Agreement dated as of July 1, 1998 by and between NaviSite
Internet Services Corporation and Peter C. Kirwan, Jr.
10.10* Form of Director Indemnification Agreement
10.11* Form of Facilities and Administrative Support Agreement between
NaviSite, Inc. and CMGI, Inc.
10.12* Form of Investor Rights Agreement by and among NaviSite, Inc. and
CMGI, Inc.
10.13* Form of Tax Allocation Agreement between NaviSite, Inc. and CMGI, Inc.
10.14 Secured Convertible Demand Note issued by NaviSite, Inc. to CMGI, Inc.
dated as of May 1, 1999
10.15 Security Agreement between NaviSite, Inc. and CMGI, Inc. dated as of
May 1, 1999
10.16 Intellectual Property Security Agreement between NaviSite, Inc. and
CMGI, Inc. dated as of May 1, 1999
21.1 Subsidiaries
23.1* Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in
Exhibit 5.1)
23.2 KPMG LLP Consent and Report on Schedule
23.3 Consent of KPMG LLP (Servercast Communications, L.L.C.)
24.1 Power of Attorney (included on the signature page of this registration
statement)
27 Financial Data Schedule
</TABLE>
- --------
* To be filed by Amendment.
(b) Financial Statement Schedules:
Schedule II--Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and therefore have
been omitted.
Item 17. Undertakings.
The undersigned Registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
II-4
<PAGE>
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes:
(1) that for the purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of
prospectus filed as part of this registration statement in reliance
upon Rule 430A and contained in a form of prospectus filed by the
Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) that for the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-1 and has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in Andover, Massachusetts, on July 22, 1999.
NaviSite, Inc.
/s/ Joel B. Rosen
By
-----------------------------------
Joel B. Rosen
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the persons whose signatures
appear below, constitute and appoint Joel B. Rosen, Chief Executive Officer,
and Kenneth W. Hale, Chief Financial Officer, Treasurer and Secretary, and each
of them individually, as their true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for them and in their
names, places and steads, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration Statement
and any subsequent registration statement filed pursuant to Rule 462(b) under
the Securities Act of 1933, as amended, and to file the same, with all exhibits
thereto, and the other documents in connection therewith, with the Securities
and Exchange Commission, granting unto said attorneys-in-fact and agents, and
each of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in connection therewith, as fully to
all intents and purposes as they might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, or any of them, or
their or his or her substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on July 22, 1999.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Joel B. Rosen Chief Executive Officer and Director
___________________________________________ (Principal Executive Officer)
Joel B. Rosen
/s/ Kenneth W. Hale Chief Financial Officer, Treasurer and
___________________________________________ Secretary (Principal Financial and
Kenneth W. Hale Accounting Officer)
/s/ Robert B. Eisenberg President and Director
___________________________________________
Robert B. Eisenberg
/s/ David S. Wetherell Chairman of the Board of Directors
___________________________________________
David S. Wetherell
/s/ Craig D. Goldman Director
___________________________________________
Craig D. Goldman
/s/ Andrew J. Hajducky III Director
___________________________________________
Andrew J. Hajducky III
</TABLE>
<PAGE>
Schedule II
NAVISITE, INC.
VALUATION AND QUALIFYING ACCOUNTS
for the period from July 1, 1996 through July 31, 1996 and for the years ended
July 31, 1997, 1998 and the nine months ended April 30, 1999 (unaudited)
(in thousands)
<TABLE>
<CAPTION>
Balance at Additions Deductions Balance
Beginning Charged to from at End
of Year Expense Reserves of Year
---------- ---------- ---------- -------
<S> <C> <C> <C> <C>
Description
Period from July 1, 1996 through July
31, 1996:
Allowance for doubtful accounts..... $ -- $-- $ -- $ --
Year ended July 31, 1997:
Allowance for doubtful accounts..... $ -- $-- $ -- $ --
Year ended July 31, 1998:
Allowance for doubtful accounts..... $ -- $ 8 $ (1) $ 7
Nine months ended April 30, 1999
(unaudited):
Allowance for doubtful accounts..... $ 7 $113 $ (20) $ 100
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
------- -------
<C> <S>
1.1* Form of Underwriting Agreement
2.1 Asset Assignment Agreement dated December 28, 1998 among NaviSite
Internet Services Corporation and NaviSite, Inc.
2.2 Purchase Agreement dated as of July 1, 1998 among NaviSite Internet
Services Corporation, Neil Black, in his capacity as Managing Member
of Servercast Communications, L.L.C. and all of the other members of
Servercast Communications, L.L.C. individually, as named therein
(Exhibits and schedules have been omitted. The registrant hereby
undertakes to furnish supplementally copies of the exhibits and
schedules to the Commission upon request.)
3.1 Certificate of Incorporation, as amended
3.2* Form of Amended and Restated Certificate of Incorporation (to become
effective upon the closing of this offering)
3.3 By-Laws, as amended
3.4* Form of Amended and Restated By-Laws (to become effective upon the
closing of this offering)
4.1* Specimen certificate representing shares of common stock
4.2 Series C Convertible Preferred Stock Purchase Agreement dated as of
June 3, 1999 by and between NaviSite, Inc. and Dell USA L.P.
4.3 Series D Convertible Preferred Stock Purchase Agreement dated as of
June 3, 1999 by and between NaviSite, Inc. and Microsoft Corporation
5.1* Opinion of Skadden, Arps, Slate, Meagher & Flom LLP
10.1* 1998 Equity Incentive Plan
10.2* 1998 Director Stock Option Plan
10.3* 1999 Employee Stock Purchase Plan
10.4 Net Lease Agreement dated as of March 20, 1997 by and between CMG
Information Technologies, Inc. and Borland International, Inc., as
amended by First Amendment dated June 1, 1998
10.5 Lease dated as of March, 1997 by and between William J. Callahan and
William J. Callahan, Jr., as trustees of Andover Park Realty Trust,
and CMG Information Services, Inc.
10.6 Lease dated as of May 14, 1999 by and between 400 River Limited
Partnership and NaviSite, Inc.
10.7 Lease made as of April 30, 1999 by and between CarrAmerica Realty
Corporation and NaviSite, Inc.
10.8 Term Note in favor of Peter C. Kirwan, Jr. dated July 1, 1998,
executed by NaviSite Internet Services Corporation
10.9 Bonus Agreement dated as of July 1, 1998 by and between NaviSite
Internet Services Corporation and Peter C. Kirwan, Jr.
10.10* Form of Director Indemnification Agreement
10.11* Form of Facilities and Administrative Support Agreement between
NaviSite, Inc. and CMGI, Inc.
10.12* Form of Investor Rights Agreement by and among NaviSite, Inc. and
CMGI, Inc.
10.13* Form of Tax Allocation Agreement between NaviSite, Inc. and CMGI, Inc.
10.14 Secured Convertible Demand Note issued by NaviSite, Inc. to CMGI, Inc.
dated as of May 1, 1999
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
------- -------
<C> <S>
10.15 Security Agreement between NaviSite, Inc. and CMGI, Inc. dated as of
May 1, 1999
10.16 Intellectual Property Security Agreement between NaviSite, Inc. and
CMGI, Inc. dated as of May 1, 1999
21.1 Subsidiaries
23.1* Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in
Exhibit 5.1)
23.2 KPMG LLP Consent and Report on Schedule
23.3 Consent of KPMG LLP (Servercast Communications, L.L.C.)
24.1 Power of Attorney (included on the signature page of this Registration
Statement)
27 Financial Data Schedule
</TABLE>
- --------
* To be filed by Amendment.
<PAGE>
EXHIBIT 2.1
ASSET ASSIGNMENT AGREEMENT
This ASSET ASSIGNMENT AGREEMENT (the "Agreement") dated as of December 28,
1998, is among NaviSite Internet Services Corporation, a Delaware corporation
(the "Parent"), and NaviSite, Inc., a Delaware corporation and wholly-owned
------
subsidiary of Parent (the "Subsidiary").
-----------
WITNESSETH
WHEREAS, the Parent wishes to make a capital contribution in the form of
certain assets of the Parent to the Subsidiary, and the Subsidiary wishes to
receive such capital contribution from the Parent upon the terms and conditions
of this Agreement;
NOW THEREFORE, in consideration of the foregoing and of the mutual
covenants set forth below, the parties hereby agree as follows:
SECTION 1 - ASSIGNMENT OF ASSETS
1.1 Assignment of Assets. Subject to the provisions of this Agreement,
--------------------
the Parent agrees to contribute and the Subsidiary agrees to receive, all of the
properties and assets of the Parent related to the Parent's Internet server
hosting business (including all of the Parent's membership interests in
Severcast Communications, LLC, a Delaware limited liability company), whether
tangible and intangible, real, personal or mixed, and wherever located,
including without limitation all cash, accounts receivable, inventory,
equipment, intellectual property rights, copyrights, computer programs, and
Parent's good will related to the Internet server hosting business; provided,
--------
however, that there shall be excluded from such contribution and assignment,
- -------
Parent's properties and assets related to its business of providing wholesale
dial-up access services for Internet Service Providers, and the Parent's stock
record books, corporate record books containing minutes of meetings of directors
and stockholders and such other records as have to do exclusively with Parent's
organization or stock capitalization. The assets, property and business of
Parent to be contributed and assigned to the Subsidiary or its designee under
this Agreement are hereinafter sometimes referred to as the "Contributed
-----------
Assets."
- -------
<PAGE>
1.2 Assumption of Liabilities. Upon the contribution and assignment of
-------------------------
the Contributed Assets, the Subsidiary shall assume and agree to pay or
discharge when due all the liabilities and obligations of Parent related or
attributable to Parent's Internet server hosting services business (hereinafter,
the "Assumed Liabilities"). Subsidiary shall not assume or be liable for (a) any
-------------------
obligation or liability of Parent, of any kind or nature, known, unknown,
contingent or otherwise, related or attributable to Parent's business of
providing wholesale dial-up access services for Internet Service Providers, or
(b) any liability or obligation owing to the Parent's stockholders.
(a) Issuance of Shares. In exchange for the contribution and
------------------
assignment of the Contributed Assets to Subsidiary, at the Closing, the
Subsidiary shall issue and deliver to the Parent certificates representing
60,589 shares of Common Stock, $0.01 par value per share, and 1,323,953 shares
of Series A Convertible Preferred Stock, $0.01 par value per share, (the Common
Stock and Preferred Stock together, the "Shares") registered in the name of
------
Parent.
1.3 Transfer of Contributed Assets. At the Closing, Parent shall deliver
------------------------------
or cause to be delivered to the Subsidiary good and sufficient instruments of
transfer transferring to the Subsidiary title to all of the Contributed Assets
and shall effectively vest in the Subsidiary good title to all of the
Contributed Assets free and clear of all liens, restrictions and encumbrances,
except as otherwise disclosed herein.
1.4 Delivery of Records and Contracts. At the Closing, Parent shall
---------------------------------
deliver or cause to be delivered to the Subsidiary all written leases,
contracts, commitments and rights evidencing Contributed Assets and Assumed
Liabilities, with such assignments thereof and consents to assignments as are
necessary to assure the Subsidiary of the full benefit of the same. Parent
shall also deliver to the Subsidiary at the Closing all of Parent's business
records, tax returns, books and other data relating to its assets, business and
operations (except corporate records and other property of Parent excluded under
Section 1.1) and Parent shall take all requisite steps to put the Subsidiary (or
its designee) in actual possession and operating control of such assets and
business of Parent.
SECTION 2 - MISCELLANEOUS
2.1 Entire Agreement. This Agreement (including the Schedules) and all
----------------
other documents executed in connection with the consummation of the transactions
contemplated herein contain the entire agreement among the parties with respect
to
2
<PAGE>
the exchange of the Shares and the Contributed Assets and related transactions,
and supersedes all prior agreements, written or oral, with respect thereto.
2.2 Governing Law. This Agreement shall be governed and construed in
-------------
accordance with the laws of the Commonwealth of Massachusetts without regard to
its conflict of law principles.
2.3 Binding Effect; No Assignment. This Agreement shall be binding upon
-----------------------------
and inure to the benefit of the parties and their respective successors and
legal representatives. This Agreement is not assignable except by operation of
law or by the Subsidiary to any of its affiliates.
2.4 Variations in Pronouns. All pronouns and variations thereof refer to
----------------------
the masculine, feminine or neuter, singular or plural, as the context may
require.
2.5 Counterparts. This Agreement may be executed by the parties hereto in
------------
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the same
instrument. Each counterpart may consist of a number of copies hereof each
signed by less than all, but together signed by all of the parties hereto.
2.6 Exhibits and Schedules. The Exhibits and Schedules are a part of this
----------------------
Agreement as if fully set forth herein. All references herein to Sections,
subsections, clauses, Exhibits and Schedules shall be deemed references to such
parts of this Agreement, unless the context shall otherwise require.
2.7 Headings. The headings in this Agreement are for reference only, and
--------
shall not affect the interpretation of this Agreement.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
3
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement under seal as of
the date first above written.
NAVISITE, INC. ("SUBSIDIARY")
/s/ Robert B. Eisenberg
-------------------------------------------------------
By:
Title:
NAVISITE INTERNET
SERVICES CORPORATION ("PARENT")
/s/ Robert B. Eisenberg
-------------------------------------------------------
By:
Title:
4
<PAGE>
EXHIBIT 2.2
PURCHASE AGREEMENT
among
NAVISITE INTERNET SERVICES CORPORATION
NEIL BLACK, AS MANAGING MEMBER OF
SERVERCAST COMMUNICATIONS, L.L.C.
AND
THE MEMBERS OF SERVERCAST COMMUNICATIONS, L.L.C.
AS LISTED ON SCHEDULE 1 ATTACHED HERETO
_______________________
July 1, 1998
_______________________
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
SECTION 1 - PURCHASE AND SALE OF THE SHARES
1.1 Purchase and Sale.......................................................... 1
1.2 Closing.................................................................... 1
1.3 Escrow Amounts............................................................. 2
1.4 Member Representative...................................................... 2
1.5 Assumed Liabilities........................................................ 3
SECTION 2 - REPRESENTATIONS AND WARRANTIES OF THE MEMBERS
WITH RESPECT TO THE COMPANY
2.1 Organization and Qualification............................................. 4
2.2 Capitalization; Voting Rights.............................................. 4
2.3 Consents................................................................... 4
2.4 Authorization; No Breach................................................... 5
2.5 Subsidiaries and Other Affiliates.......................................... 5
2.6 Corporate Records.......................................................... 6
2.7 Financial Statements....................................................... 6
2.8 Absence of Undisclosed Liabilities......................................... 6
2.9 No Material Adverse Change................................................. 6
2.10 Accounts Receivable........................................................ 8
2.11 Tax Matters................................................................ 8
2.12 Compliance with Laws; Permits.............................................. 10
2.13 Actions and Proceedings.................................................... 10
2.14 Contracts and Other Agreements............................................. 11
2.15 Real Estate................................................................ 13
2.16 Personal Property.......................................................... 13
2.17 Proprietary Rights......................................................... 13
2.18 Title to Assets; Liens..................................................... 15
2.19 Customers and Suppliers.................................................... 16
2.20 Employee Benefit Plans..................................................... 16
2.21 Employees and Consultants.................................................. 16
2.22 Labor Relations; Compliance................................................ 17
2.23 Certain Transactions....................................................... 17
2.24 Insurance.................................................................. 18
2.25 Banks, Brokers and Proxies................................................. 18
2.26 Brokerage.................................................................. 18
2.27 Hazardous Materials........................................................ 18
2.28 Full Disclosure............................................................ 19
2.29 Best Knowledge............................................................. 19
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
SECTION 3 - REPRESENTATIONS AND WARRANTIES OF THE MEMBERS
3.1 Title to Interests......................................................... 19
3.2 Authority to Execute and Perform Agreements................................ 20
3.3 No Breach.................................................................. 20
3.4 Actions and Proceedings.................................................... 20
3.5 Brokerage.................................................................. 20
3.6 Investment Representation.................................................. 20
SECTION 4 - REPRESENTATIONS AND WARRANTIES OF BUYER
4.1 Organization............................................................... 21
4.2 Authority to Execute and Perform Agreements................................ 21
4.3 No Breach.................................................................. 21
4.4 Investment Representation.................................................. 21
SECTION 5 - COVENANTS AND AGREEMENTS
5.1 Continued Effectiveness of Representations and Warranties.................. 21
5.2 Escrow Agreement........................................................... 22
5.3 Further Assurances......................................................... 22
SECTION 6 - CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE
6.1 Representations, Warranties and Covenants.................................. 22
6.2 Consents and Approvals..................................................... 22
6.3 Litigation................................................................. 22
6.4 Non-Competition Agreements................................................. 23
6.5 Opinion of Counsel to the Company and Members.............................. 23
6.6 Delivery of Interests...................................................... 23
6.7 Resignation of Managing Member............................................. 23
6.8 Board Approval............................................................. 23
SECTION 7 - CONDITIONS PRECEDENT TO MEMBERS OBLIGATION TO CLOSE
7.1 Representations, Warranties and Covenants.................................. 23
7.2 Litigation................................................................. 24
7.3 Term Notes................................................................. 24
7.4 Bonus Agreements........................................................... 24
7.5 Opinion of Counsel to the Buyer............................................ 24
7.6 Board Approval............................................................. 24
SECTION 8 - INDEMNIFICATION
8.1 Survival................................................................... 24
8.2 Obligation of the Members to Indemnify..................................... 24
8.3 Claims Notices............................................................. 25
8.4 Limitations on Indemnification............................................. 26
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
SECTION 9 - MISCELLANEOUS
9.1 Expenses................................................................... 26
9.2 Notices.................................................................... 26
9.3 Entire Agreement........................................................... 27
9.4 Waivers and Amendments; Non-Contractual Remedies;
Preservation of Remedies................................................... 27
9.5 Resolution of Disputes..................................................... 27
9.6 Governing Law.............................................................. 28
9.7 Binding Effect; No Assignment.............................................. 28
9.8 Variations in Pronouns..................................................... 28
9.9 Counterparts............................................................... 28
9.10 Exhibits and Schedules..................................................... 28
9.11 Headings................................................................... 28
9.12 Severability............................................................... 29
</TABLE>
EXHIBITS
- --------
Exhibit A -- Form of Term Note
Exhibit B -- Form of Escrow Agreement
Exhibit C -- Form of Bonus Agreement
Exhibit D -- Form of Non-Disclosure, Non-Competition and Developments
Agreement
Exhibit E -- Opinion of Counsel of the Company and Members
Exhibit F -- Opinion of Counsel of the Buyer
Schedule 1 -- Members
Schedule 2.1 -- Qualifications
Schedule 2.2 -- Voting Rights
Schedule 2.3 -- Consents
Schedule 2.4 -- Authorization; No Breach
Schedule 2.7 -- Current Balance Sheet
Schedule 2.8 -- Undisclosed Liabilities
Schedule 2.9 -- No Material Adverse Change
Schedule 2.10 -- Accounts Receivable
Schedule 2.11 -- Tax Matters
Schedule 2.14 -- Contracts and Other Agreements
Schedule 2.15 -- Real Property Leases
Schedule 2.16 -- Personal Property
Schedule 2.17 -- Proprietary Rights
Schedule 2.19 -- Customers
Schedule 2.20 -- Employee Benefit Plan
Schedule 2.21 -- Employees and Consultants
Schedule 2.23 -- Certain Transactions
Schedule 2.24 -- Insurance
Schedule 25 -- Banks
iii
<PAGE>
PURCHASE AGREEMENT
AGREEMENT dated as of July 1, 1998, among NaviSite Internet Services
Corporation, a Delaware corporation (the "Buyer"), Neil Black in his capacity as
managing member (the "Managing Member") of Servercast Communications, L.L.C.
(the "Company"), a Delaware limited liability company, and all of the other
members of the Company, individually, as listed on Schedule 1 hereto (each a
----------
"Member," and collectively with the Managing Member, the "Members").
WHEREAS each of the Members owns the issued and outstanding membership
interests (collectively, the "Interests") of the Company set forth opposite such
Member's name on Schedule 1 attached hereto, which Interests in the aggregate
----------
represent all of the issued and outstanding membership interests of the Company;
WHEREAS Buyer desires to acquire all of the Interests from the Members, and
the Members desire to sell all the Interests to Buyer, and upon consummation of
such sale Buyer shall become the sole owner of the Company, upon the terms and
subject to the conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the promises, and the mutual covenants
and agreements contained herein and for other good and valuable consideration,
the receipt, adequacy and sufficiency of which are hereby acknowledged, the
parties hereby agree as follows:
1 - PURCHASE AND SALE OF THE SHARES
1.1 Purchase and Sale. Upon the terms and subject to the conditions of
-----------------
this Agreement, at the Closing (as defined below), the Managing Member and each
of the Members agrees to sell to Buyer, and Buyer agrees to purchase from the
Managing Member and each of the Members, all of the Interests owned by the
Managing Member and each such Member, as set forth opposite the Managing Member
and each such Member's name on Schedule 1 hereto. The aggregate purchase price
----------
for the Interests (the "Base Purchase Price") shall be One Million Dollars
($1,000,000), subject to adjustment pursuant to Section 1.3 and Section 8
hereof, and payable as set forth in Section 1.
1.2 Closing. The closing (the "Closing") of the purchase and sale of the
-------
Interests hereunder shall take place at the offices of Palmer & Dodge LLP, One
Beacon Street, Boston, Massachusetts 02108, at 12:00 p.m. (EST) on July 1, 1998,
or at such other time or place as Buyer and the Member Representative (as
hereinafter defined), acting on behalf of the Members, agree (the "Closing
Date").
(a) At the Closing, Buyer shall cause to be delivered to the Member
Representative (as defined below):
<PAGE>
(i) term notes (the "Term Notes") in the form of Exhibit A
---------
attached hereto for the aggregate principal amount of One Million
Dollars ($1,000,000); such Term Notes are to be payable 18 months
from the Closing Date (the "Maturity Date"); such Term Notes
shall bear interest at the rate of 5.5% per annum, payable in
three equal installments at the end of each six-month period from
the date hereof through the Maturity Date; that the payments of
principal and interest under the Term Notes shall be subject to
and adjusted in accordance with Sections 1.3 and 8 hereof; and
such Term Notes are to be payable to each Member, individually,
for the principal amount and interest installments as set forth
opposite each Member's name on Schedule 1 attached hereto.
----------
(b) At the Closing, each Member shall deliver to Buyer a certificate,
certificates or such other documents reasonably requested by the Buyer
evidencing the Interests owned by such Member.
(c) At the Closing, there shall be delivered the opinions,
certificates and instruments required of the respective parties at the Closing
under Sections 6 and 7 hereof.
(d) At the Closing, Neil Black shall resign as Managing Member of the
Company, and, immediately prior to such resignation, appoint Robert B. Eisenberg
the Managing Member of the Company.
1.3 Escrow Amounts. The Managing Member and each Member agrees that prior
--------------
to the second anniversary of this Agreement, twenty Percent (20%) of any
principal paid under the Term Notes ("Escrowed Consideration") shall be
deposited by the Buyer with an escrow agent reasonably satisfactory to the
Member Representative (as defined below). The Escrowed Consideration shall be
held by the escrow agent and disbursed by such escrow agent in accordance with
the form of escrow agreement attached hereto as Exhibit B (the "Escrow
--------- ------
Agreement").
- ---------
1.4 Member Representative.
---------------------
(a) In order to efficiently administer (i) the waiver of any
condition to the obligations of the Members to consummate the transactions
contemplated hereby, and (ii) the defense and/or settlement of any claims for
which the Members may be required to indemnify Buyer pursuant to Section 8
hereof, the Members hereby designate Neil Black as their representative (the
"Member Representative").
(b) The Members hereby authorize the Member Representative (i) to
take all action necessary in connection with the waiver of any condition to the
obligations of the Members to consummate the transactions contemplated hereby,
or the defense and/or settlement
2
<PAGE>
of any claims for which the Members may be required to indemnify Buyer pursuant
to Section 8 hereof, (ii) to give and receive all notices required to be given
under this Agreement and under any Related Agreements (as defined below), and
(iii) to take any and all additional actions as is contemplated to be taken by
or on behalf of the Members by the terms of this Agreement and any Related
Agreement. In the event that the Member Representative dies, becomes unable to
perform his or her responsibilities hereunder or resigns from such position,
Members holding, prior to the Closing, a majority of the Interests as set forth
on Schedule 1 attached hereto shall select another representative to fill such
----------
vacancy and such substituted representative shall be deemed to be the Member
Representative for all purposes of this Agreement and any Related Agreement. All
decisions and actions by the Member Representative, including, without
limitation, the defense or settlement of any claims for which the Members may be
required to indemnify the Buyer pursuant to Section 8 hereof, shall be binding
upon all of the Members, and no Member shall have the right to object, dissent,
protest or otherwise contest the same.
(c) By their execution of this Agreement, the Members agree that:
(i) the Buyer shall be able to rely conclusively on the
instructions and decisions of the Member Representative as to
settlement of any claims for indemnification by the Buyer
pursuant to Section 8 hereof or any other actions required to be
taken by the Member Representative hereunder, and no party
hereunder shall have any cause of action against Buyer for any
action taken by Buyer in reliance upon the instructions or
decisions of the Member Representative;
(ii) all actions, decisions and instructions of the Member
Representative shall be conclusive and binding upon all of the
Members and no Member shall have any cause of action against the
Member Representative for any action taken, decision made or
instruction given by the Member Representative under this
Agreement, except for fraud or willful breach of this Agreement
by the Member Representative;
(d) All fees and expenses, if any, incurred by the Member
Representative shall be paid by the Members in proportion to their ownership of
Interests as set forth on Schedule 1 attached hereto.
----------
1.5 Assumed Liabilities. The Buyer agrees to assume and pay those
-------------------
liabilities of the Company set forth on the Current Balance Sheet (as defined
below) and those liabilities incurred by the Company in the normal and ordinary
course during the one-month period ending June 30, 1998.
3
<PAGE>
2 - REPRESENTATIONS AND WARRANTIES OF THE
MEMBERS WITH RESPECT TO THE COMPANY
Except as set forth in the Company's and the Members' disclosure schedules
(the "Company Disclosure Schedules"), the Managing Member and each of the
Members, jointly and severally, represents and warrants to Buyer as of the date
hereof and on and as of the Closing Date as set forth in this Section 2. The
Company Disclosure Schedules shall be prepared in response to and shall
reference the applicable subsections of this Section 2. If the Members have
nothing to disclose in any schedule or schedules called for in this Section 2,
such schedule need not be included in the Company's Disclosure Schedules:
2.1 Organization and Qualification. The Company is a limited liability
------------------------------
company duly organized, validly existing and in good standing under the laws of
the State of Delaware and has all requisite power and lawful authority to own,
lease and operate its assets, properties and business and to conduct its
business as and in the places where such properties are now owned, leased or
operated or such business is now conducted or proposed to be conducted. The
Company is duly qualified or authorized to do business as a foreign limited
liability company and is in good standing in each jurisdiction in which the
nature of its activities and of its properties (both owned and leased) makes
such qualification or authorization necessary, except for those jurisdictions in
which the failure so to qualify or be authorized would not have a material
adverse effect on the Company or its assets, properties, business, operations,
prospects or condition.
2.2 Capitalization; Voting Rights. The authorized membership interests of
-----------------------------
the Company are as set forth on Schedule 1. Except as set forth on Schedule 2.2
---------- ------------
hereto, there is no: (i) outstanding ownership interest or control interest of
the Company; (ii) outstanding subscription, option, call, commitment, agreement
or understanding (oral or written) obligating the Company to issue any ownership
interests or any security or securities of any class or kind which in any way
relate to the ownership of the Company or any interest therein; (iii) agreement
or understanding (oral or written) (other than this Agreement) which grants to
any Person (as hereinafter defined) the right to purchase or otherwise acquire
any ownership interest or control of the Company or any interest therein,
including without limitation any preemptive right, right of first refusal or co-
sale right; (iv) voting trust or voting agreement or pooling agreement or proxy
(oral or written) with respect to any ownership or management interest of the
Company; or (v) obligation of the Company (oral or written) to purchase, redeem,
or otherwise acquire any ownership interest or any interest therein or to pay
any distribution with respect thereto.
2.3 Consents. No consent, approval, waiver or other action by any
--------
individual, corporation, company, partnership, association, trust or other
entity or organization, including any government or political subdivision or
agency or instrumentality thereof (each, a "Person"), under any contract,
agreement, understanding, indenture, lease, instrument or other document (oral
or written) to which the Company is a party or by which it or any of the assets
of the Company is bound, is required or necessary for (i) the execution,
delivery and performance of
4
<PAGE>
this Agreement or any Related Agreement by the Members or the Company or the
consummation of the transactions contemplated hereby or thereby or (ii) the
continuation after the consummation of the transactions contemplated hereby or
thereby of any contract, agreement, indenture, lease, instrument or other
document to which the Company is a party or by which it or its assets are bound.
2.4 Authorization; No Breach. The execution and delivery by the Company
------------------------
of this Agreement and all the agreements contemplated herein (the "Related
Agreements"), and the consummation by the Company of all transactions
contemplated hereunder and thereunder by the Company, have been duly authorized
by all requisite corporate action. This Agreement and the Related Agreements
have been duly executed by the Company and each of the Members (where
applicable) and each other party thereto. This Agreement and the Related
Agreements and all other agreements and obligations entered into and undertaken
in connection with the transactions contemplated hereby or thereby to which the
Company or any of the Members is a party constitute the valid and legally
binding obligations of the Company and each of the Members, enforceable against
each of them in accordance with their respective terms, except (i) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws of
general application affecting enforcement of creditors' rights; and (ii) general
principles of equity that restrict the availability of equitable remedies. The
execution, delivery and performance of this Agreement and the Related Agreements
and the consummation of the transactions contemplated hereby and thereby will
not: (i) violate, contravene or breach any provision of the Company's Operating
Agreement (as defined below) or any other governing document of the Company;
(ii) violate, conflict with, contravene, or result in the breach of any of the
terms or conditions of, result in modification of the effect of, or otherwise
give any other contracting party the right to terminate, accelerate or cancel
any right or obligation of the Company or constitute (or with notice or lapse of
time or both constitute) a default under, any instrument, contract or other
agreement to which the Company is a party or by which it or its assets or
properties may be bound or subject; (iii) violate, contravene or breach any
constitution, treaty, law, statute, code, ordinance, decree, rule, regulation,
or municipal by-law, whether domestic, foreign or international, any judgment,
order, writ, injunction, decision, ruling, decree or award of any governmental
authority or body, or any provision of any of the foregoing applicable to or
binding upon, the Company or its properties, assets or business (each, a "Law,"
and collectively, "Laws"); (iv) violate any license, permit, franchise, or order
or other approval of any federal, provincial, state, local or foreign
governmental or regulatory body (each, a "Permit", and collectively, "Permits");
or (v) result in the creation of any mortgage, pledge, charge, security
interest, lien or other encumbrance (each, a "Lien") on the Interests or on any
of the assets or properties of the Company.
2.5 Subsidiaries and Other Affiliates. The Company has no subsidiaries.
---------------------------------
Except as set forth in Schedule 2.5, the Company does not directly or indirectly
------------
own or have any investment in any shares of the capital stock of, or any other
proprietary interest in (including without limitation, any partnership or joint
venture interest), any other Person. For this purpose, "joint venture" means
any entity or contractual relationship (written or oral) pursuant to which the
5
<PAGE>
Company shares with any Person, except for Accipiter, Inc. and Engage
Technologies, Inc., the profits and/or losses of any undertaking or pursuant to
which the Company may be liable for the acts or undertakings of any Person.
2.6 Corporate Records. The operating agreement dated January 1, 1997 by
-----------------
and among the Medley Investment Group, L.L.C., Graham A. Duncan, Francisco K.
Rivera and David Boyle, as amended by the letter agreement dated January 1, 1998
by and among Richard Medley, The Medley Investment Group, L.L.C., Graham Duncan
and Neil Black, and as amended by the letter agreement dated January 1, 1998 by
and among Peter Kirwan, David Boyle, Mark Torrey and Neil Black (the operating
agreement as amended by the letter agreements hereinafter, the "Operating
Agreement") constitutes the sole and exclusive governing document of the
Company. The Company has previously delivered to Buyer true and complete copies
of the Operating Agreement, as amended, and as currently in effect. The records
of the Company, which have been furnished to Buyer, are complete and accurate,
and contain copies of all resolutions passed by the members and managers of the
Company since the date of its formation, all of which resolutions have been duly
passed. The financial books and records of the Company have been maintained in
accordance with sound business practices and fairly, accurately and completely
present and disclose in accordance with GAAP consistently applied (i) the
financial position of the Company, and (ii) all transactions of the Company.
2.7 Financial Statements. The Company has delivered to Buyer the reviewed
--------------------
financial statements of the Company for the fiscal year ended December 31, 1997
(the "Reviewed Financial Statements"), the unaudited balance sheet (the "Current
Balance Sheet") of the Company as of May 31, 1998 (the "Current Balance Sheet
Date") and the unaudited interim financial statements of the Company for the
five-month period ended May 31, 1998 (the "Interim Financial Statements" and,
collectively with the Reviewed Financial Statements, the Current Balance Sheet,
the "Financial Statements"). The Financial Statements have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout such periods. Except as disclosed therein, such Financial
Statements present fairly and accurately the financial condition and position of
the Company as of the dates indicated.
2.8 Absence of Undisclosed Liabilities. Except as set forth in Schedule
---------------------------------- --------
2.8, as at the Current Balance Sheet Date, the Company had no liabilities of any
- ---
nature, whether direct, indirect, accrued, absolute, contingent or otherwise
(including, without limitation, liabilities as guarantor or otherwise with
respect to obligations of others or liabilities for Taxes (as defined in Section
2.11 hereof) due or then accrued or to become due), that were not fully and
adequately reflected or reserved against on the Financial Statements of the
Company. There is no existing condition, situation or set of circumstances
(excluding possible changes in the Tax laws of any jurisdiction) that could
reasonably be expected to result in any such liability, other than liabilities
(i) fully and adequately reflected or reserved against on the Financial
Statements or (ii) incurred since the Current Balance Sheet Date in the ordinary
course of business consistent with past practice, which in the aggregate are not
material to the Company.
6
<PAGE>
2.9 No Material Adverse Change. To the best knowledge of the Company,
--------------------------
since the Current Balance Sheet Date, there have been no changes in the assets,
properties, business, operations, prospects or condition (financial or
otherwise) of the Company that, either individually or in the aggregate,
materially and adversely affect the Company, nor does any Member know of any
such change that is reasonably likely to occur, nor has there been any damage,
destruction or loss materially and adversely affecting the assets, properties,
business, operations, prospects or condition (financial or otherwise) of the
Company, whether or not covered by insurance. Without limiting the generality
of the foregoing, except as set forth in Schedule 2.9, since the Current Balance
------------
Sheet Date, the Company has not:
(i) except for indebtedness to the Buyer, incurred any
indebtedness for borrowed money, assumed or guaranteed or
otherwise become responsible for the obligations of any Person,
or otherwise made or assumed any commitment, obligation or
liability outside the ordinary course of business;
(ii) declared or paid any dividend or declared or made any
other distribution of any kind to its members, or made any direct
or indirect redemption, retirement, purchase or other acquisition
of any shares of its membership or other ownership interests or
entered into any agreement or made any commitment with respect to
the same;
(iii) made any loan, advance or capital contribution to or
investment in any Person;
(iv) made any payment or commitment to pay any severance or
termination pay to any of its managers, officers, directors,
members, employees, consultants, agents or other representatives;
(v) entered into any lease (as lessor or lessee), sold,
abandoned or made any other disposition of any of its assets or
other property other than in the ordinary course of business;
(vi) granted or suffered any Lien or other encumbrance on any
of its assets or properties;
(vii) entered into or amended any arrangement pursuant to which
the Company agreed to indemnify any party other than in the
ordinary course of business;
(viii) entered into or amended any arrangement to refrain from
competing with any party;
7
<PAGE>
(ix) except for inventory or equipment acquired in the ordinary
course of business, made any acquisition of all or any part of
the assets, properties, capital stock or business of any other
Person or entered into or amended any contract or other
arrangement to do the same;
(x) made any change in any method of accounting or accounting
practice, waived or cancelled any material claim, account
receivable, or right, or changed its pricing, credit, or payment
policies;
(xi) paid any long-term liability otherwise than in accordance
with its terms;
(xii) (A) entered into any employment, deferred compensation or
other similar agreement (or any amendment to any such existing
agreement) with any manager, director, officer, member,
consultant, agent or employee of the Company, (B) increased the
benefits payable under any existing severance or termination pay
policies or employment agreement or (C) increased the
compensation, bonus or other benefits payable to directors,
officers or employees of the Company;
(xiii) suffered any labor dispute, other than routine individual
grievances, or any activity or proceeding by a labor union or
representative thereof to organize any employees of the Company,
which employees were not subject to a collective bargaining
agreement at the Current Balance Sheet Date, or any lockouts,
strikes, slowdowns, work stoppages or threats thereof by or with
respect to any employees of the Company; or
(xiv) failed to comply with any Law in any respect that,
individually or in the aggregate, has had or is reasonably likely
to have a material adverse effect on the assets, properties,
business, operations, prospects or conditions (financial or
otherwise) of the Company.
2.10 Accounts Receivable. All accounts receivable reflected in the
-------------------
Financial Statements and all accounts receivable arising after the Current
Balance Sheet Date (collectively, the "Accounts Receivable") have arisen in the
ordinary course of business of the Company, to the Company's Best Knowledge,
represent valid and enforceable obligations due to the Company (except as set
forth in Schedule 2.10), and are not subject to any discount, set-off or
-------------
counter-claim (except as set forth in Schedule 2.10). All such Accounts
-------------
Receivable have been collected or, to the best knowledge of the Company, are
fully collectible in the ordinary course of business of the Company in the
aggregate recorded amounts thereof in accordance with their terms.
8
<PAGE>
2.11 Tax Matters.
-----------
(a) As used in this Agreement, "Taxes" shall mean all taxes,
including without limitation income taxes, corporation taxes, capital taxes,
excise taxes, value added and sales taxes, use taxes, gross receipts taxes,
franchise taxes, employment and payroll related taxes, goods and services taxes,
stamp taxes, transfer taxes, withholding taxes, property taxes and import
duties, whether or not measured in whole or in part by net income, all imposts,
levies, duties, deductions, withholdings, charges, public and private pension
plan contributions, social security contributions, workmen's compensation,
Medicare and public health contributions, assessments, reassessments or fees of
any nature, and all deficiencies or other additions to tax, interest and
penalties owed by it; and "Tax" shall mean any one of them. The Company has paid
all Taxes required to be paid by it through the date hereof (other than Taxes
not yet due and payable the liability for which is adequately reserved for by
the Company in the Financial Statements and other than possible adjustments as
set forth in Schedule 2.8). The provisions for Taxes reflected in the Financial
------------
Statements are adequate to cover any and all Tax liabilities of the Company in
respect of their respective assets, properties, business and operations during
the periods covered by said Financial Statements and all prior periods.
(b) The Company has timely filed all Tax returns required to be
filed by it through the date hereof, or has timely filed for and obtained an
extension for filing of any Tax returns that otherwise would have been required
to be filed on or before the date hereof, and in the case of any such extension,
such Tax return shall be filed within the period of the authorized extension.
Schedule 2.11(b) shall set forth all Tax returns for which the Company has
applied for or obtained an extension for filing. Each of the Tax returns filed
by the Company completely, correctly and accurately reflects the amount of the
Company's Tax liability for the period covered thereby.
(c) There has not been any audit of any Tax return filed by the
Company, no audit of any Tax return of the Company is in progress, and the
Company has not been notified by any Tax authority that any such audit is
contemplated or pending. Neither the Internal Revenue Service nor any other
taxing authority is now asserting or, to the best knowledge of any Member,
threatening to assert any Tax deficiency or claim for additional Taxes or
interest thereon or penalties in connection therewith. Except as set forth on
Schedule 2.11(c), all Tax returns of the Company have been assessed through and
- ----------------
including the date hereof, and there are no outstanding waivers of any
limitation periods or agreements providing for an extension of time for the
filing of any Tax return or the payment of any Tax or for the issue of an
assessment or reassessment against the Company. All deficiencies proposed as a
result of such assessments of the Tax returns have been paid and settled.
(d) The Company has withheld from each payment made to any of its
past and present managers, members, directors, officers, employees and agents
the amount of all Taxes and other deductions required to be withheld and has
paid or made adequate provision for the payment of such amounts to the proper
receiving authorities.
9
<PAGE>
(e) Except with respect to possible adjustments as set forth in
Schedule 2.8, the Company is not subject to and shall not be subject after the
- ------------
Closing Date to any assessments, levies, penalties or interest with respect to
Taxes which shall result in any liability on its part in respect of any period
ending on or prior to the Closing Date in excess of the amount provided for and
reserved against in the Financial Statements.
2.12 Compliance with Laws; Permits.
-----------------------------
(a) The Company is not in violation or default of any term of the
Operating Agreement, or of any provision of any mortgage, indenture, contract,
agreement, instrument or contract to which it is party or by which it is bound
or of any judgment, decree, order, writ or, to its knowledge, any Law applicable
to the Company which would materially and adversely affect the business, assets,
liabilities, financial condition, operations or prospects of the Company.
(b) The Company has all Permits that are material to the conduct of
the Company's business and (ii) all security clearances, special credentials and
other designations (excluding academic degrees) held by or pertaining to any of
the officers, employees, consultants and other agents of the Company that are
necessary or useful in the conduct of the Company's business, in each case
naming the officer, employee, consultant or agent, the Person from whom such
clearance, credential or designation was obtained, and the contract, grant
and/or other aspect of the Company's business to which it pertains.
(c) The Company has, is in full compliance with, and is entitled to
all the benefits under, all Permits that are material to the conduct of its
business and the uses of its assets; such Permits have been validly issued and
are in full force and effect and will continue in full force and effect upon
consummation of the transactions contemplated hereunder; no violations are or
have been recorded with any governmental or regulatory body in respect of any
Permit; and no proceeding is pending or, to the best knowledge of the Members,
threatened to revoke or limit any Permit.
2.13 Actions and Proceedings. There are no outstanding orders, judgments,
-----------------------
injunctions, awards or decrees of any court, governmental or regulatory body or
arbitration tribunal against or involving the Company or any of its securities,
assets, or properties. There are no actions, proceedings (or any basis
therefor), suits or claims or legal, administrative or arbitration proceedings
pending against or, to the best knowledge of the Company, threatened against or
affecting (whether or not the defense thereof or liabilities in respect thereof
are covered by insurance) the Company or any of its securities, assets or
properties, nor, to the best knowledge of the Company, is there any
investigation pending or threatened against or affecting the Company, that
questions the validity of this Agreement, or any of the Related Agreements or
any of the Schedules or Exhibits attached hereto or the right of the Company or
any Member or other party to enter into any of such agreements, or to consummate
the transactions contemplated hereby or thereby, or which might result, either
individually or in the aggregate, in any material
10
<PAGE>
adverse change in the business, assets, intellectual property rights,
liabilities, financial condition, operations, affairs or prospects of the
Company, financially or otherwise, or any change in the current equity ownership
of the Company. To the best knowledge of the Company, there is no fact, event or
circumstance that may give rise to any suit, action, claim, investigation or
proceeding that individually or in the aggregate could have a material adverse
effect on the transactions contemplated hereby or on the assets, properties,
business, operations, prospects or condition (financial or otherwise) of the
Company.
2.14 Contracts and Other Agreements.
------------------------------
(a) Schedule 2.14 sets forth a list of all of the following contracts
-------------
and other agreements (oral or written) to which the Company is a party or by or
to which it or its assets or properties are bound or subject (collectively, the
"Material Contracts"):
(i) any agreement or series of related agreements requiring
aggregate payments by or to the Company of more than $10,000;
(ii) any agreement with or for the benefit of any current or
former member, manager, officer, director, member, employee or
consultant of the Company;
(iii) any agreement with any labor union or association
representing any employee of the Company;
(iv) any agreement for the purchase or sale of materials,
supplies, equipment, merchandise or services that contains an
escalation, renegotiation or redetermination clause or that
obligates the Company to purchase all or substantially all of its
requirements of a particular product or service from a supplier,
or for periodic minimum purchases of a particular product or
service from a supplier;
(v) any agreement for the sale of any of the assets or
properties of the Company other than in the ordinary course of
business or for the grant to any person of any options, rights of
first refusal, or preferential or similar rights to purchase any
such assets or properties;
(vi) any partnership or joint venture agreement, excluding co-
marketing agreements;
(vii) any agreement of surety, guarantee or indemnification,
other than agreements in the ordinary course of business with
respect to obligations in an aggregate amount not in excess of
$10,000;
11
<PAGE>
(viii) any agreement to which Seller is a party and which
contains covenants of the Company not to compete in any line of
business, in any geographic area or with any person or covenants
of any other person not to compete with the Company or in any
line of business of the Company;
(ix) any agreement granting or restricting the right of the
Company to use any Proprietary Rights;
(x) any agreement with customers or suppliers for the sharing
of fees, the rebating of charges or other similar arrangements;
(xi) any agreement with any holder of securities or ownership
interest of the Company as such (including, without limitation,
any agreement containing an obligation to register any of such
securities under any federal or state securities laws);
(xii) any agreement obligating the Company to deliver
maintenance services or future product enhancements or containing
a "most favored nation" pricing clause;
(xiii) any agreement relating to the acquisition by the Company
of any operating business or the capital stock of any other
person;
(xiv) any agreement requiring the payment to any person of a
brokerage or sales commission or a finder's or referral fee
(other than arrangements to pay commissions or fees to employees
in the ordinary course of business);
(xv) any agreement or note relating to or evidencing
outstanding indebtedness for borrowed money, other than
evidencing indebtedness to the Buyer;
(xvi) any lease, sublease or other agreement under which the
Company is lessor or lessee of any real property or equipment or
other tangible property;
(xvii) any agreement with a change of control provision or
otherwise requiring consent with respect to an acquisition,
merger or other change-of-control transaction of the Company;
(xviii)any option agreement; employment or severance agreement;
phantom plan; bonus, incentive or similar agreement, arrangement
or understanding;
12
<PAGE>
(xix) any distribution or sales representative agreement or
agreements appointing any agents; and
(xx) any other material agreement whether or not made in the
ordinary course of business.
(b) There have been delivered or made available to Buyer true and
complete copies of all such Material Contracts (and all amendments, waivers or
other modifications thereto) and, with respect to any oral Material Contracts,
complete and accurate summaries thereof. Except as set forth on Schedule 2.14,
-------------
making specific reference to the Material Contract as to which exception is
taken and explaining the exception, all of such Material Contracts are valid,
subsisting, in full force and effect, binding upon the Company, and to the best
knowledge of the Company, binding upon the other parties thereto in accordance
with their terms.
2.15 Real Estate. The Company does not own any real property or any
-----------
buildings or other structures and does not have any options or any contractual
obligations to purchase or acquire any interest in real property. The leasehold
interests of the Company set forth in Schedule 2.15 are subject to no Lien
-------------
(other than Liens on the interests of the respective lessors that indirectly
burden such leasehold interests). All such leases are in good standing and in
full force and effect without amendment thereto, and the Company is entitled to
all benefits under such leases.
2.16 Personal Property. Schedule 2.16 attached hereto sets forth (i) a
----------------- -------------
true, correct and complete list of all items of tangible personal property (A)
owned by the Company as of the date hereof having either a net book value per
unit or an estimated fair market value per unit in excess of $10,000 or (B) not
owned by the Company but in the possession of or used or useful in the business
of the Company and having rental payments therefor in excess of $250 per month
or $3,000 per year (collectively, the "Personal Property"); and (ii) a
description of the owner of, and any agreement relating to the use of, each item
of Personal Property not owned by the Company and the circumstances under which
such Personal Property is used. Except as disclosed in Schedule 2.16:
-------------
(a) no manager, member, officer, director or employee of the
Company, nor any spouse, child or other relative or affiliate thereof, owns
directly or indirectly, in whole or in part, any of the Personal Property;
(b) each item of Personal Property not owned by the Company is in
such condition that upon the return of such Personal Property to its owner in
its present condition at the end of the relevant lease term or as otherwise
contemplated by the applicable agreement between the Company and the owner or
lessor thereof, the obligations of the Company to such owner or lessor will be
discharged;
13
<PAGE>
(c) the Personal Property is in good operating condition and repair,
normal wear and tear excepted, is currently used by the Company in the ordinary
course of its business and normal maintenance has been consistently performed
with respect to the Personal Property; and
(d) the Company owns or otherwise has the right to use all of the
Personal Property now used or useful in the operation of its business or the use
of which is necessary for or useful in the performance of any material contract,
letter of intent or proposal to which the Company is a party.
2.17 Proprietary Rights.
------------------
(a) (i) As used in this Agreement, the term "Proprietary Rights"
means all:
(A) trademarks, service marks, trade names, franchises and
copyrights and all registrations and applications to register any of
the foregoing with any agency or authority;
(B) patents, patent applications, inventions and designs,
and any registration thereof with any agency or authority;
(C) trade secrets, including all processes, know-how,
technical data, shop rights, and any media or other tangible
embodiment thereof and all descriptions thereof; and
(D) other technology and intangible property, including
without limitation computer programs, databases, and documentation and
flow charts.
(ii) Schedule 2.17(a)(ii) sets forth a true, accurate and
--------------------
complete list of all Proprietary Rights of the types described
in clauses (a)(i)(A) and (B) of which the Company claims
ownership or uses in its business, together with the applicable
identifying information of all federal, provincial, state and
foreign registrations of such Proprietary Rights or applications
for registration.
(iii) Schedule 2.17(a)(iii) sets forth a true, accurate and
---------------------
complete list of all Proprietary Rights of the type described in
clauses (a)(i)(A) and (B) that are licensed to the Company,
together with the available applicable identifying information
of all federal, provincial, state and foreign registrations of
such Proprietary Rights or applications for registration.
(iv) Schedule 2.17(a)(iv) sets forth a true, accurate and
--------------------
complete list of all Proprietary Rights owned or used by the
Company that are material to its
14
<PAGE>
business as presently conducted or as it is contemplated to be
conducted and are not listed on Schedules 2.17(a)(ii) or (iii).
------------------------------
(b) (i) The Company is the sole and exclusive owner of all right,
title and interest in and to the Proprietary Rights listed on Schedule
--------
2.17(a)(ii) except as otherwise provided in such Schedule.
- -----------
(ii) Except as set forth on Schedule 2.17(a)(ii), (iii), or (iv),
------------------------------------
as applicable, the Company has the right to use all Proprietary
Rights listed therein free and clear of the claims or rights of
others and such Proprietary Rights will remain in full force and
effect following the consummation of the transactions
contemplated hereby. All patents, copyrights, trademarks and
service marks listed on Schedule 2.17(a)(ii), (iii) or (iv) that
-----------------------------------
are owned by the Company or for the maintenance of which the
Company is responsible, and, to the best knowledge of the
Company, all other such rights so listed, and all federal,
provincial, state and foreign registrations thereof, are valid
and in full force and effect and are not subject to any taxes,
maintenance fees, or actions falling due within 90 days after the
date hereof.
(c) The Proprietary Rights owned or licensed by the Company are
sufficient to conduct the Company's business as presently conducted; and the
Company has taken all steps reasonably necessary to protect its right, title and
interest in and to the Proprietary Rights and the continued use of the
Proprietary Rights.
(d) Except as set forth in Schedule 2.17(d)(i), none of the present
-------------------
activities or, to the best knowledge of the Company, the proposed activities, of
the Company or its products or assets infringe on any Proprietary Rights of
others, (ii) the Company has not received any claim or notice of any claim to
that effect, and (iii) to the best knowledge of the Company, there is no
existing or threatened infringement or violation by others of the Proprietary
Rights of the Company.
(e) (i) Except as set forth in Schedule 2.17(e), the Company has:
----------------
(A) obtained assignments of all inventions, patent and patentable rights and
copyrights from all current and past employees, consultants, and other persons
who contributed to the discovery or development of any of the Proprietary
Rights; and (B) adopted and implemented such other policies and procedures,
including without limitation with respect to confidentiality and assignment of
inventions, as are reasonably necessary to protect and promote the Company's
interests with respect to the Company's Proprietary Rights.
(ii) To the best knowledge of the Company, there is no existing
or threatened violation of the confidentiality of the Company's
confidential information or trade secrets. The Company is not
making unauthorized use of any confidential information or trade
secrets of any Person, including
15
<PAGE>
without limitation any former employer of any past or present
employees or consultants of the Company.
(iii) To the best knowledge of the Company, none of the
activities of the employees or consultants of the Company on
behalf of the Company violates or has violated any agreements or
arrangements that any such employees or consultants have or have
had with former employers. Each of the employees and consultants
who contributed to the discovery or development of any of the
Proprietary Rights (other than Proprietary Rights licensed to the
Company by any party other than a consultant to the Company) did
so in each case within the scope of his or her employment or
contractual relationship with the Company.
2.18 Title to Assets; Liens. Except as set forth on Schedule 2.18, the
---------------------- -------------
Company owns outright and has good, valid and marketable title to all of its
assets and properties of every nature whatsoever, including Proprietary Rights
and Personal Property, used in the business, including, without limitation, all
of the assets and properties reflected in the Financial Statements, free and
clear of any Lien, except for (i) assets and properties disposed of, or subject
to purchase or sales orders, in the ordinary course of business consistent with
past practice since the Current Balance Sheet Date or (ii) liens or other
encumbrances securing the claims of carriers, landlords and like persons, all of
which are not yet due and payable. There are no developments affecting any of
such properties or assets pending or, to the best knowledge of the Company,
threatened, that might materially detract from the value of such property or
assets, materially interfere with any present or intended use of any such
property or assets or materially and adversely affect the marketability of such
properties or assets.
2.19 Customers and Suppliers. Schedule 2.19 sets forth the ten (10)
----------------------- -------------
customers who account for the largest sales or revenues of the Company (the
"Customers"). To the best knowledge of the Company, the relationships of the
Company with its Customers and its suppliers are generally good commercial
working relationships. Except as provided in Schedule 2.19, no Member knows of
-------------
any plan or intention of any such Customer or supplier, and the Company has not
received any written or oral threat from any Customer or supplier, to terminate,
cancel or otherwise adversely modify its relationship with the Company or to
decrease materially or limit its services, supplies or materials to the Company
or its usage or purchase of the services or products of the Company.
2.20 Employee Benefit Plans. Except as set forth on Schedule 2.20 and
---------------------- -------------
subject to Section 1.8 of this Agreement, the Company does not maintain, and has
not maintained, any pension, profit sharing, retirement, deferred compensation,
stock purchase, stock option, incentive, bonus, sales commission, vacation,
severance, disability, life insurance, group insurance, multi-employer or other
employee benefit plans, programs or other contractual arrangements, in respect
of, or that otherwise cover, any of the current or former officers or employees
of the Company, or their heirs or beneficiaries (collectively, the "Plans").
The
16
<PAGE>
Company has delivered to Buyer true and complete copies of all documents, as
they may have been amended to the date hereof, embodying or relating to the
Plans set forth on Schedule 2.20. There are no outstanding defaults or
-------------
violations by the Company of any obligations under any of such Plans, nor any
actions, claims, or other proceedings pending or threatened with respect
thereto. No plans, promises or commitments to change or increase benefits under
any of such Plans have been made except as required by law, and no event has
occurred which could subject any person or fund to any tax, penalty or other
disability in connection therewith.
2.21 Employees and Consultants. Set forth on Schedule 2.21 is a complete
------------------------- -------------
list of the Company's (i) employees, (ii) consultants and (iii) independent
contractors who spend at least fifty percent (50%) of their professional time
working for the Company, with names, current salaries and, with respect to Key
Employees, current positions with the Company. The Company generally enjoys a
good employer-employee relationship with its employees. The Company has on file
duly executed Forms I-9 from all such employees. The Company is not delinquent
in payments to any of its employees or consultants for any wages, salaries,
commissions, bonuses or other direct compensation for any services performed by
them to the date hereof or amounts required to be reimbursed to such employees.
Except as set forth in Schedule 2.21, neither the Company nor Buyer will be
-------------
liable under any Plan, agreement or other contractual arrangement to any of said
employees or consultants for severance pay or any other payments (other than (a)
accrued salary, vacation or sick pay in accordance with the Company's written
policies delivered to the Buyer and summarized in Schedule 2.21 and (b) any
-------------
liability relating to notice of termination as required by the laws of the State
of New York and summarized in Schedule 2.21) as a result of the termination of
-------------
employment of any of said employees or consultants or as a result of the sale of
any substantial portion of the outstanding shares in the capital of the Company.
The Company does not have an employee manual. All employees and consultants of
the Company, whose employment and/or consulting responsibilities require access
to confidential or proprietary information of the Company (the "Key Employees")
are designated as such on Schedule 2.21 and have executed and delivered Non-
-------------
Disclosure, Non-Competition and Developments Agreements in substantially the
form of Exhibit D hereto, and all of such agreements are in full force and
---------
effect.
2.22 Labor Relations; Compliance. The Company is not, and has never been,
---------------------------
a party to any collective bargaining or other labor agreement. Except as set
forth on Schedule 2.22, there has not been, there is not presently pending or
-------------
existing, and to the best knowledge of the Company, there is not threatened, (a)
any strike, slowdown, picketing, work stoppage, or employee grievance process,
(b) any proceeding against or affecting the Company relating to the alleged
violation of any legal requirement pertaining to labor relations or employment
matters, including any charge or compliant filed by an employee or union with
the National Labor Relations Board, the Equal Employment Opportunity Commission,
or any comparable governmental body, or organizational activity, or other labor
or employment dispute against or affecting the Company or its premises, or (c)
any application for certification of a collective bargaining agent. No event
has occurred or circumstances exist that could provide the basis for any work
stoppage or other labor dispute. There is no lock-out of any employees by the
Company, and no
17
<PAGE>
such action is contemplated by the Company. The Company has complied in all
respects with all Laws relating to employment, equal employment opportunity,
nondiscrimination, immigration, wages, hours, benefits, collective bargaining,
the payment of social security and similar taxes, occupational safety and
health, and plant closing.
2.23 Certain Transactions. Except as set forth in Schedule 2.23 or in the
-------------------- -------------
Financial Statements and except as expressly contemplated by or disclosed in
this Agreement and the Related Agreements and the exhibits, schedules, documents
or other written information attached hereto and thereto, the Company is not
indebted to any Insiders, in any amount whatsoever, other than for payment of
salary for services rendered and reasonable expenses; none of said Insiders are
indebted to the Company or, to the best knowledge of the Company, after due
inquiry, have any direct or indirect ownership interest in, or any contractual
relationship with, any firm, corporation, or other Person with which the Company
is or was affiliated or with which the Company has a business relationship, or
any firm, corporation, or other Person which, directly or indirectly, competes
with the Company; and no Insider is, directly or indirectly, a party to or
otherwise an interested party with respect to any contract with the Company.
2.24 Insurance. Schedule 2.24 sets forth a list of all policies or binders
--------- -------------
of fire, liability, product liability, workmen's compensation, vehicular,
directors and officers and other insurance held by or on behalf of the Company.
Such policies and binders are in full force and effect, are reasonably believed
to be adequate for the businesses engaged in by the Company and are in
conformity with the requirements of all leases to which the Company is a party
and, to the best knowledge of the Company, are valid and enforceable in
accordance with their terms. The Company is not in default with respect to any
provision contained in any such policy or binder, nor has the Company failed to
give any notice or present any claim under any such policy or binder in due and
timely fashion. There are no outstanding unpaid claims in excess of $10,000 in
the aggregate under all such policies and binders. The Company has not received
notice of cancellation or non-renewal of any such policy or binder.
2.25 Banks, Brokers and Proxies. Schedule 2.25 sets forth (i) the name of
-------------------------- -------------
each bank, trust company, securities or other broker or other financial
institution with which the Company has an account, credit line, or safe deposit
box or vault or otherwise maintains relations; (ii) the name of each person
authorized by the Company to draw on any such account or credit line, to
transfer securities, or to have access to any safe deposit box or vault; (iii)
the purpose of each such account, safe deposit box or vault; and (iv) the names
of all persons authorized by proxies, powers of attorney or other like
instruments to act on behalf of the Company in matters concerning its business
or affairs. All such accounts, credit lines, safe deposit boxes and vaults are
maintained by the Company for normal business purposes, and no such proxies,
powers of attorney or other like instruments are irrevocable.
18
<PAGE>
2.26 Brokerage. No broker, finder, agent or similar intermediary has acted
---------
on behalf of the Company in connection with this Agreement or the transactions
contemplated hereby, and there are no brokerage commissions, finders' fees or
similar fees or commissions payable by the Company, Buyer or any subsidiary that
acquires the Interests in connection therewith based on any agreement,
arrangement or understanding with the Company or any Member or any action taken
by it or any of them.
2.27 Hazardous Materials. Subject to Section 1.8 of this Agreement, the
-------------------
Company (i) is not in violation of any applicable federal, state or local
statute, law, ordinance, rule, regulation or policy relating to the environment
or occupational health and safety (each, an "Environmental Law") and (ii) has
never generated, used or handled any Hazardous Materials (as hereinafter
defined), nor has the Company treated, stored or disposed of any Hazardous
Materials at any site owned or leased by the Company or shipped any Hazardous
Materials for treatment, storage or disposal at any other site or facility. No
other Person has ever generated, used, handled, stored or disposed of any
Hazardous Materials at any site owned or premises leased by the Company during
the period of the Company's ownership or lease or before any such period, nor
has there been or, to the best knowledge of the Company, is there threatened any
release of any Hazardous Materials on or at any such site or premises during
such period. For purposes of this Section 2.27, "Hazardous Materials" shall
mean and include any "hazardous waste" as defined in either the United States
Resources Conservation and Recovery Act, 42 U.S.C. 6901, regulations adopted
pursuant to said Act, and also any "hazardous substances" or "hazardous
materials" as defined in the United States Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. 9601.
2.28 Full Disclosure. The Schedules hereto and all documents and other
---------------
papers listed therein or required to be delivered pursuant to this Agreement and
the Related Agreements are true, complete, correct and authentic. No
representation or warranty of any Member contained in this Agreement, and, to
the best knowledge of the Company and each Member, no document or other paper
furnished by or on behalf of the Company to Buyer (or any of its agents)
pursuant to this Agreement or in connection with the transactions contemplated
hereby, taken as a whole, contains an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements made, in the context in which made, not false or misleading.
There is no fact known to any Member that has not been disclosed to Buyer in
this Agreement and the Related Agreements or the Schedules hereto and thereto
that has or will have a material adverse effect on the Company or its assets,
properties, business, operations, prospects or condition (financial or
otherwise), or is reasonably likely to have such an effect.
2.29 Best Knowledge. As used herein, an individual will be deemed to have
--------------
"best knowledge" of a particular fact or other matter if (a) such individual is
actually aware of such fact or other matter; and (b) a prudent individual could
be expected to discover or otherwise become aware of such fact or other matter
in the course of conducting a reasonably comprehensive investigation concerning
the existence of such fact or other matter. A corporation or entity (other than
an individual) will be deemed to have "best knowledge" of a particular fact or
other matter if
19
<PAGE>
any individual who is serving, or who has at any time served, as a director,
officer, employee, agent, partner, executor, or trustee of such corporation or
entity (or in any similar capacity) has, or at any time had, knowledge of such
fact or other matter.
3 - REPRESENTATIONS AND WARRANTIES OF THE MEMBERS
The Managing Member and each of the Members, jointly and severally,
represents and warrants to Buyer as of the date hereof and on and as of the
Closing Date as follows:
3.1 Title to Interests.
------------------
(a) Each Member is and will be at the Closing the holder of record
and the owner of the entire beneficial interest in the Interests set forth
opposite such Member's name on Schedule 1 hereto, free and clear of any Lien
----------
whatsoever and without any exception whatsoever.
(b) Each Member will transfer and deliver to Buyer or its designee at
the Closing a good and valid title to all of the Interests set forth opposite
his or her or its name on Schedule 1, free and clear of any Lien or claim of any
----------
kind, and the entire beneficial interest therein without any exception
whatsoever.
3.2 Authority to Execute and Perform Agreements. Each Member has full
-------------------------------------------
legal right and power to enter into, execute and deliver this Agreement and to
perform in full such Member's obligations hereunder. The execution, delivery
and performance of this Agreement or any Related Agreement (where applicable) by
each Member requires no consent, approval, waiver or other action by or in
respect of, or filing with, any governmental body, agency, official or authority
or any other Person other than as set forth on Schedule 3.2, all of which
------------
actions, approvals and filings will have been taken, obtained or made on or
before the Closing Date. This Agreement or any Related Agreement (where
applicable) has been duly executed and delivered and is the valid and binding
obligation of each Member, enforceable against each Member in accordance with
its terms.
3.3 No Breach. The execution, delivery and performance of this Agreement
---------
and the Related Agreements and the consummation of the transactions contemplated
hereby and thereby will not violate, conflict with, contravene, or result in the
breach of or constitute (or with notice or lapse of time or both constitute) a
default under, any instrument, contract or other agreement to which each Member
is a party or to which each Member or each Member's Interests may be bound or
subject; or violate, conflict with or contravene any order, judgment,
injunction, award or decree or other requirement of any court, arbitrator or
governmental or regulatory body against, or binding upon, each Member or each
Member's Interests; or violate, contravene or conflict with any statute, law,
ordinance or regulation of any jurisdiction binding upon or applicable to each
Member or each Member's Interests.
20
<PAGE>
3.4 Actions and Proceedings. There are no actions, investigations,
-----------------------
proceedings (or any basis therefor), suits or claims or legal, administrative or
arbitral proceedings pending against or, to the best knowledge of each Member,
threatened against or affecting each Member or each Member's Interests that have
or may have (a) the effect of restraining, modifying or preventing the
consummation of the transactions contemplated hereby or (b) a materially adverse
effect on the assets, properties, business, operations, prospects, or condition
(financial or otherwise) of the Company or Buyer.
3.5 Brokerage. There are no brokerage commissions, finders' fees or
---------
similar fees or commissions payable in connection therewith based on any
agreement, arrangement or understanding with such Member or any action taken by
such Member, the liability for which is or will be on the Company or Buyer.
3.6 Investment Representation. Each Member is acquiring a Term Note from
-------------------------
the Buyer for its own account for investment and not with a view to, or for sale
in connection with, any distribution thereof, nor with any present intention of
distributing thereof, nor with any present intention of distributing or selling
the same; and, except as contemplated by this Agreement and the agreements
contemplated herein, Member has no present or contemplated agreement,
undertaking, arrangement, obligation, indebtedness or commitment providing for
the disposition thereof.
4 - REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to the Members as follows:
4.1 Organization. The Buyer is duly organized, validly existing and in
------------
good standing under the laws of Delaware, and has the corporate power and lawful
authority to own, lease and operate its assets, properties and business and to
carry on its business as now being and as heretofore conducted.
4.2 Authority to Execute and Perform Agreements. The Buyer has the full
-------------------------------------------
legal right and power and all authority required to enter into, execute and
deliver this Agreement and to perform fully its respective obligations
hereunder, and this Agreement has been duly executed and delivered and is the
valid and binding obligation of Buyer enforceable in accordance with its terms
except, (i) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application affecting enforcement of
creditors' rights; and (ii) general principles of equity that restrict the
availability of equitable remedies.
4.3 No Breach. The execution, delivery and performance of this Agreement
---------
and the consummation of the transactions contemplated hereby will not (i)
violate any provision of the respective charter or by-laws of Buyer; (ii) to the
Buyer's best knowledge, violate any order, judgment, injunction, award or decree
of any court, arbitrator or governmental or regulatory body against, or binding
upon, Buyer or upon the securities, properties, assets or business of Buyer; or
21
<PAGE>
(iii) to the Buyer's best knowledge, violate any Law which relates to Buyer or
to the securities, properties, assets or business of Buyer; (iv) violate any
Permit of the Buyer.
4.4 Investment Representation. Buyer is acquiring the Interests from each
-------------------------
Member for its own account for investment and not with a view to, or for sale in
connection with, any distribution thereof, nor with any present intention of
distributing thereof, nor with any present intention of distributing or selling
the same; and, except as contemplated by this Agreement and the agreements
contemplated herein, Buyer has no present or contemplated agreement,
undertaking, arrangement, obligation, indebtedness or commitment providing for
the disposition thereof.
5 - COVENANTS AND AGREEMENTS
The parties covenant and agree as follows:
5.1 Continued Effectiveness of Representations and Warranties. From the
---------------------------------------------------------
date hereof through the Closing Date, the Members shall use their best efforts
to cause the Company to conduct its business and affairs and to conduct their
business and affairs in such a manner so that the representations and warranties
contained in Sections 2 and 3 hereof shall continue to be true and correct in
all material respects as of the Closing Date, and Buyer shall promptly be given
notice of any event, condition or circumstance occurring from the date hereof
through the Closing Date that would constitute (or with notice or the passage of
time would be likely to constitute) a violation or breach of this Agreement.
5.2 Escrow Agreement. After the Closing Date but prior to any payments of
----------------
any principal under any Term Notes, or prior to any payments under any Bonus
Agreements referenced in Section 7.4 hereof, the Escrow Agreement shall have
been executed and delivered by Buyer, the Member Representative and an escrow
agent named therein.
5.3 Further Assurances. Whether before or after the Closing Date, each of
------------------
the parties shall execute such documents, further instruments and other papers
and take such further actions as may be reasonably required or desirable to
carry out the provisions hereof and the transactions contemplated hereby.
6 - CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE
The obligations of Buyer to enter into and complete the Closing is subject,
at the option of Buyer acting in accordance with the provisions of this
Agreement with respect to termination hereof, to the fulfillment of the
following conditions, each of which is for the exclusive benefit of Buyer and
not of any of the Members and any one or more of which may be waived by Buyer
alone:
22
<PAGE>
6.1 Representations, Warranties and Covenants. The representations and
-----------------------------------------
warranties of the Company and each Member contained in this Agreement shall be
true and correct in all material respects on and as of the Closing Date with the
same force and effect as though made on and as of the Closing Date. The Company
and each Member shall have performed and complied in all material respects with
all covenants and agreements required by this Agreement to be performed or
complied with by it on or before the Closing Date. The Company and each Member
shall have delivered to Buyer a certificate, dated the Closing Date, to the
foregoing effect and stating that all conditions to Buyer's obligations
hereunder have been satisfied.
6.2 Consents and Approvals. All consents, Permits and approvals from all
----------------------
Persons, including without limitation all governmental authorities and all
parties to contracts or other agreements with any Member or the Company, that
may be required in connection with the performance by each Member of his or her
obligations under this Agreement, the continuance (without modification,
amendment, variation or renegotiation) after the Closing of such contracts or
other agreements with the Company or Buyer or any subsidiary of Buyer that
acquires the Interests, and/or the acquisition and ownership of the Interests by
Buyer or its subsidiary shall have been obtained.
6.3 Litigation. No action, suit or proceeding shall have been instituted
----------
before any court or governmental or regulatory body or instituted or threatened
by any governmental or regulatory body to restrain, modify or prevent the
consummation of the transactions contemplated hereby, or to seek damages or a
discovery order in connection with such transactions, or that has or may have,
in the reasonable opinion of the Buyer, (a) the effect of restraining, modifying
or preventing the consummation of such transactions or (b) a materially adverse
effect on the assets, properties, business, operations or condition (financial
or otherwise) of the Company or Buyer.
6.4 Non-Competition Agreements. As of the Closing Date, each Member and
--------------------------
each employee of the Company who will become an employee of the Buyer shall have
entered into and delivered to the Buyer a Non-Disclosure, Non-Competition and
Developments Agreement in the form attached hereto as Exhibit D.
---------
6.5 Opinion of Counsel to the Members. Buyer shall have received the
---------------------------------
opinion of Dornbush Mensch Mandelstam & Schaeffer, LLP, counsel to the Members
and the Company, dated the Closing Date, addressed to Buyer substantially in the
form attached hereto as Exhibit E.
---------
6.6 Delivery of Interests. Each Member shall have delivered or caused to
---------------------
be delivered to Buyer as of the Closing Date the certificates or other
documentation evidencing such Member's Interests, which collectively shall be
all of the issued and outstanding Interest of the Company, duly authorized for
transfer to Buyer or its designee, free and clear of any Liens or beneficial
interests of any party.
23
<PAGE>
6.7 Resignation of Managing Member. Neil Black shall have resigned as
------------------------------
Managing Member of the Company on the Closing Date, and, prior to such
resignation, shall have designated Robert B. Eisenberg as the Managing Member of
the Company.
6.8 Board Approval. This Agreement and the transactions contemplated
--------------
hereby shall have been approved by the Board of Directors of Buyer.
7 - CONDITIONS PRECEDENT TO THE MEMBERS OBLIGATION TO CLOSE
The obligation of the Members to enter into and complete the Closing is
subject, at the option of the Member Representative acting in accordance with
the provisions of this Agreement with respect to termination hereof, to the
fulfillment of the following conditions, each of which is for the exclusive
benefit of the Members and not of Buyer and any one or more of which may be
waived by the Member Representative alone:
7.1 Representations, Warranties and Covenants. The representations and
-----------------------------------------
warranties of Buyer contained in this Agreement shall be true in all material
respects on and as of the Closing Date with the same force and effect as though
made on and as of the Closing Date. Buyer shall have performed and complied in
all material respects with all covenants and agreements required by this
Agreement to be performed or complied with by it on or before the Closing Date.
Buyer shall have delivered to the Members a certificate, dated the Closing Date
and signed by an officer of the Buyer, to the foregoing effect and stating that
all conditions to the obligations of the Members hereunder have been satisfied.
7.2 Litigation. No action, suit or proceeding shall have been instituted
----------
before any court or governmental or regulatory body, or instituted by any
governmental or regulatory body, to restrain, modify or prevent the carrying out
of the transactions contemplated hereby, which such action, suit or proceeding
shall not have been stayed.
7.3 Term Notes. Buyer shall have caused to be delivered to each of the
----------
Members, a Term Note substantially in the form of Exhibit A attached hereto.
---------
7.4 Bonus Agreements. Buyer shall have entered into bonus agreements
----------------
substantially in the form of Exhibit B attached hereto.
---------
7.5 Opinion of Counsel to the Buyer. The Members shall have received the
-------------------------------
opinion of Palmer & Dodge, counsel to Buyer, dated the Closing Date and
substantially in the form attached hereto as Exhibit F.
---------
7.6 Board Approval. This Agreement and the transactions contemplated
--------------
hereby shall have been approved by the Board of Directors of Buyer.
24
<PAGE>
8 - INDEMNIFICATION
8.1 Survival. Notwithstanding any right of the Buyer to investigate fully
--------
the affairs of the Company and notwithstanding any knowledge of facts determined
or determinable by the Buyer pursuant to such investigation or right of
investigation, the Buyer has the right to rely fully upon the representations,
warranties, covenants and agreements of the Company in this Agreement or in any
Schedule, certificate or financial statement delivered by the Company pursuant
hereto. All such representations, warranties, covenants and agreements shall
survive the execution and delivery hereof and the Closing hereunder and be
indemnified in accordance with this Section 8, and, except as otherwise
specifically provided in this Agreement, shall thereafter:
(a) terminate and expire at the end of the thirty-sixth (36th) full
calendar month after the Closing Date with respect to any claim based upon,
arising out of or otherwise in respect of any inaccuracy in or any breach of any
representation or warranty of any of the Members contained in Sections 2 or 3
hereof, of which the Buyer shall have given no notice on or before the end of
such thirty-sixth (36th) month; provided, however, any claim based upon fraud or
-------- -------
willful misconduct by any of the Members or the Company, which shall survive
until the end of the eighty-fourth (84th) full calendar month after the Closing
Date;
8.2 Obligation of the Members to Indemnify. Subject to the limitations
--------------------------------------
set forth below and to the termination provisions set forth in Section 8.1, each
Member agrees, jointly and severally, to indemnify, defend and hold harmless
Buyer (and its subsidiaries, directors, officers, employees, affiliates and
assigns) from and against all losses, liabilities, damages, costs or expenses
(including interest and penalties imposed or assessed by any judicial or
administrative body and reasonable attorneys fees ("Losses") based upon, arising
out of or otherwise in respect of:
(i) any inaccuracy in or any breach of any representation,
warranty, covenant or agreement of any Member contained in this
Agreement or in any Schedule delivered pursuant hereto;
(ii) any Tax Claim, whether or not included in clause (i);
(iii) any claim or demand (a) for any commission or other
compensation by any broker, finder, agent or similar intermediary
claiming to have been employed or retained by or on behalf of the
Company or any of the Members, whether or not included in clause
(i); and
(iv) any claim relating to the terms and conditions of
employment of any of the Company's employees before the Closing,
whether first asserted before or after the Closing. While claims
based on the fact or manner of termination of any employee
terminated after the Closing shall not be
25
<PAGE>
indemnified under this clause (iv), any claim made by any such
employee that otherwise falls within this clause (iv) shall be
subject to this Section 8.
The liability of the Members with respect to indemnification hereunder
shall be joint and several.
8.3 Claims Notice. Promptly after receipt by the Buyer of notice of any
-------------
demand, claim or circumstances that, with or without the lapse of time, would
give rise to a claim or the commencement (or threatened commencement) of any
action, proceeding or investigation (an "Asserted Liability") that may result in
a Loss, the Buyer shall give notice thereof (the "Claims Notice") to the Member
Representative for indemnification pursuant to Sections 8.2 hereof. Delivery of
the Claims Notice to the Member Representative shall be deemed to be notice to
all the Members. The Claims Notice shall describe the Asserted Liability in
reasonable detail, and shall indicate the amount (estimated, if necessary) of
the Loss that has been or may be suffered by the Buyer. The Members shall pay
to the Buyer the amount of the Loss stated in the Claims Notice within 30 days
("Claims Notice Period") of receipt of the Claims Notice; provided, however, if
-------- -------
the Member Representative gives written notice ("Dispute Notice") prior to the
expiration of the Claims Notice Period disputing the amount of such Loss, the
Buyer and the Member Representative shall have 30 days ("Dispute Notice Period")
from receipt by the Buyer of the Dispute Notice to reach agreement as to the
amount of such Loss. If at the end of the Dispute Notice Period, the Buyer and
Member Representative have not reached agreement as to the amount of Loss to be
indemnified by the Members, the dispute shall be resolved in accordance with
Section 9.5 hereof.
8.4 Limitations on Indemnification. The indemnification provided for in
------------------------------
Sections 8.2 hereof shall be subject to the following limitations. Anything in
this Agreement to the contrary notwithstanding, no indemnification shall be
payable under Section 8.2 unless the total of all claims for indemnification
under this Section exceeds $25,000 in the aggregate, whereupon the full amount
of such claims shall be recoverable in accordance with the terms hereof;
provided, further, that no indemnification shall be payable in excess of the
- -------- -------
aggregate of the principal amount and any accrued interest underlying all of the
Term Notes, and with respect to each Member individually, up to the principal
amount and accrued interest under each such Member's Term Note as set forth on
Schedule 1 attached hereto.
- ----------
9 - MISCELLANEOUS
9.1 Expenses. All costs and expenses incurred in connection with this
--------
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such cost or expense.
9.2 Notices. Any notice or other communication required or permitted
-------
hereunder shall be in writing and shall be delivered personally, telegraphed,
telexed, sent by facsimile transmission or sent by certified, registered or
express mail, postage prepaid. Any such notice
26
<PAGE>
shall be deemed given when so delivered personally, telegraphed, telexed or sent
by facsimile transmission or, if mailed, two days after the date of deposit in
the mails, as follows:
(a) if to Buyer:
NaviSite Internet Services Corporation
300 Federal Street
Andover, MA 01810
Attention: Chief Financial Officer
Telephone: (978) 552-3300
Facsimile: (978) 552-3500
with a copy to:
Palmer & Dodge LLP
One Beacon Street
Boston, MA 02109
Attention: William Williams II, Esq.
Telephone: (617) 573-0360
Facsimile: (617) 227-4420
(b) if to any Member before the Closing:
Neil Black
c/o Servercast Communications, L.L.C.
451 Greenwich Street
New York, NY 10013
Telephone: (212) 219-3540
Facsimile: (212) 226-5439
with a copy to:
Dornbush Mensch Mandelstam & Schaeffer, LLP
747 Third Avenue
New York, New York 10017
Attention: Landey Strongin, Esq.
Telephone: (212) 759-3300
Facsimile: (212) 753-7673
(c) if to any Member after the Closing, to such Member's address as
set forth on Schedule 1 hereof.
----------
27
<PAGE>
Any party may by notice given in accordance with this Section 9.3 to the other
parties designate another address or person for receipt of notices hereunder.
9.3 Entire Agreement. This Agreement (including the Related Agreements,
----------------
Exhibits and Schedules) contain the entire agreement among the parties with
respect to the transactions contemplated hereby, and supersedes all prior
agreements, written or oral, with respect thereto.
9.4 Waivers and Amendments; Non-Contractual Remedies; Preservation of
-----------------------------------------------------------------
Remedies. This Agreement may be amended, superseded, cancelled, renewed or
- --------
extended, and any term hereof may be waived, only by a written instrument signed
by Buyer and the Member Representative or, in the case of a waiver, by Buyer or
the Member Representative, as the case may be, waiving compliance. No delay on
the part of any party in exercising any right, power or privilege hereunder
shall operate as a waiver thereof nor shall any waiver on the part of any party
of any such right, power or privilege, nor any single or partial exercise of any
such right, power or privilege, preclude any further exercise thereof or the
exercise of any other such right, power or privilege. The rights and remedies
herein provided are cumulative and are not exclusive of any rights or remedies
that any party may otherwise have at law or in equity. The rights and remedies
of any party based upon, arising out of or otherwise in respect of any
inaccuracy in or breach of any representation, warranty, covenant or agreement
contained in this Agreement shall in no way be limited by the fact that the act,
omission, occurrence or other state of facts upon which any claim of any such
inaccuracy or breach is based may also be the subject matter of any other
representation, warranty, covenant or agreement contained in this Agreement (or
in any other agreement between the parties) as to which there is no inaccuracy
or breach.
9.5 Resolution of Disputes. The parties agree to attempt to settle
----------------------
amicably all disputes arising out of or in connection with this Agreement with
the intention of continuing the relationship between the parties and
consummating the transactions contemplated hereby. Without limiting the
provisions of Section 8 hereof, the parties agree that any dispute arising under
this Agreement that cannot be settled by discussion between the parties involved
shall be submitted to binding arbitration in the City of Boston, Massachusetts
in accordance with the rules and procedures of the American Arbitration
Association before a single arbitrator who will be familiar with the business of
the parties hereto. The arbitrator may proceed to a resolution notwithstanding
the failure of a party to participate in the proceedings. The prevailing party
shall be entitled to an award of reasonable attorney fees incurred in connection
with the arbitration in such amount as may be determined by the arbitrator, and
to its expenses in connection therewith. Judgment upon any award made in such
arbitration may be entered and enforced in any court of competent jurisdiction.
Notwithstanding anything to the contrary contained herein (including the
jurisdictional provisions of Section 9.6), if either party requires immediate
injunctive or other equitable relief with respect to the payment of moneys owed
or the protection or preservation of confidential information or Proprietary
Rights, then such party will have the power to invoke the jurisdiction of any
court having jurisdiction in the circumstances, whether within or without the
Commonwealth of Massachusetts.
28
<PAGE>
9.6 Governing Law. This Agreement shall be governed and construed in
-------------
accordance with the laws of the Commonwealth of Massachusetts without regard to
its conflict of laws provisions. The parties hereto consent to the exclusive
jurisdiction of the courts of the Commonwealth of Massachusetts in respect of
any litigation arising out of this Agreement or the nonperformance hereof.
9.7 Binding Effect; No Assignment. This Agreement shall be binding upon
-----------------------------
and inure to the benefit of the parties and their respective successors and
legal representatives. This Agreement is not assignable except by operation of
law or by Buyer to any of its affiliates.
9.8 Variations in Pronouns. All pronouns and any variations thereof refer
----------------------
to the masculine, feminine or neuter, singular or plural, as the context may
require.
9.9 Counterparts. This Agreement may be executed by the parties hereto in
------------
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the same
instrument. Each counterpart may consist of a number of copies hereof each
signed by less than all, but together signed by all of the parties hereto.
9.10 Exhibits and Schedules. The Exhibits and Schedules are a part of this
----------------------
Agreement as if fully set forth herein. All references herein to Sections,
subsections, clauses, Exhibits and Schedules shall be deemed references to such
parts of this Agreement, unless the context shall otherwise require.
9.11 Headings. The headings in this Agreement are for reference only, and
--------
shall not affect the interpretation of this Agreement.
9.12 Severability. Any Section, subsection or other subdivision of this
------------
Agreement or any other provision of this Agreement which is, or becomes,
illegal, invalid or unenforceable shall be severed herefrom and shall be
ineffective to the extent of such illegality, invalidity or unenforceability and
shall not affect or impair the remaining provisions hereof, which provisions
shall (a) be severed from any illegal, invalid or unenforceable Section or other
subdivision of this Agreement, and (b) otherwise remain in full force and
effect.
[The rest of this page intentionally left blank]
29
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
NAVISITE INTERNET SERVICES CORPORATION
By: /s/ Robert B. Eisenberg
------------------------------------------------
Name: Robert B. Eisenberg
Title: President and Chief Executive Officers
MEMBERS:
/s/ Neil Black
----------------------------------------------------
Neil Black, individually and as Managing Member of
Servercast Communications, L.L.C., a Delaware Limited
Company
MEDLEY INVESTMENT GROUP, L.L.C.
By: /s/ Richard Meddey
------------------------------------------------
Name: Richard Medley
Title: Managing Member
/s/ Peter Kirwan
----------------------------------------------------
Peter Kirwan
/s/ David Boyle
----------------------------------------------------
David Boyle
/s/ Mark Torrey
----------------------------------------------------
Mark Torrey
30
<PAGE>
EXHIBIT 3.1
[NOTE: THE FOLLOWING CERTIFICATE OF INCORPORATION HAS BEEN RESTATED FOR PURPOSES
OF FILING THE SAME WITH THE SECURITIES AND EXCHANGE COMMISSION ONLY, TO GIVE
EFFECT TO ALL AMENDMENTS OF AND ADDITIONS TO THE CERTIFICATE OF INCORPORATION OF
NAVISITE, INC. FILED WITH THE SECRETARY OF STATE OF THE STATE OF DELAWARE PRIOR
TO THE DATE THE CERTIFICATE OF INCORPORATION IS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION.]
CERTIFICATE OF INCORPORATION
OF
NAVISITE, INC.
The undersigned, for the purpose of forming a corporation under the laws of
the State of Delaware, hereby certifies as follows:
FIRST: The name of the Corporation is: NaviSite, Inc.
------
SECOND. The address of the corporation's registered office in the State of
------
Delaware is 1209 Orange Street, City of Wilmington, County of New Castle, State
of Delaware. The name of its registered agent at such address is The
Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in the business of
------
providing business-critical Internet outsourcing solutions and Web serving
hosting and application services for companies conducting business on the
Internet, and in any other lawful act or activity for which corporations may be
organized under the General Corporation Law of the State of Delaware.
FOURTH: The aggregate number of shares of all classes of stock which the
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Corporation is authorized to issue is seventy million (70,000,000) shares, of
which ten million (10,000,000) shall be shares of Preferred Stock, par value
$0.01 per share (the "Preferred Stock"), and sixty million (60,000,000) shall be
shares of Common Stock, par value $0.01 per share (the "Common Stock").
Any and all such shares issued for which the full consideration has been
paid or delivered shall be deemed fully paid stock and the holder of such shares
shall not be liable for any further call or assessment or any other payment
thereon.
No holder of any of the shares of any class of stock of the Corporation,
whether now or hereafter authorized or issued, shall be entitled as of right to
purchase or subscribe for (i) any unissued stock of any class whatsoever of
stock of the Corporation, or (ii) any new or additional shares of any class
whatsoever of stock of the Corporation to be issued by reason of any increase of
the authorized stock of the Corporation, or of any class of such stock, or (iii)
bonds, certificates of indebtedness, debentures or other securities convertible
into stock of any class of the Corporation or carrying any right to purchase
stock of any class of the Corporation, but any such unissued stock, or
additionally authorized issue of any stock, or other securities convertible into
stock of the Corporation may be issued and disposed of pursuant to a resolution
or resolutions of the Board of Directors to such persons, firms, corporations,
associations or other entities and upon such terms as may be deemed advisable by
the Board of Directors in the exercise of its sole discretion.
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Section 1. Common Stock.
------------
The powers, preferences, rights, qualifications, limitations and
restrictions relating to the Common Stock are as follows:
(a) The Common Stock is junior to the Preferred Stock and is subject to all
the powers, rights, privileges, preferences and priorities of the Preferred
Stock designated herein or in any resolution or resolutions adopted by the Board
of Directors pursuant to authority expressly vested in it by the provisions of
Section 2 of this Article FOURTH.
(b) The Common Stock shall have voting rights for the election of directors
and for all other purposes (subject to the powers, rights, privileges,
preferences and priorities of the Preferred Stock as provided above), each
holder of Common Stock being entitled to one vote for each share thereof held by
such holder, except as otherwise required by law.
Section 2. Preferred Stock.
---------------
The Board of Directors is expressly authorized to provide for the issuance
of all or any part of the shares of the Preferred Stock in one or more classes
or series, and to fix for each such class or series such voting powers, full or
limited or fractional, or no voting powers, and such distinctive designations,
preferences and relative, participating, optional or other special rights, and
such qualifications, limitations or restrictions thereof, as shall be stated and
expressed in the resolution or resolutions adopted by the Board of Directors in
its sole discretion providing for the issuance of such class or series and as
may be permitted by the Delaware General Corporation Law, including, without
limitation, the authority to determine with respect to the shares of any such
class or series (i) whether such shares shall be redeemable, and, if so, the
terms and conditions of such redemption, whether for cash, property or rights,
including securities of any other corporation, and whether at the option of
either the Corporation or the holder or both, including the date or dates or the
event or events upon or after which they shall be redeemable, and the amount per
share payable in case of redemption, which amount may vary under different
conditions and at different redemption dates; (ii) whether such shares shall be
entitled to receive dividends (which may be cumulative or noncumulative) at such
rates, on such conditions, and at such times, and payable in preference to, or
in such relation to, the dividends payable on any other class or classes or any
other series; (iii) the rights of such shares in the event of voluntary or
involuntary liquidation, dissolution or winding up of the Corporation, and the
relative rights of priority, if any, of payment of such shares; (iv) whether
such shares shall be convertible into, or exchangeable for, shares of any other
class or classes of stock, or of any other series of the same or any other class
or classes of stock, whether at the option either of the Corporation or the
holder or both, and, if so, the terms and conditions of such conversion,
including provision for adjustment of the conversion rate in such events as the
Board of Directors shall determine; (v) whether the class or series shall have a
sinking fund for the redemption or purchase of such shares, and, if so, the
terms and amount of each sinking fund; (vi) provisions as to any other voting,
optional, and/or special or relative rights, powers, priorities, preferences,
limitations, or restrictions; and (vii) the number of shares and designation of
such class or series.
FIFTH. The name and mailing address of the incorporator are as follows:
-----
Robert B. Eisenberg
NaviSite, Inc.
100 Brickstone Square
Andover, MA 01810
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SIXTH: The Corporation is to have perpetual existence.
------
SEVENTH: Election of Directors need not be by written ballot unless the
--------
by-laws of the Corporation so provide.
EIGHTH: The Board of Directors of the Corporation is expressly authorized
-------
to adopt, amend or repeal the by-laws of the Corporation.
NINTH: A director shall not be personally liable to the Corporation or its
------
stockholders for monetary damages for breach of fiduciary duty as a director,
except to the extent that the elimination or limitation of liability is not
permitted under the Delaware General Corporation Law as in effect when such
liability is determined. No amendment or repeal of this provision shall deprive
a director of the benefits hereof with respect to any act or omission occurring
prior to such amendment or repeal.
TENTH: The Corporation reserves the right to amend, alter, change or
------
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
Signed this 28th day of December, 1998.
/s/ Robert B. Eisenberg
-----------------------
Robert B. Eisenberg, Incorporator
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<PAGE>
NAVISITE, INC.
CERTIFICATE OF CORRECTION TO THE
CERTIFICATE OF DESIGNATION OF
SERIES A CONVERTIBLE PREFERRED STOCK
Pursuant to Section 103(f) of the Corporation Law of
the State of Delaware
---------------------
The undersigned, for the purpose of correcting the Certificate of
Designation of Series A Convertible Preferred Stock of NaviSite, Inc. (the
"Corporation") filed with the Secretary of State of Delaware on December 28,
1998 ("Certificate of Designation"), hereby certifies as follows:
1. The Certificate of Designation was not in the form contemplated by the
Corporation's Board of Directors and stockholders in approving the Certificate
of Designation.
2. The inaccuracies to be corrected in the Certificate of Designation
relate to (a) the dividend rate of the Series A Convertible Preferred Stock
("Series A Stock") as set forth in Section 2 of the Certificate of Designation,
(b) the liquidation preference amounts of the Series A Stock as set forth in
Section 3 of the Certificate of Designation, (c) the conversion formula,
Applicable Conversion Rate and Applicable Conversion Value of the Series A Stock
as set forth in Section 5 of the Certificate of Designation, and (d) the amounts
payable upon a redemption of the Series A Stock as set forth in Section 6 of the
Certificate of Designation.
3. The Certificate of Designation as filed on December 28, 1998, is
hereby replaced in its entirety by the following corrected filing of a
Certificate of Designation pursuant to Section 103(f) of the Corporation Law of
the State of Delaware:
NAVISITE, INC.
CERTIFICATE OF DESIGNATION OF
SERIES A CONVERTIBLE PREFERRED STOCK
NaviSite, Inc., a Delaware corporation (the "Corporation" or the
"Company"), pursuant to authority conferred on the Board of Directors of the
Corporation by the Certificate of Incorporation of the Corporation and in
accordance with the provisions of Section 151 of the General Corporation Law of
the State of Delaware, certifies that the Board of Directors of the Corporation,
by unanimous consent dated December 15, 1998, has duly adopted the following
resolution providing for the establishment and issuance of a series of Preferred
Stock to be designated "Series A Convertible Preferred Stock" and to consist of
one million three hundred twenty three thousand nine hundred fifty three
(1,323,953) shares as follows:
RESOLVED: That, pursuant to the authority expressly granted and vested
in the Board of Directors of this Corporation in accordance with
the provisions of its Certificate of Incorporation, a series of
Preferred Stock of the Corporation hereby is
1
<PAGE>
established, consisting of one million three hundred twenty three
thousand nine hundred fifty three (1,323,953) shares, to be
designated "Series A Convertible Preferred Stock" (hereafter
"Series A Preferred Stock"), the Board of Directors be and hereby
is authorized to issue such shares of Series A Preferred Stock
from time to time and for such consideration and on such terms as
the Board of Directors shall determine; and subject to the
limitations provided by law and by the Corporation's Certificate
of Incorporation, the powers, designations, preferences and
relative, participating, optional or other special rights, powers
or priorities of, and the qualifications, limitations or
restrictions upon, the Series A Preferred Stock shall be as
follows:
1. Designation. This series of Preferred Stock, par value $0.01 per
-----------
share, shall be designated the "Series A Convertible Preferred Stock"
(hereinafter "Series A Preferred Stock").
2. Dividends. (a) The holders of shares of Series A Preferred Stock
---------
shall be entitled to receive, out of funds legally available therefor, dividends
computed at a rate of 7% or $0.83 per share per annum (or a proportional part
thereof for a portion of a year and all subject to appropriate adjustment in the
event of any stock dividend, stock split, combination or other similar
recapitalization affecting such shares) commencing as of November 1, 1998,
payable when, as and if declared by the Board of Directors of the Corporation.
The right to receive dividends on Series A Preferred Stock shall be non-
cumulative, and no right to receive dividends shall accrue by reason of the fact
that no dividends have been declared on the Series A Preferred Stock in any or
every prior year.
(b) The Corporation shall not declare or pay any distributions on shares
of Common Stock until the holders of shares of Series A Preferred Stock then
outstanding shall have first received a distribution at the rate specified in
paragraph (a) of this Section 2 calculated on a cumulative basis from the date
of issuance of said stock compounded annually as of any anniversary of the date
of issuance of such shares.
(c) For purposes of this Section 2, unless the context requires otherwise,
"distribution" shall mean the transfer of cash or property without
consideration, whether by way of dividend or otherwise, payable other than in
Common Stock or other securities of the Corporation, or the purchase or
redemption of shares of the Corporation (other than repurchases of Common Stock
held by employees or directors of, or consultants to, the Corporation pursuant
to agreements providing for such repurchase and other than redemptions in
liquidation or dissolution of the Corporation) for cash or property, including
any such transfer, purchase or redemption by a subsidiary of the Corporation.
3. Liquidation, Dissolution or Winding Up.
--------------------------------------
(a) In the event of any liquidation, dissolution or winding up of the
Company, and provided that the amount available for distribution to holders of
the Series A Preferred Stock pursuant to this Section 3 is less than $11.91 per
share plus a dividend computed at a rate of 7% or $0.83 per share per annum,
compounded annually as of November 1, 1998 (such amount to be equitably adjusted
whenever there shall occur a stock split, combination, reclassification or other
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<PAGE>
similar event as provided in Section 5(e)(ii) hereof), whether voluntary or
involuntary, the entire assets of the Company available for such distribution
shall be distributed ratably among the holders of the Series A Preferred Stock.
(b) In the event of any liquidation, dissolution or winding up of the
Company, and provided that the amount available for distribution to holders of
the Series A Preferred Stock pursuant to this Section 3 is at least $11.91 per
share plus a dividend computed at a rate of 7% or $0.83 per share per annum,
compounded annually as of November 1, 1998 (such amount to be equitably adjusted
whenever there shall occur a stock split, combination, reclassification or other
similar event as provided in Section 5(e)(ii) hereof), whether voluntary or
involuntary, holders of each share of Series A Preferred Stock shall be entitled
to be paid first out of the assets of the Company available for distribution to
holders of the Company's capital stock of all classes, whether such assets are
capital, surplus, or earnings, before any sums shall be paid or any assets
distributed among the holders of any other class of capital stock, an amount
equal to $11.91 per share of Series A Preferred Stock plus a dividend computed
at a rate of 7% or $0.83 per share per annum, compounded annually as of November
1, 1998. After the payment of the preferential amount required to be paid to
the holders of the Series A Preferred Stock, upon the liquidation, dissolution
or winding up of the Corporation, the holders of shares of the Corporation's
Common Stock shall be entitled to receive the remaining assets and funds of the
Corporation available for distribution to its stockholders.
(c) A consolidation or merger of the Company or a sale of all or
substantially all of the assets of the Company shall be regarded as a
liquidation, dissolution or winding up of the affairs of the Company within the
meaning of this Section 3; provided, however, that each holder of Series A
Preferred Stock shall have the right to elect the benefits of the provisions of
Section 5(h) hereof in lieu of receiving payment in liquidation, dissolution or
winding up of the Company pursuant to this Section 3. Each holder of Series A
Preferred Stock shall notify the Company in advance of its election to obtain
the benefits of this Section 3(c) or of Section 5(h), which notification shall
be given not later than a date specified in writing to each holder by the
Company to be at least five (5) days prior to the effective date of such
consolidation, merger or sale. If a holder fails to make any election, he shall
be deemed to have elected the benefits of this Section 3(c).
(d) Whenever the distribution provided for herein shall be paid in
property other than cash, the value of such distribution shall be the fair
market value of such property as determined in good faith by the Board of
Directors of the Company.
4. Voting Power. Except as otherwise expressly provided in Section 8
------------
hereof, or as required by law, each holder of Series A Preferred Stock shall be
entitled to vote on all matters and shall be entitled to that number of votes
equal to the largest number of whole shares of Common Stock into which such
holder's shares of Series A Preferred Stock could be converted, pursuant to the
provisions of Section 5 hereof (taking into account all accrued and unpaid
dividends, if any, with respect to such Series A Preferred Stock), at the record
date for the determination of shareholders entitled to vote on such matter or,
if no such record date is established, at the date such vote is taken or any
written consent of shareholders is solicited. Except as otherwise expressly
provided herein
3
<PAGE>
or as required by law, the holders of shares of Series A Preferred Stock and of
Common Stock shall be entitled to vote together as a class on all matters.
5. Conversion Rights. The holders of the Series A Preferred Stock shall
-----------------
have the following conversion rights:
(a) General. Subject to and in compliance with the provisions of this
-------
Section 5, any shares of the Series A Preferred Stock, may, at the option of the
holder, be converted at any time or from time to time into fully-paid and non-
assessable shares (calculated as to each conversion to the largest whole share)
of Common Stock. The number of shares of Common Stock to which a holder of
Series A Preferred Stock shall be entitled upon conversion shall be the product
obtained by multiplying the Applicable Conversion Rate (determined as provided
in Section 5(c)) by the number of shares of Series A Preferred Stock being
converted. Upon conversion of their shares of Series A Preferred Stock into
shares of Common Stock, holders of shares of Series A Preferred Stock shall also
have the option to have all declared but unpaid dividends on such shares of
Series A Preferred Stock converted into shares of Common Stock. The number of
shares of Common Stock to be received upon the conversion of such declared but
unpaid dividends shall be computed by multiplying the number of shares of Series
A Preferred Stock which could have been purchased with such declared but unpaid
dividends, assuming a Series A Preferred Stock purchase price of $11.91 per
share, by the Applicable Conversion Rate in effect at the time of such
conversion.
(b) Conversion Following Underwritten Public Offering.
-------------------------------------------------
(i) All outstanding shares of Series A Preferred Stock shall, upon
the closing of an underwritten public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended, covering
the offering and sale of Common Stock for the account of the Company in which
the Common Stock is sold at a price to the public of not less than the amount
per share which would be equal to $10.00 per share (such amount to be equitably
adjusted whenever there shall occur a stock split, combination, reclassification
or other similar event affecting the Common Stock) and in which the aggregate
gross proceeds (before deduction of any underwriting discounts, commissions or
expenses) received by the Company from such public offering, shall equal or
exceed Fifteen Million Dollars ($15,000,000), be converted automatically into
the number of shares of Common Stock to which a holder of Series A Preferred
Stock shall be entitled upon conversion pursuant to Section 5(a) hereof without
any further action by such holders and whether or not the certificates
representing such shares are surrendered to the Company or its transfer agent
for the Common Stock.
(ii) Upon the occurrence of the conversion specified in Section
5(b)(i), the holders of such Series A Preferred Stock shall surrender the
certificates representing such shares at the office of the Company or of its
transfer agent for the Common Stock. Thereupon, there shall be issued and
delivered to each such holder a certificate or certificates for the number of
shares of Common Stock into which the shares of the Series A Preferred Stock
surrendered were convertible on the date on which such conversion occurred. The
Company shall not be obligated to issue certificates evidencing the shares of
Common Stock issuable upon such conversion unless certificates evidencing such
shares of the Series A Preferred Stock being converted are either delivered to
the Company or any such transfer agent or the holder notifies the Company or any
such
4
<PAGE>
transfer agent that such certificates have been lost, stolen or destroyed
and executes an agreement satisfactory to the Company to indemnify the Company
from any loss incurred by it in connection therewith. In addition, the Company
may, if the Board of Directors deems it reasonably necessary, require the holder
to post a bond in connection with such indemnity agreement.
(c) Applicable Conversion Rate. The conversion rate in effect at any
--------------------------
time (the "Applicable Conversion Rate") shall be the quotient obtained by
dividing (i) $11.91 by (ii) the Applicable Conversion Value, calculated as
provided in Section 5(d).
(d) Applicable Conversion Value. The Applicable Conversion Value in
---------------------------
effect from time to time, except as adjusted in accordance with Section 5(e)
hereof, shall be $1.191 as of the date of this Certificate of Series A
Convertible Preferred Stock.
(e) Adjustments to Applicable Conversion Value.
------------------------------------------
(i) Upon Sales of Common Stock. If the Company shall, while
--------------------------
there are any shares of Series A Preferred Stock outstanding, issue or sell
shares of its Common Stock without consideration or at a price per share less
than the Applicable Conversion Value in effect immediately prior to such
issuance or sale, then in each such case such Applicable Conversion Value upon
each such issuance or sale, except as hereinafter provided, shall be adjusted to
an amount determined by multiplying such Applicable Conversion Value by a
fraction:
(A) the numerator of which shall be (a) the number of shares of
Common Stock outstanding immediately prior to the issuance of such
additional shares of Common Stock, calculated on a fully diluted
basis assuming exercise or conversion of all securities
exercisable for or convertible into Common Stock, whether or not
such exercise or conversion is unvested or otherwise conditional,
plus (b) the number of shares of Common Stock which the net
aggregate consideration received by the Corporation for the total
number of such additional shares of Common Stock so issued would
purchase at the Applicable Conversion Value, and
(B) the denominator of which shall be (a) the number of shares of
Common Stock outstanding immediately prior to the issuance of such
additional shares of Common Stock, calculated on a fully diluted
basis assuming exercise or conversion of all securities
exercisable for or convertible into Common Stock, whether or not
such exercise or conversion is unvested or otherwise conditional,
plus (b) the number of such additional shares of Common Stock so
issued or deemed issued.
The Corporation's issuance of up to an aggregate of two million (2,000,000)
shares of Common Stock (such amount to be equitably adjusted whenever there
shall occur a stock split, combination, reclassification or other similar event
affecting the Common Stock), or options exercisable therefor, pursuant to any
stock purchase or stock option plan or other individual or group incentive
program of any kind approved by the Board of Directors to the Corporation's
officers, directors, employees
5
<PAGE>
or consultants shall not be deemed an issuance of additional shares of Common
Stock and shall have no effect on the calculations contemplated by this Section
5(e).
For the purposes of this Section 5(e), the issuance of any warrants,
options, subscriptions or purchase rights with respect to shares of Common Stock
and the issuance of any securities convertible into or exchangeable for shares
of Common Stock (or the issuance of any warrants, options or any rights with
respect to such convertible or exchangeable securities) whether or not such
conversion or exchange is conditional, shall be deemed an issuance at such time
of such Common Stock if the Net Consideration Per Share (as hereinafter
determined) which may be received by the Company for such Common Stock shall be
less than the Applicable Conversion Value at the time of such issuance. Any
obligation, agreement or undertaking to issue warrants, options, subscriptions
or purchase rights at any time in the future shall be deemed to be an issuance
at any time such obligation, agreement or undertaking is made or arises. No
adjustment of the Applicable Conversion Value shall be made under this Section
5(e) upon the issuance of any shares of Common Stock which are issued pursuant
to the exercise of any warrants, options, subscriptions or purchase rights or
pursuant to the exercise of any conversion or exchange rights in any convertible
securities if any adjustment shall previously have been made upon the issuance
of any such warrants, options or subscriptions or purchase rights or upon the
issuance of any convertible securities (or upon the issuance of any warrants,
options or any rights therefor) as above provided. Any adjustment of the
Applicable Conversion Value with respect to this paragraph which relates to
warrants, options, subscriptions or purchase rights with respect to shares of
Common Stock shall be disregarded if, as, and when all of such warrants,
options, subscriptions or purchase rights expire or are canceled without being
exercised, so that the Applicable Conversion Value effective immediately upon
such cancellation or expiration shall be equal to the Applicable Conversion
Value in effect at the time of the issuance of the expired or canceled warrants,
options, subscriptions or purchase rights, with such additional adjustments as
would have been made to that Applicable Conversion Value had the expired or
canceled warrants, options, subscriptions or purchase rights not been issued.
For purposes of this paragraph, the "Net Consideration Per Share" which may be
received by the Company shall be determined as follows:
(A) The "Net Consideration Per Share" shall mean the amount equal
to the total amount of consideration, if any, received by the
Company for the issuance of such warrants, options, subscriptions
or other purchase rights or convertible or exchangeable
securities, plus the minimum amount of consideration, if any,
payable to the Company upon exercise, conversion or exchange
thereof, divided by the aggregate number of shares of Common Stock
that would be issued if all such warrants, options, subscriptions
or other purchase rights or convertible or exchangeable securities
were exercised, exchanged or converted.
(B) The "Net Consideration Per Share" which may be received by
the Company shall be determined in each instance as of the date of
issuance of warrants, options, subscriptions or other purchase
rights or convertible or exchangeable securities without giving
effect to any possible future price adjustments or rate
adjustments which may be applicable with respect to such
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<PAGE>
warrants, options, subscriptions or other purchase rights or
convertible or exchangeable securities.
For purposes of this Section 5(e), if a part or all of the consideration
received by the Company in connection with the issuance of shares of the Common
Stock or the issuance of any of the securities described in this Section 5(e)
consists of property other than cash, the Company at its expense will promptly
cause independent public accountants of recognized standing selected by the
Company to value such property, whereupon such value shall be given to such
consideration and shall be recorded on the books of the Company with respect to
receipt of such property.
This Section 5(e)(i) shall not apply under any of the circumstances
which would constitute an Extraordinary Common Stock Event (as hereinafter
defined in Section 5(e)(ii)).
(ii) Upon an Extraordinary Common Stock Event. Upon the happening of
----------------------------------------
an Extraordinary Common Stock Event (as hereinafter defined), the Applicable
Conversion Value shall, simultaneously with the happening of such Extraordinary
Common Stock Event, be adjusted by multiplying the then effective Applicable
Conversion Value by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such Extraordinary
Common Stock Event and the denominator of which shall be the number of shares of
Common Stock outstanding immediately after such Extraordinary Common Stock
event, and the product so obtained shall thereafter be the Applicable Conversion
Value. The Applicable Conversion Value, as so adjusted, shall be readjusted in
the same manner upon the happening of any successive Extraordinary Common Stock
Event or Events.
"Extraordinary Common Stock Event" shall mean (i) the issue of
additional shares of Common Stock as a dividend or other distribution on
outstanding shares of Common Stock, (ii) the subdivision of outstanding shares
of Common Stock into a greater number of shares of Common Stock, or (iii) the
combination of outstanding shares of the Common Stock into a smaller number of
shares of Common Stock.
(f) Dividends. In the event the Company shall make or issue, or fix a
---------
record date for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in securities of the Company
other than shares of Common Stock or in assets (excluding cash dividends or
distributions), then and in each such event provisions shall be made so that the
holders of Series A Preferred Stock shall receive upon conversion thereof in
addition to the number of shares of Common Stock receivable thereupon, the
number of securities or such other assets of the Company which they would have
received had their Series A Preferred Stock been converted into Common Stock on
the date of such event and had they thereafter, during the period from the date
of such event to and including the Conversion Date (as that term is hereafter
defined in Section 5(j)), retained such securities or such other assets
receivable by them as aforesaid during such period, giving application to all
adjustments called for during such period under this Section 5 with respect to
the rights of the holders of the Series A Preferred Stock.
(g) Recapitalization or Reclassification. If the Common Stock
------------------------------------
issuable upon the conversion of the Series A Preferred Stock shall be changed
into the same or a different number of shares of any class or classes of stock
of the Corporation, whether by recapitalization,
7
<PAGE>
reclassification or otherwise (other than a subdivision or combination of shares
or stock dividend provided for elsewhere in this Section 5, or a reorganization,
merger, consolidation or sale of assets provided for elsewhere in this Section
5), then and in each such event the holder of each share of Series A Preferred
Stock shall have the right thereafter to convert such share into the kind and
amount of shares of stock and other securities and property receivable upon such
reorganization, reclassification or other change by holders of the number of
shares of Common Stock into which such share of Series A Preferred Stock might
have been converted (taking into account all accrued and unpaid dividends and
interest with respect to such Series A Preferred Stock) immediately prior to
such reorganization, reclassification or change, all subject to further
adjustment as provided herein.
(h) Capital Reorganization, Merger or Sale of Assets. If at any time
------------------------------------------------
or from time to time there shall be a capital reorganization of the Common Stock
(other than a subdivision, combination, reclassification or exchange of shares
provided for elsewhere in this Section 5) or a merger or consolidation of the
Company with or into another corporation or entity, or the sale of all or
substantially all of the Company's properties and assets to any other person or
persons, then, as a part of such reorganization, merger, consolidation or sale,
provision shall be made so that the holders of the Series A Preferred Stock
shall thereafter be entitled to receive upon conversion of the Series A
Preferred Stock, the number of shares of stock or other securities or property
of the Company, or of the successor corporation or entity resulting from such
merger, consolidation or sale, to which a holder of Common Stock issuable upon
conversion would have been entitled on such capital reorganization, merger,
consolidation, or sale. In any such case, appropriate adjustment shall be made
in the application of the provisions of this Section 5 with respect to the
rights of the holders of the Series A Preferred Stock after the reorganization,
merger, consolidation or sale to the end that the provisions of this Section 5
(including adjustment of the Applicable Conversion Value then in effect and the
number of shares purchasable upon conversion of the Series A Preferred Stock)
shall be applicable after that event in as nearly equivalent a manner as may be
practicable.
Each holder of Series A Preferred Stock upon the occurrence of a
capital reorganization, merger or consolidation of the Company, or the sale of
all or substantially all its assets and properties as such events are more fully
set forth in the first paragraph of this Section 5(h), shall have the option of
electing treatment of his shares of Series A Preferred Stock under either this
Section 5(h) or Section 3(b) hereof, notice of which election shall be submitted
in writing to the Company at its principal offices no later than five (5) days
before the effective date of such event.
(i) Accountant's Certificate as to Adjustments. In each case of an
------------------------------------------
adjustment or readjustment of the Applicable Conversion Rate, the Company will
furnish each holder of Series A Preferred Stock with a certificate, prepared by
its chief financial officer showing such adjustment or readjustment, and stating
in detail the facts upon which such adjustment or readjustment is based. Upon
the request of any holder, the Company will cause its independent public
accountants to confirm the accuracy of such adjustment or readjustment.
(j) Exercise of Conversion Privilege. To exercise his conversion
--------------------------------
privilege, a holder of Series A Preferred Stock shall surrender the certificate
or certificates representing the shares being converted to the Company at its
principal office, and shall give written notice to the
8
<PAGE>
Company at that office that such holder elects to convert such shares. Such
notice shall also state the name or names (with address or addresses) in which
the certificate or certificates for shares of Common Stock issuable upon such
conversion shall be issued. The certificate or certificates for shares of Series
A Preferred Stock surrendered for conversion shall be accompanied by proper
assignment thereof to the Company or in blank. The date when such written notice
is received by the Company, together with the certificate or certificates
representing the shares of Series A Preferred Stock being converted, shall be
the "Conversion Date". As promptly as practicable after the Conversion Date, the
Company shall issue and shall deliver to the holder of the shares of Series A
Preferred Stock being converted, or on its written order, such certificate or
certificates as it may request for the number of whole shares of Common Stock
issuable upon the conversion of such shares of Series A Preferred Stock in
accordance with the provisions of this Section 5, cash in the amount of all
unpaid dividends on such shares of Series A Preferred Stock, up to and including
the Conversion Date, unless conversion of such unpaid dividends into Common
Stock has been elected, and cash, as provided in Section 5(k), in respect of any
fraction of a share of Common Stock issuable upon such conversion. Such
conversion shall be deemed to have been effected immediately prior to the close
of business on the Conversion Date, and at such time the rights of the holder as
holder of the converted shares of Series A Preferred Stock shall cease and the
person or persons in whose name or names any certificate or certificates for
shares of Common Stock shall be issuable upon such conversion shall be deemed to
have become the holder or holders of record of the shares of Common Stock
represented thereby.
(k) Cash in Lieu of Fractional Shares. No fractional shares of Common
---------------------------------
Stock or scrip representing fractional shares shall be issued upon the
conversion of shares of Series A Preferred Stock. Instead of any fractional
shares of Common Stock which would otherwise be issuable upon conversion of
Series A Preferred Stock, the Company shall pay to the holder of the shares of
Series A Preferred Stock which were converted a cash adjustment in respect of
such fractional shares in an amount equal to the same fraction of the market
price per share of the Common Stock (as determined in a reasonable manner
prescribed by the Board of Directors) at the close of business on the Conversion
Date. The determination as to whether or not any fractional shares are issuable
shall be based upon the total number of shares of Series A Preferred Stock being
converted at any one time by any holder thereof, not upon each share of Series A
Preferred Stock being converted.
(l) Partial Conversion. In the event some but not all of the shares
------------------
of Series A Preferred Stock represented by a certificate or certificates
surrendered by a holder are converted, the Company shall execute and deliver to
or on the order of the holder, at the expense of the Company, a new certificate
representing the number of shares of Series A Preferred Stock which were not
converted.
(m) Reservation of Common Stock. The Company shall at all times
---------------------------
reserve and keep available out of its authorized but unissued shares of Common
Stock, solely for the purpose of effecting the conversion of the shares of the
Series A Preferred Stock, such number of its shares of Common Stock as shall
from time to time be sufficient to effect the conversion of all outstanding
shares of the Series A Preferred Stock and all unpaid dividends thereon, and if
at any time the number of authorized but unissued shares of Common Stock shall
not be sufficient to effect the conversion of all then outstanding shares of the
Series A Preferred Stock and all unpaid dividends
9
<PAGE>
thereon, the Company shall take such corporate action as may be necessary to
increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purpose.
6. Redemption.
----------
(a) At the written election of a majority in interest of the holders
of Series A Preferred Stock on or before December 15, 2005, beginning on July 1,
2006 and on the first day of July in each year thereafter (the "Redemption
Date"), the Company shall redeem twenty-five percent (25%) of all of the
outstanding shares of Series A Preferred Stock; provided, however, that the
Company's redemption option shall be reduced by the number of shares of Series A
Preferred Stock that have been converted prior to any such Redemption Date, and
such reduction shall apply first to the Redemption Date immediately following
such conversion and thereafter any balance shall apply to any Subsequent
Redemption Dates. The redemption price for each share of Series A Preferred
Stock redeemed pursuant to this Section 6 shall be $11.91 per share plus a
dividend computed at a rate of 7% or $0.83 per share per annum, compounded
annually as of November 1, 1998 (the "Redemption Price"). Each redemption of
Series A Preferred Stock shall be made so that the number of shares of Series A
Preferred Stock held by each holder whose shares are being redeemed shall be
reduced in an amount which shall bear the same ratio to the total number of
shares of Series A Preferred Stock being redeemed as all such shares then held
by such registered owner bears to the aggregate number of shares of Series A
Preferred Stock then outstanding and held by all registered owners whose shares
are being redeemed.
(b) The Redemption Price set forth in this Section 6 shall be subject
to equitable adjustment whenever there shall occur a stock split, combination,
reclassification or other similar event involving the Series A Preferred Stock.
(c) At least thirty (30) days before any Redemption Date pursuant to
Section 6(a), written notice (hereinafter referred to as the "Redemption
Notice") shall be mailed, postage prepaid, to each holder of record of the
Series A Preferred Stock which is to be redeemed, at its address shown on the
records of the Company; provided, however, that the giving of such Redemption
Notice shall not affect the conversion rights of such holder pursuant to Section
5 hereof; provided, further, that the Company's failure to give such Redemption
Notice shall in no way affect its obligation to redeem the shares of Series A
Preferred Stock as provided in Section 6(a) hereof. The Redemption Notice shall
contain the following information:
(i) The number of shares of Series A Preferred Stock held by the
holder which shall be redeemed by the Company and the total number of shares of
Series A Preferred Stock held by all holders to be so redeemed,
(ii) The Redemption Date and the applicable Redemption Price, and
(iii) That the holder is to surrender to the Company, at the
place designated therein, its certificate or certificates representing the
shares of Series A Preferred Stock to be redeemed.
10
<PAGE>
(d) Each holder of shares of Series A Preferred Stock to be redeemed
shall surrender the certificate or certificates representing such shares to the
Company at the place designated in the Redemption Notice, and thereupon the
applicable Redemption Price for such shares as set forth in this Section 6 shall
be paid to the order of the person whose name appears on such certificate or
certificates and each surrendered certificate shall be canceled and retired.
(e) If any shares of Series A Preferred Stock are not redeemed solely
because a holder fails to surrender the certificate or certificates representing
such shares pursuant to Section 6(d) hereof, then, from and after the Redemption
Date, such shares of Series A Preferred Stock thereupon subject to redemption
shall not be entitled to any further accrual of any dividends pursuant to
Section 2 hereof or to the conversion provisions set forth in Section 5 hereof,
unless the Company otherwise specifically agrees in writing.
7. No Reissuance of Series A Preferred Stock. No share or shares of
-----------------------------------------
Series A Preferred Stock acquired by the Company by reason of redemption,
purchase, conversion or otherwise shall be reissued, and all such shares shall
be canceled, retired and eliminated from the shares which the Company shall be
authorized to issue. The Company may from time to time take such appropriate
corporate action as may be necessary to reduce the authorized number of shares
of the Series A Preferred Stock accordingly.
8. Restrictions and Limitations.
----------------------------
(a) Except as expressly provided herein or as required by law, neither
the Company nor any subsidiary of the Company (which shall mean any corporation
or trust of which the Company directly or indirectly owns at the time all of the
outstanding shares of every class of such corporation or trust other than
directors' qualifying shares) shall, without the vote or written consent by the
holders of at least a majority of the then outstanding shares of the Series A
Preferred Stock voting together, each share of Series A Preferred Stock to be
entitled to one vote in each instance for each share of Common Stock into which
such Preferred Stock is then convertible:
(i) Redeem, purchase or otherwise acquire for value or (pay in,
to or set aside for a sinking fund for such purpose), any share or shares of
Series A Preferred Stock other than pursuant to the redemption provisions
contained elsewhere herein;
(ii) Authorize or issue, or obligate itself to authorize or
issue, any other equity security senior to or on a parity with the Series A
Preferred Stock as to liquidation preferences, conversion rights, redemption
rights, dividend rights, voting rights or otherwise;
(iii) Effect any sale, lease, assignment, transfer or other
conveyance of all or substantially all of the assets of the Company or any
subsidiary thereof, or any consolidation or merger involving the Company or any
subsidiary thereof, or any reclassification or other change of stock, or any
recapitalization or any dissolution, liquidation or winding up of the Company;
(iv) Effect any bank borrowings in excess of an aggregate amount
of Two Hundred Fifty Thousand Dollars ($250,000) U.S.;
11
<PAGE>
(v) Effect any merger by the Company with or into any business
entity or any acquisition by the Company of any assets or business having a fair
market value in excess of One Million Dollars ($1,000,000) U.S.; or
(vi) Amend its Certificate of Incorporation, if such amendment
would change any of the rights, preferences, privileges of or limitations
provided for herein for the benefit of any shares of Series A Preferred Stock.
9. No Dilution or Impairment. Except as provided in Section 8 above, the
-------------------------
Company will not, by amendment of its Certificate of Incorporation or through
any reorganization, transfer of assets, consolidation, merger, dissolution,
issue or sale of securities or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms of the Series A
Preferred Stock set forth herein, but will at all times in good faith assist in
the carrying out of all such terms and in the taking of all such actions as may
be necessary or appropriate in order to protect the rights of the holders of the
Series A Preferred Stock against dilution or other impairment. Without limiting
the generality of the foregoing, the Company (a) will not increase the par value
of any shares of stock receivable on the conversion of the Series A Preferred
Stock above the amount payable therefor on such conversion, (b) will take all
such action as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and non-assessable shares of stock on the
conversion of all Series A Preferred Stock from time to time outstanding and all
accrued and unpaid dividends thereon, and (c) will not transfer all or
substantially all of its properties and assets to any other person (corporate or
otherwise), or consolidate with or merge into any other person or permit any
such person to consolidate with or merge into the Company (if the Company is not
the surviving person), unless such other person shall expressly assume in
writing and will be bound by all the terms of the Series A Preferred Stock set
forth herein.
10. Notices of Record Date. In the event of:
----------------------
(a) any taking by the Company of a record of the holders of any class
of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, or
(b) any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company, any merger or
consolidation of the Company, or any transfer of all or substantially all of the
assets of the Company to any other corporation, or any other entity or person,
or
(c) any voluntary or involuntary dissolution, liquidation or winding
up of the Company, then and in each such event the Company shall mail or cause
to be mailed to each holder of Series A Preferred Stock a notice specifying (i)
the date on which any such record is to be taken for the purpose of such
dividend, distribution or right and a description of such dividend, distribution
or right, (ii) the date on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding up is expected to become effective, (iii) the time, if any, that is to
be fixed, as to when the holders of record of Common Stock (or other securities)
shall be entitled to exchange their shares of Common Stock (or other securities)
for
12
<PAGE>
securities or other property deliverable upon such reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding up. Such notice shall be mailed at least
twenty (20) days prior to the date specified in such notice on which such action
is to be taken.
This Certificate of Designation was duly adopted in accordance with the
applicable provisions of Section 151 of the Delaware General Corporation Law.
IN WITNESS WHEREOF, NaviSite, Inc., has caused this Certificate to be
signed by Robert B. Eisenberg, its President, and attested by William Williams
II, its Assistant Secretary, this 8/th/ day of January, 1999.
NAVISITE, INC.
By: /s/ Robert B. Eisenberg
-----------------------
Robert Eisenberg, President
ATTEST
By: /s/ William Williams II
-----------------------
William Williams II, Assistant Secretary
13
<PAGE>
NAVISITE, INC.
CORRECTED CERTIFICATE OF DESIGNATION
OF
SERIES B CONVERTIBLE PREFERRED STOCK
Pursuant to Section 103(f) of the Corporation Law of
the State of Delaware
---------------------
The undersigned, for the purpose of correcting the Certificate of
Designation of Series B Convertible Preferred Stock of NaviSite, Inc. (the
"Corporation") filed with the Secretary of State of the State of Delaware on May
28, 1999 ("Certificate of Designation"), hereby certifies as follows:
1. The Certificate of Designation was an inaccurate record of the
corporate action contemplated by the Corporation.
2. The inaccuracies to be corrected in the Certificate of Designation
relate to the per share price to the public required for automatic conversion in
connection with an underwritten public offering as set forth in Section 5(b) of
the Certificate of Designation.
3. The Certificate of Designation as filed on May 28, 1999, is hereby
replaced in its entirety as set forth in its corrected form below:
NaviSite, Inc., a Delaware corporation (the "Corporation"), pursuant to
authority conferred on the Board of Directors of the Corporation by the
Certificate of Incorporation of the Corporation, as amended (the "Certificate of
Incorporation"), and in accordance with the provisions of Section 151 of the
General Corporation Law of the State of Delaware, certifies that the Board of
Directors of the Corporation, by unanimous consent dated May 28, 1999, has duly
adopted the following resolution providing for the establishment and issuance of
a series of Preferred Stock to be designated "Series B Convertible Preferred
Stock" and to consist of one million (1,000,000) shares as follows:
RESOLVED: That, pursuant to the authority expressly granted and vested
in the Board of Directors of this Corporation in accordance
with the provisions of Section 151 of the General
Corporation Law of the State of Delaware and its Certificate
of Incorporation, a series of preferred stock, par value
$0.01 per share, of the Corporation ("Preferred Stock")
hereby is established, consisting of one million (1,000,000)
shares to be designated "Series B Convertible Preferred
Stock" (hereinafter "Series B Convertible Preferred"); and
that the voting powers, preferences and relative,
participating, optional or other special rights of the
Series B Convertible Preferred, and the qualifications,
limitations or restrictions of the Series B Convertible
Preferred, are as follows:
<PAGE>
1. Designation. This series of Preferred Stock, par value $0.01 per
-----------
share, shall be designated the "Series B Convertible Preferred Stock"
(hereinafter "Series B Convertible Preferred"). Any and all series of Preferred
Stock to which the Series B Convertible Preferred ranks on parity as to (i)
dividends, (ii) liquidation, dissolution or winding up, (iii) voting rights or
(iv) redemption, as applicable, shall be referred to herein as "Parity Stock."
The Series A Convertible Preferred Stock, par value $0.01 per share, of the
Corporation (the "Series A Convertible Preferred") is Parity Stock as to (i)
dividends and (ii) liquidation, dissolution or winding up.
2. Dividends.
---------
(a) The holders of shares of Series B Convertible Preferred shall be
entitled to receive, out of funds legally available therefor, dividends computed
at a rate of 7% of the Applicable Purchase Price (as defined in Section 3(a)
below) per share per annum (or a proportional part thereof for a portion of a
year and all subject to appropriate adjustment in the event of any stock
dividend, stock split, combination or other similar recapitalization affecting
such shares) commencing as of the date the particular shares of Series B
Convertible Preferred are issued (the "Applicable Issue Date"), payable when, as
and if declared by the Board of Directors of the Corporation. Such dividends
shall be payable in preference and priority to the payment of any dividend on
the Common Stock and on parity with the payment of any dividend to any Parity
Stock. The right to receive dividends on Series B Convertible Preferred shall
be non-cumulative, and no right to receive dividends shall accrue by reason of
the fact that no dividends have been declared on the Series B Convertible
Preferred in any or every prior year.
(b) The Corporation shall not declare or pay any distributions on
shares of Common Stock until the holders of shares of Series B Convertible
Preferred then outstanding shall have first received a distribution at the rate
specified in paragraph (a) of this Section 2 calculated on a cumulative basis
from the date of issuance of said stock compounded annually as of any
anniversary of the date of issuance of such shares.
(c) For purposes of this Section 2, unless the context requires
otherwise, "distribution" shall mean the transfer of cash or property without
consideration, whether by way of dividend or otherwise, payable other than in
Common Stock or other securities of the Corporation, or the purchase or
redemption of shares of the Corporation (other than repurchases of Common Stock
held by employees or directors of, or consultants to, the Corporation pursuant
to agreements providing for such repurchase and other than redemptions in
liquidation or dissolution of the Corporation) for cash or property, including
any such transfer, purchase or redemption by a subsidiary of the Corporation.
3. Liquidation, Dissolution or Winding Up.
--------------------------------------
(a) In the event of any liquidation, dissolution or winding up of the
Corporation, and provided that the amount available for distribution to each
holder of the Series B Convertible Preferred pursuant to this Section 3 is less
than the Applicable Purchase Price (as defined below) per share plus a dividend
computed at a rate of 7% per share per annum,
2
<PAGE>
compounded annually beginning as of the Applicable Issue Date (such amount to be
equitably adjusted whenever there shall occur a stock split, combination,
reclassification or other similar event as provided in Section 5(e)(ii)),
whether voluntary or involuntary, the entire assets of the Corporation available
for such distribution shall be distributed ratably among the holders of the
Series B Convertible Preferred on a pari passu basis with the holders of any
Parity Stock. The "Applicable Purchase Price" for each share of Series B
Convertible Preferred shall be the price paid for such share on the Applicable
Issue Date. It is expressly contemplated that separate tranches of shares of
Series B Convertible Preferred issued at different times will have different
Applicable Purchase Prices.
(b) In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, and provided that the amount
available for distribution to each holder of the Series B Convertible Preferred
pursuant to this Section 3 is at least equal to the Applicable Purchase Price
per share plus a dividend computed at a rate of 7% of the Applicable Purchase
Price for each such share per annum, compounded annually as of the Applicable
Issue Date (such amount to be equitably adjusted whenever there shall occur a
stock split, combination, reclassification or other similar event as provided in
Section 5(e)(ii)), holders of each share of Series B Convertible Preferred shall
be entitled to be paid first (pari passu with the shares of any Parity Stock)
out of the assets of the Corporation available for distribution to holders of
the Corporation's capital stock of all classes, whether such assets are capital,
surplus, or earnings, before any sums shall be paid or any assets distributed
among the holders of any other class of capital stock (other than Parity Stock),
an amount equal to the Applicable Purchase Price for each share of Series B
Convertible Preferred plus a dividend computed at a rate of 7% per share per
annum, compounded annually as of the Applicable Issue Date. After the payment
of the preferential amount required to be paid to the holders of the Series B
Convertible Preferred and any Parity Stock, upon the liquidation, dissolution or
winding up of the Corporation, the holders of shares of the Corporation's Common
Stock shall be entitled to receive the remaining assets and funds of the
Corporation available for distribution to its stockholders.
(c) A consolidation or merger of the Corporation or a sale of all or
substantially all of the assets of the Corporation shall be regarded as a
liquidation, dissolution or winding up of the affairs of the Corporation within
the meaning of this Section 3; provided, however, that each holder of Series B
-------- -------
Convertible Preferred shall have the right to elect the benefits of the
provisions of Section 5(h) in lieu of receiving payment in liquidation,
dissolution or winding up of the Corporation pursuant to this Section 3. Each
holder of Series B Convertible Preferred shall notify the Corporation in advance
of its election to obtain the benefits of this Section 3(c) or of Section 5(h),
which notification shall be given not later than a date specified in writing to
each holder by the Corporation (which date shall be at least five (5) days prior
to the effective date of such consolidation, merger or sale). The Corporation
shall provide each holder of Series B Convertible Preferred with written notice
of any such consolidation or merger or sale of all or substantially all of its
assets at least twenty (20) days prior to the date by which the Corporation must
be notified of the election to obtain the benefits of Section 5(h). If a holder
fails to make any election, he shall be deemed to have elected the benefits of
this Section 3(c).
3
<PAGE>
(d) Whenever the distribution provided for herein shall be paid in
property other than cash, the value of such distribution shall be the fair
market value of such property as determined in good faith by the Board of
Directors of the Corporation.
4. Voting Power. Except as otherwise expressly provided in Section 8, or
------------
as required by law, each holder of Series B Convertible Preferred shall be
entitled to vote on all matters together with the holders of the Common Stock
and Parity Stock and shall be entitled to that number of votes equal to the
largest number of whole shares of Common Stock into which such holder's shares
of Series B Convertible Preferred could be converted, pursuant to the provisions
of Section 5 (taking into account all declared and unpaid dividends, if any,
with respect to such Series B Convertible Preferred), at the record date for the
determination of shareholders entitled to vote on such matter or, if no such
record date is established, at the date such vote is taken or any written
consent of shareholders is solicited. Except as otherwise expressly provided
herein or as required by law, the holders of shares of Series B Convertible
Preferred and of Common Stock shall be entitled to vote together as a class on
all matters.
5. Conversion Rights. The holders of the Series B Convertible Preferred
-----------------
shall have the following conversion rights:
(a) General. Subject to and in compliance with the provisions of this
-------
Section 5, any shares of the Series B Convertible Preferred may, at the option
of the holder, be converted at any time or from time to time into fully paid and
nonassessable shares (calculated as to each conversion to the largest whole
share) of Common Stock. The number of shares of Common Stock to which a holder
of Series B Convertible Preferred shall be entitled upon conversion shall be
calculated by adding together each product obtained by multiplying the
Applicable Conversion Rate (determined as provided in Section 5(c)) for each
tranche of Series B Convertible Preferred held by such holder by the number of
shares of each tranche of Series B Convertible Preferred having such particular
Applicable Purchase Price being converted. Upon conversion of their shares of
Series B Convertible Preferred into shares of Common Stock, holders of shares of
Series B Convertible Preferred shall also have the option to have all declared
but unpaid dividends on such shares of Series B Convertible Preferred converted
into shares of Common Stock. The number of shares of Common Stock to be
received upon the conversion of such declared but unpaid dividends shall, for
each tranche of Series B Convertible Preferred, be computed by multiplying the
number of shares of Series B Convertible Preferred which could have been
purchased with such declared but unpaid dividends, assuming a Series B
Convertible Preferred purchase price equal to the Applicable Purchase Price per
share, by the Applicable Conversion Rate in effect for such tranche at the time
of such conversion.
(b) Conversion Following Underwritten Public Offering.
-------------------------------------------------
(i) All outstanding shares of Series B Convertible Preferred
shall, upon the closing of an underwritten public offering pursuant to an
effective registration statement under the Securities Act of 1933, as amended,
covering the offering and sale of Common Stock for the account of the
Corporation to the public (x) with a per share price to the public of at least
$12.95 (such amount to be equitably adjusted whenever there shall occur a stock
split,
4
<PAGE>
combination, reclassification or other similar event affecting the Common
Stock), and (y) in which the aggregate gross proceeds (before deduction of any
underwriting discounts, commissions or expenses) received by the Corporation
from such public offering shall equal or exceed Fifteen Million Dollars
($15,000,000), be converted automatically into the number of shares of Common
Stock to which a holder of Series B Convertible Preferred shall be entitled upon
conversion pursuant to Section 5(a) without any further action by such holders
and whether or not the certificates representing such shares are surrendered to
the Corporation or its transfer agent for the Common Stock.
(ii) Upon the occurrence of the conversion specified in Section
5(b)(i), the holders of such Series B Convertible Preferred shall surrender the
certificates representing such shares at the office of the Corporation or of its
transfer agent for the Common Stock or shall notify the Corporation in writing
that such certificates have been lost, stolen or destroyed. Thereupon, there
shall be issued and delivered to each such holder a certificate or certificates
for the number of shares of Common Stock into which the shares of the Series B
Convertible Preferred surrendered were convertible on the date on which such
conversion occurred. The Corporation shall not be obligated to issue
certificates evidencing the shares of Common Stock issuable upon such conversion
unless certificates evidencing such shares of the Series B Convertible Preferred
being converted are either delivered to the Corporation or any such transfer
agent or the holder notifies the Corporation or any such transfer agent that
such certificates have been lost, stolen or destroyed and executes an agreement
satisfactory to the Corporation to indemnify the Corporation from any loss
incurred by it in connection therewith. In addition, the Corporation may, if
the Board of Directors deems it reasonably necessary, require the holder to post
a bond in connection with such indemnity agreement.
(c) Applicable Conversion Rate. The conversion rate in effect at any
--------------------------
time (the "Applicable Conversion Rate") shall be the quotient obtained by
dividing (i) the Applicable Purchase Price by (ii) the Applicable Conversion
Value, calculated as provided in Section 5(d).
(d) Applicable Conversion Value. The Applicable Conversion Value in
---------------------------
effect from time to time, except as subsequently adjusted in accordance with
Section 5(e), shall be equal to the quotient obtained by dividing (i) the
Applicable Purchase Price by (ii) ten (10).
(e) Adjustments to Applicable Conversion Value.
------------------------------------------
(i) Upon Sales of Common Stock. If the Corporation shall, while
--------------------------
there are any shares of Series B Convertible Preferred outstanding, issue or
sell shares of its Common Stock without consideration or at a price per share
less than the Applicable Conversion Value for any tranche of Series B
Convertible Preferred in effect immediately prior to such issuance or sale, then
in each such case such Applicable Conversion Value for such tranche of Series B
Convertible Preferred upon each such issuance or sale, except as hereinafter
provided, shall be adjusted to an amount determined by multiplying such
Applicable Conversion Value by a fraction:
5
<PAGE>
(A) the numerator of which shall be (a) the number of shares of
Common Stock outstanding immediately prior to the issuance
of such additional shares of Common Stock, calculated on a
fully diluted basis assuming exercise or conversion of all
securities exercisable for or convertible into Common Stock,
whether or not such exercise or conversion is unvested or
otherwise conditional, plus (b) the number of shares of
Common Stock which the net aggregate consideration received
by the Corporation for the total number of such additional
shares of Common Stock so issued would purchase at the
Applicable Conversion Value for such tranche, and
(B) the denominator of which shall be (a) the number of shares
of Common Stock outstanding immediately prior to the
issuance of such additional shares of Common Stock,
calculated on a fully diluted basis assuming exercise or
conversion of all securities exercisable for or convertible
into Common Stock, whether or not such exercise or
conversion is unvested or otherwise conditional, plus (b)
the number of such additional shares of Common Stock so
issued or deemed issued.
The Corporation's issuance to the Corporation's officers, directors, employees
or consultants of up to an aggregate of 2,125,000 shares of Common Stock or such
greater number if approved by a majority of the Board of Directors (such amount
to be equitably adjusted whenever there shall occur a stock split, combination,
reclassification or other similar event affecting the Common Stock), or options
exercisable therefor, pursuant to any stock purchase or stock option plan or
other individual or group incentive program of any kind approved by the Board of
Directors shall have no effect on the calculations contemplated by this Section
5(e).
For the purposes of this Section 5(e), with respect to each tranche of
Series B Convertible Preferred, the issuance of any warrants, options,
subscriptions or purchase rights with respect to shares of Common Stock and the
issuance of any securities convertible into or exchangeable for shares of Common
Stock (or the issuance of any warrants, options or any rights with respect to
such convertible or exchangeable securities) whether or not such conversion or
exchange is conditional, shall be deemed an issuance at such time of such Common
Stock. Any obligation, agreement or undertaking to issue warrants, options,
subscriptions or purchase rights at any time in the future shall be deemed to be
an issuance at any time such obligation, agreement or undertaking is made or
arises. No adjustment of the Applicable Conversion Value for any such tranche
shall be made under this Section 5(e) upon the issuance of any shares of Common
Stock which are issued pursuant to the exercise of any warrants, options,
subscriptions or purchase rights or pursuant to the exercise of any conversion
or exchange rights in any convertible securities if any adjustment shall
previously have been made upon the issuance of any such warrants, options or
subscriptions or purchase rights or upon the issuance of any convertible
securities (or upon the issuance of any warrants, options or any rights
therefor) as above provided. Any adjustment of the Applicable Conversion Value
with respect to this paragraph for
6
<PAGE>
any tranche of Series B Convertible Preferred which relates to warrants,
options, subscriptions or purchase rights with respect to shares of Common Stock
shall be disregarded if, as, and when such warrants, options, subscriptions or
purchase rights expire or are canceled without being exercised, so that the
Applicable Conversion Value for such tranche effective immediately upon such
cancellation or expiration shall be equal to the Applicable Conversion Value for
such tranche in effect at the time of the issuance of the expired or canceled
warrants, options, subscriptions or purchase rights, with such additional
adjustments as would have been made to that Applicable Conversion Value had the
expired or canceled warrants, options, subscriptions or purchase rights not been
issued.
For purposes of this Section 5(e), if a part or all of the consideration
received by the Corporation in connection with the issuance of shares of the
Common Stock or the issuance of any of the securities described in this Section
5(e) consists of property other than cash, the Corporation at its expense will
promptly cause independent public accountants of recognized standing selected by
the Corporation to value such property, whereupon such value shall be given to
such consideration and shall be recorded on the books of the Corporation with
respect to receipt of such property.
This Section 5(e)(i) shall not apply under any of the circumstances which
would constitute an Extraordinary Common Stock Event (as hereinafter defined in
Section 5(e)(ii)).
(ii) Extraordinary Common Stock Event. Upon the happening of an
--------------------------------
Extraordinary Common Stock Event (as hereinafter defined), the Applicable
Conversion Value for each tranche of Series B Convertible Preferred shall,
simultaneously with the happening of such Extraordinary Common Stock Event, be
adjusted by multiplying the then effective Applicable Conversion Value for such
tranche by a fraction, the numerator of which shall be the number of shares of
Common Stock outstanding immediately prior to such Extraordinary Common Stock
Event and the denominator of which shall be the number of shares of Common Stock
outstanding immediately after such Extraordinary Common Stock event, and the
product so obtained shall thereafter be the Applicable Conversion Value for such
tranche. The Applicable Conversion Value for such tranche, as so adjusted,
shall be readjusted in the same manner upon the happening of any successive
Extraordinary Common Stock Event or Events.
"Extraordinary Common Stock Event" shall mean (i) the issue of additional
shares of Common Stock as a dividend or other distribution on outstanding shares
of Common Stock, (ii) the subdivision of outstanding shares of Common Stock into
a greater number of shares of Common Stock or (iii) the combination of
outstanding shares of the Common Stock into a smaller number of shares of Common
Stock.
(f) Dividends. In the event the Corporation shall make or issue, or
---------
fix a record date for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in securities of the
Corporation other than shares of Common Stock or in assets (excluding cash
dividends or distributions), then and in each such event provisions shall be
made so that each holder of the Series B Convertible Preferred shall receive
upon conversion thereof in addition to the number of shares of Common Stock
receivable thereupon, the number
7
<PAGE>
of securities or such other assets of the Corporation which they would have
received had their Series B Convertible Preferred been converted into Common
Stock on the date of such event and had they thereafter, during the period from
the date of such event to and including the Conversion Date (as that term is
hereafter defined in Section 5(j)), retained such securities or such other
assets receivable by them as aforesaid during such period, giving application to
all adjustments called for during such period under this Section 5 with respect
to the rights of the holders of the Series B Convertible Preferred.
(g) Recapitalization or Reclassification. If the Common Stock
------------------------------------
issuable upon the conversion of the Series B Convertible Preferred shall be
changed into the same or a different number of shares of any class or classes of
stock of the Corporation, whether by recapitalization, reclassification or
otherwise (other than a subdivision or combination of shares or stock dividend
provided for elsewhere in this Section 5, or a reorganization, merger,
consolidation or sale of assets provided for elsewhere in this Section 5), then
and in each such event the holder of each share of Series B Convertible
Preferred shall have the right thereafter to convert such share into the kind
and amount of shares of stock and other securities and property receivable upon
such reorganization, reclassification or other change by holders of the number
of shares of Common Stock into which such share of Series B Convertible
Preferred might have been converted (taking into account all accrued and unpaid
dividends and interest with respect to such Series B Convertible Preferred)
immediately prior to such reorganization, reclassification or change, all
subject to further adjustment as provided herein.
(h) Capital Reorganization, Merger or Sale of Assets. If at any time
------------------------------------------------
or from time to time there shall be a capital reorganization of the Common Stock
(other than a subdivision, combination, reclassification or exchange of shares
provided for elsewhere in this Section 5) or a merger or consolidation of the
Corporation with or into another corporation or entity, or the sale of all or
substantially all of the Corporation's properties and assets to any other person
or persons, then, as a part of such reorganization, merger, consolidation or
sale, provision shall be made so that each holder of the Series B Convertible
Preferred shall thereafter be entitled to receive upon conversion of such
holder's shares of Series B Convertible Preferred, the number of shares of stock
or other securities or property of the Corporation, or of the successor
corporation or entity resulting from such merger, consolidation or sale, to
which a holder of Common Stock issuable upon conversion would have been entitled
on such capital reorganization, merger, consolidation, or sale. In any such
case, appropriate adjustment shall be made in the application of the provisions
of this Section 5 with respect to the rights of the holders of the Series B
Convertible Preferred after the reorganization, merger, consolidation or sale to
the end that the provisions of this Section 5 (including adjustment of the
Applicable Conversion Value then in effect and the number of shares purchasable
upon conversion of each tranche of Series B Convertible Preferred) shall be
applicable after that event in as nearly equivalent a manner as may be
practicable.
Each holder of Series B Convertible Preferred upon the occurrence of a
capital reorganization, merger or consolidation of the Corporation, or the sale
of all or substantially all its assets and properties as such events are more
fully set forth in the first paragraph of this Section 5(h), shall have the
option of electing treatment of his shares of Series B Convertible
8
<PAGE>
Preferred under this Section 5(h) in lieu of Section 3(b), as described in
Section 3.
(i) Accountant's Certificate as to Adjustments. In each case of an
------------------------------------------
adjustment or readjustment of the Applicable Conversion Rate, the Corporation
will furnish each holder of Series B Convertible Preferred with a certificate,
prepared by its chief financial officer showing such adjustment or readjustment,
and stating in detail the facts upon which such adjustment or readjustment is
based. Upon the request of any holder, the Corporation will cause its
independent public accountants to confirm the accuracy of such adjustment or
readjustment.
(j) Exercise of Conversion Privilege. To exercise his conversion
--------------------------------
privilege, a holder of Series B Convertible Preferred shall surrender the
certificate or certificates representing the shares being converted to the
Corporation at its principal office, and shall give written notice to the
Corporation at such office that such holder elects to convert such shares. Such
notice shall also state the name or names (with address or addresses) in which
the certificate or certificates for shares of Common Stock issuable upon such
conversion shall be issued. The certificate or certificates for shares of
Series B Convertible Preferred surrendered for conversion shall be accompanied
by proper assignment thereof to the Corporation or in blank. The date when such
written notice is received by the Corporation, together with the certificate or
certificates representing the shares of Series B Convertible Preferred being
converted, shall be the "Conversion Date". As promptly as practicable after the
Conversion Date, the Corporation shall issue and shall deliver to the holder of
the shares of Series B Convertible Preferred being converted, or on its written
order, such certificate or certificates as it may request for the number of
whole shares of Common Stock issuable upon the conversion of such shares of
Series B Convertible Preferred in accordance with the provisions of this Section
5, cash in the amount of all declared but unpaid dividends on such shares of
Series B Convertible Preferred, up to and including the Conversion Date, unless
conversion of such declared but unpaid dividends into Common Stock has been
elected, and cash, as provided in Section 5(k), in respect of any fraction of a
share of Common Stock issuable upon such conversion. Such conversion shall be
deemed to have been effected immediately prior to the close of business on the
Conversion Date, and at such time the rights of the holder as holder of the
converted shares of Series B Convertible Preferred shall cease and the person or
persons in whose name or names any certificate or certificates for shares of
Common Stock shall be issuable upon such conversion shall be deemed to have
become the holder or holders of record of the shares of Common Stock represented
thereby.
(k) Cash in Lieu of Fractional Shares. No fractional shares of Common
---------------------------------
Stock or scrip representing fractional shares shall be issued upon the
conversion of shares of Series B Convertible Preferred. Instead of any
fractional shares of Common Stock which would otherwise be issuable upon
conversion of Series B Convertible Preferred, the Corporation shall pay to the
holder of the shares of Series B Convertible Preferred which were converted a
cash adjustment in respect of such fractional shares in an amount equal to the
same fraction of the market price per share of the Common Stock (as determined
in a reasonable manner prescribed by the Board of Directors) at the close of
business on the Conversion Date. The determination as to whether or not any
fractional shares are issuable shall be based upon the total number of shares of
Series B Convertible Preferred being converted at any one time by any holder
thereof, not
9
<PAGE>
upon each share of Series B Convertible Preferred being converted.
(l) Partial Conversion. In the event some but not all of the shares
------------------
of Series B Convertible Preferred represented by a certificate or certificates
surrendered by a holder are converted, the Corporation shall execute and deliver
to or on the order of the holder, at the expense of the Corporation, a new
certificate representing the number of shares of Series B Convertible Preferred
which were not converted.
(m) Reservation of Common Stock. The Corporation shall at all times
---------------------------
reserve and keep available out of its authorized but unissued shares of Common
Stock, solely for the purpose of effecting the conversion of the shares of the
Series B Convertible Preferred, such number of its shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Series B Convertible Preferred and all unpaid
dividends thereon, and if at any time the number of authorized but unissued
shares of Common Stock shall not be sufficient to effect the conversion of all
then outstanding shares of the Series B Convertible Preferred and all unpaid
dividends thereon, the Corporation shall take such corporate action as may be
necessary to increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purpose.
6. Redemption.
----------
(a) At the written election of a majority in interest of the holders
of Series B Convertible Preferred on or before October 31, 2005, beginning on
April 30, 2006 and on the first day of July in each year thereafter (the
"Redemption Date"), the Corporation shall redeem, pro rata based on the number
of shares of each tranche, twenty-five percent (25%) of all of the outstanding
shares of Series B Convertible Preferred; provided, however, that the
Corporation's redemption obligation shall be reduced by the number of shares of
Series B Convertible Preferred that have been converted prior to any such
Redemption Date, and such reduction shall apply first to the Redemption Date
immediately following such conversion and thereafter any balance shall apply to
any subsequent Redemption Dates. The redemption price for each share of Series
B Convertible Preferred redeemed pursuant to this Section 6 shall be equal to
the Applicable Purchase Price for such share plus a dividend computed at a rate
of 7% per share per annum, compounded annually as of the Applicable Issue Date
(the "Redemption Price"). Each redemption of Series B Convertible Preferred
shall be made so that the number of shares of Series B Convertible Preferred
held by each holder whose shares are being redeemed shall be reduced in an
amount which shall bear the same ratio to the total number of shares of Series B
Convertible Preferred being redeemed as all such shares then held by such
registered owner bears to the aggregate number of shares of Series B Convertible
Preferred then outstanding and held by all registered owners whose shares are
being redeemed.
(b) The Redemption Price set forth in this Section 6 shall be subject
to equitable adjustment whenever there shall occur a stock split, combination,
reclassification or other similar event involving the Series B Convertible
Preferred.
10
<PAGE>
(c) At least thirty (30) days before any Redemption Date pursuant to
Section 6(a), written notice (hereinafter referred to as the "Redemption
Notice") shall be mailed, postage prepaid, to each holder of record of the
Series B Convertible Preferred which is to be redeemed, at its address shown on
the records of the Corporation; provided, however, that the giving of such
Redemption Notice shall not affect the conversion rights of such holder pursuant
to Section 5; provided, further, that the Corporation's failure to give such
Redemption Notice shall in no way affect its obligation to redeem the shares of
Series B Convertible Preferred as provided in Section 6(a). The Redemption
Notice shall contain the following information:
(i) The number of shares of Series B Convertible Preferred held
by the holder which shall be redeemed by the Corporation and the total number of
shares of Series B Convertible Preferred held by all holders to be so redeemed,
(ii) The Redemption Date and the applicable Redemption Price,
and
(iii) That the holder is to surrender to the Corporation, at the
place designated therein, its certificate or certificates representing the
shares of Series B Convertible Preferred to be redeemed.
(iv) Each holder of shares of Series B Convertible Preferred to
be redeemed shall surrender the certificate or certificates representing such
shares to the Corporation at the place designated in the Redemption Notice, and
thereupon the applicable Redemption Price for such shares as set forth in this
Section 6 shall be paid to the order of the person whose name appears on such
certificate or certificates and each surrendered certificate shall be canceled
and retired.
(v) If any shares of Series B Convertible Preferred are not
redeemed solely because a holder fails to surrender the certificate or
certificates representing such shares pursuant to Section 6(d), then, from and
after the Redemption Date, such shares of Series B Convertible Preferred
thereupon subject to redemption shall not be entitled to any further accrual of
any dividends pursuant to Section 2 or to the conversion provisions set forth in
Section 5, unless the Corporation otherwise specifically agrees in writing.
7. No Reissuance of Series B Convertible Preferred. No share or shares
-----------------------------------------------
of Series B Convertible Preferred acquired by the Corporation by reason of
redemption, purchase, conversion or otherwise shall be reissued, and all such
shares shall be canceled, retired and eliminated from the shares which the
Corporation shall be authorized to issue. The Corporation may from time to time
take such appropriate corporate action as may be necessary to reduce the
authorized number of shares of the Series B Convertible Preferred accordingly.
8. Restrictions and Limitations.
----------------------------
(a) Except as expressly provided herein or as required by law, neither
the Corporation nor any subsidiary of the Corporation (which shall mean any
corporation or trust of which the Corporation directly or indirectly owns at the
time all of the outstanding shares of
11
<PAGE>
every class of such corporation or trust other than directors' qualifying
shares) shall, without the vote or written consent by the holders of at least a
majority of the then outstanding shares of the Series B Convertible Preferred
voting together, each share of Series B Convertible Preferred to be entitled to
one vote in each instance for each share of Common Stock into which such
Preferred Stock is then convertible:
(i) Redeem, purchase or otherwise acquire for value or (pay in,
to or set aside for a sinking fund for such purpose), any share or shares of
Series B Convertible Preferred other than pursuant to the redemption provisions
contained elsewhere herein;
(ii) Authorize or issue, or obligate itself to authorize or
issue, any other equity security senior to or on a parity with the Series B
Convertible Preferred as to liquidation preferences, conversion rights,
redemption rights, dividend rights, voting rights or otherwise;
(iii) Effect any sale, lease, assignment, transfer or other
conveyance of all or substantially all of the assets of the Corporation or any
subsidiary thereof, or any consolidation or merger involving the Corporation or
any subsidiary thereof, or any reclassification or other change of stock, or any
recapitalization or any dissolution, liquidation or winding up of the
Corporation;
(iv) Effect any merger by the Corporation with or into any
business entity or any acquisition by the Corporation of any assets or business
having a fair market value in excess of One Million Dollars ($1,000,000) U.S.;
or
(v) Amend its Certificate of Incorporation, if such amendment
would change any of the rights, preferences, privileges of or limitations
provided for herein for the benefit of any shares of Series B Convertible
Preferred.
9. No Dilution or Impairment. Except as provided in Section 8 above, the
-------------------------
Corporation will not, by amendment of its Certificate of Incorporation or
through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms of the Series B
Convertible Preferred set forth herein, but will at all times in good faith
assist in the carrying out of all such terms and in the taking of all such
actions as may be necessary or appropriate in order to protect the rights of the
holders of the Series B Convertible Preferred against dilution or other
impairment. Without limiting the generality of the foregoing, the Corporation
(a) will not increase the par value of any shares of stock receivable on the
conversion of the Series B Convertible Preferred above the amount payable
therefor on such conversion, (b) will take all such action as may be necessary
or appropriate in order that the Corporation may validly and legally issue fully
paid and non-assessable shares of stock on the conversion of all Series B
Convertible Preferred from time to time outstanding and all accrued and unpaid
dividends thereon, and (c) will not transfer all or substantially all of its
properties and assets to any other person (corporate or otherwise), or
consolidate with or merge into any other person or permit any such person to
consolidate with or merge into the Corporation (if the Corporation is not the
surviving person), unless such other person shall expressly assume in
12
<PAGE>
writing and will be bound by all the terms of the Series B Convertible Preferred
set forth herein.
10. Notices of Record Date. In the event of:
----------------------
(a) any taking by the Corporation of a record of the holders of any
class of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right; or
(b) any capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of the Corporation,
any merger or consolidation of the Corporation, or any transfer of all or
substantially all of the assets of the Corporation to any other corporation, or
any other entity or person; or
(c) any voluntary or involuntary dissolution, liquidation or winding
up of the Corporation;
then and in each such event the Corporation shall mail or cause to be mailed to
each holder of Series B Convertible Preferred a notice specifying (i) the date
on which any such record is to be taken for the purpose of such dividend,
distribution or right and a description of such dividend, distribution or right,
(ii) the date on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding up is expected to become effective, (iii) the time, if any, that is to
be fixed, as to when the holders of record of Common Stock (or other securities)
shall be entitled to exchange their shares of Common Stock (or other securities)
for securities or other property deliverable upon such reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding up. Such notice shall be mailed at least
twenty (20) days prior to the date specified in such notice on which such action
is to be taken.
This Certificate of Designation was duly adopted in accordance with the
applicable provisions of Section 151 of the Delaware General Corporation Law.
13
<PAGE>
IN WITNESS WHEREOF, NaviSite, Inc. has caused this Corrected Certificate of
Designation of Series B Convertible Preferred Stock to be signed by Joel B.
Rosen, its Chief Executive Officer, this 2/nd/ day of June, 1999.
By: /s/ Joel B. Rosen
--------------------------------
Name: Joel B. Rosen
Title: Chief Executive Officer
<PAGE>
NAVISITE, INC.
CORRECTED CERTIFICATE OF DESIGNATION
OF
SERIES C CONVERTIBLE PREFERRED STOCK
Pursuant to Section 103(f) of the Corporation Law of
the State of Delaware
---------------------
The undersigned, for the purpose of correcting the Certificate of
Designation of Series C Convertible Preferred Stock of NaviSite, Inc. (the
"Corporation") filed with the Secretary of State of the State of Delaware on May
28, 1999 ("Certificate of Designation"), hereby certifies as follows:
1. The Certificate of Designation was an inaccurate record of the
corporate action contemplated by Corporation.
2. The inaccuracies to be corrected in the Certificate of Designation
relate to (a) the number of shares constituting the Series C Convertible
Preferred Stock as set forth in Section 1 of the Certificate of Designation and
(b) the per share price to the public required for automatic conversion in
connection with a Qualified IPO as set forth in Section 5(b) of the Certificate
of Designation.
3. The Certificate of Designation as filed on May 28, 1999, is hereby
replaced in its entirety as set forth in its corrected form below:
NAVISITE, INC., a corporation organized and existing under the laws of
the State of Delaware (the "Corporation"), hereby certifies that the following
resolution was duly adopted by the Board of Directors of the Corporation:
RESOLVED, that pursuant to the authority expressly granted and vested
in the Board of Directors of this Corporation (the "Board of Directors") in
accordance with the provisions of its Certificate of Incorporation, as amended,
a series of Preferred Stock, par value $0.01 per share, of the Corporation be,
and it hereby is, created and classified, and that the designation and number of
shares thereof, the voting powers, preferences and relative, participating,
optional or other special rights thereof, and the qualifications, limitations or
restrictions thereof, are as follows:
<PAGE>
1. Designation and Number of Shares. The Corporation shall have a series of
Preferred Stock, par value $0.01 per share, designated as "Series C Convertible
Preferred Stock" (the "Series C Convertible Preferred") with a stated value of
$7.40 per share, as the same may be equitably adjusted whenever there shall
occur a stock dividend, stock split, combination, reclassification or other
similar event affecting the Series C Convertible Preferred after the date hereof
(the "Stated Value"). The number of shares constituting the Series C Convertible
Preferred shall be 1,095,472. Any and all series of Preferred Stock to which the
Series C Convertible Preferred ranks on parity as to (i) dividends, (ii)
liquidation, dissolution or winding up, (iii) voting rights or (iv) redemption,
as applicable, shall be referred to herein as "Parity Stock." The Series A
Convertible Preferred Stock, par value $0.01 per share, of the Corporation (the
"Series A Convertible Preferred") and the Series B Convertible Preferred Stock,
par value $0.01 per share, of the Corporation (the "Series B Convertible
Preferred") are Parity Stock as to (i) dividends and (ii) liquidation,
dissolution or winding up.
2. Dividends.
(a) The holders of the Series C Convertible Preferred shall be
entitled to receive on each outstanding share of Series C Convertible Preferred,
out of the funds legally available therefor, dividends computed at the rate of
seven percent of the Stated Value per share per annum (or a proportional part
thereof for a portion of a year and all subject to appropriate adjustment in the
event of any stock dividend, stock split, combination or other similar
recapitalization affecting such shares) from the date of issuance of the Series
C Convertible Preferred, payable when, as and if declared by the Board of
Directors. Such dividends shall be payable in preference and priority to the
payment of any dividend on the Common Stock and on parity with the payment of
any dividend to any Parity Stock. The right to such dividends on the Series C
Convertible Preferred shall not be cumulative, and no right to receive dividends
shall accrue by reason of the fact that no dividends have been declared on the
Series C Convertible Preferred in any or every prior year.
(b) No distributions shall be declared or paid on any share of Common
Stock during any fiscal year of the Corporation until dividends at a rate equal
to seven percent of the Stated Value per share of the Series C Convertible
Preferred shall have been paid or declared and set apart for payment during that
fiscal year in which such shares were outstanding.
(c) For purposes of this Section 2, unless the context requires
otherwise, "distribution" shall mean the transfer of cash or property without
consideration, whether by way of dividend or otherwise, payable other than in
Common Stock or other securities of the Corporation, or the purchase or
redemption of shares of the Corporation (other than repurchases of Common Stock
held by employees or directors of, or consultants to, the Corporation pursuant
2
<PAGE>
to agreements providing for such repurchase and other than redemptions in
liquidation or dissolution of the Corporation) for cash or property, including
any such transfer, purchase or redemption by a subsidiary of the Corporation.
3. Liquidation, Dissolution or Winding Up.
(a) In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, and provided that the amount
available for distribution to holders of the Series C Convertible Preferred
pursuant to this Section 3 is less than the Stated Value per share plus
dividends computed at the rate of seven percent of the Stated Value per share
per annum from the date of issuance of the Series C Convertible Preferred
through the date of such liquidation, dissolution or winding up (less any
dividends which have been declared and paid since the date of issuance of the
Series C Convertible Preferred), the entire assets of the Corporation available
for such distribution shall be distributed ratably among the holders of the
Series C Convertible Preferred on a pari passu basis with the holders of any
Parity Stock.
(b) In the event of any liquidation, dissolution or winding up of the
Corpora tion, whether voluntary or involuntary, and provided that the amount
available for distribution to holders of the Series C Convertible Preferred
pursuant to this Section 3 is at least the Stated Value per share plus dividends
computed at the rate of seven percent of the Stated Value per share per annum
from the date of issuance of the Series C Convertible Preferred through the date
of such liquidation, dissolution or winding up (less any dividends which have
been declared and paid since the date of issuance of the Series C Convertible
Preferred) the holder of each share of Series C Convertible Preferred shall be
entitled to be paid first (pari passu with the shares of any Parity Stock) out
of the assets of the Corporation available for distribution to holders of the
Corporation's capital stock of all classes, whether such assets are capital,
surplus or earnings, before any sums shall be paid or any assets distributed
among the holders of any other class of capital stock (other than Parity Stock),
an amount equal to the Stated Value per share of Series C Convertible Preferred
plus dividends computed at the rate of seven percent of the Stated Value per
share per annum from the date of issuance of the Series C Convertible Preferred
through the date of such liquidation, dissolution or winding up (less any
dividends which have been declared and paid since the date of issuance of the
Series C Convertible Preferred). After the payment of the preferential amount
required to be paid to the holders of the Series C Convertible Preferred and any
Parity Stock upon the liquidation, dissolution or winding up of the Corporation,
the holders of shares of Common Stock shall be entitled to receive the remaining
assets and funds of the Corporation available for distribution to its
stockholders.
(c) At the election of each holder of Series C Convertible Preferred,
a consolidation or merger of the Corporation or a sale of all or substantially
all of the assets of the
3
<PAGE>
Corporation may be treated either (i) as a liquidation, dissolution or winding
up of the affairs of the Corporation within the meaning of this Section 3 or
(ii) pursuant to Section 6(h) hereof; provided, however, that each holder of
-------- -------
Series C Convertible Preferred shall have the right to convert such shares of
Series C Convertible Preferred into Common Stock pursuant to Section 5(a) in
lieu of receiving payment pursuant to this Section 3(c) or Section 6(h). Each
holder of Series C Convertible Preferred shall notify the Corporation in writing
at its principal offices of its election to obtain the benefits of either this
Section 3(c) or Section 6(h) not later than the date specified in writing to
each holder by the Corporation (which date shall be at least five days prior to
the effective date of such consolidation, merger or sale). The Corporation shall
provide each holder of Series C Convertible Preferred with written notice of any
such consolidation or merger or sale of substantially all of its assets and
properties at least 20 days prior to the date by which the Corporation must be
notified of the election to obtain the benefits of either this Section 3(c) or
Section 6(h).
(d) Whenever the distribution provided for herein shall be made in
property other than cash, the value of that distribution shall be the fair
market value of the distributed property as determined in good faith by the
Board of Directors.
4. Voting Rights. Except as otherwise required by law or as set forth herein,
the holder of each share of Series C Convertible Preferred shall be entitled to
vote on all matters together with the holders of the Common Stock and Parity
Stock and shall be entitled to that number of votes equal to the largest number
of whole shares of Common Stock into which such holder's shares of Series C
Convertible Preferred could be converted pursuant to Section 5 hereof (taking
into account all declared and unpaid dividends, if any, with respect to such
Series C Convertible Preferred) at the record date for determination of the
stockholders entitled to vote on such matters or, if no such record date is
established, at the close of business on the day next preceding the date on
which notice of or to vote is given to the stockholders or at the close of
business on the day on which the Board of Directors adopts the resolution taking
such action for which written consent of stockholders is solicited, such votes
to be counted together with all other shares of capital stock of the Corporation
having general voting power and not counted separately as a class.
5. Conversion. The holders of the Series C Convertible Preferred have
conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert Series C Convertible Preferred. Each share of
Series C Convertible Preferred shall be convertible, at the option of the holder
thereof, at any time after the date of issuance of such share and up until such
time immediately prior to the effective time of liquidation, dissolution or
winding up of the Corporation, at the office of the Corporation or
4
<PAGE>
any transfer agent for the Series C Convertible Preferred, into such number of
fully paid and nonassessable shares (calculated as to each conversion to the
largest whole share) of Common Stock as is determined by dividing the Stated
Value by the Series C Convertible Conversion Price (as defined below) in effect
at the time of the conversion. The "Series C Convertible Conversion Price" shall
initially be $7.40 and shall be subject to adjustment as hereinafter provided.
Upon conversion of their shares of Series C Convertible Preferred into shares of
Common Stock, holders of shares of Series C Convertible Preferred also shall
have the option to have all declared but unpaid dividends on such shares of
Series C Convertible Preferred converted into shares of Common Stock. The number
of shares of Common Stock to be received upon the conversion of such declared
but unpaid dividends shall be computed by dividing the amount of declared but
unpaid dividends by the Series C Convertible Conversion Price.
(b) Automatic Conversion. Each share of Series C Convertible Preferred
shall automatically be converted into shares of Common Stock at the then
effective Series C Convertible Conversion Price upon the closing of an
underwritten public offering pursuant to an effective registration statement
under the Securities Act of 1933, as amended, covering the offer and sale of
securities for the account of the Corporation to the public (x) with a per share
price to the public of at least $12.95 (such amount to be equitably adjusted
whenever there shall occur any stock dividend, stock split, combination or
reclassifications or other similar events affecting the Common Stock after the
date hereof), and (y) in which the aggregate gross proceeds to the Corporation
are at least $20,000,000 (a "Qualified IPO"). The Company shall provide the
holders of Series C Convertible Preferred with written notice of such automatic
conversion at least 20 days prior to the anticipated effective date of the
registration statement filed in connection with such Qualified IPO. In the event
of the automatic conversion of the Series C Convertible Preferred upon a
Qualified IPO under this Section 5(b), the person(s) entitled to receive the
Common Stock issuable upon such conversion of Series C Convertible Preferred
shall not be deemed to have converted such Series C Convertible Preferred until
immediately prior to the closing of such Qualified IPO.
(c) Mechanics of Conversion. No fractional shares of Common Stock
shall be issued upon conversion of the Series C Convertible Preferred. In lieu
of any fractional share to which a holder would otherwise be entitled, the
Corporation shall pay the holder cash equal to the fraction of the share to
which the holder would otherwise be entitled multiplied by the then effective
Series C Convertible Conversion Price. The determination of whether any holder
would otherwise be entitled to fractional shares is based upon the total number
of shares of Series C Convertible Preferred being converted at any one time by
that holder, not upon each share of Series C Convertible Preferred being
converted. Before any holder of shares of Series C Convertible Preferred shall
be entitled to convert those shares into full shares of Common Stock and to
receive certificates therefor, the holder shall surrender the certificate or
certificates for the
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Series C Convertible Preferred, duly endorsed, at the office of the Corporation
or of any transfer agent for the Series C Convertible Preferred or shall notify
the Corporation in writing that such certificates have been lost, stolen or
destroyed and shall give written notice to the Corporation at such office that
the holder elects to convert the same. The Corporation shall, as soon as
practicable thereafter, issue and deliver at such office to such holder of
Series C Convertible Preferred a certificate or certificates for the number of
shares of Common Stock to which such holder shall be entitled as aforesaid and a
check payable to the holder in the amount of any cash amounts payable as the
result of a conversion into fractional shares of Common Stock. Such conversion
shall be deemed to have been made immediately prior to the close of business on
the date of receipt of written notice of conversion and other required materials
as described above, and the person or persons entitled to receive the shares of
Common Stock issuable upon such conversion shall be treated for all purposes as
the record holder or holders of such shares of Common Stock on such date. The
Corporation shall not, however, be obligated to issue certificates evidencing
the shares of Common Stock issuable upon such conversion unless certificates
evidencing such shares of the Series C Convertible Preferred being converted are
either delivered to the Corporation or any such transfer agent or the holder
notifies the Corpora tion that such certificates have been lost, stolen or
destroyed and executes an agreement satisfactory to the Corporation to indemnify
the Corporation from any loss incurred by it in connection therewith. In
addition, the Corporation may, if the Board of Directors deems it reasonably
necessary, require the holder to post a bond in connection with such indemnity
agreement.
(d) Partial Conversion. In the event some but not all of the shares of
Series C Convertible Preferred represented by a certificate or certificates
surrendered by a holder are converted, the Company shall execute and deliver to
or on the order of the holder, at the expense of the Company, a new certificate
representing the number of shares of Series C Convertible Preferred which were
not converted.
(e) Reservation of Stock Issuable Upon Conversion. The Corporation
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Series C Convertible Preferred, such number of its shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding shares of the Series C Convertible Preferred, and if at any
time the number of authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion of all then outstanding shares of the Series
C Convertible Preferred and all unpaid dividends thereon, in addition to such
other remedies as shall be available to the holder of such Series C Convertible
Preferred, the Corporation will take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purposes.
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6. Adjustments to Conversion Price.
(a) Special Definitions. For purposes of this Section 6 and Section
10, the following definitions shall apply:
(i) "Options" mean rights, options or warrants to subscribe
for, purchase or otherwise acquire either Common Stock or Convertible
Securities.
(ii) "Original Issue Date" shall mean the date on which the
first share of Series C Convertible Preferred was issued.
(iii) "Convertible Securities" shall mean any security (including
any debt security) directly or indirectly convertible into or exchangeable for
Common Stock other than (A) the Series C Convertible Preferred, (B) the Series A
Convertible Preferred, (C) Series B Convertible Preferred, issued in connection
with the conversion of up to an aggregate of $15,000,000 of intercompany debt of
the Corporation funded after the Original Issue Date, unless such conversion is
based upon a total valuation of the Corporation that is less than $100,000,000,
as determined in good faith by the Board of Directors or (D) the Series D
Convertible Preferred.
(iv) "Additional Shares of Common Stock" shall mean all shares
(including reissued shares) of Common Stock issued (or, pursuant to paragraph
6(c), deemed to be issued) by the Corporation after the Original Issue Date,
other than:
(A) shares of Common Stock issued upon conversion of (w)
the Series C Convertible Preferred authorized herein, (w) the Series A
Convertible Preferred outstanding as of the date hereof, (x) the Series B
Convertible Preferred outstanding as of the date hereof, (y) Series B
Convertible Preferred issued in connection with the conversion of up to an
aggregate of $15,000,000 of intercompany debt of the Corporation funded after
the Original Issue Date, unless such conversion is based upon a total valuation
of the Corporation that is less than $100,000,000, as determined in good faith
by the Board of Directors, or (z) the Series D Convertible Preferred authorized
by a Certificate of Designation being filed on date hereof;
(B) shares of Common Stock issued to officers, directors,
employees and consultants of the Corporation pursuant to any stock option or
stock purchase plans or agreements or other individual or group incentive plan
or program of any kind approved by the Board of Directors; and
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(C) as a dividend or distribution on Series C Convertible
Preferred or any event for which adjustment is made pursuant to Section 6(f) or
Section 6(g).
(b) No Adjustment of Conversion Price. No adjustment in the Series C
Convertible Conversion Price shall be made in respect of the issuance of
Additional Shares of Common Stock unless the consideration per share for an
Additional Share of Common Stock issued or deemed to be issued by the
Corporation pursuant to Section 6(c) is less than the Series C Convertible
Conversion Price on the date of such issuance.
(c) Deemed Issue of Additional Shares of Common Stock. In the event
the Corporation at any time or from time to time after the Original Issue Date
shall issue any Options or Convertible Securities or shall fix a record date for
the determination of holders of any class or series of securities entitled to
receive any such Options or Convertible Securities, then the maximum number of
shares (as set forth in the instrument relating thereto without regard to any
provisions contained therein for a subsequent adjustment of such number that
would result in an adjustment pursuant to Section 6(c)(ii)) of Common Stock
issuable upon the exercise of such Options or, in the case of Convertible
Securities, the conversion or exchange of such Convertible Securities, shall be
deemed to be Additional Shares of Common Stock issued as of the time of such
issuance or, in case such a record date shall have been fixed, as of the close
of business on such record date; provided that Additional Shares of Common Stock
shall not be deemed to have been issued unless the consideration per share
(determined pursuant to Section 6(e)) received by the Corporation for such
Additional Shares of Common Stock would be less than the Series C Convertible
Conversion Price on the date of such issuance, or such record date, as the case
may be; and provided further that in any such case in which Additional Shares of
Common Stock are deemed to be issued:
(i) no further adjustment in the Series C Convertible Preferred
Conversion Price shall be made upon the subsequent issuance of Convertible
Securities or shares of Common Stock upon the exercise of such Options or the
conversion or exchange of such Convertible Securities;
(ii) if such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any increase or decrease in
the consideration payable to the Corporation, or increase or decrease in the
number of shares of Common Stock issuable, upon the exercise, conversion or
exchange thereof, the Series C Convertible Conversion Price computed upon the
original issuance thereof (or upon the occurrence of a record date with respect
thereto), and any subsequent adjustments based thereon, shall, upon any such
increase or decrease becoming effective, be recomputed to reflect such increase
or decrease insofar as it affects such Options or the rights of conversion or
exchange under such Convertible Securities;
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(iii) upon the expiration of any such Options or any rights
of conversion or exchange under such Convertible Securities which shall not have
been exercised, the Series C Convertible Conversion Price computed upon the
original issuance thereof (or upon the occurrence of a record date with respect
thereto), and any subsequent adjustments based thereon, shall, upon such
expiration, be recomputed as if:
(A) in the case of (1) Options for Common Stock or (2)
Convertible Securities, the only Additional Shares of Common Stock issued were
shares of Common Stock, if any, actually issued upon the exercise of such
Options or the conversion or exchange of such Convertible Securities and the
consideration received therefor was the consideration actually received by the
Corporation for the issuance of all such Options, whether or not exercised, plus
the consideration actually received by the Corporation upon the issuance of the
Common Stock with respect to which such Option were actually exercised, or for
the issuance of all such Convertible Securities which were actually converted or
exchanged, plus the additional consideration, if any, actually received by the
Corporation upon such conversion or exchange; and
(B) in the case of Options for Convertible Securities,
only the Convertible Securities, if any, actually issued upon the exercise
thereof were issued at the time of issuance of such Options, and the
consideration received by the Corporation for the Additional Shares of Common
Stock deemed to have been then issued was the consideration actually received by
the Corporation for the issuance of all such Options, whether or not exercised,
plus the consideration deemed to have been received by the Corporation upon the
issuance of the Convertible Securities with respect to which such Options were
actually exercised;
(iv) no readjustment pursuant to Section 6(c)(ii) or Section
6(c)(iii) shall have the effect of increasing the Series C Convertible
Conversion Price to an amount which exceeds the lower of (x) the Series C
Convertible Conversion Price on the date of the original adjustment relating to
the grant of the Options or issuance of the Convertible Securities, as
applicable, or (y) the Series C Convertible Conversion Price that would have
resulted from any issuance of Additional Shares of Common Stock between that
original adjustment date and the date of such readjustment; and
(v) in the case of any Options which expire by their terms
not more than 30 days after the date of issuance thereof, no adjustment of the
Series C Convertible Conversion Price shall be made until the expiration or
exercise of all such Options, whereupon such adjustment shall be made in the
manner provided in Section 6(c)(iii).
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(d) Adjustment of Conversion Price Upon Issuance of Additional Shares
of Common Stock. If after the Original Issue Date the Corporation shall issue
Additional Shares of Common Stock without consideration or for consideration per
share that is less than the Series C Convertible Conversion Price on the date of
such issuance, then and in such event, the Series C Convertible Conversion Price
shall be reduced, concurrently with such issuance, to a price (calculated to the
nearest cent) determined by multiplying such Series C Convertible Conversion
Price, by a fraction, the numerator of which shall be the number of shares of
Common Stock outstanding immediately prior to such issuance plus the number of
shares of Common Stock which the aggregate consideration received by the
Corporation for the total number of Additional Shares of Common Stock so issued
would purchase at such Series C Convertible Conversion Price; and the
denominator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issuance plus the number of such Additional Shares of
Common Stock so issued; and provided further that, for the purposes of this
Section 6(d), all shares of Common Stock issuable upon conversion of outstanding
Series C Convertible Preferred, outstanding Series B Convertible Preferred and
outstanding Convertible Securities and upon exercise of outstanding Options
shall be deemed to be outstanding.
(e) Determination of Consideration. For purposes of this Section 6,
the consideration received or receivable by the Corporation shall be computed as
follows:
(i) Cash and Property. Except as provided in Section 6(e)(ii),
such consideration shall:
(A) insofar as it consists of cash, equal the aggregate
amount of cash received or receivable by the Corporation, excluding amounts paid
or payable for accrued interest or accrued dividends;
(B) insofar as it consists of property other than cash,
equal the fair value thereof, as determined in good faith by the Board of
Directors; provided, however, that no value shall be attributed to any services
performed by any employee, officer or director of the Corporation; and
(C) in the event Additional Shares of Common Stock are
issued together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received with respect to such Additional Shares of Common
Stock, computed as provided in Sections 6(e)(i)(A) and (B) above, as determined
in good faith by the Board of Directors.
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(ii) Expenses. In the event the Corporation pays or incurs
expenses, commissions or compensation, or allows concessions or discounts to
underwriters, dealers or others performing similar services in connection with
such issuance, in an aggregate amount in excess of 10% of the aggregate
consideration received by the Corporation for such issuance, as determined in
accordance with Section 6(e)(i) , consideration shall be computed as provided in
Section 6(e)(i), after deducting the aggregate amount in excess of 10% of the
aggregate consideration received by the Corporation for the issuance.
(iii) Options and Convertible Securities. The consideration per
share received by the Corporation for Additional Shares of Common Stock deemed
to have been issued pursuant to Section 6(c) shall be determined by dividing
(x) the total amount, if any, received or receivable by the
Corporation as consideration for the issuance of such Options or Convertible
Securities, plus the minimum aggregate amount of additional consideration (as
set forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such consideration) payable to
the Corporation upon the exercise of such Options or the conversion or exchange
of such Convertible Securities, or in the case of Options for Convertible
Securities, the exercise of such Options for Convertible Securities and the
conversion or exchange of such Convertible Securities by
(y) the maximum number of shares of Common Stock (as set
forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such number) issuable upon the
exercise of such Options or the conversion or exchange of such Convertible
Securities, or in the case of Options for Convertible Securities, the exercise
of such Options for Convertible Securities and the conversion or exchange of
such Convertible Securities.
(f) Adjustments for Stock Dividends, Subdivisions, Combinations or
Consolidations of Common Stock. In the event the outstanding shares of Common
Stock shall be subdivided (by stock dividend, stock split or otherwise) into a
greater number of shares of Common Stock, the Series C Convertible Conversion
Price then in effect shall, concurrently with the effectiveness of such
subdivision, be proportionately decreased. In the event the outstanding shares
of Common Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock, the Series C
Convertible Conversion Price then in effect shall, concurrently with the
effectiveness of such combination or consolidation, be proportionately
increased.
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(g) Adjustments for Other Distributions. In the event the Corporation
at any time or from time to time shall fix a record date for a determination of
holders of Common Stock entitled to receive any distribution payable in (i)
securities of the Corporation other than shares of Common Stock or (ii) assets
of the Corporation (excluding cash dividends or distributions), then, and in
each such event, provision shall be made so that the holders of Series C
Convertible Preferred shall receive upon conversion thereof, in addition to the
number of shares of Common Stock receivable thereupon, the number of securities
or amount of other assets of the Corporation which they would have received had
their Series C Convertible Preferred been converted into Common Stock, on the
date of such event and had they thereafter, during the period from the date of
such event to and including the date of conversion, retained such securities or
other assets receivable by them as aforesaid during such period, giving
application to all other adjustments called for during such period under this
Section 6 with respect to the rights of the holders of the Series C Convertible
Preferred.
(h) Adjustments for Reclassification, Exchange and Substitution. If
the Common Stock issuable upon conversion of the Series C Convertible Preferred
shall be changed into other securities or property, whether by capital
reorganization, reclassification, consolidation or merger of the Corporation or
sale of all or substantially all of the assets of the Corporation or otherwise
(other than a subdivision or combination of shares provided for in this Section
6), then, and in each such event, the holder of each share of Series C
Convertible Preferred shall have the right thereafter to convert such share into
the kind and amount of other securities or property receivable upon such
reorganization, reclassification, consolidation, merger or sale or other change
by holders of the number of shares of Common Stock that would have been received
by such holders upon conversion of the Series C Convertible Preferred
immediately before that change, all subject to further adjustment as provided
herein. Each holder of Series C Convertible Preferred, upon the occurrence of a
consolidation or merger of the Corporation or the sale of all or substantially
all of its assets shall have the right to elect the benefits of either the
provisions of this Section 6(h) or of Section 3(c) as described in Section 3(c),
or to convert such holder's shares of Series C Convertible Preferred into Common
Stock pursuant to Section 5(a).
(i) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Series C Convertible Conversion Price pursuant
to this Section 6, the Corporation, at its expense, shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and furnish to
each holder of Series C Convertible Preferred a certificate prepared by its
Chief Financial Officer setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based.
The Corporation shall, upon the written request at any time of any holder of
Series C Convertible Preferred, furnish or cause to be furnished to such holder
a like certificate setting forth (i) such adjustments and readjustments, (ii)
the Series C Convertible Conversion Price at the time in
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effect and (iii) the number of shares of Common Stock and the amount, if any, of
other property which at the time would be received upon the conversion of Series
C Convertible Preferred. Upon the request of any holder of the Series C
Convertible Preferred, the Corporation will cause its independent public
accountants to confirm the accuracy of such adjustment or readjustment.
(j) Miscellaneous.
(i) All calculations under this Section 6 shall be made to the
nearest cent or to the nearest 1/100 of a share, as the case may be.
(ii) The holders of a majority of the outstanding Series C
Convertible Preferred shall have the right to challenge any determination by the
Board of Directors of fair value pursuant to this Section 6, in which case such
determination of fair value shall be made by an independent appraiser selected
jointly by the Board of Directors and the challenging parties, the cost of such
appraisal to be borne equally by the Corporation and the challenging parties.
(iii) No adjustment in the Series C Convertible Conversion Price
need be made if such adjustment would result in a change in such Series C
Conversion Price of less than $0.01. Any adjustment of less than $0.01 which is
not so made shall be carried forward and shall be made at the time of and
together with any subsequent adjustment which, on a cumulative basis, amounts to
an adjustment of $0.01 or more in such Series C Convertible Conversion Price.
7. Redemption
(a) On or after the fifth anniversary of the Original Issue Date, the
shares of Series C Convertible Preferred are redeemable either at the written
election of a majority of the outstanding shares of Series C Convertible
Preferred or at the option of the Corporation, by resolution of its Board of
Directors, in whole or, from time to time, in part, in either event at a price
for each share of Series C Convertible Preferred redeemed pursuant to this
Section 7 of the Stated Value per share, plus a dividend computed at a rate of
seven percent of the Stated Value per share per annum from the date of issuance
of the Series C Convertible Preferred through the date of such redemption (less
any dividends which have been declared and paid since the date of issuance of
the Series C Convertible Preferred) (the "Redemption Price"). Each partial
redemption of Series C Convertible Preferred shall be made pro rata (so that
the number of shares of Series C Convertible Preferred held by each registered
owner whose shares are being redeemed shall be reduced in an amount which shall
bear the same ratio to the total number of shares of Series C Convertible
Preferred being redeemed as all such shares then held by such registered owner
bears to the aggregate number of shares of Series C Convertible Preferred then
outstanding).
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(b) At least 30 days before any redemption of Series C Convertible
Preferred pursuant to Section 7(a) (whether at the election of a majority of the
Series C Convertible Preferred or at the option of the Corporation), the
Corporation shall mail written notice (hereinafter referred to as the
"Redemption Notice"), postage prepaid, to each holder of record of the Series C
Convertible Preferred which is to be redeemed, as its address shown on the
records of the Corporation; provided, however, that the giving of such
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Redemption Notice shall not affect the conversion rights pursuant to Section 6
of any holders not electing redemption pursuant to Section 7(a); provided,
--------
further, that the Company's failure to give such Redemption Notice shall in no
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way affect its obligation to redeem the shares of Series C Convertible Preferred
at the election of such holders as provided in Section 7(a). The Redemption
Notice shall contain the following information:
(i) The number of shares of Series C Convertible Preferred held
by the holder which shall be redeemed by the Corporation and the total number of
shares of Series C Convertible Preferred then outstanding;
(ii) The date fixed for redemption (the "Redemption Date") and
the applicable Redemption Price; and
(iii) A statement that the holder is to surrender to the
Corporation, at the place designated therein, its certificates representing the
shares of Series C Convertible Preferred to be redeemed.
(c) Each holder of outstanding shares of Series C Convertible
Preferred shall surrender the certificate or certificates representing such
shares to the Corporation at the place designated in the Redemption Notice, and
thereupon, (i) the applicable Redemption Price for such shares as set forth in
this Section 7 shall be paid to the order of the person whose name appears on
such certificate or certificates and (ii) each surrendered certificate shall be
canceled and retired.
(d) If any shares of Series C Convertible Preferred are not redeemed
solely because a holder fails to surrender the certificate or certificates
representing such shares pursuant to Section 7(c), then, from and after the
Redemption Date, such unredeemed shares of Series C Convertible Preferred shall
not be entitled to the benefits of any further dividends pursuant to Section 2
or the conversion provisions set forth in Section 5, unless the Corporation
otherwise specifically agrees in writing.
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(e) No share or shares of Series C Convertible Preferred acquired by
the Corporation by reason of redemption, purchase, conversion or otherwise shall
be reissued, and all such shares shall be canceled, retired and eliminated from
the shares which the Corporation shall be authorized to issue. The Corporation
may from time to time take such appropriate corporate action as may be necessary
to reduce the authorized number of shares of the Series C Convertible Preferred
accordingly.
(f) The Redemption Price set forth in this Section 7 shall be subject
to equitable adjustment whenever there shall occur a stock dividend, stock
split, combination, reclassification or other similar event affecting the Series
C Convertible Preferred.
8. Notices of Record Date. In the event that the Corporation shall propose at
any time:
(a) to declare any dividend or distribution upon its Common Stock,
whether in cash, property, stock or other securities, whether or not a regular
cash dividend and whether or not out of earnings or earned surplus;
(b) to offer for subscription pro rata to the holders of its Common
Stock any additional shares of capital stock of the Corporation;
(c) to effect any reclassification or recapitalization of its Common
Stock outstanding involving a change in the Common Stock; or
(d) to merge or consolidate with or into any other corporation, or
sell, lease or convey all or substantially all its property or business, or to
liquidate, dissolve or wind up;
then, in connection with each such event, the Corporation shall send to the
holders of the Series C Convertible Preferred:
(i) at least 20 days' prior written notice of the record date
for such dividend, distribution or subscription offer (and specifying the date
on which the holders of Common Stock shall be entitled thereto) or for
determining stockholders entitled to vote in respect of the matters referred to
in Sections 8(c) and (d) above; and
(ii) in the case of the events referred to in (c) and (d) above,
at least 20 days' prior written notice of the date on which such events shall
take place (and if different, also specifying the date on which the holders of
Common Stock shall be entitled to exchange their Common Stock for other
securities or property deliverable upon the occurrence of such event).
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Each such written notice shall be delivered personally or given by first class
mail, postage prepaid, addressed to each of the holders of the Series C
Convertible Preferred at the address for each such holder as shown on the books
of the Corporation.
9. Protective Provisions. So long as any shares of Series C Convertible
Preferred are outstanding, the Corporation shall not, without first obtaining
the approval of the holders of at least a majority of the outstanding shares of
Series C Convertible Preferred, take any action that:
(a) alters the rights, preferences, privileges or powers of, or the
restrictions provided for the benefit of, the Series C Convertible Preferred;
(b) authorizes, creates or issues any new class or series of capital
stock that has a preference superior to the Series C Convertible Preferred with
respect to voting, dividends, liquidation or redemption, or designates or issues
any additional shares of Series C Convertible Preferred;
(c) reclassifies outstanding capital stock into capital stock having
a preference superior to the Series C Convertible Preferred with respect to
voting, dividends, liquidation or redemption; or
(d) amends or repeals any provision of the Corporation's Certificate
of Incorporation, as amended, in a manner that adversely affects the rights of
the holders of the Series C Convertible Preferred.
10. Right of Participation. The holders of the Series C Convertible Preferred
shall have rights of participation in future issuances of Options, Convertible
Securities and Additional Shares of Common Stock by the Corporation, as follows:
(a) Right of Participation. The Corporation shall, prior to any
proposed grant or issuance by the Corporation of any Options, Convertible
Securities or Additional Shares of Common Stock, offer to each record owner of
the Series C Convertible Preferred (a "Preemptive Rights Participant"), by
written notice, the right, for a period of 30 days, to purchase for cash at a
price equal to the price or other consideration for which such Options,
Convertible Securities or Additional Shares of Common Stock are to be granted or
issued, a number of such Options, Convertible Securities or Additional Shares of
Common Stock so that, after giving effect to such grant or issuance (and the
exercise, conversion or exchange into or for (whether directly or indirectly)
shares of Common Stock of all Options and Convertible Securities), such
Preemptive Rights Participant will continue to maintain the same proportionate
equity ownership in the Corporation which such Preemptive Rights Participant had
as of the date of such notice (treating
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each Preemptive Right Participant, for the purpose of such computation, as the
holder of the number of shares of Common Stock which would be issuable to such
Preemptive Rights Participant upon exercise, conversion and exchange of all
securities (including but not limited to its shares of Series C Convertible
Preferred) held by such Preemptive Rights Participant on the date such offer is
made that are exercisable, convertible or exchangeable into or for (whether
directly or indirectly) shares of Common Stock and assuming, for the purpose of
such computation, the like exercise, conversion and exchange of all such other
securities held by other persons or entities); provided, however, that the
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participation rights of the Preemptive Rights Participants pursuant to this
Section 10 shall not apply to Options, Convertible Securities or Additional
Shares of Common Stock granted or issued:
(i) pursuant to a public offering registered under the
Securities Act of 1933, as amended;
(ii) in connection with a strategic investment in the
Corporation or any of its subsidiaries; or
(iii) solely in consideration for the acquisition (whether by
merger or otherwise) by the Corporation or any of its subsidiaries of stock or
assets of any other entity.
The Corporation's written notice to each Preemptive Rights Participant shall
describe the Options proposed to be granted or the Convertible Securities or
Additional Shares of Common Stock proposed to be issued by the Corporation and
specify the number, price and payment terms of the grant or issuance.
(b) Mechanics of Right of Participation. Any Preemptive Rights
Participant may accept the Corporation's offer as to the full number of Options,
Convertible Securities or Additional Shares of Common Stock required to be
offered to such Preemptive Rights Participant pursuant to Section 10(a), or any
lesser number, by written notice thereof given by such Preemptive Rights
Participant to the Corporation prior to the expiration of the aforesaid 30-day
period, in which event the Corporation shall sell and such Preemptive Rights
Participant shall buy, upon the terms specified, not later than the time such
Options, Convertible Securities or Additional Shares of Common Stock are sold to
third parties as contemplated by the Corporation's offer, the number of Options,
Convertible Securities or Additional Shares of Common Stock agreed to be
purchased by such Preemptive Rights Participant. Subject to and without
limitation of the immediately preceding sentence, the Corporation shall be free
at any time prior to 90 days after the date of its notice of offer to such
Preemptive Rights Participant under Section 10(a), to offer and sell to any
third party or parties the aggregate number of such Options, Convertible
Securities or Additional Shares of Common Stock offered to and not purchased by
17
<PAGE>
the Preemptive Rights Participants pursuant to this Section 10, at a price and
on payment terms no less favorable to the Corporation than those specified in
such notice of offer to the Preemptive Rights Participants. However, if such
third-party sale or sales are not consummated within such 90-day period, the
Corporation shall not sell such Options, Convertible Securities or Additional
Shares of Common Stock as shall not have been purchased within such period
without again complying with this Section 10.
18
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Corrected
Certificate to be signed by Joel B. Rosen, its Chief Executive Officer, on this
2/nd/ day of June, 1999.
NAVISITE, INC.
By: /s/ Joel B. Rosen
-----------------------------------------
Name: Joel B. Rosen
Title: Chief Executive Officer
<PAGE>
NAVISITE, INC.
CORRECTED CERTIFICATE OF DESIGNATION
OF
SERIES D CONVERTIBLE PREFERRED STOCK
Pursuant to Section 103(f) of the Corporation Law of
the State of Delaware
---------------------
The undersigned, for the purpose of correcting the Certificate of
Designation of Series D Convertible Preferred Stock of NaviSite, Inc. (the
"Corporation") filed with the Secretary of State of the State of Delaware on May
28, 1999 ("Certificate of Designation"), hereby certifies as follows:
1. The Certificate of Designation was an inaccurate record of the
corporate action contemplated by the Corporation.
2. The inaccuracies to be corrected in the Certificate of Designation
relate to the per share price to the public required for automatic conversion in
connection with a Qualified IPO as set forth in Section 5(b) of the Certificate
of Designation.
3. The Certificate of Designation as filed on May 28, 1999, is hereby
replaced in its entirety as set forth in its corrected form below:
NAVISITE, INC., a corporation organized and existing under the laws of
the State of Delaware (the "Corporation"), hereby certifies that the following
resolution was duly adopted by the Board of Directors of the Corporation:
RESOLVED, that pursuant to the authority expressly granted and vested
in the Board of Directors of this Corporation (the "Board of Directors") in
accordance with the provisions of its Certificate of Incorporation, as amended,
a series of Preferred Stock, par value $0.01 per share, of the Corporation be,
and it hereby is, created and classified, and that the designation and number of
shares thereof, the voting powers, preferences and relative, participating,
optional or other special rights thereof, and the qualifications, limitations or
restrictions thereof, are as follows:
<PAGE>
1. Designation and Number of Shares. The Corporation shall have a series of
Preferred Stock, par value $0.01 per share, designated as "Series D Convertible
Preferred Stock" (the "Series D Convertible Preferred") with a stated value of
$7.40 per share, as the same may be equitably adjusted whenever there shall
occur a stock dividend, stock split, combination, reclassification or other
similar event affecting the Series D Convertible Preferred after the date hereof
(the "Stated Value"). The number of shares constituting the Series D Convertible
Preferred shall be 993,243. Any and all series of Preferred Stock to which the
Series D Convertible Preferred ranks on parity as to (i) dividends, (ii)
liquidation, dissolution or winding up, (iii) voting rights or (iv) redemption,
as applicable, shall be referred to herein as "Parity Stock." The Series A
Convertible Preferred Stock, par value $0.01 per share, of the Corporation (the
"Series A Convertible Preferred") and the Series B Convertible Preferred Stock,
par value $0.01 per share, of the Corporation (the "Series B Convertible
Preferred") are Parity Stock as to (i) dividends and (ii) liquidation,
dissolution or winding up. The Series C Convertible Preferred Stock, par value
$0.01 per share, of the Corporation (the "Series C Convertible Preferred") is
Parity Stock as to (i) dividends, (ii) liquidation, dissolution or winding up,
(iii) voting rights and (iv) redemption.
2. Dividends.
(a) The holders of the Series D Convertible Preferred shall be
entitled to receive on each outstanding share of Series D Convertible Preferred,
out of the funds legally available therefor, dividends computed at the rate of
seven percent of the Stated Value per share per annum (or a proportional part
thereof for a portion of a year and all subject to appropriate adjustment in the
event of any stock dividend, stock split, combination or other similar
recapitalization affecting such shares) from the date of issuance of the Series
D Convertible Preferred, payable when, as and if declared by the Board of
Directors. Such dividends shall be payable in preference and priority to the
payment of any dividend on the Common Stock and on parity with the payment of
any dividend to any Parity Stock. The right to such dividends on the Series D
Convertible Preferred shall not be cumulative, and no right to receive dividends
shall accrue by reason of the fact that no dividends have been declared on the
Series D Convertible Preferred in any or every prior year.
(b) No distributions shall be declared or paid on any share of Common
Stock during any fiscal year of the Corporation until dividends at a rate equal
to seven percent of the Stated Value per share of the Series D Convertible
Preferred shall have been paid or declared and set apart for payment during that
fiscal year in which such shares were outstanding.
(c) For purposes of this Section 2, unless the context requires
otherwise, "distribution" shall mean the transfer of cash or property without
consideration, whether by way
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<PAGE>
of dividend or otherwise, payable other than in Common Stock or other securities
of the Corporation, or the purchase or redemption of shares of the Corporation
(other than repurchases of Common Stock held by employees or directors of, or
consultants to, the Corporation pursuant to agreements providing for such
repurchase and other than redemptions in liquidation or dissolution of the
Corporation) for cash or property, including any such transfer, purchase or
redemption by a subsidiary of the Corporation.
3. Liquidation, Dissolution or Winding Up.
(a) In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, and provided that the amount
available for distribution to holders of the Series D Convertible Preferred
pursuant to this Section 3 is less than the Stated Value per share plus
dividends computed at the rate of seven percent of the Stated Value per share
per annum from the date of issuance of the Series D Convertible Preferred
through the date of such liquidation, dissolution or winding up (less any
dividends which have been declared and paid since the date of issuance of the
Series D Convertible Preferred), the entire assets of the Corporation available
for such distribution shall be distributed ratably among the holders of the
Series D Convertible Preferred on a pari passu basis with the holders of any
Parity Stock.
(b) In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, and provided that the amount
available for distribution to holders of the Series D Convertible Preferred
pursuant to this Section 3 is at least the Stated Value per share plus dividends
computed at the rate of seven percent of the Stated Value per share per annum
from the date of issuance of the Series D Convertible Preferred through the date
of such liquidation, dissolution or winding up (less any dividends which have
been declared and paid since the date of issuance of the Series D Convertible
Preferred) the holder of each share of Series D Convertible Preferred shall be
entitled to be paid first (pari passu with the shares of any Parity Stock) out
of the assets of the Corporation available for distribution to holders of the
Corporation's capital stock of all classes, whether such assets are capital,
surplus or earnings, before any sums shall be paid or any assets distributed
among the holders of any other class of capital stock (other than Parity Stock),
an amount equal to the Stated Value per share of Series D Convertible Preferred
plus dividends computed at the rate of seven percent of the Stated Value per
share per annum from the date of issuance of the Series D Convertible Preferred
through the date of such liquidation, dissolution or winding up (less any
dividends which have been declared and paid since the date of issuance of the
Series D Convertible Preferred). After the payment of the preferential amount
required to be paid to the holders of the Series D Convertible Preferred and any
Parity Stock upon the liquidation, dissolution or winding up of the Corporation,
the holders of shares of Common Stock shall be entitled to receive the remaining
assets and funds of the Corporation available for distribution to its
stockholders.
3
<PAGE>
(c) At the election of each holder of Series D Convertible
Preferred, a consolidation or merger of the Corporation or a sale of all or
substantially all of the assets of the Corporation may be treated either (i) as
a liquidation, dissolution or winding up of the affairs of the Corporation
within the meaning of this Section 3 or (ii) pursuant to Section 6(h) hereof;
provided, however, that each holder of Series D Convertible Preferred shall have
- -------- -------
the right to convert such shares of Series D Convertible Preferred into Common
Stock pursuant to Section 5(a) in lieu of receiving payment pursuant to this
Section 3(c) or Section 6(h). Each holder of Series D Convertible Preferred
shall notify the Corporation in writing at its principal offices of its election
to obtain the benefits of either this Section 3(c) or Section 6(h) not later
than the date specified in writing to each holder by the Corporation (which date
shall be at least five days prior to the effective date of such consolidation,
merger or sale). The Corporation shall provide each holder of Series D
Convertible Preferred with written notice of any such consolidation or merger or
sale of substantially all of its assets and properties at least 20 days prior to
the date by which the Corporation must be notified of the election to obtain the
benefits of either this Section 3(c) or Section 6(h).
(d) Whenever the distribution provided for herein shall be made
in property other than cash, the value of that distribution shall be the fair
market value of the distributed property as determined in good faith by the
Board of Directors.
4. Voting Rights. Except as otherwise required by law or as set forth herein,
the holder of each share of Series D Convertible Preferred shall be entitled to
vote on all matters together with the holders of the Common Stock and Parity
Stock and shall be entitled to that number of votes equal to the largest number
of whole shares of Common Stock into which such holder's shares of Series D
Convertible Preferred could be converted pursuant to Section 5 hereof (taking
into account all declared and unpaid dividends, if any, with respect to such
Series D Convertible Preferred) at the record date for determination of the
stockholders entitled to vote on such matters or, if no such record date is
established, at the close of business on the day next preceding the date on
which notice of or to vote is given to the stockholders or at the close of
business on the day on which the Board of Directors adopts the resolution taking
such action for which written consent of stockholders is solicited, such votes
to be counted together with all other shares of capital stock of the Corporation
having general voting power and not counted separately as a class.
5. Conversion. The holders of the Series D Convertible Preferred have
conversion rights as follows (the "Conversion Rights"):
4
<PAGE>
(a) Right to Convert Series D Convertible Preferred. Each share of
Series D Convertible Preferred shall be convertible, at the option of the holder
thereof, at any time after the date of issuance of such share and up until such
time immediately prior to the effective time of liquidation, dissolution or
winding up of the Corporation, at the office of the Corporation or any transfer
agent for the Series D Convertible Preferred, into such number of fully paid and
nonassessable shares (calculated as to each conversion to the largest whole
share) of Common Stock as is determined by dividing the Stated Value by the
Series D Convertible Conversion Price (as defined below) in effect at the time
of the conversion. The "Series D Convertible Conversion Price" shall initially
be $7.40 and shall be subject to adjustment as hereinafter provided. Upon
conversion of their shares of Series D Convertible Preferred into shares of
Common Stock, holders of shares of Series D Convertible Preferred also shall
have the option to have all declared but unpaid dividends on such shares of
Series D Convertible Preferred converted into shares of Common Stock. The
number of shares of Common Stock to be received upon the conversion of such
declared but unpaid dividends shall be computed by dividing the amount of
declared but unpaid dividends by the Series D Convertible Conversion Price.
(b) Automatic Conversion. Each share of Series D Convertible
Preferred shall automatically be converted into shares of Common Stock at the
then effective Series D Convertible Conversion Price upon the closing of an
underwritten public offering pursuant to an effective registration statement
under the Securities Act of 1933, as amended, covering the offer and sale of
securities for the account of the Corporation to the public (x) with a per share
price to the public of at least $12.95 (such amount to be equitably adjusted
whenever there shall occur any stock dividend, stock split, combination or
reclassifications or other similar events affecting the Common Stock after the
date hereof), and (y) in which the aggregate gross proceeds to the Corporation
are at least $20,000,000 (a "Qualified IPO"). The Company shall provide the
holders of Series D Convertible Preferred with written notice of such automatic
conversion at least 20 days prior to the anticipated effective date of the
registration statement filed in connection with such Qualified IPO. In the
event of the automatic conversion of the Series D Convertible Preferred upon a
Qualified IPO under this Section 5(b), the person(s) entitled to receive the
Common Stock issuable upon such conversion of Series D Convertible Preferred
shall not be deemed to have converted such Series D Convertible Preferred until
immediately prior to the closing of such Qualified IPO.
(c) Mechanics of Conversion. No fractional shares of Common Stock
shall be issued upon conversion of the Series D Convertible Preferred. In lieu
of any fractional share to which a holder would otherwise be entitled, the
Corporation shall pay the holder cash equal to the fraction of the share to
which the holder would otherwise be entitled multiplied by the then effective
Series D Convertible Conversion Price. The determination of whether any holder
would otherwise be entitled to fractional shares is based upon the total number
of shares of Series
5
<PAGE>
D Convertible Preferred being converted at any one time by that holder, not upon
each share of Series D Convertible Preferred being converted. Before any holder
of shares of Series D Convertible Preferred shall be entitled to convert those
shares into full shares of Common Stock and to receive certificates therefor,
the holder shall surrender the certificate or certificates for the Series D
Convertible Preferred, duly endorsed, at the office of the Corporation or of any
transfer agent for the Series D Convertible Preferred or shall notify the
Corporation in writing that such certificates have been lost, stolen or
destroyed and shall give written notice to the Corporation at such office that
the holder elects to convert the same. The Corporation shall, as soon as
practicable thereafter, issue and deliver at such office to such holder of
Series D Convertible Preferred a certificate or certificates for the number of
shares of Common Stock to which such holder shall be entitled as aforesaid and a
check payable to the holder in the amount of any cash amounts payable as the
result of a conversion into fractional shares of Common Stock. Such conversion
shall be deemed to have been made immediately prior to the close of business on
the date of receipt of written notice of conversion and other required materials
as described above, and the person or persons entitled to receive the shares of
Common Stock issuable upon such conversion shall be treated for all purposes as
the record holder or holders of such shares of Common Stock on such date. The
Corporation shall not, however, be obligated to issue certificates evidencing
the shares of Common Stock issuable upon such conversion unless certificates
evidencing such shares of the Series D Convertible Preferred being converted are
either delivered to the Corporation or any such transfer agent or the holder
notifies the Corporation that such certificates have been lost, stolen or
destroyed and executes an agreement satisfactory to the Corporation to indemnify
the Corporation from any loss incurred by it in connection therewith. In
addition, the Corporation may, if the Board of Directors deems it reasonably
necessary, require the holder to post a bond in connection with such indemnity
agreement.
(d) Partial Conversion. In the event some but not all of the shares
of Series D Convertible Preferred represented by a certificate or certificates
surrendered by a holder are converted, the Company shall execute and deliver to
or on the order of the holder, at the expense of the Company, a new certificate
representing the number of shares of Series D Convertible Preferred which were
not converted.
(e) Reservation of Stock Issuable Upon Conversion. The Corporation
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Series D Convertible Preferred, such number of its shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding shares of the Series D Convertible Preferred, and if at any
time the number of authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion of all then outstanding shares of the Series
D Convertible Preferred and all
6
<PAGE>
unpaid dividends thereon, in addition to such other remedies as shall be
available to the holder of such Series D Convertible Preferred, the Corporation
will take such corporate action as may, in the opinion of its counsel, be
necessary to increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purposes.
6. Adjustments to Conversion Price.
(a) Special Definitions. For purposes of this Section 6 and Section
10, the following definitions shall apply:
(i) "Options" mean rights, options or warrants to subscribe
for, purchase or otherwise acquire either Common Stock or Convertible
Securities.
(ii) "Original Issue Date" shall mean the date on which the
first share of Series D Convertible Preferred was issued.
(iii) "Convertible Securities" shall mean any security
(including any debt security) directly or indirectly convertible into or
exchangeable for Common Stock other than (A) the Series D Convertible Preferred,
(B) the Series A Convertible Preferred, (C) Series B Convertible Preferred,
issued in connection with the conversion of up to an aggregate of $15,000,000 of
intercompany debt of the Corporation funded after the Original Issue Date,
unless such conversion is based upon a total valuation of the Corporation that
is less than $100,000,000, as determined in good faith by the Board of Directors
or (D) the Series C Convertible Preferred.
(iv) "Additional Shares of Common Stock" shall mean all shares
(including reissued shares) of Common Stock issued (or, pursuant to paragraph
6(c), deemed to be issued) by the Corporation after the Original Issue Date,
other than:
(A) shares of Common Stock issued upon conversion of (w)
the Series D Convertible Preferred authorized herein, (w) the Series A
Convertible Preferred outstanding as of the date hereof, (x) the Series B
Convertible Preferred outstanding as of the date hereof, (y) Series B
Convertible Preferred issued in connection with the conversion of up to an
aggregate of $15,000,000 of intercompany debt of the Corporation funded after
the Original Issue Date, unless such conversion is based upon a total valuation
of the Corporation that is less than $100,000,000, as determined in good faith
by the Board of Directors, or (z) the Series C Convertible Preferred authorized
by a Certificate of Designation filed on the date hereof;
(B) shares of Common Stock issued to officers, directors,
employees and consultants of the Corporation pursuant to any stock option or
stock purchase
7
<PAGE>
plans or agreements or other individual or group incentive plan or program of
any kind approved by the Board of Directors; and
(C) as a dividend or distribution on Series D Convertible
Preferred or any event for which adjustment is made pursuant to Section 6(f) or
Section 6(g).
(b) No Adjustment of Conversion Price. No adjustment in the Series D
Convertible Conversion Price shall be made in respect of the issuance of
Additional Shares of Common Stock unless the consideration per share for an
Additional Share of Common Stock issued or deemed to be issued by the
Corporation pursuant to Section 6(c) is less than the Series D Convertible
Conversion Price on the date of such issuance.
(c) Deemed Issue of Additional Shares of Common Stock. In the event
the Corporation at any time or from time to time after the Original Issue Date
shall issue any Options or Convertible Securities or shall fix a record date for
the determination of holders of any class or series of securities entitled to
receive any such Options or Convertible Securities, then the maximum number of
shares (as set forth in the instrument relating thereto without regard to any
provisions contained therein for a subsequent adjustment of such number that
would result in an adjustment pursuant to Section 6(c)(ii)) of Common Stock
issuable upon the exercise of such Options or, in the case of Convertible
Securities, the conversion or exchange of such Convertible Securities, shall be
deemed to be Additional Shares of Common Stock issued as of the time of such
issuance or, in case such a record date shall have been fixed, as of the close
of business on such record date; provided that Additional Shares of Common Stock
shall not be deemed to have been issued unless the consideration per share
(determined pursuant to Section 6(e)) received by the Corporation for such
Additional Shares of Common Stock would be less than the Series D Convertible
Conversion Price on the date of such issuance, or such record date, as the case
may be; and provided further that in any such case in which Additional Shares of
Common Stock are deemed to be issued:
(i) no further adjustment in the Series D Convertible
Preferred Conversion Price shall be made upon the subsequent issuance of
Convertible Securities or shares of Common Stock upon the exercise of such
Options or the conversion or exchange of such Convertible Securities;
(ii) if such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any increase or decrease in
the consideration payable to the Corporation, or increase or decrease in the
number of shares of Common Stock issuable, upon the exercise, conversion or
exchange thereof, the Series D Convertible Conversion Price computed upon the
original issuance thereof (or upon the occurrence of a record date with
8
<PAGE>
respect thereto), and any subsequent adjustments based thereon, shall, upon any
such increase or decrease becoming effective, be recomputed to reflect such
increase or decrease insofar as it affects such Options or the rights of
conversion or exchange under such Convertible Securities;
(iii) upon the expiration of any such Options or any rights of
conversion or exchange under such Convertible Securities which shall not have
been exercised, the Series D Convertible Conversion Price computed upon the
original issuance thereof (or upon the occurrence of a record date with respect
thereto), and any subsequent adjustments based thereon, shall, upon such
expiration, be recomputed as if:
(A) in the case of (1) Options for Common Stock or (2)
Convertible Securities, the only Additional Shares of Common Stock issued were
shares of Common Stock, if any, actually issued upon the exercise of such
Options or the conversion or exchange of such Convertible Securities and the
consideration received therefor was the consideration actually received by the
Corporation for the issuance of all such Options, whether or not exercised, plus
the consideration actually received by the Corporation upon the issuance of the
Common Stock with respect to which such Option were actually exercised, or for
the issuance of all such Convertible Securities which were actually converted or
exchanged, plus the additional consideration, if any, actually received by the
Corporation upon such conversion or exchange; and
(B) in the case of Options for Convertible Securities,
only the Convertible Securities, if any, actually issued upon the exercise
thereof were issued at the time of issuance of such Options, and the
consideration received by the Corporation for the Additional Shares of Common
Stock deemed to have been then issued was the consideration actually received by
the Corporation for the issuance of all such Options, whether or not exercised,
plus the consideration deemed to have been received by the Corporation upon the
issuance of the Convertible Securities with respect to which such Options were
actually exercised;
(iv) no readjustment pursuant to Section 6(c)(ii) or Section
6(c)(iii) shall have the effect of increasing the Series D Convertible
Conversion Price to an amount which exceeds the lower of (x) the Series D
Convertible Conversion Price on the date of the original adjustment relating to
the grant of the Options or issuance of the Convertible Securities, as
applicable, or (y) the Series D Convertible Conversion Price that would have
resulted from any issuance of Additional Shares of Common Stock between that
original adjustment date and the date of such readjustment; and
(v) in the case of any Options which expire by their terms
not more than 30 days after the date of issuance thereof, no adjustment of the
Series D Convertible
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<PAGE>
Conversion Price shall be made until the expiration or exercise of all such
Options, whereupon such adjustment shall be made in the manner provided in
Section 6(c)(iii).
(d) Adjustment of Conversion Price Upon Issuance of Additional Shares
of Common Stock. If after the Original Issue Date the Corporation shall issue
Additional Shares of Common Stock without consideration or for consideration per
share that is less than the Series D Convertible Conversion Price on the date of
such issuance, then and in such event, the Series D Convertible Conversion Price
shall be reduced, concurrently with such issuance, to a price (calculated to the
nearest cent) determined by multiplying such Series D Convertible Conversion
Price, by a fraction, the numerator of which shall be the number of shares of
Common Stock outstanding immediately prior to such issuance plus the number of
shares of Common Stock which the aggregate consideration received by the
Corporation for the total number of Additional Shares of Common Stock so issued
would purchase at such Series D Convertible Conversion Price; and the
denominator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issuance plus the number of such Additional Shares of
Common Stock so issued; and provided further that, for the purposes of this
Section 6(d), all shares of Common Stock issuable upon conversion of outstanding
Series D Convertible Preferred, outstanding Series B Convertible Preferred and
outstanding Convertible Securities and upon exercise of outstanding Options
shall be deemed to be outstanding.
(e) Determination of Consideration. For purposes of this Section 6,
the consideration received or receivable by the Corporation shall be computed as
follows:
(i) Cash and Property. Except as provided in Section 6(e)(ii),
such consideration shall:
(A) insofar as it consists of cash, equal the aggregate
amount of cash received or receivable by the Corporation, excluding amounts paid
or payable for accrued interest or accrued dividends;
(B) insofar as it consists of property other than cash,
equal the fair value thereof, as determined in good faith by the Board of
Directors; provided, however, that no value shall be attributed to any services
performed by any employee, officer or director of the Corporation; and
(C) in the event Additional Shares of Common Stock are
issued together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received with respect to such Additional
10
<PAGE>
Shares of Common Stock, computed as provided in Sections 6(e)(i)(A) and (B)
above, as determined in good faith by the Board of Directors.
(ii) Expenses. In the event the Corporation pays or incurs
expenses, commissions or compensation, or allows concessions or discounts to
underwriters, dealers or others performing similar services in connection with
such issuance, in an aggregate amount in excess of 10% of the aggregate
consideration received by the Corporation for such issuance, as determined in
accordance with Section 6(e)(i), consideration shall be computed as provided in
Section 6(e)(i), after deducting the aggregate amount in excess of 10% of the
aggregate consideration received by the Corporation for the issuance.
(iii) Options and Convertible Securities. The consideration
per share received by the Corporation for Additional Shares of Common Stock
deemed to have been issued pursuant to Section 6(c) shall be determined by
dividing
(x) the total amount, if any, received or receivable
by the Corporation as consideration for the issuance of such Options or
Convertible Securities, plus the minimum aggregate amount of additional
consideration (as set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment of such
consideration) payable to the Corporation upon the exercise of such Options or
the conversion or exchange of such Convertible Securities, or in the case of
Options for Convertible Securities, the exercise of such Options for Convertible
Securities and the conversion or exchange of such Convertible Securities by
(y) the maximum number of shares of Common Stock (as
set forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such number) issuable upon the
exercise of such Options or the conversion or exchange of such Convertible
Securities, or in the case of Options for Convertible Securities, the exercise
of such Options for Convertible Securities and the conversion or exchange of
such Convertible Securities.
(f) Adjustments for Stock Dividends, Subdivisions, Combinations
or Consolidations of Common Stock. In the event the outstanding shares of Common
Stock shall be subdivided (by stock dividend, stock split or otherwise) into a
greater number of shares of Common Stock, the Series D Convertible Conversion
Price then in effect shall, concurrently with the effectiveness of such
subdivision, be proportionately decreased. In the event the outstanding shares
of Common Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock, the Series D
Convertible Conversion Price then
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<PAGE>
in effect shall, concurrently with the effectiveness of such combination or
consolidation, be proportionately increased.
(g) Adjustments for Other Distributions. In the event the Corporation
at any time or from time to time shall fix a record date for a determination of
holders of Common Stock entitled to receive any distribution payable in (i)
securities of the Corporation other than shares of Common Stock or (ii) assets
of the Corporation (excluding cash dividends or distributions), then, and in
each such event, provision shall be made so that the holders of Series D
Convertible Preferred shall receive upon conversion thereof, in addition to the
number of shares of Common Stock receivable thereupon, the number of securities
or amount of other assets of the Corporation which they would have received had
their Series D Convertible Preferred been converted into Common Stock, on the
date of such event and had they thereafter, during the period from the date of
such event to and including the date of conversion, retained such securities or
other assets receivable by them as aforesaid during such period, giving
application to all other adjustments called for during such period under this
Section 6 with respect to the rights of the holders of the Series D Convertible
Preferred.
(h) Adjustments for Reclassification, Exchange and Substitution. If
the Common Stock issuable upon conversion of the Series D Convertible Preferred
shall be changed into other securities or property, whether by capital
reorganization, reclassification, consolidation or merger of the Corporation or
sale of all or substantially all of the assets of the Corporation or otherwise
(other than a subdivision or combination of shares provided for in this Section
6), then, and in each such event, the holder of each share of Series D
Convertible Preferred shall have the right thereafter to convert such share into
the kind and amount of other securities or property receivable upon such
reorganization, reclassification, consolidation, merger or sale or other change
by holders of the number of shares of Common Stock that would have been received
by such holders upon conversion of the Series D Convertible Preferred
immediately before that change, all subject to further adjustment as provided
herein. Each holder of Series D Convertible Preferred, upon the occurrence of a
consolidation or merger of the Corporation or the sale of all or substantially
all of its assets shall have the right to elect the benefits of either the
provisions of this Section 6(h) or of Section 3(c) as described in Section 3(c),
or to convert such holder's shares of Series D Convertible Preferred into Common
Stock pursuant to Section 5(a).
(i) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Series D Convertible Conversion Price pursuant
to this Section 6, the Corporation, at its expense, shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and furnish to
each holder of Series D Convertible Preferred a certificate prepared by its
Chief Financial Officer setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based.
The
12
<PAGE>
Corporation shall, upon the written request at any time of any holder of Series
D Convertible Preferred, furnish or cause to be furnished to such holder a like
certificate setting forth (i) such adjustments and readjustments, (ii) the
Series D Convertible Conversion Price at the time in effect and (iii) the number
of shares of Common Stock and the amount, if any, of other property which at the
time would be received upon the conversion of Series D Convertible Preferred.
Upon the request of any holder of the Series D Convertible Preferred, the
Corporation will cause its independent public accountants to confirm the
accuracy of such adjustment or readjustment.
(j) Miscellaneous.
(i) All calculations under this Section 6 shall be made to the
nearest cent or to the nearest 1/100 of a share, as the case may be.
(ii) The holders of a majority of the outstanding Series D
Convertible Preferred shall have the right to challenge any determination by the
Board of Directors of fair value pursuant to this Section 6, in which case such
determination of fair value shall be made by an independent appraiser selected
jointly by the Board of Directors and the challenging parties, the cost of such
appraisal to be borne equally by the Corporation and the challenging parties.
(iii) No adjustment in the Series D Convertible Conversion Price
need be made if such adjustment would result in a change in such Series D
Conversion Price of less than $0.01. Any adjustment of less than $0.01 which is
not so made shall be carried forward and shall be made at the time of and
together with any subsequent adjustment which, on a cumulative basis, amounts to
an adjustment of $0.01 or more in such Series D Convertible Conversion Price.
7. Redemption
(a) On or after the fifth anniversary of the Original Issue Date, the
shares of Series D Convertible Preferred are redeemable either at the written
election of a majority of the outstanding shares of Series D Convertible
Preferred or at the option of the Corporation, by resolution of its Board of
Directors, in whole or, from time to time, in part, in either event at a price
for each share of Series D Convertible Preferred redeemed pursuant to this
Section 7 of the Stated Value per share, plus a dividend computed at a rate of
seven percent of the Stated Value per share per annum from the date of issuance
of the Series D Convertible Preferred through the date of such redemption (less
any dividends which have been declared and paid since the date of issuance of
the Series D Convertible Preferred) (the "Redemption Price"). Each partial
redemption of Series D Convertible Preferred shall be made pro rata (so that
the number of shares of Series D Convertible Preferred held by each registered
owner whose shares are being redeemed shall be reduced in an amount which shall
bear the same ratio to the total number of shares of
13
<PAGE>
Series D Convertible Preferred being redeemed as all such shares then held by
such registered owner bears to the aggregate number of shares of Series D
Convertible Preferred then outstanding).
(b) At least 30 days before any redemption of Series D Convertible
Preferred pursuant to Section 7(a) (whether at the election of a majority of the
Series D Convertible Preferred or at the option of the Corporation), the
Corporation shall mail written notice (hereinafter referred to as the
"Redemption Notice"), postage prepaid, to each holder of record of the Series D
Convertible Preferred which is to be redeemed, as its address shown on the
records of the Corporation; provided, however, that the giving of such
-------- -------
Redemption Notice shall not affect the conversion rights pursuant to Section 6
of any holders not electing redemption pursuant to Section 7(a); provided,
--------
further, that the Company's failure to give such Redemption Notice shall in no
- -------
way affect its obligation to redeem the shares of Series D Convertible Preferred
at the election of such holders as provided in Section 7(a). The Redemption
Notice shall contain the following information:
(i) The number of shares of Series D Convertible Preferred
held by the holder which shall be redeemed by the Corporation and the total
number of shares of Series D Convertible Preferred then outstanding;
(ii) The date fixed for redemption (the "Redemption Date") and
the applicable Redemption Price; and
(iii) A statement that the holder is to surrender to the
Corporation, at the place designated therein, its certificates representing the
shares of Series D Convertible Preferred to be redeemed.
(c) Each holder of outstanding shares of Series D Convertible
Preferred shall surrender the certificate or certificates representing such
shares to the Corporation at the place designated in the Redemption Notice, and
thereupon, (i) the applicable Redemption Price for such shares as set forth in
this Section 7 shall be paid to the order of the person whose name appears on
such certificate or certificates and (ii) each surrendered certificate shall be
canceled and retired.
(d) If any shares of Series D Convertible Preferred are not redeemed
solely because a holder fails to surrender the certificate or certificates
representing such shares pursuant to Section 7(c), then, from and after the
Redemption Date, such unredeemed shares of Series D Convertible Preferred shall
not be entitled to the benefits of any further dividends pursuant to
14
<PAGE>
Section 2 or the conversion provisions set forth in Section 5, unless the
Corporation otherwise specifically agrees in writing.
(e) No share or shares of Series D Convertible Preferred acquired by
the Corporation by reason of redemption, purchase, conversion or otherwise shall
be reissued, and all such shares shall be canceled, retired and eliminated from
the shares which the Corporation shall be authorized to issue. The Corporation
may from time to time take such appropriate corporate action as may be necessary
to reduce the authorized number of shares of the Series D Convertible Preferred
accordingly.
(f) The Redemption Price set forth in this Section 7 shall be subject
to equitable adjustment whenever there shall occur a stock dividend, stock
split, combination, reclassification or other similar event affecting the Series
D Convertible Preferred.
8. Notices of Record Date. In the event that the Corporation shall propose at
any time:
(a) to declare any dividend or distribution upon its Common Stock,
whether in cash, property, stock or other securities, whether or not a regular
cash dividend and whether or not out of earnings or earned surplus;
(b) to offer for subscription pro rata to the holders of its Common
Stock any additional shares of capital stock of the Corporation;
(c) to effect any reclassification or recapitalization of its Common
Stock outstanding involving a change in the Common Stock; or
(d) to merge or consolidate with or into any other corporation, or
sell, lease or convey all or substantially all its property or business, or to
liquidate, dissolve or wind up;
then, in connection with each such event, the Corporation shall send to the
holders of the Series D Convertible Preferred:
(i) at least 20 days' prior written notice of the record date
for such dividend, distribution or subscription offer (and specifying the date
on which the holders of Common Stock shall be entitled thereto) or for
determining stockholders entitled to vote in respect of the matters referred to
in Sections 8(c) and (d) above; and
(ii) in the case of the events referred to in (c) and (d) above,
at least 20 days' prior written notice of the date on which such events shall
take place (and if different, also
15
<PAGE>
specifying the date on which the holders of Common Stock shall be entitled to
exchange their Common Stock for other securities or property deliverable upon
the occurrence of such event).
Each such written notice shall be delivered personally or given by first class
mail, postage prepaid, addressed to each of the holders of the Series D
Convertible Preferred at the address for each such holder as shown on the books
of the Corporation.
9. Protective Provisions. So long as any shares of Series D Convertible
Preferred are outstanding, the Corporation shall not, without first obtaining
the approval of the holders of at least a majority of the outstanding shares of
Series D Convertible Preferred, take any action that:
(a) alters the rights, preferences, privileges or powers of, or the
restrictions provided for the benefit of, the Series D Convertible Preferred;
(b) authorizes, creates or issues any new class or series of capital
stock that has a preference superior to the Series D Convertible Preferred with
respect to voting, dividends, liquidation or redemption, or designates or issues
any additional shares of Series D Convertible Preferred;
(c) reclassifies outstanding capital stock into capital stock having a
preference superior to the Series D Convertible Preferred with respect to
voting, dividends, liquidation or redemption; or
(d) amends or repeals any provision of the Corporation's Certificate
of Incorporation, as amended, in a manner that adversely affects the rights of
the holders of the Series D Convertible Preferred.
10. Right of Participation. The holders of the Series D Convertible Preferred
shall have rights of participation in future issuances of Options, Convertible
Securities and Additional Shares of Common Stock by the Corporation, as follows:
(a) Right of Participation. The Corporation shall, prior to any
proposed grant or issuance by the Corporation of any Options, Convertible
Securities or Additional Shares of Common Stock, offer to each record owner of
the Series D Convertible Preferred (a "Preemptive Rights Participant"), by
written notice, the right, for a period of 30 days, to purchase for cash at a
price equal to the price or other consideration for which such Options,
Convertible Securities or Additional Shares of Common Stock are to be granted or
issued, a number of such Options, Convertible Securities or Additional Shares of
Common Stock so that, after giving effect to such grant or issuance (and the
exercise, conversion or exchange into or for (whether directly or
16
<PAGE>
indirectly) shares of Common Stock of all Options and Convertible Securities),
such Preemptive Rights Participant will continue to maintain the same
proportionate equity ownership in the Corporation which such Preemptive Rights
Participant had as of the date of such notice (treating each Preemptive Right
Participant, for the purpose of such computation, as the holder of the number of
shares of Common Stock which would be issuable to such Preemptive Rights
Participant upon exercise, conversion and exchange of all securities (including
but not limited to its shares of Series D Convertible Preferred) held by such
Preemptive Rights Participant on the date such offer is made that are
exercisable, convertible or exchangeable into or for (whether directly or
indirectly) shares of Common Stock and assuming, for the purpose of such
computation, the like exercise, conversion and exchange of all such other
securities held by other persons or entities); provided, however, that the
-------- -------
participation rights of the Preemptive Rights Participants pursuant to this
Section 10 shall not apply to Options, Convertible Securities or Additional
Shares of Common Stock granted or issued:
(i) pursuant to a public offering registered under the
Securities Act of 1933, as amended;
(ii) in connection with a strategic investment in the
Corporation or any of its subsidiaries; or
(iii) solely in consideration for the acquisition (whether by
merger or otherwise) by the Corporation or any of its subsidiaries of stock or
assets of any other entity.
The Corporation's written notice to each Preemptive Rights Participant shall
describe the Options proposed to be granted or the Convertible Securities or
Additional Shares of Common Stock proposed to be issued by the Corporation and
specify the number, price and payment terms of the grant or issuance.
(b) Mechanics of Right of Participation. Any Preemptive Rights
Participant may accept the Corporation's offer as to the full number of Options,
Convertible Securities or Additional Shares of Common Stock required to be
offered to such Preemptive Rights Participant pursuant to Section 10(a), or
any lesser number, by written notice thereof given by such Preemptive Rights
Participant to the Corporation prior to the expiration of the aforesaid 30-day
period, in which event the Corporation shall sell and such Preemptive Rights
Participant shall buy, upon the terms specified, not later than the time such
Options, Convertible Securities or Additional Shares of Common Stock are sold to
third parties as contemplated by the Corporation's offer, the number of
Options, Convertible Securities or Additional Shares of Common Stock agreed to
be purchased by such Preemptive Rights Participant. Subject to and without
limitation of the immediately preceding sentence, the Corporation shall be free
at any time prior
17
<PAGE>
to 90 days after the date of its notice of offer to such Preemptive Rights
Participant under Section 10(a), to offer and sell to any third party or parties
the aggregate number of such Options, Convertible Securities or Additional
Shares of Common Stock offered to and not purchased by the Preemptive Rights
Participants pursuant to this Section 10, at a price and on payment terms no
less favorable to the Corporation than those specified in such notice of offer
to the Preemptive Rights Participants. However, if such third-party sale or
sales are not consummated within such 90-day period, the Corporation shall not
sell such Options, Convertible Securities or Additional Shares of Common Stock
as shall not have been purchased within such period without again complying with
this Section 10.
18
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Corrected
Certificate to be signed by Joel B. Rosen, its Chief Executive Officer, on this
2/nd/ day of June, 1999.
NAVISITE, INC.
By: /s/ Joel B. Rosen
-------------------------------------
Name: Joel B. Rosen
Title: Chief Executive Officer
<PAGE>
EXHIBIT 3.3
[NOTE: THE FOLLOWING BY-LAWS HAVE BEEN RESTATED FOR PURPOSES OF FILING THE SAME
WITH THE SECURITIES AND EXCHANGE COMMISSION ONLY, TO GIVE EFFECT TO ALL
AMENDMENTS OF AND ADDITIONS TO THE BY-LAWS OF NAVISITE, INC. ADOPTED AND
APPROVED BY THE BOARD OF DIRECTORS PRIOR TO THE DATE THE BY-LAWS ARE FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION.]
BY-LAWS
OF
NAVISITE, INC.
ARTICLE I
STOCKHOLDERS
SECTION 1. Place of Meetings. All meetings of stockholders shall be held
-----------------
at the principal office of the corporation or at such other place as may be
named in the notice.
SECTION 2. Annual Meeting. The annual meeting of stockholders for the
--------------
election of directors and the transaction of such other business as may properly
come before the meeting shall be held on such date and at such hour and place as
the directors or an officer designated by the directors may determine. If the
annual meeting is not held on the date designated therefor, the directors shall
cause the meeting to be held as soon thereafter as convenient.
SECTION 3. Special Meetings. Special meetings of the stockholders may be
----------------
called at any time by the President, the Chairman of the Board, if any, or the
Board of Directors, or by the Secretary or any other officer upon the written
request of one or more stockholders holding of record at least a majority of the
outstanding shares of stock of the corporation entitled to vote at such meeting.
Such written request shall state the purpose or purposes of the proposed
meeting. Business transacted at any special meeting of stockholders shall be
limited to matters relating to the purpose or purposes stated in the notice of
meeting.
SECTION 4. Notice of Meetings. Except where some other notice is required
------------------
by law, written notice of each meeting of stockholders, stating the place, date
and hour thereof and the purposes for which the meeting is called, shall be
given by or under the direction of the Secretary, not less than ten nor more
than sixty days before the date fixed for such meeting, to each stockholder
entitled to vote at such meeting of record at the close of business on the day
fixed by the Board of Directors as a record date for the determination of the
stockholders entitled to vote at such meeting or, if no such date has been
fixed, of record at the close of business on the day before the day on which
notice is given. Notice shall be given personally to each stockholder or left at
his or her residence or usual place of business or mailed postage prepaid and
addressed to the stockholder at his or her address as it appears upon the
records of the corporation. In case of the death, absence, incapacity or
refusal of the Secretary, such notice may be given by a person designated either
by the Secretary or by the person or persons calling the meeting or by the Board
of Directors. A waiver of such notice in writing, signed by the person or
persons entitled to said notice, whether before or after the time stated
therein, shall be deemed equivalent to such notice. Attendance of a person at a
meeting of stockholders shall constitute a waiver of notice of such meeting,
except when the stockholder attends a meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened. Neither the business to
be transacted at, nor the
<PAGE>
purpose of, any regular or special meeting of the stockholders need be specified
in any written waiver of notice. Except as required by statute, notice of any
adjourned meeting of the stockholders shall not be required.
SECTION 5. Voting List. The officer who has charge of the stock ledger of
-----------
the corporation shall prepare and make, at least ten days before every meeting
of stockholders, a complete list of the stockholders, arranged in alphabetical
order, and showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten days prior to the meeting,
either at a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting, or if not so specified, at the
place where the meeting is to be held. The list shall also be produced and kept
at the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present. The stock ledger shall be the only
evidence as to who are the stockholders entitled to examine the stock ledger,
the list required by this section or the books of the corporation, or to vote at
any meeting of stockholders.
SECTION 6. Quorum of Stockholders. At any meeting of the stockholders, the
----------------------
holders of a majority in interest of all stock issued and outstanding and
entitled to vote upon a question to be considered at the meeting, present in
person or represented by proxy, shall constitute a quorum for the consideration
of such question, but a smaller group may adjourn any meeting from time to time.
When a quorum is present at any meeting, a majority of the stock represented
thereat and entitled to vote shall, except where a larger vote is required by
law, by the certificate of incorporation, or by these by-laws, decide any
question brought before such meeting. Any election by stockholders shall be
determined by a plurality of the vote cast by the stockholders entitled to vote
at the election.
SECTION 7. Proxies and Voting. Unless otherwise provided in the
------------------
certificate of incorporation, each stockholder shall at every meeting of the
stockholders be entitled to one vote in person or by proxy for each share of the
capital stock held of record by such stockholder, but no proxy shall be voted or
acted upon after three years from its date, unless said proxy provides for a
longer period. Persons holding stock in a fiduciary capacity shall be entitled
to vote the shares so held, and persons whose stock is pledged shall be entitled
to vote, unless in the transfer by the pledgor on the books of the corporation
the pledgee shall have been expressly empowered to vote thereon, in which case
only the pledgee or the pledgee's proxy may represent said stock and vote
thereon. Shares of the capital stock of the corporation belonging to the
corporation or to another corporation, a majority of whose shares entitled to
vote in the election of directors is owned by the corporation, shall neither be
entitled to vote nor be counted for quorum purposes.
SECTION 8. Conduct of Meeting. Meetings of the stockholders shall be
------------------
presided over by one of the following officers in the order of seniority and if
present and acting: the Chairman of the Board, if any, the Vice-Chairman of the
Board, if any, the President, a Vice-President, or, if none of the foregoing is
in office and present and acting, a chairman to be chosen by the stockholders.
The Secretary of the corporation, if present, or an Assistant Secretary, shall
act as secretary of every meeting, but if neither the Secretary nor an Assistant
Secretary is present the chairman of the meeting shall appoint a secretary of
the meeting.
2
<PAGE>
SECTION 9. Action Without Meeting. Any action required or permitted to be
----------------------
taken at any annual or special meeting of stockholders of the corporation may be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the action so taken, is signed by the holders or by
proxy for the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote on such action were present and
voted. Prompt notice of the taking of corporate action without a meeting by less
than unanimous written consent shall be given to those stockholders who have not
consented in writing.
ARTICLE II
DIRECTORS
SECTION 1. General Powers. The business and affairs of the corporation
--------------
shall be managed by or under the direction of a Board of Directors, who may
exercise all of the powers of the corporation which are not by law required to
be exercised by the stockholders. In the event of a vacancy in the Board of
Directors, the remaining directors, except as otherwise provided by law, may
exercise the powers of the full Board until the vacancy is filled.
SECTION 2. Number; Election; Tenure and Qualification. The number of
------------------------------------------
initial Directors shall be fixed by the incorporator, and the initial Board of
Directors shall be elected by the incorporator. Thereafter, the number of
directors which shall constitute the whole Board shall be fixed by resolution of
the Board of Directors, but in no event shall be less than one. Each director
shall be elected by the stockholders at the annual meeting and all directors
shall hold office until the next annual meeting and until their successors are
elected and qualified, or until their earlier death, resignation or removal.
The number of directors may be increased or decreased by action of the Board of
Directors. Directors need not be stockholders of the corporation.
SECTION 3. Enlargement of the Board. The number of the Board of Directors
------------------------
may be increased at any time, such increase to be effective immediately, by vote
of a majority of the directors then in office.
SECTION 4. Vacancies. Unless and until filled by the stockholders, any
---------
vacancy in the Board of Directors, however occurring, including a vacancy
resulting from an enlargement of the Board and an unfilled vacancy resulting
from the removal of any director for cause or without cause, may be filled by
vote of a majority of the directors then in office although less than a quorum,
or by the sole remaining director. A director elected to fill a vacancy shall
hold office until the next annual meeting of stockholders and until his or her
successor is elected and qualified or until his or her earlier death,
resignation, or removal. When one or more directors shall resign from the
Board, effective at a future date, a majority of the directors then in office,
including those who have so resigned, shall have the power to fill such vacancy
or vacancies, the vote thereon to take effect when such resignation or
resignations shall become effective. If at any time there are no directors in
office, then an election of directors may be held in accordance with the General
Corporation Law of the State of Delaware.
3
<PAGE>
SECTION 5. Resignation. Any director may resign at any time upon written
-----------
notice to the corporation. Such resignation shall take effect at the time
specified therein, or if no time is specified, at the time of its receipt by the
President or Secretary.
SECTION 6. Removal. Except as may otherwise be provided by the General
-------
Corporation Law, any director or the entire Board of Directors may be removed,
with or without cause, at an annual meeting or at a special meeting called for
that purpose, by the holders of a majority of the shares then entitled to vote
at an election of directors. The vacancy or vacancies thus created may be filled
by the stockholders at the meeting held for the purpose of removal or, if not so
filled, by the directors in the manner provided in Section 4 of this Article II.
SECTION 7. Committees. The Board of Directors may designate one or more
----------
committees, each committee to consist of one or more directors of the
corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee.
Any such committee may fix its rules of procedure and fix the time and
place, whether within or without the State of Delaware, of its meetings and
specify what notice thereof, if any, shall be given, unless the Board of
Directors shall otherwise by resolution provide. The Board of Directors shall
have the power to change the members of any such committee at any time, to fill
vacancies therein and to discharge any such committee, either with or without
cause, at any time.
Any such committee, unless otherwise provided in the resolution of the
Board of Directors, or in these by-laws, shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the corporation, and may authorize the seal of the corporation to
be affixed to all papers which may require it; but no such committee shall have
the power or authority denied it by Section 141 of the General Corporation Law
of the State of Delaware.
Each committee shall keep regular minutes of its meetings and make such
reports as the Board of Directors may from time to time request.
SECTION 8. Meetings of the Board of Directors. Regular meetings of the
----------------------------------
Board of Directors may be held without call or formal notice at such places
either within or without the State of Delaware and at such times as the Board
may from time to time determine. A regular meeting of the Board of Directors may
be held without call or formal notice immediately after and at the same place as
the annual meeting of the stockholders, or any special meeting of the
stockholders at which a Board of Directors is elected.
Special meetings of the Board of Directors may be held at any place either
within or without the State of Delaware at any time when called by the Chairman
of the Board of Directors, the President, Treasurer, Secretary, or two or more
directors. Forty-eight hours' notice by mail, facsimile, telephone or word of
mouth shall be given for a special meeting unless shorter notice or a different
method of notice is adequate under the circumstances. A notice or waiver of
notice need not specify the purpose of any special meeting. Notice of a meeting
need not be given to any director, if a written waiver of notice, executed by
him before or after the meeting,
4
<PAGE>
is filed with the records of the meeting, or to any director who attends the
meeting without protesting prior thereto or at its commencement the lack of
notice to him. No notice of any adjourned meeting of the Board of Directors
shall be required.
Directors or members of any committee designated by the directors may
participate in a meeting of the Board of Directors or such committee by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation by
such means shall constitute presence in person at such meeting.
SECTION 9. Quorum and Voting. A majority of the total number of directors
-----------------
shall constitute a quorum, except that when a vacancy or vacancies exist in the
Board, a majority of the directors then in office (but not less than one-third
of the total number of the directors) shall constitute a quorum. A majority of
the directors present, whether or not a quorum is present, may adjourn any
meeting from time to time. The vote of a majority of the directors present at
any meeting at which a quorum is present shall be the act of the Board of
Directors, except where a different vote is required or permitted by law, by the
certificate of incorporation, or by these by-laws.
SECTION 10. Compensation. The Board of Directors may fix fees for their
------------
services and for their membership on committees, and expenses of attendance may
be allowed for attendance at each meeting. Nothing herein contained shall be
construed to preclude any director from serving the corporation in any other
capacity as an officer, agent or otherwise, and receiving compensation therefor.
SECTION 11. Action Without Meeting. Any action required or permitted to be
----------------------
taken at any meeting of the Board of Directors, or of any committee thereof, may
be taken without a meeting, and without notice, if a written consent thereto is
signed by all members of the Board of Directors, or of such committee, as the
case may be, and such written consent is filed with the minutes of proceedings
of the Board of Directors or such committee.
ARTICLE III
OFFICERS
SECTION 1. Titles. The officers of the corporation shall consist of a
------
President, a Secretary, a Treasurer, and such other officers with such other
titles as the Board of Directors shall determine, including without limitation a
Chairman of the Board, a Vice-Chairman of the Board, and one or more Vice-
Presidents, Assistant Treasurers, or Assistant Secretaries.
SECTION 2. Election and Term of Office. The officers of the corporation
---------------------------
shall be elected annually by the Board of Directors at its first meeting
following the annual meeting of the stockholders. Each officer shall hold office
until his or her successor is elected and qualified, unless a different term is
specified in the vote electing such officer, or until his or her earlier death,
resignation or removal.
5
<PAGE>
SECTION 3. Qualification. Unless otherwise provided by resolution of the
-------------
Board of Directors, no officer, other than the Chairman or Vice-Chairman of the
Board, need be a director. No officer need be a stockholder. Any number of
offices may be held by the same person, as the directors shall determine.
SECTION 4. Removal. Any officer may be removed, with or without cause, at
-------
any time, by resolution adopted by the Board of Directors.
SECTION 5. Resignation. Any officer may resign by delivering a written
-----------
resignation to the corporation at its principal office or to the President or
Secretary. Such resignation shall be effective upon receipt or at such later
time as may be specified therein.
SECTION 6. Vacancies. The Board of Directors may at any time fill any
---------
vacancy occurring in any office for the unexpired portion of the term and may
leave unfilled for such period as it may determine any office other than those
of President, Treasurer and Secretary.
SECTION 7. Powers and Duties. The officers of the corporation shall have
-----------------
such powers and perform such duties as are specified herein and as may be
conferred upon or assigned to them by the Board of Directors, and shall have
such additional powers and duties as are incident to their office except to the
extent that resolutions of the Board of Directors are inconsistent therewith.
SECTION 8. President and Vice-Presidents. The President shall preside at
-----------------------------
all meetings of the stockholders and the Board of Directors unless a Chairman or
Vice-Chairman of the Board is elected by the Board, empowered to preside, and
present at such meeting, shall have general and active management of the
business of the corporation and general supervision of its officers, agents and
employees, and shall see that all orders and resolutions of the Board of
Directors are carried into effect.
In the absence of the President or in the event of his or her inability or
refusal to act, the Vice-President if any (or in the event there be more than
one Vice-President, the Vice-Presidents in the order designated by the
directors, or in the absence of any designation, then in the order of their
election) shall perform the duties of the President, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
President. The Board of Directors may assign to any Vice-President the title of
Executive Vice-President, Senior Vice-President or any other title selected by
the Board of Directors.
SECTION 9. Secretary and Assistant Secretaries. The Secretary shall
-----------------------------------
attend all meetings of the Board of Directors and of the stockholders and record
all the proceedings of such meetings in a book to be kept for that purpose,
shall give, or cause to be given, notice of all meetings of the stockholders and
special meetings of the Board of Directors, shall maintain a stock ledger and
prepare lists of stockholders and their addresses as required and shall have
custody of the corporate seal which the Secretary or any Assistant Secretary
shall have authority to affix to any instrument requiring it and attest by any
of their signatures. The Board of Directors may give general authority to any
other officer to affix and attest the seal of the corporation.
6
<PAGE>
The Assistant Secretary if any (or if there be more than one, the Assistant
Secretaries in the order determined by the Board of Directors of if there be no
such determination, then in the order of their election) shall, in the absence
of the Secretary or in the event of the Secretary's inability or refusal to act,
perform the duties and exercise the powers of the Secretary.
SECTION 10. Treasurer and Assistant Treasurers. The Treasurer shall have
----------------------------------
the custody of the corporate funds and securities, shall keep full and accurate
accounts of receipts and disbursements in books belonging to the corporation and
shall deposit all moneys and other valuable effects in the name and to the
credit of the corporation in such depositories as may be designated by the Board
of Directors. The Treasurer shall disburse the funds of the corporation as may
be ordered by the Board of Directors or the President, taking proper vouchers
for such disbursements, and shall render to the President and the Board of
Directors, at its regular meetings, or whenever they may require it, an account
of all transactions and of the financial condition of the corporation.
The Assistant Treasurer if any (or if there be more than one, the Assistant
Treasurers in the order determined by the Board of Directors or if there be no
such determination, then in the order of their election) shall, in the absence
of the Treasurer or in the event of his or her inability or refusal to act,
perform the duties and exercise the powers of the Treasurer.
SECTION 11. Bonded Officers. The Board of Directors may require any officer
---------------
to give the corporation a bond in such sum and with such surety or sureties as
shall be satisfactory to the Board of Directors upon such terms and conditions
as the Board of Directors may specify, including without limitation a bond for
the faithful performance of the duties of such officer and for the restoration
to the corporation of all property in his or her possession or control belonging
to the corporation.
SECTION 12. Salaries. Officers of the corporation shall be entitled to such
--------
salaries, compensation or reimbursement as shall be fixed or allowed from time
to time by the Board of Directors.
ARTICLE IV
STOCK
SECTION 1. Certificates of Stock. One or more certificates of stock,
---------------------
signed by the Chairman or Vice-Chairman of the Board of Directors or by the
President or Vice-President and by the Treasurer or an Assistant Treasurer or
the Secretary or an Assistant Secretary, shall be issued to each stockholder
certifying, in the aggregate, the number of shares owned by the stockholder in
the corporation. Any or all signatures on any such certificate may be
facsimiles. In case any officer, transfer agent or registrar who shall have
signed or whose facsimile signature shall have been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the corporation with the same effect
as if he or she were such officer, transfer agent or registrar at the date of
issue.
7
<PAGE>
Each certificate for shares of stock which are subject to any restriction
on transfer pursuant to the certificate of incorporation, the by-laws,
applicable securities laws, or any agreement among any number of shareholders or
among such holders and the corporation shall have conspicuously noted on the
face or back of the certificate either the full text of the restriction or a
statement of the existence of such restriction.
SECTION 2. Transfers of Shares of Stock. Subject to the restrictions, if
----------------------------
any, stated or noted on the stock certificates, shares of stock may be
transferred on the books of the corporation by the surrender to the corporation
or its transfer agent of the certificate representing such shares properly
endorsed or accompanied by a written assignment or power of attorney properly
executed, and with such proof of authority or the authenticity of signature as
the corporation or its transfer agent may reasonably require. The corporation
shall be entitled to treat the record holder of stock as shown on its books as
the owner of such stock for all purposes, including the payment of dividends and
the right to vote with respect to that stock, regardless of any transfer, pledge
or other disposition of that stock, until the shares have been transferred on
the books of the corporation in accordance with the requirements of these by-
laws.
SECTION 3. Lost Certificates. A new certificate of stock may be issued in
-----------------
the place of any certificate theretofore issued by the corporation and alleged
to have been lost, stolen, destroyed, or mutilated, upon such terms in
conformity with law as the Board of Directors shall prescribe. The directors
may, in their discretion, require the owner of the lost, stolen, destroyed or
mutilated certificate, or the owner's legal representatives, to give the
corporation a bond, in such sum as they may direct, to indemnify the corporation
against any claim that may be made against it on account of the alleged loss,
theft, destruction or mutilation of any such certificate, or the issuance of any
such new certificate.
SECTION 4. Record Date. The Board of Directors may fix in advance a record
-----------
date for the determination of the stockholders entitled to notice of or to vote
at any meeting of stockholders or to express consent to corporate action in
writing without a meeting, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock, or for the
purpose of any other lawful action. Such record date shall not be more than 60
nor less than 10 days before the date of such meeting, nor more than 60 days
prior to any other action to which such record date relates.
If no record date is fixed, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given,
or, if notice is waived, at the close of business on the day next preceding the
day on which the meeting is held. Unless otherwise fixed by the Board of
Directors, the record date for determining stockholders entitled to express
consent to corporate action in writing without a meeting, when no prior action
by the Board of Directors is necessary, shall be the day on which the first
written consent is expressed. The record date for determining stockholders for
any other purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating to such purpose.
8
<PAGE>
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
SECTION 5. Fractional Share Interests. The corporation may, but shall not
--------------------------
be required to, issue fractions of a share. If the corporation does not issue
fractions of a share, it shall (1) arrange for the disposition of fractional
interests by those entitled thereto, (2) pay in cash the fair value of fractions
of a share as of the time when those entitled to receive such fractions are
determined, or (3) issue scrip or warrants in registered or bearer form which
shall entitle the holder to receive a certificate for a full share upon the
surrender of such scrip or warrants aggregating a full share. A certificate for
a fractional share shall, but scrip or warrants shall not unless otherwise
provided therein, entitle the holder to exercise voting rights, to receive
dividends thereon, and to participate in any of the assets of the corporation in
the event of liquidation. The Board of Directors may cause scrip or warrants to
be issued subject to the conditions that they shall become void if not exchanged
for certificates representing full shares before a specified date, or subject to
the conditions that the shares for which scrip or warrants are exchangeable may
be sold by the corporation and the proceeds thereof distributed to the holders
of scrip or warrants, or subject to any other conditions which the Board of
Directors may impose.
SECTION 6. Dividends. Subject to the provisions of the certificate of
---------
incorporation, the Board of Directors may, out of funds legally available
therefor, at any regular or special meeting, declare dividends upon the common
stock of the corporation as and when they deem expedient.
ARTICLE V
INDEMNIFICATION AND INSURANCE
SECTION 1. Indemnification. The corporation shall, to the extent
---------------
permitted by the certificate of incorporation, as amended from time to time,
indemnify each person whom it may indemnify pursuant thereto.
SECTION 2. Insurance. The corporation shall have power to purchase and
---------
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against such person and incurred by such person in any such capacity or
arising out of such person's status as such, whether or not the corporation
would have the power to indemnify such person against such liability under the
provisions of the General Corporation Law of the State of Delaware.
ARTICLE VI
GENERAL PROVISIONS
SECTION 1 Fiscal Year. The fiscal year of the corporation shall be
-----------
determined from time to time by the Board of Directors.
9
<PAGE>
SECTION 2. Corporate Seal. The corporate seal shall be in such form as
--------------
shall be approved by the Board of Directors. The Secretary shall be the
custodian of the seal. The Board of Directors may authorize a duplicate seal to
be kept and used by any other officer.
SECTION 3. Certificate of Incorporation. All references in these by-laws
----------------------------
to the certificate of incorporation shall be deemed to refer to the certificate
of incorporation of the corporation, as in effect from time to time.
SECTION 4. Execution of Instruments. The Chairman and Vice-Chairman of the
------------------------
Board of Directors, if any, the President, any Vice-President, and the Treasurer
shall have power to execute and deliver on behalf and in the name of the
corporation any instrument requiring the signature of an officer of the
corporation, including deeds, contracts, mortgages, bonds, notes, debentures,
checks, drafts, and other orders for the payment of money. In addition, the
Board of Directors may expressly delegate such powers to any other officer or
agent of the corporation.
SECTION 5. Voting of Securities. Except as the directors may otherwise
--------------------
designate, the President or Treasurer may waive notice of, and act as, or
appoint any person or persons to act as, proxy or attorney-in-fact for this
corporation (with or without power of substitution) at any meeting of
stockholders or shareholders of any other corporation or organization the
securities of which may be held by this corporation.
SECTION 6. Evidence of Authority. A certificate by the Secretary, or an
---------------------
Assistant Secretary, or a temporary secretary, as to any action taken by the
stockholders, directors, a committee or any officer or representative of the
corporation shall, as to all persons who rely on the certificate in good faith,
be conclusive evidence of that action.
SECTION 7. Transactions with Interested Parties. No contract or
------------------------------------
transaction between the corporation and one or more of the directors or
officers, or between the corporation and any other corporation, partnership,
association, or other organization in which one or more of the directors or
officers are directors or officers, or have a financial interest, shall be void
or voidable solely for that reason, or solely because the director or officer is
present at or participates in the meeting of the Board of Directors or a
committee of the Board of Directors which authorizes the contract or transaction
or solely because the vote of any such director is counted for such purpose, if:
(1) The material facts as to the relationship or interest and as to the
contract or transaction are disclosed or are known to the Board of Directors or
the committee, and the Board or committee in good faith authorizes the contract
or transaction by the affirmative votes of a majority of the disinterested
directors, even though the disinterested directors be less than a quorum; or
(2) The material facts as to the relationship or interest and as to the
contract or transaction are disclosed or are known to the stockholders entitled
to vote thereon, and the contract or transaction is specifically approved in
good faith by vote of the stockholders; or
10
<PAGE>
(3) The contract or transaction is fair as to the corporation as of the
time it is authorized, approved or ratified by the Board of Directors, a
committee of the Board of Directors, or the stockholders.
Common or interested directors may be counted in determining the presence
of a quorum at a meeting of the Board of Directors or of a committee which
authorizes the contract or transaction.
SECTION 8. Books and Records. The books and records of the corporation
-----------------
shall be kept at such places within or without the State of Delaware as the
Board of Directors may from time to time determine.
ARTICLE VII
AMENDMENTS
SECTION 1. By the Board of Directors. These by-laws may be altered,
-------------------------
repealed or new by-laws may be adopted by the affirmative vote of a majority of
the directors present at any regular or special meeting of the Board of
Directors at which a quorum is present.
SECTION 2. By the Stockholders. These by-laws may be altered, amended or
-------------------
repealed or new by-laws may be adopted by the affirmative vote of the holders of
a majority of the shares of the capital stock of the corporation issued and
outstanding and entitled to vote at any regular meeting of stockholders, or at
any special meeting of stockholders provided notice of such alteration,
amendment, repeal or adoption of new by-laws shall have been stated in the
notice of such special meeting.
11
<PAGE>
Exhibit 4.2
NAVISITE, INC.
SERIES C CONVERTIBLE PREFERRED STOCK
PURCHASE AGREEMENT
JUNE 3, 1999
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. PURCHASE AND SALE OF STOCK............................................ 1
(a) Authorization................................................. 1
(b) Purchase and Sale of Stock.................................... 1
(c) Per Share Purchase Price...................................... 1
(d) Total Consideration........................................... 2
2. CLOSING............................................................... 2
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY......................... 2
(a) Organization Good Standing and Qualification.................. 2
(b) Capitalization................................................ 2
(c) Due Authorization............................................. 3
(d) Valid Issuance of Stock....................................... 4
(i) Valid Issuance...................................... 4
(ii) Compliance with Securities Laws..................... 4
(e) Governmental Consents......................................... 4
(f) Non-Contravention............................................. 4
(g) Litigation.................................................... 5
(h) Compliance with Law........................................... 5
(i) Financial Statements.......................................... 5
(j) Absence of Certain Liabilities and Changes.................... 5
(k) Invention Assignment and Confidentiality Agreement............ 6
(l) Intellectual Property......................................... 7
(i) Ownership or Right to Use........................... 7
(ii) Licenses; Other Agreements.......................... 7
(iii) No Infringement..................................... 7
(m) Registration Rights........................................... 7
(n) Title to Property and Assets.................................. 7
(o) Tax Matters................................................... 8
(p) Environmental and Safety Laws................................. 8
(q) ERISA......................................................... 8
(r) Employment Matters............................................ 8
(s) Subsidiaries.................................................. 9
(t) Brokers and Finders........................................... 9
(u) Year 2000 Compatibility....................................... 9
(v) Interested Party Transactions................................. 9
(w) Series D Convertible Preferred Stock Purchase Agreement....... 10
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
4. REPRESENTATIONS, WARRANTIES AND CERTAIN
AGREEMENTS OF THE INVESTOR.......................................... 10
(a) Organization, Good Standing and Qualification.................. 10
(b) Due Authorization.............................................. 10
(c) Governmental Consents.......................................... 10
(d) Non-Contravention.............................................. 10
(e) Litigation..................................................... 11
(f) Purchase for Own Account....................................... 11
(g) Investment Experience.......................................... 11
(h) Accredited Investor Status..................................... 11
(i) Restricted Securities.......................................... 11
(j) Legends........................................................ 12
5. COVENANTS............................................................. 12
(a) Use of Proceeds................................................ 12
(b) Information Rights............................................. 12
(c) Registration Rights............................................ 13
(i) Definitions......................................... 13
(ii) Demand Registration................................. 14
(iii) Piggyback Registrations............................. 16
(iv) Shelf Registration.................................. 18
(v) General Registration Obligations of the Company..... 20
(vi) Furnish Information................................. 22
(vii) Indemnification..................................... 22
(viii) Termination of the Company's Obligations............ 23
(d) Standstill..................................................... 23
(i) Standstill Agreement................................ 23
(ii) Termination......................................... 24
(e) Right to Participate........................................... 24
(f) Filing of Reports.............................................. 25
6. INDEMNIFICATION....................................................... 25
(a) Agreement to Indemnify......................................... 25
(i) Company Indemnity................................... 25
(ii) Investor Indemnity.................................. 25
(iii) Equitable Relief.................................... 25
(b) Survival....................................................... 26
(c) Claims for Indemnification..................................... 26
(d) Defense of Claims.............................................. 27
(e) Certain Definitions............................................ 28
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
7. ASSIGNMENT AND DELEGATION............................................. 28
(a) Information Rights............................................. 28
(b) Registration Rights............................................ 29
8. TRANSFERABILITY OF PURCHASED SHARES................................... 29
9. MISCELLANEOUS......................................................... 29
(a) Successors and Assigns......................................... 29
(b) Governing Law.................................................. 29
(c) Counterparts................................................... 29
(d) Headings....................................................... 29
(e) Notices........................................................ 30
(f) Amendments and Waivers......................................... 30
(g) Severability................................................... 30
(h) Entire Agreement............................................... 30
(i) Further Assurances............................................. 30
(j) Construction................................................... 31
(k) Fees, Costs and Expenses....................................... 31
(l) Competition.................................................... 31
(m) Adjustments for Stock Splits, Etc.............................. 31
(n) Delays or Omissions............................................ 31
(o) Dispute Resolution............................................. 31
(p) Index of Defined Terms......................................... 32
</TABLE>
iii
<PAGE>
SERIES C CONVERTIBLE PREFERRED STOCK
PURCHASE AGREEMENT
This Series C Convertible Preferred Stock Purchase Agreement (this "Agreement")
---------
is made and entered into as of June 3, 1999 by and between NaviSite, Inc., a
Delaware corporation (the "Company"), and Dell USA L.P., a Texas limited
-------
partnership (the "Investor").
--------
RECITALS
Simultaneously with the execution and delivery of this Agreement, the Company
and the Investor are entering into a Strategic Alliance Agreement (the
"Strategic Alliance Agreement").
----------------------------
As an integral part of the strategic alliance contemplated by the Strategic
Alliance Agreement, the Company has agreed to issue to the Investor 1,095,472
shares of Series C Convertible Preferred Stock, par value $0.01 per share, of
the Company (the "Series C Convertible Preferred Stock"), on the terms and
------------------------------------
conditions set forth in this Agreement.
AGREEMENT
In consideration of the foregoing recitals, the mutual promises hereinafter set
forth and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. PURCHASE AND SALE OF STOCK.
--------------------------
(a) Authorization. The Company's Board of Directors (the "Board") has
------------- -----
authorized the issuance, pursuant to the terms and conditions of this Agreement,
of (i) up to 1,095,472 shares of Series C Convertible Preferred Stock, having
the rights, preferences, privileges and restrictions set forth in a Corrected
Certificate of Designation of Series C Convertible Preferred Stock substantially
in the form attached hereto as Exhibit A (the "Certificate of Designation") and
--------- --------------------------
(ii) up to 1,095,472 shares of the Company's common stock, par value $0.01 per
share (the "Common Stock"), issuable upon conversion of Series C Convertible
------------
Preferred Stock.
(b) Purchase and Sale of Stock. Simultaneously with the execution and
--------------------------
delivery of this Agreement at the Closing (as defined below), the Company is
issuing to the Investor, and the Investor is acquiring from the Company,
1,095,472 shares of Series C Convertible Preferred Stock (collectively, the
"Purchased Shares").
----------------
(c) Per Share Purchase Price. The per share purchase price is $7.40
------------------------
per share of Series C Convertible Preferred Stock (the "Per Share Purchase
------------------
Price").
- -----
<PAGE>
(d) Total Consideration. The total consideration for the Purchased
-------------------
Shares is $8,106,493 in cash (the "Aggregate Purchase Price").
------------------------
2. CLOSING. The purchase and sale of the Purchased Shares (the "Closing") is
------- -------
taking place simultaneous with execution hereof at the offices of Skadden, Arps,
Slate, Meagher & Flom LLP, One Beacon Street, Boston, Massachusetts at 10:00
a.m., Boston time (which time and place are referred to in this Agreement as the
"Closing Date"). At the Closing, the Company is delivering to the Investor a
------------
certificate or certificates representing the Purchased Shares against delivery
to the Company by the Investor of the Aggregate Purchase Price by wire transfer
of funds to the Company. At the Closing, the Company shall cause to be
delivered to the Investor an opinion on behalf of the Company, dated as of the
Closing Date, from Skadden, Arps, Slate, Meagher & Flom LLP, special counsel to
the Company, substantially in the form attached hereto as Exhibit B. The
---------
Closing documents are being delivered by facsimile with originals being sent by
overnight courier.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
---------------------------------------------
represents and warrants to the Investor, as of the date hereof, that, except as
set forth in the Disclosure Letter from the Company to the Investor dated as of
the date of this Agreement (the "Disclosure Letter"):
-----------------
(a) Organization, Good Standing and Qualification. The Company is a
---------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all corporate power and authority required to
(i) carry on its business as currently conducted or as proposed to be conducted
and (ii) enter into this Agreement and consummate the transactions contemplated
hereby. Each of the Company and its subsidiaries is qualified to do business
and is in good standing in each jurisdiction in which the failure to so qualify
would have a Material Adverse Effect on the Company. As used in this Agreement,
"Material Adverse Effect" means a material adverse effect on, or a material
-----------------------
adverse change in, or a group of such effects on or changes in, the business,
financial condition, results of operations, assets or liabilities of the
applicable party and its subsidiaries, taken as a whole.
(b) Capitalization. The authorized capital stock of the Company
--------------
consists of: (i) 60,000,000 shares of Common Stock, of which 69,338 shares are
issued and outstanding; and (ii) 10,000,000 shares of Preferred Stock, par value
$0.01 per share, of which (A) 1,323,953 shares are designated Series A
Convertible Preferred Stock (the "Series A Convertible Preferred Stock"), all of
------------------------------------
which are issued and outstanding; (B) 1,000,000 shares are designated Series B
Convertible Preferred Stock (the "Series B Convertible Preferred Stock"),
------------------------------------
490,332 of which are issued and outstanding; (C) 1,095,472 shares are
designated Series C Convertible Preferred Stock, all of which will be issued and
outstanding immediately following the Closing;
2
<PAGE>
and (D) 993,243 shares are designated Series D Convertible Preferred Stock (the
"Series D Convertible Preferred Stock"), all of which will be issued and
------------------------------------
outstanding immediately following the closing contemplated in the Series D
Agreement (as defined below). All of such shares of capital stock have been duly
authorized for issuance, and all of such shares which are issued and outstanding
have been validly issued and are fully paid, nonassessable and free of any liens
or encumbrances other than any liens or encumbrances created by or imposed upon
the holders thereof. The Company has reserved: (1) 13,239,530 shares of Common
Stock for issuance upon conversion of the Series A Convertible Preferred Stock;
(2) 10,000,000 shares of Common Stock for issuance upon conversion of the Series
B Convertible Preferred Stock; (3) 1,095,472 shares of Common Stock for issuance
upon conversion of the Series C Convertible Stock; (4) 993,243 shares of Common
Stock for issuance upon conversion of the Series D Convertible Stock; (5)
2,000,000 shares of Common Stock for issuance to officers, directors, employees,
consultants or affiliates of the Company under the Company's 1998 Equity
Incentive Plan; (6) 125,000 shares of Common Stock for issuance to non-employee
directors of the Company under the Company's 1998 Director Stock Option Plan;
and (7) 509,668 shares of Series B Convertible Preferred Stock for issuance upon
the conversion of intercompany debt evidenced by a Secured Convertible Demand
Note dated May 1, 1999 held by CMGI, Inc., a true and correct copy of which is
attached to the Disclosure Letter. All shares of Common Stock subject to
issuance as aforesaid, upon issuance on the terms and conditions specified in
the instruments pursuant to which they are issuable, are duly authorized and
will be validly issued, fully paid and nonassessable. There are no other equity
securities, options, warrants, calls, rights, commitments or agreements of any
character to which the Company is a party or by which it is bound obligating the
Company to issue, deliver, sell, repurchase or redeem, or cause to be issued,
delivered, sold, repurchased or redeemed, any shares of the capital stock of the
Company or obligating the Company to grant, extend or enter into any such equity
security, option, warrant, call, right, commitment or agreement. To the best
knowledge of the Company, there are no shareholder agreements, voting agreements
or voting trusts relating to any shares of capital stock of the Company.
(c) Due Authorization. All corporate action on the part of the
-----------------
Company, its officers, directors and stockholders necessary for the
authorization, execution and delivery of, and the performance of all obligations
of the Company under, this Agreement has been taken, and this Agreement
constitutes a valid and legally binding obligation of the Company, enforceable
against the Company in accordance with its terms, except (i) as may be limited
by (A) applicable bankruptcy, insolvency, reorganization or others laws of
general application relating to or affecting the enforcement of creditors'
rights generally and (B) the effects of rules of law governing the availability
of equitable remedies and (ii) as rights to indemnity or contribution may be
limited under federal or state securities laws or by principles of public policy
thereunder.
3
<PAGE>
(d) Valid Issuance of Stock.
-----------------------
(i) Valid Issuance. The Purchased Shares, when issued, sold and
--------------
delivered in accordance with the terms of this Agreement, will be duly and
validly issued, fully paid, nonassessable and free of preemptive rights binding
on the Company. The shares of Common Stock to be issued upon conversion of the
Purchased Shares (the "Conversion Shares") have been duly and validly reserved
-----------------
for issuance and, upon issuance, sale and delivery in accordance with the terms
of the Purchased Shares, will be duly and validly issued, fully paid,
nonassessable and free of preemptive rights binding on the Company.
(ii) Compliance with Securities Laws. Assuming the correctness
-------------------------------
of the representations made by the Investor in Section 4, no change in
applicable law and no unlawful distribution of Purchased Shares by the Investor
or other Persons (as defined below), the Purchased Shares and the Conversion
Shares will be issued to the Investor in compliance with applicable exemptions
from (A) the registration and prospectus delivery requirements of the Securities
Act of 1933, as amended (the "Securities Act"), and (B) the registration and
--------------
qualification requirements of all applicable securities laws of the states of
the United States.
(e) Governmental Consents. No consent, approval, order or
---------------------
authorization of, or registration qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company or any of its subsidiaries is required in connection with the
consummation of the transactions contemplated by this Agreement, except: (i) as
may be required under the Securities Act and the rules and regulations
thereunder and all applicable state securities laws in connection with the
transactions contemplated by this Agreement; and (ii) the filing of the
Certificate of Designation with the Secretary of State of the State of Delaware.
All such consents, approvals, orders, authorizations and qualifications will be
effective and all such designations, declarations and filings will be made
within the time prescribed by law.
(f) Non-Contravention. The execution, delivery and performance of
-----------------
this Agreement by the Company, and the consummation by the Company of the
transactions contemplated hereby, do not: (i) contravene or conflict with the
Company's Certificate of Incorporation, as amended (the "Certificate"), or the
-----------
Company's By-Laws; (ii) constitute a violation of any provision of any federal,
state, local or foreign law binding upon or applicable to the Company or any of
its subsidiaries; or (iii) constitute a default or require any consent under,
give rise to any right of termination, cancellation or acceleration of, or to a
loss of any benefit to which the Company or any of its subsidiaries is entitled
under, or result in the creation or imposition of any lien, claim or encumbrance
on any assets of the Company or any such subsidiary under, any contract to which
the Company or such subsidiary is a party or any permit,
4
<PAGE>
license or similar right relating to the Company or such subsidiary or by which
the Company or such subsidiary may be bound or affected, except any such
default, consent, right of termination, cancellation or acceleration, loss,
lien, claim or encumbrance which, individually or in the aggregate, would not
have a Material Adverse Effect on the Company.
(g) Litigation. There is no action, suit, proceeding, claim,
----------
arbitration or investigation (each, an "Action") pending or, to the Company's
------
best knowledge, threatened: (i) against the Company or any of its subsidiaries,
or any of their respective activities, properties or assets, or any officer,
director or employee of the Company or any of its subsidiaries in connection
with such officer's, director's or employee's relationship with, or actions
taken on behalf of, the Company or such subsidiary, in each such case that is
reasonably likely to have a Material Adverse Effect on the Company; or (ii)
against the Company or any of its subsidiaries, or any of their respective
activities, properties or assets, or any officer, director or employee of the
Company or any of its subsidiaries that seeks to prevent, enjoin, alter or delay
any of the transactions contemplated by this Agreement.
(h) Compliance with Law. Each of the Company and its subsidiaries is
-------------------
in compliance with all applicable statutes, laws, regulations and executive
orders, except where noncompliance would not have a Material Adverse Effect on
the Company.
(i) Financial Statements. Section 3(i) of the Disclosure Letter sets
--------------------
forth an unaudited consolidated balance sheet of the Company as of January 31,
1999 (the "Balance Sheet Date") and an unaudited income statement and
------------------
consolidated statement of changes in cash flows of the Company for the six
months ended January 31, 1999 (all such financial statements being collectively
referred to herein as the "Financial Statements"). The Financial Statements (i)
--------------------
are in accordance with the books and records of the Company, (ii) present fairly
the financial condition of the Company as of the date therein indicated and the
results of operations for the period therein specified and (iii) have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis ("GAAP"), except for the omission of notes thereto and year-
----
end audit adjustments.
(j) Absence of Certain Liabilities and Changes. Except as and to the
------------------------------------------
extent specifically reflected or reserved against in the Financial Statements or
as disclosed in the footnotes (if any) to the Financial Statements, as of the
Balance Sheet Date, neither the Company nor any subsidiary had any liabilities
(as determined in accordance with GAAP) that, in the aggregate, exceeded
$100,000. Since the Balance Sheet Date, neither the Company nor any of its
subsidiaries has incurred or become subject to any liabilities (as determined in
accordance with GAAP) except (x) as and to the extent of the amounts
specifically reflected or reserved against in the Financial Statements or as
disclosed in the footnotes (if any) to the Financial Statements or (y)
liabilities incurred, and obligations under agreements, commitments or contracts
entered into,
5
<PAGE>
in the ordinary course of business. Since the Balance Sheet Date, the businesses
and operations of the Company and each of its subsidiaries have been conducted
in the ordinary course consistent with past practice and there has not been or
occurred:
(i) any declaration, setting aside or payment of any dividend
or other distribution of the assets of the Company with respect to any shares of
capital stock of the Company or any repurchase, redemption or other acquisition
by the Company or any subsidiary of any outstanding shares of the Company or any
subsidiary's capital stock;
(ii) any property damage, destruction or loss, whether or not
covered by insurance, except for such property damage, destruction or loss as,
individually or in the aggregate, would not have a Material Adverse Effect on
the Company;
(iii) any waiver by the Company or a subsidiary of a valuable
right or of a material debt owed to it, except for such waivers as, individually
or in the aggregate, would not have a Material Adverse Effect on the Company;
(iv) any material change or amendment to, or any waiver of any
material rights under a material contract or arrangement by which the Company or
a subsidiary or any of their respective assets or properties is bound or
subject, except for changes, amendments, or waivers that are expressly provided
for or disclosed in this Agreement or the Disclosure Letter or as, individually
or in the aggregate, would not have a Material Adverse Effect on the Company;
(v) any change by the Company in its accounting principles,
methods or practices or in the manner it keeps its accounting books and records,
except any such change required by GAAP; and
(vi) any event or condition which, individually or in the
aggregate, would have a Material Adverse Effect on the Company.
(k) Invention Assignment and Confidentiality Agreement. Each employee
--------------------------------------------------
and consultant or independent contractor of the Company or any of its
subsidiaries whose duties include the development of products or Intellectual
Property (as defined below), and each former employee and consultant or
independent contractor whose duties included the development of products or
Intellectual Property, has entered into and executed an invention assignment and
confidentiality agreement or an employment or consulting agreement containing
terms with respect to invention assignments and confidentiality.
6
<PAGE>
(l) Intellectual Property.
---------------------
(i) Ownership or Right to Use. The Company or one of its
-------------------------
subsidiaries has sole title to and owns, or is licensed or otherwise possesses
legally enforceable rights to use, or reasonably expects that it will be able to
obtain licenses or legally enforceable rights to use, all patents or patent
applications, software, know-how, registered or unregistered trademarks and
service marks and any applications therefor, registered or unregistered
copyrights and trade names and any applications therefor, trade secrets or other
confidential or proprietary information ("Intellectual Property") necessary to
---------------------
enable the Company and its subsidiaries to carry on their respective businesses
as currently conducted or as proposed to be conducted except where the failure
to own or have rights to use such Intellectual Property would not have a
Material Adverse Effect on the Company.
(ii) Licenses; Other Agreements. Neither the Company nor any of
--------------------------
its subsidiaries is currently subject (whether as licensor or licensee) to any
exclusive licenses (whether such exclusivity is temporary or permanent) to any
material portion of the Intellectual Property utilized by the Company or any of
its subsidiaries. There are not outstanding any licenses or agreements of any
kind relating to the licensure by the Company of any Intellectual Property owned
by the Company or any of its subsidiaries, except for agreements with customers
of the Company or any such subsidiary entered into in the ordinary course of
business. Neither the Company nor any of its subsidiaries is obligated to pay
any royalties or other payments to third parties with respect to the marketing,
sale, distribution, manufacture, license or use of any Intellectual Property
(other than off-the-shelf commercial applications), except as it may be so
obligated in the ordinary course of its business.
(iii) No Infringement. Neither the Company nor any of its
---------------
subsidiaries is violating or infringing, and neither the Company nor any of its
subsidiaries has received any communication alleging that either the Company,
any of its subsidiaries or any of their respective employees or consultants has
violated or infringed, any Intellectual Property of any other Person.
(m) Registration Rights. Except as otherwise provided in this
-------------------
Agreement, the Company has not granted or agreed to grant to any Person any
rights (including piggyback registration rights), to have any securities of the
Company registered with the Securities and Exchange Commission (the "SEC") or
---
registered or qualified with any other governmental authority.
(n) Title to Property and Assets. The properties and assets owned by
----------------------------
the Company and each of its subsidiaries are owned by the Company or such
subsidiary free and clear of all mortgages, deeds of trust, liens, charges,
encumbrances and security interests, except for statutory liens for the payment
of current taxes that are not yet delinquent and liens, encum-
7
<PAGE>
brances and security interests that arise in the ordinary course of business and
do not have a Material Adverse Effect on the Company and its subsidiaries, taken
as a whole. With respect to the property and assets it leases, each of the
Company and its subsidiaries is in compliance with such leases in all material
respects.
(o) Tax Matters.
-----------
(i) There have been no examinations or audits of any of the
Company's tax returns or reports by any federal, state or local governmental
agency having jurisdiction over the Company. The Company and its subsidiaries
have filed all federal, state, county and local tax returns required to have
been filed by them and paid all taxes shown to be due on such returns. There are
in effect no waivers of applicable statutes of limitations with respect to taxes
for any year.
(ii) The Company has not elected pursuant to the Internal Revenue
Code of 1986, as amended (the "Code"), to be treated as an "S" corporation or a
----
collapsible corporation pursuant to Section 1362(a) or Section 341(f) of the
Code, respectively, nor has it made any other elections pursuant to the Code
(other than elections which relate solely to matters of accounting, depreciation
or amortization) which would have a Material Adverse Effect on the Company.
(p) Environmental and Safety Laws. To its knowledge, the Company is
-----------------------------
not in violation of any applicable statute, law or regulation relating to the
environment or occupational health and safety.
(q) ERISA. The Company does not sponsor or participate in any
-----
employee benefit plan subject to the Employee Retirement Income Security Act of
1974, as
amended ("ERISA"). The Company is not required to contribute to any
-----
"multiemployer plan" as defined in ERISA Section 3(37), nor has the Company ever
contributed to or withdrawn from such a multiemployer plan.
(r) Employment Matters. The Company (i) has withheld all amounts
------------------
required by law or agreement to be withheld from wages, salaries and other
payments to its employees and former employees or has remedied any failure to do
so, (ii) is not liable for any arrearages of wages and (iii) is not liable for
taxes or penalties for failure to withhold or pay wages when due. There are no
complaints pending or, to the Company's knowledge, threatened before any
governmental authority alleging unfair labor practices or unlawful
discrimination nor, to the Company's knowledge, is there any basis for any such
claim. There are no existing or, to the Company's knowledge, threatened labor
strikes, disputes, grievances, controversies or other labor troubles affecting
the Company which would individually or in the aggregate, have a
8
<PAGE>
Material Adverse Effect on the Company. The Company is not a party to any
collective bargaining agreement with any labor union.
(s) Subsidiaries. Section 3(p) of the Disclosure Letter sets forth
------------
all other Persons in which the Company (i) presently owns or controls, directly
or indirectly, more than a one percent interest or (ii) has the right or option
to acquire more than a one percent interest.
(t) Brokers and Finders. The Company has not incurred any obligation
-------------------
or liability, contingent or otherwise, for brokerage or finders' fees or agents'
commissions or other similar payment in connection with this Agreement or any of
the transactions contemplated hereby.
(u) Year 2000 Compatibility. All of the material products used by the
-----------------------
Company and necessary to its business will (i) record, store, process and
calculate and present calendar dates falling on and after January 1, 2000 and
will calculate any information dependent on or relating to such dates in the
same manner and with the same functionality, data integrity and performance as
those products record, store, process, calculate and present, or calculate any
information dependent on or relating to, calendar dates falling on or before
December 31, 1999 (collectively, "Year 2000 Compliant") and (ii) lose no
-------------------
functionality with respect to the introduction of records containing dates
falling on or after January 1, 2000, except where the failure to be Year 2000
Compliant or such loss of functionality would not have a Material Adverse Effect
on the Company. All of the Company's and its subsidiaries' internal computer
systems, including without limitation their respective accounting systems, are,
or on or before December 31, 1999 will be, Year 2000 Compliant, except where the
failure to be Year 2000 Compliant would not have a Material Adverse Effect on
the Company.
(v) Interested Party Transactions. To the best knowledge of the
-----------------------------
Company, no officer or director of the Company or any of its subsidiaries or any
"affiliate" or "associate" (as those terms are defined in Rule 405 promulgated
under the Securities Act) of any such Person has had, either directly or
indirectly, a material interest in: (i) any Person which purchases from or
sells, licenses or furnishes to the Company or any of its subsidiaries any
goods, property, technology, intellectual or other property rights or services;
or (ii) any contract or agreement to which the Company or any of its
subsidiaries is a party or by which it or any of its properties and assets may
be bound or affected.
9
<PAGE>
(w) Series D Convertible Preferred Stock Purchase Agreement. The
-------------------------------------------------------
Series D Convertible Preferred Stock Purchase Agreement (the "Series D
--------
Agreement") being entered into by the Company with a third party
contemporaneously with this Agreement and the related Certificate of Designation
of Series D Convertible Preferred Stock for the Series D Convertible Preferred
Stock to be issued pursuant to the Series D Agreement do not differ in any
material respect from this Agreement and the Certificate of Designation attached
hereto as Exhibit A, respectively. The Purchased Shares issued pursuant to the
---------
terms of this Agreement will initially be convertible into a number of shares of
Common Stock equal to 4.9% of the Common Stock, on a fully diluted basis,
immediately after giving effect to the transactions contemplated hereby and by
the Series D Agreement.
4. REPRESENTATIONS, WARRANTIES AND CERTAIN AGREEMENTS OF THE INVESTOR. The
------------------------------------------------------------------
Investor hereby represents and warrants to the Company, as of the date hereof,
and agrees that:
(a) Organization, Good Standing and Qualification. The Investor is a
---------------------------------------------
limited partnership duly organized and validly existing under the laws of the
State of Texas and has all requisite power and authority required to (i) carry
on its business as presently conducted and (ii) enter into this Agreement and
consummate the transactions contemplated hereby.
(b) Due Authorization. This Agreement has been duly authorized by all
-----------------
necessary partnership action on the part of the Investor. This Agreement
constitutes a valid and legally binding obligation of the Investor, enforceable
against the Investor in accordance with its terms, except (i) as may be limited
by (A) applicable bankruptcy, insolvency, reorganization or other laws of
general application relating to or affecting the enforcement of creditors'
rights generally and (B) the effects of rules of law governing the availability
of equitable remedies and (ii) as rights to indemnity or contribution may be
limited under federal or state securities laws or by principles of public policy
thereunder.
(c) Governmental Consents. No consent, approval, order or
---------------------
authorization of, or registration qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Investor is required in connection with the consummation of the
transactions contemplated by this Agreement. All such consents, approvals,
orders, authorizations and qualifications and all such designations,
declarations and filings will be made within the time prescribed by law.
(d) Non-Contravention. The execution, delivery and performance of
-----------------
this Agreement by the Investor, and the consummation by the Investor of the
transactions contem-
10
<PAGE>
plated hereby, do not: (i) contravene or conflict with the Investor's limited
partnership agreement, as amended; (ii) constitute a violation of any provision
of any federal, state, local or foreign law binding upon or applicable to the
Investor; or (iii) constitute a default or require any consent under, give rise
to any right of termination, cancellation or acceleration of, or to a loss of
any benefit to which the Investor is entitled under, or result in the creation
or imposition of any lien, claim or encumbrance on any assets of the Investor
under, any contract to which the Investor is a party or any permit, license or
similar right relating to the Investor or by which the Investor may be bound or
affected, except any such default, consent, right of termination, cancellation
or acceleration, loss or lien, claim or encumbrance which, individually or in
the aggregate, would not have a Material Adverse Effect on the Investor.
(e) Litigation. There is no Action pending against the Investor or,
----------
to the Investor's best knowledge, threatened against the Investor, that seeks to
prevent, enjoin, alter or delay any of the transactions contemplated by this
Agreement.
(f) Purchase for Own Account. The Purchased Shares are being acquired
------------------------
for investment for the Investor's own account, not as a nominee or agent, and
not with a view to the public resale or distribution thereof within the meaning
of the Securities Act, and the Investor has no present intention of selling,
granting any participation in or otherwise distributing the same. The Investor
also represents that it has not been formed for the specific purpose of
acquiring the Purchased Shares.
(g) Investment Experience. The Investor understands that the purchase
---------------------
of the Purchased Shares involves substantial risk. The Investor has experience
as an investor in securities of companies and acknowledges that it is able to
fend for itself, can bear the economic risk of its investment in the Purchased
Shares and has such knowledge and experience in financial or business matters
that it is capable of evaluating the merits and risks of its investment in the
Purchased Shares and protecting its own interests in connection with this
investment.
(h) Accredited Investor Status. The Investor is an "accredited
--------------------------
investor" within the meaning of Regulation D promulgated under the Securities
Act.
(i) Restricted Securities. The Investor understands that (i) the
---------------------
Purchased Shares are, and the Conversion Shares upon issuance will be,
characterized as "restricted securities" under the Securities Act, inasmuch as
they are being acquired from the Company in a transaction not involving a public
offering and (ii) under the Securities Act and applicable rules and regulations
thereunder, such securities may be resold without registration under the
Securities Act only in certain limited circumstances. The Investor is familiar
with Rule 144 of the SEC under the Securities Act, as presently in effect, and
understands the resale limitations imposed thereby and by the Securities Act.
11
<PAGE>
(j) Legends. The Investor agrees that the certificates for the
-------
Purchased Shares and, upon issuance thereof, the Conversion Shares will bear
the following legend:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or
with any state securities commission, and may not be
transferred or disposed of by the holder in the absence of
a registration statement which is effective under the
Securities Act of 1933, as amended, and applicable state
laws and rules or unless such transfer may be effected
without violation of the Securities Act of 1933, as
amended, and other applicable state laws and rules."
In addition, the Investor agrees that the Company may place stop transfer orders
with its transfer agents with respect to such certificates. The legend set forth
above shall be removed by the Company from any certificate evidencing Purchased
Shares or Conversion Shares upon delivery to the Company of an opinion by
counsel, reasonably satisfactory to the Company, that a registration statement
under the Securities Act is at that time in effect with respect to the legended
security or that such security can be freely transferred in a public sale
without such a registration statement being in effect and that such transfer
will not jeopardize the exemption or exemptions from registration pursuant to
which the Company issued the Purchased Shares or the Conversion Shares.
5. COVENANTS.
---------
(a) Use of Proceeds. The Company will use the proceeds from its
---------------
issuance and sale to the Investor of the Purchased Shares for general corporate
purposes.
(b) Information Rights. For so long as the Investor holds any of the
------------------
Purchased Shares or the Conversion Shares, the Company shall:
(i) Until consummation of its initial public offering of Common
Stock and when the Company is otherwise not required to file reports under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), deliver to the
Investor: (A) audited annual financial statements within 90 days after the end
of each fiscal year; (B) unaudited quarterly financial statements prepared in
accordance with GAAP within 45 days after the end of each fiscal quarter; and
(C) unaudited monthly financial statements within 30 days after the end of each
month.
12
<PAGE>
(ii) After consummation of its initial public offering of Common
Stock and until the Company is no longer required to file reports under the
Exchange Act, deliver to the Investor promptly following the filing of such
report with the SEC a copy of: (A) the Company's Annual Report on Form 10-K for
each fiscal year; (B) the Company's Quarterly Report on Form 10-Q for each
fiscal quarter (other than the fourth fiscal quarter of each fiscal year); and
(C) copies of each other document filed with the SEC on a non-confidential
basis. The provisions of this Section 5(b)(ii) shall not apply if the Investor
(or any subsequent holder of the Purchased Shares or Conversion Shares) holds a
number of Purchased Shares (or Conversion Shares issued on conversion thereof)
that constitutes 50% or less of the aggregate Purchased Shares originally issued
pursuant to this Agreement.
(c) Registration Rights.
-------------------
(i) Definitions. For purposes of this Agreement:
-----------
(A) Registration. The terms "register," "registered" and
------------ -------- ----------
"registration" refer to a registration effected by preparing and filing a
- -------------
registration statement in compliance with the Securities Act and the declaration
or ordering of effectiveness by the SEC of such registration statement.
(B) Registrable Securities. The term "Registrable
---------------------- -----------
Securities" means (1) all issued or issuable Conversion Shares and (2) any
- ----------
shares of Common Stock issued as (or issuable upon the conversion or exercise of
any warrant, right or other security that is issued as) a dividend or other
distribution with respect to, or in exchange for or in replacement of, any of
the issued or issuable Conversion Shares, excluding any securities sold by any
individual, corporation, partnership, trust or other entity or organization,
including a governmental authority or any political subdivision thereof (each,
a "Person") in a transaction in which rights under this Section 5(c) are not
------
assigned in accordance with this Agreement and any securities sold to the
public, whether pursuant to Rule 144 promulgated under the Securities Act, in a
registered offering or otherwise.
(C) Registrable Securities Then Outstanding. The number
---------------------------------------
"Registrable Securities then outstanding" shall mean the number of shares of
Common Stock that are Registrable Securities and are then issued and
outstanding.
(D) Holder. The term "Holder" means (1) any Person owning
------ ------
of record Registrable Securities or (2) any permitted assignee of record of such
Registrable Securities to whom rights under this Section 5(c) have been duly
assigned in accordance with this Agreement.
13
<PAGE>
(E) Qualified IPO. The term "Qualified IPO" means an
------------- -------------
underwritten of Common Stock in which the per share price to the public is at
least $12.95 and the aggregate gross proceeds to the Company are at least
$20,000,000.
(F) Forms S-3, S-4 and S-8. The terms "Form S-3," "Form S-4"
---------------------- -------- --------
and "Form S-8" mean, respectively, such forms under the Securities Act each as
--------
are in effect on the date hereof, or such successor registration forms under the
Securities Act subsequently adopted by the SEC requiring similar disclosure and
permitting similar incorporation by reference to other documents filed by the
Company with the SEC.
(ii) Demand Registration.
-------------------
(A) Request by Holders. If the Company, at any time after
------------------
the six-month anniversary of the date the Company's first Qualified IPO was
consummated (or if the Company's initial public offering is not a Qualified IPO
and prior to the consummation thereof all of the Preferred Shares were converted
into Conversion Shares, at any time after the six-month anniversary of the date
such initial public offering was consummated), receives a written request from
the Holders of at least 50% of the Registrable Securities then outstanding that
the Company file a registration statement under the Securities Act covering the
registration of Registrable Securities pursuant to this Section 5(c)(ii), then
the Company shall (1) within 10 business days after the receipt of such written
request, give written notice of such request (a "Request Notice") to all Holders
--------------
and (2) use its best efforts to effect, as soon as practicable, the registration
under the Securities Act of all Registrable Securities that the Holders request
to be included in such registration by written notice given by such Holders to
the Company within 20 days after receipt of the Request Notice; provided,
--------
however, that the Company shall not be obligated to effect any such registration
- -------
if: (x) the Company has, within the 12-month period preceding the date of such
request, already effected a registration under the Securities Act pursuant to
this Section 5(c)(ii) or Section 5(c)(iv); (y) the Company has, within the 6-
month period preceding the date of such request, already effected a registration
under the Securities Act in which the Holders had an opportunity to participate
pursuant to Section 5(c)(iii), other than on a registration from which the
Registrable Securities of Holders have been excluded (with respect to all or any
portion of the Registrable Securities the Holders requested be included in such
registration) pursuant to the provisions of Section 5(c)(iii)(B); or (z) the
initial public offering price to the public for shares to be sold in such
registration would be less than $7,500,000 in the aggregate.
(B) Underwriting. If the Holders initiating a registration
------------
request under this Section 5(c)(ii) (the "Initiating Holders") intend to
------------------
distribute the Registrable Securities covered by their request through
underwriters, then they shall so advise the Company as a part of their request,
and the Company shall include such information in the applicable
14
<PAGE>
Request Notice. In such event, the right of any Holder to include all or part of
such Holder's Registrable Securities in such registration shall be conditioned
upon such Holder's participation in such underwriting, and the inclusion in the
underwriting of such Holder's Registrable Securities requested for inclusion in
such registration (unless otherwise mutually agreed by Holders of a majority of
Registrable Securities held by the Initiating Holders and such Holder determined
based on the number of Registrable Securities held by such Holders and being
registered). All Holders proposing to distribute their securities through such
underwriting shall enter into an underwriting agreement in customary form with
the managing underwriter or underwriters selected for such underwriting by the
Holders of a majority of the Registrable Securities being registered and
reasonably acceptable to the Company (including a lock-up agreement of up to 180
days if required by such underwriters, provided, all officers and directors of
--------
the Company then holding Common Stock and all persons holding more than one
percent of the outstanding Common Stock enter into agreements with the same
restrictions); provided, however, that it shall not be considered customary to
-------- -------
require any of the Holders to provide representations and warranties regarding
the Company or, except as provided for in Section 5(c)(vii)(B), indemnification
of the underwriters for material misstatements or omissions in the registration
statement or prospectus for such offering. Notwithstanding any other provision
of this Section 5(c)(ii), if the underwriter(s) advise(s) the Company in writing
that marketing factors require a limitation of the number of securities to be
underwritten then the Company shall so advise all Holders of Registrable
Securities which would otherwise be registered and underwrit ten pursuant
hereto, and the number of Registrable Securities that may be included in the
underwriting shall be reduced as required by the underwriter(s), and the
reduction shall be allocated among the Holders of Registrable Securities
requested for inclusion in such registration on a pro rata basis according to
the number of Registrable Securities requested for inclusion in such
registration and owned of record by each Holder requesting registration
(including the Initiating Holders); provided, however, that the number of shares
-------- -------
of Registrable Securities to be included in such underwriting and registration
shall not be reduced unless all other securities of the Company are first
entirely excluded from the underwriting and registration. Any Registrable
Securities excluded and withdrawn from such underwriting shall be withdrawn from
the registration.
(C) Number of Demand Registrations. The Company shall be
------------------------------
obligated to effect only two registrations pursuant to this Section 5(c)(ii).
(D) Deferral. Notwithstanding the foregoing, if the Company
--------
shall furnish to Initiating Holders a certificate signed by the President or
Chief Executive Officer of the Company stating that in the good faith judgment
of the Board it would be materially detrimental to the Company and its
stockholders for such registration statement to be filed, then the Company shall
have the right to defer such filing for a period of not more than 90 days after
receipt of the request of the Initiating Holders; provided, however, that the
-------- -------
Company shall not
15
<PAGE>
be entitled to exercise its right of deferral more than once within any 12-month
period following the date of such a request.
(E) Expenses. The Company shall pay all expenses incurred
--------
in connection with any registration effected pursuant to this Section 5(c)(ii),
including all SEC and Blue Sky registration, filing and qualification fees,
printer and accounting fees and fees and disbursements of the Company's and the
Holders' respective counsel, but excluding underwriters' and brokers' discounts,
commissions, allowances, reallowances and other similar amounts payable or
allowable to underwriters or brokers relating to shares sold by the Holders.
Each Holder participating in a registration effected pursuant to this Section
5(c)(ii) shall bear such Holder's proportionate share (based on the total number
of shares sold in such registration other than for the account of the Company)
of all discounts, commissions, allowances, reallowances or other amounts payable
or allowable to underwriters or brokers in connection with such offering by the
Holders. Notwithstanding the foregoing, the Company shall not be required to pay
the expenses incurred in connection with any registration begun pursuant to this
Section 5(c)(ii) if the registration request is subsequently withdrawn at the
request of the Holders of a majority of the Registrable Securities to be
registered, unless the Holders of a majority of the Registrable Securities then
outstanding agree that such registration constitutes the use by the Holders of
one of their two demand registrations pursuant to this Section (5)(c)(ii) (in
which case such registration shall also constitute the use by all Holders of
Registrable Securities of one of their two such demand registrations under this
Section 5(c)(ii)).
(iii) Piggyback Registrations.
-----------------------
(A) The Company shall notify all Holders of Registrable
Securities in writing at least 30 days prior to filing any registration
statement under the Securities Act (other than a registration on Form S-8 or
Form S-4) for purposes of effecting a public offering of securities of the
Company (including, but not limited to, registration statements relating to
secondary offerings of securities of the Company, but excluding registration
statements relating to any employee benefit plan or any merger or other
corporate reorganization) and shall afford each such Holder an opportunity to
include in such registration statement all or any part of the Registrable
Securities then held by such Holder. Each Holder desiring to include in any such
registration statement all or any part of the Registrable Securities held by
such Holder shall within 20 days after receipt of the above-described notice
from the Company so notify the Company in writing and, in such notice, shall
inform the Company of the number of Registrable Securities such Holder wishes to
include in such registration statement. If a Holder decides not to include all
of its Registrable Securities in any registration statement thereafter filed by
the Company, such Holder shall nevertheless continue to have the right to
include any Registrable Securities in any subsequent registration statement or
registration statements as may be filed by
16
<PAGE>
the Company with respect to offerings of its securities, all upon the terms and
conditions set forth herein.
(B) Underwriting. If a registration statement under which
------------
the Company gives notice under this Section 5(c)(iii) is for an underwritten
offering, then the Company shall so advise the Holders of Registrable
Securities. In such event, the right of any Holder to include all or part of
such Holder's Registrable Securities included in such a registra tion statement
shall be conditioned upon such Holder's participation in such underwriting and
the inclusion in the underwriting of such Holder's Registrable Securities
requested for inclusion in such registration to the extent provided in this
Section 5(c)(iii). All Holders proposing to distribute their Registrable
Securities through such underwriting shall enter into an underwriting agreement
in customary form with the managing underwriter or underwriters selected for
such underwriting (including a lock-up agreement of up to 180 days if required
by such underwriters, provided, all officers and directors of the Company then
--------
holding Common Stock and all persons holding more than one percent of the
outstanding Common Stock enter into agreements with the same restrictions);
provided, however, that it shall not be considered customary to require any of
- -------- -------
the Holders to provide representations and warranties regarding the Company or,
except as provided for in Section 5(c)(viii)(B), indemnification of the
underwriters for material misstatements or omissions in the registration
statement or prospectus for such offering. Notwithstanding any other
provision of this Agreement, if the Company and the managing underwriter(s)
determine in good faith that marketing factors require a limitation of the
number of shares to be underwritten, then the Company and the managing
underwriter(s) may exclude shares from the registration and the underwriting,
and the number of shares that may be included in the registra tion and the
underwriting shall be allocated, first to the Company or the selling
-----
stockholders for which the registration was initiated, and second to each of the
------
Holders and each of the other holders of piggyback registration rights on a
parity with the Holders requesting inclusion of their Registrable Securities in
such registration statement on a pro rata basis based on the total number of
Registrable Securities and other securities requested for inclusion in such
registration by each such Holder or other holder.
(C) Expenses. The Company shall pay all expenses incurred
--------
in connection with any registration referred to in this Section 5(c)(iii),
including all SEC and Blue Sky registration, filing and qualification fees,
printer and accounting fees and fees and disburse ments of the Company's and the
Holders' respective counsel, but excluding underwriters' and brokers' discounts,
commissions, allowances, reallowances and other similar amounts payable or
allowable to underwriters or brokers relating to shares sold by the Holders.
Each Holder participating in a registration effected pursuant to this Section
5(c)(iii) shall bear such Holder's proportionate share (based on the total
number of shares sold in such registration other than for the account of the
Company) of all discounts, commissions, allowances, reallowances or other
17
<PAGE>
amounts payable or allowable to underwriters or brokers in connection with such
offering by the Holders.
(D) Not Demand Registration. Registration pursuant to this
-----------------------
Section 5(c)(iii) shall not be deemed to be a demand registration as described
in Section 5(c)(ii). Except as otherwise provided herein, there shall be no
limit on the number of times the Holders may request registration of Registrable
Securities under this Section 5(c)(iii).
(iv) Shelf Registration. If the Company shall, at any time after
------------------
the earlier of (x) the one-year anniversary of the date the Company's first
Qualified IPO was consummated (or if the Company's initial public offering is
not a Qualified IPO and prior to the consummation thereof all of the Preferred
Shares were converted into Conversion Shares, at any time after the one-year
anniversary of the date such initial public offering was consummated), and (y)
such time as the registration of the Registrable Securities under the Securities
Act can be effected by the Company on Form S-3, receive a written request from
Holders of at least 50% of all Registrable Securities then outstanding that the
Company effect a registration on Form S-3 for a public offering on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act with respect to
all or a part of the Registrable Securities owned by such Holders, then the
Company will:
(A) Notice. Promptly give written notice of such request to
------
all other Holders of Registrable Securities; and
(B) Registration. As soon as practicable, effect the
------------
registration of all or such portion of the Registrable Securities specified in
such initial request, together with all or such portion of the Registrable
Securities of any other Holder or Holders joining in such request as are
specified in a written notice given within 20 days after the Company provides
the notice contemplated by Section 5(c)(iv)(A); provided, however, that the
-------- -------
Company shall not be obligated to effect any such registration pursuant to this
Section 5(c)(iv):
(1) if Form S-3 is not available for such offering by
the Holders;
(2) if the Holders, together with the holders of any
other securities of the Company entitled to inclusion in such registration,
propose to sell Registrable Securities and such other securities (if any) at an
aggregate price to the public of less than $5,000,000;
(3) if the Company shall furnish to the Holders a
certificate signed by the President or Chief Executive Officer of the Company
stating that in the
18
<PAGE>
good faith judgment of the Board of Directors of the Company, it would be
materially detrimental to the Company and its stockholders for such Form S-3
registration to be effected at such time, in which event the Company shall have
the right to defer the filing of the Form S-3 registration statement for a
period of not more than 90 days after receipt of the request of the initiating
Holders under this Section 5(c)(iv); provided, however, that the Company shall
-------- -------
not be entitled to exercise its right of deferral more than once within any 12-
month period following the date of such a request;
(4) if the Company has, within the 12-month period
preceding the date of such request, already effected a registration under the
Securities Act, other than a registration from which the Registrable Securities
of Holders have been excluded (with respect to all or any portion of the
Registrable Securities the Holders requested be included in such registration)
pursuant to the provisions of Section 5(c)(iii)(B); or
(5) in any particular jurisdiction in which the Company
would be required to qualify to do business or to execute a general consent to
service of process in effecting such registration, qualification or compliance.
(C) Number of Shelf Registrations. The Company shall be
-----------------------------
obligated to effect only two registrations pursuant to this Section 5(c)(iv).
(D) Discontinuance of Disposition. The Holders agree that
-----------------------------
upon receipt of any notice from the Company that, in the good faith judgment of
the Board of Directors of the Company, any Holder's disposition of Registrable
Securities pursuant to any shelf registration would require the Company to make
public disclosure of information which the Company has a bona fide business
purpose for preserving as confidential, the Holders shall forthwith discontinue
such disposition of Registrable Securities pursuant to such shelf registra tion
until the earlier of (x) the date upon which such material information is
disclosed to the public or ceases to be material or (y) 180 days after the
Company makes such good faith determination. If there is such a discontinuance
of the disposition of Registrable Securities pursuant to this Section
5(c)(iv)(D), the 90-day period set forth in Section 5(c)(v)(A) shall be extended
for a number of days equal to the number of days for which such disposition was
suspended.
(E) Expenses. The Company shall pay all expenses incurred in
--------
connection with any registration referred to in this Section 5(c)(iv), including
all SEC and Blue Sky registration, filing and qualification fees, printer and
accounting fees and fees and disburse ments of the Company's and the Holders'
respective counsel, but excluding underwriters' and brokers' discounts,
commissions, allowances, reallowances and other similar amounts payable or
allowable to underwriters or brokers relating to shares sold by the Holders.
Each Holder
19
<PAGE>
participating in a registration effected pursuant to this Section 5(c)(iv) shall
bear such Holder's proportionate share (based on the total number of shares sold
in such registration other than for the account of the Company) of all
discounts, commissions, allowances, reallowances or other amounts payable or
allowable to underwriters or brokers in connection with such offering by the
Holders. Notwithstanding the foregoing, the Company shall not be required to pay
the expenses incurred in connection with any registration begun pursuant to this
Section 5(c)(iv) if the registration request is subsequently withdrawn at the
request of the Holders of a majority of the Registrable Securities to be
registered, unless the Holders of a majority of the Registrable Securities then
outstanding agree that such registration constitutes the use by the Holders of
one of their two shelf registrations pursuant to this Section (5)(c)(iv) (in
which case such registration shall also constitute the use by all Holders of
Registrable Securities of one of their two such shelf registrations under this
Section 5(c)(iv)).
(F) Not Demand Registration. Shelf registrations
-----------------------
pursuant to this Section 5(c)(iv) shall not be deemed to be demand registrations
as described in Section 5(c)(ii).
(v) General Registration Obligations of the Company. Whenever
-----------------------------------------------
required to effect the registration of any Registrable Securities under this
Agreement, the Company shall, as expeditiously as reasonably possible:
(A) Registration Statement. Prepare and file with the
----------------------
SEC a statement with respect to such Registrable Securities and use its best
efforts to cause such registration statement to become effective as promptly as
possible after the filing date; provided, however, that except as otherwise
-------- -------
required by this Section 5(c), the Company shall not be required to keep any
such registration statement effective for more than 120 days (or such shorter
period of time as is required to complete the distribution of the registered
offering).
(B) Amendments and Supplements. Prepare and file with
--------------------------
the SEC such amendments and supplements to such registration statement and the
prospectus used in connection with such registration statement as may be
necessary to comply with the provisions of the Securities Act with respect to
the disposition of all securities covered by such registration statement.
(C) Prospectuses. Furnish to the Holders such number of
------------
copies of a prospectus, including a preliminary prospectus, in conformity with
the requirements of the Securities Act and such other documents as they may
reasonably request in order to facilitate the disposition of the Registrable
Securities owned by them that are included in such registration.
20
<PAGE>
(D) Blue Sky. Use its best efforts to register and qualify
--------
the securities included in such registration under the securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
(E) Underwriting. In the event of any underwritten public
------------
offering, enter into an underwriting agreement in usual and customary form with
the managing underwriter(s) of such offering and perform its obligations
thereunder.
(F) Agreement to Indemnify. The Company shall execute and
----------------------
deliver to the selling Holders, against execution of the same by such selling
Holders, an agreement (which may, but need not, be an underwriting agreement)
providing for indemnification and contribution as described in Section
5(c)(vii).
(G) Notification. Notify each Holder of Registrable
------------
Securities included in such registration at any time when a prospectus relating
thereto is required to be delivered under the Securities Act of the happening of
any event as a result of which the prospectus included in the registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
then existing.
(H) Opinion and Comfort Letter. Furnish to the Holders, at
--------------------------
the request of any Holder requesting registration of Registrable Securities, on
the date that such Registrable Securities are delivered to the underwriters for
sale, if such securities are being sold through underwriters, or, if such
securities are not being sold through underwriters, on the date that the
registration statement with respect to such securities becomes effective, (1) an
opinion, dated as of such date, of the counsel representing the Company for the
purposes of such registration, in form and substance as is customarily given by
issuer's counsel to underwriters in an underwritten public offering and
reasonably satisfactory to the Holders of a majority of the Registrable
Securities included in the registration, addressed to the underwriters, if any,
and to the Holders requesting registration of Registrable Securities and (2) if
permitted by applicable accounting rules, a "comfort" letter, dated as of such
date, from the independent certified public accountants of the Company, in form
and substance as is customarily given by independent certified public
accountants to underwriters in an underwritten public offering and reasonably
satisfactory to the Holders of a majority of Registrable Securities included in
the registration, addressed to the underwriters, if any, and to the Holders
requesting registration of Registrable Securities.
21
<PAGE>
(vi) Furnish Information. It shall be a condition precedent to
-------------------
the obligations of the Company to take any action pursuant to Section 5(c)(ii),
(iii) or (iv) that the selling Holders shall furnish to the Company such
information regarding themselves, the Registrable Securities held by them and
the intended method of disposition of such securities as shall reasonably be
required to timely effect the registration of their Registrable Securities.
(vii) Indemnification. In the event any Registrable Securities
---------------
are included in a registration effected under Section 5(c)(ii), (iii) or (iv):
(A) By the Company. To the extent permitted by law, the
--------------
Company shall agree to indemnify and hold harmless each Holder, the partners,
officers, stockholders, employees, representatives and directors of each Holder,
any underwriter (as defined in the Securities Act) for such Holder and each
Person, if any, who controls such Holder or underwriter within the meaning of
the Securities Act or the Exchange Act, against any losses, claims, damages or
liabilities (joint or several) to which any of them may become subject under the
Securities Act, the Exchange Act or other federal or state law, insofar as such
losses, claims, damages or liabilities (or Actions in respect thereto) arise out
of or are based upon any of the following statements, omissions or violations,
subject to customary exceptions and qualifications (each, a "Violation"):
---------
(1) any untrue statement or alleged untrue statement
of a material fact contained in the registration statement pursuant to which
such registration was effected; or
(2) the omission or alleged omission to state in the
registration statement pursuant to which such registration was effected a
material fact required to be stated therein, or necessary to make the statements
therein not misleading.
(B) By Selling Holders. To the extent permitted by law,
------------------
each selling Holder shall agree to indemnify and hold harmless the Company, its
officers, employees, representatives and directors, each Person, if any, who
controls the Company within the meaning of the Securities Act, any underwriter
and any other Holder selling securities under such registration statement or any
of such other Holder's partners, officers, stockholders, employees,
representatives and directors and any Person who controls such underwriter or
Holder within the meaning of the Securities Act or the Exchange Act, against any
losses, claims, damages or liabilities (joint or several) to which any of them
may become subject under the Securities Act, the Exchange Act or other federal
or state law, insofar as such losses, claims, damages or liabilities (or Actions
in respect thereto) arise out of or are based upon any Violation, subject to
customary exceptions and qualifications, in each case to the extent that such
Violation occurs in
22
<PAGE>
reliance upon and in conformity with written information furnished by such
Holder expressly for use in connection with such registration.
(C) Contribution. In order to provide for just and
------------
equitable contribution to joint liability under the Securities Act in any case
in which (1) an indemnified party makes a claim for indemnification but it is
judicially determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial of the
last right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that the parties shall have agreed to provide for
indemnification in such case, or (2) contribution under the Securities Act may
be required on the part of any such indemnified party in circumstances for which
the parties shall have agreed to provide indemnification hereunder; then, and
in each such case, the Company and such Holder shall contribute to the aggregate
losses, claims, damages or liabilities to which they may be subject (after
contribution from others).
(viii) Termination of the Company's Obligations. The Company
----------------------------------------
shall have no further obligations pursuant to this Section 5(c) with respect to
any Registrable Securities proposed to be sold by a Holder in a registration
pursuant to Section 5(c)(ii), (iii) or (iv) after the fifth anniversary of the
effective date of the Company's initial public offering or if, in the written
opinion of counsel to the Company reasonably acceptable to counsel for that
Holder, all such Registrable Securities proposed to be sold by that Holder may
then be sold under Rule 144 promulgated under the Securities Act in any three-
month period without exceeding the volume limitations thereunder.
(d) Standstill.
----------
(i) Standstill Agreement. The Investor agrees that, for a
--------------------
period of two years from the Closing Date neither it nor any of its affiliates
(as defined in Rule 12b-2 under the Exchange Act) will, directly or indirectly,
either alone or in concert with one or more other Persons, without the prior
written consent of the Board, acquire or agree or offer to acquire, or solicit
or seek to effect or negotiate with respect to the acquisition of, or make any
statement or inquiry regarding any actual or potential acquisition of (other
than a statement that discloses the existence and terms of this Section 5(d)),
any additional securities of the Company or its subsidiaries, or any rights to
purchase such securities, if the effect of such acquisition would be to cause
the Investor and its affiliates to beneficially own, collectively, securities of
the Company representing more than 9.9% of the voting power of the Company;
provided, however, that this Section 5(d)(i) shall not restrict the Investor or
- -------- -------
its affiliates from acquiring, in the aggregate, up to 0.5% of the outstanding
shares of Common Stock of the Company on a fully diluted basis as provided
pursuant to Section 5(e).
23
<PAGE>
(ii) Termination. The provision set forth in Section 5(d)(i)
-----------
shall automatically terminate in the event that any Person (other than the
Investor or any of its affiliates) publicly announces an unsolicited proposal
for a "Change of Control" of the Company. For the purposes of this Section 5(d),
-----------------
"Change of Control" shall mean any transaction as a result of which any Person,
-----------------
or any two or more Persons acting as a group and all affiliates of such Person
or Persons (a "Group"), who prior to such time owned less than 50% of the then
-----
outstanding capital stock of the Company shall acquire such additional shares
of the Company's capital stock in one or more transactions or series of
transactions, and after such transaction or transactions, such Person or Group
beneficially owns 50% or more of the Company's outstanding capital stock.
(e) Right to Participate. In connection with the Company's first
--------------------
Qualified IPO (or if the Company's initial public offering is not a Qualified
IPO and prior to the consummation thereof all of the Preferred Shares were
converted into Conversion Shares, in connection with such initial public
offering) (such Qualified IPO or initial public offering, as applicable, an
"Offering") the Company shall use all commercially reasonable efforts to require
--------
that its underwriters make an offering of the shares of Common Stock to be sold
in such Offering to the Investor in accordance with the following provisions:
(i) The Company would deliver (or cause to be delivered) a copy
of the preliminary prospectus for such Offering to the Investor simultaneously
with the distribution of same to the public at large by the underwriters;
(ii) If the Investor were interested in participating in such
Offering, the Investor would be permitted to purchase, at the gross price per
share negotiated by the Company with the underwriters as reflected in the final
prospectus, up to an aggregate of 0.5% of the outstanding shares of Common Stock
of the Company on a fully diluted basis, by written notice received by the
Company not later than five business days prior to the "pricing" of such
Offering; and
(iii) Notwithstanding the foregoing, the underwriters of such
Offering would be entitled to reduce the number of shares of Common Stock to be
offered to the Investor in accordance with this Section 5(e) to the extent
deemed necessary in the underwriters' reasonable judgment (A) to ensure the
success of such Offering for reasons set forth in a written notice to the
Investor no less than one week prior to the anticipated effective date of the
registration statement covering such Offering or (B) to comply with applicable
rules and regulations for reasons set forth in written notice to the Investor no
less than one day prior to the anticipated effective date of the registration
statement covering such Offering.
24
<PAGE>
(f) Filing of Reports. The Company will, from and after such time,
-----------------
and for so long, as it has securities registered pursuant to Section 12 of the
Exchange Act or has securities registered pursuant to the Securities Act, make
timely filing of such reports as are required to be filed by it with the SEC in
a manner consistent with making available to the Holders of Registrable
Securities Rule 144 or Rule 144A under the Securities Act (or any successor
provision thereto). The Company agrees that, promptly after receiving a request
from Holder of Registrable Securities, the Company shall provide to such Holder
(i) a copy of the most recent annual or quarterly report of the Company as filed
with the SEC and (ii) such other publicly filed reports and documents as a
Holder may reasonably request in availing itself of any rule or regulation of
the SEC allowing a Holder to sell any such Registrable Securities without
registration.
6. INDEMNIFICATION.
---------------
(a) Agreement to Indemnify.
----------------------
(i) Company Indemnity. The Investor, its Affiliates and
-----------------
Associates (each as defined below), and each officer, director, stockholder,
employer, representative and agent of any of the foregoing (collectively, the
"Investor Indemnitees"), shall each be indemnified by the Company and held
--------------------
harmless to the extent set forth in this Section 6 with respect to any and all
Damages (as defined below) incurred by any Investor Indemnitee as a proximate
result of any inaccuracy or misrepresentation in, or breach of, any
representation, warranty, covenant or agreement made by the Company in this
Agreement (including any exhibits, schedules or disclosure letters hereto). This
Section 6 does not provide for indemnification for claims arising from the
registration of Conversion Shares under federal and state securities laws.
(ii) Investor Indemnity. The Company, its respective Affiliates
------------------
and Associates, and each officer, director, stockholder, employer,
representative and agent of any of the foregoing (collectively, the "Company
-------
Indemnitees"), shall each be indemnified and held harmless to the extent set
- -----------
forth in this Section 6 by the Investor in respect of any and all Damages
incurred by any Company Indemnitee as a proximate result of any inaccuracy or
misrepresentation in, or breach of, any representation, warranty, covenant or
agreement made by the Investor in this Agreement. This Section 6 does not
provide for indemnification for claims arising from the registration of
Conversion Shares under federal and state securities laws.
(iii) Equitable Relief. Nothing set forth in this Section 6
----------------
shall be deemed to prohibit or limit the right of any Investor Indemnitee or
Company Indemnitee (an "Indemnitee") at any time before, on or after the
----------
Closing, to seek injunctive or other equitable relief for the failure of any
Indemnifying Party to perform or comply with any covenant or agreement contained
herein.
25
<PAGE>
(b) Survival. All representations and warranties of the Investor and
--------
the Company contained herein and all claims of any Indemnitee in respect of any
inaccuracy or misrepresentation or breach, shall survive the Closing until the
first anniversary of the Closing Date, regardless of whether the applicable
statute of limitations, including extensions thereof, may expire; provided,
--------
however, notwithstanding the foregoing, the representations and warranties of
- -------
the Company contained in Section 3(d) shall survive the Closing until such time
as the applicable statute of limitations expires. All covenants and agreements
of the Investor and the Company contained in this Agreement shall survive the
Closing in perpetuity (except to the extent any such covenant or agreement shall
terminate or expire by its terms). All claims of any Indemnitee in respect of
any breach of such covenants or agreements shall survive the Closing until the
expiration of one year following the non-breaching party's obtaining actual
knowledge of such breach; provided that the covenant or agreement has not
terminated or expired by its terms prior to the date the claim is made.
(c) Claims for Indemnification. If any Indemnitee shall believe that
--------------------------
such Indemnitee is entitled to indemnification pursuant to this Section 6 in
respect of any Damages, such Indemnitee shall give the appropriate "Indemnifying
------------
Party" (which, for purposes hereof, in the case of an Investor Indemnitee, means
- -----
the Company and, in the case of a Company Indemnitee, means the Investor) prompt
written notice thereof. Any such notice shall set forth in reasonable detail
and to the extent then known the basis for such claim for indemnification. The
failure of such Indemnitee to give notice of any claim for indemnification
promptly shall not adversely affect such Indemnitee's right to indemnity
hereunder except to the extent that such failure adversely affects the right of
the Indemnifying Party to assert any reasonable defense to such claim. Each
such claim for indemnity shall expressly state that the Indemnifying Party shall
have only the 20-business-day period referred to in the next sentence to dispute
or deny such claim. The Indemnifying Party shall have 20 business days
following its receipt of such notice either (i) to acquiesce in such claim by
giving such Indemnitee written notice of such acquiescence or (ii) to object to
the claim by giving such Indemnitee written notice of the objection. If the
Indemnifying Party does not object thereto within such 20-business-day period,
such Indemnitee shall be entitled to be indemnified for all Damages reasonably
and proximately incurred by such Indemnitee in respect of such claim. If the
Indemnifying Party objects to such claim in a timely manner, the senior
management of the Company and the Investor shall meet to attempt to resolve such
dispute. If the dispute cannot be resolved by senior management of the Company
and Investor, either party may make a written demand for formal dispute
resolution and specify therein the scope of the dispute. Within 30 days after
such written notification, the parties agree to meet for one day with an
impartial mediator and consider dispute resolution alternatives other than
litigation. If an alternative method of dispute resolution is not agreed upon
within 30 days after the one-day mediation, either party may begin litigation
proceedings. Nothing in this Section 6(c) shall be deemed to require
arbitration.
26
<PAGE>
(d) Defense of Claims. In connection with any claim that may give
-----------------
rise to indemnity under this Section 6 resulting from or arising out of any
claim or Proceeding (as defined below) against an Indemnitee by a Person that is
not a party hereto, the Indemnifying Party may (unless such Indemnitee elects
not to seek indemnity hereunder for such claim) but shall not be obligated to,
upon written notice to the relevant Indemnitee, assume the defense of any such
claim or Proceeding if the Indemnifying Party with respect to such claim or
Proceeding acknowledges to the Indemnitee the Indemnitee's right to indemnity
pursuant hereto to the extent provided herein (as such claim may have been
modified through written agreement of the parties) and provides assurances,
reasonably satisfactory to such Indemnitee, that the Indemnifying Party shall be
financially able to satisfy such claim to the extent provided herein if such
claim or Proceeding is decided adversely; provided, however, that nothing set
-------- -------
forth herein shall be deemed to require the Indemnifying Party to waive any
cross-claims or counterclaims for Damages the Indemnifying Party may have
against the Indemnitee. The Indemnitee shall be entitled to retain separate
counsel, reasonably acceptable to the Indemnifying Party, if the Indemnitee
shall determine, upon the written advice of counsel, that an actual or potential
conflict of interest exists between the Indemnifying Party and the Indemnitee in
connection with such Proceeding. The Indemnifying Party shall be obligated to
pay the reasonable fees and expenses of such separate counsel to the extent the
Indemnitee is entitled to indemnification by the Indemnifying Party with respect
to such claim or Proceeding under this Section 6(d). If the Indemnifying Party
assumes the defense of any such claim or Proceeding, the Indemnifying Party
shall select counsel reasonably acceptable to such Indemnitee to conduct the
defense of such claim or Proceeding, shall take all steps necessary in the
defense or settlement thereof and shall at all times diligently and promptly
pursue the resolution thereof. If the Indemnifying Party shall have assumed the
defense of any claim or Proceeding in accordance with this Section 6(d), the
Indemnifying Party shall be authorized to consent to a settlement of, or the
entry of any judgment arising from, any such claim or Proceeding; provided,
--------
however, that the Indemnifying Party shall pay or cause to be paid all amounts
- -------
arising out of such settlement or judgment concurrently with the effectiveness
thereof; provided further, that the Indemnifying Party shall not be authorized
-------- -------
to encumber any of the assets of any Indemnitee or to agree to any restriction
that would apply to any Indemnitee or to its conduct of business without the
prior written consent of the Indemnitee; and provided further, that a condition
-------- -------
to any such settlement shall be a complete release of such Indemnitee and its
Affiliates, directors, officers, employees and agents with respect to such
claim, including any reasonably foreseeable collateral consequences thereof.
Such Indemnitee shall be entitled to participate in (but not control) the
defense of any such Action, with its own counsel and at its own expense. Each
Indemnitee shall, and shall cause each of its Affiliates, directors, officers,
employees and agents to, cooperate fully with the Indemnifying Party in the
defense of any claim or Proceeding being defended by the Indemnifying Party
pursuant to this Section 6(d). If the Indemnifying Party does not assume the
defense of any claim or Proceeding resulting therefrom in accordance with the
terms of this Section 6(d), such
27
<PAGE>
Indemnitee may defend against such claim or Proceeding in such manner as it may
deem appropriate, including settling such claim or Proceeding after giving
notice of the same to the Indemnifying Party, on such terms as such Indemnitee
may deem appropriate. If any Indemnifying Party seeks to question the manner in
which such Indemnitee defended such claim or Proceeding or the amount or nature
of any such settlement, such Indemnifying Party shall have the burden to prove
by a preponderance of the evidence that such Indemnitee did not defend such
claim or Proceeding in a reasonably prudent manner.
(e) Certain Definitions. As used in this Section 6, or any other
-------------------
Section where such definition is expressly referenced: (i) "Affiliate" means,
---------
with respect to any Person, any Person directly or indirectly controlling,
controlled by or under direct or indirect common control with such other Person;
(ii) "Associate" means, when used to indicate a relationship with any Person,
---------
(A) any other Person of which such first Person is an officer, director or
partner or is, directly or indirectly, the beneficial owner of 10% or more of
any class of equity securities, membership interests or other comparable
ownership interests issued by such other Person, (B) any trust or other estate
in which such first Person has a 10% or more beneficial interest or as to which
such first Person serves as trustee or in a similar fiduciary capacity, and (C)
if such first Person is an individual, any relative or spouse of such first
Person who has the same home as such first Person or who is a director or
officer of such first Person; (iii) "Damages" means all demands, claims, actions
-------
or causes of action, assessments, losses, damages, costs, expenses, liabilities,
judgments, awards, fines, response costs, sanctions, taxes, penalties, charges
and amounts paid in settlement, including reasonable out-of-pocket costs, fees
and expenses (including reasonable costs, fees and expenses of attorneys,
accountants and other agents of, or other parties retained by, such party); and
(iv) "Proceeding" means any action, suit, hearing, arbitration, audit,
----------
proceeding (public or private) or investigation that is brought or initiated by
or against any federal, state, local or foreign governmental authority or any
other Person.
7. ASSIGNMENT AND DELEGATION. Notwithstanding anything herein to the
-------------------------
contrary:
(a) Information Rights. The information rights of the Investor under
------------------
Section 5(b) are transferable to (i) any Holder who acquires a number of
Purchased Shares or Conversion Shares equal to at least 50% of the sum of (A)
the number of Conversion Shares actually issued upon the conversion of Purchased
Shares originally issued pursuant to this Agreement and (B) the number of
Conversion Shares issuable upon the conversion of Purchased Shares originally
issued pursuant to this Agreement or (ii) Dell Computer Corporation ("Dell") or
any entity wholly-owned by Dell for so long as the same are Affiliates (as such
term is defined in Section 6(e)(i)) of the Investor; provided, however, that no
-------- -------
Person may be assigned any of the foregoing rights unless the Company is given
written notice by the assigning party at the time of such assignment stating the
name and address of the assignee and identifying the securities of the
28
<PAGE>
Company as to which the rights in question are being assigned; provided further,
-------- -------
that any such assignee shall receive such assigned rights subject to all the
terms and conditions of this Agreement.
(b) Registration Rights. The registration rights of the Investor
-------------------
under Section 5(c) may be assigned to (i) any Holder who acquires a number of
Purchased Shares or Conversion Shares equal to at least 50% of the sum of (A)
the number of Conversion Shares actually issued upon the conversion of Purchased
Shares originally issued pursuant to this Agreement and (B) the number of
Conversion Shares issuable upon the conversion of Purchased Shares originally
issued pursuant to this Agreement or (ii) Dell or any entity wholly-owned by
Dell for so long as the same are Affiliates (as such term is defined in Section
(6)(e)(i)) of the Investor; provided, however, that no Person may be assigned
-------- -------
any of the foregoing rights unless the Company is given written notice by the
assigning party at the time of such assignment stating the name and address of
the assignee and identifying the securities of the Company as to which the
rights in question are being assigned; provided further, that any such assignee
-------- -------
shall receive such assigned rights subject to all the terms and conditions of
this Agreement.
8. TRANSFERABILITY OF PURCHASED SHARES. Except as prohibited by law, the
-----------------------------------
Investor may sell or otherwise transfer any Purchased Shares and Conversion
Shares to any other Person.
9. MISCELLANEOUS.
-------------
(a) Successors and Assigns. The terms and conditions of this
----------------------
Agreement shall inure to the benefit of and be binding upon the respective
assigns of the parties, provided such assignment was made in accordance with
Section 7 and upon the respective successors of the parties.
(b) Governing Law. This Agreement shall be governed by and construed
-------------
under the internal laws of the State of Delaware, without reference to
principles of conflict of laws or choice of laws.
(c) Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(d) Headings. The headings and captions used in this Agreement are
--------
used for convenience only and are not to be considered in construing or
interpreting this Agreement. All references in this Agreement to sections,
paragraphs, exhibits and schedules shall, unless
29
<PAGE>
otherwise provided, refer to sections and paragraphs hereof and exhibits and
schedules attached hereto, all of which exhibits and schedules are incorporated
herein by this reference.
(e) Notices. Any notice required or permitted under this Agreement
-------
shall be given in writing, shall be effective when received and shall in any
event be deemed received and effectively given upon personal delivery to the
party to be notified or three business days after deposit with the United States
Post Office, by registered or certified mail, postage prepaid, or one business
day after deposit with a nationally recognized courier service, such as FedEx,
for next business day delivery under circumstances in which such service
guarantees next business day delivery, or one business day after facsimile
transmission, with a copy delivered by registered or certified mail, in any
case, postage prepaid and addressed to the party to be notified at the address
indicated for such party on the signature page hereof or at such other address
as the Investor or the Company may designate by giving at least 10 days' advance
written notice pursuant to this Section 9(e).
(f) Amendments and Waivers. This Agreement may be amended and the
----------------------
observance of any term of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively) only with the
written consent of the Company and the holders of a majority of the aggregate
number of Purchased Shares and Conversion Shares then outstanding (excluding any
of such shares that have been sold in a transaction in which rights under
Section 5(c) are not assigned in accordance with this Agreement or sold to the
public), computed on an as-converted basis. Any amendment or waiver effected in
accordance with this Section 9(f) shall be binding upon the Investor, the
Company and their respective successors and assigns.
(g) Severability. If any provision of this Agreement is held to be
------------
unenforceable under applicable law, such provision shall be excluded from this
Agreement and the balance of the Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
(h) Entire Agreement. This Agreement, together with all exhibits and
----------------
schedules hereto, constitutes the entire agreement and understanding of the
parties with respect to the subject matter hereof and supersedes any and all
prior negotiations, correspondence, agreements, understandings, duties or
obligations between the parties with respect to the subject matter hereof.
(i) Further Assurances. From and after the date of this Agreement,
------------------
upon the request of the Company or the Investor, the Investor or the Company,
respectively, shall execute and deliver such instruments, documents or other
writings as may be reasonably necessary or desirable to confirm, carry out and
effectuate fully the intents and purposes of this Agreement.
30
<PAGE>
(j) Construction. Whenever in this Agreement the word "include" or
------------
"including" is used, such term shall be deemed to mean "include, without
limitation," or "including, without limitation," or "including, but not limited
to," as the case may be, and the language following "include" or "including"
shall not be deemed to set forth an exhaustive list. The words "hereof,"
"herein," '"hereby," "hereunder" and similar terms in this Agreement refer to
this Agreement as a whole and not to any particular provision of this Agreement.
The word "or" is inclusive, unless the context otherwise requires. Article,
Section, subsection, paragraph, exhibit and schedule references are to this
Agreement unless otherwise specified.
(k) Fees, Costs and Expenses. Except as provided in Section 5(c), all
------------------------
fees, costs and expenses (including attorneys' fees and expenses) incurred by
either party hereto in connection with the preparation, negotiation and
execution of this Agreement and the consummation of the transactions
contemplated hereby (including the costs associated with any filings with, or
compliance with any of the requirements of, any governmental authorities) shall
be the sole and exclusive responsibility of such party.
(l) Competition. Nothing set forth herein shall be deemed to
-----------
preclude, limit or restrict the Company's or the Investor's ability to compete
with the other.
(m) Adjustments for Stock Splits, Etc. Wherever in this Agreement
---------------------------------
there is a reference to a specific number of shares of capital stock of the
Company, then, upon the occurrence of any subdivision, combination or stock
dividend of such shares of capital stock, the specific number of shares so
referenced in this Agreement automatically shall be proportionally adjusted to
reflect the effect on the outstanding shares of such class or series of stock by
such subdivision, combination or stock dividend.
(n) Delays or Omissions. No delay or omission to exercise any right,
-------------------
power or remedy accruing to the Company or to the Investor upon any breach or
default of any party hereto under this Agreement shall impair any such right,
power or remedy of the Company or the Investor nor shall it be construed to be a
waiver of any such breach or default, or an acquiescence therein, or of any
similar breach of default thereafter occurring. Any waiver, permit, consent or
approval of any kind or character on the part of the Company or the Investor of
any breach or default under this Agreement or any waiver on the part of the
Company or the Investor of any provisions or conditions of this Agreement must
be in writing and shall be effective only to the extent specifically set forth
in such writing. All remedies, either under this Agreement, or by law or
otherwise afforded to the Company or the Investor shall be cumulative and not
alternative.
(o) Dispute Resolution. The parties agree to negotiate in good faith
------------------
to resolve any dispute between them regarding this Agreement. If the
negotiations do not resolve the
31
<PAGE>
dispute to the reasonable satisfaction of both parties, then each party shall
nominate one senior officer of the rank of Vice President or higher as its
representative. These representatives shall, within 30 days of a written request
by either party to call such a meeting, meet in person and alone (except for one
assistant for each party) and shall attempt in good faith to resolve the
dispute. If the dispute cannot be resolved by such senior officer in such
meeting, the parties agree that they shall, if requested in writing by either
party, meet within 30 days after such written notification for one day with an
impartial mediator and consider dispute resolution alternatives other than
litigation. If an alternative method of dispute resolution is not agreed upon
within 30 days after the one-day mediation, either party may begin litigation
proceedings. This procedure shall be a prerequisite before taking any
additional action hereunder.
(p) Index of Defined Terms. The following terms shall have the
----------------------
respective meanings given to them in the sections indicated below:
<TABLE>
<CAPTION>
Defined Term Section
- ------------ -------
<S> <C>
"Action "............................................ 3(g)
"Affiliate".......................................... 6(e)(i)
"Aggregate Purchase Price"........................... 1(d)
"Agreement".......................................... Preamble
"Associate".......................................... 6(e)(ii)
"Balance Sheet Date"................................. 3(i)
"Board".............................................. 1(a)
"Certificate"........................................ 3(f)(i)
"Certificate of Designation"......................... 1(a)
"Change of Control".................................. 5(d)(ii)
"Closing"............................................ 2
"Closing Date"....................................... 2
"Code"............................................... 3(o)(ii)
"Common Stock"....................................... 1(a)
"Company"............................................ Preamble
"Company Indemnitees"................................ 6(a)(ii)
"Conversion Shares".................................. 3(d)(i)
"Damages"............................................ 6(e)(iii)
"Disclosure Letter".................................. 3
"Dell"............................................... 7(a)(ii)
"ERISA".............................................. 3(q)
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
Defined Term Section
- ------------ -------
<S> <C>
"Exchange Act"....................................... 5(b)(i)
"Financial Statements"............................... 3(i)
"Form S-3"........................................... 5(c)(i)(F)
"Form S-4"........................................... 5(c)(i)(F)
"Form S-8"........................................... 5(c)(i)(F)
"GAAP"............................................... 3(i)(iii)
"Group".............................................. 5(d)(ii)
"Holder"............................................. 5(c)(i)(D)
"Indemnifying Party"................................. 6(c)
"Indemnitee"......................................... 6(a)(iii)
"Initiating Holders"................................. 5(c)(ii)(B)
"Intellectual Property".............................. 3(l)(i)
"Investor"........................................... Preamble
"Investor Indemnitees"............................... 6(a)(i)
"Material Adverse Effect"............................ 3(a)(ii)
"Offering"........................................... 5(e)
"Per Share Purchase Price"........................... 1(c)
"Person"............................................. 5(c)(i)(B)
"Proceeding"......................................... 6(e)(iv)
"Purchased Shares"................................... 1(b)
"Qualified IPO"...................................... 5(c)(i)(E)
"Register"........................................... 5(c)(i)(A)
"Registered"......................................... 5(c)(i)(A)
"Registrable Securities"............................. 5(c)(i)(B)
"Registrable Securities Then Outstanding"............ 5(c)(i)(C)
"Registration"....................................... 5(c)(i)(A)
"Request Notice"..................................... 5(c)(ii)(A)
"SEC"................................................ 3(m)
"Securities Act"..................................... 3(d)(ii)
"Series D Agreement"................................. 3(w)(i)
"Series A Convertible Preferred Stock"............... 3(b)(ii)(A)
"Series B Convertible Preferred Stock"............... 3(b)(ii)(B)
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
Defined Term Section
- ------------ -------
<S> <C>
"Series C Convertible Preferred Stock"............... Recitals
"Series D Convertible Preferred Stock"............... 3(b)(ii)(D)
"Strategic Alliance Agreement"....................... Recitals
"Violation".......................................... 5(c)(vii)(A)
"Year 2000 Compliant "............................... 3(u)(i)
</TABLE>
34
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date and year first above written.
NAVISITE, INC. DELL USA L.P.
By: Dell Gen. P. Corp., a Delaware
corporation
By: /s/ Joel B. Rosen By: /s/ Alex C. Smith
--------------------------------- ----------------------------------
Name: Joel B. Rosen Name: Alex C. Smith
Title: CEO Title: VP, Business Development
Date Signed: June 3, 1999 Date Signed: June 2, 1999
Address: Address:
100 Brickstone Square, 5/th/ Floor One Dell Way
Andover, Massachusetts 02810 Round Rock, Texas 78682
Telephone No: (978) 684-3500 Telephone No: (512) 338-4400
Facsimile No: (978) 684-3596 Facsimile No: (512) 283-1111
with copy to: with copy to:
David T. Brewster, Esquire William R. Volk, Esquire
Skadden, Arps, Slate, Meagher Vinson & Elkins L.L.P.
& Flom LLP One American Center, Suite 2700
One Beacon Street, 31/st/ Floor 600 Congress Avenue
Boston, Massachusetts 02108 Austin, Texas 78701
Telephone No: (617) 573-4800 Telephone No: (512) 495-8400
Facsimile No: (617) 573-4822 Facsimile No: (512) 236-3450
<PAGE>
EXHIBIT A
---------
FORM OF
NAVISITE, INC.
CORRECTED CERTIFICATE OF DESIGNATION
OF
SERIES C CONVERTIBLE PREFERRED STOCK
Pursuant to Section 103(f) of the Corporation Law of
the State of Delaware
---------------------
The undersigned, for the purpose of correcting the Certificate of
Designation of Series C Convertible Preferred Stock of NaviSite, Inc. (the
"Corporation") filed with the Secretary of State of the State of Delaware on May
28, 1999 ("Certificate of Designation"), hereby certifies as follows:
1. The Certificate of Designation was an inaccurate record of the
corporate action contemplated by Corporation.
2. The inaccuracies to be corrected in the Certificate of Designation
relate to (a) the number of shares constituting the Series C Convertible
Preferred Stock as set forth in Section 1 of the Certificate of Designation and
(b) the per share price to the public required for automatic conversion in
connection with a Qualified IPO as set forth in Section 5(b) of the Certificate
of Designation.
3. The Certificate of Designation as filed on May 28, 1999, is hereby
replaced in its entirety as set forth in its corrected form below:
NAVISITE, INC., a corporation organized and existing under the laws of
the State of Delaware (the "Corporation"), hereby certifies that the following
resolution was duly adopted by the Board of Directors of the Corporation:
RESOLVED, that pursuant to the authority expressly granted and vested
in the Board of Directors of this Corporation (the "Board of Directors") in
accordance with the provisions of its Certificate of Incorporation, as amended,
a series of Preferred Stock, par value $0.01 per share, of the Corporation be,
and it hereby is, created and classified, and that the designation and number of
shares thereof, the voting powers, preferences and relative, participating,
optional or other special rights thereof, and the qualifications, limitations or
restrictions thereof, are as follows:
<PAGE>
1. Designation And Number Of Shares. The Corporation shall have a series of
Preferred Stock, par value $0.01 per share, designated as "Series C Convertible
Preferred Stock" (the "Series C Convertible Preferred") with a stated value of
$7.40 per share, as the same may be equitably adjusted whenever there shall
occur a stock dividend, stock split, combination, reclassification or other
similar event affecting the Series C Convertible Preferred after the date hereof
(the "Stated Value"). The number of shares constituting the Series C Convertible
Preferred shall be 1,095,472. Any and all series of Preferred Stock to which the
Series C Convertible Preferred ranks on parity as to (i) dividends, (ii)
liquidation, dissolution or winding up, (iii) voting rights or (iv) redemption,
as applicable, shall be referred to herein as "Parity Stock." The Series A
Convertible Preferred Stock, par value $0.01 per share, of the Corporation (the
"Series A Convertible Preferred") and the Series B Convertible Preferred Stock,
par value $0.01 per share, of the Corporation (the "Series B Convertible
Preferred") are Parity Stock as to (i) dividends and (ii) liquidation,
dissolution or winding up.
2. Dividends.
(a) The holders of the Series C Convertible Preferred shall be
entitled to receive on each outstanding share of Series C Convertible Preferred,
out of the funds legally available therefor, dividends computed at the rate of
seven percent of the Stated Value per share per annum (or a proportional part
thereof for a portion of a year and all subject to appropriate adjustment in the
event of any stock dividend, stock split, combination or other similar
recapitalization affecting such shares) from the date of issuance of the Series
C Convertible Preferred, payable when, as and if declared by the Board of
Directors. Such dividends shall be payable in preference and priority to the
payment of any dividend on the Common Stock and on parity with the payment of
any dividend to any Parity Stock. The right to such dividends on the Series C
Convertible Preferred shall not be cumulative, and no right to receive dividends
shall accrue by reason of the fact that no dividends have been declared on the
Series C Convertible Preferred in any or every prior year.
(b) No distributions shall be declared or paid on any share of Common
Stock during any fiscal year of the Corporation until dividends at a rate equal
to seven percent of the Stated Value per share of the Series C Convertible
Preferred shall have been paid or declared and set apart for payment during that
fiscal year in which such shares were outstanding.
(c) For purposes of this Section 2, unless the context requires
otherwise, "distribution" shall mean the transfer of cash or property without
consideration, whether by way of dividend or otherwise, payable other than in
Common Stock or other securities of the Corporation, or the purchase or
redemption of shares of the Corporation (other than repurchases of Common Stock
held by employees or directors of, or consultants to, the Corporation pursuant
2
<PAGE>
to agreements providing for such repurchase and other than redemptions in
liquidation or dissolution of the Corporation) for cash or property, including
any such transfer, purchase or redemption by a subsidiary of the Corporation.
3. Liquidation, Dissolution Or Winding Up.
(a) In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, and provided that the amount
available for distribution to holders of the Series C Convertible Preferred
pursuant to this Section 3 is less than the Stated Value per share plus
dividends computed at the rate of seven percent of the Stated Value per share
per annum from the date of issuance of the Series C Convertible Preferred
through the date of such liquidation, dissolution or winding up (less any
dividends which have been declared and paid since the date of issuance of the
Series C Convertible Preferred), the entire assets of the Corporation available
for such distribution shall be distributed ratably among the holders of the
Series C Convertible Preferred on a pari passu basis with the holders of any
Parity Stock.
(b) In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, and provided that the amount
available for distribution to holders of the Series C Convertible Preferred
pursuant to this Section 3 is at least the Stated Value per share plus dividends
computed at the rate of seven percent of the Stated Value per share per annum
from the date of issuance of the Series C Convertible Preferred through the date
of such liquidation, dissolution or winding up (less any dividends which have
been declared and paid since the date of issuance of the Series C Convertible
Preferred) the holder of each share of Series C Convertible Preferred shall be
entitled to be paid first (pari passu with the shares of any Parity Stock) out
of the assets of the Corporation available for distribution to holders of the
Corporation's capital stock of all classes, whether such assets are capital,
surplus or earnings, before any sums shall be paid or any assets distributed
among the holders of any other class of capital stock (other than Parity Stock),
an amount equal to the Stated Value per share of Series C Convertible Preferred
plus dividends computed at the rate of seven percent of the Stated Value per
share per annum from the date of issuance of the Series C Convertible Preferred
through the date of such liquidation, dissolution or winding up (less any
dividends which have been declared and paid since the date of issuance of the
Series C Convertible Preferred). After the payment of the preferential amount
required to be paid to the holders of the Series C Convertible Preferred and any
Parity Stock upon the liquidation, dissolution or winding up of the Corporation,
the holders of shares of Common Stock shall be entitled to receive the remaining
assets and funds of the Corporation available for distribution to its
stockholders.
(c) At the election of each holder of Series C Convertible Preferred,
a consolidation or merger of the Corporation or a sale of all or substantially
all of the assets of the
3
<PAGE>
Corporation may be treated either (i) as a liquidation, dissolution or winding
up of the affairs of the Corporation within the meaning of this Section 3 or
(ii) pursuant to Section 6(h) hereof; provided, however, that each holder of
-------- -------
Series C Convertible Preferred shall have the right to convert such shares of
Series C Convertible Preferred into Common Stock pursuant to Section 5(a) in
lieu of receiving payment pursuant to this Section 3(c) or Section 6(h). Each
holder of Series C Convertible Preferred shall notify the Corporation in writing
at its principal offices of its election to obtain the benefits of either this
Section 3(c) or Section 6(h) not later than the date specified in writing to
each holder by the Corporation (which date shall be at least five days prior to
the effective date of such consolidation, merger or sale). The Corporation shall
provide each holder of Series C Convertible Preferred with written notice of any
such consolidation or merger or sale of substantially all of its assets and
properties at least 20 days prior to the date by which the Corporation must be
notified of the election to obtain the benefits of either this Section 3(c) or
Section 6(h).
(d) Whenever the distribution provided for herein shall be made
in property other than cash, the value of that distribution shall be the fair
market value of the distributed property as determined in good faith by the
Board of Directors.
4. Voting Rights. Except as otherwise required by law or as set forth herein,
the holder of each share of Series C Convertible Preferred shall be entitled to
vote on all matters together with the holders of the Common Stock and Parity
Stock and shall be entitled to that number of votes equal to the largest number
of whole shares of Common Stock into which such holder's shares of Series C
Convertible Preferred could be converted pursuant to Section 5 hereof (taking
into account all declared and unpaid dividends, if any, with respect to such
Series C Convertible Preferred) at the record date for determination of the
stockholders entitled to vote on such matters or, if no such record date is
established, at the close of business on the day next preceding the date on
which notice of or to vote is given to the stockholders or at the close of
business on the day on which the Board of Directors adopts the resolution taking
such action for which written consent of stockholders is solicited, such votes
to be counted together with all other shares of capital stock of the Corporation
having general voting power and not counted separately as a class.
5. Conversion. The holders of the Series C Convertible Preferred have
conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert Series C Convertible Preferred. Each share
of Series C Convertible Preferred shall be convertible, at the option of the
holder thereof, at any time after the date of issuance of such share and up
until such time immediately prior to the effective time of liquidation,
dissolution or winding up of the Corporation, at the office of the Corporation
or
4
<PAGE>
any transfer agent for the Series C Convertible Preferred, into such number of
fully paid and nonassessable shares (calculated as to each conversion to the
largest whole share) of Common Stock as is determined by dividing the Stated
Value by the Series C Convertible Conversion Price (as defined below) in effect
at the time of the conversion. The "Series C Convertible Conversion Price" shall
initially be $7.40 and shall be subject to adjustment as hereinafter provided.
Upon conversion of their shares of Series C Convertible Preferred into shares of
Common Stock, holders of shares of Series C Convertible Preferred also shall
have the option to have all declared but unpaid dividends on such shares of
Series C Convertible Preferred converted into shares of Common Stock. The number
of shares of Common Stock to be received upon the conversion of such declared
but unpaid dividends shall be computed by dividing the amount of declared but
unpaid dividends by the Series C Convertible Conversion Price.
(b) Automatic Conversion. Each share of Series C Convertible
Preferred shall automatically be converted into shares of Common Stock at the
then effective Series C Convertible Conversion Price upon the closing of an
underwritten public offering pursuant to an effective registration statement
under the Securities Act of 1933, as amended, covering the offer and sale of
securities for the account of the Corporation to the public (x) with a per share
price to the public of at least $12.95 (such amount to be equitably adjusted
whenever there shall occur any stock dividend, stock split, combination or
reclassifications or other similar events affecting the Common Stock after the
date hereof), and (y) in which the aggregate gross proceeds to the Corporation
are at least $20,000,000 (a "Qualified IPO"). The Company shall provide the
holders of Series C Convertible Preferred with written notice of such automatic
conversion at least 20 days prior to the anticipated effective date of the
registration statement filed in connection with such Qualified IPO. In the event
of the automatic conversion of the Series C Convertible Preferred upon a
Qualified IPO under this Section 5(b), the person(s) entitled to receive the
Common Stock issuable upon such conversion of Series C Convertible Preferred
shall not be deemed to have converted such Series C Convertible Preferred until
immediately prior to the closing of such Qualified IPO.
(c) Mechanics of Conversion. No fractional shares of Common Stock
shall be issued upon conversion of the Series C Convertible Preferred. In lieu
of any fractional share to which a holder would otherwise be entitled, the
Corporation shall pay the holder cash equal to the fraction of the share to
which the holder would otherwise be entitled multiplied by the then effective
Series C Convertible Conversion Price. The determination of whether any holder
would otherwise be entitled to fractional shares is based upon the total number
of shares of Series C Convertible Preferred being converted at any one time by
that holder, not upon each share of Series C Convertible Preferred being
converted. Before any holder of shares of Series C Convertible Preferred shall
be entitled to convert those shares into full shares of Common Stock and to
receive certificates therefor, the holder shall surrender the certificate or
certificates for the
5
<PAGE>
Series C Convertible Preferred, duly endorsed, at the office of the Corporation
or of any transfer agent for the Series C Convertible Preferred or shall notify
the Corporation in writing that such certificates have been lost, stolen or
destroyed and shall give written notice to the Corporation at such office that
the holder elects to convert the same. The Corporation shall, as soon as
practicable thereafter, issue and deliver at such office to such holder of
Series C Convertible Preferred a certificate or certificates for the number of
shares of Common Stock to which such holder shall be entitled as aforesaid and a
check payable to the holder in the amount of any cash amounts payable as the
result of a conversion into fractional shares of Common Stock. Such conversion
shall be deemed to have been made immediately prior to the close of business on
the date of receipt of written notice of conversion and other required materials
as described above, and the person or persons entitled to receive the shares of
Common Stock issuable upon such conversion shall be treated for all purposes as
the record holder or holders of such shares of Common Stock on such date. The
Corporation shall not, however, be obligated to issue certificates evidencing
the shares of Common Stock issuable upon such conversion unless certificates
evidencing such shares of the Series C Convertible Preferred being converted are
either delivered to the Corporation or any such transfer agent or the holder
notifies the Corporation that such certificates have been lost, stolen or
destroyed and executes an agreement satisfactory to the Corporation to indemnify
the Corporation from any loss incurred by it in connection therewith. In
addition, the Corporation may, if the Board of Directors deems it reasonably
necessary, require the holder to post a bond in connection with such indemnity
agreement.
(d) Partial Conversion. In the event some but not all of the shares
of Series C Convertible Preferred represented by a certificate or certificates
surrendered by a holder are converted, the Company shall execute and deliver to
or on the order of the holder, at the expense of the Company, a new certificate
representing the number of shares of Series C Convertible Preferred which were
not converted.
(e) Reservation of Stock Issuable Upon Conversion. The Corporation
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Series C Convertible Preferred, such number of its shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding shares of the Series C Convertible Preferred, and if at any
time the number of authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion of all then outstanding shares of the Series
C Convertible Preferred and all unpaid dividends thereon, in addition to such
other remedies as shall be available to the holder of such Series C Convertible
Preferred, the Corporation will take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purposes.
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6. Adjustments To Conversion Price.
(a) Special Definitions. For purposes of this Section 6 and Section
10, the following definitions shall apply:
(i) "Options" mean rights, options or warrants to subscribe
for, purchase or otherwise acquire either Common Stock or Convertible
Securities.
(ii) "Original Issue Date" shall mean the date on which the
first share of Series C Convertible Preferred was issued.
(iii) "Convertible Securities" shall mean any security (including
any debt security) directly or indirectly convertible into or exchangeable for
Common Stock other than (A) the Series C Convertible Preferred, (B) the Series A
Convertible Preferred, (C) Series B Convertible Preferred, issued in connection
with the conversion of up to an aggregate of $15,000,000 of intercompany debt of
the Corporation funded after the Original Issue Date, unless such conversion is
based upon a total valuation of the Corporation that is less than $100,000,000,
as determined in good faith by the Board of Directors or (D) the Series D
Convertible Preferred.
(iv) "Additional Shares of Common Stock" shall mean all shares
(including reissued shares) of Common Stock issued (or, pursuant to paragraph
6(c), deemed to be issued) by the Corporation after the Original Issue Date,
other than:
(A) shares of Common Stock issued upon conversion of (w)
the Series C Convertible Preferred authorized herein, (w) the Series A
Convertible Preferred outstanding as of the date hereof, (x) the Series B
Convertible Preferred outstanding as of the date hereof, (y) Series B
Convertible Preferred issued in connection with the conversion of up to an
aggregate of $15,000,000 of intercompany debt of the Corporation funded after
the Original Issue Date, unless such conversion is based upon a total valuation
of the Corporation that is less than $100,000,000, as determined in good faith
by the Board of Directors, or (z) the Series D Convertible Preferred authorized
by a Certificate of Designation being filed on date hereof;
(B) shares of Common Stock issued to officers, directors,
employees and consultants of the Corporation pursuant to any stock option or
stock purchase plans or agreements or other individual or group incentive plan
or program of any kind approved by the Board of Directors; and
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(C) as a dividend or distribution on Series C Convertible
Preferred or any event for which adjustment is made pursuant to Section 6(f) or
Section 6(g).
(b) No Adjustment of Conversion Price. No adjustment in the Series C
Convertible Conversion Price shall be made in respect of the issuance of
Additional Shares of Common Stock unless the consideration per share for an
Additional Share of Common Stock issued or deemed to be issued by the
Corporation pursuant to Section 6(c) is less than the Series C Convertible
Conversion Price on the date of such issuance.
(c) Deemed Issue of Additional Shares of Common Stock. In the event
the Corporation at any time or from time to time after the Original Issue Date
shall issue any Options or Convertible Securities or shall fix a record date for
the determination of holders of any class or series of securities entitled to
receive any such Options or Convertible Securities, then the maximum number of
shares (as set forth in the instrument relating thereto without regard to any
provisions contained therein for a subsequent adjustment of such number that
would result in an adjustment pursuant to Section 6(c)(ii)) of Common Stock
issuable upon the exercise of such Options or, in the case of Convertible
Securities, the conversion or exchange of such Convertible Securities, shall be
deemed to be Additional Shares of Common Stock issued as of the time of such
issuance or, in case such a record date shall have been fixed, as of the close
of business on such record date; provided that Additional Shares of Common Stock
shall not be deemed to have been issued unless the consideration per share
(determined pursuant to Section 6(e)) received by the Corporation for such
Additional Shares of Common Stock would be less than the Series C Convertible
Conversion Price on the date of such issuance, or such record date, as the case
may be; and provided further that in any such case in which Additional Shares of
Common Stock are deemed to be issued:
(i) no further adjustment in the Series C Convertible Preferred
Conversion Price shall be made upon the subsequent issuance of Convertible
Securities or shares of Common Stock upon the exercise of such Options or the
conversion or exchange of such Convertible Securities;
(ii) if such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any increase or decrease in
the consideration payable to the Corporation, or increase or decrease in the
number of shares of Common Stock issuable, upon the exercise, conversion or
exchange thereof, the Series C Convertible Conversion Price computed upon the
original issuance thereof (or upon the occurrence of a record date with respect
thereto), and any subsequent adjustments based thereon, shall, upon any such
increase or decrease becoming effective, be recomputed to reflect such increase
or decrease insofar as it affects such Options or the rights of conversion or
exchange under such Convertible Securities;
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(iii) upon the expiration of any such Options or any rights of
conversion or exchange under such Convertible Securities which shall not have
been exercised, the Series C Convertible Conversion Price computed upon the
original issuance thereof (or upon the occurrence of a record date with respect
thereto), and any subsequent adjustments based thereon, shall, upon such
expiration, be recomputed as if:
(A) in the case of (1) Options for Common Stock or (2)
Convertible Securities, the only Additional Shares of Common Stock issued were
shares of Common Stock, if any, actually issued upon the exercise of such
Options or the conversion or exchange of such Convertible Securities and the
consideration received therefor was the consideration actually received by the
Corporation for the issuance of all such Options, whether or not exercised, plus
the consideration actually received by the Corporation upon the issuance of the
Common Stock with respect to which such Option were actually exercised, or for
the issuance of all such Convertible Securities which were actually converted or
exchanged, plus the additional consideration, if any, actually received by the
Corporation upon such conversion or exchange; and
(B) in the case of Options for Convertible Securities,
only the Convertible Securities, if any, actually issued upon the exercise
thereof were issued at the time of issuance of such Options, and the
consideration received by the Corporation for the Additional Shares of Common
Stock deemed to have been then issued was the consideration actually received by
the Corporation for the issuance of all such Options, whether or not exercised,
plus the consideration deemed to have been received by the Corporation upon the
issuance of the Convertible Securities with respect to which such Options were
actually exercised;
(iv) no readjustment pursuant to Section 6(c)(ii) or Section
6(c)(iii) shall have the effect of increasing the Series C Convertible
Conversion Price to an amount which exceeds the lower of (x) the Series C
Convertible Conversion Price on the date of the original adjustment relating to
the grant of the Options or issuance of the Convertible Securities, as
applicable, or (y) the Series C Convertible Conversion Price that would have
resulted from any issuance of Additional Shares of Common Stock between that
original adjustment date and the date of such readjustment; and
(v) in the case of any Options which expire by their terms not
more than 30 days after the date of issuance thereof, no adjustment of the
Series C Convertible Conversion Price shall be made until the expiration or
exercise of all such Options, whereupon such adjustment shall be made in the
manner provided in Section 6(c)(iii).
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(d) Adjustment of Conversion Price Upon Issuance of Additional Shares
of Common Stock. If after the Original Issue Date the Corporation shall issue
Additional Shares of Common Stock without consideration or for consideration per
share that is less than the Series C Convertible Conversion Price on the date of
such issuance, then and in such event, the Series C Convertible Conversion Price
shall be reduced, concurrently with such issuance, to a price (calculated to the
nearest cent) determined by multiplying such Series C Convertible Conversion
Price, by a fraction, the numerator of which shall be the number of shares of
Common Stock outstanding immediately prior to such issuance plus the number of
shares of Common Stock which the aggregate consideration received by the
Corporation for the total number of Additional Shares of Common Stock so issued
would purchase at such Series C Convertible Conversion Price; and the
denominator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issuance plus the number of such Additional Shares of
Common Stock so issued; and provided further that, for the purposes of this
Section 6(d), all shares of Common Stock issuable upon conversion of outstanding
Series C Convertible Preferred, outstanding Series B Convertible Preferred and
outstanding Convertible Securities and upon exercise of outstanding Options
shall be deemed to be outstanding.
(e) Determination of Consideration. For purposes of this Section 6,
the consideration received or receivable by the Corporation shall be computed as
follows:
(i) Cash and Property. Except as provided in Section 6(e)(ii),
such consideration shall:
(A) insofar as it consists of cash, equal the aggregate
amount of cash received or receivable by the Corporation, excluding amounts paid
or payable for accrued interest or accrued dividends;
(B) insofar as it consists of property other than cash,
equal the fair value thereof, as determined in good faith by the Board of
Directors; provided, however, that no value shall be attributed to any services
performed by any employee, officer or director of the Corporation; and
(C) in the event Additional Shares of Common Stock are
issued together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received with respect to such Additional Shares of Common
Stock, computed as provided in Sections 6(e)(i)(A) and (B) above, as determined
in good faith by the Board of Directors.
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(ii) Expenses. In the event the Corporation pays or incurs expenses,
commissions or compensation, or allows concessions or discounts to underwriters,
dealers or others performing similar services in connection with such issuance,
in an aggregate amount in excess of 10% of the aggregate consideration received
by the Corporation for such issuance, as determined in accordance with Section
6(e)(i), consideration shall be computed as provided in Section 6(e)(i), after
deducting the aggregate amount in excess of 10% of the aggregate consideration
received by the Corporation for the issuance.
(iii) Options and Convertible Securities. The consideration per share
received by the Corporation for Additional Shares of Common Stock deemed to have
been issued pursuant to Section 6(c) shall be determined by dividing
(x) the total amount, if any, received or receivable by the
Corporation as consideration for the issuance of such Options or Convertible
Securities, plus the minimum aggregate amount of additional consideration (as
set forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such consideration) payable to
the Corporation upon the exercise of such Options or the conversion or exchange
of such Convertible Securities, or in the case of Options for Convertible
Securities, the exercise of such Options for Convertible Securities and the
conversion or exchange of such Convertible Securities by
(y) the maximum number of shares of Common Stock (as set forth
in the instruments relating thereto, without regard to any provision contained
therein for a subsequent adjustment of such number) issuable upon the exercise
of such Options or the conversion or exchange of such Convertible Securities, or
in the case of Options for Convertible Securities, the exercise of such Options
for Convertible Securities and the conversion or exchange of such Convertible
Securities.
(f) Adjustments for Stock Dividends, Subdivisions, Combinations or
Consolidations of Common Stock. In the event the outstanding shares of Common
Stock shall be subdivided (by stock dividend, stock split or otherwise) into a
greater number of shares of Common Stock, the Series C Convertible Conversion
Price then in effect shall, concurrently with the effectiveness of such
subdivision, be proportionately decreased. In the event the outstanding shares
of Common Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock, the Series C
Convertible Conversion Price then in effect shall, concurrently with the
effectiveness of such combination or consolidation, be proportionately
increased.
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(g) Adjustments for Other Distributions. In the event the Corporation
at any time or from time to time shall fix a record date for a determination of
holders of Common Stock entitled to receive any distribution payable in (i)
securities of the Corporation other than shares of Common Stock or (ii) assets
of the Corporation (excluding cash dividends or distributions), then, and in
each such event, provision shall be made so that the holders of Series C
Convertible Preferred shall receive upon conversion thereof, in addition to the
number of shares of Common Stock receivable thereupon, the number of securities
or amount of other assets of the Corporation which they would have received had
their Series C Convertible Preferred been converted into Common Stock, on the
date of such event and had they thereafter, during the period from the date of
such event to and including the date of conversion, retained such securities or
other assets receivable by them as aforesaid during such period, giving
application to all other adjustments called for during such period under this
Section 6 with respect to the rights of the holders of the Series C Convertible
Preferred.
(h) Adjustments for Reclassification, Exchange and Substitution. If
the Common Stock issuable upon conversion of the Series C Convertible Preferred
shall be changed into other securities or property, whether by capital
reorganization, reclassification, consolidation or merger of the Corporation or
sale of all or substantially all of the assets of the Corporation or otherwise
(other than a subdivision or combination of shares provided for in this Section
6), then, and in each such event, the holder of each share of Series C
Convertible Preferred shall have the right thereafter to convert such share into
the kind and amount of other securities or property receivable upon such
reorganization, reclassification, consolidation, merger or sale or other change
by holders of the number of shares of Common Stock that would have been received
by such holders upon conversion of the Series C Convertible Preferred
immediately before that change, all subject to further adjustment as provided
herein. Each holder of Series C Convertible Preferred, upon the occurrence of a
consolidation or merger of the Corporation or the sale of all or substantially
all of its assets shall have the right to elect the benefits of either the
provisions of this Section 6(h) or of Section 3(c) as described in Section 3(c),
or to convert such holder's shares of Series C Convertible Preferred into Common
Stock pursuant to Section 5(a).
(i) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Series C Convertible Conversion Price pursuant
to this Section 6, the Corporation, at its expense, shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and furnish to
each holder of Series C Convertible Preferred a certificate prepared by its
Chief Financial Officer setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based.
The Corporation shall, upon the written request at any time of any holder of
Series C Convertible Preferred, furnish or cause to be furnished to such holder
a like certificate setting forth (i) such adjustments and readjustments, (ii)
the Series C Convertible Conversion Price at the time in
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effect and (iii) the number of shares of Common Stock and the amount, if any, of
other property which at the time would be received upon the conversion of Series
C Convertible Preferred. Upon the request of any holder of the Series C
Convertible Preferred, the Corporation will cause its independent public
accountants to confirm the accuracy of such adjustment or readjustment.
(j) Miscellaneous.
(i) All calculations under this Section 6 shall be made to the
nearest cent or to the nearest 1/100 of a share, as the case may be.
(ii) The holders of a majority of the outstanding Series C
Convertible Preferred shall have the right to challenge any determination by the
Board of Directors of fair value pursuant to this Section 6, in which case such
determination of fair value shall be made by an independent appraiser selected
jointly by the Board of Directors and the challenging parties, the cost of such
appraisal to be borne equally by the Corporation and the challenging parties.
(iii) No adjustment in the Series C Convertible Conversion Price
need be made if such adjustment would result in a change in such Series C
Conversion Price of less than $0.01. Any adjustment of less than $0.01 which is
not so made shall be carried forward and shall be made at the time of and
together with any subsequent adjustment which, on a cumulative basis, amounts to
an adjustment of $0.01 or more in such Series C Convertible Conversion Price.
7. Redemption
(a) On or after the fifth anniversary of the Original Issue Date, the
shares of Series C Convertible Preferred are redeemable either at the written
election of a majority of the outstanding shares of Series C Convertible
Preferred or at the option of the Corporation, by resolution of its Board of
Directors, in whole or, from time to time, in part, in either event at a price
for each share of Series C Convertible Preferred redeemed pursuant to this
Section 7 of the Stated Value per share, plus a dividend computed at a rate of
seven percent of the Stated Value per share per annum from the date of issuance
of the Series C Convertible Preferred through the date of such redemption (less
any dividends which have been declared and paid since the date of issuance of
the Series C Convertible Preferred) (the "Redemption Price"). Each partial
redemption of Series C Convertible Preferred shall be made pro rata (so that
the number of shares of Series C Convertible Preferred held by each registered
owner whose shares are being redeemed shall be reduced in an amount which shall
bear the same ratio to the total number of shares of Series C Convertible
Preferred being redeemed as all such shares then held by such registered owner
bears to the aggregate number of shares of Series C Convertible Preferred then
outstanding).
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(b) At least 30 days before any redemption of Series C Convertible
Preferred pursuant to Section 7(a) (whether at the election of a majority of the
Series C Convertible Preferred or at the option of the Corporation), the
Corporation shall mail written notice (hereinafter referred to as the
"Redemption Notice"), postage prepaid, to each holder of record of the Series C
Convertible Preferred which is to be redeemed, as its address shown on the
records of the Corporation; provided, however, that the giving of such
-------- -------
Redemption Notice shall not affect the conversion rights pursuant to Section 6
of any holders not electing redemption pursuant to Section 7(a); provided,
--------
further, that the Company's failure to give such Redemption Notice shall in no
- -------
way affect its obligation to redeem the shares of Series C Convertible Preferred
at the election of such holders as provided in Section 7(a). The Redemption
Notice shall contain the following information:
(i) The number of shares of Series C Convertible Preferred
held by the holder which shall be redeemed by the Corporation and the total
number of shares of Series C Convertible Preferred then outstanding;
(ii) The date fixed for redemption (the "Redemption Date") and
the applicable Redemption Price; and
(iii) A statement that the holder is to surrender to the
Corporation, at the place designated therein, its certificates representing the
shares of Series C Convertible Preferred to be redeemed.
(c) Each holder of outstanding shares of Series C Convertible
Preferred shall surrender the certificate or certificates representing such
shares to the Corporation at the place designated in the Redemption Notice, and
thereupon, (i) the applicable Redemption Price for such shares as set forth in
this Section 7 shall be paid to the order of the person whose name appears on
such certificate or certificates and (ii) each surrendered certificate shall be
canceled and retired.
(d) If any shares of Series C Convertible Preferred are not redeemed
solely because a holder fails to surrender the certificate or certificates
representing such shares pursuant to Section 7(c), then, from and after the
Redemption Date, such unredeemed shares of Series C Convertible Preferred shall
not be entitled to the benefits of any further dividends pursuant to Section 2
or the conversion provisions set forth in Section 5, unless the Corporation
otherwise specifically agrees in writing.
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(e) No share or shares of Series C Convertible Preferred acquired by
the Corporation by reason of redemption, purchase, conversion or otherwise shall
be reissued, and all such shares shall be canceled, retired and eliminated from
the shares which the Corporation shall be authorized to issue. The Corporation
may from time to time take such appropriate corporate action as may be necessary
to reduce the authorized number of shares of the Series C Convertible Preferred
accordingly.
(f) The Redemption Price set forth in this Section 7 shall be subject
to equitable adjustment whenever there shall occur a stock dividend, stock
split, combination, reclassification or other similar event affecting the Series
C Convertible Preferred.
8. Notices of Record Date. In the event that the Corporation shall propose at
any time:
(a) to declare any dividend or distribution upon its Common Stock,
whether in cash, property, stock or other securities, whether or not a regular
cash dividend and whether or not out of earnings or earned surplus;
(b) to offer for subscription pro rata to the holders of its Common
Stock any additional shares of capital stock of the Corporation;
(c) to effect any reclassification or recapitalization of its Common
Stock outstanding involving a change in the Common Stock; or
(d) to merge or consolidate with or into any other corporation, or
sell, lease or convey all or substantially all its property or business, or to
liquidate, dissolve or wind up;
then, in connection with each such event, the Corporation shall send to the
holders of the Series C Convertible Preferred:
(i) at least 20 days' prior written notice of the record date
for such dividend, distribution or subscription offer (and specifying the date
on which the holders of Common Stock shall be entitled thereto) or for
determining stockholders entitled to vote in respect of the matters referred to
in Sections 8(c) and (d) above; and
(ii) in the case of the events referred to in (c) and (d) above,
at least 20 days' prior written notice of the date on which such events shall
take place (and if different, also specifying the date on which the holders of
Common Stock shall be entitled to exchange their Common Stock for other
securities or property deliverable upon the occurrence of such event).
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Each such written notice shall be delivered personally or given by first class
mail, postage prepaid, addressed to each of the holders of the Series C
Convertible Preferred at the address for each such holder as shown on the books
of the Corporation.
9. Protective Provisions. So long as any shares of Series C Convertible
Preferred are outstanding, the Corporation shall not, without first obtaining
the approval of the holders of at least a majority of the outstanding shares of
Series C Convertible Preferred, take any action that:
(a) alters the rights, preferences, privileges or powers of, or the
restrictions provided for the benefit of, the Series C Convertible Preferred;
(b) authorizes, creates or issues any new class or series of capital
stock that has a preference superior to the Series C Convertible Preferred with
respect to voting, dividends, liquidation or redemption, or designates or issues
any additional shares of Series C Convertible Preferred;
(c) reclassifies outstanding capital stock into capital stock having a
preference superior to the Series C Convertible Preferred with respect to
voting, dividends, liquidation or redemption; or
(d) amends or repeals any provision of the Corporation's Certificate
of Incorporation, as amended, in a manner that adversely affects the rights of
the holders of the Series C Convertible Preferred.
10. Right of Participation. The holders of the Series C Convertible Preferred
shall have rights of participation in future issuances of Options, Convertible
Securities and Additional Shares of Common Stock by the Corporation, as follows:
(a) Right of Participation. The Corporation shall, prior to any
proposed grant or issuance by the Corporation of any Options, Convertible
Securities or Additional Shares of Common Stock, offer to each record owner of
the Series C Convertible Preferred (a "Preemptive Rights Participant"), by
written notice, the right, for a period of 30 days, to purchase for cash at a
price equal to the price or other consideration for which such Options,
Convertible Securities or Additional Shares of Common Stock are to be granted or
issued, a number of such Options, Convertible Securities or Additional Shares of
Common Stock so that, after giving effect to such grant or issuance (and the
exercise, conversion or exchange into or for (whether directly or indirectly)
shares of Common Stock of all Options and Convertible Securities), such
Preemptive Rights Participant will continue to maintain the same proportionate
equity ownership in the Corporation which such Preemptive Rights Participant had
as of the date of such notice (treating
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each Preemptive Right Participant, for the purpose of such computation, as the
holder of the number of shares of Common Stock which would be issuable to such
Preemptive Rights Participant upon exercise, conversion and exchange of all
securities (including but not limited to its shares of Series C Convertible
Preferred) held by such Preemptive Rights Participant on the date such offer is
made that are exercisable, convertible or exchangeable into or for (whether
directly or indirectly) shares of Common Stock and assuming, for the purpose of
such computation, the like exercise, conversion and exchange of all such other
securities held by other persons or entities); provided, however, that the
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participation rights of the Preemptive Rights Participants pursuant to this
Section 10 shall not apply to Options, Convertible Securities or Additional
Shares of Common Stock granted or issued:
(i) pursuant to a public offering registered under the
Securities Act of 1933, as amended;
(ii) in connection with a strategic investment in the
Corporation or any of its subsidiaries; or
(iii) solely in consideration for the acquisition (whether by
merger or otherwise) by the Corporation or any of its subsidiaries of stock or
assets of any other entity.
The Corporation's written notice to each Preemptive Rights Participant shall
describe the Options proposed to be granted or the Convertible Securities or
Additional Shares of Common Stock proposed to be issued by the Corporation and
specify the number, price and payment terms of the grant or issuance.
(b) Mechanics of Right of Participation. Any Preemptive Rights
Participant may accept the Corporation's offer as to the full number of Options,
Convertible Securities or Additional Shares of Common Stock required to be
offered to such Preemptive Rights Participant pursuant to Section 10(a), or any
lesser number, by written notice thereof given by such Preemptive Rights
Participant to the Corporation prior to the expiration of the aforesaid 30-day
period, in which event the Corporation shall sell and such Preemptive Rights
Participant shall buy, upon the terms specified, not later than the time such
Options, Convertible Securities or Additional Shares of Common Stock are sold to
third parties as contemplated by the Corporation's offer, the number of Options,
Convertible Securities or Additional Shares of Common Stock agreed to be
purchased by such Preemptive Rights Participant. Subject to and without
limitation of the immediately preceding sentence, the Corporation shall be free
at any time prior to 90 days after the date of its notice of offer to such
Preemptive Rights Participant under Section 10(a), to offer and sell to any
third party or parties the aggregate number of such Options, Convertible
Securities or Additional Shares of Common Stock offered to and not purchased by
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the Preemptive Rights Participants pursuant to this Section 10, at a price and
on payment terms no less favorable to the Corporation than those specified in
such notice of offer to the Preemptive Rights Participants. However, if such
third-party sale or sales are not consummated within such 90-day period, the
Corporation shall not sell such Options, Convertible Securities or Additional
Shares of Common Stock as shall not have been purchased within such period
without again complying with this Section 10.
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IN WITNESS WHEREOF, the Corporation has caused this Corrected
Certificate to be signed by Joel B. Rosen, its Chief Executive Officer, on this
2/nd/ day of June 1999.
NAVISITE, INC.
By:_________________________________
Name: Joel B. Rosen
Title: Chief Executive Officer
<PAGE>
EXHIBIT B
---------
[FORM OF OPINION]
June 3, 1999
Dell USA L.P.
One Dell Way
Round Rock, Texas 78682
Ladies and Gentlemen:
We have acted as special counsel to NaviSite, Inc., a Delaware
corporation (the "Company"), in connection with the offer and sale to Dell USA
L.P., a Texas limited partnership (the "Investor") of 1,095,472 shares (the
"Preferred Shares") of Series C Convertible Preferred Stock, par value $0.01 per
share, of the Company (the "Series C Preferred Stock") pursuant to the Series C
Convertible Preferred Stock Purchase Agreement dated as of the date hereof
between the Investor and the Company (the "Preferred Stock Purchase Agreement").
This opinion is being rendered pursuant to Section 2 of the Preferred
Stock Purchase Agreement. Capitalized terms used and not defined herein shall
have the respective meanings ascribed to them in the Preferred Stock Purchase
Agreement.
In connection with this opinion, we have examined and are familiar
with originals or copies, certified or otherwise identified to our satisfaction,
of: (i) the Preferred Stock Purchase Agreement; (ii) the Certificate of
Incorporation of the Company, as amended, including the Certificate of Amendment
filed by the Company with the Secretary of State of the State of Delaware (the
"Delaware Secretary"), on May 28, 1999 and the Corrected Certificate of
Designation of Series C Convertible Preferred Stock (the "Certificate of
Designation"), filed by the Company with the Delaware Secretary on June 2, 1999;
(iii) the By-Laws of the Company, as currently in effect (the "By-Laws"); (iv)
an Action By Written Consent of the Board of Directors of the Company dated as
of May 28, 1999 adopting resolutions approving, among other things, the
Preferred Stock Purchase Agreement and the transactions contemplated thereby;
(v) an Action By Written Consent of the
<PAGE>
June 3, 1999
Page 2
Stockholders dated as of May 28, 1999, adopting resolutions approving, among
other things, an increase in the authorized number of shares of common stock,
par value $0.01 per share, of the Company (the "Common Stock") and preferred
stock, par value $0.01 per share, of the Company, which the Company has the
authority to issue; (vi) Actions By Written Consent of the holders of Series A
Convertible Preferred Stock, par value $0.01 per share, of the Company, and
Series B Convertible Preferred Stock, par value $0.01 per share, of the
Company, dated as of May 28, 1999, each adopting resolutions approving, among
other things, the creation and issuance of the Series C Convertible Preferred
Stock and the Certificate of Designation; (vii) the Officer's Certificate of
the Company attached hereto as Exhibit A (the "Officer's Certificate"); (viii) a
certificate of the Delaware Secretary dated May 25, 1999, as to the existence
and good standing of the Company in the State of Delaware (the "Delaware
Certificate"); (ix) a certificate of the Secretary of the Commonwealth of the
Commonwealth of Massachusetts dated May 25, 1999, as to the Company's
qualification to do business and good standing as a foreign corporation in the
Commonwealth of Massachusetts (the "Massachusetts Certificate"); and (x) a
certificate of the Secretary of State of the State of California dated May 25,
1999, as to the Company's qualification to do business and good standing as a
foreign corporation in the State of California (the "California Certificate").
We have also examined and are familiar with originals or copies, certified or
otherwise identified to our satisfaction, of such records of the Company and
such other documents as we have deemed necessary or appropriate as a basis for
the opinions set forth herein.
For purposes of our opinion, we have assumed the legal capacity of all
natural persons, the genuineness of all signatures, the authenticity of all
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as certified or photostatic copies and the
authenticity of the originals of such copies. As to any facts material to this
opinion which we did not independently establish or verify, we have relied upon
oral or written statements and representations of officers and other
representatives of the Company and others.
In rendering the opinions expressed below, we have assumed, without
independent investigation or verification of any kind: (a) that the Investor is
duly organized, validly existing and in good standing under the law of its
jurisdiction of organization and has the requisite power and authority to
execute, deliver and perform its obligations under the Preferred Stock Purchase
Agreement; (b) that the execution, delivery and performance by the Investor of
the Preferred Stock Purchase Agreement has been duly authorized by all requisite
action; and (c) that the Preferred Stock Purchase Agreement has been duly
executed and delivered by the Investor and
<PAGE>
June 3, 1999
Page 4
constitutes a valid and binding obligation of the Investor, enforceable against
it in accordance with its terms.
Our opinions set forth in paragraph 1 as to the existence and good
standing of the Company in the State of Delaware, and as to the Company's
qualification to do business and good standing as a foreign corporation in the
Commonwealth of Massachusetts and the State of California, are based solely on
our review of the Delaware Certificate, the Massachusetts Certificate and the
California Certificate, respectively.
The opinions expressed herein are limited to the laws of the State of
Delaware.
Based upon and subject to the foregoing, and to the limitations,
qualifications, exceptions and assumptions set forth herein, we are of the
opinion that:
1. The Company has been duly incorporated and is validly existing and
in good standing under the laws of the State of Delaware. The Company is
qualified to do business and is in good standing as a foreign corporation under
the laws of the Commonwealth of Massachusetts and the State of California.
2. The execution and delivery by the Company of the Preferred Stock
Purchase Agreement and the performance by the Company of its obligations
thereunder are within the corporate power and authority of the Company and have
been duly authorized by all requisite corporate action on the part of the
Company.
3. The Preferred Stock Purchase Agreement has been executed and
delivered by the Company and is a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except that (a)
the enforceability thereof may be limited by (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights generally and (ii) general principles of equity
(regardless of whether enforceability is considered in a proceeding in equity or
at law) and (b) the enforceability of rights to indemnification and contribution
thereunder may be limited by applicable laws, rules or regulations or the
policies underlying such laws, rules or regulations.
<PAGE>
June 3, 1999
Page 4
4. The Preferred Shares to be issued and sold pursuant to the
Preferred Stock Purchase Agreement have been duly authorized for issuance by the
Company and, when issued, executed, delivered and paid for in accordance with
the terms of the Preferred Stock Purchase Agreement, will be validly issued,
fully paid and nonassessable shares of Series C Preferred Stock. The Certificate
of Designation has been executed and acknowledged by the Company, filed with the
Delaware Secretary and is effective on the date hereof, all in accordance with
Section 103 of the Delaware General Corporation Law, as amended. The shares of
Common Stock initially issuable upon conversion of the Preferred Shares have
been duly reserved for issuance and, when issued, executed and delivered upon
conversion of the Preferred Shares in accordance with the terms of the
Certificate of Designation, will be validly issued, fully paid and nonassessable
shares of Common Stock.
This opinion is being furnished to you solely for your benefit in
connection with the Closing occurring today. This opinion is not to be used,
circulated, quoted or otherwise referred to for any other purpose or relied upon
by any other person for any purpose without our prior written consent.
Very truly yours,
<PAGE>
EXHIBIT 4.3
NAVISITE, INC.
SERIES D CONVERTIBLE PREFERRED STOCK
PURCHASE AGREEMENT
JUNE 3, 1999
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. PURCHASE AND SALE OF STOCK.................................................. 1
(a) Authorization..................................................... 1
(b) Purchase and Sale of Stock........................................ 1
(c) Per Share Purchase Price.......................................... 1
(d) Total Consideration............................................... 2
2. CLOSING..................................................................... 2
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................... 2
(a) Organization, Good Standing and Qualification..................... 2
(b) Capitalization.................................................... 2
(c) Due Authorization................................................. 3
(d) Valid Issuance of Stock........................................... 4
(i) Valid Issuance........................................ 4
(ii) Compliance with Securities Laws....................... 4
(e) Governmental Consents............................................. 4
(f) Non-Contravention................................................. 4
(g) Litigation........................................................ 5
(h) Compliance with Law............................................... 5
(i) Financial Statements.............................................. 5
(j) Absence of Certain Liabilities and Changes........................ 5
(k) Invention Assignment and Confidentiality Agreement................ 6
(l) Intellectual Property............................................. 7
(i) Ownership or Right to Use............................. 7
(ii) Licenses; Other Agreements............................ 7
(iii) No Infringement....................................... 7
(m) Registration Rights............................................... 7
(n) Title to Property and Assets...................................... 7
(o) Tax Matters....................................................... 8
(p) Environmental and Safety Laws..................................... 8
(q) ERISA............................................................. 8
(r) Employment Matters................................................ 8
(s) Subsidiaries...................................................... 9
(t) Brokers and Finders............................................... 9
(u) Year 2000 Compatibility........................................... 9
(v) Interested Party Transactions..................................... 9
(w) Series C Convertible Preferred Stock Purchase Agreement........... 10
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
4. REPRESENTATIONS, WARRANTIES AND CERTAIN
AGREEMENTS OF THE INVESTOR............................................... 10
(a) Organization, Good Standing and Qualification....................... 10
(b) Due Authorization................................................... 10
(c) Governmental Consents............................................... 10
(d) Non-Contravention................................................... 11
(e) Litigation.......................................................... 11
(f) Purchase for Own Account............................................ 11
(g) Investment Experience............................................... 11
(h) Accredited Investor Status.......................................... 11
(i) Restricted Securities............................................... 11
(j) Legends............................................................. 12
5. COVENANTS..................................................................... 12
(a) Use of Proceeds..................................................... 12
(b) Information Rights.................................................. 12
(c) Registration Rights................................................. 13
(i) Definitions............................................ 13
(ii) Demand Registration.................................... 14
(iii) Piggyback Registrations................................ 16
(iv) Shelf Registration..................................... 18
(v) General Registration Obligations of the Company........ 20
(vi) Furnish Information.................................... 22
(vii) Indemnification........................................ 22
(viii) Termination of the Company's Obligations............... 23
(d) Standstill.......................................................... 23
(i) Standstill Agreement................................... 23
(ii) Termination............................................ 24
(e) Right to Participate................................................ 24
(f) Filing of Reports................................................... 25
6. INDEMNIFICATION................................................................ 25
(a) Agreement to Indemnify.............................................. 25
(i) Company Indemnity...................................... 25
(ii) Investor Indemnity..................................... 25
(iii) Equitable Relief....................................... 25
(b) Survival............................................................ 26
(c) Claims for Indemnification.......................................... 26
(d) Defense of Claims................................................... 27
(e) Certain Definitions................................................. 28
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
7. ASSIGNMENT AND DELEGATION..................................................... 28
(a) Information Rights.................................................. 28
(b) Registration Rights................................................. 29
8. TRANSFERABILITY OF PURCHASED SHARES........................................... 29
9. MISCELLANEOUS................................................................. 29
(a) Successors and Assigns.............................................. 29
(b) Governing Law....................................................... 29
(c) Counterparts........................................................ 29
(d) Headings............................................................ 29
(e) Notices............................................................. 30
(f) Amendments and Waivers.............................................. 30
(g) Severability........................................................ 30
(h) Entire Agreement.................................................... 30
(i) Further Assurances.................................................. 30
(j) Construction........................................................ 31
(k) Fees, Costs and Expenses............................................ 31
(l) Competition......................................................... 31
(m) Adjustments for Stock Splits, Etc................................. 31
(n) Delays or Omissions............................................... 31
(o) Dispute Resolution................................................ 31
(p) Index of Defined Terms............................................ 32
</TABLE>
iii
<PAGE>
SERIES D CONVERTIBLE PREFERRED STOCK
PURCHASE AGREEMENT
This Series D Convertible Preferred Stock Purchase Agreement (this "Agreement")
---------
is made and entered into as of June 3, 1999 by and between NaviSite, Inc., a
Delaware corporation (the "Company"), and Microsoft Corporation, a Washington
-------
corporation (the "Investor").
--------
RECITALS
Simultaneously with the execution and delivery of this Agreement, the Company
and the Investor are entering into a Strategic Alliance Agreement (the
"Strategic Alliance Agreement").
----------------------------
As an integral part of the strategic alliance contemplated by the Strategic
Alliance Agreement, the Company has agreed to issue to the Investor 993,243
shares of Series D Convertible Preferred Stock, par value $0.01 per share, of
the Company (the "Series D Convertible Preferred Stock"), on the terms and
------------------------------------
conditions set forth in this Agreement.
AGREEMENT
In consideration of the foregoing recitals, the mutual promises hereinafter set
forth and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. PURCHASE AND SALE OF STOCK.
--------------------------
(a) Authorization. The Company's Board of Directors (the "Board") has
------------- -----
authorized the issuance, pursuant to the terms and conditions of this Agreement,
of (i) up to 993,243 shares of Series D Convertible Preferred Stock, having the
rights, preferences, privileges and restrictions set forth in a Corrected
Certificate of Designation of Series D Convertible Preferred Stock substantially
in the form attached hereto as Exhibit A (the "Certificate of Designation") and
--------- --------------------------
(ii) up to 993,243 shares of the Company's common stock, par value $0.01 per
share (the "Common Stock"), issuable upon conversion of Series D Convertible
------------
Preferred Stock.
(b) Purchase and Sale of Stock. Simultaneously with the execution and
--------------------------
delivery of this Agreement at the Closing (as defined below), the Company is
issuing to the Investor, and the Investor is acquiring from the Company, 993,243
shares of Series D Convertible Preferred Stock (collectively, the "Purchased
---------
Shares").
- ------
(c) Per Share Purchase Price. The per share purchase price is $7.40
------------------------
per share of Series D Convertible Preferred Stock (the "Per Share Purchase
------------------
Price").
- -----
<PAGE>
(d) Total Consideration. The total consideration for the Purchased
-------------------
Shares is $7,350,000 in cash (the "Aggregate Purchase Price").
------------------------
2. CLOSING. The purchase and sale of the Purchased Shares (the "Closing") is
------- -------
taking place simultaneous with execution hereof at the offices of Skadden, Arps,
Slate, Meagher & Flom LLP, One Beacon Street, Boston, Massachusetts at 10:00
a.m., Boston time (which time and place are referred to in this Agreement as the
"Closing Date"). At the Closing, the Company is delivering to the Investor a
------------
certificate or certificates representing the Purchased Shares against delivery
to the Company by the Investor of the Aggregate Purchase Price by wire transfer
of funds to the Company. At the Closing, the Company shall cause to be
delivered to the Investor an opinion on behalf of the Company, dated as of the
Closing Date, from Skadden, Arps, Slate, Meagher & Flom LLP, special counsel to
the Company, substantially in the form attached hereto as Exhibit B. The
---------
Closing documents are being delivered by facsimile with originals being sent by
overnight courier.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
---------------------------------------------
represents and warrants to the Investor, as of the date hereof, that, except as
set forth in the Disclosure Letter from the Company to the Investor dated as of
the date of this Agreement (the "Disclosure Letter"):
-----------------
(a) Organization, Good Standing and Qualification. The Company is a
---------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all corporate power and authority required to
(i) carry on its business as currently conducted or as proposed to be conducted
and (ii) enter into this Agreement and consummate the transactions contemplated
hereby. Each of the Company and its subsidiaries is qualified to do business
and is in good standing in each jurisdiction in which the failure to so qualify
would have a Material Adverse Effect on the Company. As used in this Agreement,
"Material Adverse Effect" means a material adverse effect on, or a material
-----------------------
adverse change in, or a group of such effects on or changes in, the business,
financial condition, results of operations, assets or liabilities of the
applicable party and its subsidiaries, taken as a whole.
(b) Capitalization. The authorized capital stock of the Company
--------------
consists of: (i) 60,000,000 shares of Common Stock, of which 69,338 shares are
issued and outstanding; and (ii) 10,000,000 shares of Preferred Stock, par value
$0.01 per share, of which (A) 1,323,953 shares are designated Series A
Convertible Preferred Stock (the "Series A Convertible Preferred Stock"), all of
------------------------------------
which are issued and outstanding; (B) 1,000,000 shares are designated Series B
Convertible Preferred Stock (the "Series B Convertible Preferred Stock"),
------------------------------------
490,332 of which are issued and outstanding; (C) 1,095,472 shares are designated
Series C Convertible Preferred Stock (the "Series C Convertible Preferred
------------------------------
Stock"), all of which will be issued and outstanding immediately following the
closing contemplated in the Series C Agreement (as
2
<PAGE>
defined below); and (D) 993,243 shares are designated Series D Convertible
Preferred Stock, all of which will be issued and outstanding immediately
following the Closing. All of such shares of capital stock have been duly
authorized for issuance, and all of such shares which are issued and outstanding
have been validly issued and are fully paid, nonassessable and free of any liens
or encumbrances other than any liens or encumbrances created by or imposed upon
the holders thereof. The Company has reserved: (1) 13,239,530 shares of Common
Stock for issuance upon conversion of the Series A Convertible Preferred Stock;
(2) 10,000,000 shares of Common Stock for issuance upon conversion of the Series
B Convertible Preferred Stock; (3) 1,095,472 shares of Common Stock for issuance
upon conversion of the Series C Convertible Stock; (4) 993,243 shares of Common
Stock for issuance upon conversion of the Series D Convertible Stock; (5)
2,000,000 shares of Common Stock for issuance to officers, directors, employees,
consultants or affiliates of the Company under the Company's 1998 Equity
Incentive Plan; (6) 125,000 shares of Common Stock for issuance to non-employee
directors of the Company under the Company's 1998 Director Stock Option Plan;
and (7) 509,668 shares of Series B Convertible Preferred Stock for issuance upon
the conversion of intercompany debt evidenced by a Secured Convertible Demand
Note dated May 1, 1999 held by CMGI, Inc., a true and correct copy of which is
attached to the Disclosure Letter. All shares of Common Stock subject to
issuance as aforesaid, upon issuance on the terms and conditions specified in
the instruments pursuant to which they are issuable, are duly authorized and
will be validly issued, fully paid and nonassessable. There are no other equity
securities, options, warrants, calls, rights, commitments or agreements of any
character to which the Company is a party or by which it is bound obligating the
Company to issue, deliver, sell, repurchase or redeem, or cause to be issued,
delivered, sold, repurchased or redeemed, any shares of the capital stock of the
Company or obligating the Company to grant, extend or enter into any such equity
security, option, warrant, call, right, commitment or agreement. To the best
knowledge of the Company, there are no shareholder agreements, voting agreements
or voting trusts relating to any shares of capital stock of the Company.
(c) Due Authorization. All corporate action on the part of the
-----------------
Company, its officers, directors and stockholders necessary for the
authorization, execution and delivery of, and the performance of all obligations
of the Company under, this Agreement has been taken, and this Agreement
constitutes a valid and legally binding obligation of the Company, enforceable
against the Company in accordance with its terms, except (i) as may be limited
by (A) applicable bankruptcy, insolvency, reorganization or others laws of
general application relating to or affecting the enforcement of creditors'
rights generally and (B) the effects of rules of law governing the availability
of equitable remedies and (ii) as rights to indemnity or contribution may be
limited under federal or state securities laws or by principles of public policy
thereunder.
3
<PAGE>
(d) Valid Issuance of Stock.
-----------------------
(i) Valid Issuance. The Purchased Shares, when issued, sold and
--------------
delivered in accordance with the terms of this Agreement, will be duly and
validly issued, fully paid, nonassessable and free of preemptive rights binding
on the Company. The shares of Common Stock to be issued upon conversion of the
Purchased Shares (the "Conversion Shares") have been duly and validly reserved
-----------------
for issuance and, upon issuance, sale and delivery in accordance with the terms
of the Purchased Shares, will be duly and validly issued, fully paid,
nonassessable and free of preemptive rights binding on the Company.
(ii) Compliance with Securities Laws. Assuming the correctness
-------------------------------
of the representations made by the Investor in Section 4, no change in
applicable law and no unlawful distribution of Purchased Shares by the Investor
or other Persons (as defined below), the Purchased Shares and the Conversion
Shares will be issued to the Investor in compliance with applicable exemptions
from (A) the registration and prospectus delivery requirements of the Securities
Act of 1933, as amended (the "Securities Act"), and (B) the registration and
--------------
qualification requirements of all applicable securities laws of the states of
the United States.
(e) Governmental Consents. No consent, approval, order or
---------------------
authorization of, or registration qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company or any of its subsidiaries is required in connection with the
consummation of the transactions contemplated by this Agreement, except: (i) as
may be required under the Securities Act and the rules and regulations
thereunder and all applicable state securities laws in connection with the
transactions contemplated by this Agreement; and (ii) the filing of the
Certificate of Designation with the Secretary of State of the State of Delaware.
All such consents, approvals, orders, authorizations and qualifications will be
effective and all such designations, declarations and filings will be made
within the time prescribed by law.
(f) Non-Contravention. The execution, delivery and performance of
-----------------
this Agreement by the Company, and the consummation by the Company of the
transactions contemplated hereby, do not: (i) contravene or conflict with the
Company's Certificate of Incorporation, as amended (the "Certificate"), or the
-----------
Company's By-Laws; (ii) constitute a violation of any provision of any federal,
state, local or foreign law binding upon or applicable to the Company or any of
its subsidiaries; or (iii) constitute a default or require any consent under,
give rise to any right of termination, cancellation or acceleration of, or to a
loss of any benefit to which the Company or any of its subsidiaries is entitled
under, or result in the creation or imposition of any lien, claim or encumbrance
on any assets of the Company or any such subsidiary under, any contract to which
the Company or such subsidiary is a party or any permit,
4
<PAGE>
license or similar right relating to the Company or such subsidiary or by which
the Company or such subsidiary may be bound or affected, except any such
default, consent, right of termination, cancellation or acceleration, loss,
lien, claim or encumbrance which, individually or in the aggregate, would not
have a Material Adverse Effect on the Company.
(g) Litigation. There is no action, suit, proceeding, claim,
----------
arbitration or investigation (each, an "Action") pending or, to the Company's
------
best knowledge, threatened: (i) against the Company or any of its subsidiaries,
or any of their respective activities, properties or assets, or any officer,
director or employee of the Company or any of its subsidiaries in connection
with such officer's, director's or employee's relationship with, or actions
taken on behalf of, the Company or such subsidiary, in each such case that is
reasonably likely to have a Material Adverse Effect on the Company; or (ii)
against the Company or any of its subsidiaries, or any of their respective
activities, properties or assets, or any officer, director or employee of the
Company or any of its subsidiaries that seeks to prevent, enjoin, alter or delay
any of the transactions contemplated by this Agreement.
(h) Compliance with Law. Each of the Company and its subsidiaries is
-------------------
in compliance with all applicable statutes, laws, regulations and executive
orders, except where noncompliance would not have a Material Adverse Effect on
the Company.
(i) Financial Statements. Section 3(i) of the Disclosure Letter sets
--------------------
forth an unaudited consolidated balance sheet of the Company as of January 31,
1999 (the "Balance Sheet Date") and an unaudited income statement and
------------------
consolidated statement of changes in cash flows of the Company for the six
months ended January 31, 1999 (all such financial statements being collectively
referred to herein as the "Financial Statements"). The Financial Statements (i)
--------------------
are in accordance with the books and records of the Company, (ii) present fairly
the financial condition of the Company as of the date therein indicated and the
results of operations for the period therein specified and (iii) have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis ("GAAP"), except for the omission of notes thereto and year-
----
end audit adjustments.
(j) Absence of Certain Liabilities and Changes. Except as and to the
------------------------------------------
extent specifically reflected or reserved against in the Financial Statements or
as disclosed in the footnotes (if any) to the Financial Statements, as of the
Balance Sheet Date, neither the Company nor any subsidiary had any liabilities
(as determined in accordance with GAAP) that, in the aggregate, exceeded
$100,000. Since the Balance Sheet Date, neither the Company nor any of its
subsidiaries has incurred or become subject to any liabilities (as determined in
accordance with GAAP) except (x) as and to the extent of the amounts
specifically reflected or reserved against in the Financial Statements or as
disclosed in the footnotes (if any) to the Financial Statements or (y)
liabilities incurred, and obligations under agreements, commitments or contracts
entered into,
5
<PAGE>
in the ordinary course of business. Since the Balance Sheet Date, the businesses
and operations of the Company and each of its subsidiaries have been conducted
in the ordinary course consistent with past practice and there has not been or
occurred:
(i) any declaration, setting aside or payment of any dividend
or other distribution of the assets of the Company with respect to any shares of
capital stock of the Company or any repurchase, redemption or other acquisition
by the Company or any subsidiary of any outstanding shares of the Company or any
subsidiary's capital stock;
(ii) any property damage, destruction or loss, whether or not
covered by insurance, except for such property damage, destruction or loss as,
individually or in the aggregate, would not have a Material Adverse Effect on
the Company;
(iii) any waiver by the Company or a subsidiary of a valuable
right or of a material debt owed to it, except for such waivers as, individually
or in the aggregate, would not have a Material Adverse Effect on the Company;
(iv) any material change or amendment to, or any waiver of any
material rights under a material contract or arrangement by which the Company or
a subsidiary or any of their respective assets or properties is bound or
subject, except for changes, amendments, or waivers that are expressly provided
for or disclosed in this Agreement or the Disclosure Letter or as, individually
or in the aggregate, would not have a Material Adverse Effect on the Company;
(v) any change by the Company in its accounting principles,
methods or practices or in the manner it keeps its accounting books and records,
except any such change required by GAAP; and
(vi) any event or condition which, individually or in the
aggregate, would have a Material Adverse Effect on the Company.
(k) Invention Assignment and Confidentiality Agreement. Each employee
--------------------------------------------------
and consultant or independent contractor of the Company or any of its
subsidiaries whose duties include the development of products or Intellectual
Property (as defined below), and each former employee and consultant or
independent contractor whose duties included the development of products or
Intellectual Property, has entered into and executed an invention assignment and
confidentiality agreement or an employment or consulting agreement containing
terms with respect to invention assignments and confidentiality.
6
<PAGE>
(l) Intellectual Property.
---------------------
(i) Ownership or Right to Use. The Company or one of its
-------------------------
subsidiaries has sole title to and owns, or is licensed or otherwise possesses
legally enforceable rights to use, or reasonably expects that it will be able to
obtain licenses or legally enforceable rights to use, all patents or patent
applications, software, know-how, registered or unregistered trademarks and
service marks and any applications therefor, registered or unregistered
copyrights and trade names and any applications therefor, trade secrets or other
confidential or proprietary information ("Intellectual Property") necessary to
---------------------
enable the Company and its subsidiaries to carry on their respective businesses
as currently conducted or as proposed to be conducted except where the failure
to own or have rights to use such Intellectual Property would not have a
Material Adverse Effect on the Company.
(ii) Licenses; Other Agreements. Neither the Company nor any
--------------------------
of its subsidiaries is currently subject (whether as licensor or licensee) to
any exclusive licenses (whether such exclusivity is temporary or permanent) to
any material portion of the Intellectual Property utilized by the Company or any
of its subsidiaries. There are not outstanding any licenses or agreements of any
kind relating to the licensure by the Company of any Intellectual Property owned
by the Company or any of its subsidiaries, except for agreements with customers
of the Company or any such subsidiary entered into in the ordinary course of
business. Neither the Company nor any of its subsidiaries is obligated to pay
any royalties or other payments to third parties with respect to the marketing,
sale, distribution, manufacture, license or use of any Intellectual Property
(other than off-the-shelf commercial applications), except as it may be so
obligated in the ordinary course of its business.
(iii) No Infringement. Neither the Company nor any of its
---------------
subsidiaries is violating or infringing, and neither the Company nor any of its
subsidiaries has received any communication alleging that either the Company,
any of its subsidiaries or any of their respective employees or consultants has
violated or infringed, any Intellectual Property of any other Person.
(m) Registration Rights. Except as otherwise provided in this
-------------------
Agreement, the Company has not granted or agreed to grant to any Person any
rights (including piggyback registration rights), to have any securities of the
Company registered with the Securities and Exchange Commission (the "SEC") or
---
registered or qualified with any other governmental authority.
(n) Title to Property and Assets. The properties and assets owned by
----------------------------
the Company and each of its subsidiaries are owned by the Company or such
subsidiary free and clear of all mortgages, deeds of trust, liens, charges,
encumbrances and security interests, except
7
<PAGE>
for statutory liens for the payment of current taxes that are not yet delinquent
and liens, encumbrances and security interests that arise in the ordinary course
of business and do not have a Material Adverse Effect on the Company and its
subsidiaries, taken as a whole. With respect to the property and assets it
leases, each of the Company and its subsidiaries is in compliance with such
leases in all material respects.
(o) Tax Matters.
-----------
(i) There have been no examinations or audits of any of the
Company's tax returns or reports by any federal, state or local governmental
agency having jurisdiction over the Company. The Company and its subsidiaries
have filed all federal, state, county and local tax returns required to have
been filed by them and paid all taxes shown to be due on such returns. There are
in effect no waivers of applicable statutes of limitations with respect to taxes
for any year.
(ii) The Company has not elected pursuant to the Internal
Revenue Code of 1986, as amended (the "Code"), to be treated as an "S"
----
corporation or a collapsible corporation pursuant to Section 1362(a) or Section
341(f) of the Code, respectively, nor has it made any other elections pursuant
to the Code (other than elections which relate solely to matters of accounting,
depreciation or amortization) which would have a Material Adverse Effect on the
Company.
(p) Environmental and Safety Laws. To its knowledge, the Company is
-----------------------------
not in violation of any applicable statute, law or regulation relating to the
environment or occupational health and safety.
(q) ERISA. The Company does not sponsor or participate in any
-----
employee benefit plan subject to the Employee Retirement Income Security Act of
1974, as amended ("ERISA"). The Company is not required to contribute to any
-----
"multiemployer plan" as defined in ERISA Section 3(37), nor has the Company ever
contributed to or withdrawn from such a multiemployer plan.
(r) Employment Matters. The Company (i) has withheld all amounts
------------------
required by law or agreement to be withheld from wages, salaries and other
payments to its employees and former employees or has remedied any failure to do
so, (ii) is not liable for any arrearages of wages and (iii) is not liable for
taxes or penalties for failure to withhold or pay wages when due. There are no
complaints pending or, to the Company's knowledge, threatened before any
governmental authority alleging unfair labor practices or unlawful
discrimination nor, to the Company's knowledge, is there any basis for any such
claim. There are no existing or, to the Company's knowledge, threatened labor
strikes, disputes, grievances, controversies or other
8
<PAGE>
labor troubles affecting the Company which would individually or in the
aggregate, have a Material Adverse Effect on the Company. The Company is not a
party to any collective bargaining agreement with any labor union.
(s) Subsidiaries. Section 3(p) of the Disclosure Letter sets forth
------------
all other Persons in which the Company (i) presently owns or controls, directly
or indirectly, more than a one percent interest or (ii) has the right or option
to acquire more than a one percent interest.
(t) Brokers and Finders. The Company has not incurred any obligation
-------------------
or liability, contingent or otherwise, for brokerage or finders' fees or agents'
commissions or other similar payment in connection with this Agreement or any of
the transactions contemplated hereby.
(u) Year 2000 Compatibility. All of the material products used by the
-----------------------
Company and necessary to its business will (i) record, store, process and
calculate and present calendar dates falling on and after January 1, 2000 and
will calculate any information dependent on or relating to such dates in the
same manner and with the same functionality, data integrity and performance as
those products record, store, process, calculate and present, or calculate any
information dependent on or relating to, calendar dates falling on or before
December 31, 1999 (collectively, "Year 2000 Compliant") and (ii) lose no
-------------------
functionality with respect to the introduction of records containing dates
falling on or after January 1, 2000, except where the failure to be Year 2000
Compliant or such loss of functionality would not have a Material Adverse Effect
on the Company. All of the Company's and its subsidiaries' internal computer
systems, including without limitation their respective accounting systems, are,
or on or before December 31, 1999 will be, Year 2000 Compliant, except where the
failure to be Year 2000 Compliant would not have a Material Adverse Effect on
the Company.
(v) Interested Party Transactions. To the best knowledge of the
-----------------------------
Company, no officer or director of the Company or any of its subsidiaries or any
"affiliate" or "associate" (as those terms are defined in Rule 405 promulgated
under the Securities Act) of any such Person has had, either directly or
indirectly, a material interest in: (i) any Person which purchases from or
sells, licenses or furnishes to the Company or any of its subsidiaries any
goods, property, technology, intellectual or other property rights or services;
or (ii) any contract or agreement to which the Company or any of its
subsidiaries is a party or by which it or any of its properties and assets may
be bound or affected.
9
<PAGE>
(w) Series C Convertible Preferred Stock Purchase Agreement. The
-------------------------------------------------------
Series C Convertible Preferred Stock Purchase Agreement (the "Series C
--------
Agreement") being entered into by the Company with a third party
- ---------
contemporaneously with this Agreement and the related Certificate of Designation
of Series C Convertible Preferred Stock for the Series C Convertible Preferred
Stock to be issued pursuant to the Series C Agreement do not differ in any
material respect from this Agreement and the Certificate of Designation attached
hereto as Exhibit A, respectively. The Purchased Shares issued pursuant to the
---------
terms of this Agreement will initially be convertible into a number of shares of
Common Stock equal to 4.44% of the Common Stock, on a fully diluted basis,
immediately after giving effect to the transactions contemplated hereby and by
the Series C Agreement.
4. REPRESENTATIONS, WARRANTIES AND CERTAIN AGREEMENTS OF THE INVESTOR. The
------------------------------------------------------------------
Investor hereby represents and warrants to the Company, as of the date hereof,
and agrees that:
(a) Organization, Good Standing and Qualification. The Investor is a
---------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Washington and has all corporate power and authority required to
(i) carry on its business as presently conducted and (ii) enter into this
Agreement and consummate the transactions contemplated hereby.
(b) Due Authorization. This Agreement has been duly authorized by all
-----------------
necessary corporate action on the part of the Investor. This Agreement
constitutes a valid and legally binding obligation of the Investor, enforceable
against the Investor in accordance with its terms, except (i) as may be limited
by (A) applicable bankruptcy, insolvency, reorganization or other laws of
general application relating to or affecting the enforcement of creditors'
rights generally and (B) the effects of rules of law governing the availability
of equitable remedies and (ii) as rights to indemnity or contribution may be
limited under federal or state securities laws or by principles of public policy
thereunder.
(c) Governmental Consents. No consent, approval, order or
---------------------
authorization of, or registration qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Investor is required in connection with the consummation of the transactions
contemplated by this Agreement. All such consents, approvals, orders,
authorizations and qualifications and all such designations, declarations and
filings will be made within the time prescribed by law.
10
<PAGE>
(d) Non-Contravention. The execution, delivery and performance of
-----------------
this Agreement by the Investor, and the consummation by the Investor of the
transactions contemplated hereby, do not: (i) contravene or conflict with the
Investor's certificate of incorporation or bylaws, as amended; (ii) constitute a
violation of any provision of any federal, state, local or foreign law binding
upon or applicable to the Investor; or (iii) constitute a default or require any
consent under, give rise to any right of termination, cancellation or
acceleration of, or to a loss of any benefit to which the Investor is entitled
under, or result in the creation or imposition of any lien, claim or encumbrance
on any assets of the Investor under, any contract to which the Investor is a
party or any permit, license or similar right relating to the Investor or by
which the Investor may be bound or affected, except any such default, consent,
right of termination, cancellation or acceleration, loss or lien, claim or
encumbrance which, individually or in the aggregate, would not have a Material
Adverse Effect on the Investor.
(e) Litigation. There is no Action pending against the Investor or,
----------
to the Investor's best knowledge, threatened against the Investor, that seeks to
prevent, enjoin, alter or delay any of the transactions contemplated by this
Agreement.
(f) Purchase for Own Account. The Purchased Shares are being acquired
------------------------
for investment for the Investor's own account, not as a nominee or agent, and
not with a view to the public resale or distribution thereof within the meaning
of the Securities Act, and the Investor has no present intention of selling,
granting any participation in or otherwise distributing the same. The Investor
also represents that it has not been formed for the specific purpose of
acquiring the Purchased Shares.
(g) Investment Experience. The Investor understands that the purchase
---------------------
of the Purchased Shares involves substantial risk. The Investor has experience
as an investor in securities of companies and acknowledges that it is able to
fend for itself, can bear the economic risk of its investment in the Purchased
Shares and has such knowledge and experience in financial or business matters
that it is capable of evaluating the merits and risks of its investment in the
Purchased Shares and protecting its own interests in connection with this
investment.
(h) Accredited Investor Status. The Investor is an "accredited
--------------------------
investor" within the meaning of Regulation D promulgated under the Securities
Act.
(i) Restricted Securities. The Investor understands that (i) the
---------------------
Purchased Shares are, and the Conversion Shares upon issuance will be,
characterized as "restricted securities" under the Securities Act, inasmuch as
they are being acquired from the Company in a transaction not involving a public
offering and (ii) under the Securities Act and applicable rules and regulations
thereunder, such securities may be resold without registration under the
Securities Act only in certain limited circumstances. The Investor is familiar
with Rule 144 of the SEC
11
<PAGE>
under the Securities Act, as presently in effect, and understands the resale
limitations imposed thereby and by the Securities Act.
(j) Legends. The Investor agrees that the certificates for the
-------
Purchased Shares and, upon issuance thereof, the Conversion Shares will bear
the following legend:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or
with any state securities commission, and may not be
transferred or disposed of by the holder in the absence of a
registration statement which is effective under the
Securities Act of 1933, as amended, and applicable state
laws and rules or unless such transfer may be effected
without violation of the Securities Act of 1933, as amended,
and other applicable state laws and rules."
In addition, the Investor agrees that the Company may place stop transfer orders
with its transfer agents with respect to such certificates. The legend set forth
above shall be removed by the Company from any certificate evidencing Purchased
Shares or Conversion Shares upon delivery to the Company of an opinion by
counsel, reasonably satisfactory to the Company, that a registration statement
under the Securities Act is at that time in effect with respect to the legended
security or that such security can be freely transferred in a public sale
without such a registration statement being in effect and that such transfer
will not jeopardize the exemption or exemptions from registration pursuant to
which the Company issued the Purchased Shares or the Conversion Shares.
5. COVENANTS.
---------
(a) Use of Proceeds. The Company will use the proceeds from its
---------------
issuance and sale to the Investor of the Purchased Shares for general corporate
purposes.
(b) Information Rights. For so long as the Investor holds any of the
------------------
Purchased Shares or the Conversion Shares, the Company shall:
(i) Until consummation of its initial public offering of Common
Stock and when the Company is otherwise not required to file reports under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), deliver to the
------------
Investor: (A) audited annual financial statements within 90 days after the end
of each fiscal year; (B) unaudited quarterly financial statements prepared in
accordance with GAAP within 45 days after the end of each fiscal quarter; and
(C) unaudited monthly financial statements within 30 days after the end of each
month.
12
<PAGE>
(ii) After consummation of its initial public offering of Common
Stock and until the Company is no longer required to file reports under the
Exchange Act, deliver to the Investor promptly following the filing of such
report with the SEC a copy of: (A) the Company's Annual Report on Form 10-K for
each fiscal year; (B) the Company's Quarterly Report on Form 10-Q for each
fiscal quarter (other than the fourth fiscal quarter of each fiscal year); and
(C) copies of each other document filed with the SEC on a non-confidential
basis. The provisions of this Section 5(b)(ii) shall not apply if the Investor
(or any subsequent holder of the Purchased Shares or Conversion Shares) holds a
number of Purchased Shares (or Conversion Shares issued on conversion thereof)
that constitutes 50% or less of the aggregate Purchased Shares originally issued
pursuant to this Agreement.
(c) Registration Rights.
-------------------
(i) Definitions. For purposes of this Agreement:
-----------
(A) Registration. The terms "register," "registered" and
------------ -------- ----------
"registration" refer to a registration effected by preparing and filing a
------------
registration statement in compliance with the Securities Act and the declaration
or ordering of effectiveness by the SEC of such registration statement.
(B) Registrable Securities. The term "Registrable
---------------------- -----------
Securities" means (1) all issued or issuable Conversion Shares and (2) any
- ----------
shares of Common Stock issued as (or issuable upon the conversion or exercise of
any warrant, right or other security that is issued as) a dividend or other
distribution with respect to, or in exchange for or in replacement of, any of
the issued or issuable Conversion Shares, excluding any securities sold by any
individual, corporation, partnership, trust or other entity or organization,
including a governmental authority or any political subdivision thereof (each, a
"Person") in a transaction in which rights under this Section 5(c) are not
------
assigned in accordance with this Agreement and any securities sold to the
public, whether pursuant to Rule 144 promulgated under the Securities Act, in a
registered offering or otherwise.
(C) Registrable Securities Then Outstanding. The number of
---------------------------------------
shares of "Registrable Securities then outstanding" shall mean the number of
---------------------------------------
shares of Common Stock that are Registrable Securities and are then issued and
outstanding.
(D) Holder. The term "Holder" means (1) any Person owning
------ ------
of record Registrable Securities or (2) any permitted assignee of record of such
Registrable Securities to whom rights under this Section 5(c) have been duly
assigned in accordance with this Agreement.
13
<PAGE>
(E) Qualified IPO. The term "Qualified IPO" means an
------------- -------------
underwritten initial public offering of Common Stock in which the per share
price to the public is at least $12.95 and the aggregate gross proceeds to the
Company are at least $20,000,000.
(F) Forms S-3, S-4 and S-8. The terms "Form S-3," "Form S-4" and
---------------------- -------- --------
"Form S-8" mean, respectively, such forms under the Securities Act each as are
--------
in effect on the date hereof, or such successor registration forms under the
Securities Act subsequently adopted by the SEC requiring similar disclosure and
permitting similar incorporation by reference to other documents filed by the
Company with the SEC.
(ii) Demand Registration.
-------------------
(A) Request by Holders. If the Company, at any time after the
------------------
six-month anniversary of the date the Company's first Qualified IPO was
consummated (or if the Company's initial public offering is not a Qualified IPO
and prior to the consummation thereof all of the Preferred Shares were converted
into Conversion Shares, at any time after the six-month anniversary of the date
such initial public offering was consummated), receives a written request from
the Holders of at least 50% of the Registrable Securities then outstanding that
the Company file a registration statement under the Securities Act covering the
registration of Registrable Securities pursuant to this Section 5(c)(ii), then
the Company shall (1) within 10 business days after the receipt of such written
request, give written notice of such request (a "Request Notice") to all Holders
--------------
and (2) use its best efforts to effect, as soon as practicable, the registration
under the Securities Act of all Registrable Securities that the Holders request
to be included in such registration by written notice given by such Holders to
the Company within 20 days after receipt of the Request Notice; provided,
--------
however, that the Company shall not be obligated to effect any such registration
- -------
if: (x) the Company has, within the 12-month period preceding the date of such
request, already effected a registration under the Securities Act pursuant to
this Section 5(c)(ii) or Section 5(c)(iv); (y) the Company has, within the 6-
month period preceding the date of such request, already effected a registration
under the Securities Act in which the Holders had an opportunity to participate
pursuant to Section 5(c)(iii), other than on a registration from which the
Registrable Securities of Holders have been excluded (with respect to all or any
portion of the Registrable Securities the Holders requested be included in such
registration) pursuant to the provisions of Section 5(c)(iii)(B); or (z) the
initial public offering price to the public for shares to be sold in such
registration would be less than $7,500,000 in the aggregate.
(B) Underwriting. If the Holders initiating a registration
------------
request under this Section 5(c)(ii) (the "Initiating Holders") intend to
------------------
distribute the Registrable Securities covered by their request through
underwriters, then they shall so advise the Company
14
<PAGE>
as a part of their request, and the Company shall include such information in
the applicable Request Notice. In such event, the right of any Holder to include
all or part of such Holder's Registrable Securities in such registration shall
be conditioned upon such Holder's participation in such underwriting, and the
inclusion in the underwriting of such Holder's Registrable Securities requested
for inclusion in such registration (unless otherwise mutually agreed by Holders
of a majority of Registrable Securities held by the Initiating Holders and such
Holder determined based on the number of Registrable Securities held by such
Holders and being registered). All Holders proposing to distribute their
securities through such underwriting shall enter into an underwriting agreement
in customary form with the managing underwriter or underwriters selected for
such underwriting by the Holders of a majority of the Registrable Securities
being registered and reasonably acceptable to the Company (including a lock-up
agreement of up to 180 days if required by such underwriters, provided, all
--------
officers and directors of the Company then holding Common Stock and all persons
owning more than one percent of the outstanding Common Stock enter into
agreements with the same restrictions); provided, however, that it shall not be
-------- -------
considered customary to require any of the Holders to provide representations
and warranties regarding the Company or, except as provided for in Section
5(c)(vii)(B), indemnification of the underwriters for material misstatements or
omissions in the registration statement or prospectus for such offering.
Notwithstanding any other provision of this Section 5(c)(ii), if the
underwriter(s) advise(s) the Company in writing that marketing factors require a
limitation of the number of securities to be underwritten then the Company shall
so advise all Holders of Registrable Securities which would otherwise be
registered and underwritten pursuant hereto, and the number of Registrable
Securities that may be included in the underwriting shall be reduced as required
by the underwriter(s), and the reduction shall be allocated among the Holders of
Registrable Securities requested for inclusion in such registration on a pro
rata basis according to the number of Registrable Securities requested for
inclusion in such registration and owned of record by each Holder requesting
registration (including the Initiating Holders); provided, however, that the
--------- -------
number of shares of Registrable Securities to be included in such underwriting
and registration shall not be reduced unless all other securities of the Company
are first entirely excluded from the underwriting and registration. Any
Registrable Securities excluded and withdrawn from such underwriting shall be
withdrawn from the registration.
(C) Number of Demand Registrations. The Company shall be
-------------------------------
obligated to effect only two registrations pursuant to this Section 5(c)(ii).
(D) Deferral. Notwithstanding the foregoing, if the Company
--------
shall furnish to Initiating Holders a certificate signed by the President or
Chief Executive Officer of the Company stating that in the good faith judgment
of the Board it would be materially detrimental to the Company and its
stockholders for such registration statement to be filed, then the Company shall
have the right to defer such filing for a period of not more than 90 days after
15
<PAGE>
receipt of the request of the Initiating Holders; provided, however, that the
-------- -------
Company shall not be entitled to exercise its right of deferral more than once
within any 12-month period following the date of such a request.
(E) Expenses. The Company shall pay all expenses incurred in
--------
connection with any registration effected pursuant to this Section 5(c)(ii),
including all SEC and Blue Sky registration, filing and qualification fees,
printer and accounting fees and fees and disbursements of the Company's and the
Holders' respective counsel, but excluding underwriters' and brokers' discounts,
commissions, allowances, reallowances and other similar amounts payable or
allowable to underwriters or brokers relating to shares sold by the Holders.
Each Holder participating in a registration effected pursuant to this Section
5(c)(ii) shall bear such Holder's proportionate share (based on the total number
of shares sold in such registration other than for the account of the Company)
of all discounts, commissions, allowances, reallowances or other amounts payable
or allowable to underwriters or brokers in connection with such offering by the
Holders. Notwithstanding the foregoing, the Company shall not be required to pay
the expenses incurred in connection with any registration begun pursuant to this
Section 5(c)(ii) if the registration request is subsequently withdrawn at the
request of the Holders of a majority of the Registrable Securities to be
registered, unless the Holders of a majority of the Registrable Securities then
outstanding agree that such registration constitutes the use by the Holders of
one of their two demand registrations pursuant to this Section (5)(c)(ii) (in
which case such registration shall also constitute the use by all Holders of
Registrable Securities of one of their two such demand registrations under this
Section 5(c)(ii)).
(iii) Piggyback Registrations.
-----------------------
(A) The Company shall notify all Holders of Registrable
Securities in writing at least 30 days prior to filing any registration
statement under the Securities Act (other than a registration on Form S-8 or
Form S-4) for purposes of effecting a public offering of securities of the
Company (including, but not limited to, registration statements relating to
secondary offerings of securities of the Company, but excluding registration
statements relating to any employee benefit plan or any merger or other
corporate reorganization) and shall afford each such Holder an opportunity to
include in such registration statement all or any part of the Registrable
Securities then held by such Holder. Each Holder desiring to include in any such
registration statement all or any part of the Registrable Securities held by
such Holder shall within 20 days after receipt of the above-described notice
from the Company so notify the Company in writing and, in such notice, shall
inform the Company of the number of Registrable Securities such Holder wishes to
include in such registration statement. If a Holder decides not to include all
of its Registrable Securities in any registration statement thereafter filed by
the Company, such Holder shall nevertheless continue to have the right to
include any Registrable Securities in any subsequent registration statement or
registration statements as may be filed by
16
<PAGE>
the Company with respect to offerings of its securities, all upon the terms and
conditions set forth herein.
(B) Underwriting. If a registration statement under which the
------------
Company gives notice under this Section 5(c)(iii) is for an underwritten
offering, then the Company shall so advise the Holders of Registrable
Securities. In such event, the right of any Holder to include all or part of
such Holder's Registrable Securities included in such a registration statement
shall be conditioned upon such Holder's participation in such underwriting and
the inclusion in the underwriting of such Holder's Registrable Securities
requested for inclusion in such registration to the extent provided in this
Section 5(c)(iii). All Holders proposing to distribute their Registrable
Securities through such underwriting shall enter into an underwriting agreement
in customary form with the managing underwriter or underwriters selected for
such underwriting (including a lock-up agreement of up to 180 days if required
by such underwriters, provided, all officers and directors of the Company then
--------
holding Common Stock and all persons owning more than one percent of the
outstanding Common Stock enter into agreements with the same restrictions);
provided, however, that it shall not be considered customary to require any of
- -------- -------
the Holders to provide representations and warranties regarding the Company or,
except as provided for in Section 5(c)(viii)(B), indemnification of the
underwriters for material misstatements or omissions in the registration
statement or prospectus for such offering. Notwithstanding any other provision
of this Agreement, if the Company and the managing underwriter(s) determine in
good faith that marketing factors require a limitation of the number of shares
to be underwritten, then the Company and the managing underwriter(s) may exclude
shares from the registration and the underwriting, and the number of shares that
may be included in the registration and the underwriting shall be allocated,
first to the Company or the selling stockholders for which the registration was
- -----
initiated, and second to each of the Holders and each of the other holders of
------
piggyback registration rights on a parity with the Holders requesting inclusion
of their Registrable Securities in such registration statement on a pro rata
basis based on the total number of Registrable Securities and other securities
requested for inclusion in such registration by each such Holder or other
holder.
(C) Expenses. The Company shall pay all expenses incurred in
--------
connection with any registration referred to in this Section 5(c)(iii),
including all SEC and Blue Sky registration, filing and qualification fees,
printer and accounting fees and fees and disbursements of the Company's and the
Holders' respective counsel, but excluding underwriters' and brokers' discounts,
commissions, allowances, reallowances and other similar amounts payable or
allowable to underwriters or brokers relating to shares sold by the Holders.
Each Holder participating in a registration effected pursuant to this Section
5(c)(iii) shall bear such Holder's proportionate share (based on the total
number of shares sold in such registration other than for the account of the
Company) of all discounts, commissions, allowances, reallowances or other
17
<PAGE>
amounts payable or allowable to underwriters or brokers in connection with such
offering by the Holders.
(D) Not Demand Registration. Registration pursuant to this
-----------------------
Section 5(c)(iii) shall not be deemed to be a demand registration as described
in Section 5(c)(ii). Except as otherwise provided herein, there shall be no
limit on the number of times the Holders may request registration of Registrable
Securities under this Section 5(c)(iii).
(iv) Shelf Registration. If the Company shall, at any time after
------------------
the earlier of (x) the one-year anniversary of the date the Company's first
Qualified IPO was consummated (or if the Company's initial public offering is
not a Qualified IPO and prior to the consummation thereof all of the Preferred
Shares were converted into Conversion Shares, at any time after the one-year
anniversary of the date such initial public offering was consummated), and (y)
such time as the registration of the Registrable Securities under the Securities
Act can be effected by the Company on Form S-3, receive a written request from
Holders of at least 50% of all Registrable Securities then outstanding that the
Company effect a registration on Form S-3 for a public offering on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act with respect to
all or a part of the Registrable Securities owned by such Holders, then the
Company will:
(A) Notice. Promptly give written notice of such request to
------
all other Holders of Registrable Securities; and
(B) Registration. As soon as practicable, effect the
------------
registration of all or such portion of the Registrable Securities specified in
such initial request, together with all or such portion of the Registrable
Securities of any other Holder or Holders joining in such request as are
specified in a written notice given within 20 days after the Company provides
the notice contemplated by Section 5(c)(iv)(A); provided, however, that the
-------- -------
Company shall not be obligated to effect any such registration pursuant to this
Section 5(c)(iv):
(1) if Form S-3 is not available for such offering by the
Holders;
(2) if the Holders, together with the holders of any other
securities of the Company entitled to inclusion in such registration, propose to
sell Registrable Securities and such other securities (if any) at an aggregate
price to the public of less than $5,000,000;
(3) if the Company shall furnish to the Holders a
certificate signed by the President or Chief Executive Officer of the Company
stating that in the
18
<PAGE>
good faith judgment of the Board of Directors of the Company, it would be
materially detrimental to the Company and its stockholders for such Form S-3
registration to be effected at such time, in which event the Company shall have
the right to defer the filing of the Form S-3 registration statement for a
period of not more than 90 days after receipt of the request of the initiating
Holders under this Section 5(c)(iv); provided, however, that the Company shall
-------- -------
not be entitled to exercise its right of deferral more than once within any 12-
month period following the date of such a request;
(4) if the Company has, within the 12-month period
preceding the date of such request, already effected a registration under the
Securities Act, other than a registration from which the Registrable Securities
of Holders have been excluded (with respect to all or any portion of the
Registrable Securities the Holders requested be included in such registration)
pursuant to the provisions of Section 5(c)(iii)(B); or
(5) in any particular jurisdiction in which the Company
would be required to qualify to do business or to execute a general consent to
service of process in effecting such registration, qualification or compliance.
(C) Number of Shelf Registrations. The Company shall be
-----------------------------
obligated to effect only two registrations pursuant to this Section 5(c)(iv).
(D) Discontinuance of Disposition. The Holders agree that upon
-----------------------------
receipt of any notice from the Company that, in the good faith judgment of the
Board of Directors of the Company, any Holder's disposition of Registrable
Securities pursuant to any shelf registration would require the Company to make
public disclosure of information which the Company has a bona fide business
purpose for preserving as confidential, the Holders shall forthwith discontinue
such disposition of Registrable Securities pursuant to such shelf registration
until the earlier of (x) the date upon which such material information is
disclosed to the public or ceases to be material or (y) 180 days after the
Company makes such good faith determination. If there is such a discontinuance
of the disposition of Registrable Securities pursuant to this Section
5(c)(iv)(D), the 90-day period set forth in Section 5(c)(v)(A) shall be extended
for a number of days equal to the number of days for which such disposition was
suspended.
(E) Expenses. The Company shall pay all expenses incurred in
--------
connection with any registration referred to in this Section 5(c)(iv), including
all SEC and Blue Sky registration, filing and qualification fees, printer and
accounting fees and fees and disbursements of the Company's and the Holders'
respective counsel, but excluding underwriters' and brokers' discounts,
commissions, allowances, reallowances and other similar amounts payable or
allowable to underwriters or brokers relating to shares sold by the Holders.
Each Holder
19
<PAGE>
participating in a registration effected pursuant to this Section 5(c)(iv) shall
bear such Holder's proportionate share (based on the total number of shares sold
in such registration other than for the account of the Company) of all
discounts, commissions, allowances, reallowances or other amounts payable or
allowable to underwriters or brokers in connection with such offering by the
Holders. Notwithstanding the foregoing, the Company shall not be required to pay
the expenses incurred in connection with any registration begun pursuant to this
Section 5(c)(iv) if the registration request is subsequently withdrawn at the
request of the Holders of a majority of the Registrable Securities to be
registered, unless the Holders of a majority of the Registrable Securities then
outstanding agree that such registration constitutes the use by the Holders of
one of their two shelf registrations pursuant to this Section (5)(c)(iv) (in
which case such registration shall also constitute the use by all Holders of
Registrable Securities of one of their two such shelf registrations under this
Section 5(c)(iv)).
(F) Not Demand Registration. Shelf registrations pursuant to
-----------------------
this Section 5(c)(iv) shall not be deemed to be demand registrations as
described in Section 5(c)(ii).
(v) General Registration Obligations of the Company. Whenever
-----------------------------------------------
required to effect the registration of any Registrable Securities under this
Agreement, the Company shall, as expeditiously as reasonably possible:
(A) Registration Statement. Prepare and file with the SEC a
----------------------
registration statement with respect to such Registrable Securities and use its
best efforts to cause such registration statement to become effective as
promptly as possible after the filing date; provided, however, that except as
-------- -------
otherwise required by this Section 5(c), the Company shall not be required to
keep any such registration statement effective for more than 120 days (or such
shorter period of time as is required to complete the distribution of the
registered offering).
(B) Amendments and Supplements. Prepare and file with the SEC
--------------------------
such amendments and supplements to such registration statement and the
prospectus used in connection with such registration statement as may be
necessary to comply with the provisions of the Securities Act with respect to
the disposition of all securities covered by such registration statement.
(C) Prospectuses. Furnish to the Holders such number of copies
-------------
of a prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act and such other documents as they may
reasonably request in order to facilitate the disposition of the Registrable
Securities owned by them that are included in such registration.
20
<PAGE>
(D) Blue Sky. Use its best efforts to register and qualify
--------
the securities included in such registration under the securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
(E) Underwriting. In the event of any underwritten public
------------
offering, enter into an underwriting agreement in usual and customary form with
the managing underwriter(s) of such offering and perform its obligations
thereunder.
(F) Agreement to Indemnify. The Company shall execute and
----------------------
deliver to the selling Holders, against execution of the same by such selling
Holders, an agreement (which may, but need not, be an underwriting agreement)
providing for indemnification and contribution as described in Section
5(c)(vii).
(G) Notification. Notify each Holder of Registrable
------------
Securities included in such registration at any time when a prospectus relating
thereto is required to be delivered under the Securities Act of the happening of
any event as a result of which the prospectus included in the registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
then existing.
(H) Opinion and Comfort Letter. Furnish to the Holders, at
--------------------------
the request of any Holder requesting registration of Registrable Securities, on
the date that such Registrable Securities are delivered to the underwriters for
sale, if such securities are being sold through underwriters, or, if such
securities are not being sold through underwriters, on the date that the
registration statement with respect to such securities becomes effective, (1) an
opinion, dated as of such date, of the counsel representing the Company for the
purposes of such registration, in form and substance as is customarily given by
issuer's counsel to underwriters in an underwritten public offering and
reasonably satisfactory to the Holders of a majority of the Registrable
Securities included in the registration, addressed to the underwriters, if any,
and to the Holders requesting registration of Registrable Securities and (2) if
permitted by applicable accounting rules, a "comfort" letter, dated as of such
date, from the independent certified public accountants of the Company, in form
and substance as is customarily given by independent certified public
accountants to underwriters in an underwritten public offering and reasonably
satisfactory to the Holders of a majority of Registrable Securities included in
the registration, addressed to the underwriters, if any, and to the Holders
requesting registration of Registrable Securities.
21
<PAGE>
(vi) Furnish Information. It shall be a condition precedent to
-------------------
the obligations of the Company to take any action pursuant to Section 5(c)(ii),
(iii) or (iv) that the selling Holders shall furnish to the Company such
information regarding themselves, the Registrable Securities held by them and
the intended method of disposition of such securities as shall reasonably be
required to timely effect the registration of their Registrable Securities.
(vii) Indemnification. In the event any Registrable Securities
---------------
are included in a registration effected under Section 5(c)(ii), (iii) or (iv):
(A) By the Company. To the extent permitted by law, the
--------------
Company shall agree to indemnify and hold harmless each Holder, the partners,
officers, stockholders, employees, representatives and directors of each Holder,
any underwriter (as defined in the Securities Act) for such Holder and each
Person, if any, who controls such Holder or underwriter within the meaning of
the Securities Act or the Exchange Act, against any losses, claims, damages or
liabilities (joint or several) to which any of them may become subject under the
Securities Act, the Exchange Act or other federal or state law, insofar as such
losses, claims, damages or liabilities (or Actions in respect thereto) arise out
of or are based upon any of the following statements, omissions or violations,
subject to customary exceptions and qualifications (each, a "Violation"):
---------
(1) any untrue statement or alleged untrue statement
of a material fact contained in the registration statement pursuant to which
such registration was effected; or
(2) the omission or alleged omission to state in the
registration statement pursuant to which such registration was effected a
material fact required to be stated therein, or necessary to make the statements
therein not misleading.
(B) By Selling Holders. To the extent permitted by law,
------------------
each selling Holder shall agree to indemnify and hold harmless the Company, its
officers, employees, representatives and directors, each Person, if any, who
controls the Company within the meaning of the Securities Act, any underwriter
and any other Holder selling securities under such registration statement or any
of such other Holder's partners, officers, stockholders, employees,
representatives and directors and any Person who controls such underwriter or
Holder within the meaning of the Securities Act or the Exchange Act, against any
losses, claims, damages or liabilities (joint or several) to which any of them
may become subject under the Securities Act, the Exchange Act or other federal
or state law, insofar as such losses, claims, damages or liabilities (or Actions
in respect thereto) arise out of or are based upon any Violation, subject to
customary exceptions and qualifications, in each case to the extent that such
Violation occurs in
22
<PAGE>
reliance upon and in conformity with written information furnished by such
Holder expressly for use in connection with such registration.
(C) Contribution. In order to provide for just and
------------
equitable contribution to joint liability under the Securities Act in any case
in which (1) an indemnified party makes a claim for indemnification but it is
judicially determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial of the
last right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that the parties shall have agreed to provide for
indemnification in such case, or (2) contribution under the Securities Act may
be required on the part of any such indemnified party in circumstances for which
the parties shall have agreed to provide indemnification hereunder; then, and in
each such case, the Company and such Holder shall contribute to the aggregate
losses, claims, damages or liabilities to which they may be subject (after
contribution from others).
(viii) Termination of the Company's Obligations. The Company
----------------------------------------
shall have no further obligations pursuant to this Section 5(c) with respect to
any Registrable Securities proposed to be sold by a Holder in a registration
pursuant to Section 5(c)(ii), (iii) or (iv) after the fifth anniversary of the
effective date of the Company's initial public offering or if, in the written
opinion of counsel to the Company reasonably acceptable to counsel for that
Holder, all such Registrable Securities proposed to be sold by that Holder may
then be sold under Rule 144 promulgated under the Securities Act in any three-
month period without exceeding the volume limitations thereunder.
(d) Standstill.
----------
(i) Standstill Agreement. The Investor agrees that, for a
--------------------
period of two years from the Closing Date neither it nor any of its affiliates
(as defined in Rule 12b-2 under the Exchange Act) will, directly or indirectly,
either alone or in concert with one or more other Persons, without the prior
written consent of the Board, acquire or agree or offer to acquire, or solicit
or seek to effect or negotiate with respect to the acquisition of, or make any
statement or inquiry regarding any actual or potential acquisition of (other
than a statement that discloses the existence and terms of this Section 5(d)),
any additional securities of the Company or its subsidiaries, or any rights to
purchase such securities, if the effect of such acquisition would be to cause
the Investor and its affiliates to beneficially own, collectively, securities of
the Company representing more than 9.9% of the voting power of the Company;
provided, however, that this Section 5(d)(i) shall not restrict the Investor or
- -------- -------
its affiliates from acquiring, in the aggregate, up to 0.5% of the outstanding
shares of Common Stock of the Company on a fully diluted basis as provided
pursuant to Section 5(e).
23
<PAGE>
(ii) Termination. The provision set forth in Section 5(d)(i)
-----------
shall automatically terminate in the event that any Person (other than the
Investor or any of its affiliates) publicly announces an unsolicited proposal
for a "Change of Control" of the Company. For the purposes of this Section 5(d),
-----------------
"Change of Control" shall mean any transaction as a result of which any Person,
-----------------
or any two or more Persons acting as a group and all affiliates of such Person
or Persons (a "Group"), who prior to such time owned less than 50% of the then
-----
outstanding capital stock of the Company shall acquire such additional shares of
the Company's capital stock in one or more transactions or series of
transactions, and after such transaction or transactions, such Person or Group
beneficially owns 50% or more of the Company's outstanding capital stock.
(e) Right to Participate. In connection with the Company's first
--------------------
Qualified IPO (or if the Company's initial public offering is not a Qualified
IPO and prior to the consummation thereof all of the Preferred Shares were
converted into Conversion Shares, in connection with such initial public
offering) (such Qualified IPO or initial public offering, as applicable, an
"Offering") the Company shall use all commercially reasonable efforts to require
--------
that its underwriters make an offering of the shares of Common Stock to be sold
in such Offering to the Investor in accordance with the following provisions:
(i) The Company would deliver (or cause to be delivered) a
copy of the preliminary prospectus for such Offering to the Investor
simultaneously with the distribution of same to the public at large by the
underwriters;
(ii) If the Investor were interested in participating in such
Offering, the Investor would be permitted to purchase, at the gross price per
share negotiated by the Company with the underwriters as reflected in the final
prospectus, up to an aggregate of 0.5% of the outstanding shares of Common Stock
of the Company on a fully diluted basis, by written notice received by the
Company not later than five business days prior to the "pricing" of such
Offering; and
(iii) Notwithstanding the foregoing, the underwriters of such
Offering would be entitled to reduce the number of shares of Common Stock to be
offered to the Investor in accordance with this Section 5(e) to the extent
deemed necessary in the underwriters' reasonable judgment (A) to ensure the
success of such Offering for reasons set forth in a written notice to the
Investor no less than one week prior to the anticipated effective date of the
registration statement covering such Offering or (B) to comply with applicable
rules and regulations for reasons set forth in written notice to the Investor no
less than one day prior to the anticipated effective date of the registration
statement covering such Offering.
24
<PAGE>
(f) Filing of Reports. The Company will, from and after such time,
-----------------
and for so long, as it has securities registered pursuant to Section 12 of the
Exchange Act or has securities registered pursuant to the Securities Act, make
timely filing of such reports as are required to be filed by it with the SEC in
a manner consistent with making available to the Holders of Registrable
Securities Rule 144 or Rule 144A under the Securities Act (or any successor
provision thereto). The Company agrees that, promptly after receiving a request
from Holder of Registrable Securities, the Company shall provide to such Holder
(i) a copy of the most recent annual or quarterly report of the Company as filed
with the SEC and (ii) such other publicly filed reports and documents as a
Holder may reasonably request in availing itself of any rule or regulation of
the SEC allowing a Holder to sell any such Registrable Securities without
registration.
6. INDEMNIFICATION.
---------------
(a) Agreement to Indemnify.
----------------------
(i) Company Indemnity. The Investor, its Affiliates and
-----------------
Associates (each as defined below), and each officer, director, stockholder,
employer, representative and agent of any of the foregoing (collectively, the
"Investor Indemnitees"), shall each be indemnified by the Company and held
--------------------
harmless to the extent set forth in this Section 6 with respect to any and all
Damages (as defined below) incurred by any Investor Indemnitee as a proximate
result of any inaccuracy or misrepresentation in, or breach of, any
representation, warranty, covenant or agreement made by the Company in this
Agreement (including any exhibits, schedules or disclosure letters hereto). This
Section 6 does not provide for indemnification for claims arising from the
registration of Conversion Shares under federal and state securities laws.
(ii) Investor Indemnity. The Company, its respective Affiliates
------------------
and Associates, and each officer, director, stockholder, employer,
representative and agent of any of the foregoing (collectively, the "Company
-------
Indemnitees"), shall each be indemnified and held harmless to the extent set
- -----------
forth in this Section 6 by the Investor in respect of any and all Damages
incurred by any Company Indemnitee as a proximate result of any inaccuracy or
misrepresentation in, or breach of, any representation, warranty, covenant or
agreement made by the Investor in this Agreement. This Section 6 does not
provide for indemnification for claims arising from the registration of
Conversion Shares under federal and state securities laws.
(iii) Equitable Relief. Nothing set forth in this Section 6
----------------
shall be deemed to prohibit or limit the right of any Investor Indemnitee or
Company Indemnitee (an "Indemnitee") at any time before, on or after the
----------
Closing, to seek injunctive or other equitable relief for the failure of any
Indemnifying Party to perform or comply with any covenant or agreement contained
herein.
25
<PAGE>
(b) Survival. All representations and warranties of the Investor and
--------
the Company contained herein and all claims of any Indemnitee in respect of any
inaccuracy or misrepresentation or breach, shall survive the Closing until the
first anniversary of the Closing Date, regardless of whether the applicable
statute of limitations, including extensions thereof, may expire; provided,
--------
however, notwithstanding the foregoing, the representations and warranties of
- -------
the Company contained in Section 3(d) shall survive the Closing until such time
as the applicable statute of limitations expires. All covenants and agreements
of the Investor and the Company contained in this Agreement shall survive the
Closing in perpetuity (except to the extent any such covenant or agreement shall
terminate or expire by its terms). All claims of any Indemnitee in respect of
any breach of such covenants or agreements shall survive the Closing until the
expiration of one year following the non-breaching party's obtaining actual
knowledge of such breach; provided that the covenant or agreement has not
terminated or expired by its terms prior to the date the claim is made.
(c) Claims for Indemnification. If any Indemnitee shall believe that
--------------------------
such Indemnitee is entitled to indemnification pursuant to this Section 6 in
respect of any Damages, such Indemnitee shall give the appropriate "Indemnifying
------------
Party" (which, for purposes hereof, in the case of an Investor Indemnitee, means
- -----
the Company and, in the case of a Company Indemnitee, means the Investor) prompt
written notice thereof. Any such notice shall set forth in reasonable detail
and to the extent then known the basis for such claim for indemnification. The
failure of such Indemnitee to give notice of any claim for indemnification
promptly shall not adversely affect such Indemnitee's right to indemnity
hereunder except to the extent that such failure adversely affects the right of
the Indemnifying Party to assert any reasonable defense to such claim. Each
such claim for indemnity shall expressly state that the Indemnifying Party shall
have only the 20-business-day period referred to in the next sentence to dispute
or deny such claim. The Indemnifying Party shall have 20 business days
following its receipt of such notice either (i) to acquiesce in such claim by
giving such Indemnitee written notice of such acquiescence or (ii) to object to
the claim by giving such Indemnitee written notice of the objection. If the
Indemnifying Party does not object thereto within such 20-business-day period,
such Indemnitee shall be entitled to be indemnified for all Damages reasonably
and proximately incurred by such Indemnitee in respect of such claim. If the
Indemnifying Party objects to such claim in a timely manner, the senior
management of the Company and the Investor shall meet to attempt to resolve such
dispute. If the dispute cannot be resolved by senior management of the Company
and Investor, either party may make a written demand for formal dispute
resolution and specify therein the scope of the dispute. Within 30 days after
such written notification, the parties agree to meet for one day with an
impartial mediator and consider dispute resolution alternatives other than
litigation. If an alternative method of dispute resolution is not agreed upon
within 30 days after the one-day mediation, either party may begin litigation
proceedings. Nothing in this Section 6(c) shall be deemed to require
arbitration.
26
<PAGE>
(d) Defense of Claims. In connection with any claim that may give
-----------------
rise to indemnity under this Section 6 resulting from or arising out of any
claim or Proceeding (as defined below) against an Indemnitee by a Person that is
not a party hereto, the Indemnifying Party may (unless such Indemnitee elects
not to seek indemnity hereunder for such claim) but shall not be obligated to,
upon written notice to the relevant Indemnitee, assume the defense of any such
claim or Proceeding if the Indemnifying Party with respect to such claim or
Proceeding acknowledges to the Indemnitee the Indemnitee's right to indemnity
pursuant hereto to the extent provided herein (as such claim may have been
modified through written agreement of the parties) and provides assurances,
reasonably satisfactory to such Indemnitee, that the Indemnifying Party shall be
financially able to satisfy such claim to the extent provided herein if such
claim or Proceeding is decided adversely; provided, however, that nothing set
-------- -------
forth herein shall be deemed to require the Indemnifying Party to waive any
cross-claims or counterclaims for Damages the Indemnifying Party may have
against the Indemnitee. The Indemnitee shall be entitled to retain separate
counsel, reasonably acceptable to the Indemnifying Party, if the Indemnitee
shall determine, upon the written advice of counsel, that an actual or potential
conflict of interest exists between the Indemnifying Party and the Indemnitee in
connection with such Proceeding. The Indemnifying Party shall be obligated to
pay the reasonable fees and expenses of such separate counsel to the extent the
Indemnitee is entitled to indemnification by the Indemnifying Party with respect
to such claim or Proceeding under this Section 6(d). If the Indemnifying Party
assumes the defense of any such claim or Proceeding, the Indemnifying Party
shall select counsel reasonably acceptable to such Indemnitee to conduct the
defense of such claim or Proceeding, shall take all steps necessary in the
defense or settlement thereof and shall at all times diligently and promptly
pursue the resolution thereof. If the Indemnifying Party shall have assumed the
defense of any claim or Proceeding in accordance with this Section 6(d), the
Indemnifying Party shall be authorized to consent to a settlement of, or the
entry of any judgment arising from, any such claim or Proceeding; provided,
--------
however, that the Indemnifying Party shall pay or cause to be paid all amounts
- -------
arising out of such settlement or judgment concurrently with the effectiveness
thereof; provided further, that the Indemnifying Party shall not be authorized
-------- -------
to encumber any of the assets of any Indemnitee or to agree to any restriction
that would apply to any Indemnitee or to its conduct of business without the
prior written consent of the Indemnitee; and provided further, that a condition
-------- -------
to any such settlement shall be a complete release of such Indemnitee and its
Affiliates, directors, officers, employees and agents with respect to such
claim, including any reasonably foreseeable collateral consequences thereof.
Such Indemnitee shall be entitled to participate in (but not control) the
defense of any such Action, with its own counsel and at its own expense. Each
Indemnitee shall, and shall cause each of its Affiliates, directors, officers,
employees and agents to, cooperate fully with the Indemnifying Party in the
defense of any claim or Proceeding being defended by the Indemnifying Party
pursuant to this Section 6(d). If the Indemnifying Party does not assume the
defense of any claim or Proceeding resulting therefrom in accordance with the
terms of this Section 6(d), such
27
<PAGE>
Indemnitee may defend against such claim or Proceeding in such manner as it may
deem appropriate, including settling such claim or Proceeding after giving
notice of the same to the Indemnifying Party, on such terms as such Indemnitee
may deem appropriate. If any Indemnifying Party seeks to question the manner in
which such Indemnitee defended such claim or Proceeding or the amount or nature
of any such settlement, such Indemnifying Party shall have the burden to prove
by a preponderance of the evidence that such Indemnitee did not defend such
claim or Proceeding in a reasonably prudent manner.
(e) Certain Definitions. As used in this Section 6, or any other
-------------------
Section where such definition is expressly referenced: (i) "Affiliate" means,
---------
with respect to any Person, any Person directly or indirectly controlling,
controlled by or under direct or indirect common control with such other Person;
(ii) "Associate" means, when used to indicate a relationship with any Person,
---------
(A) any other Person of which such first Person is an officer, director or
partner or is, directly or indirectly, the beneficial owner of 10% or more of
any class of equity securities, membership interests or other comparable
ownership interests issued by such other Person, (B) any trust or other estate
in which such first Person has a 10% or more beneficial interest or as to which
such first Person serves as trustee or in a similar fiduciary capacity, and (C)
if such first Person is an individual, any relative or spouse of such first
Person who has the same home as such first Person or who is a director or
officer of such first Person; (iii) "Damages" means all demands, claims, actions
-------
or causes of action, assessments, losses, damages, costs, expenses, liabilities,
judgments, awards, fines, response costs, sanctions, taxes, penalties, charges
and amounts paid in settlement, including reasonable out-of-pocket costs, fees
and expenses (including reasonable costs, fees and expenses of attorneys,
accountants and other agents of, or other parties retained by, such party); and
(iv) "Proceeding" means any action, suit, hearing, arbitration, audit,
----------
proceeding (public or private) or investigation that is brought or initiated by
or against any federal, state, local or foreign governmental authority or any
other Person.
7. ASSIGNMENT AND DELEGATION. Notwithstanding anything herein to the
-------------------------
contrary:
(a) Information Rights. The information rights of the Investor under
------------------
Section 5(b) are transferable to any (i) Holder who acquires a number of
Purchased Shares or Conversion Shares equal to at least 50% of the sum of (A)
the number of Conversion Shares actually issued upon the conversion of Purchased
Shares originally issued pursuant to this Agreement and (B) the number of
Conversion Shares issuable upon the conversion of Purchased Shares originally
issued pursuant to this Agreement or (ii) entity wholly-owned by the Investor,
for so long as the same is an Affiliate (as such term is defined in Section
6(e)(i)) of the Investor; provided, however, that no Person may be assigned any
-------- -------
of the foregoing rights unless the Company is given written notice by the
assigning party at the time of such assignment stating the name and address of
the assignee and identifying the securities of the Company as to which the
28
<PAGE>
rights in question are being assigned; provided further, that any such assignee
-------- -------
shall receive such assigned rights subject to all the terms and conditions of
this Agreement.
(b) Registration Rights. The registration rights of the Investor
-------------------
under Section 5(c) may be assigned to any (i) Holder who acquires a number of
Purchased Shares or Conversion Shares equal to at least 50% of the sum of (A)
the number of Conversion Shares actually issued upon the conversion of Purchased
Shares originally issued pursuant to this Agreement and (B) the number of
Conversion Shares issuable upon the conversion of Purchased Shares originally
issued pursuant to this Agreement or (ii) entity wholly-owned by the Investor,
for so long as the same is an Affiliate (as such term is defined in Section
(6)(e)(i)) of the Investor; provided, however, that no Person may be assigned
-------- -------
any of the foregoing rights unless the Company is given written notice by the
assigning party at the time of such assignment stating the name and address of
the assignee and identifying the securities of the Company as to which the
rights in question are being assigned; provided further, that any such assignee
-------- -------
shall receive such assigned rights subject to all the terms and conditions of
this Agreement.
8. TRANSFERABILITY OF PURCHASED SHARES. Except as prohibited by law, the
-----------------------------------
Investor may sell or otherwise transfer any Purchased Shares and Conversion
Shares to any other Person.
9. MISCELLANEOUS.
-------------
(a) Successors and Assigns. The terms and conditions of this
----------------------
Agreement shall inure to the benefit of and be binding upon the respective
assigns of the parties, provided such assignment was made in accordance with
Section 7 and upon the respective successors of the parties.
(b) Governing Law. This Agreement shall be governed by and construed
-------------
under the internal laws of the State of Delaware, without reference to
principles of conflict of laws or choice of laws.
(c) Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(d) Headings. The headings and captions used in this Agreement are
--------
used for convenience only and are not to be considered in construing or
interpreting this Agreement. All references in this Agreement to sections,
paragraphs, exhibits and schedules shall, unless otherwise provided, refer to
sections and paragraphs hereof and exhibits and schedules attached hereto, all
of which exhibits and schedules are incorporated herein by this reference.
29
<PAGE>
(e) Notices. Any notice required or permitted under this Agreement
-------
shall be given in writing, shall be effective when received and shall in any
event be deemed received and effectively given upon personal delivery to the
party to be notified or three business days after deposit with the United States
Post Office, by registered or certified mail, postage prepaid, or one business
day after deposit with a nationally recognized courier service, such as FedEx,
for next business day delivery under circumstances in which such service
guarantees next business day delivery, or one business day after facsimile
transmission, with a copy delivered by registered or certified mail, in any
case, postage prepaid and addressed to the party to be notified at the address
indicated for such party on the signature page hereof or at such other address
as the Investor or the Company may designate by giving at least 10 days' advance
written notice pursuant to this Section 9(e).
(f) Amendments and Waivers. This Agreement may be amended and the
----------------------
observance of any term of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively) only with the
written consent of the Company and the holders of a majority of the aggregate
number of Purchased Shares and Conversion Shares then outstanding (excluding any
of such shares that have been sold in a transaction in which rights under
Section 5(c) are not assigned in accordance with this Agreement or sold to the
public), computed on an as-converted basis. Any amendment or waiver effected in
accordance with this Section 9(f) shall be binding upon the Investor, the
Company and their respective successors and assigns.
(g) Severability. If any provision of this Agreement is held to be
------------
unenforceable under applicable law, such provision shall be excluded from this
Agreement and the balance of the Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
(h) Entire Agreement. This Agreement, together with all exhibits and
----------------
schedules hereto, constitutes the entire agreement and understanding of the
parties with respect to the subject matter hereof and supersedes any and all
prior negotiations, correspondence, agreements, understandings, duties or
obligations between the parties with respect to the subject matter hereof.
(i) Further Assurances. From and after the date of this Agreement,
------------------
upon the request of the Company or the Investor, the Investor or the Company,
respectively, shall execute and deliver such instruments, documents or other
writings as may be reasonably necessary or desirable to confirm, carry out and
effectuate fully the intents and purposes of this Agreement.
30
<PAGE>
(j) Construction. Whenever in this Agreement the word "include" or
------------
"including" is used, such term shall be deemed to mean "include, without
limitation," or "including, without limitation," or "including, but not limited
to," as the case may be, and the language following "include" or "including"
shall not be deemed to set forth an exhaustive list. The words "hereof,"
"herein," '"hereby," "hereunder" and similar terms in this Agreement refer to
this Agreement as a whole and not to any particular provision of this Agreement.
The word "or" is inclusive, unless the context otherwise requires. Article,
Section, subsection, paragraph, exhibit and schedule references are to this
Agreement unless otherwise specified.
(k) Fees, Costs and Expenses. Except as provided in Section 5(c), all
------------------------
fees, costs and expenses (including attorneys' fees and expenses) incurred by
either party hereto in connection with the preparation, negotiation and
execution of this Agreement and the consummation of the transactions
contemplated hereby (including the costs associated with any filings with, or
compliance with any of the requirements of, any governmental authorities) shall
be the sole and exclusive responsibility of such party.
(l) Competition. Nothing set forth herein shall be deemed to
-----------
preclude, limit or restrict the Company's or the Investor's ability to compete
with the other.
(m) Adjustments for Stock Splits, Etc. Wherever in this Agreement
---------------------------------
there is a reference to a specific number of shares of capital stock of the
Company, then, upon the occurrence of any subdivision, combination or stock
dividend of such shares of capital stock, the specific number of shares so
referenced in this Agreement automatically shall be proportionally adjusted to
reflect the effect on the outstanding shares of such class or series of stock by
such subdivision, combination or stock dividend.
(n) Delays or Omissions. No delay or omission to exercise any right,
-------------------
power or remedy accruing to the Company or to the Investor upon any breach or
default of any party hereto under this Agreement shall impair any such right,
power or remedy of the Company or the Investor nor shall it be construed to be a
waiver of any such breach or default, or an acquiescence therein, or of any
similar breach of default thereafter occurring. Any waiver, permit, consent or
approval of any kind or character on the part of the Company or the Investor of
any breach or default under this Agreement or any waiver on the part of the
Company or the Investor of any provisions or conditions of this Agreement must
be in writing and shall be effective only to the extent specifically set forth
in such writing. All remedies, either under this Agreement, or by law or
otherwise afforded to the Company or the Investor shall be cumulative and not
alternative.
(o) Dispute Resolution. The parties agree to negotiate in good faith
------------------
to resolve any dispute between them regarding this Agreement. If the
negotiations do not resolve the dispute to the reasonable satisfaction of both
parties, then each party shall nominate one senior
31
<PAGE>
officer of the rank of Vice President or higher as its representative. These
representatives shall, within 30 days of a written request by either party to
call such a meeting, meet in person and alone (except for one assistant for each
party) and shall attempt in good faith to resolve the dispute. If the dispute
cannot be resolved by such senior officer in such meeting, the parties agree
that they shall, if requested in writing by either party, meet within 30 days
after such written notification for one day with an impartial mediator and
consider dispute resolution alternatives other than litigation. If an
alternative method of dispute resolution is not agreed upon within 30 days after
the one-day mediation, either party may begin litigation proceedings. This
procedure shall be a prerequisite before taking any additional action hereunder.
(p) Index of Defined Terms. The following terms shall have the
----------------------
respective meanings given to them in the sections indicated below:
<TABLE>
<CAPTION>
Defined Term.................................... Section
- ------------ -------
<S> <C>
"Action "....................................... 3(g)
"Affiliate"..................................... 6(e)(i)
"Aggregate Purchase Price"...................... 1(d)
"Agreement"..................................... Preamble
"Associate"..................................... 6(e)(ii)
"Balance Sheet Date"............................ 3(i)
"Board"......................................... 1(a)
"Certificate"................................... 3(f)(i)
"Certificate of Designation".................... 1(a)
"Change of Control"............................. 5(d)(ii)
"Closing"....................................... 2
"Closing Date".................................. 2
"Code".......................................... 3(o)(ii)
"Common Stock".................................. 1(a)
"Company"....................................... Preamble
"Company Indemnitees"........................... 6(a)(ii)
"Conversion Shares"............................. 3(d)(i)
"Damages"....................................... 6(e)(iii)
"Disclosure Letter"............................. 3
"ERISA"......................................... 3(q)
"Exchange Act".................................. 5(b)(i)
"Financial Statements".......................... 3(i)
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
Defined Term.................................... Section
- ------------ -------
<S> <C>
"Form S-3"...................................... 5(c)(i)(F)
"Form S-4"...................................... 5(c)(i)(F)
"Form S-8"...................................... 5(c)(i)(F)
"GAAP".......................................... 3(i)(iii)
"Group"......................................... 5(d)(ii)
"Holder"........................................ 5(c)(i)(D)
"Indemnifying Party"............................ 6(c)
"Indemnitee".................................... 6(a)(iii)
"Initiating Holders"............................ 5(c)(ii)(B)
"Intellectual Property"......................... 3(l)(i)
"Investor"...................................... Preamble
"Investor Indemnitees".......................... 6(a)(i)
"Material Adverse Effect"....................... 3(a)(ii)
"Offering"...................................... 5(e)
"Per Share Purchase Price"...................... 1(c)
"Person"........................................ 5(c)(i)(B)
"Proceeding".................................... 6(e)(iv)
"Purchased Shares".............................. 1(b)
"Qualified IPO"................................. 5(c)(i)(E)
"Register"...................................... 5(c)(i)(A)
"Registered".................................... 5(c)(i)(A)
"Registrable Securities"........................ 5(c)(i)(B)
"Registrable Securities Then Outstanding"....... 5(c)(i)(C)
"Registration".................................. 5(c)(i)(A)
"Request Notice"................................ 5(c)(ii)(A)
"SEC"........................................... 3(m)
"Securities Act"................................ 3(d)(ii)
"Series C Agreement"............................ 3(w)(i)
"Series A Convertible Preferred Stock".......... 3(b)(ii)(A)
"Series B Convertible Preferred Stock".......... 3(b)(ii)(B)
"Series C Convertible Preferred Stock".......... 3(b)(ii)(C)
"Series D Convertible Preferred Stock".......... Recitals
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
Defined Term.................................... Section
- ------------ -------
<S> <C>
"Strategic Alliance Agreement".................. Recitals
"Violation"..................................... 5(c)(vii)(A)
"Year 2000 Compliant ".......................... 3(u)(i)
</TABLE>
34
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date and year first above written.
NAVISITE, INC. MICROSOFT CORPORATION
By: /s/ Joel B. Rosen By: /s/ Gregory B. Maffei
------------------------------- -------------------------------------
Name: Joel B. Rosen Name: Gregory B. Maffei
Title: CEO Title: CFO
Date Signed: June 3, 1999 Date Signed: June 3, 1993
Address: Address:
100 Brickstone Square, 5/th/ Floor 1 Microsoft Way
Andover, Massachusetts 02810 Redmond, Washington 98052-8300
Attention: Chief Financial Officer
Attention: General Counsel, Finance and
Administration
Telephone No: (978) 684-3500 Telephone No: (425) 882-8080
Facsimile No: (978) 684-3596 Facsimile No: (425) 936-7329
with copy to:
David T. Brewster, Esquire
Skadden, Arps, Slate, Meagher
& Flom LLP
One Beacon Street, 31/st/ Floor
Boston, Massachusetts 02108
Telephone No: (617) 573-4800
Facsimile No: (617) 573-4822
<PAGE>
EXHIBIT A
---------
FORM OF
NAVISITE, INC.
CORRECTED CERTIFICATE OF DESIGNATION
OF
SERIES D CONVERTIBLE PREFERRED STOCK
Pursuant to Section 103(f) of the Corporation Law of
the State of Delaware
---------------------
The undersigned, for the purpose of correcting the Certificate of
Designation of Series D Convertible Preferred Stock of NaviSite, Inc. (the
"Corporation") filed with the Secretary of State of the State of Delaware on May
28, 1999 ("Certificate of Designation"), hereby certifies as follows:
1. The Certificate of Designation was an inaccurate record of the
corporate action contemplated by the Corporation.
2. The inaccuracies to be corrected in the Certificate of Designation
relate to the per share price to the public required for automatic conversion in
connection with a Qualified IPO as set forth in Section 5(b) of the Certificate
of Designation.
3. The Certificate of Designation as filed on May 28, 1999, is hereby
replaced in its entirety as set forth in its corrected form below:
NAVISITE, INC., a corporation organized and existing under the laws of
the State of Delaware (the "Corporation"), hereby certifies that the following
resolution was duly adopted by the Board of Directors of the Corporation:
RESOLVED, that pursuant to the authority expressly granted and vested
in the Board of Directors of this Corporation (the "Board of Directors") in
accordance with the provisions of its Certificate of Incorporation, as amended,
a series of Preferred Stock, par value $0.01 per share, of the Corporation be,
and it hereby is, created and classified, and that the designation and number of
shares thereof, the voting powers, preferences and relative, participating,
optional or other special rights thereof, and the qualifications, limitations or
restrictions thereof, are as follows:
<PAGE>
1. Designation and Number of Shares. The Corporation shall have a series of
Preferred Stock, par value $0.01 per share, designated as "Series D Convertible
Preferred Stock" (the "Series D Convertible Preferred") with a stated value of
$7.40 per share, as the same may be equitably adjusted whenever there shall
occur a stock dividend, stock split, combination, reclassification or other
similar event affecting the Series D Convertible Preferred after the date hereof
(the "Stated Value"). The number of shares constituting the Series D
Convertible Preferred shall be 993,243. Any and all series of Preferred Stock
to which the Series D Convertible Preferred ranks on parity as to (i) dividends,
(ii) liquidation, dissolution or winding up, (iii) voting rights or (iv)
redemption, as applicable, shall be referred to herein as "Parity Stock." The
Series A Convertible Preferred Stock, par value $0.01 per share, of the
Corporation (the "Series A Convertible Preferred") and the Series B Convertible
Preferred Stock, par value $0.01 per share, of the Corporation (the "Series B
Convertible Preferred") are Parity Stock as to (i) dividends and (ii)
liquidation, dissolution or winding up. The Series C Convertible Preferred
Stock, par value $0.01 per share, of the Corporation (the "Series C Convertible
Preferred") is Parity Stock as to (i) dividends, (ii) liquidation, dissolution
or winding up, (iii) voting rights and (iv) redemption.
2. Dividends.
(a) The holders of the Series D Convertible Preferred shall be
entitled to receive on each outstanding share of Series D Convertible Preferred,
out of the funds legally available therefor, dividends computed at the rate of
seven percent of the Stated Value per share per annum (or a proportional part
thereof for a portion of a year and all subject to appropriate adjustment in the
event of any stock dividend, stock split, combination or other similar
recapitalization affecting such shares) from the date of issuance of the Series
D Convertible Preferred, payable when, as and if declared by the Board of
Directors. Such dividends shall be payable in preference and priority to the
payment of any dividend on the Common Stock and on parity with the payment of
any dividend to any Parity Stock. The right to such dividends on the Series D
Convertible Preferred shall not be cumulative, and no right to receive dividends
shall accrue by reason of the fact that no dividends have been declared on the
Series D Convertible Preferred in any or every prior year.
(b) No distributions shall be declared or paid on any share of Common
Stock during any fiscal year of the Corporation until dividends at a rate equal
to seven percent of the Stated Value per share of the Series D Convertible
Preferred shall have been paid or declared and set apart for payment during that
fiscal year in which such shares were outstanding.
(c) For purposes of this Section 2, unless the context requires
otherwise, "distribution" shall mean the transfer of cash or property without
consideration, whether by way
2
<PAGE>
of dividend or otherwise, payable other than in Common Stock or other securities
of the Corporation, or the purchase or redemption of shares of the Corporation
(other than repurchases of Common Stock held by employees or directors of, or
consultants to, the Corporation pursuant to agreements providing for such
repurchase and other than redemptions in liquidation or dissolution of the
Corporation) for cash or property, including any such transfer, purchase or
redemption by a subsidiary of the Corporation.
3. Liquidation, Dissolution or Winding Up.
(a) In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, and provided that the amount
available for distribution to holders of the Series D Convertible Preferred
pursuant to this Section 3 is less than the Stated Value per share plus
dividends computed at the rate of seven percent of the Stated Value per share
per annum from the date of issuance of the Series D Convertible Preferred
through the date of such liquidation, dissolution or winding up (less any
dividends which have been declared and paid since the date of issuance of the
Series D Convertible Preferred), the entire assets of the Corporation available
for such distribution shall be distributed ratably among the holders of the
Series D Convertible Preferred on a pari passu basis with the holders of any
Parity Stock.
(b) In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, and provided that the amount
available for distribution to holders of the Series D Convertible Preferred
pursuant to this Section 3 is at least the Stated Value per share plus dividends
computed at the rate of seven percent of the Stated Value per share per annum
from the date of issuance of the Series D Convertible Preferred through the date
of such liquidation, dissolution or winding up (less any dividends which have
been declared and paid since the date of issuance of the Series D Convertible
Preferred) the holder of each share of Series D Convertible Preferred shall be
entitled to be paid first (pari passu with the shares of any Parity Stock) out
of the assets of the Corporation available for distribution to holders of the
Corporation's capital stock of all classes, whether such assets are capital,
surplus or earnings, before any sums shall be paid or any assets distributed
among the holders of any other class of capital stock (other than Parity Stock),
an amount equal to the Stated Value per share of Series D Convertible Preferred
plus dividends computed at the rate of seven percent of the Stated Value per
share per annum from the date of issuance of the Series D Convertible Preferred
through the date of such liquidation, dissolution or winding up (less any
dividends which have been declared and paid since the date of issuance of the
Series D Convertible Preferred). After the payment of the preferential amount
required to be paid to the holders of the Series D Convertible Preferred and any
Parity Stock upon the liquidation, dissolution or winding up of the Corporation,
the holders of shares of Common Stock shall be entitled to receive the remaining
assets and funds of the Corporation available for distribution to its
stockholders.
3
<PAGE>
(c) At the election of each holder of Series D Convertible Preferred,
a consolidation or merger of the Corporation or a sale of all or substantially
all of the assets of the Corporation may be treated either (i) as a liquidation,
dissolution or winding up of the affairs of the Corporation within the meaning
of this Section 3 or (ii) pursuant to Section 6(h) hereof; provided, however,
-------- -------
that each holder of Series D Convertible Preferred shall have the right to
convert such shares of Series D Convertible Preferred into Common Stock pursuant
to Section 5(a) in lieu of receiving payment pursuant to this Section 3(c) or
Section 6(h). Each holder of Series D Convertible Preferred shall notify the
Corporation in writing at its principal offices of its election to obtain the
benefits of either this Section 3(c) or Section 6(h) not later than the date
specified in writing to each holder by the Corporation (which date shall be at
least five days prior to the effective date of such consolidation, merger or
sale). The Corporation shall provide each holder of Series D Convertible
Preferred with written notice of any such consolidation or merger or sale of
substantially all of its assets and properties at least 20 days prior to the
date by which the Corporation must be notified of the election to obtain the
benefits of either this Section 3(c) or Section 6(h).
(d) Whenever the distribution provided for herein shall be made in
property other than cash, the value of that distribution shall be the fair
market value of the distributed property as determined in good faith by the
Board of Directors.
4. Voting Rights. Except as otherwise required by law or as set forth herein,
the holder of each share of Series D Convertible Preferred shall be entitled to
vote on all matters together with the holders of the Common Stock and Parity
Stock and shall be entitled to that number of votes equal to the largest number
of whole shares of Common Stock into which such holder's shares of Series D
Convertible Preferred could be converted pursuant to Section 5 hereof (taking
into account all declared and unpaid dividends, if any, with respect to such
Series D Convertible Preferred) at the record date for determination of the
stockholders entitled to vote on such matters or, if no such record date is
established, at the close of business on the day next preceding the date on
which notice of or to vote is given to the stockholders or at the close of
business on the day on which the Board of Directors adopts the resolution taking
such action for which written consent of stockholders is solicited, such votes
to be counted together with all other shares of capital stock of the Corporation
having general voting power and not counted separately as a class.
5. Conversion. The holders of the Series D Convertible Preferred have
conversion rights as follows (the "Conversion Rights"):
4
<PAGE>
(a) Right to Convert Series D Convertible Preferred. Each share of
Series D Convertible Preferred shall be convertible, at the option of the holder
thereof, at any time after the date of issuance of such share and up until such
time immediately prior to the effective time of liquidation, dissolution or
winding up of the Corporation, at the office of the Corporation or any transfer
agent for the Series D Convertible Preferred, into such number of fully paid and
nonassessable shares (calculated as to each conversion to the largest whole
share) of Common Stock as is determined by dividing the Stated Value by the
Series D Convertible Conversion Price (as defined below) in effect at the time
of the conversion. The "Series D Convertible Conversion Price" shall initially
be $7.40 and shall be subject to adjustment as hereinafter provided. Upon
conversion of their shares of Series D Convertible Preferred into shares of
Common Stock, holders of shares of Series D Convertible Preferred also shall
have the option to have all declared but unpaid dividends on such shares of
Series D Convertible Preferred converted into shares of Common Stock. The
number of shares of Common Stock to be received upon the conversion of such
declared but unpaid dividends shall be computed by dividing the amount of
declared but unpaid dividends by the Series D Convertible Conversion Price.
(b) Automatic Conversion. Each share of Series D Convertible
Preferred shall automatically be converted into shares of Common Stock at the
then effective Series D Convertible Conversion Price upon the closing of an
underwritten public offering pursuant to an effective registration statement
under the Securities Act of 1933, as amended, covering the offer and sale of
securities for the account of the Corporation to the public (x) with a per share
price to the public of at least $12.95 (such amount to be equitably adjusted
whenever there shall occur any stock dividend, stock split, combination or
reclassifications or other similar events affecting the Common Stock after the
date hereof), and (y) in which the aggregate gross proceeds to the Corporation
are at least $20,000,000 (a "Qualified IPO"). The Company shall provide the
holders of Series D Convertible Preferred with written notice of such automatic
conversion at least 20 days prior to the anticipated effective date of the
registration statement filed in connection with such Qualified IPO. In the
event of the automatic conversion of the Series D Convertible Preferred upon a
Qualified IPO under this Section 5(b), the person(s) entitled to receive the
Common Stock issuable upon such conversion of Series D Convertible Preferred
shall not be deemed to have converted such Series D Convertible Preferred until
immediately prior to the closing of such Qualified IPO.
(c) Mechanics of Conversion. No fractional shares of Common Stock
shall be issued upon conversion of the Series D Convertible Preferred. In lieu
of any fractional share to which a holder would otherwise be entitled, the
Corporation shall pay the holder cash equal to the fraction of the share to
which the holder would otherwise be entitled multiplied by the then effective
Series D Convertible Conversion Price. The determination of whether any holder
would otherwise be entitled to fractional shares is based upon the total number
of shares of Series
5
<PAGE>
D Convertible Preferred being converted at any one time by that holder, not upon
each share of Series D Convertible Preferred being converted. Before any holder
of shares of Series D Convertible Preferred shall be entitled to convert those
shares into full shares of Common Stock and to receive certificates therefor,
the holder shall surrender the certificate or certificates for the Series D
Convertible Preferred, duly endorsed, at the office of the Corporation or of any
transfer agent for the Series D Convertible Preferred or shall notify the
Corporation in writing that such certificates have been lost, stolen or
destroyed and shall give written notice to the Corporation at such office that
the holder elects to convert the same. The Corporation shall, as soon as
practicable thereafter, issue and deliver at such office to such holder of
Series D Convertible Preferred a certificate or certificates for the number of
shares of Common Stock to which such holder shall be entitled as aforesaid and a
check payable to the holder in the amount of any cash amounts payable as the
result of a conversion into fractional shares of Common Stock. Such conversion
shall be deemed to have been made immediately prior to the close of business on
the date of receipt of written notice of conversion and other required materials
as described above, and the person or persons entitled to receive the shares of
Common Stock issuable upon such conversion shall be treated for all purposes as
the record holder or holders of such shares of Common Stock on such date. The
Corporation shall not, however, be obligated to issue certificates evidencing
the shares of Common Stock issuable upon such conversion unless certificates
evidencing such shares of the Series D Convertible Preferred being converted are
either delivered to the Corporation or any such transfer agent or the holder
notifies the Corporation that such certificates have been lost, stolen or
destroyed and executes an agreement satisfactory to the Corporation to indemnify
the Corporation from any loss incurred by it in connection therewith. In
addition, the Corporation may, if the Board of Directors deems it reasonably
necessary, require the holder to post a bond in connection with such indemnity
agreement.
(d) Partial Conversion. In the event some but not all of the shares
of Series D Convertible Preferred represented by a certificate or certificates
surrendered by a holder are converted, the Company shall execute and deliver to
or on the order of the holder, at the expense of the Company, a new certificate
representing the number of shares of Series D Convertible Preferred which were
not converted.
(e) Reservation of Stock Issuable Upon Conversion. The Corporation
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Series D Convertible Preferred, such number of its shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding shares of the Series D Convertible Preferred, and if at any
time the number of authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion of all then outstanding shares of the Series
D Convertible Preferred and all
6
<PAGE>
unpaid dividends thereon, in addition to such other remedies as shall be
available to the holder of such Series D Convertible Preferred, the Corporation
will take such corporate action as may, in the opinion of its counsel, be
necessary to increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purposes.
6. Adjustments to Conversion Price.
(a) Special Definitions. For purposes of this Section 6 and Section
10, the following definitions shall apply:
(i) "Options" mean rights, options or warrants to subscribe
for, purchase or otherwise acquire either Common Stock or Convertible
Securities.
(ii) "Original Issue Date" shall mean the date on which the
first share of Series D Convertible Preferred was issued.
(iii) "Convertible Securities" shall mean any security (including
any debt security) directly or indirectly convertible into or exchangeable for
Common Stock other than (A) the Series D Convertible Preferred, (B) the Series A
Convertible Preferred, (C) Series B Convertible Preferred, issued in connection
with the conversion of up to an aggregate of $15,000,000 of intercompany debt of
the Corporation funded after the Original Issue Date, unless such conversion is
based upon a total valuation of the Corporation that is less than $100,000,000,
as determined in good faith by the Board of Directors or (D) the Series C
Convertible Preferred.
(iv) "Additional Shares of Common Stock" shall mean all shares
(including reissued shares) of Common Stock issued (or, pursuant to paragraph
6(c), deemed to be issued) by the Corporation after the Original Issue Date,
other than:
(A) shares of Common Stock issued upon conversion of (w)
the Series D Convertible Preferred authorized herein, (w) the Series A
Convertible Preferred outstanding as of the date hereof, (x) the Series B
Convertible Preferred outstanding as of the date hereof, (y) Series B
Convertible Preferred issued in connection with the conversion of up to an
aggregate of $15,000,000 of intercompany debt of the Corporation funded after
the Original Issue Date, unless such conversion is based upon a total valuation
of the Corporation that is less than $100,000,000, as determined in good faith
by the Board of Directors, or (z) the Series C Convertible Preferred authorized
by a Certificate of Designation filed on the date hereof;
(B) shares of Common Stock issued to officers, directors,
employees and consultants of the Corporation pursuant to any stock option or
stock purchase
7
<PAGE>
plans or agreements or other individual or group incentive plan or program of
any kind approved by the Board of Directors; and
(C) as a dividend or distribution on Series D Convertible
Preferred or any event for which adjustment is made pursuant to Section 6(f) or
Section 6(g).
(b) No Adjustment of Conversion Price. No adjustment in the Series D
Convertible Conversion Price shall be made in respect of the issuance of
Additional Shares of Common Stock unless the consideration per share for an
Additional Share of Common Stock issued or deemed to be issued by the
Corporation pursuant to Section 6(c) is less than the Series D Convertible
Conversion Price on the date of such issuance.
(c) Deemed Issue of Additional Shares of Common Stock. In the event
the Corporation at any time or from time to time after the Original Issue Date
shall issue any Options or Convertible Securities or shall fix a record date for
the determination of holders of any class or series of securities entitled to
receive any such Options or Convertible Securities, then the maximum number of
shares (as set forth in the instrument relating thereto without regard to any
provisions contained therein for a subsequent adjustment of such number that
would result in an adjustment pursuant to Section 6(c)(ii)) of Common Stock
issuable upon the exercise of such Options or, in the case of Convertible
Securities, the conversion or exchange of such Convertible Securities, shall be
deemed to be Additional Shares of Common Stock issued as of the time of such
issuance or, in case such a record date shall have been fixed, as of the close
of business on such record date; provided that Additional Shares of Common Stock
shall not be deemed to have been issued unless the consideration per share
(determined pursuant to Section 6(e)) received by the Corporation for such
Additional Shares of Common Stock would be less than the Series D Convertible
Conversion Price on the date of such issuance, or such record date, as the case
may be; and provided further that in any such case in which Additional Shares of
Common Stock are deemed to be issued:
(i) no further adjustment in the Series D Convertible Preferred
Conversion Price shall be made upon the subsequent issuance of Convertible
Securities or shares of Common Stock upon the exercise of such Options or the
conversion or exchange of such Convertible Securities;
(ii) if such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any increase or decrease in
the consideration payable to the Corporation, or increase or decrease in the
number of shares of Common Stock issuable, upon the exercise, conversion or
exchange thereof, the Series D Convertible Conversion Price computed upon the
original issuance thereof (or upon the occurrence of a record date with
8
<PAGE>
respect thereto), and any subsequent adjustments based thereon, shall, upon any
such increase or decrease becoming effective, be recomputed to reflect such
increase or decrease insofar as it affects such Options or the rights of
conversion or exchange under such Convertible Securities;
(iii) upon the expiration of any such Options or any rights of
conversion or exchange under such Convertible Securities which shall not have
been exercised, the Series D Convertible Conversion Price computed upon the
original issuance thereof (or upon the occurrence of a record date with respect
thereto), and any subsequent adjustments based thereon, shall, upon such
expiration, be recomputed as if:
(A) in the case of (1) Options for Common Stock or (2)
Convertible Securities, the only Additional Shares of Common Stock issued were
shares of Common Stock, if any, actually issued upon the exercise of such
Options or the conversion or exchange of such Convertible Securities and the
consideration received therefor was the consideration actually received by the
Corporation for the issuance of all such Options, whether or not exercised, plus
the consideration actually received by the Corporation upon the issuance of the
Common Stock with respect to which such Option were actually exercised, or for
the issuance of all such Convertible Securities which were actually converted or
exchanged, plus the additional consideration, if any, actually received by the
Corporation upon such conversion or exchange; and
(B) in the case of Options for Convertible Securities, only
the Convertible Securities, if any, actually issued upon the exercise thereof
were issued at the time of issuance of such Options, and the consideration
received by the Corporation for the Additional Shares of Common Stock deemed to
have been then issued was the consideration actually received by the Corporation
for the issuance of all such Options, whether or not exercised, plus the
consideration deemed to have been received by the Corporation upon the issuance
of the Convertible Securities with respect to which such Options were actually
exercised;
(iv) no readjustment pursuant to Section 6(c)(ii) or Section
6(c)(iii) shall have the effect of increasing the Series D Convertible
Conversion Price to an amount which exceeds the lower of (x) the Series D
Convertible Conversion Price on the date of the original adjustment relating to
the grant of the Options or issuance of the Convertible Securities, as
applicable, or (y) the Series D Convertible Conversion Price that would have
resulted from any issuance of Additional Shares of Common Stock between that
original adjustment date and the date of such readjustment; and
(v) in the case of any Options which expire by their terms not more
than 30 days after the date of issuance thereof, no adjustment of the Series D
Convertible
9
<PAGE>
Conversion Price shall be made until the expiration or exercise of all such
Options, whereupon such adjustment shall be made in the manner provided in
Section 6(c)(iii).
(d) Adjustment of Conversion Price Upon Issuance of Additional
Shares of Common Stock. If after the Original Issue Date the Corporation shall
issue Additional Shares of Common Stock without consideration or for
consideration per share that is less than the Series D Convertible Conversion
Price on the date of such issuance, then and in such event, the Series D
Convertible Conversion Price shall be reduced, concurrently with such issuance,
to a price (calculated to the nearest cent) determined by multiplying such
Series D Convertible Conversion Price, by a fraction, the numerator of which
shall be the number of shares of Common Stock outstanding immediately prior to
such issuance plus the number of shares of Common Stock which the aggregate
consideration received by the Corporation for the total number of Additional
Shares of Common Stock so issued would purchase at such Series D Convertible
Conversion Price; and the denominator of which shall be the number of shares of
Common Stock outstanding immediately prior to such issuance plus the number of
such Additional Shares of Common Stock so issued; and provided further that, for
the purposes of this Section 6(d), all shares of Common Stock issuable upon
conversion of outstanding Series D Convertible Preferred, outstanding Series B
Convertible Preferred and outstanding Convertible Securities and upon exercise
of outstanding Options shall be deemed to be outstanding.
(e) Determination of Consideration. For purposes of this Section 6,
the consideration received or receivable by the Corporation shall be computed as
follows:
(i) Cash and Property. Except as provided in Section 6(e)(ii),
such consideration shall:
(A) insofar as it consists of cash, equal the aggregate
amount of cash received or receivable by the Corporation, excluding amounts paid
or payable for accrued interest or accrued dividends;
(B) insofar as it consists of property other than cash,
equal the fair value thereof, as determined in good faith by the Board of
Directors; provided, however, that no value shall be attributed to any services
performed by any employee, officer or director of the Corporation; and
(C) in the event Additional Shares of Common Stock are
issued together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received with respect to such Additional
10
<PAGE>
Shares of Common Stock, computed as provided in Sections 6(e)(i)(A) and (B)
above, as determined in good faith by the Board of Directors.
(ii) Expenses. In the event the Corporation pays or incurs
expenses, commissions or compensation, or allows concessions or discounts to
underwriters, dealers or others performing similar services in connection with
such issuance, in an aggregate amount in excess of 10% of the aggregate
consideration received by the Corporation for such issuance, as determined in
accordance with Section 6(e)(i), consideration shall be computed as provided in
Section 6(e)(i), after deducting the aggregate amount in excess of 10% of the
aggregate consideration received by the Corporation for the issuance.
(iii) Options and Convertible Securities. The consideration per
share received by the Corporation for Additional Shares of Common Stock deemed
to have been issued pursuant to Section 6(c) shall be determined by dividing
(x) the total amount, if any, received or receivable by
the Corporation as consideration for the issuance of such Options or Convertible
Securities, plus the minimum aggregate amount of additional consideration (as
set forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such consideration) payable to
the Corporation upon the exercise of such Options or the conversion or exchange
of such Convertible Securities, or in the case of Options for Convertible
Securities, the exercise of such Options for Convertible Securities and the
conversion or exchange of such Convertible Securities by
(y) the maximum number of shares of Common Stock (as set
forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such number) issuable upon the
exercise of such Options or the conversion or exchange of such Convertible
Securities, or in the case of Options for Convertible Securities, the exercise
of such Options for Convertible Securities and the conversion or exchange of
such Convertible Securities.
(f) Adjustments for Stock Dividends, Subdivisions, Combinations or
Consolidations of Common Stock. In the event the outstanding shares of Common
Stock shall be subdivided (by stock dividend, stock split or otherwise) into a
greater number of shares of Common Stock, the Series D Convertible Conversion
Price then in effect shall, concurrently with the effectiveness of such
subdivision, be proportionately decreased. In the event the outstanding shares
of Common Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock, the Series D
Convertible Conversion Price then
11
<PAGE>
in effect shall, concurrently with the effectiveness of such combination or
consolidation, be proportionately increased.
(g) Adjustments for Other Distributions. In the event the Corporation
at any time or from time to time shall fix a record date for a determination of
holders of Common Stock entitled to receive any distribution payable in (i)
securities of the Corporation other than shares of Common Stock or (ii) assets
of the Corporation (excluding cash dividends or distributions), then, and in
each such event, provision shall be made so that the holders of Series D
Convertible Preferred shall receive upon conversion thereof, in addition to the
number of shares of Common Stock receivable thereupon, the number of securities
or amount of other assets of the Corporation which they would have received had
their Series D Convertible Preferred been converted into Common Stock, on the
date of such event and had they thereafter, during the period from the date of
such event to and including the date of conversion, retained such securities or
other assets receivable by them as aforesaid during such period, giving
application to all other adjustments called for during such period under this
Section 6 with respect to the rights of the holders of the Series D Convertible
Preferred.
(h) Adjustments for Reclassification, Exchange and Substitution. If
the Common Stock issuable upon conversion of the Series D Convertible Preferred
shall be changed into other securities or property, whether by capital
reorganization, reclassification, consolidation or merger of the Corporation or
sale of all or substantially all of the assets of the Corporation or otherwise
(other than a subdivision or combination of shares provided for in this Section
6), then, and in each such event, the holder of each share of Series D
Convertible Preferred shall have the right thereafter to convert such share into
the kind and amount of other securities or property receivable upon such
reorganization, reclassification, consolidation, merger or sale or other change
by holders of the number of shares of Common Stock that would have been received
by such holders upon conversion of the Series D Convertible Preferred
immediately before that change, all subject to further adjustment as provided
herein. Each holder of Series D Convertible Preferred, upon the occurrence of a
consolidation or merger of the Corporation or the sale of all or substantially
all of its assets shall have the right to elect the benefits of either the
provisions of this Section 6(h) or of Section 3(c) as described in Section 3(c),
or to convert such holder's shares of Series D Convertible Preferred into Common
Stock pursuant to Section 5(a).
(i) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Series D Convertible Conversion Price pursuant
to this Section 6, the Corporation, at its expense, shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and furnish to
each holder of Series D Convertible Preferred a certificate prepared by its
Chief Financial Officer setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based.
The
12
<PAGE>
Corporation shall, upon the written request at any time of any holder of Series
D Convertible Preferred, furnish or cause to be furnished to such holder a like
certificate setting forth (i) such adjustments and readjustments, (ii) the
Series D Convertible Conversion Price at the time in effect and (iii) the number
of shares of Common Stock and the amount, if any, of other property which at the
time would be received upon the conversion of Series D Convertible Preferred.
Upon the request of any holder of the Series D Convertible Preferred, the
Corporation will cause its independent public accountants to confirm the
accuracy of such adjustment or readjustment.
(j) Miscellaneous.
(i) All calculations under this Section 6 shall be made to the
nearest cent or to the nearest 1/100 of a share, as the case may be.
(ii) The holders of a majority of the outstanding Series D
Convertible Preferred shall have the right to challenge any determination by the
Board of Directors of fair value pursuant to this Section 6, in which case such
determination of fair value shall be made by an independent appraiser selected
jointly by the Board of Directors and the challenging parties, the cost of such
appraisal to be borne equally by the Corporation and the challenging parties.
(iii) No adjustment in the Series D Convertible Conversion Price
need be made if such adjustment would result in a change in such Series D
Conversion Price of less than $0.01. Any adjustment of less than $0.01 which is
not so made shall be carried forward and shall be made at the time of and
together with any subsequent adjustment which, on a cumulative basis, amounts to
an adjustment of $0.01 or more in such Series D Convertible Conversion Price.
7. Redemption
(a) On or after the fifth anniversary of the Original Issue Date, the
shares of Series D Convertible Preferred are redeemable either at the written
election of a majority of the outstanding shares of Series D Convertible
Preferred or at the option of the Corporation, by resolution of its Board of
Directors, in whole or, from time to time, in part, in either event at a price
for each share of Series D Convertible Preferred redeemed pursuant to this
Section 7 of the Stated Value per share, plus a dividend computed at a rate of
seven percent of the Stated Value per share per annum from the date of issuance
of the Series D Convertible Preferred through the date of such redemption (less
any dividends which have been declared and paid since the date of issuance of
the Series D Convertible Preferred) (the "Redemption Price"). Each partial
redemption of Series D Convertible Preferred shall be made pro rata (so that
the number of shares of Series D Convertible Preferred held by each registered
owner whose shares are being redeemed shall be reduced in an amount which shall
bear the same ratio to the total number of shares of
13
<PAGE>
Series D Convertible Preferred being redeemed as all such shares then held by
such registered owner bears to the aggregate number of shares of Series D
Convertible Preferred then outstanding).
(b) At least 30 days before any redemption of Series D Convertible
Preferred pursuant to Section 7(a) (whether at the election of a majority of the
Series D Convertible Preferred or at the option of the Corporation), the
Corporation shall mail written notice (hereinafter referred to as the
"Redemption Notice"), postage prepaid, to each holder of record of the Series D
Convertible Preferred which is to be redeemed, as its address shown on the
records of the Corporation; provided, however, that the giving of such
-------- -------
Redemption Notice shall not affect the conversion rights pursuant to Section 6
of any holders not electing redemption pursuant to Section 7(a); provided,
--------
further, that the Company's failure to give such Redemption Notice shall in no
- -------
way affect its obligation to redeem the shares of Series D Convertible Preferred
at the election of such holders as provided in Section 7(a). The Redemption
Notice shall contain the following information:
(i) The number of shares of Series D Convertible Preferred held
by the holder which shall be redeemed by the Corporation and the total number of
shares of Series D Convertible Preferred then outstanding;
(ii) The date fixed for redemption (the "Redemption Date") and
the applicable Redemption Price; and
(iii) A statement that the holder is to surrender to the
Corporation, at the place designated therein, its certificates representing the
shares of Series D Convertible Preferred to be redeemed.
(c) Each holder of outstanding shares of Series D Convertible
Preferred shall surrender the certificate or certificates representing such
shares to the Corporation at the place designated in the Redemption Notice, and
thereupon, (i) the applicable Redemption Price for such shares as set forth in
this Section 7 shall be paid to the order of the person whose name appears on
such certificate or certificates and (ii) each surrendered certificate shall be
canceled and retired.
(d) If any shares of Series D Convertible Preferred are not redeemed
solely because a holder fails to surrender the certificate or certificates
representing such shares pursuant to Section 7(c), then, from and after the
Redemption Date, such unredeemed shares of Series D Convertible Preferred shall
not be entitled to the benefits of any further dividends pursuant to
14
<PAGE>
Section 2 or the conversion provisions set forth in Section 5, unless the
Corporation otherwise specifically agrees in writing.
(e) No share or shares of Series D Convertible Preferred acquired by
the Corporation by reason of redemption, purchase, conversion or otherwise shall
be reissued, and all such shares shall be canceled, retired and eliminated from
the shares which the Corporation shall be authorized to issue. The Corporation
may from time to time take such appropriate corporate action as may be necessary
to reduce the authorized number of shares of the Series D Convertible Preferred
accordingly.
(f) The Redemption Price set forth in this Section 7 shall be subject
to equitable adjustment whenever there shall occur a stock dividend, stock
split, combination, reclassification or other similar event affecting the Series
D Convertible Preferred.
8. Notices of Record Date. In the event that the Corporation shall propose at
any time:
(a) to declare any dividend or distribution upon its Common Stock,
whether in cash, property, stock or other securities, whether or not a regular
cash dividend and whether or not out of earnings or earned surplus;
(b) to offer for subscription pro rata to the holders of its Common
Stock any additional shares of capital stock of the Corporation;
(c) to effect any reclassification or recapitalization of its Common
Stock outstanding involving a change in the Common Stock; or
(d) to merge or consolidate with or into any other corporation, or
sell, lease or convey all or substantially all its property or business, or to
liquidate, dissolve or wind up;
then, in connection with each such event, the Corporation shall send to the
holders of the Series D Convertible Preferred:
(i) at least 20 days' prior written notice of the record date
for such dividend, distribution or subscription offer (and specifying the date
on which the holders of Common Stock shall be entitled thereto) or for
determining stockholders entitled to vote in respect of the matters referred to
in Sections 8(c) and (d) above; and
(ii) in the case of the events referred to in (c) and (d) above,
at least 20 days' prior written notice of the date on which such events shall
take place (and if different, also
15
<PAGE>
specifying the date on which the holders of Common Stock shall be entitled to
exchange their Common Stock for other securities or property deliverable upon
the occurrence of such event).
Each such written notice shall be delivered personally or given by first class
mail, postage prepaid, addressed to each of the holders of the Series D
Convertible Preferred at the address for each such holder as shown on the books
of the Corporation.
9. Protective Provisions. So long as any shares of Series D Convertible
Preferred are outstanding, the Corporation shall not, without first obtaining
the approval of the holders of at least a majority of the outstanding shares of
Series D Convertible Preferred, take any action that:
(a) alters the rights, preferences, privileges or powers of, or the
restrictions provided for the benefit of, the Series D Convertible Preferred;
(b) authorizes, creates or issues any new class or series of capital
stock that has a preference superior to the Series D Convertible Preferred with
respect to voting, dividends, liquidation or redemption, or designates or issues
any additional shares of Series D Convertible Preferred;
(c) reclassifies outstanding capital stock into capital stock having
a preference superior to the Series D Convertible Preferred with respect to
voting, dividends, liquidation or redemption; or
(d) amends or repeals any provision of the Corporation's Certificate
of Incorporation, as amended, in a manner that adversely affects the rights of
the holders of the Series D Convertible Preferred.
10. Right of Participation. The holders of the Series D Convertible Preferred
shall have rights of participation in future issuances of Options, Convertible
Securities and Additional Shares of Common Stock by the Corporation, as follows:
(a) Right of Participation. The Corporation shall, prior to any
proposed grant or issuance by the Corporation of any Options, Convertible
Securities or Additional Shares of Common Stock, offer to each record owner of
the Series D Convertible Preferred (a "Preemptive Rights Participant"), by
written notice, the right, for a period of 30 days, to purchase for cash at a
price equal to the price or other consideration for which such Options,
Convertible Securities or Additional Shares of Common Stock are to be granted or
issued, a number of such Options, Convertible Securities or Additional Shares of
Common Stock so that, after giving effect to such grant or issuance (and the
exercise, conversion or exchange into or for (whether directly or
16
<PAGE>
indirectly) shares of Common Stock of all Options and Convertible Securities),
such Preemptive Rights Participant will continue to maintain the same
proportionate equity ownership in the Corporation which such Preemptive Rights
Participant had as of the date of such notice (treating each Preemptive Right
Participant, for the purpose of such computation, as the holder of the number of
shares of Common Stock which would be issuable to such Preemptive Rights
Participant upon exercise, conversion and exchange of all securities (including
but not limited to its shares of Series D Convertible Preferred) held by such
Preemptive Rights Participant on the date such offer is made that are
exercisable, convertible or exchangeable into or for (whether directly or
indirectly) shares of Common Stock and assuming, for the purpose of such
computation, the like exercise, conversion and exchange of all such other
securities held by other persons or entities); provided, however, that the
-------- -------
participation rights of the Preemptive Rights Participants pursuant to this
Section 10 shall not apply to Options, Convertible Securities or Additional
Shares of Common Stock granted or issued:
(i) pursuant to a public offering registered under the
Securities Act of 1933, as amended;
(ii) in connection with a strategic investment in the
Corporation or any of its subsidiaries; or
(iii) solely in consideration for the acquisition (whether by
merger or otherwise) by the Corporation or any of its subsidiaries of stock or
assets of any other entity.
The Corporation's written notice to each Preemptive Rights Participant shall
describe the Options proposed to be granted or the Convertible Securities or
Additional Shares of Common Stock proposed to be issued by the Corporation and
specify the number, price and payment terms of the grant or issuance.
(b) Mechanics of Right of Participation. Any Preemptive Rights
Participant may accept the Corporation's offer as to the full number of Options,
Convertible Securities or Additional Shares of Common Stock required to be
offered to such Preemptive Rights Participant pursuant to Section 10(a), or any
lesser number, by written notice thereof given by such Preemptive Rights
Participant to the Corporation prior to the expiration of the aforesaid 30-day
period, in which event the Corporation shall sell and such Preemptive Rights
Participant shall buy, upon the terms specified, not later than the time such
Options, Convertible Securities or Additional Shares of Common Stock are sold to
third parties as contemplated by the Corporation's offer, the number of
Options, Convertible Securities or Additional Shares of Common Stock agreed to
be purchased by such Preemptive Rights Participant. Subject to and without
limitation of the immediately preceding sentence, the Corporation shall be free
at any time prior
17
<PAGE>
to 90 days after the date of its notice of offer to such Preemptive Rights
Participant under Section 10(a), to offer and sell to any third party or parties
the aggregate number of such Options, Convertible Securities or Additional
Shares of Common Stock offered to and not purchased by the Preemptive Rights
Participants pursuant to this Section 10, at a price and on payment terms no
less favorable to the Corporation than those specified in such notice of offer
to the Preemptive Rights Participants. However, if such third-party sale or
sales are not consummated within such 90-day period, the Corporation shall not
sell such Options, Convertible Securities or Additional Shares of Common Stock
as shall not have been purchased within such period without again complying with
this Section 10.
18
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Corrected
Certificate to be signed by Joel B. Rosen, its Chief Executive Officer, on this
2/nd/ day of June 1999.
NAVISITE, INC.
By:______________________________
Name: Joel B. Rosen
Title: Chief Executive Officer
<PAGE>
EXHIBIT B
---------
[FORM OF OPINION]
June 3, 1999
Microsoft Corporation
1 Microsoft Way
Redmond, Washington 98052-8300
Ladies and Gentlemen:
We have acted as special counsel to NaviSite, Inc., a Delaware
corporation (the "Company"), in connection with the offer and sale to Microsoft
Corporation, a Washington corporation (the "Investor"), of 993,243 shares (the
"Preferred Shares") of Series D Convertible Preferred Stock, par value $0.01 per
share, of the Company (the "Series D Preferred Stock"), pursuant to the Series D
Convertible Preferred Stock Purchase Agreement dated as of the date hereof
between the Investor and the Company (the "Preferred Stock Purchase Agreement").
This opinion is being rendered pursuant to Section 2 of the Preferred
Stock Purchase Agreement. Capitalized terms used and not defined herein shall
have the respective meanings ascribed to them in the Preferred Stock Purchase
Agreement.
In connection with this opinion, we have examined and are familiar
with originals or copies, certified or otherwise identified to our satisfaction,
of: (i) the Preferred Stock Purchase Agreement; (ii) the Certificate of
Incorporation of the Company, as amended, including the Certificate of Amendment
filed by the Company with the Secretary of State of the State of Delaware (the
"Delaware Secretary"), on May 28, 1999 and the Corrected Certificate of
Designation of Series D Convertible Preferred Stock (the "Certificate of
Designation"), filed by the Company with the Delaware Secretary on June 2, 1999;
(iii) the By-Laws of the Company, as currently in effect (the "By-Laws"); (iv)
an Action By Written Consent of the Board of Directors of the Company dated as
of May 28, 1999 adopting resolutions approving, among other things, the
Preferred Stock Purchase Agreement and the transactions contemplated thereby;
(v) an Action By Written Consent of the
<PAGE>
June 3, 1999
Page 2
Stockholders dated as of May 28, 1999, adopting resolutions approving, among
other things, an increase in the authorized number of shares of common stock,
par value $0.01 per share, of the Company (the "Common Stock") and preferred
stock, par value $0.01 per share, of the Company, which the Company has the
authority to issue; (vi) Actions By Written Consent of the holders of Series A
Convertible Preferred Stock, par value $0.01 per share, of the Company, and
Series B Convertible Preferred Stock, par value $0.01 per share, of the
Company, dated as of May 28, 1999, each adopting resolutions approving, among
other things, the creation and issuance of the Series D Convertible Preferred
Stock and the Certificate of Designation; (vii) the Officer's Certificate of
the Company attached hereto as Exhibit A (the "Officer's Certificate"); (viii) a
certificate of the Delaware Secretary dated May 25, 1999, as to the existence
and good standing of the Company in the State of Delaware (the "Delaware
Certificate"); (ix) a certificate of the Secretary of the Commonwealth of the
Commonwealth of Massachusetts dated May 25, 1999, as to the Company's
qualification to do business and good standing as a foreign corporation in the
Commonwealth of Massachusetts (the "Massachusetts Certificate"); and (x) a
certificate of the Secretary of State of the State of California dated May 25,
1999, as to the Company's qualification to do business and good standing as a
foreign corporation in the State of California (the "California Certificate").
We have also examined and are familiar with originals or copies, certified or
otherwise identified to our satisfaction, of such records of the Company and
such other documents as we have deemed necessary or appropriate as a basis for
the opinions set forth herein.
For purposes of our opinion, we have assumed the legal capacity of all
natural persons, the genuineness of all signatures, the authenticity of all
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as certified or photostatic copies and the
authenticity of the originals of such copies. As to any facts material to this
opinion which we did not independently establish or verify, we have relied
upon oral or written statements and representations of officers and other
representatives of the Company and others.
In rendering the opinions expressed below, we have assumed, without
independent investigation or verification of any kind: (a) that the Investor is
duly organized, validly existing and in good standing under the law of its
jurisdiction of organization and has the requisite power and authority to
execute, deliver and perform its obligations under the Preferred Stock Purchase
Agreement; (b) that the execution, delivery and performance by the Investor of
the Preferred Stock Purchase Agreement has been duly authorized by all requisite
action; and (c) that the Preferred Stock Purchase Agreement has been duly
executed and delivered by the Investor and
<PAGE>
June 3, 1999
Page 3
constitutes a valid and binding obligation of the Investor, enforceable against
it in accordance with its terms.
Our opinions set forth in paragraph 1 as to the existence and good
standing of the Company in the State of Delaware, and as to the Company's
qualification to do business and good standing as a foreign corporation in the
Commonwealth of Massachusetts and the State of California, are based solely on
our review of the Delaware Certificate, the Massachusetts Certificate and the
California Certificate, respectively.
The opinions expressed herein are limited to the laws of the State of
Delaware.
Based upon and subject to the foregoing, and to the limitations,
qualifications, exceptions and assumptions set forth herein, we are of the
opinion that:
1. The Company has been duly incorporated and is validly existing
and in good standing under the laws of the State of Delaware. The Company is
qualified to do business and is in good standing as a foreign corporation under
the laws of the Commonwealth of Massachusetts and the State of California.
2. The execution and delivery by the Company of the Preferred Stock
Purchase Agreement and the performance by the Company of its obligations
thereunder are within the corporate power and authority of the Company and have
been duly authorized by all requisite corporate action on the part of the
Company.
3. The Preferred Stock Purchase Agreement has been executed and
delivered by the Company and is a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except that (a)
the enforceability thereof may be limited by (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights generally and (ii) general principles of equity
(regardless of whether enforceability is considered in a proceeding in equity or
at law) and (b) the enforceability of rights to indemnification and contribution
thereunder may be limited by applicable laws, rules or regulations or the
policies underlying such laws, rules or regulations.
<PAGE>
June 3, 1999
Page 4
4. The Preferred Shares to be issued and sold pursuant to the
Preferred Stock Purchase Agreement have been duly authorized for issuance by the
Company and, when issued, executed, delivered and paid for in accordance with
the Preferred Stock Purchase Agreement, will be validly issued, fully paid and
nonassessable shares of Series D Preferred Stock. The Certificate of Designation
has been executed and acknowledged by the Company, filed with the Delaware
Secretary and is effective on the date hereof, all in accordance with Section
103 of the Delaware General Corporation Law, as amended. The shares of Common
Stock initially issuable upon conversion of the Preferred Shares have been duly
reserved for issuance and, when issued, executed and delivered upon conversion
of the Preferred Shares in accordance with the terms of the Certificate of
Designation, will be validly issued, fully paid and nonassessable shares of
Common Stock.
This opinion is being furnished to you solely for your benefit in
connection with the Closing occurring today. This opinion is not to be used,
circulated, quoted or otherwise referred to for any other purpose or relied upon
by any other person for any purpose without our prior written consent.
Very truly yours,
<PAGE>
EXHIBIT 10.4
NET LEASE AGREEMENT
(Multi-Tenant)
by and between
CMG INFORMATION TECHNOLOGIES, INC.,
a Delaware corporation
("Tenant")
and
BORLAND INTERNATIONAL, INC.,
a Delaware corporation
("Landlord")
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Summary of Lease Provisions.................................. 1
2. Property Leased.............................................. 3
2.1 Premises............................................... 3
2.2 Improvements........................................... 3
2.3 Acceptance of Premises................................. 3
3. Term......................................................... 5
3.1 Commencement Date...................................... 5
3.2 Delay of Commencement Date............................. 5
3.3 Early Occupancy........................................ 5
3.4 Intentionally Omitted.................................. 5
3.5 Option to Extend Lease Term............................ 5
4. Rent......................................................... 6
4.1 Rent................................................... 6
4.2 Late Charge............................................ 8
4.3 Additional Rent........................................ 8
4.4 Rent During Extended Term.............................. 9
(a) Mutual Agreement................................. 9
(b) Appraisal........................................ 9
5. Security Deposit............................................. 10
6. Use of Premises.............................................. 11
6.1 Permitted Uses......................................... 11
6.2 Tenant to Comply with Legal Requirements............... 11
6.3 Prohibited Uses........................................ 13
6.4 Hazardous Materials.................................... 14
7. Taxes........................................................ 16
7.1 Personal Property Taxes................................ 16
7.2 Other Taxes Payable Separately by Tenant............... 16
7.3 Common Taxes........................................... 17
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
(a) Definition of Taxes................................... 17
(b) Common Area Charge.................................... 18
8. Insurance; Indemnity; Waiver......................................... 18
8.1 Insurance by Landlord...................................... 18
(a) Property Insurance.................................... 19
(b) Liability Insurance................................... 19
(c) Other................................................. 19
8.2 Insurance by Tenant........................................ 19
(a) Personal Property Insurance........................... 19
(b) Liability Insurance................................... 20
(c) Other................................................. 20
(d) Form of the Policies.................................. 20
8.3 Failure by Tenant to Obtain Insurance...................... 21
8.4 Indemnification............................................ 21
8.5 Claims by Tenant........................................... 22
8.6 Mutual Waiver of Subrogation............................... 22
9. Utilities............................................................ 23
10. Repairs and Maintenance.............................................. 23
10.1 Landlord's Responsibilities................................ 23
10.2 Tenant's Responsibilities.................................. 24
11. Common Area.......................................................... 25
11.1 In General................................................. 25
11.2 Parking Areas.............................................. 26
11.3 Maintenance by Landlord.................................... 27
12. Common Area Charges.................................................. 27
12.1 Definition................................................. 27
12.2 Payment of Common Area Charges by Tenant................... 28
12.3 Exclusions From Common Area Charges........................ 29
(a) Losses Caused by Others and Construction Defects...... 29
(b) Condemnation and Insurance Costs...................... 30
(c) Reimbursable Expenses................................. 30
(d) Utilities or Services................................. 30
(e) Leasing Expenses...................................... 30
(f) Reserves.............................................. 30
</TABLE>
ii
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<TABLE>
<S> <C>
(g) Mortgages........................................... 30
(h) Hazardous Materials................................. 30
(i) Management.......................................... 30
(j) Fees Paid to Affiliates............................. 31
(k) Executive Employee Compensation..................... 31
(l) Advertising and Promotional Expenses................ 31
(m) Art Objects......................................... 31
13. Alterations and Improvements.................................... 31
13.1 In General............................................... 31
13.2 Removal Upon Lease Termination........................... 32
13.3 Landlord's Improvements.................................. 33
14. Default and Remedies............................................ 33
14.1 Events of Default........................................ 33
14.2 Remedies................................................. 34
14.2.1 Termination..................................... 34
14.2.2 Continuance of Lease............................ 36
15. Damage or Destruction........................................... 36
15.1 Definition of Terms...................................... 36
15.2 Insured Casualty......................................... 37
15.2.1 Rebuilding Required............................. 37
15.2.2 Landlord's Election............................. 37
15.2.3 Continuance of Lease............................ 37
15.3 Uninsured Casualty....................................... 37
15.3.1 Landlord's Election............................. 37
15.3.2 Tenant's Ability to Continue Lease.............. 38
15.4 Tenant's Election........................................ 38
15.5 Damage or Destruction Near End of Lease Term............. 39
15.6 Termination of Lease..................................... 39
15.7 Abatement of Rentals..................................... 39
15.8 Liability for Personal Property.......................... 39
15.9 Waiver of Civil Code Remedies............................ 40
15.10 Damage or Destruction to the Building.................... 40
16. Condemnation.................................................... 40
16.1 Definition of Terms...................................... 40
16.2 Rights................................................... 41
</TABLE>
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<TABLE>
<S> <C>
16.3 Total Taking........................................... 41
16.4 Partial Taking......................................... 41
17. Liens......................................................... 42
17.1 Premises to Be Free of Liens........................... 42
17.2 Notice of Lien; Bond................................... 42
18. Landlord's Right of Access to Premises........................ 42
19. Landlord's Right to Perform Tenant's Covenants................ 43
20. Lender Requirements........................................... 44
20.1 Subordination.......................................... 44
20.2 Subordination Agreements............................... 44
20.3 Intentionally Omitted.................................. 44
20.4 Attornment............................................. 44
20.5 Estoppel Certificates and Financial Statements......... 45
(a) Delivery by Tenant............................... 45
(b) Nondelivery by Tenant............................ 46
21. Holding Over.................................................. 46
22. Notices....................................................... 46
23. Attorneys' Fees............................................... 47
24. Assignment, Subletting and Hypothecation...................... 47
24.1 In General............................................. 47
24.2 Voluntary Assignment and Subletting.................... 47
(a) Notice to Landlord............................... 47
(b) Offer to Terminate............................... 48
(c) Landlord's Consent............................... 48
(d) Assumption of Obligations........................ 49
24.3 Collection of Rent..................................... 50
24.4 Corporations and Partnerships.......................... 50
24.5 Reasonable Provisions.................................. 51
24.6 Attorneys' Fees........................................ 51
24.7 Involuntary Transfer................................... 51
24.8 Hypothecation.......................................... 52
</TABLE>
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<TABLE>
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24.9 Binding on Successors.................................... 52
25. Successors...................................................... 52
26. Landlord Default; Mortgagee Protection.......................... 52
27. Exhibits........................................................ 53
28. Surrender of Lease Not Merger................................... 53
29. Waiver.......................................................... 53
30. General......................................................... 54
30.1 Captions and Headings.................................... 54
30.2 Definitions.............................................. 54
(a) Landlord........................................... 54
(b) Agents............................................. 55
(c) Interpretation of Terms............................ 55
30.3 Copies................................................... 55
30.4 Time of Essence.......................................... 55
30.5 Severability............................................. 55
30.6 Governing Law............................................ 55
30.7 Joint and Several Liability.............................. 55
30.8 Construction of Lease Provisions......................... 55
30.9 Tenant's Financial Statements............................ 56
30.10 Withholding of Landlord's Consent........................ 56
31. Signs........................................................... 56
32. Landlord as Party Defendant..................................... 57
33. Landlord Not a Trustee.......................................... 57
34. Interest........................................................ 57
35. Surrender of Premises........................................... 57
36. Labor Disputes.................................................. 58
</TABLE>
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<TABLE>
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37. No Partnership or Joint Venture........................... 58
38. Entire Agreement.......................................... 58
39. Submission of Lease....................................... 59
40. Quiet Enjoyment........................................... 59
41. Authority................................................. 59
42. Broker.................................................... 60
43. Lease Guaranty............................................ 60
</TABLE>
vi
<PAGE>
NET LEASE AGREEMENT
(Multi-Tenant)
For and in consideration of the rentals, covenants, and conditions
hereinafter set forth, Landlord hereby leases to Tenant, and Tenant hereby rents
from Landlord, the following described Premises for the term, at the rental and
subject to and upon all of the terms, covenants and agreements set forth in this
Net Lease Agreement ("Lease"):
1. Summary of Lease Provisions.
---------------------------
1.1 Tenant: CMG Information Technologies, Inc., a Delaware
corporation ("Tenant") and a subsidiary of CMG Information Services.
1.2 Landlord: Borland International, Inc., a Delaware corporation
("Landlord").
1.3 Date of Lease, for reference purposes only: March 20, 1997.
1.4 Premises: That certain space hereinafter more particularly
described, consisting of approximately thirteen thousand one hundred (13,100)
rentable square feet, situated in the first floor of that certain building shown
cross-hatched on the site plan attached hereto as Exhibit A and located at 1700
---------
Green Hills Road in the City of Scotts Valley, County of Santa Cruz, State of
California. (Paragraph 2.1)
1.5 Term: Five (5) years, subject to one (1) three (3) year option
to extend. (Paragraph 3)
1.6 Commencement Date: April 7, 1997. (Paragraph 3)
1.7 Ending Date: April 6, 2002, unless sooner terminated or extended
pursuant to the terms of this Lease. (Paragraph 3)
1.8 Rent: Fifteen Thousand and 00/100 Dollars (15,000) per month for
the first year of the Term. Such Rent is to be adjusted on each anniversary of
the commencement date of the initial term and each anniversary of commencement
date of the Extended Term by changes in the Consumer Price Index as provided in
<PAGE>
Paragraph 4 and such Rent shall be further adjusted as of the commencement of
the three (3) year Extended Term as provided in Paragraph 4.4. (Paragraph 4)
1.9 Use of Premises: General office and computer room use.
(Paragraph 6)
1.10 Tenant's percentage share of Common Area Charges: Nineteen and
eleven one-hundredths percent (19.11%). (Paragraph 12)
1.11 Security Deposit: Fifteen Thousand and 00/100 Dollars ($15,000).
(Paragraph 5)
1.12 Addresses for Notices:
To Landlord: Borland International, Inc.
100 Borland Way
Scotts Valley, CA 95066
Attn: Paul W. Emery II, CFO
To Tenant: To the Premises
With Copy To: GMG Information Services
300 Brickstone Avenue
Andover, MA 01810
Attn: Controller
1.13 Nonexclusive Right to Use No More Than: Forty-six (46)
parking spaces within the Common Area. (Paragraph 11.2)
1.14 Summary Provisions in General. Parenthetical references in this
-----------------------------
Paragraph 1 to other paragraphs in this Lease are for convenience of reference,
and designate some of the other Lease paragraphs where applicable provisions are
set forth. All of the terms and conditions of each such referenced paragraph
shall be construed to be incorporated within and made a part of each of the
above referring Summary of Lease Provisions. In the event of any conflict
between any Summary of Lease Provision as set forth above and the balance of the
Lease, the latter shall control.
2
<PAGE>
2. Property Leased.
---------------
2.1 Premises. Landlord hereby leases to Tenant and Tenant hereby
--------
leases from Landlord upon the terms and conditions herein set forth, those
certain premises ("Premises") referred to in Paragraph 1.4 above and shown
cross-hatched on the floor plan attached hereto as Exhibit B. In addition,
---------
Tenant shall have such rights in and to the Common Area (defined in Paragraph
11.1 below) as are more fully described in Paragraph 11.1 below.
The building in which the Premises are located is referred to herein as the
"Building." The "Land" shall mean and refer to all of the real property
outlined in red on Exhibit A, and shall not be limited to the parcel of real
---------
property on which the Building is located (if the same is a separate legal
parcel). Any reference in this Lease to the Parcel" shall be deemed a reference
to the Land. The Land, Building and any other building(s) or improvement(s) now
or hereafter located on the Land are referred to herein collectively as the
"Project."
Landlord reserves the right to grant to tenants of the Project, and to the
agents, employees, servants, invitees, contractors, guests, customers and
representatives of such tenants or to any other user authorized by Landlord,
the nonexclusive right to use the Land for pedestrian and vehicular ingress and
egress and vehicular parking.
2.2 Improvements. After Tenant completes its initial leasehold
------------
improvements in the Premises (which leasehold improvements shall be subject to
the terms of Paragraph 13.1 and 13.2 below) and Tenant so notifies Landlord in
writing of such completion, Landlord shall promptly commence and diligently
complete in a commercially reasonable manner the cleaning of the carpet within
the Premises and the painting and patching of the interior walls of the Premises
where necessary as of the Commencement Date, as reasonably determined by
Landlord and Tenant. In addition to the foregoing, Landlord shall, at its sole
cost, use commercially reasonable efforts to complete construction of the
demising wall to be installed by Landlord ("Landlord's Work") by May 3, 1997, as
extended by delays caused by Tenant or its agents or contractors and by delays
otherwise outside the control of Landlord, but Landlord's failure to complete
the Landlord's Work by such date (as so extended) shall not extend the
Commencement Date.
2.3 Acceptance of Premises. Landlord hereby warrants to Tenant that,
----------------------
to the actual knowledge of Linda Gilcrest, the existing plumbing, fire sprinkler
3
<PAGE>
system, alarm, UPS generator, lighting, air conditioning, ventilation and
heating systems within the Premises shall be in good operating condition on the
Commencement Date. If a non-compliance with said warranty exists as of the
Commencement Date, Landlord shall, except as otherwise provided in this Lease,
promptly after receipt of written notice from Tenant setting forth with
specificity the nature and extent of such non-compliance, rectify same at
Landlord's expense. If Tenant does not give Landlord written notice of a non-
compliance with this warranty within thirty (30) days after the Commencement
Date, correction of that non-compliance shall be the obligation of Tenant at
Tenant's sole cost and expense. By taking possession of the Premises, Tenant
acknowledges that it is accepting the Premises in its "as is" condition, subject
to Landlord's obligations under Section 2.2 above and subject to Landlord's
warranty set forth in this Section 2.3 above. During the term of this Lease
Tenant shall comply with the reasonable rules and regulations from time to time
promulgated by Landlord of which Tenant is noticed (and non-discriminatorily
applied) governing the use of any portion of the Project. Tenant acknowledges
that, except as otherwise set forth in this Section 2.3 above, neither Landlord
nor Landlord's agents have made any representation or warranty as to the
suitability of the Premises for the conduct of Tenant's business, the condition
of the Building or Premises, or the use or occupancy which may be made thereof
and Tenant has independently investigated and is satisfied that the Premises are
suitable for Tenants's intended use. The preceding to the contrary
notwithstanding, except as otherwise provided in Section 6.2 below, Landlord
shall be responsible for complying with the requirements of Title III of the
Americans with Disabilities Act of 1990, 42 U.S.C. section 12101 et. seq., and
the regulations promulgated thereunder (the "ADA"), as respects the common areas
within the Building and the exterior common areas. Tenant shall be responsible
for complying with ADA as respects the Premises.
Notwithstanding anything to the contrary contained in this Lease, Tenant's
acceptance of the Premises shall not be deemed a waiver of Tenant's right to
have defects in the demising wall constructed by Landlord pursuant to Paragraph
2.2 repaired at no cost to Tenant. Tenant shall give notice to Landlord
whenever any such defect becomes reasonably apparent, and Landlord shall repair
the defect as soon as practicable, however, Landlord shall be under no
obligation to repair any defect in the improvements constructed by Landlord
pursuant to Paragraph 2.2 if Tenant gives Landlord notice of such defect later
than one (1) year following substantial completion of such improvements.
4
<PAGE>
3. Term
----
3.1 Commencement Date. The term of this Lease ("Lease Term") shall
-----------------
be for the period specified in Paragraph 1.5 above, commencing on the date set
forth in Paragraph 1.6 ("Commencement Date").
3.2 Delay of Commencement Date. Landlord shall not be liable for any
--------------------------
damage or loss incurred by Tenant for Landlord's failure for whatever cause to
deliver possession of the Premises by a particular date (including the Commence
ment Date), nor shall this Lease be void or voidable on account of such failure
to deliver possession of the Premises.
3.3 Early Occupancy. Prior to the Commencement Date and following
---------------
Starfish Software, Inc. waiving its right of first refusal with respect to the
Premises, Tenant shall have the right to enter the Premises for the sole
purposes of fixturizing the same and/or installing its furniture and computer
and telephone systems. If Tenant takes possession of the Premises prior to the
Commencement Date, Tenant shall do so subject to all of the terms and conditions
hereof, except that Tenant shall not be obligated to pay the Rentals provided
for herein during such period of early occupancy.
3.4 Intentionally Omitted.
---------------------
3.5 Option to Extend Lease Term. Landlord hereby grants to Tenant an
---------------------------
option to extend the Lease Term for period of three (3) years ("Extended Term"),
on the following terms and conditions:
(a) Tenant shall give Landlord written notice of its exercise of
the option to extend the Lease Term no earlier than nine (9) months nor later
than six (6) months before the date the Lease Term would end but for said
exercise. Time is of the essence.
(b) Tenant may not extend the Lease Term pursuant to this
Paragraph 3.5 if Tenant is in material default of any of its obligations under
this Lease as of the date of Tenant's notice of exercise of this option, or if
Tenant shall have assigned or otherwise transferred its interest in this Lease
and/or more than twenty-five percent of the rentable square footage of the
Premises, whether or not Landlord's consent to such assignment or transfer has
been given. The preceding sentence to the contrary notwithstanding, Tenant shall
not be precluded from
5
<PAGE>
extending the Lease Term as provided herein solely because Tenant may have
assigned this Lease to a Permitted Assignee (as defined in Section 24.4). If
Tenant is in default under this Lease on the date that the Extended Term is to
commence, then Landlord may elect to terminate this Lease, notwithstanding any
notice given by Tenant of an exercise of its option to extend and such exercise
of Tenant's option to extend the Lease Term shall be void and of no force or
effect.
(c) All terms and conditions of this Lease shall apply during
the Extended Term, except that the Rent for the Extended Term shall be
determined in accordance with Paragraph 4.4 below, Tenant shall have no further
options to extend the Lease Term and Landlord shall have no obligation to
construct or install any tenant improvements as described in Exhibit C attached
---------
hereto.
(d) Once Tenant delivers notice of its exercise of the option to
extend the Lease Term, Tenant may not withdraw such exercise and, subject to the
provisions of this Paragraph 3.5, such notice shall operate to extend the Lease
Term. Upon the extension of the Lease Term pursuant to this Paragraph 3.5, the
term "Lease Term" as used in this Lease shall thereafter include the Extended
Term and the Lease Termination date shall be the expiration date of the Extended
Term unless sooner terminated pursuant to the terms hereof.
4. Rent.
----
4.1 Rent. Tenant shall pay to Landlord as rent for the Premises
----
("Rent"), in advance, on the first day of each calendar month, commencing on the
date specified in Paragraph 1.6 and continuing throughout the initial five (5)
year Lease Term, the Rent set forth below:
The monthly Rent to be paid by Tenant to Landlord during the first year of
the initial five (5) year Lease Term shall be equal to Fifteen Thousand and
00/100 Dollars ($15,000) per month. The Rent payable under this Lease shall be
adjusted pursuant to the terms of this Paragraph 4.1 during the initial Lease
Term on each anniversary of the Commencement Date of this Lease (and on each
anniversary of the commencement date of the Extended Term, if applicable, except
that for purposes of such adjustments during the Extended Term, the phrase
"Commencement Date" as used in the definition of "Initial Index" in Paragraph
4.1(b) below shall mean the date on which the Extended Term commences). As used
herein, the term "Adjustment Date" shall mean the date of a Rent adjustment
pursuant to this Paragraph 4.1. As of each Adjustment Date, the monthly Rent
shall be increased to a sum equal to the
6
<PAGE>
product obtained by multiplying the monthly Rent for the first year of the
initial Lease Term or Extended Term, as the case may be, by a fraction, the
numerator of which is the New Index as of the applicable Adjustment Date and the
denominator of which is the Initial Index; however, in no event shall the
monthly Rent be increased on any Adjustment Date by an amount less than three
percent (3%) of the monthly Rent in effect immediately prior to the applicable
Adjustment Date and in no event shall the monthly Rent be increased on any
Adjustment Date by an amount more than six percent (6%) of the monthly Rent in
effect immediately prior to the applicable Adjustment Date. For purposes of
adjusting the Rent on the anniversaries of the Commencement Date of the initial
Lease Term and the commencement date of the Extended Term as provided in this
Paragraph 4.1, the following definitions shall apply:
(a) INDEX: the Consumer Price Index (all items) for all Urban
Consumers as published by the United States Department of Labor, Bureau of Labor
Statistics, for the San Francisco/Oakland/San Jose area (1982-84=100 base);
(b) INITIAL INDEX: the Index published for the month nearest but
prior to the Commencement Date; and
(c) NEW INDEX: the Index published nearest but prior to the
applicable Adjustment Date.
If at any time when the Rent is to be adjusted as provided above, the Index
is changed so that the base year differs from the base year used for the Initial
Index, the Index shall be converted in accordance with the conversion factor
published by the United States Department of Labor, Bureau of Labor Statistics.
In the event the Index is otherwise changed or discontinued during the Lease
Term, the most nearly comparable official price index of the United States
Government (as determined in Landlord's reasonable discretion) shall be used for
computing the adjustments to Rent. In no event shall the Rent following any
adjustment pursuant to this Paragraph 4.1 be less than the current Rent
immediately prior to the applicable Adjustment Date.
Rent shall be prorated, based on thirty (30) days per month, for any
partial month during the Lease Term. Rent shall be payable without deduction,
offset, prior notice or demand in lawful money of the United States to Landlord
at the address herein specified for purposes of notice or to such other persons
or such other places as Landlord may designate in writing. Concurrently with
the execution of this Lease,
7
<PAGE>
Tenant shall deliver to Landlord two months' Rent in the amount of Thirty
Thousand and 00/100 Dollars ($30,000) to be applied to the first and last
months' Rent due under this Lease.
4.2 Late Charge. Tenant hereby acknowledges that late payment by
-----------
Tenant to Landlord of Rent will cause Landlord to incur costs not contemplated
by this Lease, the exact amount of which will be extremely difficult to
ascertain. Such costs include, but are not limited to, processing and accounting
charges, and late charges which may be imposed on Landlord by the terms of any
mortgage or deed of trust covering the Premises. Accordingly, Tenant shall pay
to Landlord, as Additional Rent (as defined in Paragraph 4.3 below), without the
necessity of prior notice or demand, a late charge equal to ten percent (10%) of
any installment of Rent which is not received by Landlord within ten (10) days
after the due date for such installment. The preceding sentence to the contrary
notwithstanding, solely with respect to the first time a late charge would be
imposed under this Section 4.2, Tenant shall have an additional ten (10) days
(beyond the ten (10) day grace period referred to in the immediately preceding
sentence) following written notice to Tenant that an installment of Rent is past
due, to pay such delinquent installment of Rent and thereby avoid such initial
late charge being imposed by Landlord. The parties hereby agree that such late
charges represents a fair and reasonable estimate of the costs Landlord will
incur by reason of late payment by Tenant. In no event shall this provision for
a late charge be deemed to grant to Tenant a grace period or extension of time
within which to pay any installment of Rent or prevent Landlord from exercising
any right or remedy available to Landlord upon Tenant's failure to pay such
installment of Rent when due, including without limitation the right to
terminate this Lease. In the event any installment of Rent is not received by
Landlord by the thirtieth (30/th/) day after the due date for such installment,
such installment shall bear interest at the annual rate set forth in Paragraph
34 below, commencing on the thirty-first (31/st/) day after the due date for
such installment and continuing until such installment is paid in full. Interest
shall not accrue on any late charges imposed by Landlord on Tenant.
4.3 Additional Rent. All taxes, charges, costs and expenses and
---------------
other sums which Tenant is required to pay hereunder (together with all interest
and charges that may accrue thereon in the event of Tenant's failure to pay the
same), and all damages, costs and reasonable expenses which Landlord may incur
by reason of any Default by Tenant shall be deemed to be additional rent
hereunder ("Additional Rent"). Additional Rent shall accrue commencing on the
Commencement Date. In the event of nonpayment by Tenant of any Additional Rent,
Landlord shall have the
8
<PAGE>
rights and remedies with respect thereto as Landlord has for the nonpayment of
Rent. The term "Rentals" as used in this Lease shall mean Rent and Additional
Rent.
4.4 Rent During Extended Term. If Tenant elects to extend the Lease
-------------------------
Term pursuant to Paragraph 3.5 above, the annual Rent for the first year of the
Extended Term shall be in an amount equal to the fair market rental value of the
Premises in relation to market conditions at the time of the extension
(including, but not limited to, rental rates for comparable space with
comparable tenant improvements and taking into consideration any adjustments to
rent based upon direct costs (operating expenses) and taxes, load factors,
financing charges, and/or cost of living or other rental adjustments; the
relative strength of the tenants; the size of the space; and any other factors
which affect market rental values at the time of the commencement of the
Extended Term, but without taking into consideration the value of any leasehold
improvements installed in the Premises by Tenant at Tenant's sole cost);
however, the Rent for the first year of the Extended Term shall in no event be
lower than the Rent for the last lease year of the initial five (5) year Lease
Term and the Rent for the Extended Term shall be adjusted upon each anniversary
of the commencement date of the Extended Term in accordance with Paragraph 4.1
above.
(a) Mutual Agreement. After timely receipt by Landlord of
----------------
Tenant's notice of exercise of the option to extend the Lease Term, Landlord and
Tenant shall have a period of fifteen (15) days in which to agree on the Rent
for the first year of the Extended Term. If Landlord and Tenant agree on said
Rent during that period, they shall immediately execute an amendment to this
Lease stating the Rent for the first year of the Extended Term. If Landlord and
Tenant are unable to agree on the Rent for the first year of the Extended Term
as aforesaid, then, unless Tenant rescinds said notice of exercise of the option
to extend the Lease Term by delivery of such rescission notice to Landlord
within fifteen (15) days following the expiration of the fifteen (15) day time
period set forth immediately above, the provisions of Paragraph 4.4(b) below
shall apply.
(b) Appraisal. Within ten (10) days after the expiration of the
---------
fifteen (15) day rescission period described in Paragraph 4.4(a) above, provided
Tenant has not timely exercised its right to rescind its exercise of the option
to extend the Lease Term, each party at its cost and by giving notice to the
other party, shall appoint an M.A.I. real estate appraiser, with at least (5)
years full-time commercial appraisal experience in Santa Clara County or Santa
Cruz County, to appraise and set the fair market rental value of the Premises.
If a party does not appoint an appraiser within ten (10) days after the other
party has given notice of the name of its
9
<PAGE>
appraiser, the single appraiser appointed shall be the sole appraiser and shall
set the fair market rental value. The cost of such sole appraiser shall be borne
equally by the parties. If two (2) appraisers are appointed by the parties as
provided in this Para graph 4.4(b), the two appraisers shall attempt to set the
fair market rental value. If they are unable to agree within twenty (20) days
after the last appraiser has been appointed, then the two (2) appraisers shall
attempt to select a third (3/rd/) appraiser meeting the qualifications stated in
this Paragraph 4.4(b) within ten (10) days after the last day the two (2)
appraisers are given to set the fair market rental value. If they are unable to
agree on the third (3/rd/) appraiser, either the parties to this Lease, by
giving ten (10) days notice to the other party, may apply to the presiding judge
of the Superior Court of Santa Cruz County for the selection of a third (3/rd/)
appraiser who meets the qualifications stated above. Each of the parties shall
bear one-half (2) of the cost of appointing the third (3/rd/) appraiser and of
paying the third (3/rd/) appraiser's fee. The third appraiser, however selected,
shall be a person who has not previously acted in any capacity for either party.
Within twenty (20) days after the selection of the third appraiser, the majority
of the appraisers shall set the fair market rental value. If the majority of the
appraisers are unable to set the fair market rental value within said twenty
(20) day period, the three (3) appraisals shall be added together and the total
divided by three (3); the resulting quotient shall be the fair market rental
value and shall be deemed incorporated herein; provided, however, that if any
appraisal differs from the median appraisal by an amount equal to more than ten
percent (10%) of such median appraisal, that appraisal shall be disregarded, and
the average of the remaining appraisals (or the remaining appraisal) shall be
the fair market rental value. In establishing the fair market rental value, the
appraiser or appraisers shall consider the factors referred to in Section 4.4
above, without regard to the existence of this Lease and without regard to the
value of any leasehold improvements installed in the Premises by Tenant at
Tenant's sole cost but taking into consideration the triple net nature of this
Lease. The appraiser shall have the right to include adjustments to the Rent
during the Extended Term as part of the fair market rental value of the
Premises.
5. Security Deposit. Concurrently with Tenant's execution of this Lease,
----------------
Tenant shall deposit with Landlord a security deposit ("Security Deposit") in
the amount set forth in Paragraph 1.11 above. The Security Deposit shall be
held by Landlord as security for the faithful performance by Tenant of each and
every term, covenant and condition of this Lease applicable to Tenant, and not
as prepayment of Rent. If Tenant shall at any time fail to keep or perform any
term, covenant or condition of this Lease applicable to Tenant, including
without limitation, the payment of Rentals of those provisions requiring Tenant
to repair damage to the
10
<PAGE>
Premises caused by Tenant or to surrender the Premises in the condition required
pursuant to Paragraph 35 below, Landlord may, but shall not be obligated to, and
without waiving or releasing Tenant from any obligation under this Lease, use,
apply or retain the whole or any part of the Security Deposit reasonably
necessary for the payment of any amount which Landlord may spend by reason of
Tenant's default or as necessary to compensate Landlord for any loss or damage
which Landlord may suffer by reason of Tenant's default. In the event Landlord
uses or applies any portion of the Security Deposit, Tenant shall, within five
(5) business days after written demand by Landlord, remit to Landlord sufficient
funds to restore the Security Deposit to its original sum. Failure by Tenant to
so remit funds shall be a Default by Tenant. Should Tenant comply with all of
the terms, covenants and conditions of this Lease applicable to Tenant, the
balance of the Security Deposit shall be returned to Tenant within fourteen (14)
days after Lease Termination and surrender of the Premises by Tenant; provided,
however, if any portion of the Security Deposit is to be applied to repair
damages to the Premises caused by Tenant or Tenant's agents, to clean the
Premises, or to remove alterations and restore the Premises pursuant to
Paragraph 13.2 below, then the balance of the Security Deposit shall be returned
to Tenant no later than thirty (30) days after the date Landlord receives
possession of the Premises.
6. Use of Premises.
---------------
6.1 Permitted Uses. Tenant shall use the Premises and the Common Area
--------------
only in conformance with applicable governmental or quasi-governmental laws,
statutes, orders, regulations, rules, ordinances and other requirements now or
hereafter in effect (collectively, "Laws") and shall use the Premises solely for
the purposes set forth in Paragraph 1.9 above, and for no other purpose without
the prior written consent of Landlord, which consent may be given or withheld by
Landlord in its sole discretion. Tenant acknowledges and agrees that the
selection of Building tenants shall be in Landlord's reasonable discretion and
Landlord in making such selection shall not be deemed to be warranting that any
use of the Building made by any such tenant is compatible or consistent with the
design of the Building or other uses of the Building. Any change in use of the
Premises or the Common Area without the prior written consent of Landlord shall
be a Default by Tenant. Tenant and Tenant's agents shall comply with the
provisions of any Declaration of Covenants, Conditions, and Restrictions
affecting the Premises and the Common Area.
6.2 Tenant to Comply with Legal Requirements. Tenant shall, at its
----------------------------------------
sole cost, promptly comply with all Laws relating to or affecting Tenant's
particular
11
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use or occupancy of the Premises or use of the Common Area, now in force, or
which may hereafter be in force, including without limitation those relating to
utility usage and load or number of permissible occupants or users of the
Premises, whether or not the same are now contemplated by the parties; with the
provisions of all recorded documents (of which Tenant has received copies)
affecting the Premises or the Common Area insofar as the same relate to or
affect Tenant's particular use or occupancy of the Premises or use of the Common
Area; and with the requirements of any board of fire underwriters (or similar
body now or hereafter constituted) relating to or affecting Tenant's particular
or occupancy of the Premises or use of the Common Area. Tenant's obligations
pursuant to this Paragraph 6.2 shall include, without limitation, maintaining or
restoring the Premises and making structural and non-structural alterations and
additions in compliance and conformity with all Laws and recorded documents
(including, without limitation, alterations or additions to the Premises,
Building or Common Area that are required pursuant to the ADA), to the extent
such compliance relates to Tenant's particular use or occupancy of the Premises
during the Lease Term or alterations, additions or improvements made to the
Premises by Tenant, or Tenant's or any of its agents', employees' or
contractors' negligence or willful misconduct. Any alterations, additions or
improvements undertaken by Tenant pursuant to this Paragraph 6.2 shall be
subject to the requirements of Paragraph 13.1 below. At Landlord's option,
Landlord may make the required alteration, addition or change, and Tenant shall
pay the cost thereof as Additional Rent. The foregoing notwithstanding, Landlord
shall make any alteration, addition or improvement required to bring the
Premises, the Building or the Common Area into compliance with legal
requirements in effect at the time the Premises, any improvements installed
therein by Landlord, the Building or the Common Area, respectively, were
originally constructed. The cost of any structural alterations or capital
improvements as may be hereafter required due to a change in laws and unrelated
to Tenant's specific use of the Premises, Tenant's alternations, additions or
improvements or Tenant's or any of its agents', employees' or contractors'
negligence or willful misconduct shall be amortized over the useful life of such
alteration, addition of improvement (with interest thereon at 10% per annum or
such higher rate of interest as may have been paid by Landlord on funds borrowed
for the purpose of constructing such structural alterations, additions or
improvements) and shall be a Common Area Charge.
Tenant shall obtain prior to taking possession of the Premises any permits,
licenses or other authorizations required for the lawful operation of its
business at the Premises. The judgment of any court of competent jurisdiction
or the admission of Tenant in any action or proceeding against Tenant,
regardless of whether Landlord is
12
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a party thereto or not, that Tenant has violated such Law or recorded document
relating to Tenant's particular use or occupancy of the Premises or use of the
Common Area shall be conclusive of the fact of such violation by Tenant.
Following the substantial completion of construction or installation of
Tenant's initial leasehold improvements in the Premises, Landlord agrees to
reasonably cooperate with Tenant, at no cost to Landlord, in Tenant's efforts
to obtain a certificate of occupancy with respect to the Premises.
6.3 Prohibited Uses. Tenant and Tenant's agents shall not commit or
---------------
suffer to be committed any waste upon the Premises. Tenant and Tenant's agents
shall not do or permit anything to be done in or about the Premises or Common
Area which will in any way obstruct or unreasonably interfere with the rights of
any other tenants of the Building, other authorized users of the Common Area, or
occupants of neighboring property, or injure them. Tenant shall not conduct or
permit any auction or sale open to the public to be held or conducted on or
about the Premises or Common Area. Tenant and Tenant's agents shall not use or
allow the Premises to be used for any unlawful, immoral or hazardous purpose or
any purpose not permitted by this Lease, nor shall Tenant or Tenant's agents
cause, maintain, or permit any nuisance in, on or about the Premises. Tenant
and Tenant's agents shall not do or permit anything to be done in or about the
Premises nor bring or keep anything in the Premises which will in any way
increase the rate of any insurance upon any portion of the Project or any of its
contents, or cause a cancellation of any insurance policy covering any portion
of the Project or any of its contents, nor shall Tenant or Tenant's agents keep,
use or sell or permit to be kept, used or sold in or about the Premises any
articles which may be prohibited by a standard form policy of fire insurance.
In the event the rate of any insurance upon any portion of the Project or any of
its contents is increased because of Tenant's particular use of the Premises or
that of Tenant's agents, Tenant shall pay, as Additional Rent, the full cost of
such increase; provided, however this provision shall in no event be deemed to
constitute a waiver of Landlord's right to declare a default hereunder by reason
of the act or conduct of Tenant or Tenant's agents causing such increase or of
any other rights or remedies of Landlord in connection therewith. Tenant and
Tenant's agents shall not place any loads upon the floor, walls or ceiling of
the Premises which would endanger the Building or the structural elements
thereof or of the Premises, nor place any harmful liquids in the drainage system
of the Building or Common Area. No waste materials or refuse shall be dumped
upon or permitted to remain upon any part of the Project except in enclosed
trash containers designated for that purpose by Landlord. No materials,
supplies, equipment, finished products (or semi-finished products), raw
13
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materials, or other articles of any nature shall be stored upon, or be permitted
to remain on, any portion of the Project outside the Premises.
6.4 Hazardous Materials. Neither Tenant nor Tenant's agents shall
-------------------
permit the introduction, placement, use, storage, manufacture, transportation,
release or disposition (collectively "Release") of any Hazardous Material(s)
(defined below) on or about any portion of the Project without the prior written
consent of Landlord, which consent may be withheld in the sole and absolute
discretion of Landlord without any requirement of reasonableness in the exercise
of that discretion. Notwithstanding the immediately preceding sentence to the
contrary, Tenant may use de minimis quantities of the types of materials which
are technically classified as Hazardous Materials but commonly used in domestic
or office use to the extent not in an amount, which, either individually or
cumulatively, would be a "reportable quantity" under any applicable Law. Tenant
covenants that, at its sole cost and expense, Tenant will comply with all
applicable Laws with respect to the Release by Tenant, it agents, employees,
contractors or invitees of such permitted Hazardous Materials. Any Release
beyond the scope allowed in this paragraph shall be subject to Landlord's prior
consent, which may be withheld in Landlord's sole and absolute discretion, and
shall require an amendment to the Lease in the event Landlord does consent which
shall set forth the materials, scope of use, indemnification and any other
matter required by Landlord in Landlord's sole and absolute discretion. Tenant
shall indemnify, defend and hold Landlord and Landlord's agents harmless from
and against any and all claims, losses, damages, liabilities, or expenses
arising in connection with the Release of Hazardous Material in violation of
Hazardous Materials Laws by Tenant, Tenant's agents or any other person using
the Premises with Tenant's knowledge and consent or authorization (and such
persons shall not be considered "third parties" for purposes of the following
paragraph). Tenant's obligation to defend, hold harmless and indemnify pursuant
to this Paragraph 6.4 shall survive Lease Termination.
The foregoing indemnity shall not apply to, and Tenant shall not be
responsible for, the presence of Hazardous Materials on, under, or about the
premises, Building or Common Area to the extent caused by any third parties or
by Landlord or Landlord's employees, agents, contractors or invitees. Landlord
represents to Tenant that, to the actual knowledge of Linda Gilcrest, without
investigation or inquiry, there exists no Hazardous Materials in, on or under
the Premises, Building or Land in violation applicable environmental laws,
rules, regulations or ordinances.
14
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As used in this Lease, the term "Hazardous Materials" means any
chemical, substance, waste or material which has been or is hereafter determined
by any federal, state or local governmental authority to be capable of posing
risk of injury to health or safety, including without limitation, those
substances included within the definition of "hazardous substances," "hazardous
materials," "toxic substances," or "solid waste" under the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, the Resource
Conservation and Recovery Act of 1976, and the Hazardous Materials
Transportation Act, as amended, and in the regulations promulgated pursuant to
said laws; those substances defined as "hazardous wastes" in section 25117 of
the California Health & Safety Code, or as "hazardous substances" in section
25316 of the California Health & Safety Code, as amended, and in the regulations
promulgated pursuant to said laws; those substances listed in the United States
Department of Transportation Table (49 CFR 172.101 and amendments thereto) or
designated by the Environmental Protection Agency (or any successor agency) as
hazardous substances (see, e.g., 40 CFR Part 302 and amendments thereto); such
--- ----
other substances, materials and wastes which are or become regulated or become
classified as hazardous or toxic under any laws, including without limitation
the California Health & Safety Code, Division 20, and Title 26 of the California
Code of Regulations; and any material, waste or substance which is (i)
petroleum, (ii) asbestos,, (iii) polychlorinated biphenyls, (iv) designated as a
"hazardous substance" pursuant to section 311 of the Clean Water Act of 1977,
33 U.S.C. sections 1251 et seq. (33 U.S.C. 1321) or listed pursuant to section
-- ---
307 of the Clean Water Act of 1977 (33 U.S.C. 1317), as amended; (v) flammable
explosive; (vi) radioactive materials; or (vii) radon gas.
Landlord shall have the right, upon reasonable advance notice to
Tenant to inspect, investigate, sample and/or monitor the Premises, the Building
and Common Area, including any soil, water, groundwater, or other sampling, to
the extent reasonably necessary to determine whether Tenant is complying with
the terms of this Lease with respect to Hazardous Materials. Unless a previous
inspection has disclosed a violation by Tenant of the covenants contained in
this Paragraph 6.4, such inspections, investigations, sampling and/or monitoring
shall be performed not more often than semi-annually. In connection therewith,
Tenant shall provide Landlord with reasonable access to all portions of the
Premises; provided, however, that Landlord shall avoid any unreasonable
interference with the operation of Tenant's business on the Premises. If,
following Landlord's inspections, investigations, samplings and/or monitoring
of the Premises, Building and/or Common Area, Landlord reasonably determines dig
Tenant or any of its agents, employees or contractors has caused Hazardous
Materials to be spilled, released, discharged or
15
<PAGE>
present on, in or under the Premises, Building and/or Common Area, then all
costs reasonably incurred by Landlord in performing such inspections,
investigation, sampling and/or monitoring shall be reimbursed by Tenant to
Landlord as Additional Rent within ten (10) days after Landlord's demand for
payment.
7. Taxes.
-----
7.1 Personal Property Taxes. Tenant shall cause Tenant's trade
-----------------------
fixtures, equipment, furnishings, furniture, merchandise, inventory, machinery,
appliances and other personal property installed or located on the Premises
(collectively the "personal property) to be assessed and billed separately from
the Land and the Building. Tenant shall pay before delinquency any and all
taxes, assessments and public charges levied, assessed or imposed upon or
against Tenant's personal property. If any of Tenant's personal property shall
be assessed with the Land or the Building, Tenant shall pay to Landlord, as
Additional Rent, the amounts attributable to Tenant's personal property within
thirty (30) days after receipt of a written statement from Landlord setting
forth the amount of such taxes, assessments and public charges attributable to
Tenant's personal property. Tenant shall comply with the provisions of any Law
which requires Tenant to file a report of Tenant's personal property located on
the Premises.
7.2 Other Taxes Payable Separately by Tenant. shall pay (or reimburse
----------------------------------------
Landlord, as Additional Rent, if Landlord is assessed), prior to delinquency or
within thirty (30) days after receipt of Landlord's statement thereof, any and
all taxes, levies, assessments or surcharges payable by Landlord or Tenant and
relating to this Lease or the Premises (other than Landlord's net income,
succession, transfer, gift, franchise, estate or inheritance taxes, and Taxes,
as that term is defined in Paragraph 7.3(a) below, payable as a Common Area
Charge), whether or not now customary or within the contemplation of the parties
hereto, whether or not now in force or which may hereafter become effective,
including but not limited to taxes:
(a) Upon, allocable to, or measured by the area of the Premises
or the Rentals payable hereunder, including without limitation any gross rental
receipts, excise, or other tax levied by the state, any political subdivision
thereof, city or federal government with respect to the receipt of such Rentals;
(b) Upon or with respect to the use, possession occupancy,
leasing, operation and management of the Premises or any portion thereof,
16
<PAGE>
(c) Upon this transaction or any document to which Tenant is a
party creating or transferring an interest or an estate in the Premises; or
(d) Imposed as a means of controlling or abating environmental
pollution or the use of energy or any natural resource (including without
limitation gas, electricity or water), including, without limitation, any
parking taxes,. levies or charges or vehicular regulations imposed by any
governmental agency. Tenant shall also pay, prior to delinquency, all privilege,
sales, excise, use, business, occupation, or other taxes, assessments, license
fees, or charges levied, assessed or imposed upon Tenant's business operations
conducted at the Premises.
In the event any such taxes are payable by Landlord and it shall not
be lawful for Tenant to reimburse Landlord for such taxes, then the Rentals
payable hereunder shall be increased to net Landlord the same net Rental after
imposition of any such tax upon Landlord as would have been payable to Landlord
prior to the imposition of any such tax.
7.3 Common Taxes.
------------
(a) Definition of Taxes. The term "Taxes" as used in this Lease
-------------------
shall collectively mean (to the extent any of the following are not paid by
Tenant pursuant to Paragraphs 7.1 and 7.2 above) all real estate taxes and
general and special assessments (including, but not limited to, assessments for
public improvements or benefit); personal property taxes; taxes based on
vehicles utilizing parking areas on the Land; taxes computed or based on rental
income or on the square footage of the Premises or the Building (including
without limitation any municipal business tax but excluding federal, state and
municipal net income taxes); environmental surcharges; excise taxes; gross
rental receipts taxes; sales and/or use taxes; employee taxes; water and sewer
taxes, levies, assessments and other charges in the nature of taxes or
assessments (including, but not limited to, assessments for public improvements
or benefit); and all other governmental, quasi-governmental or special district
impositions of any kind and nature whatsoever; regardless of whether any of the
foregoing are now customary or within the contemplation of the parties hereto
and regardless of whether resulting from increased rate and/or valuation, or
whether extraordinary or ordinary, general or special, unforeseen or foreseen,
or similar or dissimilar to any of the foregoing and which during the Lease Term
are laid, levied, assessed or imposed upon Landlord and/or become a lien upon or
chargeable against any portion of the Project under or by virtue of any present
or future laws, statutes, ordinances, regulations, or other requirements of any
governmental, quasi-govern-
17
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mental or special district authority whatsoever. The term "environmental
surcharges" shall include any and all expenses, taxes, charges or penalties
imposed by the Federal Department of Energy, Federal Environmental Protection
Agency, the Federal Clean Air Act, or any regulations promulgated thereunder, or
imposed by any other local, state or federal governmental agency or entity now
or hereafter vested with the power to impose taxes, assessments or other types
of surcharges as a means of controlling or abating environmental pollution or
the use of energy or any natural resource in regard to the use, operation or
occupancy of the Project. The term "Taxes" shall include (to the extent the same
are not paid by Tenant pursuant to Paragraphs 7.1 and 7.2 above), without
limitation, all taxes, assessments, levies, fees, impositions or charges levied,
imposed, assessed, measured, or based in any manner whatsoever upon or with
respect to the use, possession, occupancy, leasing, operation or management of
the Project or in lieu of or equivalent to any Taxes set forth in this Paragraph
7.3(a). In the event any such Taxes are payable by Landlord and it shall not be
lawful for Tenant to reimburse Landlord for such Taxes, then the Rentals payable
hereunder shall be increased to net Landlord the same net Rental after
imposition of any such Tax upon Landlord as would have been payable to Landlord
prior to the imposition of any such Tax.
Notwithstanding anything to the contrary contained in this lease,
Tenant shall not be required to pay any portion of any tax or assessment (i) in
excess of the amount which would be payable if the tax or assessment were paid
in installments over the longest possible term; or (ii) imposed on land and
improvements other than the Project.
(b) Common Area Charge. All Taxes which are levied or assessed
------------------
or which become a lien upon any portion of the Project or which become due or
accrue during the Lease Term shall be a Common Area Charge, and Tenant shall pay
as Additional Rent each month during the Lease Term 1/12th of its annual share
of such Taxes, based on Landlord's estimate thereof, pursuant to Paragraph 12
below. Tenant's share of Taxes during any partial tax fiscal year(s) within the
Lease Term shall be prorated according to the ratio which the number of days
during the Lease Term or of actual occupancy of the premises by Tenant,
whichever is greater, during such year bears to 365.
8. Insurance; Indemnity; Waiver.
----------------------------
8.1 Insurance by Landlord. Landlord may, during the Lease Term,
---------------------
procure and keep in force the following insurance, the cost of which if paid or
18
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incurred by Landlord, shall be a Common Area Charge, payable by Tenant pursuant
to Paragraph 12 below:
(a) Property Insurance. "All risk" property insurance,
------------------
including, without limitation, boiler and machinery (if applicable); sprinkler
damage; vandalism; malicious mischief; full coverage plate glass insurance; and
demolition, increased cost of construction and contingent liability from change
in building laws on the Building and the Land, including any improvements or
fixtures constructed or installed in the Building and on the Land by Landlord.
Such insurance shall be in the full amount of the replacement cost of the
foregoing, with reasonable deductible amounts, which deductible amounts shall be
a Common Area Charge, payable by Tenant pursuant to Paragraph 12. Such insurance
may also include rental income insurance, insuring that one hundred percent
(100%) of the Rentals (as the same may be adjusted hereunder) will be paid to
Landlord for a period of up to twelve (12) months if the Premises are destroyed
or damaged, or such longer period as may be required by any beneficiary of a
deed of trust or any mortgagee of any mortgage affecting the Premises. Such
insurance shall not cover any leasehold improvements installed in the Premises
by Tenant at its expense, or Tenant's equipment, trade fixtures, inventory,
fixtures or personal property located on or in the Premises;
(b) Liability Insurance. Comprehensive general liability
-------------------
(lessor's risk) insurance against any and all claims fro personal injury, death
or property damage occurring in or about the Building or the Land. Such
insurance shall have a combined single limit of not less than One Million
Dollars ($1,000,000) per occurrence and Two Million Dollars ($2,000,000)
aggregate; and
(c) Other. Such other insurance as Landlord deems necessary and
-----
prudent.
8.2 Insurance by Tenant. Tenant shall, during the Lease Term, at
-------------------
Tenant's sole cost and expense, procure and keep in force the following
insurance:
(a) Personal Property Insurance. "All risk" property insurance,
---------------------------
including, without limitation, coverage for boiler and machinery (if
applicable); sprinkler damage; vandalism; malicious mischief; and demolition,
increased cost of construction and contingent liability from changes in building
laws on all leasehold improvements installed in the Premises by Tenant at its
expense (if any), and on all equipment, trade fixtures, inventory, fixtures and
personal property located on or in the Premises, including improvements or
fixtures hereinafter constructed or installed
19
<PAGE>
on the Premises. Such insurance shall be in an amount equal to the full
replacement cost of the aggregate of the foregoing and shall provide coverage
comparable to the coverage in the standard ISO all risk form, when such form is
supplemented with the coverages required above.
(b) Liability Insurance. Comprehensive general liability
-------------------
insurance for the mutual benefit of Landlord and Tenant, against any and all
claims for personal injury, death or property damage occurring in or about the
Premises and Common Area or arising out of Tenant's or Tenant's agents' use of
the Common Area, use or occupancy of the Premises or Tenant's operation on the
Premises. Such insurance shall have a combined single limit of not less than Two
Million Dollars ($2,000,000) per occurrence and Five Million Dollars
($5,000,000) aggregate. Such insurance shall contain a cross-liability
(severability of interests) clause and an extended ("broad form") liability
endorsement, including blanket contractual cover age. The minimum limits
specified above are the minimum amounts required by Landlord, and may be revised
by Landlord from time to time to meet changed circumstances, including without
limitation to reflect (i) changes in the purchasing power of the dollar, (ii)
changes indicated by the amount of plaintiffs' verdicts in personal injury
actions in the State of California, or (iii) changes consistent with the
standards required by other landlords in the county in which the Premises are
located. Such liability insurance shall be primary and not contributing to any
insurance available to Landlord, and Landlord's insurance (if any) shall be in
excess thereto. Such insurance shall specifically insure Tenant's performance of
the indemnity, defense and hold harmless agreements contained in Paragraph 8.4,
although Tenant's obligations pursuant to Paragraph 8.4 shall not be limited to
the amount of any insurance required of or carried by Tenant under this
Paragraph 8.2(b). Tenant shall be responsible for insuring that the amount of
insurance maintained by Tenant is sufficient for Tenant's purposes.
(c) Other. Such other insurance as required by law, including,
-----
without limitation, workers' compensation insurance.
(d) Form of the Policies. The policies required to be
--------------------
maintained by Tenant pursuant to Paragraphs 8.2(a), (b), and (c) above shall be
with companies, on forms, with deductible amounts (if any), and loss payable
clauses reasonably satisfactory to Landlord, shall include Landlord and the
beneficiary or mortgagee of any deed of trust or mortgage encumbering the
Premises and/or the Land as additional insureds, and shall provide that such
parties may, although additional insureds, recover for any loss suffered by
Tenant's negligence. Certified
20
<PAGE>
copies of policies or certificates of insurance shall be delivered to Landlord
prior to the Commencement Date; a new policy or certificate shall be delivered
to Landlord at least ten (10) business days prior to the expiration date of the
old policy. Tenant shall have the right to provide insurance coverage which it
is obligated to carry pursuant to the terms hereof in a blanket policy, provided
such blanket policy expressly affords coverage to the Premises and Common Area
and to Tenant as required by this Lease. Tenant shall obtain a written
obligation on the part of Tenant's insurer(s) to notify Landlord and any
beneficiary or mortgagee of a deed of trust or mortgage encumbering the Premises
and/or the Land in writing of any delinquency in premium payments and at least
thirty (30) days prior to any cancellation or modification of any policy.
Tenant's policies shall provide coverage on an occurrence basis and not on a
claims made basis. In no event shall the limits of any policies maintained by
Tenant by considered as limiting the liability of Tenant under this Lease.
8.3 Failure by Tenant to Obtain Insurance. If Tenant does not take
-------------------------------------
out the insurance required pursuant to Paragraph 8.2 or keep the same in full
force and effect, Landlord may, but shall not be obligated to, take out the
necessary insurance and pay the premium therefor, and Tenant shall repay to
Landlord, as Additional Rent, the amount to paid promptly upon demand. In
addition, Landlord may recover from Tenant and Tenant agrees to pay, as
Additional Rent, any and all reasonable expenses (including reasonable
attorneys' fees) and damages which Landlord may sustain by reason of the failure
of Tenant to obtain and maintain such insurance, it being expressly declared
that the expenses and damages of Landlord shall not be limited to the amount of
the premiums thereon.
8.4 Indemnification. Tenant shall indemnify, hold harmless, and
---------------
defend Landlord with competent counsel reasonably satisfactory to Landlord
(except for Landlord's negligence or willful misconduct, or that of its agents,
employees, contractors or invitees) against all claims, losses, damages,
expenses or liabilities for injury or death to any person or for damage to or
loss of use of any property arising out of any occurrence in, on or about the
Building, Common Area or Land, if caused or contributed to by Tenant or Tenant's
agents, or arising out of any occurrence in, upon or at the Premises or on
account of the use, condition, occupational safety or occupancy of the Premises.
Tenant's indemnification, defense and hold harmless obligations under this Lease
shall include and apply to reasonable attorney's fees, investigation costs, and
other costs actually incurred by Landlord. Tenant shall further indemnify,
defend and hold harmless Landlord from and against any and all claims, losses,
damages, liabilities or expenses arising from any breach or default in
21
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the performance of any obligation on Tenant's part to be performed under the
terms of this Lease. The provisions of this Paragraph 8.4 shall survive Lease
Termination with respect to any damage, injury, death, breach or default
occurring prior to such termination. Except as set forth in this Paragraph 8.4,
this Lease is made on the express condition that Landlord shall not be liable
for, or suffer loss by reason of, injury to person or property, from whatever
cause, in any way connected with the condition, use, occupational safety or
occupancy of the Premises specifically including, without limitation, any
liability for injury to the person or property of Tenant or Tenant's agents.
8.5 Claims by Tenant. Except as expressly provided in Paragraph 8.4,
----------------
Landlord shall not be liable to Tenant, and Tenant waives all claims against
Landlord, for injury or death to any person, damage to any property, or loss of
use of any property in any portion of the Project by and from all causes,
including without limitation, any defect in any portion of the Project and/or
any damage or injury resulting from fire, steam, electricity, gas, water or
rain, which may leak or flow from or into any part of the Premises, or from
breakage, leakage, obstruction or other defects of pipes, sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, whether the damage
or injury results from conditions arising upon the Premises or upon other
portions of the Project or from other sources. Neither Landlord nor Tenant shall
be liable for any damages arising from any act or negligence of any other tenant
or user of the Project. Tenant or Tenant's agents shall immediately notify
Landlord in writing of any known defect in the Project. The provisions of this
Paragraph 8.5 shall not apply to any damage or injury caused by Landlord's
willful misconduct or gross negligence, or that of its agents, employees,
contractors or invitees. Anything in this Lease to the contrary notwithstanding,
under no circumstances shall Landlord be liable to Tenant for lost profits or
loss of business ness or income.
8.6 Mutual Waiver of Subrogation. Landlord hereby releases Tenant,
----------------------------
and Tenant hereby releases Landlord, and their respective officers, agents,
employees and servants, from any and all claims or demands of damages, loss,
expense or injury to the Project or to the furnishings, fixtures, equipment,
inventory or other property of either Landlord or Tenant in, about or upon the
Project, which is caused by or results from perils, events or happenings which
are the subject of insurance carried by the respective parties pursuant to this
Paragraph 8 and in force at the time of any such loss, whether due to the
negligence of the other party or its agents and regardless of cause or origin;
provided, however, that such waiver shall be
22
<PAGE>
effective only to the extent permitted by the insurance covering such loss, to
the extent such insurance is not prejudiced thereby, and to the extent insured
against.
9. Utilities. Tenant shall pay during the Lease Term and prior to
---------
delinquency all charges for water, gas, light, heat; power, electricity,
telephone or other communication service, janitorial service, trash pick-up,
sewer and all other services supplied to Tenant or consumed by Tenant on the
Premises (collectively the "Services') and all taxes, levies, fees or surcharges
therefor. Tenant shall arrange for Services to be supplied to the Premises and
shall contract for all of the Services in Tenant's name prior to the
Commencement Date. The Commencement Date shall not be delayed by reason of any
failure by Tenant to so contract for Services. Tenant shall be responsible for
providing janitorial service to the Premises. In the event that any of the
Services are not separately billed or metered to the Premises, or if any of the
Services are not separately metered as of the Commencement Date, the cost of
such Services shall be a Common Area Charge and Tenant shall pay, as Additional
Rent, Tenant's proportionate share of such cost to Landlord as provided in
Paragraph 12 below, except that if any meter services less than the entire
Building, Tenant's proportionate share of the costs measured by such meter shall
be based upon the square footage of the gross leasable area in the Premises as a
percentage of the total square footage of the gross leasable area of the portion
of the Building serviced by such meter. If Landlord determines that Tenant is
using a disproportionate amount of any commonly metered Services or an amount in
excess of the customary amount of any Services ordinarily furnished for use of
the Premises in accordance with the uses set forth in Paragraph 6 above, then
Landlord may elect to periodically charge Tenant, as Additional Rent, a sum
equal to Landlord's estimate of the cost of Tenant's excess use of any or all
such Services. The lack or shortage of any Services due to any cause whatsoever
(except for a lack or shortage proximately caused by the negligence or willful
misconduct Landlord or that of its agents, employees, contractors or invitees)
shall not affect any obligation of Tenant hereunder, and Tenant shall faithfully
keep and observe all the terms, conditions and covenants of this Lease and pay
all Rentals due hereunder, all without diminution, credit or deduction.
10. Repairs and Maintenance.
-----------------------
10.1 Landlord's Responsibilities. Subject to the provisions of
---------------------------
Paragraph 15 below, Landlord shall maintain in reasonably good order and repair
the structural roof, roof membrane, structural and exterior walls (including
painting thereof) and foundations of the Building. In addition, Landlord shall
maintain the heating and air conditioning systems of the Premises in a manner
comparable to that
23
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maintained by other landlords of similar buildings located in Santa Cruz County
or obtain and maintain a service contract with a licensed contractor (covering
periodic inspection and servicing) for the heating and air conditioning systems
of the Pre mises. Tenant shall give prompt written notice to Landlord of any
known maintenance work required to be made by Landlord pursuant to this
Paragraph 10.1. The costs of (i) repairs and maintenance of the roof membrane,
(ii) periodic inspection and regular servicing of the heating and air
conditioning systems of the Premises, and (iii) painting the exterior of the
Premises which are the obligation of Landlord hereunder shall be a Common Area
Charge and Tenant shall pay, as Additional Rent, Tenant's share of such costs to
Landlord as provided in Paragraph 12 below. The costs of maintenance, repair,
and replacement of the structural parts of the Premises and the Building
(including foundations, floor slab, load bearing walls and roof structure) which
are the obligation of Landlord hereunder shall be at the cost and expense of
Landlord and shall not be a Common Area Charge, except for any repairs required
because of the wrongful act of Tenant or Tenant's agents, which repairs shall be
made at the expense of Tenant and as Additional Rent. Anything in this Lease to
the contrary notwithstanding, in the event the heating, ventilation and air
conditioning covering the Premises, or applicable portion thereof, needs to be
replaced during the term of this Lease as reasonably determined by Landlord (and
such replacement cost is a capital expenditure), then such replacement cost
shall be amortized at ten percent (10%) over the useful life of the of the
replaced item, and paid monthly by Tenant from the date of installation or
replacement through Lease Termination.
10.2 Tenant's Responsibilities. Except as expressly provided in
-------------------------
Paragraph 10.1 above, and subject to the provisions of Paragraph 2.3 above,
Tenant shall, at its sole cost, maintain the entire Premises and every part
thereof, including without limitation, windows, skylights, window frames, plate
glass, freight docks, doors and related hardware, interior walls and partitions,
and the electrical, plumbing, lighting, heating and air conditioning systems in
good order, condition and repair. If Tenant fails to make repairs or perform
maintenance work required of Tenant hereunder within fourteen (14) days after
written notice from Landlord specifying the need for such repairs or maintenance
work, Landlord or Landlord's agents may, in addition to all other rights and
remedies available hereunder or by law and without waiving any alternative
remedies, enter into the Premises and make such repairs and/or perform such
maintenance work. If Landlord makes such repairs and/or performs such
maintenance work, Tenant shall reimburse Landlord upon demand and as Additional
Rent, for the cost of such repairs and/or maintenance work. Landlord shall use
reasonable efforts to avoid causing any inconvenience to Tenant or interference
with the use of the Premises by Tenant or Tenant's agents
24
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during the performance of any such repairs or maintenance. Landlord shall have
no liability to Tenant for any damage, inconvenience or interference with the
use of the Premises by Tenant or Tenant's agents as a result of Landlord
performing any such repairs or maintenance (except for the gross negligence or
willful misconduct Landlord or that of its agents, employees, contractors or
invitees). Tenant shall reimburse Landlord, on demand and as Additional Rent,
for the cost of damage to the Project caused by Tenant or Tenant"s agents.
Tenant expressly waives the benefits of any statute now or hereafter in effect
(including without limitation the provisions of subsection 1 of Section 1932,
Section 1941 and Section 1942 of the California Civil Code and any similar law,
statute or ordinance now or hereafter in effect) which would otherwise afford
Tenant the right to make repairs at Landlord's expense (or to deduct the cost of
such repairs from Rentals due hereunder) or to terminate this Lease because of
Landlord's failure to keep the Premises in good and sanitary order.
11. Common Area.
-----------
11.1 In General. Subject to the terms and conditions of this Lease and
----------
such rules and regulations as Landlord may from time to time prescribe, Tenant
and Tenant's agents shall have, in common with other tenants of the Building and
other permitted users, the nonexclusive right to use during the Lease Term the
access roads, parking areas, sidewalks, landscaped areas and other facilities on
the Land or in the Building designated by Landlord for the general use and
convenience of the occupants of the Building and other authorized users, which
areas and facilities are referred to herein as the "Common Area." This right to
use the Common Area shall terminate upon Lease Termination. Tenant acknowledges
that a portion of the first floor of the Building consists of a lobby area which
shall be part of the Common Area and that second floor tenants of the Building
and their agents, employees, guests and invitees shall have the right to use
such lobby area to gain access to the second floor of the Building. Landlord
reserves the right to promulgate such reasonable rules and regulations relating
to the use of all or any portion of the Common Area and to amend such rules and
regulations from time to time with or without advance notice, as Landlord may
deem appropriate for the best interests of the occupants of the Building and
other authorized users. Any amendments to the rules and regulations shall be
effective as to Tenant and binding on Tenant, upon delivery of a copy of such
rules and regulations to Tenant. Tenant and Tenant's agents shall observe such
rules and regulations and any failure by Tenant or Tenant's agents to observe
and comply with the rules and regulations shall be a Default by Tenant. Landlord
shall not be responsible for the nonperformance of the rules and regulations by
any tenants or occupants of the Building or other authorized users, nor
25
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shall Landlord be liable to Tenant by reason of the noncompliance with or
violation of the rules and regulations by any other tenant or user.
11.2 Parking Areas. Tenant is allocated and Tenant and Tenant's
-------------
employees and invitees shall have the nonexclusive right to use not more than
the number of parking spaces set forth in Paragraph 1.13, the location of which
may be designated from time to time by Landlord. Any location so designated by
Landlord shall be reasonably convenient for access to the Premises. Neither
Tenant nor Tenant's agents shall at any time use more parking spaces than the
number so allocated to Tenant or park or permit the parking of their vehicles in
any portion of the Land not designated by Landlord as a nonexclusive parking
area. Tenant and Tenant's agents shall not have the exclusive right to use any
specific parking space. Tenant and its agents, employees, guests and invitees
shall not park in any area designated for the exclusive use of any other tenant.
Notwithstanding the number of parking spaces designated for Tenant's
nonexclusive use, in the event by reason of any Law relating to or affecting
parking on the Land, or any other cause beyond Landlord's reasonable control,
Landlord is required to reduce the number of parking spaces on the Land,
Landlord shall have the right to proportionately reduce the number of Tenant's
parking spaces and the nonexclusive parking spaces of other tenants in the
Building. Landlord reserves the right to promulgate such reasonable rules and
regulations relating to the use of such parking areas on the Land as Landlord
may deem appropriate. Landlord furthermore reserves the right, after having
given Tenant reasonable notice, to have any vehicles owned by Tenant or Tenant's
agents which are parked in violation of the provisions of this Paragraph 11.2 or
in violation of Landlord's rules and regulations relating to parking, to be
towed away at Tenant's cost. In the event Landlord elects or is required by any
law to limit or control parking on the Land, by validation of parking tickets or
any other method, Tenant agrees to participate in such validation or other
program under such reasonable rules and regulations as are from time to time
established by Landlord. Provided that Tenant's use, occupancy and enjoyment of
the Premises or access to the Premises is not unreasonably interfered with,
Landlord shall have the right to close, at reason able times, all or any portion
of the parking areas for any reasonable purpose, including without limitation,
the prevention of a dedication thereof, or the accrual of rights of any person
or public therein. Tenant and Tenant's agents shall not at any time park or
permit the parking of (i) trucks or other vehicles (whether owned by Tenant or
other persons) adjacent to any loading areas so as to interfere in any manner
with the use of such areas, (ii) Tenant's or Tenant's agents' vehicles or
trucks, or the vehicles or trucks of Tenant's suppliers or others, in any
portion of the
26
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Common Area not designated by Landlord for such use by Tenant or (iii) any
inoperative vehicles or equipment on any portion of the Common Area.
11.3 Maintenance by Landlord. Landlord shall maintain the Common Area
-----------------------
in good repair and condition and shall manage the Common Area to reasonable and
customary standards. The expenditures for such maintenance shall be at the
reasonable discretion of Landlord. The cost of such maintenance, operation and
management shall be a "Common Area Charge," and Tenant shall pay to Landlord, as
Additional Rent, Tenant's share of such costs as provided in Paragraph 12 below.
12. Common Area Charges.
-------------------
12.1 Definition. "Common Area Charge" or "Common Area Charges" as used
----------
in this Lease shall mean and include all items identified in other paragraphs of
this Lease as a Common Area Charge and the total cost paid or incurred by
Landlord for the operation, maintenance, repair, and management of the Project
which costs shall include, without limitation: the cost of Services and
utilities supplied to the Project (to the extent the same are not separately
charged or metered to tenants of the Building); water; sewage; trash removal;
fuel; electricity; heat; lighting systems; fire protection systems; storm
drainage and sanitary sewer systems; periodic inspection and regular servicing
of the heating and air conditioning systems of the Premises; maintaining,
repairing and replacing the roof membrane; property and liability insurance
covering the Building and the Land and any other insurance carried by Landlord
pursuant to Paragraph 8 above; window cleaning; cleaning, sweeping, striping,
resurfacing of parking and driveway areas; cleaning the Common Area following
storms or other severe weather; clearing and repairing of sidewalks, curbs,
stairways; costs related to irrigation systems and Project signs; fees for
licenses and permits required for the operation of the Project; the cost of
complying with Laws, including, without limitation, maintenance, alterations and
repairs required in connection therewith (subject to the provisions of Paragraph
12.3 hereof); costs related to landscape maintenance; and the cost of contesting
the validity or applicability of any governmental enactments which may affect
Common Area Charges. If the Project contains more than one (1) building at any
time during the Lease Term, then the term "Common Area Charges shall mean and
include all of the Common Area Charges allocable to the Building and a
proportionate share (based on the square footage of gross leasable area in the
Building as a percentage of the total of square footage of gross leasable area
of the buildings in the Project at the time in question) of all Common Area
Charges which are related to the Project in general
27
<PAGE>
and are not allocated to any one building in the Project. Common Area Charges
shall also include a management fee to Landlord in an amount not to exceed that
customarily charged or paid by owners of comparable buildings in Santa Cruz
County. The cost of (i) capital repair items (i.e., items which Landlord is
required to capitalize and not expense in the current year for federal income
tax purposes), (ii) replacement of the roof membrane, (iii) resurfacing the
parking lot, and (iv) repainting the exterior of the Building, shall be
amortized at ten percent (10%) over the useful life of the repair or item, and
be paid monthly by Tenant from the date of installation or repair through Lease
Termination.
The specific examples of Common Area Charges stated in this Paragraph 12.1
are in no way intended to and shall not limit the costs comprising Common Area
Charges, nor shall such examples be deemed to obligate Landlord to incur such
costs or to provide such services or to take such actions except as Landlord may
be expressly required in other portions of this Lease, or except as Landlord, in
its reasonable discretion, may elect. All reasonable costs incurred by Landlord
in good faith for the operation, maintenance, repair and management of the
Project shall be deemed conclusively binding on Tenant.
Notwithstanding anything to the contrary contained in this Lease, within
thirty (30) days after receipt by Tenant of Landlord's statement of Common Area
Charges prepared pursuant to Paragraph 12.2 hereof for any prior annual period
during the Lease Term, Tenant or its authorized representative shall have the
right to inspect the books of Landlord during the business hours of Landlord at
Landlord's office or, at Landlord's option, such other location as Landlord
reasonably may specify, for the purpose of verifying the information contained
in the statement. Unless Tenant asserts specific errors within thirty (30) days
after receipt of the statement, the statement shall be deemed correct as between
Landlord and Tenant, except as to individual components subsequently determined
to be in error by future audit.
12.2 Payment of Common Area Charges by Tenant. Prior to the
----------------------------------------
Commencement Date, and annually thereafter, Landlord shall deliver to Tenant an
estimate of Common Area Charges for the succeeding year. Tenant's payment of
Common Area Charges shall be based upon Landlord's estimate of Common Area
Charges and shall be payable in equal monthly installments in advance on the
first day of each calendar month commencing on the date specified in Paragraph
1.6 and continuing throughout the Lease Term. Tenant shall pay to Landlord, as
Additional
28
<PAGE>
Rent and without deduction or offset, an amount equal to Tenant's percentage
share (stated in Paragraph 1.10 above) of the Common Area Charges.
Landlord shall revise its estimate of Common Area Charges on an annual
basis, and Landlord may adjust the amount of Tenant's monthly installment in the
event of a material change in Common Area Charges during any year. Landlord
shall furnish Tenant an annual statement (and a statement within, one hundred
eighty (180) days after Lease Termination) showing the actual Common Area
Charges for the period to which Landlord's estimate pertains and shall
concurrently either bill Tenant for the balance due (payable upon demand by
Landlord) or credit Tenant's account for the excess previously paid.
Alternatively, Common Area Charges actually incurred or paid by Landlord
but not theretofore billed to Tenant, as invoiced by Landlord shall be payable
by Tenant within ten (10) days after receipt of Landlord's invoice, but not more
often than once each calendar month.
Notwithstanding the foregoing provisions of this Paragraph 12, Landlord and
Tenant agree that if Landlord incurs any costs for insurance, Services, repairs
or maintenance exclusively for or to the Premises or for less than all the
tenants of the Building and such costs are Common Area Charges, or if any
improvements installed in the Premises by Tenant or Landlord are valued by the
assessor disproportionately higher than those of any other tenants in the
Building, then Tenant's share of such Common Area Charges shall be equitably
increased by Landlord to reflect the portion of any such costs or taxes incurred
by Landlord in regard to the Premises, and Tenant shall pay the same to Landlord
as Additional Rent.
12.3 Exclusions From Common Area Charges. Notwithstanding anything to
-----------------------------------
the contrary contained in this Lease, in no event shall Tenant have any
obligation to perform, to pay directly, or to reimburse Landlord for, all or any
portion of the following repairs, maintenance, improvements, replacements,
premiums, claims, losses, fees, commissions, charges, disbursements, attorneys'
fees, experts' fees, costs and expenses (collectively, "Costs"):
(a) Losses Caused by Others and Construction Defects. Costs
------------------------------------------------
occasioned by the act, omission or violation of Law by Landlord, any other
occupant of the Project, or their respective agents, employees or contractors,
or costs arising out of the failure to construct the Building, Premises, tenant
improvements installed
29
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by Landlord pursuant to Paragraph 2.2, or Common Areas in accordance with Laws
and private restrictions applicable at the time of construction thereof.
(b) Condemnation and Insurance Costs. Costs occasioned by the
--------------------------------
exercise of the power of eminent domain, or increases in insurance Costs caused
by the activities of other occupant(s) of the Project.
(c) Reimbursable Expenses. Costs for which Landlord has a right
---------------------
of reimbursement from others, or Costs which Tenant pays directly to a third
person.
(d) Utilities or Services. Costs (i) arising from the
---------------------
disproportionate use of any utility or service supplied by Landlord to any other
occupant of the Project; or (ii) associated with utilities and services of a
type not provided to Tenant.
(e) Leasing Expenses. Costs incurred in connection with
----------------
negotiations or disputes with other occupant(s) of the Project, and Costs
arising from the violation by Landlord or any occupant of the Project (other
than Tenant) of the terms and conditions of any lease or other agreement.
(f) Reserves. Depreciation, amortization or other expense
--------
reserves.
(g) Mortgages. Interest, charges and fees incurred on debt
---------
payments or mortgages and rent under ground leases.
(h) Hazardous Materials. Costs incurred to investigate the
-------------------
presence of any Hazardous Material, Costs to respond to any claim of Hazardous
Material contamination or damage, Costs to remove any Hazardous Material from
the Premises, Building or Project or to remediate any Hazardous Material
contamination, and any judgments or other Costs incurred in connection with any
Hazardous Material exposure or release, except to the extent such Costs are
incurred by Landlord in accordance with Paragraph 6.4 or incurred by Landlord
or caused by reason of the storage, use or disposal of the Hazardous Material in
question by Tenant, its agents, employees, contractors or invitees.
(i) Management. Any fee, profit or compensation retained by
----------
Landlord or its affiliates for management and administration of the Project in
excess of the management fee and accounting fee specified in Paragraph 12.1.
30
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(j) Fees Paid to Affiliates. Overhead and profit increment paid
-----------------------
to subsidiaries or affiliates of Landlord for services on or to the real
property, to the extent only that the cost of such services exceed competitive
costs of such services were they not so rendered by a subsidiary or affiliate.
(k) Executive Employee Compensation. Wages, salaries or other
-------------------------------
compensation paid to any executive employees above the grade of building
manager, except that if any such employee performs a service which would have
been performed by an outside consultant, the compensation paid to such employee
for performing such service shall be included in Common Area Charges, to the
extent only that the cost of such service does not exceed competitive costs of
such service had such service been rendered by an outside consultant.
(l) Advertising and Promotional Expenses. Advertising and
------------------------------------
promotional expenses.
(m) Art Objects. Costs for sculpture, painting or other objects
-----------
of art.
13. Alterations and Improvements.
----------------------------
13.1 In General. Tenant shall not make, or permit to be made, any
----------
alterations, removals, changes, enlargements, improvements or additions
(collectively "Alterations") in, on, about or to the Premises, or any part
thereof, including Alterations required pursuant to Paragraph 6.2, without the
prior written consent of Landlord (which consent shall not be unreasonably
withheld) and without acquiring and complying with the conditions of all permits
required for such Alterations by any governmental authority having jurisdiction
thereof. The term "Alterations" as used in this Paragraph 13 shall also include
all heating, lighting, electrical (including all wiring, conduit outlets, drops,
buss ducts, main and subpanels), air conditioning and partitioning in the
Premises made by Tenant regardless of how affixed to the Premises. As a
condition to the giving of its consent, Landlord may impose such reasonable
requirements as Landlord reasonably may deem necessary, including without
limitation, the manner in which the work is done; a right of approval of the
contractor by whom the work is to be performed; the times during which the work
is to be accomplished; the requirement that Tenant post a completion bond in an
amount and form reasonably satisfactory to Landlord, and the requirement that
Tenant reimburse Landlord, as Additional Rent for Landlord's actual costs for
31
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outside consultants incurred in reviewing any proposed Alteration, whether or
not Landlord's consent is granted. In the event Landlord consents to the making
of any Alterations by Tenant, the same shall be made by Tenant at Tenant's sole
cost and expense, in accordance with the plans and specifications approved by
Landlord and in a manner causing Landlord and Landlord's agents and other
tenants of the Building the least interference and inconvenience practicable
under the circumstances. Tenant shall give written notice to Landlord five (5)
business days prior to employing any laborer or contractor to perform services
related to, or receiving materials for use upon the Premises, and prior to the
commencement of any work of improvement on the Premises. Any Alterations to the
Premises made by Tenant shall be made in accordance with applicable Laws and
in a first-class workmanlike manner. In making any such Alterations, Tenant
shall, at Tenant's sole cost and expense, file for and secure and comply with
any and all permits or approvals required by any governmental departments or
authorities having jurisdiction thereof and any utility company having an
interest therein. In no event shall Tenant make any structural changes to the
Premises or make any changes to the Premises which would weaken or impair the
structural integrity of the Building or adversely affect or alter the building
systems within the Building.
13.2 Removal Upon Lease Termination. At the time Tenant requests
------------------------------
Landlord's consent to any Alterations in, on, about or to the Premises, or any
portion thereof, Tenant shall request a decision from Landlord in writing as to
whether Landlord will require Tenant, at Tenant's expense, to remove any such
Alterations and restore the Premises to their prior condition at Lease
Termination. Following receipt of written notice from Tenant requesting a
decision, Landlord may elect to have all or a portion of such Alterations
removed from the Premises at Lease Termination, and Tenant shall, at its sole
cost and expense, remove at Lease Termination such Alterations designated by
Landlord for removal and repair all damage to the Project arising from such
removal. Landlord shall within five (5) business days following receipt of
Tenant's request for a decision as to whether Tenant will be required to remove
any Alterations at Lease Termination, respond in writing to Tenant with
Landlord's decision. If Landlord fails to respond to Tenant's request for a
decision as provided above within such five (5) business day time period, then
Landlord shall be deemed to have decided to require Tenant to remove at Lease
Termination all Alterations which were the subject of Tenant's request for a
decision by Landlord as stated above. In the event Tenant fails to so request
Landlord's decision or fails to remove any such Alterations designated or deemed
designated by Landlord for removal, Landlord may remove any Alterations made to
the Premises by Tenant, restore the Premises to their prior condition and repair
all damage to the
32
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Premises and Common Area arising from such removal, and may recover from Tenant
all reasonable costs and expenses incurred thereby, together with an amount
equal to the fair rental value of the Premises for the period of time required
for Landlord to accomplish such removal and restoration. Tenant's obligation to
pay such costs and expenses to Landlord shall survive Lease Termination. Unless
Landlord elects (or is deemed to have elected) to have Tenant remove (or, upon
Tenant's failure to obtain Landlord's decision, Landlord removes) any such
Alterations, all such Alterations, except for moveable furniture, personal
property and equipment, and trade fixtures of Tenant not affixed to the
Premises, shall become the property of Landlord upon Lease Termination (without
any payment therefor) and remain upon and be surrendered with the Premises at
Lease Termination.
13.3 Landlord's Improvements. All fixtures, improvements or
-----------------------
equipment which are installed, constructed on or attached to the Premises,
Building or Common Area by Landlord shall be a part of the realty and belong to
Landlord.
14. Default and Remedies.
--------------------
14.1 Events of Default. The term "Default by Tenant"' as used in this
-----------------
Lease shall mean the occurrence of any of the following events:
(a) Tenant's failure to pay when due any Rentals;
(b) Commencement and continuation for at least sixty (60) days
of any case, action or proceeding by, against or concerning Tenant under any
federal or state bankruptcy, insolvency or other debtor's relief law, including
without limitation, (i) a case under Title 11 of the United States Code
concerning Tenant whether under Chapter 7, 11, or 13 of such Title or under any
other Chapter, or (ii) a case, action or proceeding seeking Tenant's financial
reorganization or an arrangement with any of Tenant's creditors;
(c) Voluntary or involuntary appointment of a receiver, trustee,
keeper or other person who takes possession for more than sixty (60) days of
substantially all of Tenant's assets or of any asset used in Tenant's business
on the Premises, regardless of whether such appointment is as a result of
insolvency or any other cause;
33
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(d) Execution of an assignment for the benefit of creditors of
substantially all assets of Tenant available by law for the satisfaction of
judgment creditors;
(e) Commencement of proceedings for winding up or dissolving
(whether voluntary or involuntary) the entity of Tenant, if Tenant is a
corporation or a partnership;
(f) Levy of a writ of attachment or execution on Tenant's
interest under this Lease, if such writ continues for a period of thirty (30)
days;
(g) Transfer or attempted Transfer of this Lease or the Premises
by Tenant contrary to the provisions of Paragraph 24 below; or
(h) Breach by Tenant of any term, covenant, condition, warranty,
or other provision contained in this Lease or of any other obligation owing or
due to Landlord.
14.2 Remedies. Upon any Default by Tenant, Landlord shall have the
--------
following remedies, in addition to all other rights and remedies provided by
law, to which Landlord may resort cumulatively, or in the alternative:
14.2.1 Termination. Upon any Default by Tenant, Landlord
-----------
shall have the right (but not the obligation) to give written notice to Tenant
of such default and terminate this Lease and Tenant's right to possession of the
Premises if (i) such default is in the payment of Rentals and is not cured
within ten (10) days following delivery of written notice from Landlord that
such Rentals are past due, or, (ii) with respect to the defaults referred to in
subparagraphs 14.1 (d), (e), (g) and (h), such default is not cured within
thirty (30) days after any such notice (or if a default under subparagraph
14.1(h) cannot be reasonably cured within thirty (30) days, if Tenant does not
commence to cure the default within the thirty (30) day period or does not
diligently and in good faith prosecute the cure to completion), or, (iii) with
respect to the defaults specified in subparagraphs 14.1(b), (c) and (f) such
default is not cured within the respective time periods specified in those
subparagraphs. The parties agree that any notice given by Landlord to Tenant
pursuant to this Paragraph 14.2.1 shall be sufficient notice for purposes of
California Code of Civil Procedure Section 1161 and Landlord shall not be
required to give any additional notice in order to be entitled to commence an
unlawful detainer proceeding. Upon termination
34
<PAGE>
of this Lease and Tenant's right to possession of the Premises, Landlord shall
have the right to recover from Tenant:
(a) The worth at the time of award of the unpaid Rentals which
had been earned at the time of termination;
(b) The worth at the time of award of the amount by which the
Rentals which would have been earned after termination until the time of award
exceeds the amount of such rental loss that Tenant proves could have been
reasonably avoided;
(c) The worth at the time of award (computed by discounting at
the discount rate of the Federal Reserve Bank of San Francisco at the time of
award plus one percent) of the amount by which the Rentals for the balance of
the Lease Term after the time of award exceed the amount of such rental loss
that Tenant proves could be reasonably avoided;
(d) Any other amounts necessary to compensate Landlord for all
detriment proximately caused by the Default by Tenant or which in the ordinary
course of events would likely result, including without limitation the
following:
(i) Expenses in retaking possession of the Premises;
(ii) Expenses for cleaning, repairing or restoring the
Premise;
(iii) Any unamortized real estate brokerage commission paid
in connection with this Lease;
(iv) Expenses for removing, transporting, and storing any
of Tenant's property left at the Premises (although Land lord shall have no
obligation to remove, transport, or store any such property);
(v) Expenses of reletting the Premises, including without
limitation, brokerage commissions and reasonable attorneys' fees;
35
<PAGE>
(vi) Reasonable attorneys' fees and court costs; and
(vii) Costs of carrying the Premises such as repairs,
maintenance, taxes and insurance premiums, utilities and security
precautions (if any).
(e) The "worth at the time of award" of the amounts referred to
in subparagraphs (a) and (b) of this Paragraph 14.2.1 is computed by allowing
interest at an annual rate equal to the greater of: ten percent (10%); or five
percent (5%) plus the rate established by the Federal Reserve Bank of San
Francisco, as of the twenty-fifth (25th) day of the month immediately preceding
the Default by Tenant, on advances to member banks under Sections 13 and 13(a)
of the Federal Reserve Act, as now in effect or hereafter from time to time
amended, not to exceed the maximum rate allowable by law.
14.2.2 Continuance of Lease. Upon any Default by Tenant and
--------------------
unless and until Landlord elects to terminate this Lease pursuant to Paragraph
14.2.1 above, this Lease shall continue in effect after the Default by Tenant
and Landlord may enforce all its rights and remedies under this Lease, including
without limitation, the right to recover payment of Rentals as they become due.
Neither efforts by Landlord to mitigate damages caused by a Default by Tenant
nor the acceptance of any Rentals shall constitute a waiver by Landlord of any
of Landlord's rights or remedies, including the rights and remedies specified in
Paragraph 14.2.1 above.
15. Damage or Destruction.
---------------------
15.1 Definition of Terms. For the purposes of this Lease, the term:
-------------------
(a) "Insured Casualty" means damage to or destruction of the Premises from a
cause actually insured against, or required by this Lease to be insured against,
for which the insurance proceeds paid or made available to Landlord are
sufficient to rebuild or restore the Premises under then existing building codes
to the condition existing immediately prior to the damage or destruction; and
(b) "Uninsured Casualty" means damage to or destruction of the Premises from a
cause not actually insured against, or not required to be insured against, or
from a cause actually insured against but for which the insurance proceeds paid
or made available to Landlord are for any reason insufficient to rebuild or
restore the Premises under then existing building codes to the condition
existing immediately prior to the damage or destruction, or from a cause
actually insured against but for which the insurance proceeds are not paid or
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made available to Landlord within ninety (90) days of the event of damage or
destruction.
15.2 Insured Casualty.
----------------
15.2.1 Rebuilding Required. In the event of an Insured Casualty
-------------------
where the extent of damage or destruction is less than twenty percent (20%) of
the then full replacement cost of the Premises, Landlord shall rebuild or
restore the Premises to the condition existing immediately prior to the damage
or destruction, provided the damage or destruction was not a result of a
negligent or willful act of Tenant, and that there exist no governmental codes
or regulations that would interfere with Landlord's ability to so rebuild or
restore.
15.2.2 Landlord's Election. In the event of an Insured Casualty
-------------------
where the extent of damage or destruction is equal to or greater than twenty
percent (20%) of the then full replacement cost of the Premises, Landlord may,
at its option and at its sole discretion, rebuild or restore the Premises to the
condition existing immediately prior to the damage or destruction, or terminate
this Lease. Landlord shall notify Tenant in writing within sixty (60) days after
the event of damage or destruction of Landlord's election to either rebuild or
restore the Premises or terminate this Lease.
15.2.3 Continuance of Lease. If Landlord is required to rebuild
--------------------
or restore the Premises pursuant to Paragraph 15.2.1 or if Landlord elects to
rebuild or restore the Premises pursuant to Paragraph 15.2.2, this Lease shall
remain in effect and Tenant shall have no claim against Landlord for
compensation for inconvenience or loss of business during any period of repair
or restoration.
15.3 Uninsured Casualty.
------------------
15.3.1 Landlord's Election. In the event of an Uninsured
-------------------
Casualty, Landlord may, at its option and at its sole discretion (i) rebuild or
restore the Premises as soon as reasonably possible at Landlord's expense
(unless the damage or destruction was caused by a negligent or willful act of
Tenant, in which event Tenant shall pay all costs of rebuilding or restoring),
in which event this Lease shall continue in full force and effect or (ii)
terminate this Lease, in which event Landlord shall give written notice to
Tenant within sixty (60) days after the event of damage or destruction of
Landlord's election to terminate this Lease as of the date of
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the event of damage or destruction, and if the damage or destruction was caused
by a negligent or willful act of Tenant, Tenant shall be liable therefor to
Landlord.
15.3.2 Tenant's Ability to Continue Lease. If Landlord elects
----------------------------------
to terminate this Lease and the extent of damage or destruction is less than
twenty percent (20%) of the then full replacement cost of the Premises or the
proceeds paid or made available to Landlord are for any reason insufficient to
rebuild or restore the Premises under then existing building codes to the
condition existing immediately prior to the damage or destruction, and if there
exist no governmental codes or regulations that would interfere with Landlord's
ability to so repair or restore, then Tenant may nevertheless cause the Lease to
continue in effect by (i) notifying Landlord in writing within ten (10) days
after Landlord's notice of termination of Tenant's agreement to pay all costs of
rebuilding or restoring not covered by insur ance, and (ii) providing Landlord
with reasonable security (acceptable to Landlord in its sole discretion) for or
assurance of such payment. Tenant shall pay to Landlord in cash no later than
thirty (30) days prior to the date of commencement of construction the
reasonable estimated cost of rebuilding or restoring. In the event Tenant fails
to pay such cost to Landlord by the date specified, Landlord may immediately
terminate the Lease and recover from Tenant all reasonable costs incurred by
Landlord in preparation for construction. If the actual cost of rebuilding or
restoring exceeds the estimated cost of such work, Tenant shall pay the
difference to Landlord in cash upon notification by Landlord of the final cost.
If the cost of rebuilding or restoring is less than the estimated cost of such
work, Tenant shall be entitled to a refund of the difference upon completion of
the rebuilding or restoring and determination of final cost.
15.4 Tenant's Election. Notwithstanding anything to the contrary
-----------------
contained in this Paragraph 15, Tenant may elect to terminate this Lease in the
event the Premises are damaged or destroyed and, in the reasonable opinion of
Landlord's architect or construction consultants, the restoration of the
Premises cannot be substantially completed within one hundred eighty (180) days
after the event of damage or destruction. Tenant's election shall be made by
written notice to Landlord within ten (10) days after Tenant receives from
Landlord the estimate of the time needed to complete repair or restoration of
the Premises. If Tenant does not deliver said notice within said ten (10) day
period, Tenant may not later terminate this Lease even if substantial completion
of the rebuilding or restoration occurs subsequent to said one hundred eighty
(180) day period, provided that Landlord is proceeding with diligence to rebuild
or restore the Premises. If Tenant delivers said notice within said
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ten (10) day period, this Lease shall terminate as of the date of the event of
damage or destruction.
15.5 Damage or Destruction Near End of Lease Term. Notwithstanding
--------------------------------------------
anything to the contrary contained in this Paragraph 15, in the event the
Premises are materially damaged or destroyed in whole or in part from any cause
during the last twelve (12) months of the Lease Term, Landlord or Tenant may, at
its option, terminate this Lease as of the date of the event of damage or
destruction by giving written notice to the other of its election to do so
within thirty (30) days after the event of such damage or destruction. For
purposes of this Paragraph 15.5, if Tenant has been granted an option to extend
or renew the Lease Term pursuant to another provision of this Lease, then the
damage or destruction shall be deemed to have occurred during the last twelve
(12) months of the Lease Term if Tenant fails to exercise its option to extend
or renew within twenty (20) days after the event of damage or destruction.
15.6 Termination of Lease. If the Lease is terminated pursuant to
--------------------
this Paragraph 15, the unused balance of the Security Deposit shall be refunded
to Tenant. The current Rent shall be proportionately reduced during the period
following the event of damage or destruction until the date on which Tenant
surrenders the Premises, based upon the extent to which the damage or
destruction interferes with Tenant's business conducted in the Premises, as
reasonably determined by Landlord and Tenant, to the extent such loss is covered
as an insured peril by the insurance carried by Landlord pursuant to Paragraph
8.1. All other Rentals due hereunder shall continue unaffected during such
period. The proceeds of insurance carried by Tenant pursuant to Paragraph 8.2
shall be paid to Landlord and Tenant as their interests appear.
15.7 Abatement of Rentals. If the Premises are to be rebuilt or
--------------------
restored pursuant to this Paragraph 15, the then current Rentals shall be
proportionately reduced during the period of repair or restoration, based upon
the extent to which the making of repairs interferes with Tenant's business
conducted in the Premises, as reasonably determined by Landlord and Tenant, to
the extent such loss is covered as an insured peril by the insurance carried, or
required to be carried, by Landlord pursuant to Paragraph 8.1.
15.8 Liability for Personal Property. Except for the negligent acts
-------------------------------
or willful misconduct Landlord or that of its agents, employees, contractors or
invitees, in no event shall Landlord have any liability for, nor shall it be
required to repair or
39
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restore, any injury or damage to any Alterations to the Premises made by Tenant,
trade fixtures, equipment, merchandise, furniture, or any other property
installed by Tenant or at the expense of Tenant. If Landlord or Tenant do not
elect to terminate this Lease pursuant to this Paragraph 15, Tenant shall be
obligated to promptly rebuild or restore the same to the condition existing
immediately prior to the damage or destruction in accordance with the provisions
of Paragraph 13.1.
15.9 Waiver of Civil Code Remedies. Landlord and Tenant acknowledge
-----------------------------
that the rights and obligations of the parties upon damage or destruction of the
Premises are as set forth herein; therefore Tenant hereby expressly waives any
rights to terminate this Lease upon damage or destruction of the Premises,
except as specifically provided by this Lease, including without limitation any
rights pursuant to the provisions of Subdivision 2 of Section 1932 and
Subdivision 4 of Section 1933 of the California Civil Code, as amended from time
to time, and the provisions of any similar law hereinafter enacted, which
provisions relate to the termination of the hiring of a thing upon its
substantial damage or destruction.
15.10 Damage or Destruction to the Building. The foregoing
-------------------------------------
notwithstanding, in the event the Building is damaged or destroyed to the extent
of more than twenty-five percent (25%) of the then replacement cost thereof,
Landlord may elect to terminate this Lease, whether or not the Premises are
injured.
16. Condemnation.
------------
16.1 Definition of Terms. For the purposes of this Lease, the term:
-------------------
(a) "Taking" means a taking of the Premises, Common Area or Building or damage
related to the exercise of the power of eminent domain and includes, without
limitation, a voluntary conveyance, in lieu of court proceedings, to any agency,
authority, public utility, person or corporate entity empowered to condemn
property; (b) "Total Taking" means the Taking of the entire Premises or so much
of the Premises, Building or Common Area as to prevent or substantially impair
the use thereof by Tenant for the uses herein specified; provided, however, that
in no event shall the Taking of less than twenty percent (20%) of the Premises
or fifty percent (50%) of the Building and Common Area be considered a Total
Taking; (c) "Partial Taking" means the Taking of only a portion of the Premises,
Building or Common Area which does not constitute a Total Taking; (d) "Date of
Taking" means the date upon which the title to the Premises, Building or Common
Area or a portion thereof, passes to and vests in the condemnor or the effective
date of any order for possession if issued prior to the date title vests in the
condemnor; and (e) "Award" means the
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<PAGE>
amount of any award made, consideration paid, or damages ordered as a result of
a Taking.
16.2 Rights. The parties agree that in the event of a Taking all
------
rights between them or in and to an Award shall be as set forth herein.
16.3 Total Taking. In the event of a Total Taking during the Lease
------------
Term: (a) the rights of Tenant under this Lease and the leasehold estate of
Tenant in and to the Premises shall cease and terminate as of the Date of
Taking; (b) Landlord shall refund to Tenant any prepaid Rent and the unused
balance of the Security Deposit; (c) Tenant shall pay Landlord any Rentals due
Landlord under the Lease, prorated as of the Date of Taking; (d) to the extent
the Award is not payable to the beneficiary or mortgagee of a deed of trust or
mortgage affecting the Premises, Tenant shall receive from the Award those
portions of the Award attributable to trade fixtures of Tenant; and (e) the
remainder of the Award shall be paid to and be the property of Landlord. Nothing
contained in this Paragraph 16.3 shall be deemed to deny Tenant its right to
recover awards made by the condemning authority for moving costs, relocation
costs, and costs attributable to goodwill and leasehold improvements installed
by Tenant.
16.4 Partial Taking. In the event of a Partial Taking during the Lease
--------------
Term: (a) the rights of Tenant under the Lease and the leasehold estate of
Tenant in and to the portion of the Premises taken shall cease and terminate as
of the Date of Taking; (b) from and after the Date of Taking the Rent shall be
an amount equal to the product obtained by multiplying the then current Rent by
the quotient obtained by dividing the fair market value of the Premises
immediately after the Taking by the fair market value of the Premises
immediately prior to the Taking; (c) to the extent the Award is not payable to
the beneficiary or mortgagee of a deed of trust or mortgage affecting the
Premises, Tenant shall receive from the Award the portions of the Award
attributable to trade fixtures of Tenant; and (d) the remainder of the Award
shall be paid to and be the property of Landlord. Each party waives the
provisions of California Code of Civil Procedure Section 1265.130 allowing
either party to petition the Superior Court to terminate this Lease in the event
of a Partial Taking. Nothing contained in this Paragraph 16.4 shall be deemed to
deny Tenant its right to recover awards made by the condemning authority for
moving costs, relocation costs, and costs attributable to goodwill and
leasehold improvements installed by Tenant.
41
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17. Liens.
-----
17.1 Premises to Be Free of Liens. Tenant shall pay for all labor and
----------------------------
services performed for, and all materials used by or furnished to Tenant,
Tenant's agents, or any contractor employed by Tenant with respect to the
Premises. Tenant shall indemnify, defend and hold Landlord harmless from and
keep the Project free from any liens, claims, demands, encumbrances, or
judgments, including all costs, liabilities and attorneys' fees with respect
thereto, created or suffered by reason of any labor or services performed for,
or materials used by or furnished to Tenant or Tenant's agents or any contractor
employed by Tenant with respect to the Premises. Landlord shall have the right,
at all times, to post and keep posted on the Premises any notices permitted or
required by law, or which Landlord shall deem proper for the protection of
Landlord and the Premises, Building, Common Area and Land, and any other party
having an interest therein, from mechanics' and materialmen's liens, including
without limitation a notice of nonresponsibility. In the event Tenant is
required to post an improvement bond with a public agency in connection with any
work performed by Tenant on or to the Premises, Tenant shall include Landlord as
an additional obligee.
17.2 Notice of Lien; Bond. Should any claims of lien be filed against,
--------------------
or any action be commenced affecting the Premises, Tenant's interest in the
Premises or any other portion of the Project, Tenant shall give Landlord notice
of such lien or action within ten (10) days after Tenant receives notice of the
filing of the lien or the commencement of the action. In the event that Tenant
shall not, within twenty (20) days following the imposition of any such lien,
cause such lien to be released of record by payment or posting of a proper bond,
Landlord shall have, in addition to all other remedies provided herein and by
law, the right, but not the obligation, to cause the same to be released by such
means as Landlord shall deem proper, including payment of the claim giving rise
to such lien or posting of a proper bond. All such sums paid by Landlord and all
expenses incurred by Landlord in connection therewith, including attorneys' fees
and costs, shall be payable to Landlord by Tenant as Additional Rent on demand.
18. Landlord's Right of Access to Premises. Landlord reserves and shall
--------------------------------------
have the right and Tenant and Tenant's agents shall permit Landlord and
Landlord's agent to enter the Premises, upon reasonable advance notice and at
any reasonable time during normal business hours (except in the event of an
emergency) and subject to any security measures of Tenant that are applied to
visitors to the Premises on a
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non-discriminatory basis for the purpose of (i) inspecting the Premises, (ii)
performing Landlord's maintenance and repair responsibilities set forth herein,
(iii) posting notices of nonresponsibility, (iv) placing upon the Premises at
any time "For Sale" signs, (v) placing on the Premises ordinary "For Lease"
signs at any time within one hundred eighty (180) days prior to Lease
Termination, or at any time Tenant is in uncured default hereunder, or at such
other times as agreed to by Landlord and Tenant (vi) protecting the Premises in
the event of an emergency and (vii) exhibiting the Premises to prospective
purchasers or lenders at any reasonable time or to prospective tenants within
one hundred eighty (180) days prior to Lease Termination. In the event of an
emergency, Landlord shall have the right to use any and all means which Landlord
reasonably may deem proper to gain access to the Premises. Any entry to the
Premises by Landlord or Landlord's agents in accordance with this Paragraph 18
or any other provision of this Lease shall not under any circumstances be
construed or deemed to be a forcible or unlawful entry into, or a detainer of
the Premises, or an eviction of Tenant from the Premises or any portion thereof
nor give Tenant the right to abate the Rentals payable under this Lease. Except
to the extent caused by the negligence or willful misconduct of Landlord, its
agents, employees, contractors or invitees, Tenant hereby waives any claims for
damages for any injury or inconvenience to or interference with Tenant's
business, any loss of occupancy or quiet enjoyment of the Premises, and any
other loss occasioned by Landlord's or Landlord's agents' entry into the
Premises as permitted by this Paragraph 18 or any other provision of this Lease.
Notwithstanding anything to the contrary contained in this Lease, Landlord and
Landlord's agents, except in the case of emergency, shall provide Tenant with
twenty-four (24) hours' notice prior to entry of the Premises. Any entry by
Landlord and Landlord's agents shall not impair Tenant's operations more than
reasonably necessary, and Tenant shall have the right to have an employee
accompany Landlord at all times that Landlord is present on the Premises.
19. Landlord's Right to Perform Tenant's Covenants. Except as otherwise
----------------------------------------------
expressly provided herein, if Tenant shall at any time fail to make any payment
or perform any other act required to be made or performed by Tenant under this
Lease, Landlord may upon ten (10) days written notice to Tenant, but shall not
be obligated to and without waiving or releasing Tenant from any obligation
under this Lease, make such payment or perform such other act to the extent that
Landlord may deem desirable, and in connection therewith, pay expenses and
employ counsel. All reasonable sums so paid by Landlord and all penalties,
interest and reasonable costs in connection therewith shall be due and payable
by Tenant as Additional Rent upon demand.
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20. Lender Requirements.
-------------------
20.1 Subordination. This Lease, at Landlord's option, shall be subject
-------------
and subordinate to the lien of any mortgages or deeds of trust (including all
advances thereunder, renewals, replacements, modifications, supplements,
consolidations, and extensions thereof) in any amount(s) whatsoever now or
hereafter placed on or against or affecting the Premises, Building or Land, or
Landlord's interest or estate therein without the necessity of the execution and
delivery of any further instruments on the part of Tenant to effectuate such
subordination; provided, however, Tenant shall not be required to subordinate
its interests under this Lease to any future mortgage or deed of trust affecting
the Premises unless such mortgagee or beneficiary under such mortgage or deed
of trust agrees in writing that this Lease shall not be terminated or modified
in any material way in the event of any foreclosure so long as Tenant is not in
default under this Lease. As to any mortgagee or beneficiary under a mortgage or
deed of trust affecting the Premises as of the Date of this Lease, Landlord
agrees to exercise commercially reasonable best efforts to obtain from such
currently existing mortgagee(s) or beneficiary(ies) Tenant non-disturbance
rights for the benefit of Tenant, however, the effectiveness of this Lease is
not conditioned upon Landlord obtaining such non-disturbance rights from such
existing mortgagee(s) or beneficiary(ies). If any mortgagee or beneficiary
shall elect to have this Lease prior to the lien of its mortgage or deed of
trust, and shall give written notice thereof to Tenant, this Lease shall be
deemed prior to such mortgage or deed of trust, whether this Lease is dated
prior or subsequent to the date of such mortgage or deed of trust or the date of
the recording thereof.
20.2 Subordination Agreements. Tenant shall execute and deliver,
------------------------
without charge therefor, such further instruments evidencing subordination of
this Lease to the lien of any mortgages or deeds of trust affecting the
Premises, Building or Land as may be required by Landlord within ten (10) days
following Landlord's request therefor; provided that such mortgagee or
beneficiary under such mortgage or deed of trust agrees in writing that this
Lease shall not be terminated or modified in any material way in the event of
any foreclosure so long as Tenant is not in default under this Lease. Failure of
Tenant to execute such instruments evidencing subordination of this Lease shall
constitute a Default by Tenant hereunder.
20.3 Intentionally Omitted.
---------------------
20.4 Attornment. In the event of foreclosure or exercise of the power
----------
of sale under any mortgage or deed of trust made by Landlord and covering the
44
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Premises, Building or Land, Tenant shall attorn to the purchaser upon any such
foreclosure or sale and recognize such purchaser as the Landlord under this
Lease, provided such purchaser expressly agrees in writing to be bound by the
terms of the Lease, including, but not limited to, the quiet enjoyment
provisions of Paragraph 40.
20.5 Estoppel Certificates and Financial Statements.
----------------------------------------------
(a) Delivery by Tenant. Tenant shall, within ten (10) business
------------------
days following request by Landlord therefor and without charge, execute and
deliver to Landlord any and all documents, estoppel certificates and current
financial statements of Tenant reasonably requested by Landlord in connection
with the sale or financing of the Premises, Building or Land, or requested by
any lender making a loan affecting the Premises, Building or Land. Landlord may
require that Tenant in any estoppel certificate shall (i) certify that this
Lease is unmodified and in full force and effect (or, if modified, state the
nature of such modification and certify that this Lease, as so modified, is in
full force and effect) and has not been assigned, (ii) certify the date to which
Rentals are paid in advance, if any, (iii) acknowledge that there are not to
Tenant's knowledge, any uncured defaults on the part of Landlord hereunder, or
specify such defaults if claimed, (iv) evidence the status of this Lease as may
be required either by a lender making a loan to Landlord to be secured by a deed
of trust or mortgage covering the Premises, Building or Land or a purchaser of
the Premises, Building or Land from Landlord, (v) warrant that in the event any
beneficiary of any security instrument encumbering the Premises, Building or
Land forecloses on the security instrument or sells the Premises, Building or
Land pursuant to any power of sale contained in such security instrument, such
beneficiary shall not be liable for the Security Deposit, unless the Security
Deposit actually has been received by the beneficiary from Landlord, (vi)
certify the date Tenant entered into occupancy of the Premises and that Tenant
is conducting business at the Premises, (vii) certify that all improvements to
be constructed on the Premises by Landlord have been substantially completed
except for punch list items which do not prevent Tenant from using the Premises
for its intended use, and (viii) certify such other matters relating to the
Lease and/or Premises as may be reasonably requested by a lender making a loan
to Landlord or a purchaser of the Premises, Building or Land from Landlord. Any
such estoppel certificate may be conclusively relied upon by any prospective
purchaser or encumbrancer of the Premises, Building or Land. Any financial
statements of Tenant shall include an opinion of a certified public accountant
(if available) and a balance sheet and profit and loss statement for the most
recent fiscal year, or a reasonable substitute for the form of such financial
informa-
45
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tion, all prepared in accordance with generally accepted accounting principles
consistently applied.
(b) Nondelivery by Tenant. Tenant's failure to deliver an estoppel
---------------------
certificate as required pursuant to Paragraph 20.5(a) above shall be conclusive
upon Tenant that (i) this Lease is in full force and effect, without
modification except as may be represented by Landlord and has not been assigned,
(ii) there are now no uncured defaults in Landlord's performance, (iii) no
Rentals have been paid in advance except those that are set forth in this Lease,
(iv) no beneficiary of any security instrument encumbering the Premises,
Building or Land shall be liable for the Security Deposit in the event of a
foreclosure or sale under such security instrument, unless the Security Deposit
actually has been received by the beneficiary from Landlord, (v) the
improvements to be constructed on the Premises by Landlord have been
substantially completed except for punch list items which do not prevent Tenant
from using the Premises for its intended use, and (vi) Tenant has entered into
occupancy of the Premises on such date as may be represented by Landlord and is
open and conducting business at the Premises. Tenant's failure to deliver any
financial statements, estoppel certificates or other documents as required
pursuant to Paragraph 20.5(a) above shall be a Default by Tenant.
21. Holding Over. This Lease shall terminate without further notice at
------------
the expiration of the Lease Term. Any holding over by Tenant after Lease
Termination shall not constitute a renewal or extension of the Lease Term, nor
give Tenant any rights in or to the Premises except as expressly provided in
this Lease. Any holding over after Lease Termination with the consent of
Landlord shall be construed to be a tenancy from month to month, at one hundred
fifty percent (150%) of the monthly Rent for the month preceding Lease
Termination in addition to all Additional Rent payable hereunder, and shall
otherwise be on the terms and conditions herein specified insofar as applicable.
If Tenant remains in possession of the Premises after Lease Termination without
Landlord's consent, Tenant shall indemnify, defend and hold Landlord harmless
from and against any loss, damage, expense, claim or liability resulting from
Tenant's failure to surrender the Premises, including without limitation, any
claims made by any succeeding tenant based on delay in the availability of the
Premises.
22. Notices. Any notice required or desired to be given under this Lease
-------
shall be in writing, and all notices shall be given by personal delivery or
mailing. All notices personally given on Tenant may be delivered to any person
apparently in charge at the Premises, on any corporate officer or agent of
Tenant if Tenant is a
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corporation, or on any one signatory party if more than one party signs this
Lease on behalf of Tenant; any notice so given shall be binding upon all
signatory parties as if served upon each such party personally. Any notice given
pursuant to this Paragraph 22 shall be deemed to have been given when personally
delivered, or if mailed, when three (3) business days have elapsed from the time
when such notice was deposited in the United States mail, certified or
registered mail and postage prepaid, addressed to the party at the last address
given for purposes of notice pursuant to the provisions of this Paragraph 22. At
the date of execution of this Lease, the addresses of Land lord and Tenant are
set forth in Paragraph 1.12 above.
23. Attorneys' Fees. In the event either party hereto shall bring any
---------------
action or legal proceeding for damages for an alleged breach of any provision of
this Lease, to recover Rentals, to enforce an indemnity, defense or hold
harmless obligation, to terminate the tenancy of the Premises, or to enforce,
protect, interpret, or establish any term, condition, or covenant of this Lease
or right or remedy of either party, the prevailing party shall be entitled to
recover, as a part of such action or proceeding, reasonable attorneys' fees and
court costs, including reasonable attorneys' fees and costs for appeal, as may
be fixed by the court or jury. Notwithstanding anything to the contrary
contained in this Lease, "prevailing party" as used in this paragraph shall
include the party who dismisses an action for recovery hereunder in exchange for
sums allegedly due, performance of covenants allegedly breached or
considerations substantially equal to the relief sought in the action.
24. Assignment, Subletting and Hypothecation.
----------------------------------------
24. In General. Tenant shall not voluntarily sell, assign or transfer
----------
all or any part of Tenant's interest in this Lease or in the Premises or any
part thereof, sublease all or any part of the Premises, or permit all or any
part of the Premises to be used by any person or entity other than Tenant or
Tenant's employees, except as specifically provided in this Paragraph 24.
24.2 Voluntary Assignment and Subletting.
-----------------------------------
(a) Notice to Landlord. Tenant shall, by written notice, advise
------------------
Landlord of Tenant's desire on a stated date (which date shall not be less than
fifteen (15) days nor more than ninety (90) days after the date of Tenant's
notice) to assign this Lease or to sublet all or any part of the Premises for
any part of the Lease Term. Said notice shall state that the notice constitutes
an offer to terminate the Lease pursuant to Paragraph 24.2(b) if the notice
applies to a proposed assignment of the
47
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Lease or Tenant's interest herein. Tenant's notice shall state the name, legal
composition and address of the proposed assignee or subtenant, and Tenant shall
provide the following information to Landlord with said notice: a true and
complete copy of the proposed assignment agreement or sublease; a financial
statement of the proposed assignee or subtenant prepared in accordance with
generally accepted accounting principles within one year prior to the proposed
effective date of the assignment or sublease; the nature of the proposed
assignee's or subtenant's business to be carried on in the Premises; the
payments to be made or other consideration to be given on account of the
assignment or sublease; a current financial statement of Tenant; and such other
pertinent information as may be requested by Landlord, all in sufficient detail
to enable Landlord to evaluate the proposed assignment or sublease and the
prospective assignee or subtenant. Tenant's notice shall not be deemed to have
been served or given until such time as Tenant has provided Landlord with all
information reasonably requested by Landlord pursuant to this Paragraph 24.2.
Tenant shall immediately notify Landlord of any modification to the proposed
terms of such assignment or sublease. Tenant may withdraw its notice at any time
prior to or after exercise by Landlord of Landlord's right to terminate as
described in Paragraph 24.2(b).
(b) Offer to Terminate. If Tenant notifies Landlord of its desire to
------------------
assign this Lease or Tenant's interest herein, Tenant's notice shall constitute
an offer to terminate this Lease and Landlord shall have the right, to be
exercised by giving written notice to Tenant within fifteen (15) days after
receipt of Tenant's notice, to terminate the Lease. If Landlord elects to
terminate, then within ten (10) days after receipt of Landlord's election,
Tenant shall have the right to rescind its request to assign, and this Lease
shall continue in full force and effect. If Tenant does not rescind its request,
this Lease shall terminate on the date stated in the notice given by Tenant
pursuant to Paragraph 24.2(a), subject to any obligations which have accrued and
are unfulfilled as of such date.
(c) Landlord's Consent. If Landlord does not exercise its right to
------------------
terminate pursuant to Paragraph 24.2(b) within fifteen (15) days after receipt
of Tenant's notice or if Tenant proposes a sublease, Landlord shall not
unreasonably withhold or delay its consent to the proposed assignment or
subletting, on the terms and conditions specified in said notice. Landlord shall
exercise good faith efforts to respond to any request for Landlord's consent to
a proposed assignment or sublease not later than fifteen (15) days after
receiving Tenant's notice of a proposed assignment or subletting as described
in Paragraph 24.2(a) above. If Tenant's notice fails to state that it
constitutes an offer to terminate the Lease as may be required pursuant to
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Paragraph 24.2(a), such notice shall be deemed insufficient for the purposes of
this Paragraph 24.2, and Landlord may withhold its consent to the proposed
assignment in Landlord's absolute discretion. Without otherwise limiting the
criteria upon which Landlord may withhold its consent to any proposed assignment
or sublease, if Landlord withholds its consent where Tenant is in default at the
time of the giving of Tenant's notice or at any time thereafter, or where the
net worth of the proposed assignee (according to generally accepted accounting
principles) is less than the greater of (i) the net worth of Tenant immediately
prior to the assignment (ii) or the net worth of Tenant at the time this Lease
is executed, such withholding of consent shall be presumptively reasonable.
Fifty percent (50%) of any and all rent paid by an assignee or subtenant in
excess of the Rentals to be paid under this Lease (prorated in the event of a
sublease of less than the entire Premises), after Tenant's deduction therefrom
of all reasonable costs to effect the assignment or subletting, including
without limitation, brokerage commissions, attorneys' fees, and the cost of
leasehold improvements or alterations installed or redecorating performed by
Tenant for the sublessee, shall be paid directly to Landlord, as Additional
Rent, at the time and place specified in this Lease. For the purposes of this
Paragraph 24, the term "rent" shall include any consideration of any kind
received, or to be received, by Tenant from an assignee or subtenant, if such
sums are related to Tenant's interest in this Lease or in the Premises,
including, but not limited to key money, bonus money, and payments (in excess of
the fair market value thereof) for. Tenant's assets, fixtures, trade fixtures,
inventory, accounts, goodwill, equipment, furniture, general intangibles, and
any capital stock or other equity ownership interest of Tenant. Any assignment
or subletting without Landlord's consent shall be voidable at Landlord's option,
and shall constitute a Default by Tenant. Landlord's consent to any one
assignment or sublease shall not constitute a waiver of the provisions of this
Paragraph 24 as to any subsequent assignment or sublease nor a consent to any
subse quent assignment or sublease; further, Landlord's consent to an assignment
or sublease shall not release Tenant from Tenant's obligations under this Lease,
and Tenant shall remain jointly and severally liable with the assignee or
subtenant
(d) Assumption of Obligations. In the event Landlord consents to any
-------------------------
assignment, such consent shall be conditioned upon the assignee expressly
assuming and agreeing to be bound by each of Tenant's covenants, agreements and
obligations contained in this Lease, pursuant to a written assignment and
assumption agreement in a form reasonably approved by Landlord. Landlord's
consent to any assignment or sublease shall be evidenced by Landlord's signature
on said assignment and assumption agreement or on said sublease or by a
separate written consent. In the event Landlord consents to a proposed
assignment or sublease, such assign-
49
<PAGE>
ment or sublease shall be valid and the assignee or subtenant shall have the
right to take possession of the Premises only if an executed original of the
assignment or sublease is delivered to Landlord, and such document contains the
same terms and conditions as stated in Tenant's notice to Landlord given
pursuant to Paragraph 24.2(a) above, except for any such modifications to which
Landlord has consented in writing.
24.3 Collection of Rent. Tenant hereby irrevocably gives to and
------------------
confers upon Landlord, as security for Tenant's obligations under this Lease,
the right, power and authority to collect all rents from any assignee or
subtenant of all or any part of the Premises as permitted by this Paragraph 24,
or otherwise, and Landlord, as assignee of Tenant, or a receiver for Tenant
appointed on Landlord's application, may collect such rent and apply it toward
Tenant's obligations under this Lease; provided, however, that until the
occurrence of any Default by Tenant, subject to applicable cure periods, or
except as provided by the provisions of Paragraph 24.2(c) above, Tenant shall
have the right to collect such rent. Upon the occurrence of any Default by
Tenant, Landlord may at any time without notice in Landlord's own name sue for
or otherwise collect such rent, including rent past due and unpaid, and apply
the same, less costs and expenses of operation and collection, including
reasonable attorneys' fees, toward Tenant's obligations under this Lease.
Landlord's collection of such rents shall not constitute an acceptance by
Landlord of attornment by such subtenants. In the event of a Default by Tenant,
Landlord shall have all nights provided by this Lease and by law, and Landlord
may, upon re-entry and taking possession of the Premises, eject all parties in
possession or eject some and not others, or eject none, as Landlord shall
determine in Landlord's sole discretion.
24.4 Corporations and Partnerships. If Tenant is a partnership, any
-----------------------------
withdrawal or substitution (whether voluntary, involuntary, or by operation of
law and whether occurring at one time or over a period of time) of any
partner(s) owning fifty percent (50%) or more (cumulatively) of the partnership,
any assignment(s) of fifty percent (50%) or more (cumulatively) of any interest
in the capital or profits of the partnership, or the dissolution of the
partnership shall be deemed an assignment of this Lease requiring the prior
written consent of Landlord. If Tenant is a corporation, any dissolution,
merger, consolidation or other reorganization of Tenant any sale or transfer (or
cumulative sales or transfers) of the capital stock of Tenant in excess of fifty
percent (50%), or any sale (or cumulative sales) of all of the assets of Tenant
shall be deemed an assignment of this Lease requiring the prior written consent
of Landlord. Any such withdrawal or substitution of partners or assignment of
any interest in or dissolution of a partnership tenant, and any such sale of
stock or
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assets of a corporate tenant without the prior written consent of Landlord shall
be a Default by Tenant hereunder. The foregoing notwithstanding, the sale or
transfer of any or all of the capital stock of a corporation, the capital stock
of which is now or hereafter becomes publicly traded, shall not be deemed an
assignment of this Lease.
Notwithstanding anything to the contrary contained in this Lease, Tenant,
without Landlord's prior written consent (but with notice to Landlord), may
sublet the Premises or assign this Lease to (i) a subsidiary, affiliate,
division or corporation controlled by or under common control with Tenant; (ii)
a successor corporation related to Tenant by merger, consolidation, non-
bankruptcy reorganization or government action; or (iii) a purchaser of
substantially all of Tenant's assets located at the Premises, provided that in
either of the latter two instances the successor or purchaser has a net worth
not less than the net worth of Tenant at the time that Tenant executes this
Lease (each, a "Permitted Assignee"). Notwithstanding that a Transfer is made to
a Permitted Assignee, Tenant shall not be released from any of its obligations
under this Lease and such Permitted Assignee shall be required to assume all of
Tenant's obligations hereunder as a condition to such transfer being permitted
without Landlord's prior written consent.
24.5 Reasonable Provisions. Tenant expressly agrees that the
---------------------
provisions of this Paragraph 24 are not unreasonable standards or conditions for
purposes of Section 1951.4(b)(2) of the California Civil Code, as amended from
time to time, under bankruptcy laws, or for any other purpose.
24.6 Attorneys' Fees. Tenant shall pay, as Additional Rent, Land
---------------
lord's reasonable attorneys' fees for reviewing, investigating, processing
and/or documenting any requested assignment or sublease, whether or not
Landlord's consent is granted.
24.7 Involuntary Transfer. No interest of Tenant in this Lease shall
--------------------
be assignable involuntarily or by operation of law, including, without
limitation, the transfer of this Lease by testacy or intestacy. Each of the
following acts shall be considered an involuntary assignment:
(a) If Tenant is or becomes bankrupt or insolvent, makes an
assignment for the benefit of creditors, or a proceeding under any bankruptcy
law is instituted in which Tenant is the bankrupt; or, if Tenant is a
partnership or consists of more than one person or entity, if any partner of the
partnership or other person or
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entity is or becomes bankrupt or insolvent or makes an assignment for the
benefit of creditors;
(b) Levy of a writ of attachment or execution on this Lease;
(c) Appointment of a receiver with authority to take possession
of the Premises in any proceeding or action to which Tenant is a party; or
(d) Foreclosure of any lien affecting Tenant's interest in the
Premises, which lien was not consented to by Landlord pursuant to Paragraph
24.8.
An involuntary assignment shall constitute a Default by Tenant and Landlord
shall have the right to terminate this Lease, in which case this Lease shall not
be treated as an asset of Tenant. In the event the Lease is not terminated, the
provisions of Paragraph 24.2(c) regarding rents paid by an assignee or subtenant
shall apply. If a writ of attachment or execution is levied on this Lease, or if
any involuntary proceeding in bankruptcy is brought against Tenant or a
receiver is appointed, Tenant shall have sixty (60) days in which to cause the
attachment or execution to be removed, the involuntary proceeding dismissed, or
the receiver removed.
24.8 Hypothecation. Tenant shall not hypothecate, mortgage or encumber
-------------
Tenant's interest in this Lease or in the Premises or otherwise use this Lease
as a security device in any manner without the consent of Landlord, which
consent Landlord may withhold in its sole and absolute discretion. Consent by
Landlord to any such hypothecation or creation of a lien or mortgage shall not
constitute consent to an assignment or other transfer of this Lease following
foreclosure of any permitted lien or mortgage.
24.9 Binding on Successors. The provisions of this Paragraph 24
---------------------
expressly apply to all heirs, successors, sublessees, assignees and transferees
of Tenant.
25. Successors. Subject to the provisions of Paragraph 24 above and
----------
Paragraph 30.2(a) below, the covenants, conditions, and agreements contained in
this Lease shall be binding on the parties hereto and on their respective heirs,
successors and assigns.
26. Landlord Default; Mortgagee Protection. Landlord shall not be in
--------------------------------------
default under this Lease unless Tenant shall have given Landlord written notice
of
52
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the breach and, within thirty (30) days after notice, Landlord has not cured the
breach or, if the breach is such that it cannot reasonably be cured under the
circumstances within thirty (30) days, has not commenced diligently to prosecute
the cure to completion. Any money judgment obtained by Tenant based upon
Landlord's breach of this Lease shall be satisfied only out of the proceeds of
the sale or disposition of Landlord's interest in the Premises (whether by
Landlord or by execution of judgment). In the event of any default on the part
of Landlord under this Lease, Tenant shall give notice by registered or
certified mail to any beneficiary of a deed of trust or any mortgagee of a
mortgage affecting the Premises, Building or Land whose address shall have been
furnished to Tenant, and shall offer such beneficiary or mortgagee a reasonable
opportunity to cure the default, including time to obtain possession of the
Premises by power of sale or judicial foreclosure, if such should prove
necessary to effect a cure.
27. Exhibits. All exhibits attached to this Lease shall be deemed to be
--------
incorporated herein by the individual reference to each such exhibit, and all
such exhibits shall be deemed to be a part of this Lease as though set forth in
full in the body of the Lease.
28. Surrender of Lease Not Merger. The voluntary or other surrender of
-----------------------------
this Lease by Tenant, or a mutual cancellation thereof, shall not work a merger
and shall, at the option of Landlord, terminate all or any existing subleases or
subtenants, or may, at the option of Landlord, operate as an assignment to
Landlord of any or all such subleases or subtenants.
29. Waiver. The waiver by Tenant of any breach by Landlord of any term,
------
covenant or condition herein contained (or the acceptance by Tenant of any
performance by Landlord after the time the same shall become due) shall not be
deemed to be a waiver of such term, covenant or condition or any subsequent
breach thereof or of any other term, covenant or condition herein contained,
unless otherwise expressly agreed to by Tenant in writing. The waiver by
Landlord of any breach by Tenant of any term, covenant or condition herein
contained (or the acceptance by Landlord of any performance by Tenant after the
time the same shall become due) shall not be deemed to be a waiver of such term,
covenant or condition or any subsequent breach thereof or of any other term,
covenant or condition herein con tained, unless otherwise expressly agreed to by
Landlord in writing. The acceptance by Landlord of any sum less than that which
is required to be paid by Tenant shall be deemed to have been received only on
account of the obligation for which it is paid (or for which it is allocated by
Landlord, in Landlord's reasonable discretion,
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<PAGE>
if Tenant does not designate the obligation as to which the payment should be
credited), and shall not be deemed an accord and satisfaction notwithstanding
any provisions to the contrary written on any check or contained in any letter
of transmittal. The acceptance by Landlord of any sum tendered by a purported
assignee or transferee of Tenant shall not be deemed a consent by Landlord to
any assignment or transfer of Tenant's interest herein. No custom or practice
which may arise between the parties hereto in the administration of the terms of
this Lease shall be construed as a waiver or diminution of Landlord's right to
demand performance by Tenant in strict accordance with the terms of this Lease.
30. General.
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30.1 Captions and Headings. The captions and paragraph headings used
---------------------
in this Lease are for convenience of reference only. They shall not be construed
to limit or extend the meaning of any part of this Lease, and shall not be
deemed relevant in resolving any question of interpretation or construction of
any paragraph of this Lease.
30.2 Definitions.
-----------
(a) Landlord. The term Landlord as used in this Lease, so far as the
--------
covenants or obligations on the part of Landlord are concerned, shall be limited
to mean and include only the owner at the time in question of the fee title to
the Premises. In the event of any transfer(s) of such interest the Landlord
herein named (and in case of any subsequent transfers or conveyances, the then
grantor) shall have no further liability under this Lease to Tenant except as to
matters of liability which have accrued and are unsatisfied as of the date of
such transfer, it being intended that the covenants and obligations contained in
this Lease on the part of Landlord shall be binding on Landlord and its
successors and assigns only during and in respect of their respective periods of
ownership of the fee; provided that any funds in the possession of Landlord or
the then grantor and as to which Tenant has an interest, less any deductions
permitted by law or this Lease, shall be turned over or credited to the grantee.
The covenants and obligations contained in this Lease on the part of Landlord
shall, subject to the provisions of this Paragraph 30.2(a), be binding upon each
Landlord and such Landlord's heirs, personal representatives, successors and
assigns only during its respective period of ownership. Except as provided in
this Paragraph 30.2(a), this Lease shall not be affected by any transfer of
Landlord's interest in the Premises, and Tenant shall attorn to any transferee
of Landlord
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<PAGE>
provided that all of Landlord's obligations hereunder are assumed in writing by
such transferee.
(b) Agents. For purposes of this Lease and without otherwise
------
affecting the definition of the word "agent" or the meaning of an "agency," the
term "agents" shall be deemed to include the agents, employees, officers,
directors, servants, invitees, contractors, successors, representatives,
subcontractors, guests, customers, suppliers, partners, affiliated companies,
and any other person or entity related in any way to the respective party,
Tenant or Landlord.
(c) Interpretation of Terms. The words "Landlord" and "Tenant" as
-----------------------
used herein shall include the plural as well as the singular. Words in the
neuter gender include the masculine and feminine and words in the masculine or
feminine gender include the neuter.
30.3 Copies. Any executed copy of this Lease shall be deemed an
------
original for all purposes.
30.4 Time of Essence. Time is of the essence as to each and every
---------------
provision in this Lease requiring performance within a specified time.
30.5 Severability. In case any one or more of the provisions contained
------------
herein shall for any reason be held to be invalid, illegal or unenforceable in
any respect, such invalidity, illegality or unenforceability shall not affect
any other provision of this Lease, but this Lease shall be construed as if such
invalid, illegal or unenforceable provision had not been contained herein.
However, if Tenant's obligation to pay the Rentals is determined to be invalid
or unenforceable, this Lease at the option of Landlord shall terminate.
30.6 Governing Law. This Lease shall be construed and enforced in
-------------
accordance with the laws of the State of California.
30.7 Joint and Several Liability. If Tenant is more than one person or
---------------------------
entity, each such person or entity shall be jointly and severally liable for the
obligations of Tenant hereunder.
30.8 Construction of Lease Provisions. Although printed provisions of
--------------------------------
this Lease were prepared by Landlord, this Lease shall not be construed either
for
55
<PAGE>
or against Tenant or Landlord, but shall be construed in accordance with the
general tenor of the language to reach a fair and equitable result.
30.9 Tenant's Financial Statements. Tenant hereby warrants that all
-----------------------------
financial statements delivered by Tenant to Landlord are true, correct, and
complete, and prepared in accordance with generally accepted accounting
principles. Tenant acknowledges and agrees that Landlord is relying on such
financial statements in accepting this Lease, and that a breach of Tenant's
warranty as to such financial statements shall constitute a Default by Tenant.
Notwithstanding anything to the contrary contained in this Lease, Landlord shall
keep confidential all such financial information received from Tenant except
that Landlord may provide such financial information to Landlord's lenders or
prospective lenders with respect to the Premises.
30.10 Withholding of Landlord's Consent. Notwithstanding any other
---------------------------------
provision of this Lease where Tenant is required to obtain the consent (whether
written or oral) of Landlord to do any act, or to refrain from the performance
of any act, Tenant agrees that if Tenant is in default with respect to any term,
condition, covenant or provision, of this Lease, then Landlord shall be deemed
to have acted reasonably in withholding its consent if said consent is, in fact,
withheld.
31. Signs. Tenant shall not place or permit to be placed any sign or
-----
decoration on the Land or the exterior of the Building or that would be visible
from the exterior of the Building or Premises, without the prior written consent
of Landlord, which consent may be given or withheld in Landlord's sole
discretion. Tenant may place "for lease" signs in connection with efforts to
assign or sublease the Premises, subject to the prior written consent of
Landlord, which consent shall not be unreasonably withheld; provided that all
such signs shall be removed not later than the one hundred eightieth (180th) day
prior to Lease Termination. In no event shall any such sign revolve, rotate,
move or create the illusion of revolving, rotating or moving or be internally
illuminated and there shall be no exterior spotlighting or other illumination on
any such sign. Tenant upon written notice by Landlord, shall immediately remove
any of Tenant's signs or decorations that are visible from the exterior of the
Building or Premises or that Tenant has placed or permitted to be placed on the
Land or the exterior of the Building without the prior written consent of
Landlord, or which remain beyond the one hundred eightieth (180th) day prior to
Lease Termination. If Tenant fails to so remove such sign or decoration within
five (5) days after Landlord's written notice, Landlord may enter the Premises
and remove such sign or decoration and Tenant shall pay Landlord, as Additional
Rent upon demand, the cost of such removal. All signs placed on the Premises,
Building or
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Land by Tenant shall comply with all recorded documents affecting the Premises,
including but not limited to any Declaration of Conditions, Covenants and
Restrictions; and applicable statutes, ordinances, rules and regulations of
governmental agencies having jurisdiction thereof. At Landlord's option, Tenant
shall at Lease Termination remove any sign which it has placed on the Premises,
Land or the Building, and shall, at its sole cost, repair any damage caused by
the installation or removal of such sign.
32. Landlord as Party Defendant. If, by reason of any act or omission by
---------------------------
Tenant or Tenant's agents, employees or contractors, Landlord is made a party
defendant concerning this Lease, or any portion of the Project, Tenant shall
indemnify Landlord against all liability actually incurred (or threatened
against) Landlord as a party defendant, including all damages, costs and
reasonable attorneys' fees.
33. Landlord Not a Trustee. Landlord shall not be deemed to be a trustee
----------------------
of any funds paid to Landlord by Tenant (or held by Landlord for Tenant)
pursuant to this Lease, including without limitation the Security Deposit.
Landlord shall not be required to keep any such funds separate from Landlord's
general funds or segregated from any funds paid to Landlord by (or held by
Landlord for) other tenants of the Building. Any funds held by Landlord pursuant
to this Lease shall not bear interest.
34. Interest. Any payment due from Tenant to Landlord, except for Rent
--------
received by Landlord within thirty (30) days after the same is due, shall bear
interest from the date due until paid, at an annual rate equal to the greater
of: ten percent (10%); or five percent (5%) plus the rate established by the
Federal Reserve Bank of San Francisco, as of the twenty-fifth (25th) day of the
month immediately preceding the due date, on advances to member banks under
Sections 13 and 13(a) of the Federal Reserve Act, as now in effect or hereafter
from time to time amended. In addition, Tenant shall pay all costs and
reasonable attorneys' fees incurred by Landlord in the collection of such
amounts.
35. Surrender of Premises. On the last day of the Lease Term or upon the
---------------------
sooner termination of this Lease, Tenant shall, to the reasonable satisfaction
of Landlord, surrender the Premises to Landlord in good condition and repair
(reasonable wear and tear, acts of God, casualty, condemnation, Hazardous
Materials other than those stored, used or disposed of by Tenant, its agents,
employees, contractors or invitees, and alterations concerning which Landlord
has not reserved the right to require removal excepted. Tenant shall remove all
of Tenant's personal property and trade fixtures from the Premises, and all
property not so removed
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shall be deemed abandoned by Tenant. Furthermore, Tenant shall immediately
repair all damage to the Project caused by any such removal. If the Premises are
not so surrendered at Lease Termination, Tenant shall indemnify, defend and hold
Landlord harmless from and against any loss, damage, expense, claim or liability
resulting from delay by Tenant in so surrendering the Premises including,
without limitation, any claims made by any succeeding tenant or losses to
Landlord due to lost opportunities to lease to succeeding tenants.
36. Labor Disputes. In the event Tenant shall in any manner be involved
--------------
in or be the object of a labor dispute which subjects the Premises or any part
of the Project to any picketing, work stoppage or other concerted activity which
in the reasonable opinion of Landlord is detrimental to the operation of the
Project or its tenants, Landlord shall have the right to require Tenant, at
Tenant's own expense and within a reasonable period of time, to use Tenant's
best efforts to either resolve such labor dispute or terminate or control any
such picketing, work stoppage or other conceited activity to the extent
necessary to eliminate any interference with the operation of the Project. To
the extent such labor dispute interferes with the performance of Landlord's
duties hereunder, Landlord shall be excused from the perfor mance of such
duties. Failure by Tenant to use its best efforts to so resolve such dispute or
terminate or control such picketing, work stoppage or other concerted activity
within a reasonable period of time shall constitute a Default by Tenant
hereunder. Nothing contained in this Paragraph 36 shall be construed as placing
Landlord in an employer/employee relationship with any of Tenant's employees or
with any other employees who may be involved in such labor dispute.
37. No Partnership or Joint Venture. Nothing in this Lease shall be
-------------------------------
construed as creating a partnership or joint venture between Landlord, Tenant,
or any other party, or cause Landlord to be responsible for the debts or
obligations of Tenant or any other party.
38. Entire Agreement. Any agreements, warranties, or representations not
----------------
expressly contained herein shall in no way bind either Landlord or Tenant, and
Landlord and Tenant expressly waive all claims for damages by reason of any
statement, representation, warranty, promise or agreement, if any, not contained
in this Lease. This Lease supersedes and cancels any and all previous
negotiations, arrangements, brochures, agreements and understandings, whether
written or oral, between Landlord and its agents and Tenant and its agents with
respect to the Project or this Lease. This Lease constitutes the entire
agreement between the parties hereto and no addition to, or modification of, any
term or provision of this Lease shall be
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effective until and unless set forth in a written instrument signed by both
Landlord and Tenant.
39. Submission of Lease. Submission of this instrument for Tenant's
-------------------
examination or execution does not constitute a reservation of space nor an
option to lease. This instrument shall not be effective until executed by both
Landlord and Tenant (and approved by Landlord's lender holding a security
interest in the Building if required). Execution of this Lease by Tenant shall
constitute an offer by Tenant to lease the Premises, which offer shall be deemed
accepted by Landlord when this Lease is executed by Landlord and delivered to
Tenant.
40. Quiet Enjoyment. Landlord covenants and agrees with Tenant that upon
---------------
Tenant paying Rentals and performing its covenants and conditions under the
Lease, Tenant shall and may peaceably and quietly have, hold and enjoy the
Premises for the Lease Term, subject, however, to the terms of this Lease and of
any mort gages or deeds of trust affecting the Premises, and the rights reserved
by Landlord hereunder. Any purchaser upon any foreclosure or exercise of the
power of sale under any mortgage or deed of trust made by Landlord and covering
the Premises, Building or Land to whom Tenant attorns pursuant to Paragraph 20.4
above shall be bound by the terms of this Paragraph 40.
41. Authority. The undersigned parties hereby warrant that they have
---------
proper authority and are empowered to execute this Lease on behalf of the
Landlord and Tenant, respectively. If Tenant is a corporation (or partnership),
each individual executing this Lease on behalf of said corporation (or
partnership) represents and warrants that he is duly authorized to execute and
deliver this Lease on behalf of said corporation in accordance with a duly
adopted resolution of the Board of Directors of said corporation or in
accordance with the by-laws of said corporation (or on behalf of said
partnership in accordance with the partnership agreement of such partnership),
and that this Lease is binding upon said corporation (or partnership) in
accordance with its terms. If Tenant is a corporation, and this Lease is not
executed by two corporate officers, Tenant shall, upon execution of this Lease,
deliver to Landlord evidence of the authority of the individual executing this
Lease on behalf of Tenant to execute this Lease on behalf of Tenant. In the
event Tenant should fail to deliver such evidence to Landlord upon execution of
this Lease, Landlord shall not be deemed to have waived its right to require
delivery of such evidence, and at any time during the Lease Term Landlord may
request Tenant to deliver the same, and Tenant agrees it shall thereafter
promptly deliver such evidence to Landlord. If Tenant is a corporation, Tenant
warrants that:
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(a) Tenant is a valid and existing corporation;
(b) Tenant is qualified to do business in California;
(c) All fees and all franchise and corporate taxes are paid to
date, and will be paid when due;
(d) All required forms and reports will be filed when due; and
(e) The signers of this Lease are properly authorized to execute
this Lease.
42. Broker. Landlord and Tenant each represent and warrant to the other
------
that it has had no dealings with any person, firm, broker or finder other than
Colliers Parrish International, Inc. ("CP"), Wayne Mascia and Associates ("WM")
and Lynch, Murphy, Walsh & Partners ("LM"), in connection with the negotiation
of this Lease and/or the consummation of the transaction contemplated hereby,
and that no broker or other person, firm or entity other than CP (and WM or LM
if either is to be paid a commission by Tenant or CP) is entitled to a
commission or finder's fee in connection with said transaction. Landlord agrees
to pay CP a brokerage commission in connection with this Lease pursuant to the
terms of a separate written agreement between Landlord and CP. Landlord shall
not be obligated to pay a brokerage commission to LM or WM. Tenant shall
indemnify, defend and hold Landlord harmless from and against liability for
compensation or charges which may be claimed by LM and/or WM by reason of any
dealings or actions of Tenant, including any costs, expenses and/or attorneys'
fees reasonably incurred with respect thereto. Landlord and Tenant do each
hereby agree to indemnify, defend and hold the other harmless from and against
liability for compensation or charges which may be claimed by any unnamed
broker, finder or other similar party by reason of any dealings or actions of
the indemnifying party including any costs, expenses and/or attorneys' fees
reasonably incurred with respect thereto. The obligations to indemnify, defend
and hold harmless as set forth in the immediately preceding sentence shall
survive the termination of this Lease.
43. Lease Guaranty. Concurrently with the execution of the Lease by
--------------
Tenant, Tenant shall cause CMG Information Services, Inc. to execute a Lease
Guaranty in the form and content of Exhibit C attached hereto and made a part
---------
hereof. The execution of such Lease Guaranty by an authorized officer of CMG
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Information Services, Inc. is a condition precedent to the effectiveness of
Landlord's obligations under this Lease.
IN WITNESS WHEREOF, the parties have executed this Lease as of the date set
forth below.
Dated: [undated] , 1997
LANDLORD:
BORLAND INTERNATIONAL, INC.
a Delaware corporation
By: /s/ James M. Schmidt
---------------------------------
Its: Vice President, Human Resources
--------------------------------
TENANT:
CMG INFORMATION TECHNOLOGIES, INC,
a Delaware corporation
By: /s/ Andrew J. Hajducky
--------------------------------
Its: CFO
-------------------------------
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EXHIBITS
--------
A. Site Plan Paragraph 1.4 (Building C shown cross-hatched and the
Land outlined in red pursuant to Paragraph 2.1)
B. Floor Plan Paragraph 2.1 (Premises shown cross-hatched)
C. Lease Guaranty Paragraph 43
62
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EXHIBIT A
[Site Plan]
63
<PAGE>
EXHIBIT B
[Floor Plan]
64
<PAGE>
EXHIBIT C
LEASE GUARANTY
--------------
A. WHEREAS, a certain Net Lease Agreement (Multi-Tenant) dated
_________________, 1997, by and between BORLAND INTERNATIONAL, INC., a Delaware
corporation ("Landlord') and CMG INFORMATION TECHNOLOGIES, INC., a Delaware
corporation ("Tenant"), covering approximately 13,100 rentable square feet on
the first floor of that certain building commonly known as 1700 Green Hills
Road, Scotts Valley, California, and more particularly described in said Lease
(the "Premises"), has been executed by the Tenant, a copy of which is attached
hereto (the "Lease"); and
B. WHEREAS, as a condition to its execution of the Lease, and in
consideration of Landlord's entering into the lease with Tenant, Landlord
requires that CMG Information Services, a Delaware corporation ("Guarantor"),
guaranty the full performance of all the obligations of Tenant under the Lease;
and
C. WHEREAS, Guarantor desires that Landlord enter into the Lease with
Tenant;
NOW THEREFORE, in consideration of the execution of the Lease by Landlord
and for other valuable consideration, Guarantor directly and unconditionally
hereby guarantees the full performance by Tenant of each and every term,
covenant and condition of the Lease and every obligation of Tenant under the
Lease of any kind or nature whatsoever and the payment of all rentals, operating
expenses, common area charges, and other sums to be paid by Tenant thereunder.
Guarantor further agrees as follows:
1. This Guaranty shall inure to the benefit of Landlord, its
successors, assigns and heirs and shall remain and continue in full force and
effect as to any and all renewals, modifications, amendments (whether written or
oral or established by course of conduct), extensions or assignments of the
Lease, whether or not Guarantor shall have received any notice of or consented
to such renewals, modifications, amendments, extensions or assignments; and that
no renewal, modification amendment, extension or assignment of the Lease shall
in any manner release, discharge or diminish the obligations of Guarantor
hereunder. This Guaranty shall guarantee the performance of the Lease as it may
be renewed, extended, amended or
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modified. This paragraph modifies the provisions of California Civil Code
Section 2819.
2. Guarantor represents that Tenant has agreed to indemnify
Guarantor for Guarantor's obligations hereunder so that the Lease may be
renewed, modified, amended, extended or assigned, and Tenant or any persons or
entities comprising Tenant, may be released from Tenant's obligations under the
Lease, without notice to Guarantor, and Guarantor shall nevertheless remain
liable to Landlord under this Guaranty.
3. This Guaranty is a continuing guaranty and shall terminate only
upon the payment by Tenant of all the rentals and other sums reserved in the
Lease and upon performance by Tenant of all duties and obligations therein
contained through the expiration of the term of the Lease and any and all
renewals and extensions thereof, including the payment and performance of all
obligations of Tenant which may survive the expiration or termination of the
Lease, including any period which Tenant may remain in possession of and occupy
the Premises as a holdover tenant. Landlord may enforce all such obligations and
indemnification against Guarantor without giving previous notice to Tenant or
Guarantor, or without making any demand on either of them. Guarantor may not
revoke this Guaranty.
4. Landlord may terminate the Lease upon default by Tenant of any
term, covenant or condition of the Lease. Guarantor shall indemnify Landlord for
all losses and/or damages sustained by Landlord as a result of such termination.
Such termination, however, shall not extinguish, release or, in any way, affect
or diminish the obligations of Guarantor, as provided hereunder. Upon such
termination of the Lease, Landlord may retake possession of the Premises and
relet them for Landlord's benefit. In no event is Landlord obligated to lease
the Premises to Guarantor after such termination. Upon any termination of the
Lease, as a result of Tenants default thereunder, Guarantor's guaranty shall
extend to the payment to Landlord of all damages payable by Tenant as set forth
in the Lease.
5. This Guaranty shall not be released, extinguished, modified or,
in any way, affected or diminished by failure, on the part of Landlord, to
enforce any or all of the rights or remedies of Landlord or to grant any
indulgences or extensions of time to Tenant for the performance of any term,
covenant or condition of the Lease. This Guaranty shall remain in full force and
effect notwithstanding the failure of Landlord to insist in any one or more
instances, upon a strict performance or observance of the terms, covenants or
conditions of the Lease or to exercise any
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rights therein contained. Receipt by Landlord of rent or other performance from
Tenant, after breach by Tenant, with the knowledge of such breach, shall not be
deemed a waiver of such breach. Any reference herein to any liability of Tenant
under the tenants, covenants and conditions of the Lease shall, at the same
time, refer to the obligations of Guarantor hereunder. Landlord may settle or
compromise with Tenant all or any part of Tenant's liability or obligations
under the Lease, exchange, release or surrender any security which it may hold,
and/or waive compliance with any of the terms or provisions contained in the
Lease, all without in any way affecting the obligations of Guarantor under this
Guaranty.
6. Landlord may, at Landlord's option, proceed immediately and
directly against Guarantor in order to enforce this Guaranty. The liability of
Guarantor under this Guaranty shall be primary and it shall not be necessary
for Landlord, in order to enforce its rights hereunder, upon the default by
Tenant, to first give Guarantor notice of Tenant's default or institute suit or
pursue or exhaust Its legal remedies against Tenant.
7. If Landlord should seek to enforce any of its rights provided in
this Guaranty, and demand payment from Guarantor, such demand and payment in
response thereto shall not release, extinguish, exonerate or, in any way, affect
or diminish Guarantor's continuing obligations under this Guaranty.
8. If any action or proceeding should be commenced by Landlord
against Guarantor to enforce any of the terms, covenants or conditions of this
Guaranty, Landlord shall be entitled to recover from Guarantor hereunder, in any
such action or proceeding in which it shall prevail, all attorneys' fees, costs
and expenses.
9. Landlord may, notice, assign, or otherwise transfer, hypothecate,
encumber or dispose of in whole or in part, any of Landlord's rights, claims or
interests in the Lease or the Premises or assign this Guaranty in whole or in
part, and no assignment, hypothecation encumbrance, disposition, or other
transfer of the Lease, the Premises or this Guaranty shall operate to extinguish
or diminish, in any way, the obligations of Guarantor hereunder.
10. Until all terms, covenants and conditions in the Lease, on
Tenant's part to be performed and observed, are fully performed and observed,
Guarantor:
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<PAGE>
(a) shall have no right of subrogation against Tenant by reason
of any payments or acts of performance by Guarantor in compliance with the
obligations of Guarantor hereunder;
(b) waives any right to enforce any remedy which Guarantor now or
hereafter shall have against Tenant by reason of any one or more payments or
acts of performance, by Guarantor in compliance with the obligations of
Guarantor hereunder; and
(c) shall subordinate any liability or indebtedness of Tenant,
now or hereafter held by Guarantors, to the obligations of Tenant to Landlord
under the Lease.
11. Guarantor hereby waives:
(a) all statutes of limitations as a defense to any action
brought against Guarantor by Landlord to enforce this Guaranty, to the fullest
extent permitted by law;
(b) all defenses based upon any legal disability of Tenant or any
discharge or limitation of liability of Tenant, to Landlord, whether consensual
or arising by operation of law or any bankruptcy, insolvency or debtor relief
proceeding or from any other cause;
(c) the right to require Landlord to proceed against Tenant or to
pursue any other remedy in Landlord's power,
(d) any right to participate in any security now or later held by
Landlord;
(e) all presentments, demands for performance, notice of
nonperformance, protests, notices of protest, dishonor or acceptance of this
Guaranty and all notices of the existence, creation or incurring of new or
additional obligations.
12. The obligations of Guarantor hereunder are direct, unconditional
and independent of those of Tenant under the Lease. Guarantor shall punctually
perform its obligations hereunder upon demand by Landlord.
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<PAGE>
13. If Guarantor consists of more than one person or entity, the
obligations of each person or entity constituting Guarantor shall be joint and
several. Each signatory who executes this Guaranty hereby represents that is has
done so independently of the execution hereof by any other signatory, and that
in executing this Guaranty, each signatory is not relying upon the execution
hereof by any other signatory. Each signatory shall be bound by this Guaranty
regardless of whether any other signatory executes this Guaranty. The granting
of a release of liability hereunder of less than all of the signatories hereto
shall be effective with respect to the liability hereunder of those specifically
so released but shall in no way affect the liability hereunder of any of the
signatories not so expressly released. Any prior or subsequent guaranty by
Guarantor or by any other guarantor of Tenant's obligations to Landlord shall
not be deemed to be in lieu of or to superseded or terminate this Guaranty but
shall be construed as an additional or supplementary guaranty unless otherwise
expressly provided therein.
14. All rights that Landlord has under this Guaranty are cumulative,
and in addition to any other rights that Landlord may otherwise have.
15. The provisions of this Guaranty are severable, and if any
provision herein is invalid, the balance of this Guaranty shall remain in force
and effect to the fullest extent permitted by law.
16. Guarantor hereby waives his, her or its rights to be exonerated
hereunder pursuant to the provisions of California Civil Code Section 2819
and/or 2845 and/or 2850 and pursuant to any other statute or rule of law of
similar import.
17. This Guaranty shall continue and remain unconditionally
unaffected by any assignment of the Lease by Tenant, any sublease by Tenant of
the Premises, or any change in the entity comprising Tenant. Upon any assignment
of the Lease, sublease or Transfer, Guarantor shall continue to remain liable
and obligated for the full guarantee of the performance by Tenant's successor of
each and every term, covenant and condition of the Lease and every payment and
obligation of such successor under the Lease. "Tenant" as used in this Guaranty
shall include all successors, transferees and assigns of Tenant.
18. This Guaranty shall remain and continue in full force and effect,
notwithstanding:
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<PAGE>
(a) The commencement or continuation of any case, action, or
proceeding by, against or concerning Tenant, under any federal or state
bankruptcy, insolvency, or other debtor's relief law, including without
limitation: (i) a case under Title 11 of the United States Code concerning
Tenant, whether under Chapter 7, 11 or 13 of such Title or under any other
Chapter or, (ii) a case, action or proceeding seeking Tenant's financial
reorganization or an arrangement with any of Tenant's creditors;
(b) The voluntary or involuntary appointment of a receiver,
trustee, keeper or other person who takes possession of substantially all of
Tenant's assets or of any asset used in Tenant's business on the Premises,
regardless of whether such appoiritnient is as a result of insolvency or other
cause;
(c) The execution of an assignment for the benefit of creditors
of substantially all assets of Tenant available by law for the satisfaction of
judgment creditors.
19. Upon demand by Landlord, Guarantor shall deliver to Landlord and
to any prospective purchaser of the Premises, mortgagee and/or beneficiary under
a deed of trust affecting the Premises, or other lender designated by Landlord,
an estoppel certificate, executed and acknowledged by Guarantor, to the effect
that this Guaranty is in full force and effect, and has not been amended or
terminated; and Guarantor shall certify such other matters relating to the Lease
and/or the Premises and/or this Guaranty as may be reasonably requested by a
lender making a loan to Landlord in connection with the Premises or a purchaser
of the Premises from Landlord.
20. This Guaranty shall remain in full force and effect
notwithstanding the receipt by Landlord of any additional security, whether from
Guarantor, Tenant or a third party, securing the performance of any of the
terms, covenants, or conditions of the Lease, including the obligation to pay
the rentals as provided in the Lease. The release by Landlord of any security
obtained from Guarantor, Tenant or a third party, securing the performance of
any of the terms, covenants or conditions of the Lease, including the covenant
to pay the rentals, shall not release, extinguish or, in any way, affect or
diminish the obligations of Guarantor hereunder, and Guarantor hereby waives the
right to require Landlord to proceed against or exhaust any security that
Landlord holds from Tenant, Guarantor, or a third party.
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<PAGE>
21. This Guaranty shall remain in full force and effect,
notwithstanding that other guarantors from time to time may guarantee or
otherwise become responsible for the performance of the terms, covenants and
conditions of the Lease.
22. This Guaranty shall be governed and construed under the laws of
the State of California. This Guaranty shall be binding upon Guarantor, his
successors and assigns. Guarantor hereby consents to personal jurisdiction in
the Superior Court of the State of California for the County of Santa Cruz and
the United States District Court of the Northern District of California and
hereby agrees that any action to enforce this Guaranty or arising out of or in
connection with this Guaranty shall be brought in such courts.
23. Unless otherwise defined in this Guaranty, capitalized terms used
herein shall have the same meaning and definition as set forth for such terms in
the Lease.
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IN WITNESS WHEREOF, the undersigned Guarantor has executed this Guaranty as
of ___________________________ 1997.
GUARANTOR
CMG INFORMATION SERVICES,
a Delaware corporation
By: /s/ Andrew J. Hajducky
-----------------------------
Its: CFO
----------------------------------------
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FIRST AMENDMENT TO NET LEASE AGREEMENT
This First Amendment to Net Lease Agreement ("Amendment") is dated as of
June 1, 1998, by and between Borland International, Inc., a Delaware corporation
dba INPRISE Corporation ("Landlord") and NaviSite Internet Services, a Delaware
corporation (formerly known as CMG Information Technologies, Inc.) ("Tenant").
RECITALS
--------
A. Landlord and Tenant have entered into a Net Lease Agreement dated as
of March 20, 1997 (the "Lease") covering that certain space, consisting of
approximately thirteen thousand one hundred (13,100) rentable square feet,
situated in the first floor of that certain building (the "Building") located at
1700 Green Hills Road in the City of Scotts Valley, County of Santa Cruz, State
of California (the "Premises").
B. Landlord desires to lease to Tenant, and Tenant desires to lease from
Landlord, pursuant to the terms and conditions set forth below, an additional
approximately one thousand seventeen (1,017) rentable square feet on the first
floor of the Building adjacent to the Premises. Upon leasing such additional
space on the first floor of the Building, Tenant will be leasing approximately
fourteen thousand one hundred seventeen (14,117) rentable square feet on the
first floor of the Building.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth below, the parties hereto agree as follows:
1. Additional Space.
----------------
(a) Demise of Additional Space. Landlord hereby leases to Tenant and
--------------------------
Tenant hereby leases from Landlord that certain space, consisting of
approximately one thousand seventeen (1,017) rentable square feet located
adjacent to the Premises and more particularly identified on Exhibit "A"
----------
attached hereto and made a part hereof (the "Additional Space"). Except to the
extent that such meaning would be clearly inconsistent with the terms of this
Amendment, wherever the term "Premises" is used in the Lease, such terms shall
include the Additional Space.
(b) Term. The term of the Lease with respect to the Additional Space
----
shall commence on June 1, 1998 (the "Additional Space Commencement Date") and
shall be coterminus with the lease of the balance of the Premises. In the
73
<PAGE>
event Tenant elects, pursuant to Paragraph 3.5 of the Lease, to extend the term
of the Lease, such election shall also operate as to extend the term of the
Lease as to the Premises and the Additional Space at a rental as described in
---
Paragraph 4.4 of the Lease.
(c) Early Occupancy of Additional Space. Prior to the Additional
-----------------------------------
Space Commencement Date, Tenant shall have the right, subject to the terms of
this subparagraph 1(c), to enter the Premises solely for the purpose of
fixturizing the Additional Space, installing the door referred to in paragraph
1(d) below and installing furniture, furnishings and telephones, if applicable,
in the Additional Space. Tenant's right of early occupancy with respect to such
Additional Space shall be subject to all of the terms and conditions of the
Lease, as amended hereby, except that Tenant shall not be obligated to pay Rent
or Tenant's pro rata share of Common Area Charges (with respect to the
Additional Space only) prior to the Additional Space Commencement Date.
(d) Tenant Improvements in Additional Space. Prior to the Additional
---------------------------------------
Space Commencement Date, Tenant shall, at Tenant's sole cost, construct or
install a door separating the Additional Space from the restrooms located
adjacent to the Additional Space in the location shown on Exhibit B attached
---------
hereto. The provisions of Section 13.1 and 13.2 of the Lease shall apply to any
other alterations or improvements that Tenant desires to construct or install,
or cause to be constructed or installed, in the Additional Space. The parties
hereto acknowledge and agree that Landlord shall have no obligation to improve
the Additional Space and shall have no obligation to provide any allowance for
the cost of construction of any improvements with respect to the Additional
Space, and Tenant shall accept such Additional Space in its "as is" condition.
(e) Rent. Tenant shall pay to Landlord as monthly rent for the
----
Additional Space ("Additional Space Rent"), in advance, without offset,
deduction or demand, on the first day of each month, commencing on the
Additional Space Commencement Date and continuing throughout the term of the
Lease (until adjusted pursuant to the terms of subparagraph 1(f) below), the sum
of One Thousand Two Hundred Twenty and 40/100 Dollars ($1,220.40) per month
(NNN). Additional Space Rent shall be prorated, based on a thirty (30) day
month, for any partial month during the term of the Lease following the
Additional Space Rent Commencement Date. The Additional Space Rent shall be
adjusted pursuant to the terms of subparagraph 1(f) below and also shall be
adjusted pursuant to the terms of Paragraph 4.4 in the event
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Tenant exercises its option to extend the Lease Term as provided in Paragraph
3.5 of the Lease.
(f) Cost of Living Adjustments. The Additional Space Rent payable
--------------------------
hereunder shall be adjusted pursuant to this subparagraph 1(f) on each
anniversary of the Commencement Date of the Lease with respect to the original
Premises (and on each anniversary of the commencement date of the Extended Term,
if applicable). The Additional Space Rent as adjusted shall be payable monthly
pursuant to the terms of subparagraph 1(e) above until the next adjustment under
this subparagraph 1(f). As used herein, the term "Adjustment Date" shall mean
the date of an Additional Space Rent adjustment under this subparagraph 1(f).
The first such Adjustment Date shall be April 7, 1999. As of each Adjustment
Date, the monthly Additional Space Rent shall be increased to an amount equal to
the product obtained by multiplying the monthly Additional Space Rent in effect
as of the Additional Space Commencement Date or commencement date of the
Extended Term, as the case may be, by a fraction, the numerator of which is the
New Index as of the applicable Adjustment Date and the denominator of which is
the Initial Index; however, in no event shall the monthly Additional Space Rent
be increased on any Adjustment Date by an amount less than three percent (3%) of
the monthly Additional Space Rent in effect immediately prior to the applicable
Adjustment Date and in no event shall the monthly Additional Space Rent be
increased on any Adjustment Date by an amount more than six percent (6%) of the
monthly Additional Space Rent in effect immediately prior to the applicable
Adjustment Date. For the purposes of adjusting the Additional Space Rent as
provided in this subparagraph 1(f), the following definitions shall apply:
(i) INDEX: The Consumer Price Index (all items) for all Urban
Consumers as published by the United States Department of Labor, Bureau of Labor
Statistics, for the San Francisco/Oakland/San Jose Metropolitan Area (1982-
84=100);
(ii) INITIAL INDEX: the Index published for these month nearest but
prior to the Additional Space Commencement Date (except that during the Extended
Term, the "Initial Index" shall mean the Index published for the month nearest
but prior to the date on which the Extended Term commences);
(c) NEW INDEX: The Index published nearest but prior to the
applicable Adjustment Date.
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If, at any time when the Additional Space Rent is to be adjusted as provided
above, the Index is changed so that the base year differs from the base year
used for the Initial Index, the Index shall be converted in accordance with the
conversion factor published by the United States Department of Labor, Bureau of
Labor Statistics. In the event the Index is otherwise changed or discontinued
during the term of this Lease with respect to the Additional Space, the most
nearly comparable official price index of the United States Government (as
determined in Landlord's reasonable discretion) shall be used for computing the
adjustments to the Additional Space Rent.
2. Prepaid Rent. Concurrently with the execution of this Amendment,
------------
Tenant shall pay to Landlord the sum of One Thousand Two Hundred Twenty and
40/100 Dollars ($1,220.40), which is to be applied by Landlord to the first
month's rent due under this Amendment for Additional Space Rent.
3. Additional Security Deposit. Concurrently with the execution of this
---------------------------
Amendment, Tenant shall pay to Landlord an additional of One Thousand Two
Hundred Twenty and 40/100 Dollars ($1,220.40), which is to be added to the
Security Deposit previously delivered to Landlord and applied in accordance with
the terms of Paragraph 5 of the original Lease.
4. Additional Parking Spaces. Effective as of the Additional Space
-------------------------
Commencement Date, Paragraph 1.13 of the Lease is hereby amended to provide that
Tenant shall be entitled to the non-exclusive right to use no more than
forty-nine (49) parking spaces within the Common Area.
5. Tenant's Percentage Share of Common Area Charges. Effective as of the
------------------------------------------------
Additional Space Commencement Date, Tenant's percentage share of Common Area
Charges as provided in Paragraph 1.10 of the Lease shall be increased to twenty
and sixty-three hundredths percent (20.63%).
6. Commissions. Landlord and Tenant each represent and warrant to the
-----------
other that it has no dealings with any person, firm, broker or finder in
connection with the negotiation of this Amendment and/or the consummation of the
transaction contemplated hereby, and that no broker nor other person, firm or
entity is entitled to a commission or finder's fee in connection with the lease
of the Additional Space. Landlord and Tenant do each hereby agree to indemnify,
defend and hold the other harmless from and against liability for compensation
or charges which may be claimed by any broker, finder or other similar party by
reason of any dealings or actions of the indemnifying party including any costs,
expenses and/or attorneys' fees
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<PAGE>
reasonably incurred with respect thereto. The obligation to indemnify, defend
and hold harmless as set forth in the immediately preceding sentence shall
survive the termination of the Lease.
7. Notices . Paragraph 1.12 of the Lease is hereby amended, in part, to
-------
provide that notices to Landlord are to be sent to the attention of "Director of
Facilities" and not to the attention of Paul W. Emery II, CFO.
8. Definitions. Except as otherwise provided herein, the capitalized
-----------
terms used herein shall have the definitions set forth in the Lease.
9. Lease Terms. Except as otherwise modified herein, the terms and
-----------
conditions of the Lease shall remain unmodified and in full force and effect.
In the event of any inconsistency or conflict between the terms of this
Amendment and the original Lease, the terms of this Amendment shall control.
10. Counterparts. This Amendment may be executed in counterparts, each of
------------
which shall be deemed an original, and which together shall constitute one
instrument.
11. Lease Guaranty. This Amendment shall be of no force or effect unless
--------------
and until consented to by CMG Information Services as set forth below.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
set forth above.
LANDLORD:
BORLAND INTERNATIONAL, INC.,
a Delaware corporation, dba INPRISE Corporation
By: /s/ James M. Schmidt
------------------------------------------------
James M. Schmidt
Its: Vice-President, Human Resources
By: ________________________________________________
Its: ________________________________________________
TENANT:
NAVISITE INTERNET SERVICES,
a Delaware corporation (formerly known as CMG
Information Technologies, Inc.)
By: /s/ Robert B. Eisenberg
------------------------------------------------
Its: President
-----------------------------------------------
By: ______________________________________________
Its: ______________________________________________
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<PAGE>
The undersigned, CMG Information Services, a Delaware corporation, hereby
consents to the Amendment above and acknowledges and agrees that (i) its Lease
Guaranty dated April 7, 1997, with respect to the Tenant's obligations under the
Lease referred to above shall be applicable to such Lease, as amended by the
Amendment above, and (ii) the aforesaid Lease Guaranty shall remain in full
force and effect and the undersigned shall remain liable under such Lease
Guaranty.
CMG INFORMATION SERVICES,
a Delaware corporation
By: /s/ Andrew J. Hajducky
-----------------------------------------------
Its: Chief Financial Officer
-----------------------------------------------
By: _______________________________________________
Its: _______________________________________________
79
<PAGE>
EXHIBIT A
[1700 Green Hills Road First Floor - Site Plan]
80
<PAGE>
EXHIBIT B
[1700 Green Hills - First Floor Layout Drawing]
81
<PAGE>
EXHIBIT 10.5
LEASE
-----
1. Identifications
---------------
This LEASE made as of the ______ day of March 1997, by and between William
J. Callahan and William J. Callahan, Jr., as they are trustees of Andover Park
Realty Trust under a declaration of trust dated June 25, 1986 and filed with the
Essex County (North District) Registry of Deeds in Book 2226 Page 284 (the
"Landlord"), having an address c/o P.O. Box 269, Bedford, Massachusetts 01730,
and CMG Information Services, Inc. (the "Tenant"), a Delaware corporation having
an address at 187 Ballardvale Street, Wilmington, Massachusetts 01887.
2. Lease: the Premises
--------------------
In consideration of the Basic Rent, Additional Rent, and other payments and
covenants of the Tenant hereinafter set forth, and upon the following terms and
conditions, the Landlord hereby leases to the Tenant and the Tenant hereby
leases from the Landlord approximately 21,974 rentable square feet on floor 1 as
shown in the floor plans attached hereto as Exhibit A-1 and more particularly
described in the 1/16" scaled floor plans initialed by Landlord and Tenant
(excluding therefrom only the entrance area(s), loading dock(s), elevator(s),
stairway(s), telephone, sprinkler, machine, and electrical rooms and other
common areas, being hereinafter called (the "Premises"), in that certain
building (as defined in Paragraph 3 hereof, the "Building") now under
construction by the Landlord on that certain parcel of land (the "Property")
located at 300 Federal Street in Woodland Park, Andover Massachusetts, said
parcel, as more particularly described in Exhibit A attached hereto, consisting
of approximately 11.393 acres of land.
The Premises leased together with reasonable rights, in common with the
Landlord and
<PAGE>
all others (including any other tenant or tenants of the Building or the
Property claiming under the Landlord or otherwise) from time to time lawfully
entitled thereto, to use: (i) the first floor entrance area(s), loading dock(s),
elevator(s), stairways, and all other such common areas of the Building for
their intended purposes; (ii) the appurtenant right to use for their intended
purpose: the pipes, conduits, utility lines, wires, sewage system and other
appurtenant fixtures and equipment servicing the Premises; (iii) the driveways,
walkways, parking area and other common areas of the Property (all currently
located substantially as shown on the Site Plan referred to in Paragraph 3) for
their intended purposes (Tenant shall be granted use of 72 parking spaces on the
Property for use by its employees and visitors of which 4 parking spaces shall
be designated for use by visitors); and (iv) Federal Street for all purposes for
which public ways may now or hereafter be used in the Town of Andover.
3. Construction by Landlord
------------------------
The Landlord shall, at its cost and expense except as otherwise expressly
agreed in this Lease, complete construction of: the building (the "Building")
containing approximately 119,970 rentable square feet of floor space now under
construction on the Property substantially in accordance with Building plans
prepared by Sullivan Design Group. Inc.; the interior "fit-up" of the Premises
substantially in accordance with plans therefor (the "Tenant's Interior Plans"')
now under preparation for the Tenant by Visnick & Caulfield Associates, Inc.
(Landlord, at the Term Commencement Date, shall pay $12,000 to Visnick &
Caulfield for such plans) to be consistent with the Building plans (said
Building plans and Tenant's Interior Plans, as from time to time amended with
the approval of the Tenant, being hereinafter collectively called the "Plans");
and the driveway(s), walkway(s), parking area(s) and other improvements to the
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Property substantially as shown on the Site Plan dated 6/30/96 (the ''Site
Plan"). Said Building, the interior work on the Premises and the driveway(s),
walkway(s) and parking area(s) are hereinafter collectively called the
"Improvements". The Tenant shall not unreasonably withhold or delay approval of
any changes or amendments to the Plans which the Landlord may from time to time
propose, provided, however, that the Tenant need not approve any such proposed
change or amendment which will materially adversely affect the value or quality
or the Tenant's anticipated use of the Premises or the suitability and utility
of the layout of the Premises for such use.
The Landlord shall cause the Improvements to be so constructed in a good
and workmanlike manner using new first-class materials and, except as otherwise
permitted under variances or other deviations duly obtained, in compliance with
all applicable laws, by-laws, ordinances, codes, rules, regulations, orders and
other lawful requirements of governmental bodies having jurisdiction, it being
the obligation of the Landlord, at its cost and expense, to obtain from such
bodies all permits, licenses, certificates or other approvals required for
construction of the Improvements and for the initial occupancy of the Premises
by the Tenant.
Without regard to the commencement of the Term, the Tenant shall reimburse
Landlord, as and when the same are incurred or the applicable items of work are
completed and within fifteen (15) days after receipt of itemized invoices from
the Landlord, for the actual costs of all change orders specifically requested
by Tenant, and with any work incorporated into the Premises (pursuant to the
Tenant's Interior Plans or otherwise requested or required by Tenant) in excess
of the cost of the work provided for in the "Outline Specifications for CMG
Information dated March 13, 1997 such reimbursement to be made at the Landlord's
cost plus thirteen percent
3
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(13%) for administration/general conditions.
The Landlord shall exercise all commercially reasonable efforts to cause
the Improvements to be Substantially Complete (as hereinafter defined) by May 1,
1997, as such date shall be automatically extended for the periods of: any
delays on the part of the Tenant in providing to the Landlord the final Tenant's
Interior Plans by February 25, 1997; any delays caused by the necessity to order
long-lead-time items in order to undertake construction in accordance with the
Tenant's Interior Plans; any delays caused by change orders requested by Tenant
any other delays which are in whole or in part the responsibility of the Tenant,
including delays on the part of the Landlord in completing work which could have
been completed but for the delayed completion of other work for reasons in whole
or in part the responsibility of the Tenant; and any delays which result from
strikes, inability to obtain materials (or substitutes acceptable to the Tenant
at comparable cost), fire or other casualty and from any other causes beyond the
commercially reasonable control of the Landlord (such date as so extended being
hereinafter called the "Date for Substantial Completion").
The Improvements shall be deemed to be "Substantially Complete" when (i)
the same are complete (with all building electrical, mechanical and plumbing
systems operational) in accordance with the Plans and other provisions hereof
except only for items of work specified a so-called "punch list" signed by the
Landlord and the Tenant the delayed completion of which items will not
substantially interfere with the use and enjoyment of the Premises by the Tenant
as contemplated hereby; and (ii) all temporary or permanent certificates and
permits necessary for initial occupancy of the Premises by the Tenant for
purposes permitted under Paragraph 5 hereof have been issued by the appropriate
governmental bodies having jurisdiction and copies thereof
4
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provided to the Landlord. The Landlord shall finish any such "punch list" items
of work within thirty (30) days after the Date for Substantial Completion. In
addition the Landlord shall remedy any substantial defect of materials or
workmanship in or affecting the Premises of which the Tenant gives notice to the
Landlord within twelve (12) months after the commencement of the Term and shall,
to the extent legally possible, assign to the Tenant the benefit of all
warranties and guarantees from manufacturers, vendors, suppliers and
subcontractors whose products or services are incorporated into the Premises.
Upon the commencement of the Term, the Tenant shall pay to Landlord, as
additional rent, $34,807 toward the cost of such Improvements. Except as the
result of tenant's delays and delays which result from strikes, fire or other
casualty and from any other causes beyond the commercially reasonable control of
the Landlord, in the event the Premises are not Substantially Complete by June
1, 1997, Landlord agrees to pay a penalty of $625 per day for each day after
June 1, 1997 until the date the Premises are Substantially Complete.
4. Term
----
The Term of this Lease shall commence on the later of (i) May 1, 1997 or
(ii) the earlier of the date the Improvements are Substantially Complete or the
date the Improvements would have been Substantially Complete except for tenant
delays (the "Term Commencement Date") and shall expire, unless earlier
terminated in accordance with the terms hereof, at midnight on the last day of
the calendar month after the expiration of ten (10) years from the Term
Commencement Date. Landlord hereby grants Tenant the right to enter the
Premises and install fixtures and equipment prior to the Term Commencement Date
and the Tenant and Landlord shall coordinate such work the Improvements. The
Tenant shall be responsible for such fixtures
5
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and equipment and any damage or loss thereto. If the Improvements are not
Substantially Complete as so defined on or before June 30, 1997 as automatically
extended for periods of any tenant delays, any delays which result from strikes,
inability to obtain materials, fire or other casualty or from any other causes
beyond the commercially reasonable control of Landlord, the Tenant may, by
written notice to Landlord within five (5) days after such date, terminate this
Lease.
5. Use of the Premises: Licenses and Permits
------------------------------------------
The Tenant shall use the Premises only for offices, computer room, research
and development, and related storage as permitted under applicable laws, by-
laws, ordinances, codes, rules, regulations, orders and other lawful
requirements of governmental bodies having jurisdiction. The Tenant, its
subtenants, licensees, invitees and any other users of the Premises shall apply
in their own names for and obtain at their own expense any and all licenses,
permits and other approvals which may be required from such governmental bodies
in connection with Tenant's particular use of the Premises during the term
except as set forth above.
6. Basic Rent: Additional Rent
---------------------------
From and after the Term Commencement Date, the annual Basic Rent for the
Premises during the Term shall be due in accordance with the following schedule:
ANNUAL BASIC RENT MONTHLY BASIC RENT
------------------ -------------------
$226,332 $18,861
Basic Rent shall be payable in advance on the first day of each month in
equal installments (except in the case of a partial month at the beginning of
the Term, in which event the Tenant shall pay an appropriate pro rata proportion
of such installment) to the Landlord at the
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address set forth above or such other address as the Landlord may thereafter
specify by the notice to the Tenant, without counterclaim, set off, deduction,
abatement or defense, except as otherwise expressly provided herein.
This Lease is intended by the parties hereto to be a so-called "net" lease
and, to that end, the Basic Rent shall be received by the Landlord net of all
costs and expenses related to the Property, the Building and the Premises as
expressly set forth herein. Tenant agrees to pay to the Landlord, during the
Term hereof, Tenant's Percentage (herein defined) of Common Expenses
(hereinafter defined) within thirty (30) days of demand thereof. The Landlord
shall, in each case, at the time demand for payment by the Tenant of any Common
Expenses, provide the Tenant with a computation of the Common Expenses, and
evidence of the payment or liability for any such charges, costs, expenses and
obligations. "Common Expenses" shall mean any and all charges, costs and
expenses which the Landlord may from time to time actually incur during the
Term, in good faith, with respect to the operation and maintenance of the
Premises, Building and the Property, including, without limitation, (i) making
repairs to and undertaking maintenance of the Building and the Property,
including the common areas of the Building; (ii) providing cleaning and
utilities, including heat and air conditioning, to the common areas of the
Building; (iii) providing watering, landscaping and lawn care for the Property;
(iv) sanding, plowing and removal of snow and ice from the driveways, walkways
and parking areas on the Property, (v) maintenance and repair to the Woodland
Park common areas and Federal Street (including cleaning, landscaping, snow
removal, and lighting); (vi) maintaining the insurance required to be maintained
by the Landlord pursuant to Paragraph 8 hereof, and (vii) a commercially
reasonable management fee. Common Expenses shall not include (a) interest or
amortization payments on
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any mortgage or deed of trust affecting the Building or on any loan made to
Landlord; (b) leasing commissions, advertising expenses and other costs incurred
in leasing or attempting to lease any portion of the Building; (c) the costs of
repairs, improvement, special cleaning or other special services performed for
tenants to the extent that such items are separately charged and payable by such
tenants; (d) any cost or expense which Landlord has the right to recover from
any third party, including any insurance carrier; (e) repairs or other work
occasioned by fire, windstorm or other casualty or by the exercise of eminent
domain; (f) renovating or otherwise improving, decorating, painting or
redecorating space for other occupants of the building; (g) Landlord's cost of
electricity, and other services that are sold to tenants and for which Landlord
is entitled to be reimbursed tenants as an additional charge or rental over and
above the basic rent, tax escalation, and operating expense escalation payable
under Landlord's lease with such tenant; (h) costs incurred due to violation by
Landlord or any other tenant of the terms and conditions of any lease; (i)
overhead and profit increment paid to subsidiaries or affiliates of Landlord for
services on or to the real property, to the extent only that the cost of such
services exceed competitive costs of such services were they not so rendered by
a subsidiary or affiliate; (j) Landlord's general overhead except as it directly
relates to the operation and management of the Building, Tenant hereby
acknowledging that operating costs shall include a competitive management fee;
(k) any compensation paid to clerks, attendants or other persons in commercial
concessions operated by Landlord; (1) advertising and promotional expenditures;
(m) any fines or penalties incurred due to violations by Landlord or any
governmental rules (n) any costs incurred by Landlord in the event that the
building does not comply with governmental rules in effect as of the execution
date of this Lease; (o) costs for sculpture, painting or other objects of art;
(p)
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wages, salaries, or other compensation paid to any executive employees above the
grade of building superintendent, except that if any such employee performs a
service which would have been performed by an outside consultant, the
compensation paid to such employee for performing such service shall be included
in operating costs, to the extent only that the cost of such service does not
exceed competitive cost of such service had such service been rendered by an
outside consultant; (q) construction or other work performed by Landlord for
another tenant(s), whether or not Landlord is entitled to be reimbursed for the
cost of such work; (r) depreciation; (s) costs related to a capital expenditure;
provided that Common Expense shall include the cost of Capital Expenditures(s)
amortized over their useful life in accordance with generally accepted industry
practices at a 10% interest rate; (t) any architects' fees, accountants' fees or
any professional fees not directly related to the maintenance of the Premises;
(u) any costs whatsoever related to any expansion of the building. "Tenant's
Percentage" shall mean 18.3% which represents that proportion that the rentable
floor area of the Premises bears to the rentable floor area of the Building.
Appropriate and reasonable adjustment shall apply to Tenant's Percentage for
variable expenses incurred by Tenant for time periods of vacancy to other parts
of Building. To the extent that any charge, cost or expense incurred by Landlord
for Common Expenses shall be such that it related to materials or services
furnished for periods after expiration or termination of the Term, then such
charge, cost or expense shall be appropriately adjusted or pro rated to take
into effect only periods during the Term.
If any payment of Basic Rent or Additional Rent is not paid to the Landlord
when due or within any applicable grace period, then at Landlord's option,
without notice and in additional to all other remedies hereunder, Tenant shall
pay upon demand to Landlord as Additional Rent
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<PAGE>
interest thereon at an annual rate equal to the corporate rate of the Bank of
Boston from time to time in effect plus two (2) percent, such interest to be
computed from the date such Basic Rent or Additional Rent was originally due
through the date paid in full.
7. Taxes
-----
The Tenant shall pay or cause to be paid to the Landlord (or, where
appropriate, directly to the authority by which the same are assessed or
imposed, with evidence of such payment to the Landlord) as Additional Rent not
later than ten (10) days prior to the date the same are due or twenty-one (21)
days after written notice thereof to the Tenant, whichever is later, all taxes
and excises upon the personal property and equipment of the Tenant located at
the Premises or the Property and the Tenant's Percentage of any and all real
estate taxes, betterments and special assessments (which the Landlord agrees
shall be paid over the longest period allowed by law) or amounts in lieu or in
the nature thereof and any water rents or sewer use charges (and the entire
amount of any interest, penalties and costs attributable to delayed payment of
Tenant's portion thereof where such delay is the fault of the Tenant) which may
now or hereafter be levied, assessed or imposed by the United States of America,
The State of Massachusetts, the Town of Andover or any other authority, or
become a lien, upon all or any part of the Property, the Building, the Premises,
the use or occupation thereof, or upon the Landlord and the Tenant in respect
thereof, or upon the basis of rentals thereof or therefrom (except for the
Landlord's income, estate, gift or transfer taxes), or upon the estate hereby
created or upon the Landlord by reason of ownership of the reversion. All
payments by the Tenant on account of Taxes shall be appropriately pro rated in
connection with any tax bills received by Landlord covering periods which are
not within the Term.
10
<PAGE>
The Tenant shall, upon written notice from the Landlord, prepay to
Mortgagee or the Landlord monthly as Additional Rent, in the same manner as
Basic Rent, one-twelfth (1/12) of the total of all such amounts as the Landlord
may from time to time reasonably estimate will be payable annually by the Tenant
under this Paragraph 7, which prepayments the Landlord agrees shall be applied,
without interest to such amounts as actually become payable. As soon as any
such amounts so payable are actually determined appropriate adjustment of any
overpayments of underpayments shall be made.
Subject to the rights of any Mortgagees, the Landlord shall, at the request
of the Tenant or any other tenant or tenants of the Building, use reasonable
efforts to obtain an abatement of or to contest or review by legal proceedings
or otherwise any such tax, levy, charge or assessment. In such event the Tenant
and such other tenants shall either pay such tax, levy, charge or assessment
(under protest, if necessary) or shall, if requested, deposit with the Landlord
in trust (or provide an indemnity bond in) an amount sufficient to cover the
contested item together with any interest, penalties or costs as the Landlord
may reasonably require. The Tenant and any such other tenants, jointly and
severally, shall defend, indemnify and save the Landlord harmless from and
against and shall pay as Additional Rent the Tenant's Percentage of (i) any such
tax, levy, charge or assessment that may be determined to be due and (ii) any
and all costs or expenses (including reasonable attorney's fees) the Landlord
may incur in connection with any such proceedings. When any such contested item
shall have been settled or paid, the balance of any sums deposited with the
Landlord in trust shall be repaid to the Tenant. The Tenant shall be entitled
to share in any refund or abatement, net of such costs and expenses, which may
be made of any tax, levy, charge or assessment, in the same proportion that the
same was paid by the
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Tenant or with the Tenant's funds.
8. Insurance: Waivers of Subrogation
----------------------------------
The Tenant shall, at its own cost and expense, obtain prior to the
commencement of the Term and throughout the Term shall maintain, with companies
qualified to do business in Massachusetts and acceptable to any first Mortgagee,
insurance for the benefits as additional insureds of the Landlord and any
Mortgagees as their respective interests may appear, commercial general
liability insurance against claims for bodily injury, death or property damage
occurring to, upon or about the Premises, the Building or the Property, in
limits of $1,000,000 for bodily injury or death and $500,000 for property
damages or in such higher or lower limits as any Mortgagee may reasonably
require.
The Landlord shall obtain and throughout the Term shall maintain, with
companies qualified to do business in Massachusetts and acceptable to any first
Mortgagee, insurance for the benefit as named insureds of the Landlord and any
Mortgagees as their respective interests may appear, with losses first payable
to such Mortgagees under standard mortgagee endorsements, as follows: (i)
insurance against lost rentals from the Building for a period of at least one
year and so-called "casualty" insurance against loss or damage to the Building
such as may result from fire and such other casualties as are normally covered
by an "extended coverage" endorsement, such casualty insurance to be without
deductible and in an amount equal to the full replacement cost of the Building;
(ii) in reasonable amounts, boiler and machinery insurance on any Building steam
boilers, pressure vessels and pressure piping, rotating electrical machines, and
miscellaneous electrical apparatus, engines, pumps, and compressors, fans and
blowers, with so-called "standard blanket coverage" (15 HP and over); and (iii)
such other insurance coverages
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in such additional amounts, as any Mortgagee may reasonably require or as a
prudent and reasonable owner would from time to time carry on similar premises
in view of any new risks arising or changes of conditions (e.g. inflation)
occurring during the Term.
Neither the Landlord nor the Tenant shall be liable to the other for any
loss or damage to the Building, the Premises or other property or injury to or
death of persons occurring on the Property or in the Building or the Premises or
in any manner growing out of or connected with the Tenant's use and occupation
of the Premises, the Building or the Property or the condition thereof, whether
or not caused by the negligence or other fault of the Landlord, the Tenant or
their respective agents, employees, subtenants, licensees, invitees or
assignees; provided, however, that this release (i) shall apply only to the
extent that such loss or damage to the Building or other property or injury to
or death of persons is covered by (x) insurance which protects the Landlord or
the Tenant or both of them as the case may be, or (y) insurance required to be
carried by either party under this Lease (ii) shall not be construed to impose
any other or greater liability upon either the Landlord or the Tenant than would
have existed in the absence hereof; and (iii) shall be in effect only so long as
the applicable insurance policy contains a clause providing that this release
shall not affect the right of the insureds to recover under such policies, which
clauses shall be obtained by the parties hereto whenever available. All
property of the Tenant in, and any other contents of, the Premises shall be at
the Tenant's sole risk and the Tenant shall be responsible for insuring the
same.
9. Utilities
---------
The Tenant shall pay the Tenant's Percentage of water and sewer use charges
with respect to normal water usage for Tenant's domestic use of the Building
(except that either the Landlord
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or the Tenant may arrange to have the Premises separately metered at its own
expense, in which event the Tenant shall be billed for such water and sewer
charges imposed in respect of the usage indicated by such meter) and shall, at
its own cost and expense, arrange and pay for all other utilities provided to
the Premises during the Term, including, without limitation, electricity
(including electricity for heat and air conditioning), water beyond such normal
usage for Tenant's domestic use (in the absence of such a meter), telephone
service, security and fire protection, cleaning and trash removal. Tenant shall,
at its own expense, install a meter to measure its own electric consumption.
10. Repairs
-------
From and after the commencement of and during the Term, the Tenant shall,
except to the extent it is Landlord's responsibility or caused by the negligence
of the Landlord, at its own cost and expense, make all interior nonstructural
repairs, replacements and renewals necessary to keep the Premises in as good
condition, order and repair as the same are at the commencement of the Term
reasonable wear and use and damage by fire and other casualty, taking by eminent
domain only excepted, and keep and maintain all portions of the Premises in a
clean and orderly condition, free of accumulation of dirt, rubbish, and other
debris, it being understood that the foregoing exception for reasonable wear and
use shall not relieve the Tenant from the obligation to keep the Premises in
good order, repair and condition.
From and after the commencement of and during the Term, the Landlord shall
make all necessary repairs, replacement and renewals, interior and exterior,
structural and nonstructural as Common Expenses as in Paragraph 6 defined, to:
keep the Building and all its electrical, mechanical, heating, ventilating and
air conditioning, plumbing and other building systems and
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<PAGE>
the parking areas, sprinklers and other improvements on the Property in good
condition, order and repair as the same are at the commencement of the Term or
thereafter may be put, damage by fire or other casualty only excepted; keep all
driveways, walkways, parking areas and other improvements on the Property free
of snow and sanded; keep all lawns and landscaped areas of the Property watered,
fertilized and neatly trimmed; provide cleaning services and utilities to the
common areas of the Building at a quality level similar to first class office
buildings in suburban Boston.
Notwithstanding, the Landlord shall, at its own cost and expense, and not
as a Common Expense make all repairs necessary to keep the structural support
elements of the Building in structurally good condition, order and repair,
damage resulting from any act (not consented to in writing by the Landlord) and
any omissions of the Tenant or its agents, contractors and employees, from
reasonable wear and use and from fire or other casualty only excepted.
11. Compliance with Laws and Regulations
------------------------------------
The Tenant agrees that its obligations to make payment of the Basic Rent,
Additional Rent and all other charges on its part to be paid, and to perform all
of the covenants and agreements on its part to be performed during the Term
hereunder shall not, except as set forth in Paragraph 16 in the event of
condemnation by public authority, be affected by any present or future law, by-
law, ordinance, code, rule, regulation, order or other lawful requirement
regulating or affecting the use which may be made of the Premises or the
Property.
During the Term the Tenant shall comply, at its own cost and expense, with:
all applicable laws, by-laws, ordinances, codes, rules, regulations, orders and
other lawful requirements of the governmental bodies having jurisdiction (other
than such as are the
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obligation of the Landlord under Paragraph 3 hereof), whether or not
foreseeable, and whether or not they involve any changes in governmental policy,
which are applicable to the Tenant's particular use of the Premises, the
fixtures and equipment therein; the order, rules and regulations of the National
Board of Fire Underwriters, or any other body hereafter constituted exercising
similar functions, which may be applicable to the Tenant's particular use of the
Premises, the fixtures and equipment therein or the use thereof; and the
reasonable requirements of all policies of public liability, fire and all other
types of insurance at any time in force with respect to the Tenant's particular
use of the Premises, the Building or the Property and the fixtures and equipment
therein and thereon.
12. Alterations by Tenant
---------------------
The Tenant shall make no alterations or improvements in or to any portion
of the Premises or any portion of the Building or the Property without the
Landlord's prior written consent and without first providing the Landlord with
suitable assurance of the Tenant's obligation to complete the same at no expense
to the Landlord and without any mechanics' or materialmen's lien upon the
Property. The Landlord agrees that its consent shall not be withheld for
interior, non-structural alterations, additions and improvements to the Premises
consistent with the use of the Premises as contemplated hereby; any such
consents to interior, non-structural alterations, additions and improvements
may, if it is special in nature and adversely affects the value of the Premises
and if the Landlord reasonably advises the Tenant as part of or by notice at the
time of any such consent, be conditioned upon the Tenant's being obligated to
remove the same at the expiration or termination of this Lease and to restore
the Premises to their condition prior to such alterations, additions and
improvements.
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13. Landlord's Access
-----------------
The Tenant agrees to permit the Landlord and any Mortgagees and their
authorized representatives to enter the Premises at all reasonable times during
usual business hours after reasonable oral notice and accompanied by Tenant's
representative for the purposes of inspecting the same, exercising such other
rights as it or they may have hereunder or under any mortgagees and at any time
without notice in the event of emergency. Such rights of access shall not
unreasonably interfere with Tenant's business operations. Landlord agrees not
to show the Premises to prospective tenants until less than twelve (12) months
remain in the Term or until Tenant exercises its Early Cancellation Right.
14. Indemnities
-----------
The Tenant shall and does hereby agree to protect, defend, indemnify and
save the Landlord harmless from and against any all claims (other than claims
arising from any omission, fault, negligence or other misconduct of the Landlord
or its agents, contractors or employees of the Landlord in or about the
Premises, the Building or the Property) arising: (i) from the conduct or
management of or from any work or thing whatsoever done in or about the Premises
during the Term; (ii) from any condition existing, or any injury to or death of
persons or damage to property occurring during the Term, or resulting from an
occurrence during the Term, in or about the Premises; and (iii) from any breach
or default on the part of the Tenant in the performance of any covenant or
agreement on the part of the Tenant to be performed pursuant to the terms of
this Lease or from any negligent act or omission on the part of the Tenant or
any of its agents, employees, subtenants, licensees, invitees or assignees; the
Tenant further agrees to indemnify the Landlord from and against all costs,
expenses, including reasonable attorney's fees, and other
17
<PAGE>
liabilities incurred in connection with any such indemnified claim or action or
proceeding brought thereon, any and all of which costs, expenses and
liabilities, if reasonably suffered, paid or incurred by the Landlord, the
Tenant shall repay upon demand to the Landlord as Additional Rent.
The Landlord shall and does hereby agree to protect, defend, indemnify and
save the Tenant harmless from and against any and all claims (other than claims
arising from any omission, fault, negligence or other misconduct of the Tenant
or its agents, contractors or employees of the Tenant in or about the Premises,
the Building or the Property) arising from any breach or default on the part of
the Landlord in the performance of any covenant or agreement on the part of the
Landlord to be performed pursuant to the terms of this Lease or from any
negligent act or omission on the part of the Landlord or any of its agents,
contractors or employees; the Landlord further agrees to indemnify the Tenant
from and against all costs, expenses, including reasonable attorney's fees and
other liabilities incurred in connection with any such indemnified claim or
action or proceeding brought thereon.
15. Casualty Damage
---------------
Except as otherwise provided below, in the event of partial or total
destruction of the Premises during the Term by fire or other casualty, the
Landlord shall, after receipt of any insurance proceeds available as a result of
such casualty, as promptly as practicable repair, reconstruct or replace the
portions of the Premises destroyed as nearly as possible to their condition
prior to such destruction, except that in no event shall the Landlord be
obligated to expend more for such repair, reconstruction or replacement than the
amounts of any such insurance proceeds actually received unless such proceeds
are inadequate by reason of the failure
18
<PAGE>
of the Landlord to obtain or maintain the insurance required by Paragraph 8(i)
hereof. During the period of such repair, reconstruction and replacement there
shall be an equitable abatement of Basic Rent hereunder in proportion to the
nature and extent of the destruction but only as and to the extent such
abatement is covered by lost rentals insurance, as required by Paragraph 8(i)
hereof or otherwise, the proceeds of which are actually made available to the
Landlord.
If the Building is so extensively destroyed by fire or other casualty that
the Premises are not susceptible of repair, reconstruction or replacement within
nine (9) months from the date of such destruction, or if such destruction
resulted from causes or risks not required to be insured against by the Landlord
hereunder, or if any Mortgagee refuses to agree to release net insurance
proceeds to the Landlord, of if the insurance proceeds actually received by the
Landlord are inadequate to repair the Premises to a condition reasonably
tenantable for the intended use, the Landlord or the Tenant may terminate this
Lease by giving written notice to the other within thirty (30) days after the
date of such destruction unless, in the case of notice from the Tenant, within
ten (10) days after receipt of any such notice by the Landlord, the Landlord
gives notice to the Tenant that the Landlord will make the necessary additional
funds available for such repair, reconstruction or replacement and complete such
repair, reconstruction or replacement within nine (9) months from the date of
such destruction, in which event this Lease shall nevertheless remain in effect.
In the event of termination as aforesaid this Lease shall terminate as of, and
Basic Rent and Additional Rent shall be appropriately apportioned through and
abated from and after the date of notice of termination.
19
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16. Condemnation
------------
If more than ten percent (10%) of the rentable floor area of the Premises,
or more than twenty percent (20%) of the parking area then available for use by
the Tenant or of access to the Premises, shall be taken by eminent domain or
appropriated by public authority, or if access to the parking of the Premises is
materially affected by any such taking the Landlord or the Tenant may terminate
this Lease by giving written notice to the other within thirty (30) days after
such taking or appropriation. In the event of such a termination, this Lease
shall terminate as of the date the Tenant actually surrenders possession, and
the Basic Rent and Additional Rent reserved shall be apportioned and paid to and
as of such date.
If all or any part of the Premises, the parking or access to either is
taken or appropriated by public authority as aforesaid and this Lease is not
terminated as set forth above, the Landlord shall, subject to the rights of any
Mortgagees, apply any such damages and compensation awarded (net of the costs
and expenses, including reasonable attorney's fees, incurred by the Landlord in
obtaining the same) to secure and close so much of the Improvements or other
buildings, structures and improvements constituting a part of the Premises as
remain and shall, to the extent possible, repair all damage and replace any part
so taken or appropriated by a suitable structure or parking area or addition of
similar size and design to that portion so taken or appropriated, except that in
no event shall the Landlord be obligated to expand more for such replacement
than the net amount of any such damages, compensation or award with the Landlord
may have received as damages in respect of the Building and any improvements
situated on the Property as they existed immediately prior to such taking or
appropriation; in such event there shall be an equitable abatement of Basic Rent
in proportion to the loss of useable floor area in the
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Premises after giving effect to such replacement or an equitable abatement of
Basic Rent due to the loss of any parking or access to parking or the Premises,
from and after the date the Tenant must surrender possession on if later, the
date the Tenant actually surrenders possession.
The Landlord hereby reserves, and the Tenant hereby assigns to the
Landlord, and any and all interest in and claims to the entirety of any damages
or other compensation by way of damages which may be awarded in connection with
any such taking or appropriation, except those awards which may be granted
separately to Tenant for its leasehold improvements and/or relocation expenses.
17. Landlord's Covenant of Quiet Enjoyment: Title
---------------------------------------------
The Landlord represents it has the right to enter into this Lease and to
lease the Premises to the Tenant free of the claims of any third party, there
are no encumbrances to title which prohibit the Permitted use, and the Building
and Property are not in violation of any easement of record. The Landlord
covenants that the Tenant, upon paying the Basic Rent and Additional Rent and
performing and observing all of the other covenants and provisions hereof, may
peaceably and quietly hold and enjoy the Premises for the Term as aforesaid,
subject, however, to all of the terms and provision of this Lease.
In the event Landlord fails to perform any of its obligations under this
Lease within thirty (30) days after written notice from Tenant to Landlord and
to the holder of any mortgage on the Property of which Tenant has notice
specifying the nature of such obligations or if any such failure to perform such
obligations is of the type which cannot be cured within such thirty (30) days,
then if Landlord or the holder of any such mortgage (at the option of such
mortgage) fails to (i) commence performing the cure thereof within thirty (30)
days after such written notice
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from Tenant and (ii) thereafter prosecute same to completion with due diligence
given the nature of same, then thereafter at any time prior to Landlord's
commencing same, Tenant may, but need not, perform such obligations and may make
a demand on Landlord for payment of the reasonable out of pocket cost thereof
actually incurred by Tenant. Tenant need not wait for the expiration of any of
the foregoing to cure periods to expire in the case of emergency. If, within
thirty (30) days of receipt of any such demand, Landlord shall not have paid
same, then Tenant shall have the right to bring suit in court of competent
jurisdiction in the Commonwealth of Massachusetts seeking payment of the sum
claimed in Tenant's applicable demand.
18. Tenant's Obligation to Quit
---------------------------
The Tenant shall, upon expiration of the Term or other termination of this
Lease, leave peaceably and quietly surrender and deliver to the Landlord the
Premises and any replacements or renewals thereof in the order, condition and
repair required by Paragraph 10 hereof and the other provisions of this Lease,
except however, that the Tenant shall first remove any trade fixtures and
equipment (including but not limited to computer room equipment and fixtures
desired to be removed by Tenant) and any alterations, additions and improvements
which the Landlord has required be removed pursuant to the terms of Paragraph 12
hereof. Also, Tenant shall remove any alterations, additions, and improvements
which it has installed without seeking Landlord's consent pursuant to Paragraph
12 if the Landlord so requests. Tenant specifically agrees to repair any damage
caused by removal of any additional alterations or improvements.
19. Assignment and Subletting
-------------------------
Not to assign, transfer, mortgage or pledge this Lease or to grant a
security interest in Tenant's rights hereunder, or to sublease (which term shall
be deemed to include the granting of
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concessions and licenses and the like) or permit anyone other than Tenant to
occupy all or any part of the Premises or suffer or permit this Lease or the
leasehold interest hereby created or any other rights arising under this Lease
to be assigned, transferred or encumbered, in whole or in part, whether
voluntarily, involuntarily or by operation of law, unless, in each instance (i)
the prior written consent of Landlord thereto shall have been obtained, which
consent shall not be unreasonably withheld or delayed, (ii) any defaults then
existing with respect to the obligations of Tenant under this Lease shall have
been cured, and (iii) in the case of a proposed assignment, sublease or
occupancy by another, the proposed assignee, sublessee, or occupant if qualified
to do business in the state in which the Premises are located and in the case of
a proposed assignment, such assignee executes and delivers to Landlord an
agreement satisfactory to Landlord by which such assignee shall be bound by and
shall assume all the obligations of Tenant under this Lease. Tenant may assign
this Lease or sublet any portion or all of the Premises to any corporation,
partnership, trust, association or other business or organization (x) directly
or indirectly controlling, (y) directly or indirectly controlled by Tenant, (z)
or under common control with Tenant, or to any successor of Tenant by merger,
consolidation or acquisition of substantially of all the assets of Tenant,
without the prior written consent of landlord as required in (i) above, provided
that (a) Tenant shall deliver landlord at lease 15 day's advance notice of such
proposed assignment or sublease, (b) in the case of a merger, consolidation or
sale, the net worth of Tenant's successor (determined in accordance with
generally accepted accounting principles) immediately after such merger,
consolidation or sale
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shall be at least equal to greater of (1) the net worth of Tenant (similarly
determined) immediately prior to such merger, consolidation or sale or (2) the
net worth of Tenant (similarly determined) on the date hereof.
If for any assignment or sublease or occupancy by another, Tenant receives
rent or other consideration, either initially or over the term of the
assignment, sublease or occupancy, in excess of rent called for hereunder, or in
case of sublease of part of the Premises, in excess of such rent fairly
allocable to the part so subleased, after appropriate adjustments to assure that
all other payments called for hereunder are appropriately taken into account and
after deducting the reasonable costs of attorney, brokerage and renovation costs
relating to the sublease or assignment, Tenant shall pay to Landlord, as
Additional Rent, 50% of the excess of each such payment of rent or other
consideration received by Tenant promptly after its receipt.
For the purposes of this Section 19, the transfer in the aggregate in any
twelve-month period of over 50% or more in interest in Tenant (whether stock,
partnership interest or other form of ownership or control) by any person or
persons having an interest in ownership or control of Tenant shall be deemed an
assignment of this Lease. The preceding sentence shall not apply to the initial
Tenant named herein if such initial Tenant is a corporation and the outstanding
voting stock thereof is listed on a recognized securities exchange.
Any attempted assignment, transfer, mortgage, pledge, grant of security
interest, sublease or other encumbrance, except as permitted by this Section 19,
shall be void. No assignment, transfer, mortgage, grant of security interest,
sublease or other encumbrance, whether or not approved, and no indulgence
granted by Landlord to any assignee, sublessee or occupant shall in any way
impair Tenant's continuing primary liability (which after an assignment or
subletting
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shall be joint and several with the assignee or sublessee) of Tenant hereunder,
and no approval in a particular instance shall be deemed to be a waiver of the
obligation to obtain Landlord's approval in any other case.
20. Transfers of Landlord's Interest
--------------------------------
The Landlord shall have the right from time to time to sell or mortgage its
interest in the Property, the Building and the Premises, to assign its interest
in this Lease, or to assign from time to time the whole or any portion of its
entitlement to receive the Basic Rent, Additional Rent or other sums and charges
at any time paid or payable hereunder by the Tenant to the Landlord, to any
Mortgagees or other transferees designated by the Landlord in duly recorded
instruments, and in any such case the Tenant shall pay the Basic Rent,
Additional Rent and any such sums and charges so assigned, subject to the term
of the Lease, upon demand to such Mortgagees and other transferees at the
addresses mentioned in and in accordance with the terms of such instruments
provided the Tenant has been notified of such transfer and provided with such
addresses, and further provided, that any such assignment shall not relieve
Landlord of any of its obligations hereunder.
21. Mortgagees' Rights
------------------
The Tenant hereby agrees that this Lease is and shall be subject and
subordinate to any mortgage (and to any amendments, extensions, increases,
refinancing or restructuring thereof) of the Property, the Building or the
Premises, whether or not such mortgage is filed subsequent to the execution,
delivery or the recording of this Lease or any notice hereof (the holder from
time to time of any such mortgage being in this Lease sometimes called the
"Mortgagee"). The foregoing subordination shall be self-operative and
automatically effective as to any mortgage
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filed subsequent to the execution and delivery hereof but only if either the
Mortgagee agrees in writing or such mortgage provides that, for so long as there
exists no default under this Lease by the Tenant not cured within applicable
periods of notice and grace, the Mortgagee will be bound by the terms of this
Lease and will not, in foreclosing against or taking possession of the Premises
or otherwise exercising its rights under such mortgage, disturb the Tenant's
possession of the Premises hereunder or words of similar import. The Tenant
hereby agrees to execute, acknowledge and deliver in recordable form such
instruments confirming and evidencing the foregoing subordination as the
Landlord or any such Mortgagee may from time to time reasonably require.
Provided that the Tenant has been provided with notice of such mortgage and
appropriate addresses to which notice should be sent, no notice from the Tenant
of any default by the Landlord in its obligations shall be valid, and the Tenant
shall not attempt to terminate this Lease, withhold Basic Rent or Additional
Rent or exercise any other remedy which may arise by reason of any such default,
unless the Tenant first gives such notice to all Mortgagees (which have provided
Tenant with notice of its mortgage) and provides such Mortgagees with reasonable
time after such notice to cure such default, provided that, such Mortgagees
shall be bound by any applicable cure periods specified in this Lease. The
Tenant shall and does hereby agree, upon default by the Landlord under any
mortgage, to attorn to and recognize the Mortgagee or anyone else claiming under
such mortgage, including a purchaser at a foreclosure sale so long as such
mortgagee or other party agrees to be bound by the Landlord's obligations under
this Lease, at its request as successor to the interest of the Landlord under
this Lease, to execute, acknowledge and deliver in recordable form such evidence
of this attornment, which
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shall nevertheless be self-operative and automatically effective, as the
Mortgagee or such successor may request and to make payments of Basic Rent and
Additional Rent hereunder directly to the Mortgagee or any such successor, as
the case may be, upon request. Any Mortgagee may, at any time, be giving written
notice to, and without further consent from, the Tenant, subordinate its
mortgage to this Lease, and thereupon the interest of the Tenant under this
Lease shall automatically be deemed to be prior to the lien of such mortgage
without regard to the relative dates of execution, delivery or recording thereof
or otherwise.
22. Tenant's Default Landlord's Remedies
------------------------------------
If the Tenant shall default in the payment of any Basic Rent or Additional
Rent and such default shall continue for ten (10) days after written notice from
the Landlord; or if the Tenant shall default in the performance or observance of
any of the other covenants contained in these presents and on the Tenant's part
to be performed or observed and shall fail, within thirty (30) days after
written notice from the Landlord of such default, to cure such default or if
such default is not susceptible of cure within said thirty (30) day period,
promptly to make provision for such cure and thereafter to pursue such cure
diligently to completion; or if the estate hereby created shall be taken on
execution, or by other process of law; or if the Tenant shall be involved in
financial difficulties as evidenced:
(1) by its commencement of a voluntary case under Title 11 of the United
States Code as from time to time in effect, or by its authorizing, by
appropriate proceeding of trustees or other governing body the
commencement of such voluntary case,
(2) by its filing an answer or other pleading admitting or failing to deny
the material
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allegations of a petition filed against it commencing an involuntary
case under said Title 11, or seeking, consenting to or acquiescing in
the relief therein provided, or by its failing to controvert timely
the material allegations of any such petition,
(3) by the entry of an order for relief in an involuntary case commenced
under said Title 11,
(4) by its seeking relief as a debtor under any applicable law, other than
said Title 11, of any jurisdiction relating to the liquidation or
reorganization of debtors or to the modification or alteration of the
rights of creditors, or by its consenting to or acquiescing in such
relief,
(5) by the entry of an order by a court of competent jurisdiction (i)
finding it to be bankrupt or insolvent, (ii) ordering or approving its
liquidation, reorganization or any modification or alteration of the
rights of its creditors, or (iii) assuming custody of, or appointing a
receiver or other custodian for, all or a substantial part of its
property, or
(6) by its making an assignment for the benefit of, or entering into a
composition with, its creditors, or appointing or consenting to the
appointment of a receiver or other custodian for all or a substantial
part of its property;
then and in any of said cases, the Landlord may, to the extent permitted by law,
immediately or at any time thereafter so long as such default remains incurred
and with reasonable demand and notice, terminate this Lease and enter into and
upon the Premises, or any part thereof in the name of the whole, or repossess
the same as of the Landlord's former estate, and expel the Tenant and
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<PAGE>
those claiming through or under the Tenant and remove its effects without being
deemed guilty of any manner of trespass, and without prejudice to any remedies
which might otherwise be used for arrears of rent or preceding breach of
covenant.
No termination or repossession provided for in this Paragraph 22 shall
relieve the Tenant or any guarantor of the obligations of the Tenant under this
Lease of its liabilities and obligations under this Lease, all of which shall
survive any such termination or repossession. In the event of any such
termination or repossession, the Tenant shall pay to the Landlord either (i) in
advance on the first day of each month, for what would have been the entire
balance of the Term, one-twelfth (1/12) (and a pro rata portion thereof for any
fraction of a month) of the Basic Rent, Additional Rent and all other amounts
for which the Tenant is obligated hereunder, less, in each case, the actual net
receipts by the Landlord by reason of any reletting of the Premises after
deducting the Landlord's reasonable expenses in connection with such reletting,
including, without limitation, removal, storage and repair costs and reasonable
brokers' and attorneys' fees, or (ii) at the option of the Landlord exercisable
by the Landlord's giving notice to the Tenant within (30) days after any such
termination, the present value (computed at a capitalization rate based upon the
so-called corporate "Base Rate" then in effect at The First National Bank of
Boston) of the amount by which the payments of Basic Rent and the Additional
Rent reasonably estimated to be payable for the balance of the Term after the
date of the exercise of said option would exceed the payments reasonably
estimated to be the fair rental value of the Premises on the terms and
conditions of this Lease over such period, determined as of such date. Landlord
shall use reasonable efforts to relet the Premises for the reasonable rental
value thereof and to collect the rent under such reletting but Landlord shall
not be liable for failure to relet the
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Premises or in the event that the Premises are relet for failure to collect the
rent under such reletting.
Without thereby affecting any other right or remedy of the Landlord
hereunder, the Landlord may, at its option, cure for the Tenant's account any
default by the Tenant hereunder which remains uncured, after the end of cure
period provided for in this Lease, and the cost to the Landlord of such cure
shall be deemed to be Additional Rent and shall be paid to the Landlord by the
Tenant with the installment of Basic Rent next accruing.
In the event that the Landlord fails to perform any of its obligation under
this Lease within thirty (30) days after notice of such default from the Tenant,
then Tenant may cure such default and any reasonable costs incurred by Tenant in
connection with such default shall be promptly reimbursed by Landlord upon
presentation with appropriate invoices.
23. Remedies Cumulative: Waivers: Attorney's Fees
---------------------------------------------
The specific remedies to which the Landlord or the Tenant may resort under
the terms of this Lease are cumulative and are not intended to be exclusive of
any other remedies or means of redress to which the Landlord or the Tenant may
be lawfully entitled under any provision of this Lease or otherwise. The
failure of the Landlord or the Tenant to insist in any one or more cases upon
the strict performance of any of the covenants of this Lease, or to exercise any
option herein contained, shall not be construed as a waiver or relinquishment
for the future of such covenant or option. A receipt by the Landlord, or
payment by the Tenant, of Basic Rent or Additional Rent with knowledge of the
breach of any covenant hereof shall not be deemed a waiver of such breach, and
no waiver, change, modification or discharge by the Landlord or the Tenant of
any provision in this Lease shall be deemed to have been made or shall be
effective
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unless expressed in writing and signed by an authorized representative of the
Landlord or the Tenant as appropriate. In addition to the other remedies in this
Lease provided, the Landlord or the Tenant shall be entitled to the restraint by
injunction of the covenants, conditions or provisions. If either party brings an
action to enforce the terms hereof or declare rights hereunder, the prevailing
party in such action, on trial or appeal, shall be entitled to its reasonable
attorney's fees to be paid by the losing party as fixed by the court.
24. Extension of Term
-----------------
The Tenant shall have the right, as its sole option, by in each instance
giving notice thereof to the Landlord at least nine (9) months prior to the
expiration of the then existing Term, to extend the Term of this Lease for one
(1) additional successive period of five (5) years (commencing upon the
expiration of the initial Term) on the same terms and conditions, except Basic
Rent, as herein set forth except that it is understood and agreed that such
extensions shall be exercisable only if at the time of exercise in each case (i)
there exists no default on the part of the Tenant under this Lease which has not
been cured within the time provided for cure hereunder and (ii) at least
seventy-five percent (75%) of the Premises is then actually occupied by the
Tenant originally named herein and any other Tenant which is a wholly-owned
subsidiary of, a corporation or other entity under common control with, or a
successor by reason of a merger, consolidation or sale of assets of, the Tenant
originally named herein. The failure to give such notice in a timely fashion
shall be deemed an irrevocable election on the part of the Tenant not to
exercise such extension option.
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<PAGE>
The Basic Rent during such extended period shall be the fair market net
rental for the Premises (not including special computer room improvements
installed by Tenant at its expense) under the terms and conditions of this Lease
for a period of five years determined as of the commencement of such extended
period. Tenant shall notify Landlord not sooner than nine (9) months prior to
the expiration of the then existing Term of its desire to enter into
negotiations to determine Basic Rent for the extended period. If the Landlord
and the Tenant are unable to agree upon the Basic Rent for such extended period
at least eight (8) months prior to its commencement, the Basic Rent for such
period shall be determined by appraisal as hereinafter provided. Within ten
(10) days after the date for commencement of appraisal proceedings pursuant to
the provisions of this Paragraph 24, the Landlord and the Tenant shall each
simultaneously give written notice to the other setting forth its "best offer"
for such annual rate of Basic Rent and designating an Appraiser (as that term is
hereinafter qualified and defined). The two Appraisers so designated shall,
within ten (10) days after their designation, select a third Appraiser and give
notice to both the landlord and the Tenant identifying the third Appraiser. The
three Appraisers shall within thirty (30) days after the selection of the third
Appraiser report to the Landlord and the Tenant in writing, informing them of
the annual rate of Basic Rent determined by them, or by a majority of them, to
be payable by the Tenant to the Landlord for the Premises during such 5-year
extended period. The Appraiser's report shall be accompanied by an explanation
of the method used to arrive at the value or values assigned and the pertinent
data (or a summary thereof) considered by the Appraisers in reaching their
decision. All expenses of the appraisal process (including Appraisers' fees)
shall be payable by the party whose "best offer" set forth in the notice as
above provided varied the most from the annual rate
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<PAGE>
of Basic Rent established in the Appraisers' report. The Appraisers shall advise
the parties which is responsible for the expenses. An "Appraiser" shall be a
person who has an MAI (Member of the Appraisal Institute) designation, is
independent of the Landlord and the Tenant, and has at least eight (8) years'
experience in appraising commercial and industrial real estate in the
metropolitan Boston area.
Notwithstanding the foregoing procedure, in no event will the Basic Rent be
less than $226,332 per year.
25. Brokers
-------
Tenant represents and warrants that it has had no dealings with any broker
or agent in connection with this Lease, other than Meredith & Grew and Lynch,
Murphy, Walsh & Partners (collectively, the "Brokers") and shall indemnify and
hold harmless Landlord from any claims for any brokerage commission other than
that of the Brokers as a result of the failure of this warranty. Landlord
represents and warrants that it has had no dealing with any broker or agent in
connection with this Lease other than the Brokers and shall indemnify and hold
harmless Tenant from any claims for any brokerage commission (including from
Brokers) as a result of the failure of this warranty. Landlord covenants and
agrees that any and all brokerage fees due to the Brokers are its sole and
exclusive obligation.
26. Notices
-------
Any notices, approvals, specifications or consents required or permitted
hereunder shall be in wiring and mailed, postage prepaid, by registered or
certified mail, return receipt requested, if to the Landlord or to the Tenant at
the address set forth herein for each, a copy of any notice to Tenant shall be
sent to Palmer & Dodge LLP, One Beacon St., Boston, MA 02108 - Attn.:
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<PAGE>
William Williams, II and if to any Mortgagee at such address as it may specify
by such notice to the Landlord and the Tenant, or at such other address as any
of them may from time to time specify by like notice to the others. Any such
notice shall be deemed given when received or, if earlier, when postal records
indicate delivery was first attempted.
27. Recording
---------
The Landlord and the Tenant hereby agree, each at the request of the other
or of any Mortgagee, promptly to execute, acknowledge and deliver in recordable
from short forms or notices of lease and notices of assignments or rents and
profits containing the date of commencement of the Term and such other
information as may from time to time be necessary under the applicable statutes
for the protection of any interest of the Landlord, the Tenant or any Mortgagee
in the Premises of this Lease.
28. Estoppel Certificates
---------------------
The Landlord and the Tenant hereby agree from time to time, each within ten
(10) days prior written notice from the other or any Mortgagee, to execute,
acknowledge and deliver, without charge, to the other party, the Mortgagee or
any other person designated by the other party, a statement in writing
certifying: that this Lease is unmodified and in full force and effect (or if
there have been modifications, identifying the same by the date thereof and
specifying the nature thereof); that to the knowledge of such party there exist
no defaults (or if there be any defaults, specifying the same); the amount of
the Basic Rent, the dates to which the Basic Rent, Additional Rent and other
sums and charges payable hereunder have been paid; and that such party to its
knowledge has no claims against the other party hereunder except for the
continuing obligations under this Lease (or if such party has any such claims,
specifying the same).
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29. Bind and Inure: Limited Liability of Landlord
---------------------------------------------
All of the covenants, agreements, stipulations, provisions, conditions and
obligations herein expressed and set forth shall be considered as running with
the land and shall extend to, bind and inure to the benefit of the Landlord and
the Tenant, which terms as used in this Lease shall include their respective
successors and assigns where the context hereof so admits.
The Landlord shall not have any individual or personal liability for the
fulfillment of the covenants, agreements and obligations of the Landlord
hereunder, the Tenant's recourse and the Landlord's liability hereunder being
limited to the Property and the Building. The term "Landlord" as used in this
Lease shall refer only to the owner or owners from time to time of the Property
or the Building, it being understood that no such owner shall have any liability
hereunder for matters arising from and after the date such owner ceases to have
any interest in the Property or the Building.
In no event shall either party be liable to the other for any special,
consequential or indirect damages suffered by the other party, whether arising
in contract or tort.
30. Captions
--------
The captions for the numbered Paragraphs of this Lease are provided for
reference only, and they do not constitute a part of this agreement or any
indication of the intentions of the parties hereto.
31. Integration
-----------
The parties acknowledge that all prior written and oral agreements between
them and all prior representations made by either party to the other have been
incorporated in this instrument or otherwise satisfied prior to the execution
hereof.
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32. Hazardous, Toxic Substances
---------------------------
The term "Hazardous Substances", as used in this Paragraph, shall include,
without limitation, flammables, explosives, radioactive materials, asbestos,
polychlorinated biphenyl's (PCB's), chemicals known to cause cancer or
reproductive toxicity, pollutants, contaminants, hazardous wastes, toxic
substances or related materials, petroleum and petroleum products, and
substances declared to be hazardous or toxic under any law or regulation now or
hereafter enacted or promulgated by any governmental authority.
Tenant shall not cause or permit to occur:
(a) Any violation of any federal, state, or local law, ordinance, or
regulation now or hereafter enacted, related to environmental
conditions, under, or about the Premises arising from Tenant's use or
occupancy of the Premises, including, but not limited to, soil and
ground water conditions; or
(b) The use, generation, release, manufacture, refining, production,
processing, storage, or disposal (including, without limitation, any
by-products of Tenant's manufacturing operations) of any Hazardous
Substance on, under, or about the Premises, or the transportation to
or from the Premises of any Hazardous Substance, except for such
substances and materials which are used in connection with the
operations of the Tenant permitted under this Lease and which shall be
used, stored, handled and disposed of both individually and in the
aggregate solely in accordance with all Laws.
In furtherance of Tenant's obligations under this Lease and not in limitation
thereof, Tenant covenants and agrees as follows:
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<PAGE>
(a) Tenant shall, at Tenant's expense, comply with all laws regulating its
use, generation, storage, transportation, or disposal of Hazardous
Substance (the "Laws").
(b) Tenant shall, at Tenant's expense, make all submissions to, provide
all information required by, and comply with all requirements of all
governmental authorities (the "Authorities") under the Laws.
(c) If a clean-up is required under any Law because of any deposit, spill,
discharge, or other release of Hazardous Substances that occurs during
the Term, at or from the Premises which is caused by Tenant's action
or omission, then Tenant shall, at Tenant's expense, prepare and
submit the required plans and all related bonds and other financial
assurances; and Tenant shall carry out all work required by such
clean-up plans under the Laws.
(d) Tenant shall promptly provide all information regarding the use,
generation, storage, transportation or disposal of Hazardous
Substances that it reasonably requested by Landlord. If Tenant fails
to fulfill any duty imposed under this Paragraph, within a reasonable
time, Landlord may do so; and in such case, Tenant shall reasonably
cooperate with Landlord in order to prepare all documents Landlord
deems reasonably necessary or appropriate to determine the
applicability of the Laws to the Premises and Tenant's use thereof,
and for compliance therewith, and Tenant shall execute all documents
which are deemed reasonably satisfactory by Tenant's legal counsel
promptly upon Landlord's request. No such action by Landlord and no
attempt made by Landlord to
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<PAGE>
mitigate damages under any Law shall constitute a waiver of any of
Tenant's obligations under this Paragraph.
Tenant shall indemnify, defend, and hold harmless Landlord and its
officers, directors, shareholders and all of their respective agents and
employees from all fines, suits, procedures, claims, and actions of every kind
and all costs, associated therewith (including attorneys and consultants fees)
arising out of or in any way connected with any deposit, spill, discharge, or
other release of Hazardous Substances caused by Tenant's action or omission that
occurs during the Term at or from the Premises, or from Tenant's failure to
provide all information, make all submissions, and take or refrain from taking
all actions required by all Authorities under the Laws and all other
environmental laws. Landlord shall give Tenant prompt written notice of any
claim or suit which it has a right to indemnification hereunder. Landlord shall
(at Tenant's expense) render Tenant all reasonable assistance requested by
Tenant in the defense or settlement of any such claim or suit. Neither party
shall pay any such claim, or settle any such suit, without the prior written
consent of the other party, which shall not be unreasonably withheld. Tenant's
obligations and liabilities under this Paragraph shall survive the expiration or
termination of this Paragraph.
Landlord, to the best of its knowledge, is not aware of any Hazardous
Substances which have been released on the Property.
Tenant shall not be responsible under this Lease in any respect whatsoever
for any condition involving Hazardous Substances which may exist as of the date
of execution and delivery of this Lease or which was not caused by Tenant.
38
<PAGE>
33. Severability: Choice of Law
---------------------------
If any provision of this Lease shall be declared to be void or
unenforceable either by law or by court of competent jurisdiction, the validity
or enforceability of the remaining provisions shall not thereby be affected.
34. Financial Statements
--------------------
If requested by Landlord in connection with a financing or sale, Tenant
shall furnish to Landlord and to any holder of a mortgage on the Premises as
Landlord may designate by notice to Tenant, a copy of its most recent annual
report(s) and/or quarterly filings with the SEC.
35. Early Cancellation Right
------------------------
The Tenant, at its option, shall have a one-time right to cancel this
Lease effective at the end of the fifth (5/th/) year of the Term by providing a
written notice and a cancellation fee of $103,000 to the Landlord at least nine
(9) months prior to the end of the fifth year of the Term.
36. Right to Lease Additional Space in the Building
-----------------------------------------------
The Landlord is currently leasing to Boston Technology, Inc. 24,995
rentable square feet on the Lower Level and 25,622 rentable square feet on Floor
1 (the "Additional Space"), of part of the Building not included in the
Premises. The Landlord agrees that if during the Term of this Lease such lease
to Boston Technology, Inc. shall expire or be terminated for any reason and the
Additional Space shall become vacant, and if at the time (i) there exists no
default on the part of the Tenant under this Lease which has been cured within
any time provided for cure hereunder, and (ii) at least seventy-five percent
(75%) of the rentable floor area of the Premises is then actually occupied for
its business purposes by the Tenant originally named herein (or any other Tenant
which is a parent or wholly-owned subsidiary of a corporation or other entity
under
39
<PAGE>
common control with, or a successor by reason of merger, consolidation or sale
of substantially all the assets of the Tenant originally named herein), the
Landlord shall, before executing any contract to lease the Additional Space,
first offer to lease the Additional Space to the Tenant on terms, economic and
otherwise, for the balance of the Term of this Lease which the Landlord shall
determine at its sole election, based on its estimate of the fair market value
(the "Offer"). The Tenant may accept the offer for either a) all the Additional
Space or, b) only the Lower Level of the Additional Space. The Offer shall be
accepted by the Tenant's giving notice to the Landlord within ten (10) days
after receipt by the Tenant of such offer. If the Tenant shall not give timely
and proper notice accepting the Offer or if for any reason such a lease of the
Additional Space is not executed and delivered between the Landlord and the
Tenant within twenty (20) days following the Tenant's notice accepting the
Offer, the Landlord shall have no further obligation to the Tenant with respect
to the Additional Space, provided however, that if the Tenant does give timely
and proper notice accepting the Offer the Landlord and the Tenant agree to use
good faith efforts to amend this Lease to add such Additional Space to the
Premises and to execute such amendment during such twenty (20) day period.
It is expressly understood between the Landlord and the Tenant that the
provisions of the Section 36 (i) are applicable only in connection with the
expiration or termination of the Boston Technology, Inc. lease as it may be
extended of the Additional Space and not to any subsequent leases of the
Additional Space; and (ii) without affecting any claim by the Tenant against the
Landlord, shall for the benefit of third parties be conclusively deemed
satisfied by the Landlord or waived by the Tenant upon the recording or filing
for registration of an affidavit to the effect by the Landlord.
40
<PAGE>
This Lease is made under, and shall be construed in accordance with the
laws of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed in duplicate under seal as of the date first above written.
LANDLORD
/s/ William J. Callahan
------------------------------------------
William J. Callahan, Trustee as aforesaid
And not individually
/s/ William J. Callahan Jr.
------------------------------------------
William J. Callahan, Jr., Trustee as aforesaid
And not individually
TENANT
CMG INFORMATION SERVICES, INC.
By: /s/ Andrew J. Hajducky
---------------------------------------
Name
Title
41
<PAGE>
EXHIBIT A
Lot 3, as shown on the plan entitled "'Woodland Park' a subdivision in
Andover, Mass," dated February 23, 1987, Owners Andover Park Realty Trust, by
BSC - Bedford and John G. Crow Assoc., Inc., Peter S. Swanson, recorded with the
Essex County (North District) Registry of Deeds on May 26, 1987 as Plan No.
10726; together with the fee interest to the center line of Federal Street,
along the entire length of Lot 3; together with the right to use, in common with
others, the entire length of Federal Street for all purposes for which public
streets may be used in the Town of Andover.
42
<PAGE>
EXHIBIT A
---------
[Woodland Park, Andover, Massachusetts-Site Plan]
43
<PAGE>
EXHIBIT A-1
-----------
[BUILDING NO. 3 WOODLAND PARK-FIRST FLOOR PLAN]
44
<PAGE>
EXHIBIT 10.6
400 MINUTEMAN ROAD
ANDOVER, MASSACHUSETTS
LEASE
LANDLORD: 400 RIVER LIMITED PARTNERSHIP, a Massachusetts limited
partnership
TENANT: NAVISITE, INC., a Delaware corporation
DATE: May 14, 1999
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. BASIC LEASE PROVISIONS.............................................. 1
----------------------
2. CONSTRUCTION OF PREMISES............................................ 2
------------------------
3. POSSESSION AND SURRENDER OF PREMISES................................ 3
------------------------------------
4. TERM................................................................ 3
----
5. RENT................................................................ 3
----
6. TAXES............................................................... 3
-----
7. OPERATING COSTS..................................................... 4
---------------
8. INSURANCE........................................................... 4
---------
9. MONTHLY PAYMENT OF TAXES, OPERATING COSTS AND INSURANCE PREMIUMS.... 5
----------------------------------------------------------------
10. UTILITIES........................................................... 5
---------
11. USE OF PREMISES..................................................... 5
---------------
12. MAINTENANCE AND REPAIRS............................................. 6
-----------------------
13. ALTERATIONS......................................................... 6
-----------
14. INDEMNITY; SATISFACTION OF REMEDIES................................. 7
-----------------------------------
15. PARKING............................................................. 7
-------
16. DAMAGE OR DESTRUCTION............................................... 8
---------------------
17. CONDEMNATION........................................................ 8
------------
18. ASSIGNMENT AND SUBLETTING........................................... 9
-------------------------
19. MORTGAGEE PROTECTION................................................ 10
--------------------
20. ESTOPPEL CERTIFICATES............................................... 11
---------------------
21. DEFAULT............................................................. 11
-------
22. REMEDIES FOR DEFAULT................................................ 11
--------------------
23. [SEE EXHIBIT "F"]................................................... 12
24. GENERAL PROVISIONS.................................................. 12
------------------
25. HAZARDOUS SUBSTANCES................................................ 16
--------------------
SIGNATURES............................................................... 17
</TABLE>
EXHIBIT LIST
------------
"A" Premises Site Plan
"B" Legal Description
"B-1" Collection Agreement
"C" Workletter
"CC" Tenant Information
"D" Base Rent
"E" Current Rules and Regulations
i
<PAGE>
"F" Bankruptcy Provisions
"G" Pylon Signage
"H" Lender's Terms
"I" Subordination, Non-disturbance and Attornment Agreements
Rider #1 Expansion Option
Rider #2 Extension Options
Rider #3 Additional Terms
ii
<PAGE>
INDEX
-----
<TABLE>
<CAPTION>
Term Page Section or Exhibit
- ---- ---- ------------------
<S> <C> <C>
Acquiring Entity........................................... 16 24.18(ax)
Additional Letter of Credit................................ 15 24.17A(i)
Additional Parking Areas................................... 7 15.2
Additional Security........................................ 15 24.17A
Affiliates................................................. 16 24.18(a)
Alterations................................................ 6 13.1
Bankruptcy................................................. Page 1 of 1 Exhibit "F"
Base Rent.................................................. 1 1.1(e)
Building................................................... 1 1.1(d)
Condemned.................................................. 8 17
default.................................................... 11 21
Expansion Parking.......................................... 7 15.2
Family Entity.............................................. 16 24.18(bx)
Family Sublease............................................ 16 24.18(bxx)
Guarantor.................................................. 2 1.1(k)
hazardous substances....................................... 16 25(a)
Landlord................................................... 1, 13 opening (P), 24.12
Landlord's Mortgagee....................................... 10 19.1
Landlord's Work............................................ 2, Page 1 of 1 2, Exhibit "C"
Laws....................................................... 16 24.18(b)
Lease Year................................................. 3 4(a)
Letter of Credit........................................... 1, 14 1.1(g); 24.17
Letter of Credit Loan...................................... 14 24.17(b)
Liabilities................................................ 16 24.18(c)
Liens...................................................... 7 13.4
Notices.................................................... 14 24.16
Operating Costs............................................ 4 7.1
person..................................................... 14 24.14
Premises................................................... 1 1.1(c)
rent....................................................... 3 5(a)
Rent Commencement Date..................................... 1 1.1(a)
Superior Leases and Mortgages.............................. 12 24.4
Systems and Equipment...................................... 16 24.18(d)
Taxes...................................................... 3 6
Tenant..................................................... 1 opening (P)
Tenant Delays.............................................. Page 1 of 1 Exhibit "C"
Tenant's Broker............................................ 2 1.1(l)
Tenant's Property.......................................... 3 3
Tenant's Percentage........................................ 1 1.1(f)
Tenant's Work.............................................. 2, Page 1 of 1 2, Exhibit "C"
Term....................................................... 1 1.1(b)
Transfer................................................... 9 18.1
Use of Premises............................................ 1 1.1(h)
</TABLE>
iii
<PAGE>
LEASE
-----
THIS INDENTURE OF LEASE, dated as of ________________________, 1999, is
between 400 RIVER LIMITED PARTNERSHIP, a Massachusetts limited partnership
("Landlord"), and NAVISITE, INC. a Delaware corporation ("Tenant").
Landlord leases the Premises to Tenant and Tenant leases the Premises from
Landlord on the following terms and conditions:
1. BASIC LEASE PROVISIONS.
----------------------
1.1 Summary.
-------
(a) Rent Commencement Date: The Rent Commencement Date will be the
later of: (i) February 1, 2000; or (ii) the date that is the earlier of: (x) the
-------
date that Tenant occupies the Building to conduct business, or (y) the date that
Landlord's Work is deemed to have been substantially completed as described in
Article 2.
(b) Term: The term will start on the date of this Lease and will
expire twelve (12) Lease Years after the Rent Commencement Date has occurred,
subject to extension as provided in Section 4(b) and Rider #2 or earlier
termination in accordance with this Lease. At Landlord's written request, Tenant
promptly will execute and deliver a written confirmation of the Rent
Commencement Date, but Tenant's failure to do so will not affect the actual Rent
Commencement Date.
(c) Premises: The land (the "Land") located in Minuteman Park in
Andover, Massachusetts, generally as depicted in Exhibit "A" and legally
described in Exhibit "B", and all improvements now or hereafter constructed on
the Land. Tenant acknowledges and agrees that Landlord retains the right to
reconfigure the boundary lines of the Land generally as set forth in Exhibit
"A", and upon such reconfiguration Exhibit "A" will be replaced with a more
accurate depiction of the Land as reconfigured, and Exhibit "B" will be replaced
with a new legal description of the Land as reconfigured, and the Land will
consist of the Land as reconfigured, provided that such reconfiguration will not
cause the Premises to violate applicable Laws nor will it reduce the parking
spaces allocated to Tenant under this Lease nor will it prevent a potential
expansion of the Premises in accordance with Rider #1.
(d) Building: The building, agreed to contain 153,000 square feet of
rentable area (including, without limitation, ground floor, second floor,
rooftop penthouse, lobby, atrium, and core areas), and associated improvements
to be constructed by Landlord on the Land pursuant to this Lease, as it may be
initially constructed and subsequently changed, enlarged or improved in the
future.
(e) Base Rent: (see Exhibit "D", which in turn is subject to Rider
#2).
(f) Tenant's Percentage: One Hundred Percent (100%).
(g) Letter of Credit: [See Sections 24.17 and 24.17A].
(h) Use of Premises: For general office purposes, for a data center,
and for the packaging, creation and duplication of computer software, light
assembly, testing, configuring computer hardware, and training (but no
manufacturing), including diesel holding tanks, chillers and diesel generators
necessary for the operation of a data center.
(i) Notice to Tenant:
(Before Occupancy)
NaviSite, Inc.
100 Brickstone Square
Andover, Massachusetts 01810
Attn: Chief Financial Officer
(After Occupancy)
NaviSite, Inc.
<PAGE>
400 Minuteman Road
Andover, Massachusetts 01810
Attn: Chief Financial Officer
As long as CMGI, Inc. is the Guarantor, with a copy to:
--------------
CMGI, Inc.
100 Brickstone Square
Andover, Massachusetts 01810
Attn: William Williams II, Esq., General Counsel
With a copy to:
--------------
Pamela Coravos, Esq.
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
(j) Notice to Landlord:
400 River Limited Partnership
200 Brickstone Square
Andover, Massachusetts 01810
Attn: Martin Spagat
With a Copy to:
---------------
The Brickstone Companies
2101 Rosecrans Avenue, Suite 5252
El Segundo, California 90245-4742
Attn: John G. Baker, Esq.
(k) Guarantor: CMGI, Inc., pursuant to a Guaranty of Lease.
(l) Tenant's Broker: CRF Partners, Inc.
(m) Certain Other Defined Terms: [See Section 24.18]
If there is a conflict between this summary and the rest of this Lease, the rest
of this Lease will control.
1.2 Premises. Exhibit "A" is the general site plan of the Land, the
--------
Building and the other improvements and areas that are now planned as part of
the Premises. The parties acknowledge and agree that this site plan is general
in nature and thus may differ somewhat from the actual Building and Premises as
constructed. Landlord will not, without Tenant's consent, construct new leasable
area in the Premises or additional parking not for Tenant's use (except for the
Additional Parking Areas)
1.3 Wiring. To the extent that it does not damage Landlord's Work and/or
------
existing Systems and Equipment or the rest of the Building, Tenant, at its cost,
may install wiring for its computers and equipment above hung ceilings and
within the interior walls of the Building, provided that Tenant otherwise
complies with the rest of this Lease and that Landlord will have no obligations
or Liabilities in connection therewith. Tenant will indemnify and hold Landlord
harmless from Liabilities in connection with this wiring and installation,
maintenance and removal. Tenant will maintain the wiring.
2. CONSTRUCTION OF PREMISES.
------------------------
(a) Landlord will diligently perform "'Landlord's Work" and Tenant will
diligently perform "'Tenant's Work" in accordance with Exhibit "C" and the rest
of this Lease. Landlord's Work will be deemed to have been substantially
completed, even if Landlord has not completed "punchlist" or other minor items,
as long as Landlord agrees to complete these items diligently and as long as
such completion shall not materially interfere with Tenant's use and occupancy
of the Premises to conduct business. Tenant's final punchlist will be submitted
to Landlord within forty five (45) days after Landlord notifies Tenant that
Landlord's Work is substantially completed. Substantial completion of Landlord's
Work
2
<PAGE>
will be deemed to have occurred on the date as of which Landlord's architect
certifies in good faith that Landlord's Work has been substantially completed
(or the date as of which it could have been completed but for delays for which
Tenant is responsible as described in Exhibit "C"). Subject to extension by
reason of delays for which Tenant is responsible and force majeure, Landlord
will diligently attempt to substantially complete Landlord's Work for the
Building: to a level that will permit Tenant's contractors to enter during the
month of October, 1999 or earlier (with the continuing right to enter thereafter
in accordance with this Lease), in order to perform portions of Tenant's Work
for the Ground Floor of the Building; and so that all of Landlord's Work for the
Building is substantially completed during the month of February, 2000. If
Landlord's Work is not deemed to have been substantially completed and Tenant
does not occupy the Building to conduct business within eighteen (18) months
after this Lease becomes effective (not including delays for which Tenant is
responsible, and which period shall be extended for up to an additional six (6)
months for force majeure), Tenant will have the right to terminate this Lease on
at least thirty (30) days prior written notice, which notice must be given
within thirty (30) days after the end of such period (as it may be extended);
provided, however, that if Landlord's Work is deemed to have been substantially
- -------- -------
completed or Tenant occupies to conduct business before the end of the period
specified in the termination notice, the termination notice and Tenant's
termination right will be null and void and this Lease will continue in full
force and effect. Tenant also will deliver to Landlord in a timely manner the
information to be provided by Tenant as described in Exhibit "CC" hereto, and
any other information reasonably requested of Tenant by Landlord to enable
Landlord to design and perform Landlord's Work.
(b) Tenant understands that Landlord's ability to obtain permanent mortgage
financing for the Premises likely will be conditioned on the diligent
performance and completion of Tenant's Work and Tenant's substantial occupancy
of the data center and the rest of the Building to conduct business as soon as
reasonably possible after the completion of each of those areas, and therefore
Tenant agrees to so complete Tenant's Work and to so occupy.
(c) Subject to the terms of this Section and the rest of this Lease,
Landlord will use good faith, diligence and commercially reasonable efforts to
perform and complete Landlord's Work in a good and workmanlike manner subject to
and in compliance with applicable Laws then in effect.
(d) Provided that the conditions stated below all are satisfied, Tenant
will have the right to purchase at "par" (i.e., a net payment to the lender at
closing of the entire outstanding principal balance, all accrued but unpaid
interest, and all other sums due under the Construction Loan documents) the
first mortgage construction loan encumbering the Premises (and associated
collateral) that will provide construction financing for Landlord's Work (the
"Construction Loan") and thereafter to complete Landlord's Work and Tenant's
Work. The conditions to be satisfied are: Landlord has defaulted under the
Construction Loan, and Landlord's default did not result in whole or in any
material part from Tenant's breach of its obligations under this Lease
(including, without limitation, a failure to comply with the terms of Section
24.17) and Tenant is not in default; Landlord has failed to cure its default
under the Construction Loan within applicable grace and cure periods; as a
result of such default, the lender notifies the applicable parties in writing
that it refuses to advance any further funds under the Construction Loan and
refuses to permit Landlord and/or Gilbane Building Company (or their respective
affiliates) to continue with the performance of Landlord's Work and in fact as a
result thereof construction of Landlord's Work ceases for at least thirty (30)
consecutive days; Tenant notifies Landlord in writing of its intention to
purchase the Construction Loan and Landlord fails to commence and thereafter
diligently continue construction of Landlord's Work within thirty (30) days
after receipt of Tenant's notice; Tenant's purchase of the Construction Loan is
accomplished pursuant to documents approved by the lender of the Construction
Loan. The terms of the Construction Loan will provide for the foregoing or will
provide other terms relating to Tenant's purchase of the Construction Loan as
the parties may approve and will in any event be non-recourse to the lender
without any warranty, express or implied, by the lender.
3. POSSESSION AND SURRENDER OF PREMISES.
------------------------------------
When this Lease terminates, Tenant will remove all of its signs, movable
trade fixtures and movable computer and other equipment (and wiring integral to
such computers and equipment), inventory and other personal property that is not
attached to the Building in such a manner as to cause substantial damage to the
Building when it is removed ("Tenant's Property"). Notwithstanding the foregoing
or anything else to the contrary, Tenant need not remove Tenant's Property from
the ground floor data center area, Tenant will not have the right to remove
raised flooring that is Tenant's Property if the Lease terminates by reason of
any default by Tenant (but if there is not a default Tenant will have the right
to remove raised flooring in the Ground Floor data center area on the
termination of the Lease), and Tenant will not have the right to remove any
ceilings, or any equipment or wiring that would damage the exterior or the
structure of the Building or that is integral to or necessary for the proper
functioning of the base building Systems and Equipment in the Building. Tenant's
Property remaining after termination will be deemed abandoned and Landlord may
keep, sell, destroy or dispose of it without incurring any Liabilities to
Tenant. In areas of the Building other than the data center, Tenant will repair
all damage and surrender the Premises broom clean and in good order, condition
and repair, and otherwise in the same condition as on the completion of the
initial Landlord's Work and the initial Tenant's Work, normal wear and
3
<PAGE>
tear excepted. In the data center, Tenant will repair only damage to the
exterior or structure of the Building or the base building Systems and
Equipment.
4. TERM.
----
(a) The Lease term is as set forth in Section 1.1(b). A "Lease Year" is a
period of twelve (12) consecutive calendar months during the Lease term starting
with the Rent Commencement Date. However, the first Lease Year is the first
twelve (12) full calendar months plus the partial month (if any) after the Rent
Commencement Date if the Rent Commencement Date is not the first day of the
month, and the last Lease Year may be less than twelve (12) months if the Lease
is terminated early or if the expiration date does not fall on the end of the
12-month period.
(b) If necessary, the initial term of this Lease will be deemed extended
(but not shortened) so that the initial term of this Lease will expire twelve
(12) years (plus any partial month) after the closing and funding of the initial
permanent mortgage loan that is secured by the Premises or any portion thereof;
provided, however, that the initial term of this Lease will not be extended by
more than nine (9) months by reason of this clause (not counting any delay in
such closing or funding due to Tenant's failure to complete Tenant's Work). At
Landlord's request, Tenant promptly will execute a written confirmation of the
new expiration date of the initial term, although Tenant's failure to execute
such a confirmation will not affect the actual (extended) expiration date of the
initial Lease term.
5. RENT.
----
(a) Tenant will pay the annual base rent as shown in Exhibit "D" (which in
turn is subject to Rider #2) in equal monthly installments in advance beginning
on the Rent Commencement Date and thereafter on the first day of each month
during the term, prorated for any portion of a month. The term "rent" includes
base rent, additional rent and all other amounts to be paid by Tenant under this
Lease, whether or not specifically described as rent. Subject to Subsection (b)
below, all rent due under this Lease will be paid without demand, deduction,
counterclaim or offset of any type in lawful U.S. legal tender at 2101 Rosecrans
Avenue, Suite 5252, El Segundo, CA 90245-4742, Attn: Accounting Dept., or to
such other person or place as Landlord may from time to time designate by
written notice pursuant to this Lease. Tenant will pay the first month's base
rent when it executes this Lease.
(b) If and for so long as there is a mortgage loan encumbering the
Premises or a loan that is secured by the Letter of Credit, at the written
request of Landlord or Tenant, Landlord and Tenant will establish a collection
account for the receipt and disbursement of base rent. In such event, Tenant
will pay the base rent as and when required each month into this collection
account, and the collection agent promptly will disburse from such amount an
amount sufficient to pay debt service and any other amounts owed to the mortgage
lender and/or the lender of the loan secured by the letter of credit, with the
balance being disbursed to Landlord. The collection agent and the terms of this
collection account will be subject to the mutual written approval of Landlord
and Tenant, which approval will be based on customary terms for such agreement
and will not be unreasonably withheld or delayed. The parties agree to the Bank
of America or the Bank of Boston as collection agent, and to a collection
agreement in form substantially similar to the one attached as Exhibit "B-1."
6. TAXES.
-----
6.1 Definition of Taxes. "Taxes" means all taxes, assessments, and other
-------------------
governmental or quasi-governmental levies, charges and fees imposed against, for
or in connection with all or any portion of: the Premises; the use, ownership,
leasing, occupancy, operation, management, repair, maintenance, demolition or
improvement of the Premises; Landlord's right to receive, or the receipt of,
rent, profit or income from the Premises; improvements, utilities and services,
whether because of special assessment districts or otherwise; the value of
Landlord's interest in the Premises; a reassessment due to any change in
ownership or other transfer of all or any portion of the Premises; and fixtures,
equipment and other real or personal property used by Landlord in connection
with the Premises. Taxes also include, without limitation, license fees, sales,
use, capital and value-added taxes, penalties, interest and costs incurred in
contesting taxes, and any governmental or quasi-governmental charges or taxes in
addition to, in substitution or in lieu of, partially or totally, any taxes or
charges previously included within this definition, including taxes or
governmental or quasi-governmental charges completely unforeseen by the parties
and collected from whatever source. Taxes do not include: Landlord's federal,
--------------------
state or municipal net income, franchise, excise, inheritance, gift or estate
taxes.
6.2 Payment of Taxes. Subject to Article 9, as of the Rent Commencement
----------------
Date Tenant will pay its Tenant's Percentage of all Taxes directly to Landlord
as additional rent within thirty (30) days after receipt of Landlord's bills
from time to time.
4
<PAGE>
6.3 Tenant's Taxes. Tenant will pay before delinquency all taxes
--------------
assessments, license fees and charges levied, assessed or imposed on Tenant,
Tenant's business operations and Tenant's Property.
7. OPERATING COSTS.
---------------
7.1 Definition of Operating Costs. "Operating Costs" are all costs and
-----------------------------
expenses incurred in connection with the Premises and its ownership, operation,
management, maintenance, repair, replacement and improvement, including, without
limitation, costs for: services, costs and utilities not otherwise directly paid
or reimbursed by Tenant; materials, supplies and equipment; deductibles under
Landlord's insurance policies; wages and payroll, including bonuses, (all of
which, for existing employees, will not increase by more than ten percent (10%)
per annum, cumulative, and, for employees subsequently hired, will not increase
by more than ten percent (10%) per annum, cumulative, over their initial wages
and payroll, including bonuses); fringe benefits, workers compensation and
payroll taxes; professional and consulting fees; management fees equal to three
percent (3%) of all scheduled rent (including, without limitation, base rent,
Taxes, Operating Costs, insurance costs and additional rent payable by Tenant
and without giving effect to any abatements or reductions) or, if no managing
agent is retained, an amount in lieu thereof not in excess of the foregoing
rates; complying with any Laws and insurance requirements; "environmental
audits" deemed necessary by Landlord (but no more than once per year),
snowplowing, landscaping and roadway maintenance, and costs payable in
connection with any easements or covenants, conditions and restrictions or
similar agreements that benefit or burden the Premises. Operating Costs do not
----------------------
include: Taxes or the exclusions therefrom; depreciation
- -------
of the Premises structures and improvements; Landlord's loan fees, points, debt
service or ground lease payments, or costs incurred in negotiating of any of the
underlying documents in connection therewith; the cost of Landlord's Work; costs
(if any) for the construction, signalization, widening or improvement of public
roads or bridges or traffic mitigation (except for transportation management
programs or compliance therewith, which will be equitably allocated to the
property or properties affected) that have been committed to by Landlord in
connection with the existing MEPA Certificate of Compliance and the Special
Permit obtained for the Premises; expenses for repairs or maintenance to the
extent reimbursed by warranties, guarantees, service contracts or insurance
proceeds (net of costs of enforcement and/or collection); costs involved in
defending Landlord's title to or interest in the Project; costs to influence
prospective legislation; costs otherwise directly paid or specifically
reimbursed by Tenant (other than by an allocation of Operating Costs), such as
separately metered electricity payable directly by Tenant to the utility
company; brokerage commissions; marketing costs; and costs to construct new
leasable area or parking areas in the Premises that are not for use by Tenant.
The following costs will be included in Operating Costs, but amortized over the
useful life of the applicable item or twelve (12) years, whichever is less,
assuming straight-line amortization and an interest rate of ten percent (10%)
per annum: the replacement of the Building's major structural members (as
opposed to the cost of the repair and maintenance thereof, which will not be
---
amortized and will be fully included as part of Operating Costs when incurred);
and the cost of replacing the Building's roof (as opposed to the cost of the
repair and maintenance thereof, which will not be amortized will be fully
---
included as part of Operating Costs when incurred). However, in either case, if
such replacement is required due to Tenant's failure to properly repair or
maintain or the negligent or intentional acts or omissions of Tenant or its
Affiliates, Tenant will pay all costs in connection therewith as and when
incurred, less the net amount of any insurance proceeds collectible on account
thereof.
7.2 Payment of Operating Costs. Subject to Article 9, as of the Rent
--------------------------
Commencement Date Tenant will pay its Tenant's Percentage of Operating Costs
described in Section 7.1, as additional rent within thirty (30) days after
receipt of Landlord's bills from time to time.
8. INSURANCE.
---------
8.1 Tenant's Insurance.
------------------
(a) Tenant will maintain during the term:
(i) Commercial general liability insurance (Broad Form CGL),
with contractual liability, cross-liability and fire legal liability
endorsements, protecting against all claims and liabilities for personal, bodily
and other injuries, death and property damage including, without limitation,
broad form property damage insurance, automobile and personal injury coverage.
This insurance also will insure Tenant's indemnities pursuant to this Lease. The
amount of this insurance will not be less than $10,000,000.00 combined single
limit for each occurrence.
(ii) "All risk" casualty insurance, covering all of Tenant's
Work, Tenant's Property and all Alterations made by or for the benefit of
Tenant. This insurance will be for full replacement value.
(iii) [INTENTIONALLY OMITTED]
5
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(iv) Worker's compensation insurance in statutory limits, and
employer's liability insurance of not less than $1,000,000.00.
(v) Builder's risk insurance (completed value form) for work
required of or permitted to be made by Tenant. The amount of this insurance will
be reasonably satisfactory to Landlord and must be obtained before any work is
begun.
(b) All policies of insurance carried by Tenant must: name Landlord
and its designees as additional insureds; contain a waiver by the insurer of any
right to subrogation against Landlord and its Affiliates; be from insurers
acceptable to Landlord; and state that the insurers will not cancel, fail to
renew or modify the coverage without first giving Landlord and any other
additional insureds at least thirty (30) days prior written notice.
(c) Tenant will supply copies of each paid-up policy or a certificate
from the insurer certifying that the policy has been issued and complies with
all of the terms of this Article. The policies or certificates will be delivered
to Landlord when this Lease is signed and renewals provided not less than thirty
(30) days before the expiration of the coverage. Landlord always may inspect and
copy any of the policies. Tenant waives any right to recover against Landlord
for Liabilities in connection with any type of cause or peril which is supposed
to be insured against under the insurance policies required to be maintained by
Tenant.
8.2 Landlord's Insurance; Payment; and Waiver of Subrogation.
--------------------------------------------------------
(a) Landlord will maintain casualty insurance of at least ninety
percent (90%) of the full replacement cost of the Building and other
improvements in the Premises (excluding foundations, footings and below-grade
space), with either no deductibles or deductibles that do not exceed
commercially reasonable amounts, commercial general liability insurance (Broad
Form CGL or the functional equivalent) of at least Five Million Dollars
($5,000,000), and other insurance policies in such amounts, with such
deductibles and providing protection against such perils as Landlord determines
to be necessary in its sole discretion (which may include, without limitation,
rental loss insurance policies). All losses on all policies maintained pursuant
to this Article will be settled in Landlord's name (or as otherwise designated
by Landlord) and proceeds will belong and be paid to Landlord. Landlord makes no
representations or warranties as to the adequacy of any insurance to protect
Landlord's or Tenant's interests. Landlord's insurance policies will contain
waivers of subrogation.
(b) Subject to Article 9, Tenant will pay directly to Landlord as
additional rent Tenant's Percentage of the cost of all premiums for Landlord's
insurance for the Premises within thirty (30) days after receipt of Landlord's
bills from time to time.
(c) Tenant and its Affiliates will not undertake, fail to undertake
or permit any acts or omissions which will in any way increase the cost of,
violate, void or make voidable all or any portion of any insurance policies
maintained by Landlord, unless Landlord gives its specific written consent and
Tenant pays all increased costs directly to Landlord on demand.
9. MONTHLY PAYMENT OF TAXES, OPERATING COSTS AND INSURANCE PREMIUMS.
----------------------------------------------------------------
At any time and from time to time, and subject to later change, Landlord
may elect to have Tenant pay Tenant's share of Taxes, Operating Costs and
Landlord's insurance premiums (or any of them) in monthly installments, in
advance on the first of each month, based on amounts estimated by Landlord (as
revised from time to time). If these estimated monthly payments are required,
after the end of each tax fiscal year, Lease Year or other relevant periods
selected by Landlord, Landlord will deliver to Tenant a statement of the actual
amounts due for the period. Any additional amounts due from Tenant will be
payable as additional rent within thirty (30) days after receipt of Landlord's
statement, and any overpayment by Tenant will be refunded by Landlord or
deducted from the next monthly installments due for that particular payment
category. Quarterly, or less frequently, Landlord may deliver a bill to Tenant
for Tenant's share of Taxes, Operating Costs or insurance premiums, and Tenant
will pay the amount due to Landlord as additional rent within thirty (30) days
after receipt of Landlord's bill. Tenant will receive a credit for any estimated
monthly payments already paid by Tenant for the period covered by that bill. If
required by Landlord's lenders, estimated monthly payments of Taxes and/or
Operating Costs and/or insurance premiums will be escrowed with Landlord's
lenders.
10. UTILITIES.
---------
Landlord will be solely responsible for bringing utility services to the
Premises to the extent provided as part of Landlord's Work. Tenant will pay when
due to the furnishing parties all fees and costs for utility services, and
meters and equipment (to the extent not supplied as part of Landlord's Work),
furnished to the Building and the rest of the Premises, including, without
limitation, telephone, electricity, HVAC, sewer, water and gas (if furnished).
If utilities and services for the Premises are not separately metered or
charged, Tenant will pay its share (as reasonably determined by Landlord) of
such costs directly to Landlord as additional rent, either monthly when base
rent is due, or within fifteen (15) days after receipt of Landlord's bill, at
Landlord's option. Landlord is not responsible for any Liabilities incurred by
6
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Tenant or Tenant's Affiliates nor may Tenant abate rent, terminate this Lease or
pursue any other right or remedy against Landlord or Landlord's Affiliates, as a
result of any termination or malfunction of any utilities or utility systems.
11. USE OF PREMISES.
---------------
Tenant will use the Premises for the purposes described in Section 1.1(h),
but for no other purpose. Tenant will:
(a) Operate its business in an attractive and first class manner.
Tenant will not permit any unreasonable (for a data center) noises, vibrations,
odors or fumes in or to emanate from the Premises, nor commit or permit any
waste, improper, immoral or offensive use of the Premises, any public or private
nuisance or anything that unreasonably disturbs the quiet enjoyment of
neighboring occupants. In particular, Tenant agrees that except in emergencies,
it will make commercially reasonable efforts not to test or "test fire" its
backup generators except on Sundays or before or after normal business hours for
neighboring office tenants. All deliveries and pickups must be conducted at
times and in a commercially reasonable manner and so as not to unreasonably
disturb neighboring occupants. All trash and waste products must be stored,
discharged, processed and removed in a commercially reasonable manner and so as
not to unreasonably disturb neighboring occupants, and so as not to be visible
to other occupants of Minuteman Park or create any health or fire hazard.
(b) As long as 400 River Limited Partnership or an affiliated entity
or an entity affiliated with Niuna-400 River, Inc. or its current shareholders
or officers owns part of Minuteman Park or an interest therein, install only
window coverings and treatments approved by Landlord and, once installed, keep
them sufficiently closed to shield from outside view any machinery or other
equipment that Landlord determines is unsightly or inconsistent with the rest of
Minuteman Park. The parties acknowledge that the ground floor data center area
as now being designed will not have windows.
(c) (i) Not permit any coin or token operated vending, video, pinball,
gaming or other mechanical devices on the Premises, except solely for use by
Tenant's employees; (ii) conduct retail sales to walk-in customers (other than
occasional sales); (iii) permit governmental or quasi-governmental agencies to
occupy the Premises;(iv) use the Premises as doctors' offices, a school or
educational institution (except for training for customers and/or Tenant's
personnel), living or sleeping quarters ; (v) store, sell or distribute obscene,
lewd or pornographic materials or engage in related businesses in or from the
Premises; or (vi) conduct any auction, distress, fire, bankruptcy or going-out-
of-business sale. Tenant's business of hosting web pages will not be deemed to
be in violation of Subsections (iv) or (v) above.
(d) Comply with: Laws and insurance requirements affecting the
Premises or any use and occupancy thereof by Tenant or its Affiliates
(including, without limitation, making required improvements to the Premises);
and Landlord's rules and regulations from time to time. Tenant will, at its
expense, obtain and maintain all licenses, approvals and variances necessary to
conduct its business and occupy the Premises, but none of those licenses,
permits or variances will be binding on or in any way affect or restrict
Landlord, Minuteman Park or the Premises itself. The foregoing will not be
deemed to waive Landlord's obligations to obtain any necessary licenses,
approvals and variances for Landlord's Work (except if and to the extent that
they are dependent on the completion of Tenant's Work, in which case they will
be obtained on such completion).
(e) If it wishes, install signs or lettering on the entry doors to the
Premises identifying its tenancy in the manner customary to first-class office
buildings. Subject to complying in all instances with applicable Laws, Tenant
also will have the right to install the following additional sign (the
"Additional Sign"): a pylon sign in a location specified by Landlord,
identifying its tenancy in the manner customary to first-class office buildings,
and in conformity with the sketch attached hereto as Exhibit "G." Tenant's
rights with respect to the Additional Signs are personal to the Tenant
originally named in the Lease and may not be exercised or maintained by or for
anyone else (except by an "Acquiring Entity" as defined in Section 24.18). If
Tenant defaults, or Transfers any part of this Lease or the Premises (except for
valid subleases that all together aggregate less than fifty percent (50%) of the
rentable area of the Building when made), and at the expiration of the Lease,
Tenant at its cost will remove the Additional Signs and repair any damage to the
Building and the rest of the Premises, all in a manner satisfactory to Landlord
(and in addition to any other rights and remedies of Landlord if Tenant
defaults). The design, materials and construction of the Additional Signs will
be subject in all respects to Landlord's prior approval. Tenant will conform to
standards established by Landlord from time to time for the above signs and
lettering and submit for Landlord's prior approval a plan or sketch of the
Tenant's proposed sign or lettering, and provided that Tenant's signs and
lettering so conform, Landlord's consent will not be unreasonably withheld. All
other signs, lettering, awnings, canopies or other decorations require
Landlord's prior approval.
(f) Not use any advertising or other media or other such device which
can be heard or experienced outside the Premises (except as permitted in
subparagraph (e) above), including without limitation, lights or audio or visual
devices. Tenant will not distribute handbills or advertising, promotional or
other materials anywhere in Minuteman Park or solicit business in Minuteman Park
other than within its own Building.
7
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12. MAINTENANCE AND REPAIRS.
-----------------------
12.1 Landlord's Obligations. Landlord will repair and maintain roadways,
----------------------
sidewalks and parking areas of the Premises in a first-class manner and provide
snowplowing and landscaping for the Premises. For a period of one (1) year
following delivery (i.e., to correspond to the standard one (1)-year warranty
period), Landlord will also repair any of Landlord's Work that is defective on
delivery. However, Tenant will be responsible for all repairs and maintenance
resulting from Tenant's Alterations or the negligent or intentional acts or
omissions of Tenant or its Affiliates. Landlord will make its repairs within a
reasonable time following Tenant's notification that the repairs are required.
Landlord's obligations are subject to the provisions of Articles 16 and 17 and
the rest of this Lease.
12.2 Tenant's Obligations. Except for Landlord's obligations in Section
--------------------
12.1 and as set forth immediately below, Tenant will maintain and repair the
Building and the Systems and Equipment serving the Building in a first-class
manner (including replacement thereof if and when necessary), and keep the
Building in good order and condition, including, without limitation, Tenant's
Property, all doors, windows, window treatments, wall coverings, floor
coverings, non-structural portions of the ceiling, floor and walls, and Tenant's
Alterations (unless otherwise requested by Landlord). Subject to Landlord's
prior consent, which will not be unreasonably withheld, Tenant may select a
cleaning company of its choice to clean the Building at Tenant's sole cost. In
furtherance of Tenant's maintenance and repair obligations, Landlord will assign
to Tenant, or cooperate in a commercially reasonable manner with Tenant in
enforcing, any guarantees or warranties applicable to the Building.
13. ALTERATIONS.
-----------
13.1 Landlord's Consent. "Alterations" means Tenant's alterations,
------------------
additions, improvements, remodeling, repainting, or other changes. Tenant may
make nonstructural Alterations to the interior of the Building without
-------
Landlord's consent as long as the Alterations do not: (a) affect the windows,
the exterior of the Building, or any portion of the Building or the rest of the
Premises outside of the Building; (b) affect the strength, structural integrity
or load-bearing capacity of any portion of the Building; (c) adversely affect
the base building Systems and Equipment in the Building or any life safety
Systems and Equipment, and any replacement of any base building Systems and
Equipment must be with items equivalent to or better than the items being
replaced, and any replacement of life safety Systems and Equipment will require
Landlord's prior written consent; or (d) in Landlord's reasonable judgment, cost
more than a total of One Hundred Eighty Thousand Dollars ($180,000) in any Lease
Year (increasing at the rate of 3% per year) when combined with the cost of
other Alterations made in that Lease Year (and in this case Landlord's consent
will not be unreasonably withheld if the other limitations in this Section are
complied with). All other Alterations require Landlord's prior written consent.
Whether or not Landlord's consent is required, Alterations are subject to the
rest of this Article.
13.2 Notice. Tenant will notify Landlord not less than fifteen (15) days
------
before beginning any Alterations (but no notice will be required for moveable,
unattached partitions and work stations). Together with Tenant's notice, Tenant
will give Landlord copies of the necessary permits and approvals and, if
Landlord deems it necessary, plans and specifications for the Alterations (but
not for minor, non-structural Alterations such as wall coverings, built-in
cabinetry, and painting). Landlord's review or approval of Tenant's plans and
specifications is solely for Landlord's benefit and will not be considered a
representation or warranty to Tenant as to safety, adequacy, efficiency,
compliance with Laws or any other matter, or a waiver of any of Tenant's
obligations. Except for items of Tenant's Property, all Alterations will be
deemed Landlord's property and part of the realty, and will be surrendered with
the Premises at the end of this Lease, unless otherwise requested by Landlord
(but Tenant will not be required to remove the Alterations it makes as part of
Tenant's Work for Tenant's initial occupancy of the Building).
13.3 Compliance with Laws. Alterations will comply in all respects with
--------------------
this Lease and applicable Laws and insurance requirements. Alterations will be
done in a first-class manner, using first quality materials, and so as not to
interfere in any way with Landlord or any other occupant in Minuteman Park,
cause labor disputes, disharmony or delay, or impose any Liabilities on
Landlord. Alterations will be performed only by experienced, licensed and bonded
contractors and subcontractors approved in writing by Landlord, which approval
will not be unreasonably withheld. Tenant will cause its contractors and
subcontractors to carry workmen's compensation insurance.
13.4 Liens. Tenant will pay when due all claims for labor, materials and
-----
services claimed to be furnished for Tenant or Tenant's Affiliates or for their
benefit and keep the Premises free from all liens, security interests and
encumbrances ("Liens"). Tenant will indemnify Landlord for, and hold Landlord
harmless from, all Liens, the removal of all Liens and any related actions or
proceedings, and all Liabilities incurred by Landlord in connection therewith.
NOTICE IS HEREBY GIVEN TO ALL PERSONS FURNISHING LABOR OR MATERIALS TO TENANT
THAT NO MECHANICS', MATERIALMENS' OR OTHER LIENS SOUGHT ON THE PREMISES WILL IN
ANY MANNER AFFECT LANDLORD'S RIGHT, TITLE OR INTEREST.
13.5 Rooftop. Subject to the following and the rest of this Article and
-------
this Lease, Tenant may install telecommunications equipment on the roof of the
Building, provided that the equipment and associated installations are fully
screened in a manner reasonably satisfactory to Landlord and in keeping with the
rest of the Building . Tenant will be responsible for all Liabilities in
connection with this equipment and associated installations, including, without
8
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limitation, installation, removal, operation, repair, maintenance, insurance,
taxes and other costs and fees. Tenant also will be solely responsible for
securing all federal, state and local permits in connection with the
installation and operation of this equipment. For these and any other
installations undertaken by or for Tenant on the roof, or any other penetrations
of the roof or the roof membrane by or for Tenant, Tenant will secure from the
membrane roofing manufacturer certification that the installations or
penetrations are compatible with all design requirements and will not void the
existing roof warranty. This certification must be delivered to Landlord before
installation begins. Tenant also will use only a manufacturer-authorized roofing
contractor for any work that requires the penetration of the roof or the
membrane roofing system. Upon the expiration or earlier termination of this
Lease, Tenant, at its expense, will remove this equipment and associated
installations and repair all damage to the roof caused thereby or otherwise
caused by Tenant or its Affiliates. Notwithstanding anything to the contrary,
Landlord will have no Liabilities in connection with this equipment and
associated installations and/or any penetrations of the roof by or for Tenant,
and Tenant will indemnify Landlord for and hold it free and harmless from all
Liabilities arising out of or in connection therewith.
14. INDEMNITY; SATISFACTION OF REMEDIES.
-----------------------------------
14.1 Indemnification. In addition to any other indemnities in this Lease,
---------------
Tenant will indemnify Landlord for and hold Landlord harmless from Liabilities
arising from or in connection with: acts or omissions of Tenant or its
Affiliates or the conduct of Tenant's business; Tenant's breach of or default
under this Lease; and claims by Tenant's Affiliates or other persons if Landlord
declines to consent to any act, event or document requiring Landlord's consent
under this Lease. Tenant will not be required to pay to or indemnify Landlord
for special, indirect, consequential, punitive or similar damages by reason of
this clause, but this limitation will not apply with respect to Section 22 of
this Lease nor to any obligations or other Liabilities that Tenant may incur
thereunder nor to any damages that Landlord may recover from Tenant thereunder
(whether or not such Liabilities or damages thereunder are considered to be
special, indirect, consequential, punitive or similar damages).
14.2 Damage to Persons or Property. Subject to the rest of this Section
-----------------------------
and the rest of this Lease, Landlord will be liable for damages solely to the
extent caused by its own negligence or willful misconduct in breach of this
Lease, but Landlord will not be liable for any special, indirect, consequential,
punitive or similar damages (including, without limitation, any loss of use or
revenue by Tenant or any other person) under any circumstances, or for any
Liabilities arising from or in connection with: acts or omissions of Tenant, any
other tenants of or occupants of Minuteman Park, any third parties, or their
Affiliates, including, without limitation, burglary, vandalism, theft, or
criminal or illegal activity; explosion, fire, steam, electricity, water, gas,
rain, pollution, contamination, hazardous substances, motor vehicles or any
casualties; breakage, leakage, malfunction, obstruction or other defects in
Systems and Equipment, or of any services or utilities; any work, demolition,
maintenance or repairs permitted under this Lease; any exercise of Landlord's
rights under any Laws or under this Lease, including any entry by Landlord or
its Affiliates on the Premises in accordance with this Lease; or any of the
matters described in Section 24.5. Tenant and Tenant's Affiliates assume the
risk of all of these Liabilities and waive all claims against Landlord in
connection therewith. Tenant also waives any Laws or rights that would permit
Tenant to terminate this Lease, perform repairs or maintenance in lieu of
Landlord (or on Landlord's behalf), or offset or withhold any amounts due
because of damage to or destruction of the Premises, any repairs or maintenance,
or for any other reason. Tenant immediately will notify Landlord of any damage
or injury to persons or property and any events which could be anticipated to
give rise to any of the foregoing Liabilities. This exculpation of Landlord and
all of Tenant's waivers in this Lease will apply to all of Tenant's Affiliates
to the greatest extent possible. This Section 14.2 is not meant to reduce the
extent of Landlord's obligations to repair or rebuild in any particular
circumstance as may be required in Section 12.1 and Articles 16 and 17 or to
prevent Tenant from exercising termination rights (if any) specifically granted
to Tenant elsewhere in this Lease.
14.3 Satisfaction of Remedies. Notwithstanding anything in this Lease or
------------------------
elsewhere to the contrary: Tenant and its Affiliates will look solely to
Landlord's interest in the Premises to satisfy any claims, rights or remedies,
and Landlord and its Affiliates, at every level of ownership and interest, have
no personal or individual liability of any type, whether for breach of this
Lease or otherwise, their assets will not be subject to lien or levy of any
type, nor will they be named individually in any suits, actions or proceedings
of any type.
15. PARKING.
-------
15.1 [INTENTIONALLY OMITTED]
15.2 Parking. At no additional cost to Tenant (other than Tenant's share
-------
of Taxes, insurance and Operating Costs from time to time), Tenant may park in
accordance with applicable Laws in the parking areas of the Premises to be
constructed (other than in the Additional Parking Areas), which will be
approximately 450 spaces initially. Provided that Tenant does not default and
does not Transfer any part of this Lease or the Premises (except for subleases
that all together aggregate less than fifty percent (50%) of the rentable area
of the Building when made), if during the first five (5) Lease Years Tenant at
its cost converts a portion of the Ground Floor space in the Building from data
center use to office use (and if Tenant does so it shall do so at its own cost
and to a level of fit, finish and specifications equivalent to the Second Floor
office space in the Building and in accordance with the terms of this Lease),
Landlord at its cost will construct if necessary additional parking spaces so
that Tenant will have the right to park 3.3 cars per 1,000 square feet of such
converted office space, up to a maximum of 16,000 square feet of such converted
office space (the "Expansion
9
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Parking"). In addition, provided that Landlord's ability to provide the
Expansion Parking and to accommodate Tenant's possible expansion of the Building
in accordance with Rider #3 is not adversely impacted, Landlord at its cost will
have the right to construct additional parking areas on the Premises (the
"Additional Parking Areas") in the designated area shown in the site plan
attached as Exhibit "A", and to permit others to park thereon to the exclusion
of Tenant, pursuant to leases, licenses, easements or otherwise (or at
Landlord's option adjust the lot lines of the Property in accordance with
applicable Laws to exclude the Additional Parking Areas from the Premises), and
in this case Tenant will not be required to pay any Operating Costs or utilities
for the Additional Parking Areas (and if the Additional Parking Areas are
removed from the Premises, then Tenant will not be required to pay any costs in
connection with the Additional Parking Areas). If the Additional Parking Areas
remain part of the Premises and are used by parties other than Tenant or its
Affiliates to park on, Landlord will indemnify, defend and hold Tenant harmless
from loss or damage arising out of the exercise by parties other than Tenants or
its Affiliates of rights to park on the Additional Parking Areas. Landlord may
reasonably: change signs, lanes and the direction of traffic within the parking
areas; change, or add parking spaces or areas devoted to parking for Tenant's
use (in addition to the Additional Parking Areas); allow free parking or parking
with a validation, valet, sticker or other system; promulgate rules and
regulations; and take any other actions deemed necessary by Landlord, provided
that Tenant always will have access to its parking areas (except to the extent
that access is prevented by force majeure or necessary repairs and maintenance)
without additional charge, except for Tenant's share of Taxes, insurance and
Operating Costs from time to time.
16. DAMAGE OR DESTRUCTION.
---------------------
16.1 Repairs. Subject to the rest of this Article and the rest of this
-------
Lease, Landlord will repair damage to the Premises caused by casualties insured
against under standard "all risk" casualty policies. However, Landlord is not
obligated to repair damage for which Tenant or its Affiliates are responsible or
for which Landlord has no liability under other provisions of this Lease. Except
as may otherwise be required by then applicable Laws, Landlord will attempt to
restore the damaged portions to their prior condition, but Landlord is not
required to undertake repairs unless insurance proceeds are available, spend
more than the net insurance proceeds it actually receives and is permitted to
retain for any repair or replacement (unless Tenant first deposits with Landlord
an amount equal to one hundred ten percent (110%) of the expected shortfall as
reasonably determined by Landlord and agrees in a manner satisfactory to
Landlord and its lenders to promptly fund any additional shortfall), or repair
or replace any damage to Tenant's Work, Tenant's Property or any Alterations.
Landlord will begin repairs within a reasonable time after receiving notice of
the damage, required building permits or licenses and the insurance proceeds
payable on account of the damage.
16.2 Election to Terminate. Landlord has the option either to repair the
---------------------
casualty damage, or terminate this Lease by delivering written notice within
sixty (60) days after the damage occurs, if: the damage occurs during the last
year of the term, as it may be extended; or Tenant is in default; or in
Landlord's reasonable judgment the repairs normally would take more than twelve
(12) months to complete (as long as there would be at least one year remaining
in the term, as it may be extended, after the expected repair period); or in
Landlord's reasonable judgment the repairs normally would take more than one
hundred twenty (120) days or more than one-third (1/3) of the remaining term to
complete (if there would be less than one (1) year remaining in the term, as it
may be extended, after the expected repair period).
16.3 Abatement of Rent. If the Building is damaged so as to be
-----------------
untenantable for more than five (5) consecutive business days, or if Tenant's
parking is damaged and Landlord is not able to replace any of Tenant's lost
parking spaces reasonably promptly and in reasonable proximity and the lack of
parking materially adversely affects Tenant's ability to use the Building for
its intended purposes, and Landlord is required or elects to repair the damage,
base rent and Tenant's share of Taxes and Landlord's insurance premiums will
abate until Landlord has substantially completed the repairs and given Tenant
access to the Building (or Tenant's use of the Building for its intended
purposes no longer is materially impaired), or Tenant reoccupies part of the
Building, whichever is earlier. If Tenant continues to occupy or reoccupies the
Building before substantial completion of these repairs but cannot occupy
substantially all of the Building because of these ongoing repairs, base rent
and Tenant's share of Taxes and Landlord's insurance premiums will abate in
proportion to the degree to which Tenant's use of the Building is impaired, as
reasonably determined by Landlord. Base rent and Tenant's share of Taxes and
Landlord's insurance premiums will not be abated if the acts or omissions of
Tenant or its Affiliates render Landlord unable to collect the rental loss
insurance proceeds that otherwise would have been payable to Landlord. The
abatement of base rent and Tenant's share of Taxes and Landlord's insurance
premiums described above is Tenant's sole remedy against and compensation from
Landlord in connection with any damage, destruction or repairs.
17. CONDEMNATION.
------------
If all or substantially all of the Building or the Premises are condemned,
taken or appropriated by any public or quasi-public authority under the power of
eminent domain, police power or otherwise, or if there is a sale in lieu thereof
("Condemned"), this Lease will terminate when title or possession is taken by
the condemning authority or its designee. If:
(a) More than twenty-five percent (25%) of the usable area of the
Building or of Tenant's parking spaces is Condemned, either Landlord or Tenant
may terminate this Lease when title or possession is taken by the condemning
authority or its designee by delivering written notice to the other within
fifteen (15) days thereafter. (But,
10
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notwithstanding the foregoing, even if less than twenty five percent (25%) of
the usable area of the Building is Condemned but more than twenty five percent
(25%) of Tenant's parking spaces is Condemned, Tenant will not have the right to
terminate the Lease if Landlord, at its option, is able to replace any of
Tenant's lost parking spaces in excess of the twenty five percent (25%) maximum
reasonably promptly and in reasonable proximity to the Premises.
(b) Part of the Building is Condemned and this Lease is not
terminated, Landlord will make the necessary repairs so that, to the extent
reasonably possible, the remaining part of the Building will be a complete
architectural unit. If part of Tenant's parking is Condemned and this Lease is
not terminated, Landlord will if possible under applicable Laws and if
commercially reasonable, replace the lost parking on the Premises so that the
ratio of the number of Tenant's parking spaces after the Condemnation compared
to the rentable area of the Building after the Condemnation is not materially
less than the ratio of Tenant's total initial parking spaces compared to the
initial rentable area of the Building. Otherwise, Landlord's restoration or
replacement will be conducted as described in Section 16.1, except that Landlord
will not be required to begin repairs until a reasonable time after it receives
any necessary building permits and substantially all of the proceeds of any
awards granted for the Condemnation.
All proceeds, income, rent, awards and interest in connection with any
Condemnation will belong to Landlord, whether awarded as compensation for
diminution of value to the leasehold improvements, or the unexpired portion of
this Lease, or otherwise. Tenant waives all claims against Landlord and the
condemning authority with respect thereto, but nothing in this Section prevents
Tenant from bringing a separate action against the condemning authority for
moving costs or for lost goodwill (as long as this separate action does not
diminish Landlord's recovery).
18. ASSIGNMENT AND SUBLETTING.
-------------------------
18.1 Landlord's Consent Required. Tenant will not voluntarily,
---------------------------
involuntarily or by operation of any Laws sell, convey, mortgage, subject to a
security interest, license, assign, sublet or otherwise transfer or encumber all
or any part of Tenant's interest in this Lease or the Premises, or allow anyone
other than Tenant's employees to occupy the Premises (singularly or
collectively, "Transfer"), without Landlord's prior written consent in each
instance. Any attempt to do so without this consent will be null and void and a
default. Without limiting the generality of the foregoing, Tenant will not have
the right or power to Transfer any portion of the Premises or its rights therein
(e.g., Tenant's right to park in its parking areas) except pursuant and
incidental to a good faith and valid assignment of this Lease or a good faith
and valid sublease of a portion of the Building.
18.2 Notice. Tenant will notify Landlord in writing at least thirty (30)
------
days before any proposed or pending Transfer and will deliver to Landlord such
information as Landlord may reasonably request in connection with the proposed
or pending Transfer and the proposed Transferee, including, without limitation,
a copy of the proposed Transfer documents, financial statements and other
financial information about and banking references for the proposed Transferee,
and information as to the type of business and business experience of the
proposed Transferee. All of this information must be suitably authenticated.
18.3 Landlord's Right to Terminate. If Tenant notifies Landlord of a
-----------------------------
Transfer, or if Landlord becomes aware of a Transfer, Landlord may: consent;
withhold consent (subject to Sections 18.4 and 18.5 below); or terminate this
Lease on written notice to Tenant if the Transfer is an assignment of the Lease
other than to an Acquiring Entity, or a sublease of all or substantially all of
the Building. If Tenant proposes a sublease for a term longer than one year that
together with all other subleases would total more than fifty percent (50%) of
the rentable area of the Building if made, Landlord may terminate the Lease as
to the portion of the Building proposed to be sublet. If Landlord elects to
terminate, this Lease (or this Lease as applicable to the portion to be sublet
as described above) will terminate on the date set forth in Landlord's
termination notice. Nothing in this Section limits Landlord's rights or remedies
if Tenant is in default or if the Transfer does not comply with this Article.
18.4 Reasonable Consent. Subject to Section 18.5, if Landlord does not
------------------
elect (assuming it is permitted) to terminate this Lease, and if the request for
Transfer is given after the end of the first (1st) Lease Year, Landlord will not
unreasonably withhold its consent to an assignment or subletting (for purposes
of this Article, Landlord may arbitrarily withhold consent to other Transfers).
Tenant agrees that the withholding of Landlord's consent will be deemed
reasonable if Tenant is in default or has failed to comply with the rest of this
Article, or if any of the following conditions are not satisfied:
(a) The proposed assignee or subtenant will use the Premises strictly
in accordance with the terms of this Lease.
(ax) The business of the proposed assignee or subtenant is consistent
with the other uses and the standards of Minuteman Park, in Landlord's
reasonable judgment.
(b) The proposed assignee or subtenant is reputable, has a credit
rating reasonably acceptable to Landlord, and otherwise has sufficient
independent financial capabilities to perform all of its obligations under this
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Lease or the proposed sublease, in Landlord's reasonable judgment, and within
the two-year period prior to the Transfer has not been subject to a bankruptcy
or reorganization or any proceedings or court-ordered compliance in connection
therewith, or had a receiver managing any of its affairs or assets or been
subject to criminal judgments.
(c) Neither the proposed assignee or subtenant nor its Affiliates is
or has been a tenant or occupant or has negotiated for space in Minuteman Park,
or in other projects in Massachusetts currently owned by Landlord or a
partnership or corporation affiliated with Landlord or Niuna-400 River, Inc.,
Inc. or its current shareholders or officers (such other projects are currently
located in Andover, Wakefield and Billerica) within the six (6) month period
before the delivery of Tenant's written notice. This Subsection (c) will apply
only while 400 River Limited Partnership or an affiliated entity or an entity
affiliated with Niuna-400 River, Inc. or its current shareholders or officers
owns property in Minuteman Park or an interest therein.
(d) A proposed sublease will not result in more than three (3)
entities or businesses occupying the Building or the rest of the Premises.
These conditions are not exclusive and Landlord may consider other factors in
determining if it should grant or reasonably withhold its consent.
18.5 (a) Family Transfers. The Transfer of more than forty nine percent
----------------
(49%) Tenant's capital stock or ownership interests to any person or entity or
affiliated persons or entities, whether directly or indirectly or by one or more
transactions (other than by unrelated transactions on a public exchange, such as
the NYSE or NASDAQ), or any dissolution, merger, consolidation or other
reorganization of Tenant, or the Transfer of all or substantially all of
Tenant's assets, will be deemed to be an attempted assignment of this Lease and
subject to all of the terms of this Article 18 (except as specifically noted
below) and the rest of this Lease, and the Transferee or other party will be
deemed to be a prospective assignee. However, an assignment by Tenant to an
Acquiring Entity, or a sublease by Tenant to a Family Entity, will be deemed to
be a permitted assignment or sublease, as applicable, provided that the rest of
this Article 18 is complied with (although Sections 18.4(ax) and (b) will not
apply and Section 18.4(c) will apply only with respect to the Premises and other
projects located in Andover, Massachusetts [and Section 18.4(c) will not apply
at all in the case of a Transfer to the entity resulting from a merger between
Tenant and another tenant located in one of the projects specified in Section
18.4(c)], in each case as long as the purpose of the transaction was not to
avoid those or any other provisions of this Lease). Tenant agrees that, despite
any contrary agreements between Tenant and a Transferee or other acquiring
party, anything else to the contrary, even if this Lease is not assigned a
Transferee or other acquiring party of all or substantially all of Tenant's
other assets will be deemed to have assumed all of Tenant's Liabilities under
this Lease, and Tenant will make such Transferee or other acquiring party aware
of this provision. Sublessees do not have the right, power, authority to further
sub-sublease or otherwise Transfer all or any portion of or interest in the
space they sublease.
(b) A Transferee (which for these purposes shall exclude any sublessee
but shall include any assignee by contract, foreclosure, operation of law or
otherwise) will be deemed to have assumed all of Tenant's obligations and
Liabilities under this Lease (all of which shall be deemed to run with the land)
and will be deemed to be bound by this Lease, and Tenant and the assignee will
indemnify Landlord and hold it harmless from all Liabilities in connection with
the assignment. To confirm the foregoing, a prospective Transferee (other than a
sublessee) will be required to execute and deliver to Landlord an unconditional
written assumption of Tenant's Liabilities under this Lease and the indemnity
described above, and Tenant and the Transferee will be deemed to be jointly and
severally liable for all Liabilities of the tenant under this Lease and any
existing and future amendments thereto (although such a written assumption shall
not be required to establish the full liability of the Transferee for all of
Tenant's Liabilities under this Lease). A sublease will be deemed to be subject
and subordinate to this Lease in all respects. Tenant and the subtenant will
indemnify Landlord and hold it harmless from all Liabilities in connection with
the sublease. The subtenant will acquire no rights or claims against Landlord or
its Affiliates and will not have the right to enforce any of Tenant's rights and
remedies under this Lease against Landlord. If this Lease is terminated or
Landlord rightfully reenters or repossesses the Premises, Landlord may terminate
the sublease, or at its option, become the sublessor under the sublease and the
subtenant will attorn to Landlord, but Landlord will not be liable for Tenant's
acts or omissions, subject to any existing defenses or offsets against Tenant or
bound by any amendment to the sublease made without Landlord's prior written
consent. By entering into a sublease, Tenant and the sublessee agree that if the
sublessee breaches an obligation under its sublease which would also constitute
a default by Tenant under this Lease if not cured within applicable grace
periods, then Landlord will have all of the rights and remedies against the
subtenant that is also has against Tenant for such a default. Without limiting
the generality of the foregoing, Landlord will be permitted (by assignment of
the cause of action or otherwise) to join the Tenant in any action or proceeding
against subtenant or to proceed against the subtenant directly in the name of
Tenant to enforce these rights and remedies. Tenant will cooperate with Landlord
and execute such documents as may be reasonably necessary to implement these
rights granted to Landlord. The exercise of these rights and remedies will not
constitute an election of remedies and will not in any way impair Landlord's
right to pursue other or similar rights and remedies directly against Tenant,
nor will the grant or exercise of these rights or remedies result in the
subtenant acquiring any rights or claims against Landlord or its Affiliates.
12
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18.6 No Release of Tenant. Whether or not Landlord consents, no Transfer
--------------------
will release or alter the primary liability of Tenant to pay rent and perform
all of Tenant's other obligations under this Lease. The acceptance of rent by
Landlord from any person other than Tenant is not a waiver by Landlord. Consent
to one Transfer will not be deemed to be consent to any subsequent Transfer. If
any Transferee defaults under this Lease, Landlord may proceed directly against
the Transferee and/or against Tenant without proceeding or exhausting its
remedies against the other. After any Transfer, Landlord may consent to
subsequent Transfers of or amendments to this Lease without notifying Tenant or
any other person, without obtaining consent thereto, and without relieving
Tenant of liability under this Lease (as it may be modified), except that
Tenant's aggregate monetary liability under this Lease, as it may be modified,
will not be greater than it would have been under this Lease without the
modification.
18.7 Additional Terms. Tenant will pay Landlord's reasonable attorneys'
----------------
fees and other costs in connection with any request for Landlord's consent to a
Transfer. To be effective all assignments and subleases must always prohibit any
further assignment, subleasing or other Transfer and state that they are subject
and subordinate to the terms of this Lease. Subject to Section 18.5(a), while
400 River Limited Partnership or an affiliated entity or an entity affiliated
with Niuna-400 River, Inc. or its current shareholders or officers owns the
Premises or an interest therein, Tenant and its Affiliates will not, directly or
indirectly, take an assignment or sublease from, or otherwise occupy premises
leased to, any existing or future tenants (or their assignees, sublessees or
successors) of space in Minuteman Park, or in other projects in Massachusetts
owned by Landlord or a partnership or corporation affiliated with Landlord or
with Niuna-400 River, Inc. or its current shareholders or officers (such other
projects are currently located in Wakefield, Andover, and Billerica). The
surrender of this Lease or its termination will not be a merger, but Landlord
will have the right to terminate all subleases and the occupancy rights of all
Transferees. Tenant will pay to Landlord as additional rent: fifty percent (50%)
of all consideration as and when paid for or by reason of any assignment of this
Lease; and, in the case of a sublease, fifty percent (50%) of the amount by
which the sublease rent and other consideration as and when paid for the
sublease (less the sublessee's pro-rata payment of real estate taxes and
insurance, to the extent paid, and less reasonable costs paid by Tenant to
unaffiliated third parties specifically and directly for the sublease, such as
tenant improvement costs and brokerage commissions) exceeds the base rent for
the sublease term (pro rated for the square footage subleased). At Landlord's
option, Landlord may collect all or any part of this additional rent directly
from the payor, and consideration paid or payable will be defined in its
broadest sense.
19. MORTGAGEE PROTECTION.
--------------------
19.1 Subordination and Attornment. This Lease is subordinate to all
----------------------------
Superior Leases and Mortgages (defined in Section 24.4), and Tenant will attorn
to each person or entity that succeeds to Landlord's interest under this Lease,
provided that such person or entity agrees in writing not to disturb Tenant's
rights under this Lease as long as Tenant is not in default. This Section is
self-operative, but if requested to confirm a subordination, non-disturbance
and/or attornment, Tenant will execute the form subordination, non-disturbance
and attornment agreements furnished by the then-current lessor or mortgagee
under any of the Superior Leases and Mortgages (a "Landlord's Mortgagee") within
ten (10) days after request, provided that such agreements are not materially
more adverse to Tenant with respect to any of Tenant's substantive rights under
this Lease than any (or all) of the forms attached hereto as Exhibit "I."
However, if a Landlord's Mortgagee elects in writing, this Lease will be
superior to its Superior Lease and Mortgage specified, regardless of the date of
recording, and Tenant will execute an agreement confirming this election on
request.
19.2 Mortgagee's Liability. The obligations and Liabilities of Landlord,
---------------------
Landlord's Mortgagees or their successors under this Lease will exist only if
and for so long as each of these respective parties owns fee title to the
Premises or is the lessee under a ground lease of the Premises. Tenant will be
liable to Landlord's Mortgagees or their successors if any of those parties
become the owner of the Premises for any base rent paid more than thirty (30)
days in advance. Landlord's Mortgagees and their successors will not be liable
for: (a) acts or omissions of prior owners; (b) the return of any security
deposit or Letter of Credit not delivered or credited to them (and Landlord
agrees to deliver or credit Tenant's unapplied security deposit to Landlord's
Mortgagees if they succeed to Landlord's interest under this Lease); or (c)
amendments to this Lease made without their consent (if their consent is
required under a Superior Lease or Mortgage).
19.3 Mortgagee's Right to Cure. No act or omission (if any) which
-------------------------
otherwise entitles Tenant under the terms of this Lease to be released from any
Lease obligations or to terminate this Lease will result in such a release or
termination unless Tenant first gives written notice of the act or omission to
Landlord and Landlord's Mortgagees and those parties then fail to correct or
cure the act or omission within ninety (90) days thereafter, or such longer
period of time as may be commercially reasonable if necessary to allow the
Landlord's Mortgagees to acquire title to the Premises in order to cure the act
or omission. Nothing in this Section or the rest of this Lease obligates
Landlord's Mortgagees to correct or cure any act or omission or is meant to
imply that Tenant has the right to terminate this Lease or be released from its
obligations unless that right is explicitly granted elsewhere in this Lease.
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20. ESTOPPEL CERTIFICATES.
---------------------
Landlord or Tenant or Guarantor will from time to time, within fifteen (15)
days after request by the other, execute and deliver an estoppel certificate in
form satisfactory to the other which will certify (except as may be noted) such
information concerning this Lease and/or the Guaranty as the other may request.
21. DEFAULT.
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The occurrence of one or more of the following events will be a default by
Tenant under this Lease: (a) the abandoning of the Premises; (b) the failure to
pay rent or any other required amount within seven (7) days after written notice
that the payment is due; (c) as provided in Article 23; (cc) the failure to
comply with the terms of Article 25 within five (5) days after written notice;
(d) a Transfer in violation of Article 18; (dd) a default by the Guarantor under
its Guaranty; (ddd) as described in Section 24.17(b); (e) the failure to
maintain its required insurance policies within seven (7) days after written
notice (although Tenant still will pay and be responsible for all Liabilities
incurred by Landlord as a result of Tenant's failure to maintain its required
insurance policies, whether or not such failure is subsequently cured); or (f)
the failure to comply with or perform any other obligation, term or condition
for which there is a specified time for compliance or performance set forth in
this Lease within five (5) days after written notice of such failure; if no time
period is specified, it will be a default if this failure continues for fifteen
(15) days after written notice from Landlord to Tenant, but if more than fifteen
(15) days are reasonably required to cure, Tenant will not be in default if
Tenant begins to cure within the fifteen (15)-day period and then diligently
completes the cure as soon as possible but within ninety (90) days after the
notice of default is given (but this 90-day limitation will not apply if
Tenant's failure to comply involves its failure to complete structural repairs
if more than 90 days is reasonably required to diligently complete such
repairs). Whenever the term "default" is used in this Lease, it shall mean and
refer to a default as described in this Article 21, including applicable notice
and cure periods. If Tenant defaults, unless Landlord subsequently gives another
written notice of default to Tenant (provided that the original default
initially required Landlord to send a written notice as set forth above) and
Tenant fails to cure that default within ten (10) days after that subsequent
notice of default, Landlord will not have the right to terminate this Lease nor
will that default cause Tenant to lose its rights under Rider #1, Rider #2,
Rider #3, or with respect to the Additional Signs under Section 11(e) or with
respect to its right to have Landlord construct Expansion Parking for Tenant
pursuant to Section 15.2. At its option, Landlord will have the right to
withhold in whole or in part payment and/or performance of any its obligations
that are premised on the absence of a default until and unless such a cure is
tendered within that subsequent 10-day period. If Tenant fails to cure within
that subsequent 10-day period, Landlord will have the right to terminate if it
wishes, and in any case Tenant will lose those rights. Nothing in this Article
21 will be deemed to limit in any way Landlord's rights and remedies hereunder,
at law or in equity in connection with a default, and notwithstanding the
foregoing or anything else to the contrary, Landlord will not be required to
give that subsequent notice of default more than twice in any 12-month period if
the defaults involve the non-payment of money, and in such case Landlord's
single notice of default will suffice.
22. REMEDIES FOR DEFAULT.
--------------------
22.1 General. If Tenant defaults, Landlord may at any time thereafter,
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with or without notice or demand, do any or all of the following: (a) give
Tenant written notice stating that the Lease is terminated, effective on the
giving of notice or on a date stated in the notice, as Landlord may elect, in
which event this Lease will terminate without further action; (b) with or
without process of law or notice, and with or without terminating this Lease,
terminate Tenant's right of possession and enter and repossess the Building and
the rest of the Premises either by force or otherwise, and expel Tenant and
Tenant's Affiliates, and remove their property and effects, without being guilty
of trespass; and (c) pursue any other right or remedy now or hereafter available
to Landlord under this Lease or at law or in equity.
22.2 Tenant's Obligations. If any default, termination, reentry or
--------------------
dispossess occurs:
(a) All rent provided for in this Lease will become due and will be
paid to the time of the default, termination, reentry or dispossess, together
with such costs as Landlord may incur for attorneys' fees and costs, inspection,
brokerage fees, putting the Building and the rest of the Premises in good order,
condition and repair and/or for preparing and improving the Premises for re-
letting.
(b) Landlord may, at its sole option, re-let all or any portion of the
Building and the rest of the Premises on terms satisfactory to Landlord in its
sole discretion, either in its own name or otherwise, for a term or terms which
may, at Landlord's option, be more or less than the balance of the term of this
Lease and pursuant to one or more leases, and Landlord may grant concessions,
tenant allowances and/or free rent, among other things.
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(c) Subject to Section 22.2(e), whether or not the Building and the
rest of the Premises are re-let, Tenant will pay punctually to Landlord all of
the rent and other sums and perform all of Tenant's obligations for the entire
Lease term (assuming the original expiration date and any exercised options) in
the same manner and at the same time as if this Lease had not been terminated.
(d) If Landlord re-lets the Building or the rest of the Premises,
Tenant will be entitled to a credit in the net amount of the rent actually
received by Landlord from the re-letting, after deducting all expenses described
in Sections 22.2(a) and 22.2(f) and the costs of collecting the rent. Rent
received by Landlord after re-letting first will be applied against Landlord's
expenses as described above until those expenses are recovered. Until recovery
of those expenses, Tenant will pay as and when due all amounts it is required to
pay under this Lease. Tenant's obligations prior to any re-letting and recovery
of expenses will not be diminished even if the re-letting is for a rent higher
than the rent hereunder. When and if these expenses have been completely
recovered, and subject to the rest of this Section, amounts collected by
Landlord from the re-letting that have not previously been applied will be
credited against Tenant's obligations to the extent arising on or before the
date of collection by Landlord, and otherwise when each payment would fall due
under this Lease, and only the net amount thereof will be payable by Tenant.
Amounts received by Landlord from re-letting for any period will be credited
only against obligations of Tenant allocable to that period or periods prior
thereto, and not against Tenant's obligations accruing after that period, nor
will any credit be given to Tenant for amounts received by Landlord for any
period after the original expiration date of this Lease.
(e) At Landlord's option, in lieu of other damages, Landlord may, by
written notice to Tenant at any time after Tenant's default, elect to recover,
and Tenant will thereupon pay, as liquidated damages, an amount equal to the
excess, if any, of: (i) the present value (assuming a 7% discount rate) of the
total rent and other benefits which would have accrued to Landlord under this
Lease for the remainder of the Lease term (assuming the original expiration date
and any exercised Extension Options) if the default had not occurred plus all of
the expenses described in Sections 22.2(a) and 22.2(f); less (ii) the present
value (assuming a 7% discount rate) of the cash rental to be paid to Landlord
for any lease or leases of the Building or the rest of the Premises actually
executed by Landlord at the time Landlord exercises its option, subject to
Subsection (d) above.
(f) No action of Landlord in connection with any re-letting, or
failure to re-let or collect rent under such re-letting, will operate or be
construed to release or reduce Tenant's Liabilities hereunder. Without limiting
any of the foregoing provisions, and in addition to any other amounts that
Tenant is otherwise obligated to pay, Tenant agrees that Landlord may recover
from Tenant all costs and expenses, including attorneys' fees and costs,
incurred by Landlord in enforcing this Lease from and after Tenant's default.
22.3 Redemption. Tenant waives any and all rights of redemption granted by
----------
or under any Laws if Tenant is evicted or dispossessed for any cause, or if
Landlord obtains possession of the Building or the rest of the Premises by
reason of the violation by Tenant of any of the terms, covenants or conditions
of this Lease, or otherwise.
22.4 Performance by Landlord. If Tenant defaults or fails to perform any
-----------------------
of its obligations under this Lease, Landlord, without waiving or curing the
default or failure, may, but will not be obligated to, perform Tenant's
obligations for the account and at the expense of Tenant. Notwithstanding
Section 21(i), in the case of an emergency or to prevent damage or injury or
protect health, safety or property, Landlord need not give any notice before
performing Tenant's obligations. Tenant will pay on demand all costs and
expenses incurred by Landlord in connection with Landlord's performance of
Tenant's obligations, and Tenant will indemnify Landlord for and hold Landlord
harmless from all Liabilities incurred by Landlord in connection therewith.
22.5 Post-Judgment Interest. The amount of any judgment obtained by
----------------------
Landlord against Tenant in any legal proceeding arising out of Tenant's default
under this Lease will bear interest until paid at the Bank of America announced
prime rate plus two percent (2%), or the maximum rate permitted by law,
whichever is less. Notwithstanding anything to the contrary contained in any
Laws, with respect to any damages that are certain or ascertainable by
calculation, interest will accrue from the day that the right to the damages
vests in Landlord, and in the case of any unliquidated claim, interest will
accrue from the day the claim arose.
23. [SEE EXHIBIT "F"]
24. GENERAL PROVISIONS.
------------------
24.1 Holding Over. Tenant will not hold over in the Building or the rest
------------
of the Premises after the end of the Lease term without the express prior
written consent of Landlord. Tenant will indemnify Landlord for, and hold
Landlord harmless from, any and all Liabilities arising out of or in connection
with any holding over, including, without limitation, any claims made by any
succeeding tenant and any loss of rent suffered by Landlord. If, despite this
express agreement, any tenancy is created by Tenant's holding over, except as
specifically set forth in the next sentence the tenancy will be a tenancy at
sufferance terminable immediately at Landlord's sole option on written notice to
Tenant, but otherwise subject to the terms of this Lease, except that the most
recent annual base rent will be doubled. Nothing in
15
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this Article or elsewhere in this Lease permits Tenant to hold over or in any
way limits Landlord's other rights and remedies if Tenant holds over.
24.2 Entry By Landlord. Subject to rest of this Section, provided that
-----------------
Tenant makes a representative available on at least twenty four (24) hours prior
notice from Landlord, Landlord and its Affiliates will have the right to enter
the Ground Floor, rooftop penthouse, or generator secure areas of the Premises
only if accompanied by such representative, and in such cases Landlord will
comply with security procedures of Tenant, provided that they do not
unreasonably interfere with the exercise of Landlord's rights under this Lease.
Subject to the foregoing and the rest of this Section, Landlord and its
Affiliates at all times will have the right to enter the Premises, and Landlord
will retain (or be given by Tenant) keys to unlock all the doors to or within
the Premises, excluding doors to Tenant's vaults and files. Notwithstanding the
foregoing or anything else to the contrary, Landlord and its Affiliates will
have the right to use any means necessary to enter the Premises if Landlord
believes there is an emergency or that entry is necessary to prevent damage or
injury or protect health, safety or property, and in such event Landlord will be
required to give only such notice (if any) 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). Such entry to the Premises
and the exercise of Landlord's rights will not, under any circumstances, be
deemed to be a default, a forcible or unlawful entry into or a detainer of the
Premises or an eviction of Tenant from the Premises or any portion thereof, nor
will it subject Landlord to any Liabilities or entitle Tenant to any
compensation, abatement of rent or other rights and remedies.
24.3 Brokers. Tenant represents and warrants that it has had no dealings
-------
with any agent, broker, finder or other person who is or might be entitled to a
commission or other fee from Landlord in connection with this or any related
transaction except for Tenant's Broker.
24.4 Quiet Enjoyment. So long as Tenant pays all rent and performs its
---------------
other obligations as required, Tenant may quietly enjoy the Building and the
rest of the Premises without hindrance or molestation by Landlord or any person
lawfully claiming through or under Landlord, subject to the terms of this Lease
and the terms of any Superior Leases and Mortgages, and all other agreements or
matters of record or to which this Lease is subordinate. As used in this Lease,
the term "Superior Leases and Mortgages" means all present and future ground
leases, underlying leases, mortgages, deeds of trust or other title exceptions,
and all renewals, modifications, consolidations, replacements or extensions
thereof and advances made thereunder, affecting all or any portion of the
Premises.
24.5 Security. Tenant is solely responsible for providing security for the
--------
Building and the rest of the Premises and Tenant's personnel. Without limiting
the generality of this Article, Tenant agrees that: (a) Landlord may, but will
not be required to, supply security personnel and systems for the Building or
the rest of the Premises, and remove or restrain unauthorized persons and
prevent unauthorized acts; (b) Landlord will incur no Liabilities for failing to
provide security personnel or systems or, if provided, for acts, omissions or
malfunctions of the security personnel or systems; and (c) Landlord and its
Affiliates make no representations or warranties of any kind in connection with
the security or safety of the Building or the rest of the Premises.
24.6 Obligations; Successors; Recordation. If Tenant consists of more than
------------------------------------
one person or entity, the obligations and liabilities of those persons or
entities are joint and several. Time is of the essence of this Lease. Subject to
the restrictions in Article 18, this Lease inures to the benefit of and binds
Landlord, Tenant and their respective Affiliates. Tenant will not record this
Lease but Tenant may record a memorandum of this Lease, in form satisfactory to
Landlord, to comply with the Massachusetts statutory notice provisions. If this
Lease expires or is terminated, this memorandum will be deemed null and void and
removed from title, and Tenant will execute and record such documents as may be
necessary to accomplish this at Landlord's request, and if Tenant refuses to do
so, Landlord may execute and record such documents in Tenant's name or in its
own name.
24.7 Late Charges. If any rent or other amounts payable by Tenant are not
------------
received within five (5) days after the due date, Tenant will pay to Landlord on
demand a late charge equal to five percent (5%) of the overdue amount, and if
not received within ten (10) days after the due date, the amounts also will bear
interest from the due date until paid at the interest rate in Section 22.5.
Collection of these late charges and interest will not: be a waiver or cure of
Tenant's default or failure to perform; be deemed to be liquidated damages, an
invalid penalty or an election of remedies; or prevent Landlord from exercising
any other rights and remedies.
24.8 Accord and Satisfaction. Payment by Tenant or acceptance by Landlord
-----------------------
of less than the full amount of rent due is not a waiver, but will be deemed to
be on account of amounts next due, and no endorsements or statements on any
check or any letter accompanying any check or payment will be deemed an accord
and satisfaction or binding on Landlord. Landlord may accept the check or
payment without prejudice to any of Landlord's rights and remedies, including,
without limitation, the right to recover the full amount due.
24.9 Prior Agreements; Amendments; Waiver. This Lease is an integrated
------------------------------------
document and contains all of the agreements of the parties with respect to any
matter covered or mentioned in this Lease, and supersedes all prior
16
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agreements or understandings relating to the subject matter herein. This Lease
may not be amended except by an agreement in writing signed by the parties. All
waivers must be in writing, specify the act or omission waived and be signed by
Landlord. No other alleged waivers will be effective, including, without
limitation, Landlord's acceptance of rent, collection of a late charge or
application of a security deposit. Landlord's waiver of any specific act,
omission, term or condition will not be a waiver of any other or subsequent act,
omission, term or condition.
24.10 Representations; Inability to Perform. Landlord and its Affiliates
-------------------------------------
have not made, and Tenant is not relying on, any representations or warranties
of any kind, express or implied, with respect to the Premises or this
transaction. Landlord will not be in default nor incur any Liabilities if it
can't fulfill any of its obligations, or is delayed in doing so, because of
accidents, breakage, strike, labor troubles, war, sabotage, governmental
regulations or controls, inability to obtain materials or services, acts of God,
or any other cause, whether similar or dissimilar, beyond Landlord's reasonable
control (i.e., "force majeure"); provided, however, that this will not be deemed
to extend the time periods in Sections 2(a) or Article 16, except to the extent
that extension for force majeure is specifically permitted as provided therein.
24.11 Legal Proceedings. In any action or proceeding involving or
-----------------
relating in any way to this Lease, the court or other person or entity having
jurisdiction in such action or proceeding will award to the party in whose favor
judgment is entered the actual attorneys' fees and costs incurred. Tenant also
will indemnify Landlord for, and hold Landlord harmless from and against, all
Liabilities incurred by Landlord if Landlord becomes or is made a party to any
proceeding or action: (a) involving Tenant and any third party, or by or against
any person holding any interest under or using the Building or the rest of the
Premises by license of or agreement with Tenant (except and strictly to the
extent that Landlord is finally determined to be a joint tortfeasor with Tenant
against such third party); or (b) necessary to protect Landlord's interest under
this Lease in a proceeding under the Bankruptcy Code. Unless prohibited by law,
Tenant waives the right to trial by jury in all actions involving or related to
this Lease, the Premises or any collateral or subsequent agreements between the
parties, and any right to impose a counterclaim in any proceeding brought for
possession of the Premises as a result of Tenant's default. Tenant also submits
to and agrees not to contest the sole and exclusive jurisdiction of the state
and federal courts located in Massachusetts to adjudicate all matters in
connection with this Lease or involving Landlord or Landlord's Affiliates in any
way, and Tenant agrees that it will bring all suits and actions only in such
Massachusetts courts and not to seek a change of venue. Service on any one or
more of the individuals comprising Tenant will conclusively be deemed service on
all of those individuals. In any circumstance where Tenant is obligated to
indemnify or hold harmless Landlord under this Lease, that obligation also will
run in favor of Landlord's Affiliates, and will include the obligation to
protect Landlord and its Affiliates, and defend them with counsel acceptable to
Landlord, and Tenant will pay when due all attorneys' fees and costs. These
obligations to indemnify, hold harmless, protect and defend will survive the
expiration or termination of this Lease.
24.12 Ownership; Invalidity; Remedies; Choice of Law. As used in this
----------------------------------------------
Lease, the term "Landlord" means only the current owner or owners of the fee
title to the Premises. Upon each conveyance (whether voluntary or involuntary)
of fee title, the conveying party will be relieved of all Liabilities and
obligations contained in or derived from this Lease or arising out of any act,
occurrence or omission occurring after the date of such conveyance. Landlord may
Transfer all or any portion of its interests in this Lease or the Premises
without affecting Tenant's obligations and Liabilities under this Lease. Tenant
has no right, title or interest in the name of the Building or the Premises, and
may use these names only to identify its location. Any provision of this Lease
which is invalid, void or illegal will not affect, impair or invalidate any of
the other provisions and the other provisions will remain in full force and
effect. Landlord's rights and remedies are cumulative and not exclusive. This
Lease is governed by the laws of Massachusetts applicable to transactions to be
performed wholly therein.
24.13 Expense; Consent. Unless otherwise provided in this Lease, a
----------------
party's obligation will be performed at that party's sole cost and expense,
except when Landlord is performing Tenant's obligations because of Tenant's
default or failure to perform or as otherwise permitted in this Lease. Except
where it is expressly provided that Landlord will not unreasonably withhold its
consent or approval or exercise its judgment reasonably, Landlord may grant or
withhold its consent or approval and exercise its judgment arbitrarily and in
its sole and absolute discretion and without dispute by Tenant. In any dispute
involving Landlord's withholding of consent or exercise of judgement, the sole
right and remedy of Tenant and its Affiliates is declaratory relief (i.e., that
such consent should be granted where Landlord has agreed not to unreasonably
withhold its consent) pursuant to arbitration in Massachusetts conducted by the
American Arbitration Association utilizing its expedited arbitration procedures,
and Tenant and its Affiliates waive all other rights and remedies, including,
without limitation, claims for damages.
24.14 Presumptions; Exhibits; Submission; Net Lease. This Lease will be
---------------------------------------------
construed without regard to any presumption or other rule requiring construction
or interpretation against the party drafting the document. The titles to the
Articles and Sections of this Lease are not a part of this Lease and will have
no effect on its construction or interpretation. Whenever required by the
context of this Lease, the singular includes the plural and the plural includes
the singular, and the masculine, feminine and neuter genders each include the
others, and the word "person" includes individuals, corporations, partnerships
or other entities. All exhibits and riders attached to this Lease are
incorporated in this Lease by this reference, and if there is any conflict with
the rest of this Lease, the riders will control. The
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submission of this Lease to Tenant or its broker, agent or attorney for review
or signature is not an offer to Tenant to lease the Premises or the grant of an
option to lease to Premises. This Lease will not be binding unless and until it
is executed and delivered by both Landlord and Tenant. This Lease is intended to
be a completely "triple net" lease, unless specifically otherwise provided in
this Lease.
24.15 Cooperation. Tenant will, at its expense, cooperate with Landlord
-----------
in all respects in connection with this Lease, Landlord's ownership, operation,
management, improvement, maintenance and repair of the Premises, and Landlord's
exercise of its rights and obligations under this Lease.
24.16 Notices. All notices, demands or communications required or
-------
permitted under this Lease (the "Notices") will be in writing and personally (by
hand or recognized overnight courier) or electronically delivered, or sent by
certified mail, return receipt requested, postage prepaid. Notices to Tenant
will be delivered to the address for Tenant in Section 1.1. Notices to Landlord
will be delivered to the addresses for Landlord in Section 1.1. Notices will be
effective on the earlier of: delivery; or, if mailed, three (3) days after they
are mailed in accordance with this Section.
24.17 Letter of Credit.
----------------
(a) On or before the initial funding of the Construction Loan,
Tenant will obtain and deliver to Landlord an irrevocable, unconditional standby
letter of credit in accordance with the terms and conditions of this Section
(the "Letter of Credit"). The Letter of Credit will be in the amount of $4
Million, will be issued initially by _____________________________________ (or
its successor) and subsequently by any issuer that meets the criteria in Section
24.17(e), will name Landlord (or, at Landlord's request from time to time, a
current lender to Landlord) as the beneficiary thereof and will have an initial
term of at least one (1) year and, with renewals, an aggregate term (as renewed)
as set forth below. The terms of the Letter of Credit shall be as set forth in
this Section 24.17 and in form reasonably acceptable to the beneficiary thereof.
The beneficiary shall have the right to draw under the Letter of Credit on one
or more occasions from time to time during its term and in accordance with the
terms hereof simply upon presentation to the issuer of a sight draft executed by
the beneficiary or its authorized representative and without further condition,
and the issuer shall pay upon presentation of such draft without deduction or
offset of any type. The Letter of Credit shall be assignable in whole but not in
part, and at Landlord's request from time to time, it shall be reissued in favor
of a new beneficiary in accordance with the terms of this Lease.
(b) Each loan obtained from time to time by Landlord which is
secured by the Letter of Credit (other than the initial mortgage construction
loan) sometimes is referred to as the "Letter of Credit Loan." Until and unless
the Letter of Credit is drawn upon, starting as of one (1) year after the Rent
Commencement Date, and on each annual anniversary thereafter (or, if the Letter
of Credit Loan has not funded within one (1) year after the Commencement Date,
then starting as of fourteen (14) months after the Rent Commencement Date, and
on each annual anniversary thereafter), the face amount of the Letter of Credit
shall be reduced in an amount equal to the annual principal reduction that would
result from a direct reduction loan amortization schedule, assuming an interest
rate equal to the interest rate used to calculate principal amortization under
the Letter of Credit Loan (such schedule to be provided or approved by the
lender of the Letter of Credit Loan), which will have the effect of reducing the
Letter of Credit to zero over the initial term of the Lease (as it may be
extended pursuant to Section 4(b)) . However, subject to the foregoing sentence
but notwithstanding anything else to the contrary, even if the Letter of Credit
has been drawn upon, if and to the extent that those amounts are repaid to
Tenant, Tenant shall thereupon cause the face amount (and thus the amount that
may again be drawn) under the Letter of Credit to be increased by an amount
equal to the amount so repaid, but the face amount will not be more than what it
would have been absent such draw and repayment . (For example, if $500,000 were
to be validly drawn under the Letter of Credit at a time when its face amount is
$4 Million, and if that $500,000 were then repaid to Tenant, the face amount and
the amount that could be drawn under the Letter of Credit again would be $4
Million.) Tenant shall cause the Letter of Credit to be renewed continuously on
the same terms as described above for successive one (1)-year terms (or longer
terms) so that the Letter of Credit is continuously maintained for a term
expiring at the end of the initial term of the Lease (as it may be extended
pursuant to Section 4(b)). Each succeeding Letter of Credit shall be effective
on or before the date that the then-existing Letter of Credit expires. Tenant's
failure to deliver these renewals of the Letter of Credit to the beneficiary at
least thirty (30) days prior to each expiration date shall be a default under
this Lease, and at the beneficiary's option, and notwithstanding anything to the
contrary, the beneficiary shall have the immediate right thereon and thereafter
to draw under the Letter of Credit for all or any portion thereof; provided,
--------
however, that if Tenant delivers the required renewal of the Letter of Credit to
- -------
the beneficiary before the expiration of the existing Letter of Credit and
---
before the beneficiary has drawn under the existing Letter of Credit, then
Tenant shall be deemed to have cured such default.
(c) The Letter of Credit is security for the timely payment and
performance of all of Tenant's Liabilities in connection with this Lease,
including, without limitation, Tenant's obligation to pay base rent and
additional rent, and the obligations under Landlord's loan(s) to the extent
secured thereby. If Tenant defaults under this Lease or there is a default under
such loan(s) or if otherwise permitted under the loan documents, the beneficiary
may, but shall not be obligated to, draw under the Letter of Credit on one or
more occasions, and the beneficiary's draw(s) under or failure to draw down all
or any portion of the Letter of Credit in any particular instance will not be
deemed to be a waiver
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or election of any rights and remedies of any type, a limitation on Landlord's
or the beneficiary's right to damages, a payment of liquidated damages or an
accord or satisfaction.
(d) [INTENTIONALLY OMITTED]
(e) Tenant shall cause the Letter of Credit to be replaced by a
Letter of Credit issued by another recognized bank located and in good standing
in the New England area of the United States that meets the financial criterion
described below and is otherwise reasonably acceptable to the beneficiary: (i)
on demand by the beneficiary if the issuer ever fails to meet the financial
criterion described below; or (ii) if Tenant wishes to replace the Letter of
Credit with a Letter of Credit issued by another bank. The financial criterion
referred to above is the requirement that the issuer will maintain ratings from
Moody's and Standard & Poor's at least equal to those enjoyed by the initial
issuer of the Letter of Credit on the date that the Letter of Credit is
initially issued. The beneficiary shall have the immediate right thereon and
thereafter to draw under the Letter of Credit for all or any portion thereof if
the Letter of Credit is not replaced as and when required by an issuer meeting
the financial criterion referred to above.
(f) In addition to the other circumstances set forth in this Lease
pursuant to which the beneficiary of the Letter of Credit may draw thereunder,
the beneficiary may draw under the Letter of Credit in accordance with the terms
of Exhibit "H" or terms substantially similar thereto.
(g) If Landlord defaults under any loan which is secured by the
Letter of Credit, and if as a result thereof the lender under such loan draws
under the Letter of Credit, and if Landlord's default and/or such draws did not
result in whole or in any material part from Tenant's breach of its obligations
under this Lease (including, without limitation, a failure to comply with the
terms of this Section 24.17) and Tenant is not in default, and if the amount so
drawn is not repaid to Tenant within thirty (30) days after written notice from
Tenant or at Landlord's option credited against amounts owed by Tenant to
Landlord, then the amount so drawn (the "LC Amount") will be treated as a loan
made by Tenant to Landlord, which will be repayable on the terms set forth
below:
(i) The outstanding balance from time to time of the LC
Amount will bear interest at a rate equal to the scheduled interest rate payable
to the lender whose loan is in default (i.e., not any so-called "Default Rate"
or penalty rate thereunder). Subject to the terms of this Subsection (g),
payments to Tenant will be made monthly in an amount equal to: (x) the base rent
paid by Tenant under the Lease for that month; less an amount equal to (y) the
amount owed (if any) for that month by Landlord under any mortgage loan(s)
encumbering the Premises and under any remaining loan(s) secured by the Letter
of Credit plus one twelfth (1/12) of the annual amounts owed (if any) by
Landlord, or required by Landlord's lenders, for taxes, insurance, operating
costs, repairs and maintenance and other similar costs related to the Premises
to the extent not paid by Tenant under the Lease. Amounts not paid when due will
accrue and bear interest at the rate set forth above. The unpaid balance of the
LC Amount, together with any accrued and unpaid interest, will be due and
payable in full on the earlier of: any sale of the Premises; or within thirty
(30) days after the expiration or earlier termination of this Lease other than
because of Tenant's default. Payments made by Landlord to Tenant hereunder will
not be subject to recall or repayment by Tenant.
(ii) All payments owed by Landlord to Tenant will be subject
and subordinate in all respects to the prior payment in full of all amounts then
due under any mortgage loan(s) encumbering the Premises and any loan(s) secured
by the Letter of Credit. Under no circumstances will Landlord be in default
under the Lease by reason of any default by Landlord under any loans or by
reason of Landlord's failure to make any payments owed to Tenant hereunder
(although Landlord still will have the obligation to repay the LC Amount), and
Tenant will not have the right to offset against amounts payable by Tenant under
the Lease any amounts due from Landlord nor will it have the right to terminate
this Lease nor will any of its Liabilities under the Lease be waived, excused or
otherwise affected.
(iii) Notwithstanding anything herein or elsewhere to the
contrary, the obligation to repay all or any portion of the LC Amount and any
interest or other charges in connection therewith will not be binding on nor
will it be applicable to Landlord's lenders or their respective successors or
assigns or their respective purchasers or Affiliates.
24.17A Additional Security.
-------------------
(a) On at least ten (10) days' prior written notice, and thereafter
throughout the Lease term (as it may be extended), Tenant will provide to or at
the direction of Landlord as additional security for the timely payment and
performance of Tenant's Liabilities in connection with this Lease, including,
without limitation, Tenant's obligation to pay base rent and additional rent
(but not as additional security for the obligations under Landlord's loan(s)),
either of the following in an amount equal to $2.5 Million (the "Additional
Security"):
(i) An escrow account or certificate of deposit at
__________________________________ or another bank or other financial
institution approved by Landlord's permanent mortgage lender, that is secured,
pledged, hypothecated and/or delivered in favor of the beneficiary and in a
manner and pursuant to documents approved in writing by the
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beneficiary so that the beneficiary receives at least the functional equivalent
of a cash security deposit or the "Additional Letter of Credit" (defined below).
Until and unless the Additional Security is drawn on, Tenant may retain interest
that accrues on this account or certificate of deposit.
(ii) An additional letter of credit (the "Additional Letter
of Credit") with the same attributes as the Letter of Credit as are set forth in
Sections 24.17(a), 24.17(b) (the last two sentences only), 24.17(c) (except that
references to defaults under Landlord's loans or loan documents will be deemed
deleted) and 24.17(e).
(iii) The Additional Security may be assigned in whole but not
in part to an owner of the Premises or a Landlord's Mortgagee, and Tenant will
cooperate and execute and deliver such other documents as may be required to
designate a new beneficiary and effectuate the assignment.
(b) Provided that Tenant does not default and no portion of the
Additional Security has been validly applied, the Additional Security will be
released entirely when the following conditions all are satisfied, and Tenant
unconditionally so certifies in writing and provides commercially reasonable and
customary independently verifiable evidence of such satisfaction: (i) Tenant
closes the sale of shares of common stock of Tenant in a public offering
pursuant to an effective registration statement under the Securities Act of
1933, as amended, with such common stock listed on a United States national
securities exchange, the NASDAQ national market system, the NASDAQ system, or
another nationally recognized United States exchange; and (ii) Tenant achieves
positive cash flow for eight (8) consecutive quarters (in accordance with GAAP)
(and those eight (8) consecutive quarters all must occur after the satisfaction
of the condition in (i) above), and as of the end of the last such quarter
Tenant has a net worth in excess of $100 Million (in accordance with GAAP and
excluding any goodwill).
(c) If Tenant defaults, the beneficiary will have the right, but
not the obligation, to draw down or apply or retain all or any part of the
Additional Security for the payment of amounts due or on account of any other
Liabilities incurred or to be incurred.
24.18 Other Defined Terms.
-------------------
(ax) "Acquiring Entity" means: an entity that acquires all or
substantially all of Tenant's assets, has a net worth, credit rating and
financial capability at least equal to Tenant's when Tenant executed this Lease,
executes and delivers to Landlord an unconditional assumption of all of Tenant's
obligations and Liabilities under this Lease, and within the two-year period
prior to the proposed acquisition has not been subject to a bankruptcy or
reorganization or any proceedings or court-ordered compliance in connection
therewith, or had a receiver managing any or its affairs or assets, or been
subject to criminal judgments.
(a) "Affiliates" means: partners, directors, officers,
shareholders, agents, employees, parents, subsidiaries, affiliated parties,
invitees, licensees, concessionaires, contractors, subcontractors, successors,
assigns, subtenants, and representatives. However, where Tenant under this Lease
releases Landlord's Affiliates from Liabilities, Tenant will not be deemed to
have released Landlord's contractors and subcontractors if such parties are
completely independent from Landlord and otherwise are not Affiliates of
Landlord.
(bx) "Family Entity" means: (i) an entity in which CMGI, Inc. owns
at least fifty one percent (51%) of the outstanding shares or interests (or in
which CMGI, Inc. owns at least five percent (5%) of the outstanding shares or
interests and CMGI, Inc. or a person affiliated with CMGI, Inc. maintains a seat
on its board of directors); or (ii) an entity in which CMGI, Inc. owned at least
fifty one percent (51%) of the outstanding shares or interests (or in which
CMGI, Inc. owned at least 5% of the outstanding shares or interests and CMGI,
Inc. or a person affiliated with CMGI, Inc. maintained a seat on its board of
directors), that subsequently becomes an entity whose shares or interests are
publicly traded on a public exchange (such as the NYSE or NASDAQ) and in which
CMGI, Inc. continues to own at least one percent (1%) of the outstanding shares
or interests, and in either case, within the two-year period prior to the
Transfer has not been subject to a bankruptcy or reorganization or any
proceedings or court-ordered compliance in connection therewith, or had a
receiver managing any or its affairs or assets, or been subject to criminal
judgments.
(bxx) "Family Sublease" means a sublease by NaviSite, Inc. of at
least 10,000 square feet of the Premises to a Family Entity or to CMGI, Inc.
pursuant to a sublease that complies with the terms of this Lease.
(b) "Laws" means: laws, codes, decisions, ordinances, rules,
regulations, licenses, permits, and directives of governmental and quasi-
governmental officers, including, without limitation, those relating to building
and safety, fire prevention, health, energy conservation, Hazardous Substances
and environmental protection.
(c) "Liabilities" means: all costs, damages, claims, injuries,
liabilities and judgments, including, without limitation, attorneys' fees and
costs (whether or not suit is commenced or judgment entered).
20
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(d) "Systems and Equipment" means: all HVAC, plumbing, mechanical,
electrical, lighting, water, gas, sewer, safety, sanitary and any other utility
or service facilities, systems and equipment, and all pipes, ducts, poles,
stacks, chases, conduits and wires.
25. HAZARDOUS SUBSTANCES.
--------------------
Without limiting the generality of any portion of this Lease, Tenant and
its Affiliates will:
(a) Not store, handle, transport, use, process, generate, discharge or
dispose of any hazardous, toxic, corrosive, dangerous, explosive, flammable or
noxious substances, gasses or waste, whether now or hereafter defined under any
Laws or otherwise (collectively, "hazardous substances"), from, in or about the
Building or the rest of the Premises or create any release or threat of release
of any hazardous substances (except for diesel fuel for Tenant's backup
generators, which will be stored in a commercially reasonable manner prescribed
by Landlord and in any case in accordance with applicable Laws, or small
quantities of cleaning and office supplies for normal office use or for cleaning
or maintaining Tenant's computer equipment, all in accordance with applicable
Laws), nor permit any of the foregoing to occur. If any of the foregoing occur,
or if Landlord in good faith believes that any of the foregoing have occurred or
are likely to occur or that Tenant and its Affiliates are not complying fully
with the requirements of this Article, in addition to any other rights and
remedies of Landlord, Tenant and its Affiliates immediately will cease the acts
or omissions and in addition to any other rights and remedies (all of which are
cumulative), at Landlord's request Tenant will take such actions as may be
required by Laws and as Landlord may direct to cure or prevent the problem.
Tenant and its Affiliates will comply fully with all Laws and insurance
requirements in connection with or related to hazardous substances, whether now
or hereafter existing, including, without limitation, CERCLA, SARA, RCRA, TSCA,
CWA, Chapter 21E of Massachusetts General Laws and any other Laws promulgated by
the EPA, OSHA or Commonwealth of Massachusetts.
(b) Immediately pay, and indemnify Landlord for and hold Landlord harmless
from, all Liabilities in connection with or arising directly or indirectly from
any breach by Tenant or its Affiliates of their obligations in this Article,
including, without limitation, the costs of any of the following, whether
required by Landlord, applicable Laws or insurance requirements or otherwise:
any "response actions" or "responses"; any surveys, "audits", inspections,
tests, reports or procedures deemed necessary or desirable by Landlord or
governmental or quasi-governmental authorities to determine the existence or
scope of any hazardous substances or Tenant's compliance with this Article, and
any actions recommended to be taken in connection therewith; compliance with any
applicable Laws and insurance requirements; any requirements, directives or
plans for the prevention, containment, processing, storage, clean-up or disposal
of hazardous substances; the release and discharge of any resulting liens; and
any other injury or damage. On the expiration or earlier termination of this
Lease, Tenant will leave the Building and the rest of the Premises free of
hazardous substances that were stored, handled, transported, used, processed,
generated, discharged or disposed of by Tenant or its Affiliates.
(c) Immediately deliver to Landlord copies of any notices, information,
reports, and communications of any type received or given in connection with
hazardous substances, including, without limitation, notices of violation and
settlement actions from or with governmental or quasi-governmental authorities,
reports from Tenant's engineers or consultants, and the results of any analyses
conducted by or for Tenant. Tenant specifically grants Landlord the right to
participate in all discussions and meetings regarding actual or potential
violations, settlements or abatements.
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Tenant's failure to comply with the requirements of this Article will be a
material default under this Lease. All of Tenant's obligations under this
Article will survive the expiration or earlier termination of this Lease.
IN WITNESS WHEREOF, intending to be legally bound, each party has executed
this Lease as a sealed instrument as of the date first set forth above on the
date specified below next to its signature.
"LANDLORD"
Executed: May 14, 1999 400 RIVER LIMITED PARTNERSHIP, a Massachusetts
limited partnership
By: Niuna-400 River, Inc., a Massachusetts
WITNESS: corporation,
general partner
/s/ Carolyn Grover By: /s/ John Kusmiersky
- ------------------------------ ----------------------------------------
Name Printed: Carolyn Grover Name: John Kusmiersky
Title: President
Authorized Signature
"TENANT"
Executed: May 14, 1999 NAVISITE, INC., a Delaware corporation
WITNESS:
/s/ Steven Druth By: /s/ Kenneth W. Hale
- ------------------------------ ----------------------------------------
Name Printed: Steven Druth Name: Kenneth W. Hale
Title: CFO
Authorized Signature
22
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EXHIBIT "A"
-----------
SITE PLAN
EXHIBIT "A"
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Page 1 of 1
<PAGE>
EXHIBIT "B"
-----------
JUNE 18, 1997
PARCEL DESCRIPTION
------------------
PARCEL "F-4"
-----------
A CERTAIN PARCEL OF LAND LOCATED IN ANDOVER, COUNTY OF ESSEX, MASSACHUSETTS,
SITUATED NORTHERLY OF 1776 DRIVE AND BEING SHOWN AS PARCEL "F-4" ON A PLAN
ENTITLED, "SUBDIVISION PLAN OF LAND" IN ANDOVER, MASSACHUSETTS ENTITLED
"MINUTEMAN PARK" LOTTING PLAN, SHEET DSP-4 AND DSP-5, SCALE 1"=100' DATED: MARCH
13, 1997, REVISED JUNE 5, 1997, PREPARED BY OWEN HASKELL, INC.
SAID PARCEL "F-4" BEING FURTHER BOUNDED AND DESCRIBED AS FOLLOWS:
BEGINNING AT A NORTHWEST CORNER OF THE PARCEL HEREIN DESCRIBED AT A POINT ON THE
NORTHERLY SIDELINE OF PARCEL "M" (1776 DRIVE); THENCE,
ALONG PARCEL "F-3" THE FOLLOWING SIX COURSES:
N 02(degrees) 43' 59" E ONE HUNDRED EIGHTEEN AND 78/100 FEET, (118.78')
N 40(degrees) 17' 07" E TWO HUNDRED THIRTY FOUR AND 71/100 FEET, (234.71)
N 19(degrees) 13' 08" W FOUR HUNDRED FIVE AND 83/100 FEET (405.83'),
N 20(degrees) 27' 18" E TWO HUNDRED TWENTY TWO AND 68/100 FEET (222.68'),
N 40(degrees) 03' 53" E THREE HUNDRED FORTY SEVEN AND 38/100 FEET, (347.38')
N 09(degrees) 03' 09" W EIGHT HUNDRED FORTY ONE AND 97/100 FEET (841.97') TO
A POINT AT PARCEL "F-6"; THENCE,
ALONG PARCEL "F-6" THE FOLLOWING THREE COURSES:
S 83(degrees) 05' 47" E FORTY FOUR AND 94/100 FEET (44.94'),
S 73(degrees) 16' 52" E THREE HUNDRED THIRTY FOUR AND 56/100 FEET (334.56'),
N 82(degrees) 04' 02" E ONE HUNDRED NINETEEN AND 88/100 FEET, (119.88') TO A
POINT AT THE LAND OF THE TOWN OF ANDOVER CONSERVATION
COMMISSION; THENCE,
S 73(degrees) 16' 52" E ONE HUNDRED FIFTY FOUR AND 01/100 FEET (154.01') TO A
POINT ON THE WESTERLY SIDELINE OF INTERSTATE ROUTE
93; THENCE,
ALONG THE WESTERLY SIDELINE OF INTERSTATE ROUTE 93 THE FOLLOWING TWO COURSES:
S 06(degrees) 04' 41" E TWO HUNDRED TWO AND 56/100 FEET (202.56'), AND BY A
CURVE TO THE LEFT HAVING A RADIUS OF SIX THOUSAND ONE HUNDRED FIFTY AND 00/100
(6150.00') A LENGTH OF ONE THOUSAND NINETY THREE AND 52/100 FEET (1093.52') TO A
POINT AT PARCEL "F-5"; THENCE,
ALONG PARCEL "F-5" THE FOLLOWING FIVE COURSES
S 73(degrees) 21' 28" W THREE HUNDRED NINETY AND 33/100 FEET (390.33'),
S 16(degrees) 38' 32" E TWO HUNDRED FIFTY TWO AND 36/100 FEET (252.36'),
S 39(degrees) 40' 37" W ONE HUNDRED EIGHT AND 90/100 FEET (108.90')
S 71(degrees) 39' 47" W TWO HUNDRED EIGHT AND 17/100 FEET (208.17') AND
S 30(degrees) 54' 43" W ONE HUNDRED SIXTY EIGHT AND 52/100 FEET (168.52') TO
A POINT ON THE NORTHERLY SIDELINE OF PARCEL "M" (1776
DRIVE); THENCE,
ALONG PARCEL "M" THE FOLLOWING THREE COURSES:
BY A CURVE TO THE RIGHT HAVING A RADIUS OF ONE HUNDRED AND 00/100 FEET (100.00')
A LENGTH OF THIRTY ONE AND 75/100 FEET (31.75'), N 66(degrees) 28' 06" W TWENTY
FIVE AND 18/100 FEET (25.18'), AND BY A CURVE TO THE LEFT HAVING A RADIUS OF
FIVE HUNDRED FORTY SEVEN AND 00/100 FEET (547.00') A LENGTH OF ONE HUNDRED
NINETY EIGHT AND 56/100 FEET (198.56') A POINT AT PARCEL "F-3" AND THE POINT OF
BEGINNING.
PARCEL "F-4" CONTAINING 1,190,227 SQUARE FEET OR 27.324 ACRES, MORE OR
LESS.
EXHIBIT B-1
[TEXT DELETED IN ORIGINAL]
Via Fax and U.S. Mail
- ---------------------
Ms. Mirtha Terrientes
BANK OF AMERICA
2049 Century Park East
Los Angeles, California 90067
[TEXT DELETED IN ORIGINAL]
Re: 200 Minuteman Limited Partnership
Rent Collection Account
Dear Ms. Terrientes:
This letter confirms my telephone conversation with you in regard to
the Rent Collection Account no. [TEXT DELETED IN ORIGINAL] which we have
established at the Century City Main Office of Bank of America. I will confirm
some background details about the 200 Minuteman transaction and briefly outline
the purposes of the Rent Collection Account itself.
Background: Last month we completed the renovation and construction of
----------
a new [TEXT DELETED IN ORIGINAL] square foot office building which PictureTel
Corporation partially occupied in December. The land and building in Andover,
Massachusetts, are owned by a limited partnership we organized for that purpose
known as 200 Minuteman Limited Partnership, a Massachusetts limited partnership.
This Partnership is the Landlord under an [TEXT DELETED IN ORIGINAL] lease of
the entire building. The Tenant is PictureTel Corporation, the world leader in
teleconferencing software and products, a high-tech growth company listed on the
NASDAQ.
Disbursement Parties: Now that we are at the end of the construction
--------------------
phase of this investment, we have procured permanent financing from General
America Life Insurance Company ("GALIC") in the amount of [text deleted from
original]. This is a fixed rate loan with self-amortizing monthly payments of
[TEXT DELETED IN ORIGINAL] beginning [TEXT DELETED IN ORIGINAL] and
continuing until [TEXT DELETED IN ORIGINAL]. It is our intent to cause this
level payment of interest and principal due to GALIC to be disbursed no later
than the 3/rd/ business day of each month from the Rent Collection Account at
----
Bank of America.
The Minuteman property is also financed by means of a Letter of Credit
Loan originated with The Bank of Nova Scotia in the amount of [TEXT DELETED IN
ORIGINAL]. This loan is secured solely by an Irrevocable Letter of Credit issued
by Bank of Boston. The loan will bear a variable rate of interest based upon
LIBO and/or Prime Rate, plus a variable scheduled monthly principal reduction
payment. Although both the interest and principal portions of the monthly debt
service payment vary each month, the total monthly debt service payment will be
fixed at [TEXT DELETED IN ORIGINAL]. It is our desire that the Bank of America
Rent Collection Account disburse this debt service to Scotiabank each month no
later than the 10/th/ calendar day of each month, beginning [TEXT DELETED IN
ORIGINAL].
Base Rent Remittance: The PictureTel Corporation Lease provides for
--------------------
monthly payments of base rent in the amount of [TEXT DELETED IN ORIGINAL].
Both the Landlord and Tenants under the PictureTel Lease desire to establish
this Rent Collection Account Agreement with Bank of America whereby the fixed
monthly rent payment will be automatically deposited by wire transfer from
PictureTel on the 1st business day of each month. Here is the monthly activity
we expect in the account:
$ [TEXT DELETED IN ORIGINAL] PictureTel Rent Deposit on the
1/st/ business day
[TEXT DELETED IN ORIGINAL] Disbursement P&I to GALIC by
3/rd/ business day
[TEXT DELETED IN ORIGINAL] Disbursement P&I to Scotiabank by
10/th/ calendar day
$ [TEXT DELETED IN ORIGINAL] Net Balance Paid to Landlord
(Account No. [TEXT DELETED IN
ORIGINAL])
[TEXT DELETED IN ORIGINAL].
The PictureTel Lease is a triple net lease which calls for the Tenant
to make additional payments to the Landlord to cover real estate taxes,
insurance premiums, and common area maintenance charges. All of these additional
rent payments will be made by PictureTel to the Landlord outside of the purview
of this Collection Account, and the billing and remittance for additional rent
will not involve Bank of America.
Conclusion: Please confirm to [TEXT DELETED IN ORIGINAL] and
----------
PictureTel Corporation, by letter to my attention, that Bank of America is
prepared to execute a Collection Account Agreement among the parties to
effectuate the deposit/remittance Rent Collection Account I described above.
Also, please confirm that the Bank will agree not to amend this Collection
Account arrangement without obtaining the prior written approval of both
Landlord and Tenant. We expect that this Collection Account will continue for
not less than [TEXT DELETED IN ORIGINAL] and probably for a longer duration.
Th[TEXT DELETED IN ORIGINAL] arises because the Scotiabank loan term is [TEXT
DELETED IN ORIGINAL], although we expect that it will be extended in the
future, [TEXT DELETED IN ORIGINAL].
If you require additional information about the mechanics of this
matter, you may refer to internal Bank of America documentation of our 100
Minuteman LP Rent Collection Account, account no. [TEXT DELETED IN ORIGINAL]
which is nearly identical to this new [TEXT DELETED IN ORIGINAL] Rent
Collection Account. I also enclosed for your reference a 1996 letter of response
from Bank of America regarding the 100 Minuteman LP Rent Collection Account as
well as wire transfer instructions for the monthly payments to be made by [TEXT
DELETED IN ORIGINAL].
In closing, please give me a call if you have any further questions
about this Collection Account transaction.
Very truly yours,
Patricia Lara
Treasurer
Direct Dial: (310)607-0004 ext. 108
cc: John Kusmiersky
John G. Baker
[TEXT DELETED IN ORIGINAL]
<PAGE>
EXHIBIT "C"
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WORKLETTER
1. General Conditions.
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A. "Landlord's Work" means all labor, services, materials, systems and
equipment, installation and hookups, and all necessary modifications thereto or
occasioned thereby, and all required permits, licenses, approvals and compliance
work necessary to perform and construct the work specified in, or required in
connection with, or resulting from the work and items specified in this
Workletter and the attachments hereto (including, without limitation, the
initial certificate of occupancy for the Building, if and to the extent that its
issuance is not dependent on any Tenant's Work). Landlord will diligently
perform Landlord's Work in a good and workmanlike manner subject to and in
compliance with applicable Laws then in effect. Notwithstanding the foregoing or
anything else to the contrary, Landlord's Work will not include the purchase,
installation or hookup of any computer, data, audio/visual, telecommunications
or similar systems or equipment or cabling or any Tenant's Property (including,
without limitation, any workstations owned by Tenant). Landlord will provide in
the contract with the general contractor for Landlord's Work that each
subcontractor whose initial contract price exceeds One Hundred Thousand Dollars
($100,000) will provide a payment and performance bond.
B. All labor, services, materials, systems and equipment, installation
and hookups, and all necessary modifications thereto or occasioned thereby, and
all required permits, licenses, approvals and compliance work, and all
installations and systems and equipment to or for the Building or the rest of
the Premises other than Landlord's Work are referred to as "'Tenant's Work," and
will be performed by Tenant at Tenant's sole cost and expense, diligently and in
a good and workmanlike manner, subject to and in compliance with all Laws and
subject to the rest of the terms of this Workletter and this Lease. Tenant will
indemnify, defend and hold Landlord and its Affiliates harmless from all
Liabilities resulting from or in connection with Tenant's Work. Without limiting
the generality of the foregoing, Tenant specifically agrees that Landlord's Work
shall be the only labor, services, materials, systems and equipment and
improvements that Landlord is required to provide to or for the initial
occupancy of the Building or the rest of the Premises in accordance with the
terms hereof. If Landlord's Work is delayed or made more expensive due to: any
act or omission of Tenant or its Affiliates (including, without limitation, the
performance of or failure to timely complete any aspect of Tenant's Work, any
requested or required changes to Landlord's Work agreed to by Landlord, or any
failure or delay of Tenant or its representatives in submitting or revising the
plans and specifications or changes or inaccuracies in any of the foregoing, or
Tenant's failure to promptly pay any required amounts); or the inclusion in
Landlord's Work of "long lead" items or services that cannot reasonably be
obtained in sufficient time to be incorporated in Landlord's Work in the normal
course of Landlord's construction schedule (and Tenant's failure to delete or
substitute for those items or services); or Tenant's failure to provide the
information required in Exhibit "CC", and any other information reasonably
requested of Tenant by Landlord to enable Landlord to design and perform
Landlord's Work, in a timely manner; then Tenant will be responsible for the
delays ("Tenant Delays") and additional cost (including, without limitation, any
additional and/or increased debt service, and whether such additional cost
results from the Tenant Delays or otherwise) resulting therefrom. Substantial
Completion of Landlord's Work will be deemed to have occurred when it would have
occurred but for the Tenant Delays (and any Tenant Delays will be subtracted
from the date of actual Substantial Completion in determining when Substantial
Completion will be deemed to have occurred), and Tenant will pay to Landlord any
additional cost for which Tenant is responsible as additional rent within
fifteen (15) days after receipt of Landlord's bills from time to time. Landlord
will notify Tenant or its representatives within ten (10) business days after
becoming aware of any Tenant Delays, but Landlord's failure to notify will not
be a default by Landlord nor will it waive or excuse Tenant's responsibility for
the Tenant Delays and the costs thereof as described above or any of Tenant's
other Liabilities under this Lease.
C. Subject to the terms of this Workletter and the rest of the Lease, and
with Landlord's prior written consent, which will not be unreasonably withheld
or delayed, Tenant and its contractors may have access to the Building, and
particularly the Ground Floor, for the purpose of preparing the Building for
Tenant's occupancy before Landlord's Work has been substantially completed.
Landlord and its representatives will control all scheduling and coordination of
Landlord's Work and Tenant's Work and will attempt to amicably resolve any
disputes that may arise. However, Tenant and its contractors will not interfere
in any way with or delay Landlord's Work, and if there are any conflicts or
disputes that are not amicably resolved, Landlord's Work will have priority.
After any entry by Tenant or its contractors, all of Tenant's Lease obligations
will be immediately effective except for the obligation to pay base rent, Taxes
and Operating Costs. Tenant will indemnify Landlord for and hold Landlord
harmless from all Liabilities that may be incurred by Landlord in connection
with Tenant's Work. Without limiting the generality and applicability of the
rest of this Workletter or this Lease, Tenant and its contractors shall comply
with Sections 13.3, 13.4 and 13.5 of this Lease.
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D. Tenant hereby appoints Fraen Real Estate Corp. as a representative, at
Tenant's sole cost and expense, who will be available to meet and consult with
Landlord and its representatives on a continuing basis at the Premises
concerning Landlord's Work, and who can and if necessary will render binding
decisions on behalf of Tenant as Tenant's agent in connection with issues
involving Landlord's Work promptly and in accordance with this Lease.
E. Tenant will cause its contractors and subcontractors to carry
commercial general liability insurance with the same attributes as those set
forth in Section 8.1(a)(i), each in the amount of at least One Million Dollars
($1,000,000) combined single limit for each occurrence (subject to reasonable
increase during the term at Landlord's request), naming Landlord and its
designees as additional insureds, workmen's compensation insurance in statutory
limits, and employer's liability insurance of not less than One Million Dollars
($1,000,000).
2. Additional Terms.
----------------
The rest of this Workletter is attached hereto and incorporated herein.
2
<PAGE>
EXHIBIT "C" (Continued)
400 Minuteman Road, Andover, MA
NaviSite Workletter
1. INTRODUCTION
A. Landlord will construct a new two-story building, agreed to contain
153,000 square feet of rentable area (including, without limitation,
ground floor, second floor, rooftop penthouse, lobby, atrium, and core
areas), with associated driveways, parking areas and utility
infrastructure.
B. The quality standard of finish for the tenant improvements, unless
otherwise specified to the contrary, will be consistent with those
provided by the owner at 200 Minuteman Road, Andover, Massachusetts.
2. GENERAL INTENT
A. It is the intent of this Workletter to describe the new building
improvements for use by Tenant that are intended to be constructed by
Landlord as part of Landlord's Work. It is intended that the work
proceed on a "fast-track" basis. Certain plans and specifications for
the project, a list of which is attached to this Workletter, and
additional plans and specifications to be prepared by Landlord's
architects and engineers, are intended to be incorporated herein by
this reference. However, unless otherwise approved in writing by
Landlord and Tenant, in the event of any inconsistency or other
irreconcilable difference between the provisions of this Workletter
and the information contained in those plans and specifications, or as
to who is to be responsible for the work, the provisions of this
Workletter are intended to govern.
B. Any changes from the standards established in this Workletter that are
requested by Tenant, either as to quality or quantity of construction
and/or installation will be at Tenant's sole cost, and for any
material changes Landlord will not be obligated to proceed until and
unless mutually agreeable change orders have been executed, including
consideration of impact on cost, construction and completion
schedules, the deposit of Tenant funding, a description of the work
and the manner in which the work is to be performed.
C. Notwithstanding anything to the contrary in this Workletter, with
respect to the First Floor (i.e., Ground Floor) of the new building,
except as otherwise set forth in this Workletter Landlord will be
providing only the Structure (but not the floor slab except in the
Atrium Lobby), the Building Exterior, the loading dock area, the
Atrium Lobby and entry vestibule, and the egress stairway, all as
described in this Workletter, and no other work or installations
(including, without limitation, any systems or equipment except as may
be specifically set forth in this Workletter as being provided for the
Ground Floor). It is the intent of the parties that Tenant will be
building out the Ground Floor area of the building for its data center
at its cost except as otherwise specifically provided in this
Workletter.
3. [INTENTIONALLY OMITTED.]
4. SITE
A. Provide bituminous paved parking areas, striped to accommodate a
minimum of 450 parking spaces including handicap, visitor and employee
parking.
B. Building entry plaza will be concrete pavers with granite paver edge
band. Sidewalks will be concrete with broom finish.
C. Parking lot lighting mounted on lamp posts and exterior entrance
lighting will be operational with photo-electric sensor controls with
manual overrides.
D. Foundation drainage will be provided as required by site conditions
and the Andover Conservation Commission.
E. Landscaping will be provided generally in accordance with the Planting
Plan A L6, dated as of April 20, 1999, prepared by John G. Crowe
Associates, Inc.
3
<PAGE>
F. Landlord will provide signage per the Minuteman Park master plan,
including internal site directional signs, parking signs, directory
signs and a company monument (pylon) sign at the entrance to the site.
As to the company monument (pylon) sign, Landlord will provide the
basic structure and Tenant will be responsible at its cost for all
lettering, graphics, inserts, painting, backdrops and similar items.
5. STRUCTURE
A. Building foundations will be cast-in-place concrete spread footings
and foundation walls. The Ground Floor slab in the Atrium Lobby will
be a 5" thick reinforced concrete slab on grade. All other Ground
Floor slabs will be by Tenant.
B. The primary structure will be steel columns on a 25' by 30' grid with
steel bar joist and steel beam floor and roof framing. The roof of the
90' by 100' area of the building to the south of the Atrium and the
Second Floor of the entire building will have a 5" thick reinforced
concrete slab on metal deck.
C. The structural capacity of the entire Second Floor and the roof of the
90' by 100' building will be 100 lb/sf. (80 lb/sf live load plus 20
lb/sf partition load). The structural capacity of the remaining roof
will be 30 lb/sf.
6. BUILDING EXTERIOR
The new building exterior will be a curtain wall system with fixed,
insulated, thermally broken windows and aluminum insulated sandwich panels
with a paint finish. The mechanical equipment on the roof of the 90' by
100' area will be screened by an extension of its curtain wall system. For
the data center space, Landlord will provide exterior glass that has been
heat strengthened to be heat resistant.
7. ROOF
A. The Second Floor roof will be a single ply mechanically fastened
rubber roof over rigid insulation on steel deck over the data center
area and over concrete deck on the 90' by 100' pod.
B. Natural daylight in the Atrium will be supplemented by clerestory
windows built on the Atrium roof. The Atrium will be similar in design
to the one now existing at 50 Minuteman Road, with semi-transparent
glass in the clerestory windows.
C. A 15-year roof warranty will be provided.
D. Landlord will construct on the roof of the 90' by 100' building a
rooftop mechanical penthouse of approximately 5,000 s.f. using metal
joists and studs, with EIFS and single ply membrane roof, and
lighting, convenience outlets and sprinklers to permit this penthouse
to be used for its intended purpose. Tenant intends to equip this
penthouse with equipment for Tenant's data center, and all of such
equipment and installations will be Tenant's Work at Tenant's sole
cost.
8. LIGHTNING PROTECTION SYSTEM
An LPI-175 lightning protection system will be provided for the building
and all rooftop equipment provided as part of Landlord's obligation.
9. ELEVATORS AND CENTRAL CORE
A. Three elevators will be provided; two hydraulic passenger elevators
located within the Atrium and one hydraulic combination passenger and
freight elevator located near the loading dock. Each passenger
elevator will be 3,500 lb. capacity, with a minimum 6'8" wide by 5'-5"
deep car. The freight elevator will be 4,500 lb. capacity, with a
minimum 5'-8" wide by 7'-9" deep car.
B. The new building will have a central core consisting of an elevator
lobby and a partial two-story Atrium. Finishes at the Ground Floor of
the Atrium will include stone flooring and painted gypsum wallboard.
On the Ground Floor, one bank of men's and women's toilet rooms will
be provided, adjacent to the Atrium. Also included in this area will
be one janitor's closet. Finishes at the Second Floor of the
4
<PAGE>
Atrium will consist of carpeting and painted gypsum wallboard. On the
Second Floor, two banks of men's and women's toilet rooms will be
provided; one bank of toilet rooms will be located adjacent to the
Atrium, and one bank will be located at the North end of the building.
Adjacent to the North bank will be a shower, and janitors' closets
will be provided at the Atrium bank and the North bank.
10. LOADING DOCKS
A. A two-bay loading dock (including dock levelers, dock seals, and
extendible lights to see inside of trucks for unloading) will be
constructed at the exterior of the new building, with an adjacent
interior shipping/receiving area.
B. A concrete pad will be poured adjacent to the loading dock, sized to
accommodate one full-size dumpster with direct access from the loading
dock.
C. The loading dock area will be screened by earth berming and shrubbery.
11. HVAC SYSTEM
A. The Landlord will provide a complete heating, ventilating and air
conditioning (HVAC) system for the Tenant's use on the Second Floor
and in the Lobby/Atrium. Air conditioning loads of the building skin
and tenant equipment of 12 watts/sf will be accommodated by the
Landlord's design of the HVAC system. Equipment will consist of fan
powered, VAV boxes with electric re-heat coils at the perimeter and
VAV boxes in the interior zones.
B. A toilet exhaust system for the Landlord provided toilet rooms will be
provided.
C. All Landlord provided HVAC equipment will be controlled by an
automatic building control system located at a computer terminal in
the building engineer's office within the new building, which will
also control the interior lighting in the Second Floor office area,
the lobby area and the site lighting.
D. The HVAC systems will be designed to meet at least the following
criteria:
(a) Cooling and ventilation capacity sufficient to meet accepted
design standards for the following: a density of one occupant per
150 gross useable square feet in the areas to be served; total
Tenant electrical loads of 12 watts per square foot for lighting
and convenience power in the areas to be served; and one
thermostat control per 2,500 square feet of Tenant useable floor
area in the areas to be served. Additional control zones will be
Tenant's responsibility.
(b) Comfort conditions: Summer - maintain indoor condition 76F, 56%
rh at 90F db/75F outdoors; Winter - maintain indoor temperature
of 72F at 10F outdoors.
12. ELECTRIC SYSTEM
A. The Landlord will provide all necessary site improvements including
duct banks, manholes, and transformer pads (for Massachusetts Electric
Company owned transformers) in accordance with the requirements of
Massachusetts Electric Company for an electrical service for the
Landlord's work (i.e., not the Ground Floor areas that are Tenant's
responsibility).
B. The Landlord provided power system will include distribution panels,
transformers, wiring, and devices necessary for a complete system. An
emergency power system, including an emergency generator and fuel
supply equipment, as required by applicable building codes for life
safety purposes will be provided.
C. Lighting will be provided in sufficient density and spacing with
fixtures similar to those used at 200 Minuteman to achieve lighting
levels similar to those of 200 Minuteman.
D. The Landlord will provide emergency lighting and exit signs in the new
building Atrium and Second Floor as required by building code,
including exterior fire exits.
5
<PAGE>
E. The Landlord will provide standard, wall outlets for data and
telecommunications. The standard outlet consists of a rough box
plaster ring and pull string to the ceiling plenum above. The Tenant
is responsible for all other Tenant system components from the point
of connection at the base building telephone closet to the final point
of use devices. The data/telephone system and cabling will be
furnished and installed by the Tenant. Landlord will provide circuits
for the cubes and will install the system furniture whips (Tenant will
be responsible for making the final connections and will supply
Landlord with the whips to be installed, all at Tenant's cost).
F. Receptacles will be provided at the following rates:
Offices 2 per office
Labs Panduit will be provided at workbench height along
3 walls in each lab for the distribution of power.
Each Panduit will contain 5 circuits.
Conference Rooms 4 per room
Coffee P/C/F 8 per area
Building standard receptacles will be provided in corridors for
housekeeping.
G. Circuiting will be provided as follows:
Offices 2 per circuit
Cubicles 3 per circuit
Labs Panduit will be provided at workbench height along
3 walls in each lab for the distribution of power.
Each Panduit will contain 5 circuits.
Conference Rooms 2 circuits per room
Coffee P/C/F 6 circuits per area
H. Landlord to install telephone duct bank and manhole system for
telephone/fire alarm/fiber optic services and Tenant will pay for the
second, redundant service. Both services are to originate at capped
underground conduits at the 400 Minuteman entrance road.
13. LIFE SAFETY
A. The Landlord will provide a code-required fire alarm system and
associated equipment as required for and consistent with the described
occupancy for the Second Floor and Atrium only. The main fire alarm
panel will be designed and provided with capacity (zones and
amplifiers) for the First Floor devices. The furnishing and
installation of these devices on the First Floor will be the
responsibility of the Tenant.
B. The new building will have three fire exit stair towers and one open
monumental stair. Two stair towers will extend to the roof. The fire
exit stair towers will be finished with painted gypsum wall board on
the interior with concrete-filled steel pan-type stairs with rubber
tread covers and rubber tile on the floors and landings. Stair
railings will be 1 1/2" diameter tubular steel, painted. The
monumental stair will be a steel stair with granite treads and
landings and a painted steel plate stringer.
14. PLUMBING SYSTEM
A. Two toilet rooms per gender per floor will be provided, containing
water closets, lavatories and (in the men's room) urinals. The number
of fixtures will comply with building code requirements. Toilet room
finishes will be 2"x2" ceramic mosaic tile on the floors and 4"x4"
tiles on the walls, Corian lavatory countertops and metal toilet
partitions, all in manufacturer's standard colors. Toilet accessories
will be per the Burt Hill drawings, and ceramic mosaic tiles on the
floor and walls will include accents similar to those used in 200
Minuteman Road. Ceilings will be gypsum wallboard painted.
B. Plumbing, piping and other fixtures will be supplied as required by
applicable building codes to accommodate the needs of the base
building central equipment, such as floor drains, rain water drains,
leaders, risers and connections to the public water supply and sewage
and storm drain systems.
C. An ADA-accessible water fountain will be provided outside each set of
toilet rooms.
E. Accessible toilet fixtures will be provided as required by ADA.
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<PAGE>
F. The parties acknowledge that Tenant will require special roof drains,
and all costs to install those special drains in excess of the
standard base building roof drains will be Tenant's cost.
G. Landlord will provide a water loop around the building from which two
incoming water services will originate. One incoming service will be
at the Landlord's cost and the other will be at the Tenant's cost.
15. FIRE SUPPRESSION
A. The Landlord will provide fire suppression system components, as
required by code, including all central equipment, piping and controls
(stand pipe risers, hose valves, annunciator, etc.) sprinkler
distribution piping for the Second Floor, and sprinkler heads in
building common areas.
B. Sprinkler heads will be provided in Tenant areas on the Second Floor
in a regular grid pattern per high-density open plan configuration.
Drops will not be uniformly centered in the ceiling tile unless the
Tenant directs so at the Tenant's own cost. The Landlord will
coordinate sprinkler drops to avoid interference with the light
pattern, HVAC diffusers and other ceiling mounted components that are
being provided by the Landlord. The Landlord will also modify
sprinkler locations in enclosed spaces such as offices in order to
coordinate with partitions, light fixtures and diffusers. The
sprinkler system will be a dry system and will include dry pendant
sprinkler heads.
16. FINISHES
Tenant fit out standards will be consistent in quality to those provided by
the owner at 200 Minuteman Road and will consist of the following:
A. Building standard partitions will be 3-5/8" steel studs with one layer
of 5/8" gypsum wallboard each side. Partitions will extend
approximately 3" above the ceiling. Conference rooms will be building
standard partitions with sound batts in the stud cavity. All
partitions will receive one coat of prime and two coats of finish
paint.
B. Building standard ceilings will be suspended 2' by 4' Armstrong Second
Look II in a 15/16" painted metal suspension system. Ceilings in the
Atrium and toilet rooms will be painted gypsum wallboard.
C. All exterior windows will receive vinyl vertical louver blinds.
D. Building standard doors will be 3'-0 by 7'-0 solid core wood, stained
finish, in painted hollow metal frames.
E. Offices will have 24" wide glazed sidelights in painted hollow metal
frames with horizontal mini-blinds.
F. Building standard carpeting will be nylon level loop, equal to
Patcraft Cadence #18442-108.
G. Quantity of partitions will be as shown on Visnick and Caulfield
drawing F-2D, dated 5/6/99.
H. In the open plan area on the Second Floor, Landlord will construct
either half-height (60" high maximum) walls to receive Tenant moveable
furniture system partitions tin the maximum amount of 100 lineal feet,
or false columns as requested. Distribution of power and
telephone/data to workstations will be through these partitions.
I. Landlord will supply 4 kitchenettes with a refrigerator and microwave
in each, and a full kitchen including all appliances (i.e.,
refrigerator, microwave and dishwasher). Laminate cabinets will be
provided in the kitchenettes and the full kitchen.
J. Specific to 2 customer conference rooms, Landlord will provide
millwork, display chair rails, accent trim, soffit details, a mixture
between specialty lighting with dimming capabilities and standard
lighting, as well as upgraded ceiling detail.
K. Provide heavy duty commercial Schlage "D" series or qual latchsets and
locksets with Schlage "Sparta" satin chromium lever style handles, or
equal or better. Doors in lobby area and other public areas will have
heavy duty mortise type Schlage "Lease" series latchsets and locksets
with satin chromium Schlage "03" or "17" style lever handles, or equal
or better. Heavy duty ball-bearing hinges
7
<PAGE>
to match hardware. Suite entrance door will be aluminum framed glass
doors with appropriate hardware.
NOTE: The Tenant's space planner and design architect will provide the layout
and specifications for tenant improvements on the Second Floor per
Exhibit "CC" of the Lease. The fit and finish will be consistent with
those provided by the owner at 200 Minuteman Road.
EXHIBIT C
[See Section 2A of Exhibit "C"]
<TABLE>
<CAPTION>
DRAWINGS DATE REV.
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
S100 Foundation Plan - Area "A" 4/16/99
S101 Foundation Plan - Area "B" 4/16/99
S200 Second Floor Framing Plan - Area "A" 4/15/99 1
S201 Second Floor Framing Plan - Area "B" 4/15/99 1
S300 Roof Framing Plan - Area "A" 4/15/99 1
S301 Roof Framing Plan - Area "B" 4/15/99 1
S302 High Roof Framing Plan 4/9/99
S400 Column Schedule 4/16/99
S401 Column Schedule & Typical details 4/16/99
S402 Lateral Bracing Elevations 4/9/99
S500 Sections & Details 4/16/99
S600 Sections & Details 4/9/99
S700 Sections & Details 4/9/99
A201 First Floor Plan 4/8/99 (print date 4/15/99)
A202 Second Floor Plan 4/8/99 (print date 4/15/99)
A203 Roof Plan 4/1/99
A700 Elevations 4/15/99
A710 Wall Sections, Detail Elevations & Plans 4/15/99
F-2 Fit Plan - Floor 2 4/12/99
[Visnick & Caulfield]
L-1 Existing Conditions Plan 4/14/99
L-2 Existing Conditions Plan 4/14/99
AL-3 Proposed Grading Plan 4/20/99
AL-4 Proposed Drainage & Utilities Plan 4/20/99
L-5 Proposed Layout Plan 4/14/99
AL-6 Planting Plan 4/20/99
L-7 Details 4/14/99
L-8 Details 4/14/99
L-9 Details 4/14/99
L-10 Details 4/14/99
Specifications - Sitework Specifications (John G. 4/14/99
Crowe Assoc)
Geotechnical Engineering Evaluation & Recommendations 4/13/99
(Miller and Engineering)
</TABLE>
8
<PAGE>
EXHIBIT "CC"
------------
TENANT INFORMATION
Tenant and its representatives and professionals will deliver to Landlord
on or before June 14, 1999 all necessary information about Tenant's requirements
so that Landlord's architects would have all information necessary from Tenant
so that they could produce final construction documents by June 30, 1999.
Page 1 of 1
<PAGE>
EXHIBIT "D"
-----------
BASE RENT
<TABLE>
<CAPTION>
Annual Base Rent Per Square Foot
Lease Year --------------------------------
---------- of Agreed Rentable Area in the Building
---------------------------------------
<S> <C>
1-3 $ 13.85
4-6 14.45
7-9 14.95
10-12 15.65
13-15 16.40
16-18 17.05
19-21 17.85
22-24 18.65
25-27 19.50
</TABLE>
* Note: Although the above schedule covers a longer period, the initial term
----
expires 12 Lease Years after the Rent Commencement Date, unless extended or
terminated earlier per this Lease.
[SEE RIDER #2 FOR RENT DURING EXTENSION OPTION TERMS]
EXHIBIT "D"
-----------
Page 1 of 1
<PAGE>
EXHIBIT "E"
-----------
RULES AND REGULATIONS
1. Fire exits and stairways are for emergency use only, and they
shall not be used for any other purposes. Tenant shall not encumber or obstruct,
or permit the encumbrance or obstruction of or store or place any materials on
any of the sidewalks, plazas, entrance, corridors, elevators, fire exits or
stairways of the Building or the rest of the Premises.
2. [INTENTIONALLY OMITTED]
3. Any person whose presence in the Premises at any time shall, in
the judgment of the Landlord, be prejudicial to the safety, character,
reputation and interests of the Premises or its tenants may be denied access to
the Premises or may be ejected therefrom. In case of invasion, riot, public
excitement or other commotion the Landlord may prevent all access to the
Premises or the Building during the continuance of the same, by closing the
doors or otherwise, for the safety of the tenants and protection of property.
The Landlord shall in no way be liable to any tenant for damages or loss arising
from the admission, exclusion or ejection of any person to the Premises under
the provisions of this rule.
4. No awnings or other projections over or around the windows shall
be installed by Tenant and only such window blinds as are permitted by the
Landlord shall be used in Tenant's premises.
5. Hand trucks shall not be used in any space, or in the public
halls of the Building in the delivery or receipt of merchandise, except those
equipped with rubber tires and side guards. Tenant shall repair all damage to
floors in the Building caused by its use of material-handling equipment and, if
requested by Landlord, Tenant shall install at its expense suitable floor
covering to protect the floors and shall remove such floor covering (and repair
any damage caused by the removal) at its expense at the expiration or earlier
termination of this Lease.
6. All entrance doors in Tenant's premises shall be kept locked when
Tenant's premises are not in use. Entrance doors shall not be left open at any
time.
7. Nothing shall be done or permitted in Tenant's premises which
would damage or impair any of the Systems or Equipment, nor shall there be
installed by Tenant any Systems or Equipment or other equipment of any kind
which, in Landlord's judgment, could result in such damage or impairment. No
dangerous, inflammable, combustible or explosive object or material shall be
brought into the Building by Tenant or with the permission of Tenant.
8. Whenever Tenant shall submit to Landlord any plan, agreement or
other document for Landlord's consent or approval, such tenant agrees to pay
Landlord as additional rent, on demand, a processing fee in a sum equal to the
fees of any architect, contractor, engineer and attorney employed by Landlord to
review said plan, agreement or document. If Tenant at any time is not a publicly
traded entity whose financial statements are publicly available, within fifteen
(15) days after Landlord's request from time to time, Tenant shall deliver to
Landlord Tenant's financial statements, including a balance sheet, income
statements and bank references, and until and unless those financial statements
are publicly available or disclosure is required under applicable Laws, Landlord
will make a good faith effort to keep them confidential and not disclose them
except to its current or prospective lenders, investors, partners, or
purchasers, or its or their respective partners, employees, officers,
representatives, accountants, or attorneys, and it will instruct such parties to
keep such financial statements confidential to the same extent.
9. No acids, vapors hazardous or other materials shall be discharged
or permitted to be discharged into the waste lines, ducts, vents or flues which
may damage them or any other portions of the Building or the Premises. The water
and wash closets and other plumbing fixtures in or serving any tenant's premises
shall not be used for any purpose other than the purpose for which they were
designed or constructed, and no sweepings, rubbish, rags, acids or other foreign
substances shall be deposited therein. All damage resulting from any misuse of
the fixtures shall be borne by the tenant who, or whose servants, employees,
agents, visitors or licensees, shall have caused the same.
10. No signs, advertisements, notice or other lettering shall be
exhibited, inscribed, painted or affixed by Tenant on any part of the outside or
inside the premises or the Building without the prior written consent of
Landlord. The Tenant shall cause the exterior of any permitted sign to be kept
clean, properly maintained and in good order and repair throughout the term of
its lease. In the event of the violation of the foregoing by Tenant, Landlord
may remove the same without any liability, and may charge the expense incurred
by such removal to Tenant. Landlord shall have the right to prohibit any
advertising by Tenant which impairs the reputation of the Building or the
Premises, and upon written notice from Landlord, Tenant shall refrain from or
discontinue such advertising.
11. [INTENTIONALLY OMITTED]
1
<PAGE>
12. If the Building becomes infested with vermin, Tenant, at its sole
cost and expense, shall cause it to be exterminated, from time to time, to the
satisfaction of Landlord, and shall employ such exterminators therefor as shall
be approved by Landlord.
13. All movers used by Tenant shall be appropriately licensed and
shall maintain adequate insurance coverage (proof of such coverage shall be
delivered to Landlord prior to movers providing service in and throughout the
Building). Tenant shall protect the Building from damage or soiling by Tenant's
movers and contractors and shall pay for extra cleaning or replacement or
repairs by reason of Tenant's failure to do so.
14. The Premises shall not be used for lodging or sleeping or for any
immoral or illegal purposes.
2
<PAGE>
EXHIBIT "F"
-----------
BANKRUPTCY PROVISIONS
This Article is incorporated into the Lease as Article 23:
23. BANKRUPTCY OR INSOLVENCY.
------------------------
23.1 Tenant's Interest Not Transferable. Neither Tenant's interest in this
----------------------------------
Lease nor any estate hereby created in Tenant nor any interest herein or therein
will pass to any trustee or receiver or assignee for the benefit of creditors or
otherwise by operation of law except as may specifically be provided pursuant to
the Bankruptcy Code, 11 U.S.C. Section 101 et seq. (the "Bankruptcy Code").
-- ---
23.2 Default and Termination. If:
-----------------------
(a) Tenant or Tenant's Guarantor, if any, or its executors,
administrators, or assigns, will generally not pay its debts as they become due
or will admit in writing its inability to pay its debts, or will make a general
assignment for the benefit of creditors; or
(b) Tenant or Tenant's Guarantor, if any, will commence any case,
proceeding or other action seeking reorganization, arrangement, adjustment,
liquidation, dissolution or composition of it or its debts under any law
relating to bankruptcy, insolvency, reorganization or relief of debtors, or
seeking appointment of a receiver, trustee, custodian or other similar official
for it or for all or any substantial part of its property; or
(c) Tenant or Tenant's Guarantor, if any, will take any corporate,
partnership or other action to authorize or in furtherance of any of the actions
set forth above in subsection (a) or (b); or
(d) Any case, proceeding or other action against Tenant or Tenant's
Guarantor, if any, will be commenced seeking to have an order for relief entered
against it as debtor, or seeking reorganization, arrangement, adjustment,
liquidation, dissolution or composition of it or its debts under any law
relating to bankruptcy, insolvency, reorganization or relief of debtors, or
seeking appointment of a receiver, trustee, custodian or other similar official
for it or for all or any substantial part of its property, and such case,
proceeding or other action: results in the entry of an order for relief against
it which is not fully stayed within seven (7) business days after the entry
thereof; or remains undismissed for a period of forty-five (45) days, then it
will be a default hereunder and this Lease and all rights of Tenant hereunder
will automatically cease and terminate as if the date of such event were the
original expiration date of this Lease and Tenant will vacate and surrender the
Premises but will remain liable as herein provided.
23.3 Rights and Obligations Under the Bankruptcy Code.
------------------------------------------------
(a) Upon the filing of a petition by or against Tenant under the
Bankruptcy Code, Tenant, as debtor and as debtor in possession, and any trustee
who may be appointed agree as follows: (i) to perform all obligations of Tenant
under this Lease, including, but not limited to, the covenants regarding the
operations and uses of the Premises until such time as this Lease is either
rejected or assumed by order of the United States Bankruptcy Court; (ii) to pay
monthly in advance on the first day of each month as reasonable compensation for
use and occupancy of the Premises an amount equal to all base rent and other
rent otherwise due pursuant to this Lease; (iii) to reject or assume this Lease
within sixty (60) days of the filing of a petition under any Chapter of the
Bankruptcy Code or under any Law relating to bankruptcy, insolvency,
reorganization or relief of debtors (any such rejection being deemed an
automatic termination of this Lease); (iv) to give Landlord at least thirty (30)
days prior written notice of any proceeding relating to any assumption of this
Lease; (v) to give at least thirty (30) days prior written notice of any
abandonment of the Premises (any such abandonment being deemed a rejection and
automatic termination of this Lease); (vi) to do all other things of benefit to
Landlord otherwise required under the Bankruptcy Code or under any Law relating
to bankruptcy, insolvency, reorganization or relief of debtors; (vii) to be
deemed to have rejected this Lease in the event of the failure to comply with
any of the above; and (viii) to have consented to the entry of an order by an
appropriate United States Bankruptcy Court providing all of the above, waiving
notice and hearing of the entry of same.
(b) No default under this Lease by Tenant, either prior to or
subsequent to the filing of such petition, will be deemed to have been waived
unless expressly done so in writing by Landlord.
(c) Included within and in addition to any other conditions or
obligations imposed upon Tenant or its successor in the event of assumption
and/or assignment are the following: (i) the cure of any monetary defaults and
the reimbursement of pecuniary loss by the time of the entry of the order
approving such assumption and/or assignment (pecuniary loss will include,
without limitation, any attorneys' fees and costs and expert witness fees
incurred by Landlord in protecting its rights under this Lease, including
representation of Landlord in any proceeding commenced
EXHIBIT "F"
-----------
1
<PAGE>
under the Bankruptcy Code or under any Law relating to bankruptcy, insolvency,
reorganization or relief of debtor); (ii) the deposit of an additional sum equal
to three (3) months' base rent; (iii) the use of the Premises only as set forth
in this Lease; (iv) the reorganized debtor or assignee of such debtor in
possession or of Tenant's trustee demonstrates in writing that it has sufficient
background including, but not limited to, substantial experience in operating
businesses in the manner contemplated in this Lease and meet all other
reasonable criteria of Landlord as did Tenant upon execution of this Lease; (v)
meet all other criteria of 11 U.S.C. Section 365(b)(3); and (v) the prior
written consent of any mortgagee to which this Lease has been assigned as
collateral security; and (vi) the Premises at all times remains a single unit
and no Alterations or physical changes of any kind may be made unless in
compliance with the applicable provisions of this Lease.
(d) Any person or entity to whom this Lease is assigned pursuant to
the provisions of the Bankruptcy Code will be deemed without further act or deed
to have assumed all of the obligations arising under this Lease on or after the
date of such assignment. Any such assignee will upon demand execute and deliver
to Landlord an instrument confirming such assumption.
23.4 Construction. The terms of this Article will be in addition to, but
------------
not exclusive of, any rights or remedies of Landlord in Article 22 and elsewhere
in this Lease or otherwise available at law or in equity, and will not be deemed
to limit Landlord, except as may be required by law.
EXHIBIT "F"
-----------
2
<PAGE>
EXHIBIT "G"
-----------
PYLON SIGNAGE
[TO BE DELIVERED AND AGREED ON WITHIN TEN (10) DAYS AFTER LEASE SIGNING.]
1
<PAGE>
EXHIBIT "H"
-----------
LENDER'S TERMS
The lender of a loan secured by the Letter of Credit, as the beneficiary
thereof, will have the right to draw under the Letter of Credit from time to
time on one or more occasions on the occurrence of an event of default as
defined in the Loan Agreement for such loan between Landlord and such lender, as
it may be amended from time to time.
EXHIBIT "H"
-----------
1
<PAGE>
EXHIBIT "I"
-----------
[ESSEX NORTH REGISTRY]
SUBORDINATION, NONDISTURBANCE AND ATTORNMENT AGREEMENT
- ------------------------------------------------------
THIS AGREEMENT, made this 26/th/ day of August, 1996, by and among
PictureTel Corporation, a Delaware corporate with offices at 100 Minuteman Road,
Andover, Massachusetts 01810 (hereinafter called "Tenant"), 50 Minuteman Limited
Partnership, a Massachusetts Limited partnership with offices c/o Brickstone
Properties, Inc., 300 Brickstone Square, Andover, Massachusetts 01810
(hereinafter called "Landlord") and MELLON BANK, N.A., a national banking
association having a mailing address at 1735 Market Street, Real Estate Finance-
4/th/ Floor, Philadelphia, Pennsylvania 19103 (hereinafter called "Mortgagee").
WITNESSETH:
-----------
WHEREAS, the Tenant has entered into a certain lease (the "Lease") dated
August 26, 1996, with Landlord covering premises located in Andover,
Massachusetts (the "Premises") and mor particularly described in Exhibit "A"
attached hereto and incorporated herein; and
WHEREAS, the Mortgagee has agreed to make a mortgage loan (the "Loan") to
Landlord secured by, among other security, a mortgage (the "Mortgage"; which
term includes all modifications, renewals, replacements, consolidations and
extensions thereof) on the Premises from Landlord and a certain Assignment of
Leases and Rents from Landlord to Mortgagee (the "Assignment"; which term
includes all modifications, renewals, replacements, consolidations and
extensions thereof) pertaining to the Premises; and
WHEREAS, Mortgagee has been requested by Tenant and Landlord to enter into
a nondisturbance agreement with Tenant.
NOW, THEREFORE, in consideration of the premises and mutual covenants
hereinafter contained and other valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and in order to induce Mortgagee
to make the Loan to Landlord, the parties hereto covenant and agree as follows:
1. The Lease and extensions, renewals, replacements or modifications
thereof, and all of the right, title and interest of the Tenant in and to said
Premises are and shall be subject and subordinate to the Mortgage and to all of
the terms and conditions contained therein, except as otherwise set forth in
this Agreement. With respect to the obligations to make available insurance
proceeds to restore the Premises as a result of fire or other casualty, so long
as no other event of default has occurred under the Mortgage, to the extent
there is an inconsistency between the Lease and the Mortgage, the Lease shall
govern.
2. In the event of foreclosure of said Mortgage, or in the event
Mortgagee comes into possession, makes entry upon or acquires title to the
Premises as a result of the enforcement or foreclosure of the Mortgage or the
promissory note, or the Assignment or as a result of any other means, Mortgagee
agrees that the Lease shall not thereby be terminated and further agrees that
Tenant shall not be disturbed in its possession of the premises demised under
the Lease for any reason other than one which would entitle the Landlord to
terminate the Lease under its terms or would cause, without any further action
by such Landlord, the termination of the Lease or would entitle such Landlord to
dispossess the Tenant from such demised premises.
3. Tenant agrees with Mortgagee that, if the interests of Landlord in the
Premises shall be transferred to and owned by Mortgagee by reason of foreclosure
or other proceedings brought by it, or by any other manner, or if Mortgagee
takes possession of or makes entry upon the Premises pursuant to the Mortgage,
the Assignment or any other document evidencing or securing the Loan, Tenant
shall be directly bound to Mortgagee under all of the terms, covenants and
conditions of the Lease for the balance of the term thereof remaining and any
extensions or renewals thereof which may be effected in accordance with any
option therefor in the Lease, with the same force and effect as if Mortgagee
were the Landlord under the Lease, and Tenant does hereby attorn to Mortgagee as
its Landlord, said attornment to be effective and self-operative without the
execution of any further instruments on the part of any of the parties hereto
immediately upon Mortgagee succeeding to the interest of the Landlord in the
Premises. Tenant agrees, however, upon the election of and written demand by
Mortgagee within twenty (20) days after Mortgagee receives title to the Premises
to execute an instrument in confirmation of the foregoing provisions,
satisfactory to Mortgagee, in which Tenant shall acknowledge such attornment and
shall set forth the terms and conditions of its tenancy.
4. Tenant agrees with Mortgagee that, if Mortgagee shall succeed to the
interest of Landlord under the Lease, Mortgagee shall not be (a) liable for any
act, waiver, representation (express or implied), or omission of any prior
landlord (the term "prior landlord" as used in this Section 4 includes, without
limitation, the Landlord) under the Lease or otherwise, or (b) subject to any
offsets, counterclaims or defenses which Tenant might have against any prior
landlord, or (c) bound by any rent, percentage rent or additional rent or
charges which Tenant might have paid for more than one month in advance to any
prior landlord, or (d) bound by any security deposit or tax and/or insurance
escrow which Tenant may have paid to any prior landlord, except to the extent
such deposit and escrowed funds are in an escrow fund controlled by Mortgagee,
or (e) bound by any amendment or modification of the Lease or any consent by any
prior landlord under the Lease to any assignment or sublease of the lessee's
interest in the Lease made without Mortgagee's prior written consent, or (f)
bound by any provision in the Lease which obligates the Landlord to erect or
complete any building or to perform any construction work or to make any
improvements to the Premises or any parts thereof, (including, without
limitation, "Landlord's Work", as defined in the Lease), provided that nothing
herein shall require Tenant to pay rent under the Lease except as provided in
the Lease or (g) bound with respect to breaches other than those occurring
during Mortgagee's possession of the Premises or ownership of the landlord's
interest under the Lease or (h) bound by any of the provisions contained in
[Rider #1 and 3] [TEXT DELETED IN ORIGINAL]. Notwithstanding the provisions of
clause (f), above, Tenant agrees that Mortgagee shall have the election (but not
the obligation) to complete, directly or indirectly, the Landlord's Work in
accordance with the Lease, with Tenant being obligated to accept such as
performance under the terms of the Lease. In addition, Tenant agrees to look
solely to the Landlord's interest in the Premises or if the Mortgagee acquires
fee title to the Premises, to the Mortgagee's interest in the Premises for
recovery of any judgement from Mortgagee, it being specifically agreed that
neither Mortgagee nor anyone claiming under the Mortgagee shall ever be
personally liable for any such judgment. Tenant further agrees with Mortgagee
that Tenant will not voluntarily subordinate the Lease to any lien or
encumbrance without Mortgagee's prior written consent.
5. Tenant hereby acknowledges that all of Landlord's right, title and
interest as lessor under the Lease (and in any guarantees of Tenant's
obligations thereunder) are being duly assigned to the Mortgagee pursuant to the
terms of the Mortgage and/or the Assignment and that pursuant to the terms
thereof all rental payments under the Lease shall continue to be paid to
Landlord in accordance with the terms of the Lease unless and until Tenant is
otherwise notified in writing by the Mortgagee. Upon receipt of any such written
notice from the Mortgagee, Tenant covenants and agrees to make payment of all
rental payments and other charges and payments then due or to become due under
the Lease directly to the Mortgage or to the Mortgagee's agent designated in
such notice, whether or not the Mortgagee has made entry or become Mortgagee in
possession pursuant to the Mortgagee or the Assignment, and to continue to do so
until otherwise notified in writing by the Mortgagee. Landlord hereby
irrevocably directs and authorizes Tenant to make rental payments directly to
the Mortgagee following receipt of such notice, and covenants and agrees that
Tenant shall have the right to rely on such notice without any obligation to
inquire as to whether any default exists under the Mortgage or the Assignment or
the indebtedness secured thereby, and notwithstanding any notice or claim of
Landlord to the contrary, and that Landlord shall have no right or claim against
Tenant for or by reason of any rental payments made by Tenant to the Mortgagee
following receipt of such notice Tenant further acknowledges and agrees: (a)
that under the provisions of the Mortgage and/or Assignment, the Lease (and any
guarantees thereof) cannot be terminated (nor can Landlord accept any surrender
of the Lease) or modified in any of its terms, or consent be given to the waiver
or release of Tenant from the performance or observance of any obligation under
the Lease or to any assignments or subleases thereof not permitted by the terms
of the Lease without the prior written consent of the Mortgagee, which consent
shall not be unreasonably withheld, and without the prior written consent of the
Mortgage no rent may be collected or accepted by Landlord more than one month in
advance; (b) that the interest of Landlord as lessor under the Lease (and in any
guarantees of Tenant's obligations thereunder) have been assigned to the
Mortgagee for the purposes specified in Mortgage and/or Assignment and the
Mortgagee assumes no duty, liability or obligation under the Lease, except only
under the circumstances, terms and conditions specifically set forth in the
Mortgage and/or the Assignment, copies of which are being recorded concurrently
herewith; and (c) that a default by Tenant under the Lease (as "default" is
defined in the Lease) which is not cured within the earlier of (i) the
applicable cure period provided under the Lease or (ii) the thirty (30) day
period following the occurrence of such default will constitute, at Mortgagee's
election, an event of default under the Loan with the Mortgagee having no
obligation to provide Tenant with any notice thereof or cure opportunity
therefor and notwithstanding the existence of any longer cure period provided to
Tenant under the Lease.
6. Tenant, as lessee under the Lease, hereby covenants and agrees to give
the Mortgagee written notice properly specifying wherein the landlord under the
Lease has failed to perform any of the covenants or obligations of the Landlord
under the Lease, simultaneously with the giving of any notice of such default to
the landlord under the provisions of the Lease. Tenant agrees that the Mortgagee
shall have the right, but not the obligation, within sixty (60) days after
receipt by the Mortgagee of such notice (or within such additional time as is
reasonably required to correct any such default or is provided for in the Lease,
whichever is longer) to correct or remedy, or cause to be corrected or remedied,
each such default before the lessee under the Lease may take any action under
the Lease by reason of such default. Such notices to the Mortgagee shall be
delivered in duplicate to:
Mellon Bank, N.A.
1735 Market Street
Real Estate Finance - 4th Floor
Philadelphia, Pennsylvania 19103
with a copy to:
Michael J. Moran, Esquire
Goulston & Storrs
400 Atlantic Avenue
Boston, MA 02110
or to such other address as the Mortgagee shall have designated to Tenant by
giving written notice to Tenant at:
PictureTel Corporation
100 Minuteman Road
Andover, MA 01810
Attn: Chief Financial Office
with a copy to:
Thomas Zimmer, Esq.
One Militia Drive
Lexington, MA 02173
or to such other address as may be designated by written notice from Tenant to
the Mortgagee. All written notices required or permitted hereunder shall be sent
by registered or certified mail, return receipt requested, or by recognized
overnight delivery service (such as Federal Express) by telex or fax with
confirmation in writing mailed first-class, in all cases with postage and
charges prepaid, and shall be considered effective when received or refused.
7. Tenant and Landlord acknowledge that Mortgagee is the beneficiary
under the Letter of Credit (as defined in the Lease) and notwithstanding
anything contained in the Mortgage or other Loan documents to the contrary,
Mortgagee agrees that it will draw under the Letter of Credit only in accordance
with [TEXT DELETED IN ORIGINAL] that certain construction loan agreement
between Mortgagee and Landlord of even date herewith, a copy of which section is
attached hereto and incorporated herein. Each of Tenant and Landlord agree with
Mortgagee, notwithstanding anything to the contrary contained in the Lease, that
until such time as all of the conditions to Mortgagee's obligation to advance
the final [TEXT DELETED IN ORIGINAL] [$4 million] of loan proceeds under the
Loan have been satisfied, (a) the face amount of the Letter of Credit shall not
be reduced as set forth in Section 24.17(b) of the Lease (although the face
amount shall be reduced as provided in the Lease starting one year after the
"Commencement Date" (as defined in the Lease) if such conditions have then been
satisfied); and (b) the Mortgagee shall not be subject to any restriction in the
Lease that seeks to prevent draws under the Letter of Credit prior to
substantial completion of Landlord's Work (although draws shall remain subject
to [TEXT DELETED IN ORIGINAL] [the Loan Agreement]; and until all indebtedness
secured by the Mortgage is repaid, (c) Tenant shall not seek to exercise any
rights it may have under the Lease to substitute for the Letter of Credit by a
cash deposit or otherwise unless Mortgagee gives its prior consent to such
substitution; (d) the Letter of Credit secures, inter alia, all obligations of
Landlord to Mortgagee under the Loan; and (e) the form of the Letter of Credit
and the issuer thereof (and all replacements and subsequent issuers thereof)
shall be subject to Mortgagee's approval at all times, which approval shall not
be unreasonably withheld (i) as to any issuer meeting the requirements of
Section 24.17 (c) of the Lease (and First National Bank of Boston and Chemical
Bank are hereby approved as issuers) and (ii) as to any form that is no less
favorable to Mortgagee than the form of letter of credit [initially accepted by
Mortgagee] [TEXT DELETED IN ORIGINAL]. Tenant further acknowledges and agrees
with Mortgagee that all rights of and liabilities owed to Tenant (whether
arising directly or indirectly, by operation of law, contract or otherwise) on
account of any draws made under the Letter of Credit by Mortgagee [TEXT DELETED
IN ORIGINAL] are expressly subordinated in all respects, including the right
to payment and lien status, to the Loan and its prior repayment to Mortgagee and
all security and collateral provided to Mortgagee in connection with the Loan.
Such subordination shall not be affected or impaired by any act or omission on
the part of Mortgagee in connection with the Loan, any noncompliance by Landlord
with any obligation owed Mortgagee under the Loan or any waiver, failure to
perfect, release, amendment, restraint, compromise or settlement of any
obligations owed Mortgagee under the Loan or with respect to any of the security
provided to Mortgagee in connection with the Loan. So long as any of the
indebtedness under the Loan is committed or outstanding, Tenant (i) agrees not
to exercise or enforce any of its rights and remedies (whether arising directly
or indirectly, by operation of law or otherwise) against Landlord or any of
Landlord's assets on account of draws made by Mortgagee under the Letter of
Credit [TEXT DELETED IN ORIGINAL], except to the extent strictly necessary to
prevent the lapse of Tenant's rights and remedies against Landlord (as opposed
to the pursuit of such rights or remedies). Tenant further agrees to provide
directly to any lender who refinances the Loan the benefit of the foregoing
terms and conditions of this Section 7 [TEXT DELETED IN ORIGINAL].
8. Tenant and Landlord agree with Mortgagee that, prior to the
establishment of any collection account for the receipt and disbursement of rent
under the Lease (as set forth in Section 5(a) of the Lease), they will notify
Mortgagee of their intent to set up such account and obtain Mortgagee's prior
written consent therefor which will not be unreasonably withheld or delayed.
Once established such account shall not be changed without Mortgagee's prior
written consent. In the event there occurs any event of default under the Loan
or a condition exists or event occurs that with the passage of time and/or
giving of notice could constitute an event of default under the Loan, Tenant and
Landlord agree, at Mortgagee's election, to cooperate with Mortgagee in having
the funds from such account transferred to an account immediately controlled
solely by Mortgagee.
9. Provided that Tenant is not in default under the Lease, Mortgagee
agrees to give Tenant written notice of any default by Landlord under the
Mortgage (and if a notice of default is given to the Landlord, then concurrently
with giving notice of such default to Landlord) and to accept from Tenant a cure
of any such default (if such default is curable by Tenant) within the same cure
period, if any, allowed to Landlord under the Mortgage or 10 days after delivery
of such notice, whichever is greater.
10. This Agreement shall bind and inure to the benefit of the parties
hereto, their successors and assigns. Whenever a reference is made herein to a
requirement for Mortgagee's consent, such reference shall mean that Mortgagee
may give or withhold consent in its sole discretion, except as otherwise
expressly provided in this Agreement. As used herein, the term "Tenant" shall
include the Tenant, its successors and assigns, and the term "Landlord" shall
include the Landlord and its successors and assigns. The foregoing references to
successors and assigns of Tenant and Landlord is not intended to and does not
constitute a consent by Landlord or Mortgagee to any assignment or sublease by
Tenant of its interests under the Lease or any consent by Mortgagee to any
assignment by Landlord of its interest under the Lease. The words "foreclosure"
and "foreclosure sale" as used herein shall be deemed to include the acquisition
of Landlord's estate in the Premises by voluntary deed (or assignment) in lieu
of foreclosure, and the word "Mortgagee" shall include the Mortgagee herein
specifically named and any of its successors and assigns, and anyone who shall
have succeeded to Landlord's interest in the Premises by, through or under
foreclosure of the Mortgage, including, without limitation, any purchaser of the
Premises through foreclosure or any successor or assign thereof.
10. This Agreement shall not be modified or amended except in writing
signed by all parties hereto.
11. The use of the neuter gender in this Agreement shall be deemed to
include any other gender, and words in the singular number shall be held to
include the plural, when the sense requires.
IN WITNESS WHEREOF, the parties hereto have placed their hands and seals,
the day and year first above written.
WITNESS: TENANT:
PICTURETEL CORPORATION,
a Delaware corporation
/s/ William Krasnow By: /s/ Leonard M. Bernstein
- ---------------------------- -----------------------------
Its: Vice President
----------------------------
Hereunto duly authorized
WITNESS: LANDLORD:
50 MINUTEMAN LIMITED
PARTNERSHIP,
a Massachusetts limited partnership
By: NIUNA-50 MINUTEMAN, INC.
a Massachusetts corporation
its sole general partner
/s/ Jane Hanify Pitt By: /s/ John Kusmiersky
- ---------------------------- -----------------------------
John Kusmiersky
Its: President
Hereunto duly authorized
WITNESS: MORTGAGEE:
MELLON BANK, N.A.
/s/ Carol Lynch By: /s/ Ronald J. Bloom
- ---------------------------- -----------------------------
Name: Ronald J. Bloom
---------------------------
Its: Vice President
----------------------------
Hereunto duly authorized
Loan No.00110496
--------
SUBORDINATION, NON-DISTURBANCE
AND ATTORNMENT AGREEMENT
THIS AGREEMENT made as of this 22/nd/ day of December, 1998, between
GENERAL AMERICAN LIFE INSURANCE COMPANY, a Missouri corporation ("Lender") and
PICTURETEL CORPORATION, a Delaware Corporation ("Tenant").
RECITALS:
WHEREAS, Tenant has entered into that certain Lease dated March 19, 1997,
as amended by Amendment #1 to Lease dated June 4, 1998 (collectively, the
"Lease") for premises ("Premises") located at 200 Minuteman Drive, Andover,
Essex County, Massachusetts, all as more particularly described in the Lease.
WHEREAS, Lender is or is about to become the holder of a deed of trust or
mortgage ("Mortgage"), between 200 MINUTEMAN LIMITED PARTNERSHIP, a
Massachusetts limited partnership ("Landlord") and Lender, dated about this same
date and recorded with the Recorder of Deeds for Essex County, Massachusetts,
encumbering certain property more particularly described in Exhibit A annexed
---------
hereto ("Property") and a Collateral Assignment of Lease or Leases dated about
this same date and recorded with the Recorder of Deeds for Essex County,
Massachusetts ("Assignment") assigning the Lease. Both the Mortgage and the
Assignment secure a loan or loans evidenced by a Promissory Note from the
Landlord to Lender.
WHEREAS, Each party hereto has requested the other party to enter into this
Agreement.
AGREEMENTS:
NOW, THEREFORE, in consideration of the above Recitals and the agreements
of the parties set forth below, and for One Dollar ($1.00) and other good and
valuable consideration, the parties hereto agree as follows:
1. Permitted Financing. Tenant understands and agrees that the Mortgage
-------------------
and the associated loan from Lender is not "Unpermitted Financing" as that term
is defined in the Lease.
2. Lease Subordinated to Mortgage. The Lease and each and every term and
------------------------------
condition thereof, and any extensions, renewals, replacements or modifications
thereof, and all of the right, title and interest of Tenant in and to the
Premises are and shall be subject and subordinate to the Mortgage and the
Assignment and to all of the terms and conditions contained therein, all
advances made or to be made thereunder, and to any renewals, modifications,
supplements, replacements, consolidations, increases or extensions thereof.
3. Nondisturbance. Lender agrees that in the event of foreclosure of the
--------------
Mortgage, or other enforcement of the terms and conditions of the Mortgage or
the exercise by Lender of its rights under the Assignment, or in the event
Lender comes into possession or acquires title to the Premises as a result of
foreclosure or the threat thereof, or as a result of any other means, such
action:
(a) shall not result in either a termination of the Lease or a
diminution or impairment of any of the rights granted to Tenant in the
Lease (except as set forth below) or in an increase in any of Tenant's
obligations under the Lease, including but not limited to provisions in the
Lease dealing with condemnation, fire and other casualties, so long as
Tenant is not in default in the payment of any monetary obligation or in
default under any material non-monetary term or condition of the Lease
beyond any applicable grace period and continues to observe and perform all
of Tenant's obligations under the Lease; and
(b) shall result in the termination and cancellation of all of
Tenant's rights pursuant to [TEXT DELETED IN ORIGINAL] [Rider #1 and
Rider #3 so that Lender shall] in no way be bound by or subject to the
terms, covenants or conditions of such [TEXT DELETED IN ORIGINAL]
[Riders].
4. Attornment. Tenant agrees with Lender that if the interest of Landlord
----------
in the Premises shall be transferred to Lender by reason of foreclosure or other
proceedings, or by any other manner, or in the event of a foreclosure sale of
the Premises to any other person, firm, or corporation, then in any of said
events, Tenant shall be bound to Lender or such purchaser, grantee or other
successor to Landlord's interest ("Successor Landlord") under all of the terms,
covenants and conditions of the Lease for the balance of the term remaining and
any extensions or renewals thereof which may be effected in accordance with any
option therefor in the Lease, with the same force and effect as if the Successor
Landlord were the landlord under the Lease. Tenant does hereby agree to attorn
to the Successor Landlord.
5. Successor Landlord. Tenant agrees that a Successor Landlord shall not
------------------
be:
(a) liable for any act or omission of any prior landlord under the
Lease, except to the extent such acts or omissions continue after Successor
Landlord becomes landlord under the Lease (unless Successor Landlord does
not have the legal capacity or authority to take corrective action with any
such acts or omissions);
(b) bound by any base rent or additional rent which Tenant may have
paid for more than the current or next succeeding month to any prior
landlord.
(c) subject to any offsets or defenses which Tenant might be entitled
to assert against any prior landlord;
(d) bound by any amendment or modification made without Lender's
consent;
(e) responsible for the return of any security deposit delivered to
Landlord under the Lease and not subsequently received by Successor
Landlord;
(f) liable for any obligations, payments or liabilities owing in
connection with the Letter of Credit obtained by Tenant pursuant to the
terms of the Lease; or
(g) liable for any tenant improvement work, leasing commissions, or
any other expenses incurred by or in behalf of Tenant.
6. Notice by Tenant. Tenant will notify Lender of any default of Landlord
----------------
under the Lease which Tenant believes would entitle it to cancel the Lease or
abate the base rent or additional rent payable thereunder, and agrees that no
notice of cancellation thereof nor any such rent abatement shall be effective
against Lender unless Lender has received the notice aforesaid and has failed to
cure the default within the longer of thirty (30) days after such notice or such
period of time following such notice as Landlord has to cure the default which
gives rise to such alleged right of cancellation or abatement ("Lender Cure
Period"); however, to the extent the Landlord's default pertains to a
nonmonetary obligation which cannot be cured by Lender without being in
possession of the Property, the Lender Cure Period shall be extended by the
period of time necessary to enable Lender to obtain possession of the Property
(which may include a suit to foreclose the Mortgage), provided Lender uses
reasonable diligence to so obtain possession; provided further, however, that in
no event shall such period of time exceed one hundred eighty (180) days. All
such notices shall be in writing and shall be deemed to have been given when
delivered personally or when deposited in the United States mail, certified or
registered, postage prepaid, addressed as follows:
General American Life Insurance Company
700 Market Street
St. Louis, MO 63101
Attention: Mortgage Loans and Real Estate
7. Rent Payments to Lender. If Lender sends written notice to Tenant to
-----------------------
direct its Rent payments under the Lease to Lender instead of Landlord, then
Tenant agrees to follow the instructions set forth in such written instructions
and deliver Rent payments to Lender; however, Lender agrees that Tenant shall be
credited under the Lease for any Rent payments sent to Lender pursuant to such
written notice.
8. Acknowledgment of Assignment. Tenant hereby acknowledges receipt of
----------------------------
notice of the Assignment and agrees to be bound by the terms thereof and agrees
that it will, upon Lender's demand therefor, thereafter pay directly to Lender
all amounts thereafter payable by Tenant to the Landlord under the Lease.
9. Miscellaneous. This Agreement shall bind and inure to the benefit of
-------------
the parties hereto, their successors and assigns. As used herein, the term
"Tenant" shall include the Tenant, its successors and assigns as permitted under
the Lease; the words "foreclosure" and "foreclosure sale" as used herein shall
be deemed to include the acquisition of Landlord's estate in the Premises by
voluntary deed (or assignment) in lieu of foreclosure, and the word "Lender"
shall include the Lender specifically named herein and any of its successors and
assigns, including any Successor Landlord.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the month, day and year first above written.
LENDER:
GENERAL AMERICAN LIFE INSURANCE
COMPANY, a Missouri corporation
By: /s/ Matthew P. McCauley
---------------------------------------
Title: Matthew P. McCauley, Vice President
------------------------------------
TENANT:
PICTURETEL CORPORATION,
a Delaware corporation
By: /s/ Larry Bernstein
---------------------------------------
Title: VP Human Resources
------------------------------------
STATE OF MISSOURI )
) SS
CITY OF ST. LOUIS )
On this 14th day of December, 1998, before me, the undersigned Notary
Public, personally appeared Matthew P. McCauley, known personally by me and
known to be the Vice President of GENERAL AMERICAN LIFE INSURANCE COMPANY, a
Missouri corporation (or, respectively, of Coning Asset Management Company, a
Missouri corporation, and, as such, authorized to act on behalf of the said
General American Life Insurance Company) and who acknowledged under oath that he
executed the within instrument in such capacity as the free act and deed of
General American Life Insurance Company.
/s/ Suzanne C. Heinemann
-------------------------------------
Notary Public
My Commission expires:
Suzanne C. Heinemann
Notary Public - Notary Seal
State of Missouri
St. Louis County
My Commission Expires June 27, 1999
STATE OF MASSACHUSETTS )
) SS
COUNTY OF ESSEX )
On this 20th day of November, 1998, before me, the undersigned Notary
Public, personally appeared Larry Bernstein, known personally by me and known to
be the VP Human Resources of PICTURETEL CORPORATION, a Delaware corporation and
who acknowledged under oath that he executed the within instrument in such
capacity as the free act and deed of PICTURETEL CORPORATION.
/s/ Sandra Lombardi
-------------------------------------
Notary Public
My Commission expires: Sandra Lombardi
Notary Public
My Commission Expires: 12/17/2004
RECORDING REQUESTED BY AND
WHEN RECORDED MAIL TO:
- --------------------------------------------------------------------
Space Above This Line for Recorder's Use
SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT
THIS AGREEMENT, is made this ______ day of ____________, 199__ by having
its principal office and place of business located at
________________________________________________ ("Tenant"), and John Hancock
Mutual Life Insurance Company, having is principal place of business located at
200 Clarendon Street, John Hancock Place, P.O. Box 111, Boston, MA 02117
("Lender"), with reference to the following facts:
RECITALS
A. On _________________________________________ ("Landlord") and Tenant
entered into a certain lease ("Lease") covering certain space ("Premises") in
the building located at ___________________________, which property is more
particularly described in the Mortgage (as hereinafter defined) ("Property");
B. Lender has agreed to make a loan ("Loan") to Landlord, which Loan is
to be evidenced by a note and secured, inter alia, by a first [deed of
trust/mortgage] in favor of Lender and upon the terms and conditions described
therein, which shall be recorded in the Official Records of
______________________________ (said mortgage and all amendments, modifications,
renewals, substitutions, extensions, consolidations and replacements are
hereinafter collectively referred to as "Mortgage");
C. It is a condition precedent to obtaining the Loan that (i) the
Mortgage unconditionally be and remain at all times a first lien or charge upon
the Property prior and superior to the Lease; (ii) Tenant specifically and
unconditionally subordinate the Lease to the lien or charge of the Mortgage and
(iii) Tenant attorn to Lender and its successor and assigns in the event of the
foreclosure or other proceeding to enforce the Mortgage;
NOW, THEREFORE, in consideration of the mutual benefits accruing to the
parties hereto and other valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, and in order to induce Lender to enter into the
above-referenced Loan, Lender and Tenant hereby agree as follows:
1. Subordination. The Mortgage is and shall unconditionally be and remain
-------------
at all times a lien or charge upon the Property prior and superior to the Lease,
the leasehold estate created thereby and all rights and privileges of Tenant or
any other tenant thereunder, and the Lease, the leasehold estate created thereby
and all rights and privileges of Tenant or any other tenant thereunder are
hereby unconditionally subjected and made subordinate to the lien or charge of
the Mortgage.
2. Lender's Exercise of Remedies. In the event of (a) the institution of
-----------------------------
any foreclosure, trustee's sale or other like proceeding, (b) the appointment of
a receiver for the Landlord or the Property, (c) the exercise of rights to
collect rents under the Mortgage or an assignment of rents, (d) the recording by
Lender or its successor or assignee of a deed in lieu of foreclosure for the
Property, or (e) any transfer or abandonment of possession of the Property to
Lender or its successor or assigns in connection with any proceedings affecting
Landlord under the Bankruptcy Code, 11 U.S.C. ss. 101 et seq. (any such
foreclosure, recording of a deed in lieu of foreclosure, or transfer or
abandonment of the Property referred to in the preceding clauses (a) through (e)
is hereinafter called a "Transfer", and Lender or any successor or assignee of
Lender taking title to the Property in connection with a Transfer is hereinafter
called the "Transferee"), such Transferee shall not: (i) be liable for any
damages (including, without limitation, consequential damages) or other relief
or be subject to any offsets, defenses or counterclaims of any kind attributable
to any act, omission or waiver (express or implied) of Landlord or any prior
landlord under the Lease, or otherwise; (ii) be obligated to complete any
construction or improvements at the Property, Premises or elsewhere agreed to be
done by Landlord or any prior landlord under the Lease, or otherwise, or to
reimburse Tenant for any prior construction work done by Tenant, or be subject
to any offsets, defenses or counterclaims therefor, (iii) be bound by any
prepayment by Tenant of more than one month's installment of rent unless such
prepayment has been specifically approved in writing by Lender, or be liable or
responsible for any security deposit or other sums which Tenant may have paid
under the Lease unless such deposit or other sums have been physically delivered
to Transferee, (iv) be bound by any modification of or amendment to the Lease,
unless such amendment or modification shall have been approved in writing by
Lender, (v) be bound by any notices given by Tenant to Landlord unless a copy
thereof was then simultaneously given to Lender, (vi) be required after a fire,
casualty or condemnation of the Property or Premises to repair or rebuild the
same to the extent that such repair or rebuilding requires funds in excess of
the insurance or condemnation proceeds specifically allocable to the Premises
and arising out of such fire, casualty or condemnation which have actually been
received by Transferee, and then only to the extent required by the terms of the
Lease, (vii) be responsible to provide any additional space at the Property or
elsewhere for which Tenant has any option or right under the Lease, or
otherwise, unless Transferee at its option elects to provide the same, and
Tenant hereby releases Transferee from any obligation to provide the same, and
agrees that Tenant shall have no right to cancel the Lease and shall possess no
right to any claim against Transferee as a result of the failure to provide any
such additional space, or (viii) be liable for or incur any obligation with
respect to any representations or warranties of any nature set forth in the
Lease or otherwise, including, but not limited to, representations or warranties
relating to any latent or patent defects in construction with respect to the
Property or the Premises, Landlord's title or compliance of the Property or
Premises with applicable environmental, building, zoning or other laws,
including, but not limited to, the Americans with Disabilities Act and any
regulations pursuant thereto.
3. Attornment and Non-Disturbance. Except as set forth in Paragraph 2
------------------------------
above, provided (a) Tenant complies with this Agreement, (b) Tenant is not in
default under the terms of the Lease and no event has occurred which, with the
passage of time or the giving of notice or both, would constitute a default
under the Lease, (c) the Lease is in full force and effect, both as of the date
Lender files a lis pendens, or otherwise commences a foreclosure action, or at
--- -------
any time thereafter, and (d) Tenant shall be in possession of the Premises, no
default under the Mortgage and no proceeding to foreclose the same will disturb
Tenant's possession under the Lease and the Lease will not be affected or cut
off thereby, and notwithstanding any such foreclosure or other Transfer of the
Property to Transferee, the Lease will be recognized as a direct lease from
Transferee to Tenant upon the Transfer for the balance of the term thereof.
Tenant shall attorn to Transferee, including Lender if Lender becomes a
Transferee, as the landlord under the Lease. Said attornment is subject to the
limitation of Transferee's obligations set forth in Paragraph 2 above and shall
be effective and self-operative without the execution of any further instruments
upon Transferee succeeding to the interest of the landlord under the Lease.
Within ten (10) days after receipt of a written request therefore from
Transferee, Tenant agrees to provide Transferee a written confirmation of its
attornment to Transferee and any other matter set forth in this Agreement.
Failure to provide such written confirmation shall [TEXT DELETED IN ORIGINAL]
not derogate from Tenant's obligations to Transferee hereunder.
4. Miscellaneous.
-------------
(a) This Agreement shall inure to the benefit of the parties hereto,
their successors and assigns; provided, however, that in the event of the
assignment or transfer of the interest of Transferee, all obligations and
liabilities of Transferee under this Agreement shall terminate, and
thereupon all such obligations and liabilities shall be the responsibility
of the party to whom Transferee's interest is assigned or transferred; and
provided further that the interest of Tenant under this Agreement may not
be assigned or transferred except to the extent the assignment of Tenant's
interest in the Lease is permitted under the Lease.
(b) Tenant acknowledges that it has notice that the Lease and the
rent and all other sums due thereunder have been assigned to the Lender as
part of the security for the note secured by the Mortgage and upon written
notice from Lender of a default under the Mortgage, Tenant shall pay its
rent and all other sums due under the Lease directly to Lender.
(c) Tenant covenants and acknowledges that it has no right or option
of any nature whatsoever, whether pursuant to the Lease or otherwise, to
purchase the Property or the real property of which the Property is a part,
or any portion thereof or any interest therein and to the extent that
Tenant has had, or hereafter acquires any such right or option, the same is
hereby acknowledged to be subject and subordinate to the Mortgage and is
hereby waived and released as against Transferee.
(d) Anything herein or in the Lease to the contrary notwithstanding,
in the event that Transferee shall acquire title to the Property,
Transferee shall have no obligation, nor incur any liability, beyond
Transferee's then interest in the Property, and Tenant shall look
exclusively to such interest of Transferee in the Property for the payment
and discharge of any obligations imposed upon Transferee hereunder or under
the Lease, or otherwise, subject to the limitation of Transferee's
obligations provided for in Paragraph 2 above.
(e) This Agreement is the whole and only agreement between the
parties hereto with regard to the subordination of the Lease to the lien or
charge of the Mortgage, and shall supersede and cancel all other subjection
or subordination agreements including, but not limited to, those
provisions, if any, contained in the Lease which provide for the subjection
or subordination of said Lease to a deed of trust or to a mortgage or
mortgages. This Agreement may not be modified in any manner or terminated
except by an instrument in writing executed by the parties hereto.
(f) This Agreement shall be deemed to have been made in the state
where the Property is located and the validity, interpretation and
enforcement of this Agreement shall be determined in accordance with the
laws of such state.
(g) In the event any legal action or proceeding is commenced to
interpret or enforce the terms of, or obligations arising out of, this
Agreement, or to recover damages for the breach thereof, the party
prevailing in any such action or proceeding shall be entitled to recover
from the non-prevailing party all reasonable attorneys' fees, costs and
expenses incurred by the prevailing party.
(h) Any notices or communications required or permitted to be given
or made hereunder shall be deemed to be so given or made when in writing
and delivered in person or sent by United States registered or certified
mail, postage prepaid, or by nationally recognized overnight courier
service, directed to the parties at the following addresses or such other
addresses as they may from time to time designate in writing:
Lender: John Hancock Mutual Life Insurance Company
Real Estate Investment Group
Attention: Mortgage Investments, T-53
John Hancock Place
P. O. Box 111
Boston, MA 02117
Reference Loan No. ______________
Tenant: ________________________
________________________
________________________
________________________
Notices or communications mailed in the U.S. mail shall be deemed to be
served on the third business day following mailing, notices or communication
served by hand or by overnight courier shall be deemed served upon receipt.
The parties hereto represent and warrant that their respective signatories
to this Agreement have been duly authorized by the Tenant and Lender, as
applicable.
IN WITNESS WHEREOF, this Agreement has been signed and delivered as of the
date and year first above set forth.
TENANT:
___________________________________
By:________________________________
Its:____________________________
duly authorized
LENDER:
JOHN HANCOCK MUTUAL LIFE
INSURANCE COMPANY
By:________________________________
Its:____________________________
duly authorized
STATE OF )
) ss.
COUNTY OF )
On this ___________ day of ____________________, 19__, before me, the
undersigned, a Notary Public and for the _________________________ said,
residing therein, duly commissioned and sworn, personally _______________
appeared _____________________, to me personally known, who by me duly sworn,
did say that he/she is a _______________________ of _____________________, [that
the seal affixed to the foregoing instrument is the corporate seal of said
corporation, and that said instrument was signed and sealed in behalf of said
corporation by authority of its Board of Directors] and as the free act and deed
of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal in said County the day and year in this certificate first above written.
___________________________________
Notary Public in and for said
_____________________________
My commission expires:
________________________
THE COMMONWEALTH OF MASSACHUSETTS )
) ss.
COUNTY OF SUFFOLK )
On this _____________ day of ______________, 19__, before me, the
undersigned, a Notary Public in and for the said Commonwealth, residing therein,
duly commissioned and sworn, personally ________________________ appeared
_________________________ , to me personally known, who by me duly sworn, did
say that he/she is a ____________________ of John Hancock Mutual Life Insurance
Company, that the seal affixed to the foregoing instrument is the corporate seal
of said corporation, and that said instrument was signed and sealed in behalf of
said corporation by authority of its Board of Directors and as the free act and
deed of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal in said County the day and year in this certificate first above written.
_________________________________
Notary Public in and for said
Commonwealth
My commission expires:
________________________
SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT
- -------------------------------------------------------
THIS AGREEMENT is made this 10/th/ day of July, 1996 by PICTURETEL
CORPORATION, a Delaware corporation, having its principal office and place of
business located at The Tower at Northwoods, 222 Rosewood Drive, Danvers,
Massachusetts 01923 ("Tenant") and Life Investors Insurance Company of America,
an Iowa corporation, having its principal place of business located at 4333
Edgewood Road, N.E., Cedar Rapids, Iowa 52499 ("Lender"), with reference to the
following facts:
RECITALS
A. 100 Minuteman Limited Partnership, a Massachusetts limited partnership
("Landlord"), and Tenant entered into a certain lease, dated as of October 10,
1995, and amended by Amendment #1 to Lease dated July 10, 1996 (collectively,
together with any extensions, renewals of replacements thereof, the "Lease"),
covering land and a building, and other improvements thereon located in Andover,
Massachusetts, which property is more particularly described in the Mortgage (as
hereinafter defined ("Property");
B. Lender has agreed to make a loan ("Loan") to Landlord, which Loan is
to be evidenced by a note and secured, inter alia, by a first mortgage and
----- ----
security agreement in favor of Lender and upon the terms and conditions
described therein, which shall be recorded in the Registry of Deeds, Essex
County (said mortgage and security agreement, and all amendments, modifications,
renewals, substitutions, extensions, consolidations and replacements are
hereinafter collectively referred to as "Mortgage");
C. It is a condition precedent to obtaining the Loan that (i) the
Mortgage unconditionally be and remain at all times a first lien or charge upon
the Property prior and superior to the Lease and to any rights of offsets,
defenses or credits that Tenant may have under Section [24.17] of the Lease in
connection with that certain Letter of Credit issued by Bank of Boston, dated
October 10, 1995, in the original face amount of $10,000,000 and any renewals,
replacements or amendments thereof (the "Letter of Credit"); (ii) Tenant
specifically and unconditionally subordinate the Lease and its rights under the
Letter of Credit to the lien or charge of the Mortgage; and (iii) Tenant attorn
to Lender and its successor and assigns in the event of the foreclosure or other
proceeding to enforce the Mortgage;
NOW, THEREFORE, in consideration of the mutual benefits accruing to the
parties hereto and other valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, and in order to induce Lender to enter into the
above-referenced Loan, Lender and Tenant hereby agree as follows:
1. Subordination. The Mortgage is and shall unconditionally be and remain
-------------
at all times a lien or charge upon the Property prior and superior to the Lease
and any rights of offset, credit, deduction, reimbursement or payment that
Tenant may have in connection with the Letter of Credit under Section 19.5 of
the Lease and/or the "LC Note" (as defined in the Lease), the leasehold estate
created thereby and all rights and privileges of Tenant or any other tenant
thereunder, and the Lease, the leasehold estate created thereby and all rights
and privileges of Tenant or any other tenant under the Lease, including, without
limitation, in connection with the Letter of Credit under Section 19.5 of the
Lease and/or the LC Note, are hereby unconditionally subjected and made
subordinate to the lien or charge of the Mortgage.
2. Lender's Exercise of Remedies. In the event of (a) the institution of
-----------------------------
any foreclosure, trustee's sale or other like proceeding, (b) the appointment of
a receiver for the Landlord or the Property, (c) the exercise of rights to
collect rents under the Mortgage or an assignment of rents, (d) the recording by
Lender or its successor or assigns of a deed in lieu of foreclosure for the
property, or (e) any transfer or abandonment of possession of the Property to
Lender or its successor or assigns in connection with any proceedings affecting
Landlord under the Bankruptcy Code, 11 U.S.C. (S)101 et seq. (any such
-- ---
foreclosure, recording of a deed in lieu of foreclosure, or transfer or
abandonment of the Property referred to in the preceding clauses (a) through (e)
is hereinafter called a "Transfer", and Lender or any successor or assignee of
Lender taking title to the Property in connection with a Transfer is hereinafter
called the "Transferee", such Transferee shall not: (i) be liable for any
damages (including, without limitation, consequential damages) or other relief
or be subject to any offsets, defenses or counterclaims of any kind attributable
to any act, omission or waiver (express or implied) of Landlord or any prior
landlord under the Lease, including, without limitation, in connection with the
Letter of Credit under Section 19.5 of the Lease and/or the LC Note, or
otherwise; (ii) be obligated to complete any construction or improvements at the
Property, Premises or elsewhere agreed to be done by Landlord or any prior
landlord under the Lease, including, without limitation, Landlord's obligations
under that certain Agency Agreement between Landlord and Tenant dated October
10, 1995, and Landlord's obligation of construction contained in Exhibit C to
the Lease, or otherwise, or to reimburse Tenant for any prior construction work
done by Tenant, or be subject to any offsets, defenses or counterclaims
therefor, (iii) be bound by any prepayment by Tenant of more than one month's
installment of rent unless such prepayment has been specifically approved in
writing by Lender, or be liable or responsible for any security deposit or other
sums which Tenant may have paid under the Lease unless such deposit or other
sums have been physically delivered to Transferee, (iv) be bound by any
modification of or amendment to the lease, unless such amendment or modification
shall have been approved in writing by Lender, (v) be bound by any notices given
by Tenant to Landlord, (vi) be required after a fire, casualty or condemnation
of the Property or Premises to repair or rebuild the same to the extent that
such repair or rebuilding requires funds in excess of the insurance or
condemnation proceeds specifically allocable to the Premises and arising out of
such fire, casualty or condemnation which have actually been received by
Transferee, and then only to the extent required by the terms of the Lease,
(vii) be responsible to provide any additional space at the Property or
elsewhere for which Tenant has any option or right under the Lease, or
otherwise, unless Transferee at its option elects to provide the same, and
Tenant hereby releases Transferee from any obligation to provide the same, and
agrees that Tenant shall have no right to cancel the Lease and shall possess no
right to any claim against Transferee as a result of the failure to provide any
right to any such additional space, (viii) be liable for or incur any obligation
with respect to any representations or warranties of any nature set forth in the
Lease or otherwise, including, but not limited to, representations or warranties
relating to any latent or patent defects in construction with respect to the
Property or the Premises, Landlord's title or compliance of the Property or
Premises with the applicable environmental, building, zoning or other laws,
including, but not limited to, the Americans with Disabilities Act and any
regulations pursuant thereto, or (ix) be subject to the obligation to reimburse
or credit against rent those amounts paid by Tenant to the issuer of the Letter
of Credit, which right is set forth in Section 5(b) of the Lease.
3. Attornment and Non-Disturbance. Except as set forth in Paragraph 2
------------------------------
above, provided (a) Tenant complies with this Agreement, (b) Tenant is not in
default under the terms of the Lease and no event has occurred which, with the
passage of time or the giving of notice or both, would constitute a default
under the Lease, (c) the Lease is in full force and effect, both as of the date
Lender files a lis pendens, or otherwise commences a foreclosure action, or at
--- -------
any time thereafter, and (d) Tenant shall be in possession of the Premises, no
default under the Mortgage and no proceeding to foreclose the same will disturb
Tenant's possession under the Lease and the Lease will not be affected or cut
off thereby, and notwithstanding any such foreclosure or other Transfer of the
Property to Transferee, the Lease will be recognized as a direct lease from the
Transferee to Tenant upon the Transfer of the balance of the term thereof.
Tenant shall attorn to Transferee, including Lender if Lender becomes a
Transferee, as the landlord under the Lease. Said attornment is subject to the
limitation of Transferee's obligations set forth in Paragraph 2 above and shall
be effective and self-operative without the execution of any further instruments
upon Transferee succeeding to the interest of the landlord under the Lease.
Within ten (10) days after receipt of a written request therefor from
Transferee, Tenant agrees to provide Transferee a written confirmation of its
attornment to Transferee and any other matter set forth in this Agreement.
Failure to provide such written confirmation shall, at Transferee's sole option,
constitute a default under the Lease, but failure to receive such a written
confirmation from Tenant shall not derogate from Tenant's obligations to
Transferee hereunder.
4. Miscellaneous.
-------------
(a) This Agreement shall inure to the benefit of the parties hereto,
their successors and assigns; provided, however, that in the event of the
assignment or transfer of the interest of Transferee, all obligations and
liabilities of Transferee under this Agreement shall terminate, and
thereupon all such obligations and liabilities shall be the responsibility
of the party to whom Transferee's interest is assigned or transferred and
provided further that the interest of Tenant under this Agreement may not
be assigned or transferred except to the extent the assignment of Tenant's
interest in the Lease is permitted under the Lease.
(b) Tenant acknowledges that it has notice that the Lease and the
rent and all other sums due thereunder have been assigned to the Lender as
part of the security for the note secured by the Mortgage and upon written
notice from Lender of a default under the Mortgage, Tenant shall pay its
rent and all other sums due under the Lease directly to Lender.
(c) Tenant covenants and acknowledges that it has certain rights and
options to purchase the Property or the real property of which the Property
is a part, as set forth in Addendums 4 and 5 of the Lease and elsewhere in
the Lease, and Tenant hereby expressly agrees that such rights shall be
subject and subordinate to the Mortgage and such rights are hereby waived
and released as against Transferee.
(d) Anything herein or in the Lease to the contrary notwithstanding,
in the event that Transferee shall acquire title to the Property,
Transferee shall have no obligation, nor incur any liability, beyond
Transferee's then interest in the Property, and Tenant shall look
exclusively to such interest of Transferee in the Property for the payment
and discharge of any obligations imposed upon Transferee hereunder or under
the Lease, or otherwise, subject to the limitation of Transferee's
obligations provided for in Paragraph 2 above.
(e) This Agreement is the whole and only agreement between the
parties hereto with regard to the subordination of the Lease to the lien or
charge of the Mortgage and shall supersede and cancel all other subjection
or subordination agreements, including, but not limited to, those
provisions, if any, contained in the Lease which provide for the subjection
or subordination of said Lease to a deed of trust or to a mortgage or
mortgages. This Agreement may not be modified in any manner or terminated
except by an instrument in writing executed by the parties hereto.
(f) This Agreement shall be deemed to have been made in the state
where the Property is located and the validity, interpretation and
enforcement of this Agreement shall be determined in accordance with the
laws of such state.
(g) In the event any legal action or proceeding is commenced to
interpret or enforce the terms of, or obligations arising out of, this
Agreement, or to recover damages for the breach thereof, the party
prevailing in any such action or proceeding shall be entitled to recover
from the non-prevailing party all reasonable attorneys' fees, costs and
expenses incurred by the prevailing party.
(h) Any notices or communications required or permitted to be given
or made hereunder or under the Lease with respect to or involving the
Lender as a Landlord's Mortgagee shall be governed by this provision, and
the parties hereto expressly acknowledge that this provision shall control
the Lender's obligation to provide notice. Tenant agrees that Section
19.5(A) of the Lease is amended as follows: Lender will make a good faith
effort to provide notice to Tenant in the event of default by Landlord, and
shall in the Loan Documents list Tenant as an additional party to receive a
courtesy copy of any default notice sent by Lender to Landlord, but Lender
shall not be obligated to provide such notice and Lender will not be liable
for the failure to provide notice to Tenant, nor will such failure be a
default under the Lease. Notice shall be deemed to be so given or made when
in writing and delivered in person or sent by United States registered or
certified mail, postage prepaid, or by nationally recognized overnight
courier service, directed to the parties at the following addresses or such
other addresses as they may from time to time designate in writing:
Lender: AEGON USA Realty Advisors, Inc.
Attention: Gary Whittington, Esq.
4333 Edgewood Road, N.E.
Cedar Rapids, IA 52499
Tenant: PictureTel Corporation
Attention: Chief Financial Officer
The Tower at Northwoods
222 Rosewood Drive
Danvers, MA 01923
Notices or communications mailed in the U.S. Mail shall be deemed to be
served on the third business day following mailing, notices or communication
served by hand or by overnight courier shall be deemed served upon receipt.
The parties hereto represent and warrant that their respective signatories
to this Agreement have been duly authorized by the Tenant and Lender, as
applicable.
(i) In the event Landlord exercises its option to repair the
Property in the event of damage pursuant to Section 16.2 of the Lease,
Tenant hereby agrees to provide an additional estoppel letter to Lender
confirming Tenant's obligation to continue to perform in accordance with
the Lease.
(j) Tenant agrees to establish the collection account
required by Section 5(a) of the Lease, at the written request of Lender, so
long as the Loan is encumbering the Property.
(k) Tenant also agrees to furnish to Lender all financial
information it must provide to Landlord under [TEXT DELETED IN ORIGINAL]
the Lease.
IN WITNESS WHEREOF, this Agreement has been signed and delivered as of the
date and year first above set forth.
TENANT:
PICTURETEL CORPORATION,
a Delaware corporation
/s/ Lawrence M. Bernstein
--------------------------------------
By: Lawrence M. Bernstein
Its: Vice President - PictureTel Corp.
LENDER:
LIFE INVESTORS INSURANCE
COMPANY OF AMERICA
--------------------------------------
By:
Its:
Consented to by Landlord:
100 MINUTEMAN LIMITED
PARTNERSHIP
By: NIUNA-MINUTEMAN, INC.,
Its: General Partner
/s/ John Kusmiersky
--------------------------------------
By: John Kusmiersky
Its: President
STATE OF MASSACHUSETTS )
) ss.
COUNTY OF ESSEX )
Before me personally appeared the above-named Lawrence M. Bernstein of
PictureTel Corp., as aforesaid, and acknowledged the foregoing instrument to be
his free act and deed as Vice President of PictureTel Corp. and the free act and
deed of Lawrence M. Bernstein.
/s/ Kathleen M. Cummings
----------------------------------
Notary Public
My Commission Expires:
Nov. 10, 2000
STATE OF MASSACHUSETTS )
) SS.
COUNTY OF ESSEX )
Before me personally appeared the above-named John Kusmiersky of Niuna-
Minuteman, Inc., as aforesaid, and acknowledged the foregoing instrument to be
his free act and deed as President of Niuna-Minuteman, Inc.. and the free act
and deed of John Kusmiersky.
/s/ Kathleen M. Cummings
----------------------------------
Notary Public
My Commission Expires:
Nov. 10, 2000
<PAGE>
RIDER #1
--------
EXPANSION OPTION
1. Subject to the last paragraph of Section 3 of this Rider and the other
terms and conditions of this Rider, Tenant will have the right to exercise an
option (the "Expansion Option") pursuant to which Tenant and Landlord will
exercise good faith and commercially reasonable efforts to agree on and
accomplish an expansion of the Building by approximately 70,000 square feet (but
in no event will this expansion cause the size of the Building to exceed the
maximum permitted area or size of the Building as currently entitled unless
otherwise specifically agreed in writing by Tenant and Landlord). The Expansion
Option can be exercised only by Tenant delivering to Landlord unconditional
written notice of exercise during the first two (2) years of the Lease term. If
for any reason Landlord does not actually receive this notice of exercise as and
when required, unless otherwise agreed by Landlord in writing, the Expansion
Option will lapse and become null and void. The Expansion Option is granted to
and may be exercised by Tenant on the express condition that, at the time of
exercise and at all times before the beginning of the term with respect to the
expansion space, Tenant is not in default. TIME IS ABSOLUTELY OF THE ESSENCE.
2. The Expansion Option is personal to the Tenant originally named in the
Lease, and it may not be exercised by or for anyone else (except by an Acquiring
Entity). If prior to the exercise of the Expansion Option or after exercise but
prior to the beginning of the term with respect to the expansion space Tenant
Transfers any part of or interest in the Premises or this Lease (except for
subleases that all together aggregate less than fifty percent (50%) of the
rentable area of the Building when made), at Landlord's written election the
Expansion Option will lapse and become null and void.
3. Subject to the Section 1 of this Rider, the last paragraph of Section
3 of this Rider and the other the terms and conditions of this Rider, if Tenant
validly exercises the Expansion Option, the following issue (and any other
necessary issues) will need to be agreed on in order to accomplish the
expansion: the initial general form of (and, if agreement is reached on the
other terms, the final plans and specifications for) the expansion and a
schedule therefor; the contractors and professionals that will perform the work;
all costs in connection with the expansion, including, without limitation, costs
of surveys, testing, design, space planning, drafting, architecture engineering,
other professional fees, labor, material, services, utilities, and other costs
of construction, permits and approvals (and associated legal and other fees and
costs), a development fee to Landlord or its Affiliates, brokerage commissions,
all financing and associated costs and fees, and a reasonable contingency for
those costs; mutually agreeable financing (non-recourse to Landlord) for the
expansion and associated costs; a mutually agreeable rental rate for the
expansion space, taking into account all of the associated costs and a mutually
agreeable rate of return to Landlord and its lenders; other mutually agreeable
modifications to the Lease to accommodate the expansion (or, if necessary, a
separate lease of the expansion space and other associated areas of the
Premises), which may include, without limitation, an increase in the amount of
any Letters of Credit and/or the Additional Security, and an extension of the
initial Lease term so that the initial Lease term for all of the Premises
expires at least twelve (12) Lease Years after the rent commencement date of the
expansion space (and any separate lease of the expansion space will be
coterminous). However, the parties acknowledge that even if mutually agreeable
acceptable financing cannot be obtained or agreed on, Tenant may if it wishes
undertake the expansion at its own cost and expense, in which case, provided
that reasonably acceptable security is posted, all other necessary matters are
agreed on and the other terms and conditions are satisfied, Tenant will have the
right to perform and complete the expansion at its sole cost, in which case
Tenant will not be required to pay base rent for the expansion space for the
initial Lease term (although this will not decrease base rent or other rent
payable under this Lease in any way), although Tenant's right to perform this
expansion and the manner in which it will be performed will be subject to all of
the other terms and conditions of this Rider and this Lease.
In view of the foregoing agreements that must be reached in order to
accomplish the expansion, and because neither the necessary permits and
approvals nor acceptable financing for the expansion and associated costs have
been offered or obtained at this time, and because of the other conditions that
must first be satisfied so as to permit the expansion, the parties agree that,
notwithstanding anything to the contrary, if for any reason the parties do not
reach the necessary agreements or if any permits, approvals or necessary
financing are not obtained on mutually agreeable terms (or in Landlord's
judgement agreements are not likely to be reached and/or the items listed are
not likely to be obtainable on mutually agreeable terms), or if any of the
conditions in this Rider are not satisfied, Landlord will not be deemed to be in
default in any manner and will not incur Liabilities to Tenant, and unless
otherwise agreed in writing by Landlord, the Expansion Option will lapse and
become null and void, the Lease will continue in full force and effect in
accordance with its terms without an expansion, and Tenant's obligations and
other Liabilities under the Lease will not be reduced, excused, waived or
otherwise affected in any way.
4. In addition to any other conditions to the Expansion Option,
Landlord's lenders must consent in writing to the expansion and the terms
thereof and both Landlord and its lenders must approve Tenant's credit and
financial condition in writing.
1
<PAGE>
5. Notwithstanding anything to the contrary, except to the extent
specifically agreed to in writing by Landlord's lenders, nothing in this Rider
will be binding on or applicable to Landlord's lenders or their successors or
assigns or their respective purchasers or Affiliates.
2
<PAGE>
RIDER #2
--------
EXTENSION OPTIONS
1. Landlord grants to Tenant two (2) options to extend the Lease term (as
it already may have been extended pursuant to Section 4(b)) for additional terms
of six (6) years each. The Extension Options can be exercised only by Tenant
delivering to Landlord unconditional written notice of exercise at least
eighteen (18) calendar months before the expiration of the applicable term. If
for any reason Landlord does not actually receive a notice of exercise when
required, that Extension Option and any subsequent Extension Option will lapse
and become null and void and there will be no further right to extend the Lease
term. The Extension Options are granted to and may be exercised by Tenant on the
express condition that, at the time of the exercise and at all times before the
beginning of the Extension Option period, Tenant is not in default (and has not
committed acts or omissions which would constitute a default with the passage of
time or the giving of notice or both). TIME IS ABSOLUTELY OF THE ESSENCE.
Landlord will not be required to pay for or perform any work to or for the
Premises.
2. The Extension Options are personal to the Tenant originally named in
this Lease, and they may not be exercised by or for anyone else (except by an
Acquiring Entity). If during the initial term Tenant Transfers any part of this
Lease or the Premises (except for subleases that all together aggregate less
than fifty percent (50%) of the rentable area of the Building when made, at
Landlord's written election the Extension Options will lapse and become null and
void, whether or not they have been exercised.
3. (a) The annual base rent per square foot of rentable area for each
year of the first Extension Option term will be the scheduled base rent as set
forth in Exhibit "D."
(b) The annual base rent per square foot of rentable area for each
year of the second Extension Option term will be the greater of: (a) the
scheduled base rent as set forth in Exhibit "D"; or (b) the "fair rental value"
determined in accordance with Section 4 below.
4. (a) If Landlord and Tenant can't agree on the annual base rent for
each year of the second Extension Option term at least six (6) months before the
beginning of that Extension Option term, then unless otherwise agreed in writing
by Landlord and Tenant, Landlord and Tenant will try to agree on a single
appraiser at least five (5) months before the beginning of that Extension Option
term. If they can agree on a single appraiser in that time period then that
appraiser will determine the fair rental value in accordance with this Rider. If
Landlord and Tenant can't agree on a single appraiser within this time period,
then Landlord and Tenant each will appoint in writing one appraiser not later
than four (4) months before the beginning of that Extension Option term. Within
fifteen (15) days after their appointment, the two appointed appraisers will
appoint in writing a third appraiser. If the two appraisers can't agree, a third
appraiser will be appointed by the American Institute of Real Estate Appraisers
(or if this organization refuses to act or no longer exists, by an organization
deemed by Landlord to be reasonably equivalent thereto) not later than three (3)
months before the beginning of that Extension Option term. If either Landlord or
Tenant fails to appoint its appraiser within the prescribed time period, the
single appraiser appointed will determine the fair rental value. If both parties
fail to appoint appraisers within the prescribed time periods, then the first
appraiser validly appointed by a party will determine the fair rental value.
Appraisers must have at least five (5) years' experience in the appraisal of
office property in the area in which the Building is located and be members of
professional organizations such as the American Institute of Real Estate
Appraisers or the equivalent. The appraiser(s) will be required to provide a
written determination of the fair rental value not later than two (2) months
before the beginning of that Extension Option term.
(b) For the purpose of this Lease, the term "fair rental value"
means: ninety five percent (95%) of: the annual base rent per square foot of
rentable area that a ready and willing tenant would pay for the Building during
that Extension Option term to a ready and willing landlord of that space
assuming that such space was exposed for lease on the open market for a
reasonable period of time, could be used for any lawful use and was improved to
its then-existing level, and that a market-rate construction allowance was
offered to and received by such hypothetical tenant (even though such
construction allowance will not actually be paid or provided to Tenant). If only
a single appraiser is appointed as described above, then that appraiser will
determine the fair rental value. Otherwise, the fair rental value will be the
arithmetic average of the two (2) of the three (3) appraisals which are closest
in amount, and the third appraisal will be disregarded.
(c) If for some reason the fair rental value is not determined before
the beginning of the second Extension Option term, then Tenant will continue to
pay to Landlord the base rent applicable to that space as described in Section
3(a) above, as applicable, until the fair rental value is determined. When the
fair rental value is determined, Landlord will notify Tenant, and Tenant will
pay to Landlord, within thirty (30) days after receipt of such notice, any
difference between the base rent actually paid by Tenant to Landlord and the new
base rent determined hereunder (if the new base rent is higher).
Page 1 of 1
<PAGE>
RIDER #3
--------
ADDITIONAL TERMS
1. Provided that Tenant does not default or Transfer any part of this
Lease or the Premises (except for subleases that all together aggregate less
than fifty percent (50%) of the rentable area of the Building when made and so
long as the Letter of Credit is still in effect, secures a loan made to Landlord
and has a face amount in excess of $1 Million: the Premises, this Lease and the
rents, profits and proceeds therefrom or derived in connection therewith or from
indebtedness in connection therewith will constitute all or substantially all of
Landlord's assets, Landlord will maintain its own separate books and records and
its own accounts, in each case that are separate and apart from the books and
records and accounts of any other entity, and Landlord will hold itself out as
being an entity separate and apart from any other entity, unless otherwise
consented to in writing by Tenant or unless Landlord achieves or has a net
equity or book net worth (in accordance with GAAP) in excess of $750 Million.
2. Notwithstanding Section 1 above or anything else herein or elsewhere
to the contrary, nothing in this Rider #3 will be binding on or apply in any way
to Landlord's lenders or their respective successors and assigns or their
respective purchasers and Affiliates.
Page 1 of 1
<PAGE>
EXHIBIT 10.7
* * * * * * * * * * * * * * * * * * * *
Lease
VALLEY TECHNOLOGY CENTRE
* * * * * * * * * * * * * * * * * * * *
Between
NAVISITE, INC.
(Tenant)
and
CARRAMERICA REALTY CORPORATION
(Landlord)
<PAGE>
LEASE
THIS LEASE (the "Lease") is made as of April 30, 1999 (dated for reference
-----
purposes only) between CarrAmerica Realty Corporation, a Maryland corporation
(the "Landlord") and the Tenant as named in the Schedule below. The term
--------
"Project" means the seven buildings (the "Project Buildings") and other
- -------- -----------------
improvements commonly known as "Valley Technology Centre" located in San Jose,
California, as more particularly described in Exhibit A. The Project is being
---------
constructed in two Phases with Project Buildings 1, 2, 3, 4 and 5 being
collectively referred to herein as "Phase I", and Project Buildings 6 and 7
being collectively referred to as "Phase II". Construction on Phase II of the
Project has to be commenced. The "Premises" means that portion of the Project
--------
Buildings described in the Schedule and outlined on Exhibit A, attached hereto.
---------
The Project Buildings in which the Premises are located shall be collectively
referred to herein as the "Building" and the other Project Buildings shall be
--------
referred to as the "Other Buildings". The following schedule (the "Schedule")
--------------- --------
is an integral part of this Lease. Terms defined in this Schedule shall have
the same meaning throughout the Lease.
SCHEDULE
1. Tenant: NaviSite, Inc., a Delaware corporation
2. Premises: 2720 Zanker Road, San Jose, California (Project Building 2
as shown on Exhibit A)
3. Project: Valley Technology Centre
4. Rentable Square Feet of the Premises: 66,350
5. Tenant's Proportionate Share: 100% of the Building (based upon 66,350
rentable square feet in the Building); Initially 18.96% of the Project
(based upon a total of 350,000 rentable square feet in Phase I of the
Project), and upon completion of Phase II, 14.41% (based upon a total
of 460,590 rentable square feet in both Phases of the Project)
6. Lease Deposit: Prepaid Rent $116,112.50 and Security Deposit
$136,017.50
7. Permitted Use: Office, research and development of electronic
components and operation of a data center (including the diesel
holding tank, chillers and diesel generators reasonably necessary for
the operation thereof)
8. Tenant's Real Estate Broker for this Lease: Colliers Parrish
International, Inc. and CRF Partners, Inc.
9. Landlord's Real Estate Broker for this Lease: None.
10. Tenant Improvements: See the Tenant Improvement Agreement attached
hereto as Exhibit C
---------
1
<PAGE>
11. Commencement Date: The date which is twenty-two (22) weeks after the
full execution of this Lease, as indicated by the later dates set
forth on the signature hereof (the "Execution Date"), provided if
Tenant is unable to commence its business operations on such date
because the "Tenant Improvements" (as described in Exhibit C) have not
---------
been substantially completed as of such date, then the Commencement
Date shall be delayed until the date on which Tenant Improvements have
been substantially completed such that Tenant could commence its
business operations therein, provided further that in no event shall
the Commencement Date be later than the date which is twenty-four (24)
weeks after the Execution Date. Landlord and Tenant shall execute a
Commencement Date Confirmation in the form of Exhibit F, attached
---------
hereto which shall set forth both the Commencement Date and
Termination Date for this Lease.
12. Termination Date/Term: Seven (7) years with two (2) options to renew
for five (5) years each (See Section 31).
13. Parking Spaces: 225 unassigned spaces (less any spaces utilized by
Tenant for exterior improvements, such as the Generator and Chiller
Pads described in Section 6.E)
14. Guaranty: CMGI (See Section 21 and Exhibit G)
15. Base Rent:
<TABLE>
<CAPTION>
Period Annual Base Rent Monthly Base Rent
- ------ ---------------- -----------------
<S> <C> <C>
Commencement Date - Month 12: $1,393,350.00 $116,112.50
Months 13 - 24: $1,433,160.00 $119,430.00
Months 25 - 36: $1,472,970.00 $122,747.50
Months 37 - 48: $1,512,780.00 $126,065.00
Months 49 - 60: $1,552,590.00 $129,382.50
Months 61 - 72: $1,592,400.00 $132,700.00
Months 73 - 84: $1,632,210.00 $136,017.50
</TABLE>
Exhibit A: Site Plan of Premises/Project
----------
Exhibit B: Rules and Regulations
----------
Exhibit C: Tenant Improvement Exhibit
----------
Exhibit C-1: Landlord's Tenant Improvement Guidelines
------------
2
<PAGE>
Exhibit D: Mortgages Affecting the Property
---------
Exhibit E: Landlord's Signage Standards
---------
Exhibit F: Commencement Date Confirmation
---------
Exhibit G: Form of Guaranty of Lease
---------
3
<PAGE>
1. LEASE AGREEMENT. On the terms stated in this Lease, Landlord leases
---------------
the Premises to Tenant, and Tenant leases the Premises from Landlord, for the
Term beginning on the Commencement Date and ending on the Termination Date
unless extended or sooner terminated pursuant to this Lease.
A. Commencement Date. The commencement date ("Commencement Date")
----------------- -----------------
for this Lease is the date set forth in item 11 of the Schedule. Tenant
acknowledges and agrees that the Commencement Date shall not be dependent upon
the completion of the Tenant Improvements, except as provided in Item 11 of the
Schedule. When the Commencement Date is established, Landlord shall prepare and
Landlord and Tenant shall execute a Commencement Date Confirmation in the form
of Exhibit F attached hereto, which shall set forth both the Commencement Date
---------
and Termination Date for this Lease.
B. Termination Date. The Termination Date ("Termination Date") of
---------------- ----------------
this Lease shall be the date set forth in the Commencement Date Confirmation.
2. RENT
----
Types of Rent. Tenant shall pay the following Rent in the form of a check
-------------
or wire transfer pursuant to instructions to follow under separate cover from
the Landlord:
(1) Base Rent in monthly installments in advance, the first monthly
---------
installment payable concurrently with the execution of this Lease and
thereafter on or before the first day of each month of the Term in the
amount set forth on the Schedule.
(2) Operating Cost Share Rent in an amount equal to the Tenant's
-------------------------
Proportionate Share of the Operating Costs for the applicable fiscal
year of the Lease, paid monthly in advance in an estimated amount.
Definitions of Operating Costs and Tenant's Proportionate Share, and
the method for billing and payment of Operating Cost Share Rent are
set forth in Sections 2B, 2C and 2D.
(3) Tax Share Rent in an amount equal to the Tenant's Proportionate
--------------
Share of the Taxes for the applicable fiscal year of this Lease, paid
monthly in advance in an estimated amount. A definition of Taxes and
the method for billing and payment of Tax Share Rent are set forth in
Sections 2B, 2C and 2D.
(4) Additional Rent in the amount of all costs, expenses,
---------------
liabilities, and amounts which Tenant is required to pay under this
Lease, excluding Base Rent, Operating Cost Share Rent, and Tax Share
Rent, but including any interest for late payment of any item of Rent.
(5) Rent as used in this Lease means Base Rent, Operating Cost Share
----
Rent, Tax Share Rent and Additional Rent. Tenant's agreement to pay
Rent is an independent covenant, with no right of setoff, deduction or
counterclaim of any kind.
4
<PAGE>
B. Payment of Operating Cost Share Rent and Tax Share Rent.
-------------------------------------------------------
(1) Payment of Estimated Operating Cost Share Rent and Tax
------------------------------------------------------
Share Rent. Landlord shall estimate the Operating Costs and Taxes
----------
of the Project by April 1 of each fiscal year, or as soon as
reasonably possible thereafter. Landlord may revise these estimates
whenever it obtains more accurate information, such as the final real
estate tax assessment or tax rate for the Project. Within twenty (20)
days after receiving the original or revised estimate from Landlord,
Tenant shall pay Landlord one-twelfth (1/12th) of Tenant's
Proportionate Share of this estimate, multiplied by the number of
months that have elapsed in the applicable fiscal year to the date of
such payment including the current month, minus payments previously
made by Tenant for the months elapsed. On the first day of each month
thereafter, Tenant shall pay Landlord one-twelfth (1/12th) of Tenant's
Proportionate Share of this estimate, until a new estimate becomes
applicable.
(2) Correction of Operating Cost Share Rent. Landlord shall
---------------------------------------
deliver to Tenant a report for the previous fiscal year (the
"Operating Cost Report") by May 15 of each year, or as soon as
---------------------
reasonably possible thereafter, setting forth (a) the actual Operating
Costs incurred, (b) the amount of Operating Cost Share Rent due from
Tenant, and (c) the amount of Operating Cost Share Rent paid by
Tenant. Within twenty (20) days after such delivery, Tenant shall pay
to Landlord the amount due minus the amount paid. If the amount paid
exceeds the amount due, Landlord shall apply the excess to Tenant's
payments of Operating Cost Share Rent next coming due.
(3) Correction of Tax Share Rent. Landlord shall deliver
----------------------------
to Tenant a report for the previous fiscal year (the "Tax Report") by
----------
May 15 of each year, or as soon as reasonably possible thereafter,
setting forth (a) the actual Taxes, (b) the amount of Tax Share Rent
due from Tenant, and (c) the amount of Tax Share Rent paid by Tenant.
Within twenty (20) days after such delivery, Tenant shall pay to
Landlord the amount due from Tenant minus the amount paid by Tenant.
If the amount paid exceeds the amount due, Landlord shall apply any
excess as a credit against Tenant's payments of Tax Share Rent next
coming due.
C. Definitions
-----------
(1) Included Operating Costs. "Operating Costs" means any
------------------------ ---------------
expenses, costs and disbursements of any kind other than Taxes, paid
or incurred by Landlord in connection with the management,
maintenance, operation, insurance (including the related deductibles,
provided that, at Tenant's option, any deductibles relating to
property damage shall be amortized as an Included Capital Item in the
manner described below), repair and other related activities in
connection with any part of the Project and of the personal property,
fixtures, machinery, equipment, systems and apparatus used in
connection therewith, including the cost of providing those services
required to be furnished by Landlord under this Lease and a reasonable
5
<PAGE>
management fee equal to three percent (3%). Operating Costs shall
also include the costs of any capital improvements which are
reasonably intended to reduce Operating Costs or improve safety, and
those made to keep the Project in compliance with governmental
requirements applicable from time to time or to replace existing
capital improvements, facilities and equipment within the Building or
the common areas of the Project, such as the roof membrane, parking
and landscape areas (collectively, "Included Capital Items");
----------------------
provided, that the costs of any Included Capital Item shall be
amortized by Landlord, together with an amount equal to interest at
ten percent (10%) per annum, over the estimated useful life of such
item and such amortized costs are only included in Operating Costs for
that portion of the useful life of the Included Capital Item which
falls within the Term, unless the cost of the Included Capital Item is
less than Ten Thousand Dollars ($10,000) in which case it shall be
expensed in the year in which it was incurred.
If the Project contains more than one building, then Operating
Costs shall include (i) all Operating Costs fairly allocable to the
Building, and (ii) a proportionate share (based on the gross rentable
area of the Building as a percentage of the gross rentable area of all
of the Buildings in the Project) of all Operating Costs which relate
to the Project in general and are not fairly allocable to any one
building in the Project.
(2) Excluded Operating Costs. Operating Costs shall
------------------------
not include:
(a) costs of alterations of tenant premises;
(b) costs of capital improvements other than Included
Capital Items;
(c) interest and principal payments on mortgages or any
other debt costs, or rental payments on any ground
lease of the Project;
(d) real estate brokers' leasing commissions;
(e) legal fees, space planner fees and advertising expenses
incurred with regard to leasing the Building or
portions thereof;
(f) any cost or expenditure for which Landlord is
reimbursed, by insurance proceeds or otherwise, other
than by Operating Cost Share Rent;
(g) depreciation (except on any Included Capital Items);
6
<PAGE>
(h) franchise or income taxes imposed upon Landlord, except
to the extent imposed in lieu of all or any part of
Taxes;
(i) costs of initial construction of the Building Shell, as
defined in Section 3.A (including, without limitation,
the costs of repairing all punch list items), and costs
of correcting defects in construction of the Building
Shell (as opposed to the cost of normal repair,
maintenance and replacement expected with the
construction materials and equipment installed in the
Building in light of their specifications);
(j) legal and auditing fees which are for the benefit of
Landlord such as collecting delinquent rents, preparing
tax returns and other financial statements, and audits
other than those incurred in connection with the
preparation of reports required pursuant to Section 2B
above;
(k) that portion of any wages, salaries, benefits and
bonuses (if any) of any employee which is incurred for
services not related directly to the management,
maintenance, operation and repair of the Building; and
(l) fines, penalties and interest.
(3) Taxes. "Taxes" means any and all taxes,
----- -----
assessments and charges of any kind, general or special, ordinary or
extraordinary, levied against the Project, which Landlord shall pay or
become obligated to pay in connection with the ownership, leasing,
renting, management, use, occupancy, control or operation of the
Project or of the personal property, fixtures, machinery, equipment,
systems and apparatus used in connection therewith. Taxes shall
include real estate taxes, personal property taxes, sewer rents, water
rents, special or general assessments, transit taxes, ad valorem
taxes, and any tax levied on the rents hereunder or the interest of
Landlord under this Lease (the "Rent Tax"). Taxes shall also include
--------
all reasonable fees and other reasonable costs and expenses paid by
Landlord in reviewing any tax and in seeking a refund or reduction of
any Taxes, whether or not the Landlord is ultimately successful.
Taxes shall also include any assessments or fees paid to any business
park owners association, or similar entity, which are imposed against
the Project pursuant to any Covenants, Conditions and Restrictions
("CC&R's") recorded now or in the future against the Land and any
-------
installments of principal and interest required to pay any existing or
future general or special assessments for public improvements,
services or benefits, and any increases resulting from reassessments
imposed in connection with any change in ownership or new
construction. Landlord agrees that any new CC&R's (or future
modifications to existing CC&R's) shall not materially and adversely
affect Tenant's rights hereunder, or materially increase Tenant's
financial obligations hereunder.
7
<PAGE>
If the Project contains more than one building, then Taxes shall include
(i) all Taxes fairly allocable to the Building, and (ii) a proportionate share
(based on the gross rentable area of the Building as a percentage of the gross
rentable area of all of the Buildings in the Project) of all Taxes which relate
to the Project in general and are not fairly allocable to any one building in
the Project.
For any year, the amount to be included in Taxes (a) from taxes or
assessments payable in installments, shall be the amount of the installments
(with any interest) due and payable during such year, and (b) from all other
Taxes, shall at Landlord's election be the amount accrued, assessed, or
Otherwise imposed for such year or the amount due and payable in such year. Any
refund or other adjustment to any Taxes by the taxing authority shall apply
during the year in which the adjustment is made. If there is a reduction in any
Taxes with respect to any year in which Tenant has paid Tax Share Rent
hereunder, and Landlord receives a tax refund or reimbursement as a result
thereof, Landlord shall first deduct therefrom the reasonable expenses incurred
by Landlord in obtaining such refund or reimbursement, and then refund to Tenant
(or at Landlord's election apply against Tenant's other payment obligation
hereunder) Tenant's Proportionate Share of the remaining balance of such tax
refund or reimbursement. Taxes shall not include any net income (except Rent
Tax), capital, stock, succession, transfer, franchise, gift, estate or
inheritance tax, except to the extent that such tax shall be imposed in lieu of
any portion of Taxes.
(4) Lease Year. "Lease Year" means each consecutive twelve-
---------- ----------
month period beginning with the Commencement Date, except that if the
Commencement Date is not the first day of a calendar month, then the first Lease
Year shall be the period from the Commencement Date through the final day of the
twelve months after the first day of the following month, and each subsequent
Lease Year shall be the twelve months following the prior Lease Year.
(5) Fiscal Year. "Fiscal Year" means the calendar year, except
----------- -----------
that the first Fiscal Year and the last Fiscal Year of the Term may be a partial
calendar year.
D. Computation of Base Rent and Rent Adjustments.
----------------------------------------------
(1) Prorations. If this Lease begins on a day other than the
----------
first day of a month, the Base Rent, Operating Cost Share Rent and Tax Share
Rent shall be prorated for such partial month based on the actual number of days
in such month. If this Lease begins on a day other than the first day, or ends
on a day other than the last day, of the Fiscal Year, Operating Cost Share Rent
and Tax Share Rent shall be prorated for the applicable Fiscal Year.
8
<PAGE>
(2) Default Interest. Any sum due from Tenant to Landlord not
----------------
paid when due shall bear interest from the date due until paid at the lesser of
twelve percent (12%) per annum or the maximum rate permitted by law.
(3) Rent Adjustments. The square footage of the Premises,
----------------
Building, and other Project Buildings, as set forth in the Schedule are
conclusively deemed to be the actual square footage thereof, without regard to
any subsequent remeasurement of the Premises, Building or other Project
Buildings. Notwithstanding the foregoing, Tenant's Proportionate Share as set
forth in Item 5 of the Schedule shall be adjusted (and this Lease amended)
accordingly in the event there is: (i) a material expansion to the Building or
any of the other Project Buildings (i.e., the square footage of such additional
space shall be added to the square footage of such Building as set forth in
Exhibit A); and/or (ii) the actual square footage of the Phase II Buildings
following their completion materially differs from the square footage of such
Phase II Buildings as set forth in Exhibit A. If any Operating Cost paid in one
Fiscal Year relates to more than one Fiscal Year, Landlord may proportionately
allocate such Operating Cost among the related Fiscal Years.
(4) Books and Records. Landlord shall maintain books and
-----------------
records reflecting the Operating Costs and Taxes in accordance with sound
accounting and management practices. Tenant and its certified public accountant
shall have the right to inspect Landlord's records at Landlord's applicable
local office or other location designated by Landlord upon at least seventy-two
(72) hours' prior notice during normal business hours during the one hundred
twenty (120) days following the respective delivery of the Operating Cost Report
or the Tax Report. The results of any such inspection shall be kept strictly
confidential by Tenant and its agents, and Tenant and its certified public
accountant must agree, in their contract for such services, to such
confidentiality restrictions and shall specifically agree that the results shall
not be made available to any other tenant of the Project. Unless Tenant sends to
Landlord any written exception to either such report within said one hundred
twenty (120) period, such report shall be deemed final and accepted by Tenant.
Tenant shall pay the amount shown on both reports in the manner prescribed in
this Lease, whether or not Tenant takes any such written exception, without any
prejudice to such exception. If Tenant makes a timely exception, Landlord shall
cause its independent certified public accountant to issue a final and
conclusive resolution of Tenant's exception within thirty (30) days of
Landlord's receipt of Tenant's exception. Tenant shall pay the cost of such
certification unless Landlord's original determination of annual Operating Costs
and Taxes in the aggregate overstated the amounts thereof by more than five
percent (5%), in which event Landlord shall pay the cost of certification.
(5) Miscellaneous. So long as Tenant is in default of any
-------------
obligation under this Lease beyond the expiration of any applicable notice,
grace and cure periods, Tenant shall not be entitled to any refund of any amount
from Landlord. If this Lease is terminated for any reason prior to the annual
determination of
9
<PAGE>
Operating Cost Share Rent or Tax Share Rent, either party shall pay the full
amount due to the other within twenty (20) days after Landlord's notice to
Tenant of the amount when it is determined. Landlord may commingle any payments
made with respect to Operating Cost Share Rent or Tax Share Rent, without
payment of interest.
3. CONDITION OF BUILDING SHELL/PREMISES AND POSSESSION.
----------------------------------------------------
A. Condition of Building Shell/Premises. The "Building Shell"
------------------------------------
shall mean the building structure, exterior walls, exterior glass, floor slab,
roof (including the roof membrane), parking lot, parking lot lighting, and
landscaping for the Project and the base for the monument sign. The Building
Shell shall include bringing phone, gas, electric, plumbing, fire and water
service to the Building (i.e., stubbed but not distributed), installing the main
fire sprinkler trunks (i.e., installed but not distributed or "dropped"), and
the pull section for electrical power. Landlord shall be responsible for all
costs associated with the construction of the Building Shell, including the
design and permitting costs associated with the Building Shell and costs
associated with bringing the Building Shell into compliance with the Americans
with Disabilities Act of 1990 and other architectural access laws, rules and
regulations. The Building Shell does not include any elevators, stairs, HVAC,
roof screens or thermal insulation. In the event of any conflict between the
plans for the Building Shell or the "Tenant Improvement Plans" (as defined in
the Tenant Improvement Agreement, attached hereto as Exhibit C) and the
---------
definition of "Building Shell" contained herein, the parties agree that the
definitions contained in this Lease shall control. Any improvements which do
not constitute part of the "Building Shell" shall be deemed to be part of the
"Tenant Improvements" to be constructed by Tenant in accordance with the Tenant
Improvement Agreement. Tenant hereby acknowledges that it has inspected and
approved the Building Shell and related exterior improvements in the condition
which existed as of the date on which this Lease is executed by Tenant, except
for any "latent defects" (i.e., any defects in the construction of the Building
Shell which are not readily apparent from a visual inspection and walk-through
of the Building) which are noted by Tenant within the twelve month period
immediately following the Execution Date. Tenant shall cause the Tenant
Improvements to be completed within the Premises at Tenant's sole cost in
accordance with the terms and conditions of the Tenant Improvement Agreement,
subject only to the "Tenant Improvement Allowance", as defined therein. Except
as set forth in this Section 3.A, Landlord is leasing the Premises to Tenant "as
is", without any representations or warranties of any kind and without any
obligation to perform any other alterations or improvements to the Building
Shell or the Premises, except that Landlord agrees to promptly correct and/or
repair any latent defects relating to the Building Shell which are timely noted
by Tenant.
B. Tenant's Possession. Tenant's taking possession of any portion
--------------------
of the Building shall be conclusive evidence that the Building Shell and
10
<PAGE>
Premises were in good order, repair and condition, except for the latent defects
relating to the Building Shell which were timely noted by Tenant in accordance
with Section 3.A. Following the Execution Date, Tenant shall have the right to
take possession of the Premises or any portion thereof prior to the Commencement
Date for purposes of constructing the Tenant Improvements in accordance with
Tenant Improvement Agreement attached hereto as Exhibit C; provided, however,
---------
that all terms of this Lease shall apply to such pre-Term possession except for
the payment of Rent and other amounts due hereunder. Landlord agrees to make all
manufacturers' and other warranties and guarantees for the newly constructed
Tenant Improvements, the roof and any mechanical, electrical, plumbing, HVAC and
other systems serving the Premises available to Tenant within ten (10) days of
Tenant's request, and to the extent applicable, Landlord shall cooperate with
Tenant so that Tenant shall have the benefit of such warranties and guarantees.
4. SERVICES AND UTILITIES. Tenant shall promptly pay, as the same become
-----------------------
due, all charges for water, gas, electricity, telephone, sewer service, waste
pick-up and any other utilities, materials and services furnished directly to or
used by Tenant on or about the Premises during the term, including without
limitation, (i) meter, use and/or connection fees, hook-up fees, or standby fees
(excluding any connection fees or hook-up fees which relate to making the
existing electrical, gas, water and sewer service available to the Premises as
of the Commencement Date), and (ii) penalties for discontinued interrupted
service. If any utility service is not separately metered to the Premises, then
Tenant shall pay its pro rata share of the cost of such utility service with all
others served by the service not separately metered. However, if Landlord
reasonably determines that Tenant is using a disproportionate amount of any
utility service, then Landlord at its sole election may (i) periodically charge
Tenant, as Additional Rent, a sum equal to Landlord's reasonable estimate of the
cost of Tenant's excess use of such utility service, or (ii) install, at
Tenant's expense, a separate meter to measure the utility service supplied to
the Premises. Any interruption or cessation of utilities resulting from any
causes, including any entry for repairs pursuant to this lease, and any
renovation, redecoration or rehabilitation of any area of the Project shall not
render Landlord liable for damages to either person or property or for
interruption or loss to Tenant's business, nor be construed as an eviction of
Tenant, nor work an abatement of any portion of Rent, nor relieve Tenant from
fulfillment of any covenant or agreement hereof; provided, however, in the event
that an interruption of the Project services causes the Premises to be
untenantable for the permitted uses hereunder (including the operation of the
Data Center) for a period of at least ten (10) consecutive days and such
interruption was caused by the negligence or willful acts or omissions of
Landlord or its agents, employees or contractors, then monthly Rent shall be
proportionally abated thereafter for such untenantable portion of the Premises.
11
<PAGE>
5. ALTERATIONS.
------------
A. Landlord's Consent and Conditions. Tenant shall not make any
----------------------------------
improvements or alterations to the Premises or Building (the "Work") that affect
the structural components of the Building or which have a building permit value
of more than $50,000, without in each instance submitting plans and
specifications for the Work to Landlord and obtaining Landlord's prior written
consent, which shall not be unreasonably withheld or delayed. The parties agree
that the Tenant Improvement work described in Exhibit C shall be governed by the
---------
Tenant Improvement Agreement, and shall not constitute Work for purposes of this
Section. Tenant shall pay Landlord's reasonable and actual costs incurred for
the review of all of the plans and all other items submitted by Tenant.
Landlord will be deemed to be acting reasonably in withholding its consent for
any Work which (a) adversely impacts the base structural components or systems
of the Building, (b) adversely impacts any other tenant's premises, or (c) is
visible from outside the Premises and in the reasonable judgment of Landlord,
appears unsightly therefrom.
Tenant shall pay for the cost of all Work, including the cost of any and
all approvals, permits, fees and other charges which may be required as a
condition of performing such Work. Upon completion all Work shall become the
property of Landlord, except for Tenant's furnishings, moveable equipment and
personal property and trade fixtures (including all of the aforementioned items
located in Tenant's Data Center) and for items which Landlord requires Tenant to
remove at Tenant's cost at the termination of the Lease pursuant to Section 5E.
The following requirements shall apply to all Work:
(1) Prior to commencement, Tenant shall furnish to Landlord
building permits and certificates of insurance reasonably satisfactory to
Landlord.
(2) Tenant shall perform all Work so as to maintain peace and
harmony among other contractors serving the Project and shall avoid unreasonable
interference with other work to be performed or services to be rendered in the
Project.
(3) The Work shall be performed in a good and workmanlike
manner, meeting the standard for construction and quality of materials in the
Building, and shall comply with all applicable insurance requirements and all
applicable governmental laws, ordinances and regulations ("Governmental
------------
Requirements").
- ------------
(4) Tenant shall perform all Work so as to minimize or prevent
disruption to other tenants, and Tenant shall comply with all reasonable
requests of Landlord in response to complaints from other tenants.
12
<PAGE>
(5) Tenant shall perform all Work in compliance with any
reasonable "Policies, Rules and Procedures for Construction Projects" which may
--------------------------------------------------------
be in effect at the time the Work is performed. The foregoing Policies, Rules
and Procedures for Construction Projects shall not apply to the construction of
the Tenant Improvements.
(6) Tenant shall permit Landlord to supervise and observe all
Work. Landlord may charge Tenant for the actual out-of-pocket costs incurred by
Landlord if Landlord deems it reasonably necessary to hire an outside consultant
to supervise and observe Tenant's Work (e.g., a structural engineer to review an
supervise any Work which may affect the structural components of the Building or
roof).
(7) Upon completion, Tenant shall furnish Landlord with
contractor's affidavits and full and final statutory waivers of liens, as-built
plans and specifications, and receipted bills covering all labor and materials,
and all other close-out documentation related to the Work, including any other
information required under any reasonable "Policies, Rules and Procedures for
----------------------------------
Construction Projects" which may be in effect at such time.
- ---------------------
B. Damage to Systems. If any part of the mechanical, electrical or
------------------
other systems in the Premises (e.g., HVAC, life safety or automatic fire
extinguisher/sprinkler system) shall be damaged by Tenant or its employees,
agents, contractors, subcontractors or invitees, during the performance of the
Work, Tenant shall notify Landlord of such damage and promptly cause the
necessary repairs to be made with contractors reasonably acceptable to Landlord,
provided if Tenant fails to cause such damage to be repaired within the ten (10)
day period following the occurrence of such damage (or, if the nature of such
damage is such that more than ten (10) days is required to complete the repair,
then if Tenant fails to commence such repairs within such ten (10) day period
and thereafter diligently prosecute such repair to completion), then Landlord
may elect to commence (or complete) such repairs at Tenant's expense. There
shall be no abatement of Rent during such period of repair, whether such repairs
are performed by Tenant or Landlord. Landlord may also at any reasonable time
make any repairs or alterations which Landlord deems reasonably necessary for
the safety or protection of the Project, or which Landlord is required to make
by any court or pursuant to any Governmental Requirement. The cost of any
repairs made by Landlord on account of Tenant's default beyond the expiration of
any applicable notice and cure periods, or on account of the misuse or neglect
by Tenant or its invitees, contractors or agents anywhere in the Project, shall
become Additional Rent payable by Tenant on demand and in no event later than
within twenty (20) days of Tenant's receipt of Landlord's invoice for the same.
C. No Liens. Tenant has no authority to cause or permit any lien or
---------
encumbrance of any kind to affect Landlord's interest in the Project; any such
lien or encumbrance shall attach to Tenant's interest only. If any mechanic's
lien shall
13
<PAGE>
be filed or claim of lien made for work or materials furnished to Tenant, then
Tenant shall at its expense within twenty (20) days thereafter either discharge
or contest the lien or claim. If Tenant contests the lien or claim, then Tenant
shall (i) within such twenty (20) day period, provide Landlord adequate security
for the lien or claim, (ii) contest the lien or claim in good faith by
appropriate proceedings that operate to stay its enforcement, and (iii) pay
promptly any final adverse judgment entered in any such proceeding. If Tenant
does not comply with these requirements, Landlord may discharge the lien or
claim, and the amount paid, as well as reasonable attorney's fees and other
reasonable expenses incurred by Landlord, shall become Additional Rent payable
by Tenant on demand and in no event later than within twenty (20) days of
Tenant's receipt of Landlord's invoice for the same.
D. Ownership of Improvements. Upon request by Tenant, at the time
--------------------------
Landlord approves Tenant's proposal for any Work (as defined in this Section 5)
or Tenant's plans for the Tenant Improvements (as defined in Exhibit C),
Landlord shall also state whether or not any of the proposed improvements will
have to be removed upon the termination of this Lease. Unless otherwise
indicated by Landlord in accordance with the preceding sentence, all Work,
partitions, hardware, equipment, machinery and all other improvements and all
fixtures constructed in the Premises by Tenant, shall (i) become Landlord's
property upon installation without compensation to Tenant, unless Landlord
consents otherwise in writing, and (ii) at Landlord's option, Landlord may elect
(provided that such election is made and Tenant is informed of such election at
least thirty (30) days prior to the termination of this Lease or the termination
of Tenant's possession) that such items either (a) be surrendered to Landlord
with the Premises at the termination of the Lease or of Tenant's right to
possession, or (b) be removed in accordance with Subsection 5E below.
Notwithstanding the foregoing, Tenant's furnishings, moveable equipment, other
personal property and trade fixtures (including all of the items located
Tenant's Data Center) shall remain Tenant's property throughout the Term and
shall be removed by Tenant upon the termination of this Lease or of Tenant's
right to possession. Unless Landlord agrees otherwise in writing, Tenant shall
not remove any HVAC equipment (except for the chillers and cooling equipment
specifically installed for and which exclusively serves the Data Center), light
fixtures or any portion of the drop ceiling without Landlord's prior written
consent, which Landlord may withhold in its sole and absolute discretion.
E. Removal Upon Termination. Upon the termination of this Lease or
-------------------------
Tenant's right of possession, Tenant shall remove from the Premises and Project
its trade fixtures, furniture, moveable equipment and other personal property
(including all of the aforementioned items located in Tenant's Data Center), any
improvements which Landlord elects pursuant to Section 5D shall be removed by
Tenant, and (unless otherwise agreed to in writing by Landlord) any improvements
to any portion of the Project other than the interior of the Premises. Tenant
shall repair all damage caused by the installation or removal of the foregoing
items. If
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Tenant does not remove such property on or prior to the termination of this
Lease or the termination of Tenant's possession, then Tenant shall be
conclusively presumed to have, at Landlord's election, either (i) conveyed such
property to Landlord without compensation or (ii) abandoned such property, and
Landlord may dispose of or store any part thereof in any reasonable manner at
Tenant's sole cost, without waiving Landlord's right to claim from Tenant all
reasonable expenses arising out of Tenant's failure to remove the property, and
without liability to Tenant or any other person. Landlord shall have no duty to
be a bailee of any such personal property. If Landlord elects abandonment,
Tenant shall pay to Landlord, upon demand, any reasonable expenses incurred for
disposition. Landlord agrees and acknowledges that Tenant shall have no
obligation to remove any typical and customary office improvements from the
Premises upon the expiration or earlier termination of this Lease.
6. USE OF PREMISES.
----------------
A. Limitation on Use. Tenant shall use the Premises only for the
------------------
Permitted Use stated in the Schedule. Tenant shall not allow any use of the
Premises which will negatively affect the cost of coverage of Landlord's
insurance on the Project. Except for the substances which may be contained in
Tenant's fire suppression system and the diesel holding tank, Tenant shall not
allow any inflammable or explosive liquids or materials to be kept on the
Premises. Tenant shall not allow any use of the Premises which would cause the
value or utility of any part of the Premises to diminish or would materially and
adversely affect other tenants' use and enjoyment of their space in the Project
or with the operation of the Project by Landlord. Tenant shall not permit any
nuisance or waste to occur on the Project or upon the Premises, or allow any
offensive noise or odor in or around the Project. At the end of each business
day, or more frequently if necessary, Tenant shall deposit all garbage and other
trash (excluding any inflammable, explosive and/or hazardous materials) in trash
bins or containers approved by Landlord in locations designated by Landlord from
time to time. If any governmental authority shall deem the Premises to be a
"place of public accommodation" under the Americans with Disabilities Act or any
other comparable law as a result of Tenant's use, Tenant shall either modify its
use to cause such authority to rescind its designation or be responsible for any
alterations, structural or otherwise, required to be made to the Building or the
Premises under such laws.
B. Signs. Tenant shall not place on any portion of the Premises any
------
sign, placard, lettering, banner, displays or other advertising or communicative
material which is visible from the exterior of the Building without the prior
written approval of Landlord. Subject to Landlord's prior approval (which
approval shall not be unreasonably withheld or delayed) and the other
requirements of this Section, Tenant shall be entitled, at its sole cost, to
place its name on the entrance to the door to the Premises, on the crown of the
Building, and on the existing street monument sign base. Any approved signs
shall strictly conform to all Governmental Restrictions, any CC&R's recorded
against the Project, and any sign criteria which
15
<PAGE>
may be established by Landlord and in effect at the time, and shall be installed
(and removed upon the Termination Date) at Tenant's expense. Tenant, at its sole
cost, shall maintain such signs in good condition and repair, including the
repair of any damage caused to the Building or Project upon Tenant's removal of
such signs. Landlord current Signage Standards are attached hereto as Exhibit E.
---------
C. Parking. Tenant, its contractors, agents, employees and invitees
--------
shall have the non-exclusive right to park in the Project's parking facilities
in common with other tenants of the Project upon terms and conditions, as may
from time to time be established by Landlord. Notwithstanding the foregoing,
Tenant shall have the right to designate up to twenty (20) of the parking spaces
located near the front entrance of the Building as Tenant's "Visitor Parking",
provided that these spaces shall count against the total number of parking
stalls to be provided by Landlord for Tenant's use as set forth in the Schedule.
Tenant agrees not to overburden the parking facilities (i.e., use more than the
----
number of parking stalls indicated on the Schedule) and agrees to cooperate with
Landlord and other tenants in the Project in the use of the parking facilities.
Landlord reserves the right in its reasonable discretion to determine whether
the parking facilities are becoming crowded and to allocate and assign parking
spaces among Tenant and the other tenants in the Project so long as such
assigned spaces are reasonably proximate to the Premises. Landlord shall have
the right to charge Tenant the portion that is allocable to Tenant (based on its
Proportionate Share of the total parking spaces) of any charges (e.g., fees or
----
taxes) imposed by the Regional Air Quality Control Board or other governmental
or quasi-governmental agency in connection with the parking facilities (e.g., in
----
connection with operation or use of the parking facilities). Landlord shall not
be liable to Tenant, nor shall this Lease be affected, if any parking is
impaired by moratorium, initiative, referendum, law, ordinance, regulation or
order passed, issued or made by any governmental or quasi-governmental body.
D. Prohibition Against Use of Roof and Structure of Building.
-----------------------------------------------------------
Tenant shall be prohibited from using any all or any portion of the roof of the
Building or any portion of the structure of the Building during the Term of this
Lease (or any extensions thereof) for any purposes (including without limitation
for the installation, maintenance and repair of a satellite dish and/or other
telecommunications equipment), without the prior written consent of Landlord,
which consent Landlord may withhold in its sole and absolute discretion. Any
use of the roof or the structure of the Building for satellite dish or antennae
purposes shall be pursuant to the terms of a separate license agreement and not
this Lease. Nothing herein shall limit Landlord's rights under Section 11.N, or
require Landlord to obtain Tenant's consent prior to exercising such rights.
Notwithstanding the foregoing, Tenant may at its sole cost install,
maintain, and from time to time replace an antennea or satellite dish
(collectively, the "Dish Equipment") on the roof of the Building, provided that
--------------
(A) Tenant shall obtain Landlord's prior written approval, which shall not be
unreasonably withheld, of the
16
<PAGE>
proposed size, weight, location and aesthetic impact of the Dish Equipment and
the method for fastening the Dish Equipment to the Building; (B) Tenant will at
its sole cost comply with (i) all Governmental Requirements, (ii) Landlord's
reasonable requirements from time to time (including the requirement to relocate
such Dish Equipment), and (iii) the conditions of any bond or warranty
maintained by Landlord on the roof, (C) the Dish Equipment shall not materially
interfere, electronically or otherwise, with the equipment, facilities, use or
operations of Landlord or of any licensees or tenants of Landlord, and (D) the
Dish Equipment shall be for Tenant's own use (i.e., Tenant shall not permit
unrelated third parties to install or maintain Dish Equipment on the roof of the
Building). Landlord may supervise any roof penetration. Tenant shall repair any
damage to the Building caused by Tenant's installation, maintenance,
replacement, use or removal of the Dish Equipment. The Dish Equipment shall
remain the property of Tenant, shall be solely insured by Tenant, and Tenant may
remove the Dish Equipment at its cost at any time during the Term. Tenant shall
remove the Dish at its cost upon expiration or termination of the Lease.
However, in connection with the Dish Equipment installation or removal, Tenant
shall not remove any of the HVAC equipment on the roof without Landlord's prior
written consent, which Landlord may withhold in its sole and absolute
discretion. Tenant shall protect, defend, indemnify and hold harmless Landlord
from and against claims, damages, liabilities, costs and expenses of every kind
and nature, including attorneys' fees, incurred by or asserted against Landlord
arising out of Tenant's installation, maintenance, replacement, use or removal
of the Dish Equipment. Landlord shall use commercially reasonable efforts to
ensure that no new Dish Equipment is installed (whether by Landlord or other
third parties) on the roof of the Building or the Other Project Buildings to the
extent such Dish Equipment will materially and adversely affect Tenant's use of
its pre-existing Dish Equipment.
E. Pads for Diesel Holding Tank, Generators and Chillers. Subject
-----------------------------------------------------
to all of the provisions of Section 5 above (or, if applicable, the Tenant
Improvement Agreement), Landlord agrees that Tenant may use a portion of the
Project common area for the installation of generator and chiller pads and the
diesel generators and chillers, the number, location and type of which shall be
depicted in the plans for the Work (or, if applicable, the Tenant Improvement
Plans described in Exhibit C), provided that the number of parking spaces set
---------
forth in the Schedule for Tenant's use shall be reduced by any of the Project's
parking spaces which are utilized for such diesel holding tank, generator and
chiller pads.
F. Data Center. Landlord and Tenant agree that Tenant shall have
-----------
sole and exclusive rights to access Tenant's Data Center, provided that Landlord
(a) may (but shall have no obligation) to enter the Data Center in the event of
an emergency, (b) shall have no repair, maintain, alteration or other
obligations whatsoever with respect to the Data Center and that Tenant shall
assume full responsibility for the same, and (c) shall have no right to obtain
keys or pass cards
17
<PAGE>
for access to or entry into the Data Center. Tenant shall maintain the Data
Center in good order and repair. Tenant's use of the Data Center shall comply
with all applicable Governmental Requirements as well as the requirements under
this Lease. Landlord agrees that all of Tenant's furnishings, moveable
equipment, other personal property and trade fixtures located in the Data Center
shall at all times remain the property of Tenant.
7. GOVERNMENTAL REQUIREMENTS AND BUILDING RULES.
---------------------------------------------
Tenant shall comply with all Governmental Requirements applying to its use,
maintenance and repair of the Premises. Tenant shall also comply with all
reasonable rules for the Project which may be established and amended from time
to time by Landlord and which shall not materially and adversely interfere with
Tenant's use and occupancy of the Building. The present rules and regulations
are contained in Exhibit B. Failure by another tenant to comply with the rules
---------
or failure by Landlord to enforce them shall not relieve Tenant of its
obligation to comply with the rules or make Landlord responsible to Tenant in
any way. Landlord shall use reasonable efforts to apply the rules and
regulations uniformly with respect to Tenant and any other tenants in the
Project under leases containing rules and regulations similar to this Lease.
8. REPAIR AND MAINTENANCE.
-----------------------
A. Landlord's Obligations. Landlord shall keep in good order,
----------------------
condition and repair (i) the structural parts of the Building, which structural
parts include only the foundation and subflooring of the Building and the
structural condition of the roof and the exterior walls of the Building (but
excluding the interior surfaces of exterior walls and exterior and interior of
all windows, doors, ceiling and plate glass which shall be maintained and
repaired by Tenant), (ii) the roof membrane, and (iii) the common areas of the
Project. For purposes of this Lease, the common areas of the Project shall mean
those areas outside of the Buildings which are for the benefit of all of the
tenants in the Project (e.g., the landscape and parking areas, lighting,
sidewalks), driveways and the utility pipes, conduits and lines which run from
the street to each Building and between each of the Buildings). The costs
incurred by Landlord (or, if applicable, by Tenant) to perform the foregoing
obligations to the extent they are deemed "Operating Costs" (as defined in
---------------
Section 2C) shall be passed through to Tenant and any other tenants in the
Project, except that any damage to any of the foregoing caused by the negligence
or willful acts or omissions of Tenant or of Tenant's agents, employees or
invitees, or by reason of the failure of Tenant to perform or comply with any
terms of this Lease, or caused by Tenant or Tenant's agents, employees or
contractors during the performance of any Work shall be repaired by Tenant, at
Tenant's expense, with contractors reasonably approved by Landlord, or at
Landlord's option, by Landlord, at Tenant's expense. It is an express condition
precedent to all obligations of Landlord to repair and maintain that Tenant
shall have notified Landlord of the need for such repairs or maintenance.
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<PAGE>
Tenant waives the provisions of Sections 1941 and 1942 of the California Civil
Code and any similar or successor law regarding Tenant's right to make repairs
and deduct the expenses of such repairs from the Rent due under this Lease.
Notwithstanding the foregoing, in the event Tenant notifies Landlord in writing
of an item needing immediate repair and there is no dispute concerning the need
for such repair, the scope of the repair or that Landlord is the party
responsible for such repair, then (A) in the event of an emergency repair (e.g.,
roof leakage or other repairs which adversely and materially affect Tenant's
ability to conduct its normal business operations within the Premises), Landlord
shall commence and complete such repair within the five (5) day period following
Landlord's receipt of Tenant's repair notice, unless the nature of the repair is
such that more than five (5) days is required to complete such repair in which
case Landlord shall commence the repair within such five (5) day period and
thereafter diligently prosecute the same to completion, or (b) in the event of
any other type of repair, Landlord shall commence and complete such repair
within the thirty (30) day period following Landlord's receipt of Tenant's
repair notice, unless the nature of the repair is such that more than thirty
(30) days is required to complete such repair in which case Landlord shall
commence the repair within such thirty (30) day period and thereafter diligently
prosecute the same to completion. In the event Landlord fails to dispute or
commence the repair within such thirty (30) day period, then Tenant shall have
the right, but not the obligation, to cause the repair of such item and to
submit an invoice to Landlord for the reasonable out-of-pocket costs incurred by
Tenant for the same (including reasonable supporting documentation for the
same), and Landlord shall pay such amount to Tenant within thirty (30) days of
receipt of Tenant's invoice and related documentation for such work.
B. Tenant's Obligations. Tenant shall at all times and at its own
--------------------
expense clean, keep and maintain in good order, condition and repair every part
of the Premises (including Tenant's fixtures and personal property) which is not
within Landlord's obligation pursuant to Section 8A. Tenant's repair and
maintenance obligations shall include, all plumbing and sewage facilities within
the Premises, fixtures, interior walls and ceiling, floors, windows (including
the repairing, resealing, cleaning and replacing of both interior and exterior
windows), doors, entrances, plate glass, showcases, skylights, all electrical
facilities and equipment, including lighting fixtures, lamps, fans and any
exhaust equipment and systems, electrical motors and all other appliances and
equipment of every kind and nature located in, upon or about the Premises.
Tenant agrees and acknowledges that Landlord's responsibility for the utility
pipes and lines which service the Building is limited to bringing such utilities
to the Building and that Tenant shall be responsible for all costs associated
with the distribution and maintenance of such utility pipes and lines within the
Building. Tenant shall also be responsible for all pest control within the
Premises, and for all trash removal and disposal for the Premises. Tenant shall
obtain HVAC systems preventive maintenance contracts with quarterly service in
accordance with manufacturer recommendations, which shall be
19
<PAGE>
subject to the reasonable prior written approval of Landlord and paid for by
Tenant, and which shall provide for and include replacement of filters, oiling
and lubricating of machinery, parts replacement, adjustment of drive belts, oil
changes and other preventive maintenance, including annual maintenance of duct
work, interior unit drains and caulking at sheet metal, and recaulking of jacks
and vents on an as needed basis. Tenant shall have the benefit of all warranties
available to Landlord regarding the equipment in such HVAC systems. In the event
Tenant fails to perform such maintenance and repairs within the time periods
specified herein, and such failure continues for a period of thirty (30) days
following Tenant's receipt of Landlord's written notice regarding the same, then
Landlord may elect (but shall have no obligation) to perform all such repairs
and maintenance itself, at Tenant's expense, including, without limitation, to
the Building's mechanical, electrical or other systems in the Premises (e.g.,
HVAC, life safety and automatic fire extinguisher/sprinkler systems), except
that Landlord shall not make any repairs in the Data Center without Tenant's
prior written consent.
9. WAIVER OF CLAIMS; INDEMNIFICATION; INSURANCE.
---------------------------------------------
A. Waiver of Claims. To the extent permitted by law, Tenant waives
----------------
any claims it may have against Landlord or its officers, directors, employees or
agents for business interruption or damage to property sustained by Tenant as
the result of any act or omission of Landlord, its agents or employees. To the
extent permitted by law, Landlord waives any claims it may have against Tenant
or its officers, directors, employees or agents for loss of rents (other than
Rent) or damage to property sustained by Landlord as the result of any act or
omission of Tenant, its agents or employees.
B. Indemnification. Tenant shall indemnify, defend and hold
---------------
harmless Landlord and its officers, directors, employees and agents against any
claim by any third party for injury to any person or damage to or loss of any
property occurring in or around the Project and arising from the use of the
Premises or from any other act or omission or negligence of Tenant, its
employees, agents or invitees, or Tenant's breach of its obligations hereunder.
Tenant's obligations under this section shall survive the termination of this
Lease.
Landlord shall indemnify, defend and hold harmless Tenant and its officers,
directors, employees and agents against any claim by any third party for injury
or damage to person or the Premises to the extent caused by the gross negligence
or intentional misconduct of Landlord or any of Landlord's employees or agents,
or Landlord's breach of its obligations hereunder. Landlord's obligations under
this section shall survive the termination of this Lease.
C. Tenant's Insurance. Tenant shall maintain insurance as follows,
------------------
with such other terms, coverages and insurers, as Landlord shall reasonably
require from time to time:
20
<PAGE>
(1) Commercial general liability insurance, with (a) contractual
liability including the indemnification provisions contained in this Lease, (b)
a severability of interest endorsement, (c) limits of not less than Two Million
Dollars ($2,000,000) combined single limit per occurrence and not less than Two
Million Dollars ($2,000,000) in the aggregate for bodily injury, sickness or
death, and property damage, and umbrella coverage of not less than Five Million
Dollars ($5,000,000).
(2) Property Insurance against "All Risks" of physical loss
---------
covering the replacement cost of all improvements, fixtures and personal
property and business interruption. Tenant waives all rights of subrogation,
and Tenant's property insurance shall include a waiver of subrogation in favor
of Landlord.
(3) Workers' compensation or similar insurance in form and
amounts required by law, and Employer's Liability with not less than the
following limits:
Each Accident $500,000
Disease -- Policy Limit $500,000
Disease -- Each Employee $500,000
Such insurance shall contain a waiver of subrogation provision in favor of
Landlord and its agents.
Tenant's insurance shall be primary and not contributory to that carried by
Landlord, its agents, or mortgagee. Landlord, and if any, Landlord's building
manager or agent, mortgagee and ground lessor shall be named as additional
insureds as respects to insurance required of the Tenant in Section 9C(1). The
company or companies writing any insurance which Tenant is required to maintain
under this Lease, as well as the form of such insurance, shall at all times be
subject to Landlord's approval, and any such company shall be licensed to do
business in the state in which the Building is located. Such insurance
companies shall have a A.M. Best rating of A VI or better.
(4) Tenant shall cause any contractor of Tenant performing work
on the Premises to maintain insurance as follows, with such other terms,
coverages and insurers, as Landlord shall reasonably require from time to time:
(a) Commercial General Liability Insurance, including contractor's
liability coverage, contractual liability coverage, completed
operations coverage, broad form property damage endorsement, and
contractor's protective liability coverage, to afford protection
with limits, for each occurrence, of not less than One Million
Dollars
21
<PAGE>
($1,000,000) with respect to personal injury, death or property
damage.
(b) Workers' compensation or similar insurance in form and amounts
required by law, and Employer's Liability with not less than the
following limits:
Each Accident $500,000
Disease -- Policy Limit $500,000
Disease -- Each Employee $500,000
Such insurance shall contain a waiver of subrogation provision in favor of
Landlord and its agents.
Tenant's contractor's insurance shall be primary and not contributory to
that carried by Tenant, Landlord, their agents or mortgagees. Tenant and
Landlord, and if any, Landlord's building manager or agent, mortgagee or ground
lessor shall be named as additional insured on Tenant's contractor's insurance
policies.
D. Insurance Certificates. Tenant shall deliver to Landlord
----------------------
certificates evidencing all required insurance no later than five (5) days prior
to the Commencement Date and each renewal date. Each certificate will provide
for thirty (30) days prior written notice of cancellation to Landlord and
Tenant.
E. Landlord's Insurance. Landlord shall maintain "All-Risk"
--------------------
property insurance at replacement cost, including loss of rents, on the
Building, and commercial general liability insurance policies covering the
common areas of the Project, each with such terms, coverages and conditions as
are normally carried by reasonably prudent owners of properties similar to the
Project. With respect to property insurance, Landlord and Tenant mutually waive
all rights of subrogation, and the respective "All-Risk" coverage property
--------
insurance policies carried by Landlord and Tenant shall contain enforceable
waiver of subrogation endorsements.
10. FIRE AND OTHER CASUALTY.
------------------------
A. Termination. If a fire or other casualty causes substantial
-----------
damage to the Building or the Premises, and sufficient insurance proceeds will
be available to Landlord (or would have been available to Landlord had Landlord
maintained the insurance required to be maintained by Landlord hereunder) to
cover the cost of any restoration to the Building and the Premises to its
condition as of the Commencement Date, Landlord shall engage a registered
architect to certify within one (1) month of the casualty to both Landlord and
Tenant the amount of time needed to restore the Building and the Premises to
tenantability, using standard working methods without the payment of overtime
and other premiums. If the time
22
<PAGE>
needed exceeds six (6) months from the beginning of the restoration, or two (2)
months therefrom if the restoration would begin during the last twelve (12)
months of the Lease, either Landlord or Tenant may terminate this Lease by
notice to the other party within ten (10) days after the notifying party's
receipt of the architect's certificate. If sufficient insurance proceeds will
not be available to Landlord (or would have been available to Landlord had
Landlord maintained the insurance required to be maintained by Landlord
hereunder) to cover the cost of any restoration to the Building or the Premises
to its condition as of the Commencement Date, Landlord may terminate this Lease
by written notice to Tenant within thirty (30) days of the date of the fire or
other casualty. Any termination pursuant to this Section 10A shall be effective
thirty (30) days from the date of such termination notice and Rent shall be paid
by Tenant to that date, with an abatement for any portion of the Premises which
has been untenantable (i.e., Tenant cannot use the Premises for the permitted
uses hereunder) after the casualty.
B. Restoration. If a casualty causes damage to the Building or the
-----------
Premises but this Lease is not terminated for any reason, then subject to the
rights of any mortgagees or ground lessors, Landlord shall obtain the applicable
insurance proceeds and diligently restore the Building and the Premises, subject
to current Governmental Requirements, provided Landlord's obligation, should it
elect or be obligated to repair or rebuild, shall be limited (i) if only the
Building Shell is damaged as a result of such casualty, to the repair and
restoration of the Building Shell, or (ii) if both the Building Shell and
interior improvements within the Premises are damaged or destroyed, to the
repair of the Building Shell and the construction of those improvements which
are typical for a generic general office use (the "Base Improvements").
Notwithstanding the foregoing, Tenant shall, at Tenant's sole expense, be
responsible for replacing or fully repairing its damaged improvements (including
any Tenant Improvements in excess of the Base Improvements (including the Data
Center, diesel holding tank, chillers and generators, Dish Equipment), as well
as Tenant's personal property and fixtures. All such repairs, restoration and
rebuilding shall be performed by Landlord and Tenant as applicable, in a good
workmanlike manner and in accordance with all Governmental Requirements, using
new materials of equal or greater quality than those used for the initial
construction of the Building Shell or the other exterior or interior
improvements to the Building made by either party prior to the casualty. Except
to the extent that the casualty was caused by the negligence or intentional
misconduct of Tenant, its agents or employees, Rent otherwise payably hereunder
shall be abated on a per diem basis during the period that Landlord causes its
repair and restoration work to be completed, provided that Tenant's obligation
to pay Rent hereunder shall resume upon Landlord's completion of its repair and
restoration work notwithstanding the fact that Tenant may not have completed its
repair and restoration work as of such resumption. Tenant shall not be entitled
to any compensation or damages from Landlord for loss of the use of the
Premises, damage to Tenant's personal property and trade fixtures or any
inconvenience occasioned by such damage, repair or
23
<PAGE>
restoration. Tenant hereby waives the provisions of Section 1932, Subdivision 2,
and Section 1933, Subdivision 4, of the California Civil Code, and the
provisions of any similar law hereinafter enacted.
11. EMINENT DOMAIN. If a part of the Project is taken by eminent domain
--------------
or deed in lieu thereof which is so substantial that the Premises cannot
reasonably be used by Tenant for the operation of its business in Tenant's
reasonable judgment, then either party may terminate this Lease effective as of
the date of the taking. Rent shall abate from the date of the taking in
proportion to any part of the Premises taken. The entire award for a taking of
any kind shall be paid to Landlord, and Tenant shall have no right to share in
the award; provided, however, that nothing contained herein shall be deemed to
give Landlord any interest in or require Tenant to assign to Landlord any
separate award made to Tenant for the taking of Tenant's personal property and
trade fixtures, or its relocation costs. All obligations accrued to the date of
the taking shall be performed by the party liable to perform said obligations as
set forth herein. Nothing herein shall prevent Tenant from pursuing a separate
award for its trade fixtures, over building-standard Tenant Improvements
(including the Data Center) and moving expenses in connection with the taking,
but only if such recovery does not reduce the award payable to Landlord.
12. RIGHTS RESERVED TO LANDLORD. Landlord may exercise at any time any of
---------------------------
the following rights respecting the operation of the Project without liability
to Tenant of any kind:
A. Name. To change the name of all or any of the Buildings or the
----
Project, or the street address of the Buildings or the suite number(s) of the
Premises, so long as Landlord's exercise of the same is done in a reasonable
manner and with reasonable advance notice to Tenant regarding the same, and in
the case of any change to the Building address, so long as Landlord reimburses
Tenant for the reasonable costs associated with preparing new business cards,
letterhead stationery and other directly related out-of-pocket costs associated
with such change, unless such address change was mandated by applicable
governmental authorities.
B. Signs. To install, modify and/or maintain any signs on the
-----
exterior of the Buildings or on the Project, and to approve at its sole but
reasonable discretion, prior to installation, any of Tenant's signs in the
Premises visible from the common areas or the exterior of the Building.
C. Window Treatments. To approve, at its sole but reasonable
-----------------
discretion, prior to installation, any shades, blinds, ventilators or window
treatments of any kind, as well as any lighting within the Premises that may be
visible from the exterior of the Building or any interior common area.
Notwithstanding the foregoing, Landlord agrees and acknowledges that Tenant may
block out the windows to the Data Center with interior window coverings,
provided that such materials are reasonably acceptable to Landlord.
24
<PAGE>
D. Intentionally deleted.
E. Access. To have access to the Premises (excluding the
------
Data Center) with twenty four hour prior notice (except in the case of
an emergency in which case Landlord shall have the right to immediate
access) to inspect the Premises, and to perform its obligations, or
make repairs, alterations, additions or improvements, as permitted by
this Lease; provided Landlord shall (i) use commercially reasonable
efforts to avoid any interference with Tenant's business operation,
and (ii) comply with any reasonable security measures which Tenant may
implement from time to time (which may include the right to have any
visitors accompanied by Tenant's personnel and restrictions against
entering the Data Center).
F. Preparation for Reoccupancy. To decorate, remodel,
---------------------------
repair, alter or otherwise prepare the Premises for reoccupancy at any
time after Tenant abandons the Premises (as defined in Section 13.E),
without relieving Tenant of any obligation to pay Rent.
G. Heavy Articles. To approve the weight, size, placement
--------------
and time and manner of movement within the Building of any safe,
central filing system or other heavy article of Tenant's property.
Tenant shall move its property entirely at its own risk.
H. Show Premises. Subject to Section 12.E above, to show
-------------
the Premises to prospective purchasers, tenants, brokers, lenders,
mortgagees, investors, rating agencies or others at any reasonable
time, provided that (i) Landlord gives prior notice to Tenant and does
not materially interfere with Tenant?s use of the Premises, and (ii)
no prospective tenants may be shown the Premises until the last six
(6) months of the Term.
I. Intentionally omitted.
J. Use of Lockbox. To designate a lockbox collection
--------------
agent for collections of amounts due Landlord. In that case, the date
of payment of Rent or other sums shall be the date of the agent's
receipt of such payment or the date of actual collection if payment is
made in the form of a negotiable instrument thereafter dishonored upon
presentment. However, Landlord may reject any payment for all purposes
as of the date of receipt or actual collection by mailing to Tenant
within a reasonable time period following receipt or collection a
check equal to the amount sent by Tenant.
K. Repairs and Alterations. Subject to Section 12.E, to
-----------------------
make repairs or alterations to the common areas of the Project
(including any nearby building, land, street, alley or way) and in
doing so to transport any required material through the common areas
of the Project, to temporarily close or partition off certain
25
<PAGE>
portions of the common areas, or to temporarily suspend services or
use of common areas of the Project (e.g., as may be necessary in the
event the parking areas are resurfaced). Landlord shall use
commercially reasonable efforts to minimize any inconvenience to
Tenant and the other tenants in the Project, but shall not be
obligated to perform such repairs or alterations during non-business
hours unless Tenant so requests, in which case Tenant shall pay as
Additional Rent hereunder any additional costs incurred by Landlord as
a result of performing such work during non-business hours (e.g.,
Tenant would be responsible for any difference between the normal and
overtime or weekend rates).
L. Landlord's Agents. If Tenant is in default under this
-----------------
Lease beyond any applicable grace, notice and cure period, possession
of Tenant's funds or negotiation of Tenant's negotiable instrument by
any of Landlord's agents shall not waive any breach by Tenant or any
remedies of Landlord under this Lease.
M. Intentionally deleted.
N. Use of Roof. Subject to Section 6.D, to permit Landlord
-----------
(or any entity selected by Landlord) to access the roof to perform its
maintenance and repair obligations hereunder, as well as to inspect
the roof and any Dish Equipment installed thereon by Tenant, provided
that such access, maintenance and repair does not unreasonably and
adversely interfere with Tenant's use of the Premises.
O. Other Actions. To take any other action which Landlord
-------------
deems reasonably necessary in connection with the operation,
maintenance or preservation of the Building and the Project.
13. TENANT'S DEFAULT. ANY OF THE FOLLOWING SHALL CONSTITUTE A
----------------
DEFAULT BY TENANT:
A. Rent Default. Tenant fails to pay any Rent within five
------------
(5) business days of receipt of Landlord's written notice for the
same, provided that such notice shall be in lieu of and not in
addition to any notice required to be given Tenant under applicable
law prior to Landlord's commencement of an unlawful detainer action or
similar eviction proceeding against Tenant;
B. Assignment/Sublease or Hazardous Substances Default.
---------------------------------------------------
Tenant defaults in its obligations under Section 18 Assignment and
Sublease or Section 29 Hazardous Substances;
C. Other Performance Default. Tenant fails to perform any
-------------------------
other obligation to Landlord under this Lease, and this failure
continues for twenty (20) days after written notice from Landlord,
except that if Tenant begins to cure its failure within the twenty
(20) day period but cannot reasonably complete its cure within such
period, then, so long as Tenant continues to diligently prosecute such
26
<PAGE>
cure, the twenty (20) day period shall be extended for so long as
Landlord may, in its sole but reasonable discretion, deem necessary to
complete the cure;
D. Credit Default. One of the following credit defaults
--------------
occurs:
(1) Tenant commences any proceeding under any law
relating to bankruptcy, insolvency, reorganization or relief of debts,
or seeks appointment of a receiver, trustee, custodian or other
similar official for the Tenant or for any substantial part of its
property, or any such proceeding is commenced against Tenant and
either remains undismissed for a period of thirty (30) days or results
in the entry of an order for relief against Tenant which is not fully
stayed within seven (7) days after entry;
(2) Tenant becomes insolvent or bankrupt, does not
generally pay its debts as they become due, or admits in writing its
inability to pay its debts, or makes a general assignment for the
benefit of creditors;
(3) Any third party obtains a levy or attachment under
process of law against Tenant's leasehold interest.
E. Vacation or Abandonment Default. Tenant vacates or
-------------------------------
abandons the Premises and is not paying all Rent when due and
performing all of Tenant's other material obligations under this
Lease, which material obligations include, without limitation,
Tenant's maintenance of the HVAC system in strict accordance with the
terms and conditions set forth herein.
14. LANDLORD REMEDIES. UPON A DEFAULT (BEYOND ANY EXPIRATION OF
-----------------
APPLICABLE NOTICE, GRACE AND CURE PERIODS GRANTED HEREUNDER), LANDLORD
SHALL HAVE THE FOLLOWING REMEDIES, IN ADDITION TO ALL OTHER RIGHTS AND
REMEDIES PROVIDED BY LAW OR OTHERWISE PROVIDED IN THIS LEASE, TO WHICH
LANDLORD MAY RESORT CUMULATIVELY OR IN THE ALTERNATIVE:
A. Termination of Lease or Possession. If Tenant defaults
----------------------------------
(after expiration of any applicable notice and cure periods expressly
granted hereunder), Landlord may elect by written notice to Tenant
either to terminate this Lease or to terminate Tenant's possession of
the Premises without terminating this Lease. In either case, Tenant
shall immediately vacate the Premises and deliver possession to
Landlord, and Landlord may repossess the Premises and may, at Tenant's
sole cost, remove any of Tenant's signs and any of its other property,
without relinquishing its right to receive Rent or any other right
against Tenant. In the latter case, this Lease shall continue in full
force and effect as long as Landlord does not terminate this Lease,
and Landlord shall have the right to collect Rent when due.
27
<PAGE>
B. Possession Termination Damages. If Landlord elects to
------------------------------
terminate Tenant's possession without terminating this Lease and
Landlord takes possession of the Premises itself, then Landlord may
relet for Tenant's account all or any portion of the Premises for such
rent, length of time and other terms as Landlord in its sole
discretion shall determine, without any obligation to do so prior to
renting other vacant areas in the Building. Tenant shall be liable
immediately to Landlord for all reasonable costs Landlord incurs in
reletting the Premises or any part thereof, including, without
limitation, broker's commissions, expenses of cleaning and
redecorating the Premises required by the reletting and like costs.
Tenant shall pay to Landlord the Rent and other sums due under this
Lease on the date the Rent is due, less the rent and other sums
received by Landlord from any releasing of the Premises. No act by
Landlord other than giving written notice to Tenant shall terminate
this Lease. Acts of maintenance, efforts to relet the Premises or the
appointment of a receiver on Landlord's initiative to protect
Landlord's interest under this Lease shall not constitute a
termination of Tenant's right to possession.
C. Lease Termination Damages. If Landlord elects to
-------------------------
terminate this Lease, then this Lease shall terminate on the date for
termination set forth in such notice. Tenant shall immediately vacate
the Premises and deliver possession to Landlord, and Landlord may
repossess the Premises and may, at Tenant's sole cost, remove any of
Tenant's signs and any of its other property in a reasonable manner,
without relinquishing its right to receive Rent or any other right
against Tenant. On termination, Landlord has the right to recover
from Tenant as damages:
(1) The worth at the time of award of unpaid Rent and
other sums due and payable which had been earned at the time of
termination; plus
(2) The worth at the time of award of the amount by
which the unpaid Rent and other sums due and payable which after
termination until the time of award exceeds the amount of such Rent
loss that Tenant proves could have been reasonably avoided; plus
(3) The worth at the time of award of the amount by
which the unpaid Rent and other sums due and payable for the balance
of the Term after the time of award exceeds the amount of such Rent
loss that Tenant proves could be reasonably avoided; plus
(4) Any other amount necessary to compensate Landlord
for all the detriment proximately caused by Tenant's failure to
perform Tenant's obligations under this Lease, or which, in the
ordinary course of things, would be likely to result therefrom,
including, without limitation, any costs or expenses incurred by
Landlord: (i) in retaking possession of the Premises; (ii) in
maintaining, repairing, preserving, restoring, replacing, cleaning,
altering or rehabilitating the Premises or any portion thereof,
including such acts for reletting to a new tenant or
28
<PAGE>
tenants; (iii) for leasing commissions; or (iv) for any other costs
necessary or appropriate to relet the Premises; plus
(5) At Landlord's election, such other amounts in
addition to or in lieu of the foregoing as may be permitted from time
to time by the laws of the State of California.
The "worth at the time of award" of the amounts referred to in
Sections 14C(1) and 14C(2) is computed by allowing interest at the
maximum rate permitted by law on the unpaid rent and other sums due
and payable from the termination date through the date of award. The
"worth at the time of award" of the amount referred to in Section
14C(3) is computed by discounting such amount at the discount rate of
the Federal Reserve Bank of San Francisco at the time of award plus
one percent (1%). Tenant waives redemption or relief from forfeiture
under California Code of Civil Procedure Sections 1174 and 1179, or
under any other present or future law, in the event Tenant is evicted
or Landlord takes possession of the Premises by reason of any default
of Tenant hereunder.
D. Landlord's Remedies Cumulative. All of Landlord's
------------------------------
remedies under this Lease shall be in addition to all other remedies
Landlord may have at law or in equity including without limitation,
the remedy described in California Civil Code Section 1951.4 (i.e.,
Landlord may continue the Lease in effect after Tenant's breach and
abandonment and recover as rent as it becomes due if Tenant has the
right to sublet or assign the Lease, subject to reasonable
limitations). Waiver by Landlord of any breach of any obligation by
Tenant shall be effective only if it is in writing, and shall not be
deemed a waiver of any other breach, or any subsequent breach of the
same obligation. Landlord's acceptance of payment by Tenant shall not
constitute a waiver of any breach by Tenant, and if the acceptance
occurs after Landlord's notice to Tenant, or termination of the Lease
or of Tenant's right to possession, the acceptance shall not affect
such notice or termination. Acceptance of payment by Landlord after
commencement of a legal proceeding or final judgment shall not affect
such proceeding or judgment. Landlord may advance such monies and
take such other actions for Tenant's account as reasonably may be
required to cure or mitigate any default by Tenant. Tenant shall
immediately reimburse Landlord for any such advance, and such sums
shall bear interest at the default interest rate until paid.
E. WAIVER OF TRIAL BY JURY. EACH PARTY WAIVES TRIAL BY
-----------------------
JURY IN THE EVENT OF ANY LEGAL PROCEEDING BROUGHT BY THE OTHER IN
CONNECTION WITH THIS LEASE. EACH PARTY SHALL BRING ANY ACTION AGAINST
THE OTHER IN CONNECTION WITH THIS LEASE IN A FEDERAL OR STATE COURT
LOCATED IN CALIFORNIA, CONSENTS TO THE JURISDICTION OF SUCH COURTS,
AND WAIVES ANY RIGHT TO HAVE ANY PROCEEDING TRANSFERRED FROM
29
<PAGE>
SUCH COURTS ON THE GROUND OF IMPROPER VENUE OR INCONVENIENT FORUM.
15. SURRENDER. Upon the expiration or earlier termination of
---------
this Lease for any reason, Tenant shall surrender the Premises to
Landlord in its condition existing as of the Commencement Date, normal
wear and tear and damage by fire or other casualty or condemnation
excepted, with all interior walls cleaned and repaired, if marked or
damaged, all carpets vacuumed (but not shampooed), all broken, marred
or nonconforming acoustical ceiling tiles replaced, all windows
washed, the plumbing and electrical systems and lighting in good order
and repair, including replacement of any burned out or broken light
bulb or ballasts, the HVAC equipment serviced and repaired by a
reputable and licensed service firm acceptable to Landlord, and all
tiled (but not concrete) floors cleaned, all to the reasonable
satisfaction of Landlord. Tenant shall remove from the Premises all
Tenant?s trade fixtures and personal property as required herein, and
those alterations required to be removed pursuant to Section 5.E., and
restore the Premises to its condition prior to their installation. If
Tenant fails to remove any alterations and/or Tenant's trade fixtures,
personal property, and such failure continues after the termination of
this Lease, Landlord may retain or dispose of such property and all
rights of Tenant with respect to it shall cease, or Landlord may place
all or any portion of such property in public storage for Tenant's
account. Tenant shall be liable to Landlord for the reasonable costs
of removal of any such alterations and Tenant's personal property and
the reasonable storage and transportation costs of the same, and the
reasonable cost of repairing and restoring the Premises, together with
interest at the interest rate from the date of expenditure by
Landlord. If the Premises are not so surrendered at the termination of
this Lease, Tenant shall indemnify Landlord against all loss or
liability, including attorneys' fees and costs, resulting from delay
by Tenant in so surrendering the Premises, unless such delay is solely
caused by Landlord's actions.
16. HOLDOVER. Tenant shall have no right to holdover possession
--------
of the Premises after the expiration or termination of this Lease
without Landlord's prior written consent which Landlord may withhold
in its sole and absolute discretion. If, however, Tenant retains
possession of any part of the Premises after the term, Tenant shall
become a Tenant at sufferance only, for the entire Premises upon all
of the terms of this Lease as might be applicable to such tenancy,
except that Tenant shall pay all of the base rent, operating cost
share rent and tax share rent at one hundred fifty percent (150%) the
rate in effect immediately prior to such holdover, computed on a
monthly basis for each full or partial month Tenant remains in
possession. In addition, if Tenant remains in possession of the
Premises after the expiration or termination of this Lease without
Landlord's prior written consent (or remains in possession beyond the
period to which Landlord consented), Tenant shall also pay Landlord
for all of Landlord's direct and consequential damages resulting from
Tenant's holdover. No acceptance of rent or other payments by Landlord
under
30
<PAGE>
these holdover provisions shall operate as a waiver of Landlord's
right to regain possession or any other of Landlord's remedies.
17. SUBORDINATION TO GROUND LEASES AND MORTGAGES.
---------------------------------------------
A. Subordination. This Lease shall be subordinate to any
-------------
present or future ground lease or mortgage respecting the Project, and
any amendments to such ground lease or mortgage, at the election of
the ground lessor or mortgagee as the case may be, effected by notice
to Tenant in the manner provided in this Lease, provided that any such
subordination shall be documented in a subordination and non-
disturbance agreement providing that so long as Tenant is not in
default under this Lease after the expiration of any applicable notice
and cure periods, Tenant may remain in possession of the Premises
under the terms of this Lease, even if the ground lessor should
terminate the ground lease or if the mortgagee or its successor should
acquire Landlord's title to the Project. Within ten (10) days of
receipt of such a subordination and non-disturbance agreement from
Landlord or ground lessor or mortgagee, Tenant shall execute and
deliver at least three (3) executed originals of the same to the
requesting party. Tenant shall be solely responsible for all costs
(including reasonable attorneys' fees) incurred by Tenant and Landlord
to obtain, negotiate and execute such subordination and non-
disturbance agreement. Any mortgagee has the right, at its sole
option, to subordinate its mortgage to the terms of this Lease,
without notice to, nor the consent of, Tenant.
B. Termination of Ground Lease or Foreclosure of Mortgage.
------------------------------------------------------
If any ground lease is terminated or mortgage foreclosed or deed in
lieu of foreclosure given and the ground lessor, mortgagee, or
purchaser at a foreclosure sale shall thereby become the owner of the
Project, Tenant shall attorn to such ground lessor or mortgagee or
purchaser upon Tenant's receipt of written request therefrom without
any deduction or setoff by Tenant, and this Lease shall continue in
effect as a direct lease between Tenant and such ground lessor,
mortgagee or purchaser. The ground lessor or mortgagee or purchaser
shall be liable as Landlord only during the time such ground lessor or
mortgagee or purchaser is the owner of the Project. At the request of
Landlord, ground lessor or mortgagee, Tenant shall execute and deliver
within ten (10) days of the request any document furnished by the
requesting party to evidence Tenant's agreement to attorn.
C. Security Deposit. Any ground lessor or mortgagee shall
----------------
be responsible for the return of any security deposit by Tenant only
to the extent any security deposit is received by such ground lessor
or mortgagee. Landlord agrees to transfer the Security Deposit to such
ground lessor or mortgagee upon the termination of any ground lease or
mortgage foreclosure (or deed in lieu of foreclosure).
31
<PAGE>
D. Notice and Right to Cure. The Project is subject to
------------------------
any ground lease and mortgage identified with name and address of
ground lessor or mortgagee in Exhibit D to this Lease (as the same may
---------
be amended from time to time by written notice to Tenant). Tenant
agrees to send by registered or certified mail to any ground lessor or
mortgagee identified either in such Exhibit or in any later written
notice from Landlord to Tenant a copy of any notice of default sent by
Tenant to Landlord. If Landlord fails to cure such default within the
required time period under this Lease, but ground lessor or mortgagee
begins to cure within ten (10) days after such period and proceeds
diligently to complete such cure, then ground lessor or mortgagee
shall have such additional time as is necessary to complete such cure,
including any time necessary to obtain possession if possession is
necessary to cure, and Tenant shall not begin to enforce its remedies
so long as the cure is being diligently pursued, provided in no event
shall the cure exceed a period of sixty (60) days.
E. Definitions. As used in this Section 17, "mortgage"
-----------
shall include "trust deed" and "deed of trust", and "mortgagee" shall
include "trustee", "beneficiary" and the mortgagee of any ground
lessee, and "ground lessor," "mortgagee," and "purchaser at a
foreclosure sale" shall include, in each case, all of its successors
and assigns, however remote.
18. ASSIGNMENT AND SUBLEASE.
-----------------------
A. In General. Tenant shall not, without the prior consent
----------
of Landlord in each case, (i) make or allow any assignment or
transfer, by operation of law or otherwise, of any part of Tenant's
interest in this Lease, (ii) grant or allow any lien or encumbrance,
by operation of law or otherwise, upon any part of Tenant's interest
in this Lease, (iii) sublet any part of the Premises, or (iv) permit
anyone other than Tenant and its employees to occupy any part of the
Premises. Tenant shall remain primarily liable for all of its
obligations under this Lease, notwithstanding any assignment or
transfer. No consent granted by Landlord shall be deemed to be a
consent to any subsequent assignment or transfer, lien or encumbrance,
sublease or occupancy. Tenant shall pay all of Landlord's attorneys'
fees and other expenses incurred in connection with any consent
requested by Tenant or in reviewing any proposed assignment or
subletting. Any assignment or transfer, grant of lien or encumbrance,
or sublease or occupancy without Landlord's prior written consent
shall be void. Except in the case of a Permitted Transfer (as defined
below), if Tenant shall assign this Lease or sublet the Premises in
its entirety, any rights of Tenant to renew this Lease, extend the
Term or to lease additional space in the Project shall be extinguished
thereby and will not be transferred to the assignee or subtenant, all
such rights being personal to the Tenant named herein, except in the
case of a sublet Landlord agrees that Tenant may exercise any
extension rights as to the portion of the Premises then occupied by
Tenant subject to the terms and conditions in Section 31.
Notwithstanding the foregoing, if no default on the part of Tenant has
occurred
32
<PAGE>
and is continuing (after notice and expiration of applicable cure
periods), Tenant may, without Landlord's prior written consent, assign
this Lease or sublet any portion of the Premises (hereinafter
collectively referred to as a "Permitted Transfer") to one of the
following (hereinafter a "Permitted Transferee"): (i) a parent or
subsidiary of Tenant, or an entity under common control with Tenant,
(ii) an entity into which Tenant is merged or consolidated, (iii) an
entity which acquires substantially all of Tenant's stock or assets
(collectively, any entity described in (i), (ii) and (iii) is deemed a
"Tenant Affiliate"), if Tenant (a) notifies Landlord at least ten (10)
business days prior to the Permitted Transfer, (b) in the case of an
assignment of this Lease, provides Landlord with information
satisfactory to Landlord to determine that the net worth of the
proposed assignee (or successor entity) is equal to or greater than
the net worth of Tenant immediately prior to such assignment, and (c)
furnishes Landlord with a written document executed by such proposed
assignee or sublessee in which such entity agrees to unconditionally
assume all of Tenant's obligations under this Lease. In the event all
of the foregoing requirements for a Permitted Transfer are satisfied,
except that the Permitted Transferee's net worth is not equal to or
greater than the net worth of Tenant immediately prior to such
transfer, Landlord agrees that such transfer will nonetheless be
deemed a Permitted Transfer for purposes hereof if Tenant (or the
Permitted Transferee) supplies Landlord with new Letter of Credit
meeting the requirements set forth in Section 21 (the "New Letter of
Credit"), which will replace the then existing Letter of Credit under
Section 21, except that the amount drawable by Landlord under the New
Letter of Credit shall at all times for the remainder of the Term be
equal to $2,388,660.00, and shall not be reduced in the manner
contemplated in Section 21. No Permitted Transfer shall release Tenant
from any of its obligations hereunder, nor result in any change in the
permitted "uses" of the Premises.
B. Landlord's Consent. Landlord will not unreasonably
------------------
withhold its consent to any proposed assignment or subletting. It
shall be reasonable for Landlord to withhold its consent to any
assignment or sublease if (i) Tenant is in default under this Lease
(beyond any applicable notice, grace and cure periods expressly
provided hereunder), (ii) the proposed assignee or sublessee is a
tenant in the Project or an affiliate of such a tenant or an entity
with which Landlord is engaged in active negotiations, (iii) the
financial responsibility, nature of business, and character of the
proposed assignee or subtenant are not all reasonably satisfactory to
Landlord, (iv) in the reasonable judgment of Landlord the purpose for
which the assignee or subtenant intends to use the Premises (or a
portion thereof) is not in keeping with Landlord's standards for the
Building or are in violation of the terms of this Lease or any other
leases in the Project, or (v) the proposed assignee or subtenant is a
government entity. The foregoing shall not exclude any other
reasonable basis for Landlord to withhold its consent.
33
<PAGE>
C. Procedure. Tenant shall notify Landlord of any proposed
---------
assignment or sublease at least thirty (30) days prior to its proposed
effective date, except in the case of a Permitted Transfer in which
case Tenant shall provide such notice to Landlord at least ten (10)
business days prior to the effective date of such Permitted Transfer.
The notice shall include the name and address of the proposed assignee
or subtenant, its corporate affiliates in the case of a corporation
and its partners in a case of a partnership, an execution copy of the
proposed assignment or sublease agreement, and sufficient information
to permit Landlord to determine the financial responsibility and
character of the proposed assignee or subtenant. As a condition to any
effective assignment of this Lease, the proposed assignee shall
execute and deliver in a form satisfactory to Landlord at least
fifteen (15) days prior to the effective date of the assignment, an
assumption of all of the obligations of Tenant under this Lease. As a
condition to any effective sublease, the proposed subtenant shall
execute and deliver in a form satisfactory to Landlord at least
fifteen (15) days prior to the effective date of the sublease, an
agreement to comply with all of Tenant's obligations under this Lease,
and at Landlord's option, an agreement (except for the economic
obligations which subtenant will undertake directly to Tenant) to
attorn to Landlord under the terms of the sublease in the event this
Lease terminates before the sublease expires.
D. Change of Management or Ownership. Any transfer of the
---------------------------------
direct or indirect power to affect the management or policies of
Tenant or direct or indirect change in 25% or more of the ownership
interest in Tenant shall constitute an assignment of this Lease,
provided that in no event shall any transfer of the direct or indirect
power to affect the management or policies of Tenant or direct or
indirect change in any ownership interest in Tenant constitute an
assignment of this Lease, so long as Tenant is a public corporation
whose stock is transferred on a nationally recognized stock exchange.
E. Excess Payments. If Tenant shall assign this Lease or
---------------
sublet any part of the Premises for consideration in excess of the
pro-rata portion of Rent applicable to the space subject to the
assignment or sublet, then Tenant shall pay to Landlord, as Additional
Rent, 50% of any such excess immediately upon receipt; provided that
prior to sharing such excess rent with Landlord, Tenant may first
reimburse itself for the reasonable attorneys' fees, tenant
improvements costs and broker's commissions incurred by Tenant in
connection with such assignment or sublet.
F. Recapture. Intentionally omitted.
---------
19. CONVEYANCE BY LANDLORD. If Landlord shall at any time
----------------------
transfer its interest in the Project or this Lease, Landlord shall
promptly deliver to its transferee any then remaining amount of the
Security Deposit (including the Letter of Credit), provided that
Landlord shall not be responsible for causing the Letter of Credit to
be reissued naming such transferee as the new beneficiary
34
<PAGE>
thereunder). Landlord shall be released of any obligations occurring
after such transfer, except the obligation to return to Tenant any
remaining amount of the Security Deposit (including the Letter of
Credit) which is not delivered to and received by its transferee, and
Tenant shall look solely to Landlord's successors for performance of
such obligations. This Lease shall not be affected by any such
transfer.
20. ESTOPPEL CERTIFICATE. Each party shall, within twenty (20)
--------------------
days of receiving a request from the other party, execute, acknowledge
in recordable form, and deliver to the other party or its designee a
certificate stating, subject to a specific statement of any applicable
exceptions, that the Lease as amended to date is in full force and
effect, that the Tenant is paying Rent and other charges on a current
basis, and that to the best of the knowledge of the certifying party,
the other party has committed no uncured defaults and has no offsets
or claims. The certifying party may also be required to state the date
of commencement of payment of Rent, the Commencement Date, the
Termination Date, the Base Rent, the current Operating Cost Share Rent
and Tax Share Rent estimates, the status of any improvements required
to be completed by Landlord, the amount of any security deposit, and
such other matters as may be reasonably requested. Failure to deliver
such statement within the time required shall be conclusive evidence
against the non-certifying party that this Lease, with any amendments
identified by the requesting party, is in full force and effect, that
there are no uncured defaults by the requesting party, that not more
than one month's Rent has been paid in advance, that the non-
certifying party has not paid any security deposit, and that the non-
certifying party has no claims or offsets against the requesting
party.
21. LEASE DEPOSIT. Tenant shall deposit with Landlord on the
-------------
date Tenant executes and delivers this Lease to Landlord the cash sums
set forth in the Schedule for both Prepaid Rent and Security Deposit
(collectively, the "Lease Deposit"). In addition to the Lease Deposit,
-------------
Tenant shall provide Landlord with a Guaranty of Lease in the form
attached hereto as Exhibit G, executed by Tenant's parent company,
---------
CMGI (the "CMGI Guaranty"), at the time Tenant delivers this Lease
(and the Lease Deposit) to Landlord. After Tenant becomes a public
company (i.e., its stock is traded on a nationally recognized stock
market, such as the NYSE or NASDAQ), Landlord agrees to return the
Security Deposit to Tenant and release CMGI from its obligations under
the CMGI Guaranty (and to return the same to Tenant), within fifteen
(15) days of Landlord's receipt of a Letter of Credit in the amount of
$2,388,660.00, provided that the Letter of Credit shall (i) be in the
form of an unconditional and irrevocable letter of credit which is
reasonably acceptable to Landlord, (ii) name Landlord as a
beneficiary, (iii) expressly allow Landlord to draw upon it (including
partial withdrawals) at any time from time to time by delivering to
the issuer and Tenant written certification that Landlord is entitled
to draw thereunder as a result of Tenant's default
35
<PAGE>
hereunder (after expiration of any applicable notice, grace and cure
periods), (iv) be drawable on an FDIC-insured financial institution
satisfactory to Landlord, (v) be redeemable in the state of California
in one of the nine counties comprises the San Francisco-Oakland-San
Jose area (the "Bay Area"), (vi) allow partial draws, and (vii) be
transferable to any successor to Landlord's interest in this Lease at
no cost to Landlord, provided that only the first transfer of the
Letter of Credit by Landlord during the Term shall be at no cost to
Landlord. Landlord further agrees that if Tenant becomes a public
company and provides a Letter of Credit to Landlord which meets the
foregoing criteria, that the amount of the Letter of Credit shall be
reduced on the 12 month anniversary of the date of the issuance of
such Letter of Credit, and on each 12 month anniversary thereafter, by
the "Annual Reduction Amount" (as defined below), provided that Tenant
is not then in default in the performance of any of its obligations
(beyond any applicable notice, grace or cure period expressly provided
for herein). The "Annual Reduction Amount" shall be calculated as of
the date the Letter of Credit is issued and it shall be equal to the
initial amount of the Letter of Credit (i.e., $2,388,660) divided by
the number of 12 month periods remaining in the Lease Term (ignoring
any partial 12 month periods). For example, if the Letter of Credit is
issued when there are between 72 and 83 months remaining in the Lease
Term, then there would be 6 of the 12 month periods remaining in the
Lease Term and the Annual Reduction Amount would be $2,388,660/6 or
$398,110. Thus, in this example, assuming all of the other conditions
are satisfied, the amount of the Letter of Credit would be reduced by
$398,110 on each 12 month anniversary of the date on which the Letter
of Credit was issued. Notwithstanding the foregoing, if Tenant does
not provide Landlord with a substitute Letter of Credit complying with
all of the requirements hereof at least thirty (30) days before the
stated expiration date of the current Letter of Credit, then Landlord
shall have the right to draw upon the current Letter of Credit and
hold the funds drawn as part of the Security Deposit. In the event
Landlord notifies Tenant in writing that the bank which issued the
Letter of Credit has become financially unacceptable (e.g., the bank
is under investigation by governmental authorities, has filed
bankruptcy or reorganization proceedings, or has closed two or more of
its branches in the Bay Area), then Tenant shall have forty five (45)
days to provide Landlord with a substitute Letter of Credit complying
with all of the requirements hereof. During any period in which the
foregoing Letter of Credit is furnished, the cash portion of the
Security Deposit and the Letter of Credit shall be collectively
referred to herein as the "Security Deposit".
The Prepaid Rent shall be applied by Landlord against the
first full month's Base Rent payment obligation hereunder. The
Security Deposit shall be held by Landlord during the Term as security
for the performance of all of Tenant's obligations hereunder and any
remaining portion thereof shall be returned to Tenant at the end of
the Term in accordance with the terms of this Lease. If Tenant
defaults under this Lease (beyond the expiration of any
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<PAGE>
applicable notice and cure periods), Landlord may apply all or any
part of the Security Deposit for the payment of any Rent or other sum
in default, the repair of any damage to the Premises caused by Tenant
or the payment of any other amount which Landlord may spend or become
obligated to spend by reason of Tenant's default or to compensate
Landlord for any other loss or damage which Landlord may suffer by
reason of Tenant's default to the full extent permitted by law.
Landlord agrees to provide Tenant with written notice following
Landlord's application of any portion of the Security Deposit. Tenant
hereby waives any restriction on the use or application of the
Security Deposit by Landlord as set forth in California Civil Code
Section 1950.7. To the extent any portion of the Security Deposit is
used, Tenant shall within thirty (30) days after demand from Landlord
restore the deposit to its full amount. Landlord may keep the Security
Deposit in its general funds and shall not be required to pay interest
to Tenant on the deposit amount. If Tenant shall perform all of its
obligations under this Lease and return the Premises to Landlord at
the end of the Term in accordance with the terms of this Lease,
Landlord shall return all of the remaining Security Deposit to Tenant
within thirty (30) days after the end of the Term. The Security
Deposit shall not serve as an advance payment of Rent or a measure of
Landlord's damages for any default under this Lease.
If Landlord transfers its interest in the Project or this Lease,
Landlord shall transfer any remaining portion of the Security Deposit
(and, if applicable, the Letter of Credit) to its transferee and
provide Tenant with reasonable evidence of such transfer. Upon such
transfer, Landlord shall have no further obligation to return the
Security Deposit and the Letter of Credit to Tenant, and Tenant's
right to the return of the Security Deposit and Letter of Credit shall
apply solely against Landlord's transferee.
22. FORCE MAJEURE. Neither party shall not be in default under
-------------
this Lease to the extent they are unable to perform any of its
obligations on account of any prevention, delay, stoppage due to
strikes, lockouts, inclement weather, labor disputes, inability to
obtain labor, materials, fuels, energy or reasonable substitutes
therefor, governmental restrictions, regulations, controls, actions or
inaction, civil commotion, fire or other acts of God, national
emergency, or any other cause of any kind beyond the reasonable
control of such party (except financial inability) (collectively
"Force Majeure").
-------------
23. TENANT'S PERSONAL PROPERTY AND TRADE FIXTURES.
---------------------------------------------
Intentionally omitted.
24. NOTICES. All notices, consents, approvals and similar
-------
communications to be given by one party to the other under this Lease,
shall be given in writing, mailed or personally delivered as follows:
37
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A. Landlord. To Landlord as follows:
--------
CarrAmerica Realty Corporation
1810 Gateway Drive, Suite 150
San Mateo, California 94404
Attn: Market Officer
with a copy to:
CarrAmerica Realty Corporation
1850 K Street, N.W., Suite 500
Washington, D.C. 20006
Attn: Lease Administration
or to such other person at such other address as Landlord may designate by
notice to Tenant.
B. Tenant. To Tenant as follows:
------
NaviSite, Inc.
c/o: CMGI
100 Brickstone Square
Andover, MA 01810
Attn: William Williams, Esq.
For default notices only, also to:
Palmer & Dodge LLP
One Beacon Street
Boston, MA 02108
Attn: Thomas G. Schnorr, Esq.
or to such other person at such other address as Tenant may designate by
notice to Landlord.
Mailed notices shall be sent by United States certified or registered mail,
or by a reputable national overnight courier service, postage prepaid. Mailed
notices shall be deemed to have been given on the earlier of actual delivery or
three (3) business days after posting in the United States mail in the case of
registered or certified mail, and one business day in the case of overnight
courier.
25. QUIET POSSESSION. So long as Tenant shall perform all of its
----------------
obligations under this Lease, Tenant shall enjoy peaceful and quiet possession
of the Premises against any party claiming through the Landlord, subject to all
of the terms of this Lease.
38
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26. REAL ESTATE BROKER. Tenant represents to Landlord that Tenant has not
------------------
dealt with any real estate broker with respect to this Lease except for any
broker(s) listed in the Schedule, and no other broker is in any way entitled to
any broker's fee or other payment in connection with this Lease. Landlord
represents to Tenant that Landlord has not dealt with any real estate broker
with respect to this Lease except for any broker(s) listed in the Schedule, and
no other broker is in any way entitled to any broker's fee or other payment in
connection with this Lease. Each party shall indemnify and defend the other
party against any claims by any other broker or third party for any payment of
any kind in connection with this Lease to the extent that such claims arise out
of the idemnifying party's relationship with such other broker or third party.
27. MISCELLANEOUS.
--------------
A. Successors and Assigns. Subject to the limits on Tenant's
----------------------
assignment contained in Section 18, the provisions of this Lease shall be
binding upon and inure to the benefit of all successors and assigns of Landlord
and Tenant.
B. Date Payments Are Due. Except for payments to be made by Tenant
---------------------
under this Lease which are due upon demand or which are due in advance (such as
Base Rent), Tenant shall pay to Landlord any amount for which Landlord renders a
statement of account within ten (10) days of Tenant's receipt of Landlord's
statement.
C. Meaning of "Landlord," "Re-Entry," "including" and "Affiliate".
-------------------------------------------------------------
The term "Landlord" means only the owner of the Project and the lessor's
--------
interest in this Lease from time to time. The words "re-entry" and "re-enter"
are not restricted to their technical legal meaning. The words "including" and
similar words shall mean "without limitation." The word "affiliate" shall mean a
person or entity controlling, controlled by or under common control with the
applicable entity. "Control" shall mean the power directly or indirectly, by
-------
contract or otherwise, to direct the management and policies of the applicable
entity.
D. Time of the Essence. Time is of the essence of each provision of
-------------------
this Lease.
E. No Option. This document shall not be effective for any purpose
---------
until it has been executed and delivered by both parties; execution and delivery
by one party shall not create any option or other right in the other party.
F. Severability. The unenforceability of any provision of this
------------
Lease shall not affect any other provision.
G. Governing Law. This Lease shall be governed in all respects by
-------------
the laws of the state in which the Project is located, without regard to the
principles of conflicts of laws.
H. Lease Modification. Tenant agrees to modify this Lease in any
------------------
way requested by a mortgagee which does not cause increased expense to Tenant or
otherwise materially adversely affect Tenant's interests under this Lease.
39
<PAGE>
I. No Oral Modification. No modification of this Lease shall be
--------------------
effective unless it is a written modification signed by both parties.
J. Landlord's Right to Cure. If Landlord breaches any of its
------------------------
obligations under this Lease, Tenant shall notify Landlord in writing in the
manner described in Section 8.A, and shall take no action respecting such breach
so long as Landlord promptly (and in no event later than 30 days following
receipt of Tenant's notice) begins to cure the breach and diligently pursues
such cure to its completion. Landlord may cure any default by Tenant beyond the
expiration of any applicable notice, grace and cure periods; any expenses
incurred shall become Additional Rent due from Tenant on demand by Landlord.
K. Captions. The captions used in this Lease shall have no effect
--------
on the construction of this Lease.
L. Authority. Landlord and Tenant each represents to the other that
---------
it has full power and authority to execute and perform this Lease.
M. Landlord's Enforcement of Remedies. Landlord may enforce any of
----------------------------------
its remedies under this Lease either in its own name or through an agent.
N. Entire Agreement. This Lease, together with all Appendices,
----------------
constitutes the entire agreement between the parties. No representations or
agreements of any kind have been made by either party which are not contained in
this Lease.
O. Landlord's Title. Landlord's title shall always be paramount to
----------------
the interest of the Tenant, and nothing in this Lease shall empower Tenant to do
anything which might in any way impair Landlord's title.
P. Light and Air Rights. Landlord does not grant in this Lease any
--------------------
rights to light and air in connection with Project.
Q. Singular and Plural. Wherever appropriate in this Lease, a
-------------------
singular term shall be construed to mean the plural where necessary, and a
plural term the singular. For example, if at any time two parties shall
constitute Landlord or Tenant, then the relevant term shall refer to both
parties together.
R. No Recording by Tenant. Tenant shall not record in any public
----------------------
records any memorandum or any portion of this Lease.
S. Exclusivity. Landlord does not grant to Tenant in this Lease any
-----------
exclusive right except the right to occupy its Premises.
T. No Construction Against Drafting Party. The rule of construction
--------------------------------------
that ambiguities are resolved against the drafting party shall not apply to this
Lease.
40
<PAGE>
U. Survival. All obligations of Landlord and Tenant under this
--------
Lease shall survive the termination of this Lease.
V. Rent Not Based on Income. No Rent or other payment in respect of
------------------------
the Premises shall be based in any way upon net income or profits from the
Premises. Tenant may not enter into or permit any sublease or license or other
agreement in connection with the Premises which provides for a rental or other
payment based on net income or profit.
W. Building Manager and Service Providers. Landlord may perform any
--------------------------------------
of its obligations under this Lease through its employees or third parties hired
by the Landlord.
X. Late Charge and Interest on Late Payments. Without limiting the
-----------------------------------------
provisions of Section 13A, if Tenant fails to pay any installment of Rent or
other charge to be paid by Tenant pursuant to this Lease within ten (10)
business days after the same becomes due and payable, then Tenant shall pay a
late charge equal to the greater of five percent (5%) of the amount of such
payment or $250. In addition, interest shall be paid by Tenant to Landlord on
any late payments of Rent from the date due until paid at the rate provided in
Section 2D(2). Such late charge and interest shall constitute Additional Rent
due and payable by Tenant to Landlord upon the date of payment of the delinquent
payment referenced above.
Y. Tenant's Financial Statements. Within ten (10) days after
-----------------------------
Landlord's written request therefor, Tenant shall deliver to Landlord the
current financial statements of Tenant, and financial statements of the two (2)
years prior to the current financial statements year, with an opinion of a
certified public accountant, including a balance sheet and profit and loss
statement for the most recent prior year, all prepared in accordance with
generally accepted accounting principles consistently applied.
Z. Attorneys' Fees. In any arbitration, quasi-judicial or
---------------
administrative proceedings or any action in any court of competent jurisdiction,
brought by either party to enforce any covenant or any of such party's rights or
remedies under this covenant or any of such party's rights or remedies under
this Lease, including any action for declaratory relief, or any action to
collect any payments required under this Lease or to quiet title against the
other party, the prevailing party shall be entitled to the reasonable attorneys'
fees and all costs, expenses and disbursements in connection with such action,
including the costs of reasonable investigation, preparation and professional or
expert consultation, incurred by the prevailing party which sums may be included
in any judgment or decree entered in such action in favor of the prevailing
party. Whenever a party hereto is obligated to pay the attorneys' fees incurred
by another party, such obligation shall be limited to reasonable attorneys'
fees.
28. UNRELATED BUSINESS INCOME. If Landlord is advised by its counsel at
-------------------------
any time that any part of the payments by Tenant to Landlord under this Lease
may be characterized as unrelated business income under the United States
Internal Revenue Code and its regulations, then Tenant shall enter into any
reasonable amendment proposed by Landlord to avoid such income, so long as the
amendment does not require Tenant to make higher payments
41
<PAGE>
or accept fewer services from Landlord, than this Lease provides, or materially
and adversely affect Tenant's interest under this Lease.
29. HAZARDOUS SUBSTANCES.
---------------------
A. Prohibition Against Hazardous Substances. Tenant shall not cause
----------------------------------------
or permit any Hazardous Substances to be brought upon, produced, stored, used,
discharged or disposed of in or near the Project unless Landlord has consented
to such storage or use in its sole discretion. Landlord hereby consents to the
use and storage of (i) those Hazardous Substances which may be contained in the
fire suppression system utilized in connection with the Data Center, and (ii)
the diesel which shall be stored only in the diesel holding tanks and used
solely in connection with the operation of the backup generator for the Data
Center to be located outside the Building, (collectively, the "Approved
Hazardous Substances"), subject to the terms and conditions set forth herein.
Any handling, transportation, storage, treatment, disposal or use of any
Approved Hazardous Substances in or about the Project by Tenant, its agents,
employees, contractors or invitees shall strictly comply with all applicable
Governmental Requirements. Tenant shall obtain Landlord's prior written consent
before making any changes to the Approved Hazardous Substances. Tenant shall
indemnify, defend and hold Landlord harmless from and against any liabilities,
losses, claims, damages, penalties, fines, reasonable attorneys' fees and court
costs, reasonable remediation costs, reasonable investigation costs and any
other reasonable expenses which result from or arise out of the use, storage,
treatment, transportation, release, or disposal of any Hazardous Substances on
or about the Project by Tenant, its agents, employees, contractors or invitees.
If any lender or governmental agency shall require testing for Hazardous
Substances in the Premises, Tenant shall pay for such testing, provided that
such testing is required as a result of Tenant's (or its agent's, employee's,
contractor's or invitees') activities in or about the Premises.
B. "Hazardous Substances". means any hazardous or toxic
--------------------
substances, materials or waste which are or become regulated by any local
government authority, the state in which the Project is located or the United
States government, including those substances described in the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, 42
U.S.C. Section 9601 et seq., the Resource Conservation and Recovery Act, as
amended, 42 U.S.C. Section 6901 et seq., any other applicable federal, state or
local law, and the regulations adopted under these laws.
C. Prior Contamination. If Tenant can demonstrate to the reasonable
-------------------
satisfaction of Landlord that a release of Hazardous Substances occurred on the
Premises prior to the date on which Tenant took possession of the Premises and
that such release was not the result of the activities of Tenant or its
employees, agents, subtenants, licensees, contractors, subcontractors or
invitees ("Prior Contamination"), then Landlord agrees that it shall not seek to
recover from Tenant (either directly or as part of the Included Operating Costs)
any costs incurred by Landlord in connection with such Prior Contamination
(including any investigation, remediation and disposal costs associated
therewith).
42
<PAGE>
30. EXCULPATION. Landlord shall have no personal liability under this
-----------
Lease; its liability shall be limited to its interest in the Building and shall
not extend to any other property or assets of the Landlord. In no event shall
any officer, director, employee, agent, shareholder, partner, member or
beneficiary of Landlord be personally liable for any of Landlord's obligations
hereunder.
31. OPTION TO EXTEND. Subject to the terms and conditions set forth
----------------
below, Tenant may at its option extend the Term of this Lease for two (2)
successive periods of five (5) years each. Each such period is called a "Renewal
-------
Term". Each Renewal Term shall be upon the same terms contained in this Lease,
- ----
except that (i) Landlord shall have no obligation to provide Tenant with any
Tenant Improvement Allowance in connection with such Renewal Terms, (ii) the
Base Rent during the Renewal Term shall be calculated as set forth below, and
(iii) any reference in the Lease to the "Term" of the Lease shall be deemed to
include any Renewal Term and apply thereto, unless it is expressly provided
otherwise. Tenant shall have no additional extension options.
A. The Base Rent during a Renewal Term shall be the greater of (i)
the Base Rent applicable to the last month prior to the applicable Renewal Term,
or (ii) the Market Rate (defined hereinafter) for such space for a term
commencing on the first day of the Renewal Term. "Market Rate" shall mean the
-----------
then prevailing market rate for a comparable term commencing on the first day of
the Renewal Term for comparable space in the Building and other first class
office buildings of comparable age with similar projects in the vicinity of the
Building.
B. To exercise any option, Tenant must deliver a binding notice to
Landlord not sooner than twelve (12) months nor later than six (6) months prior
to the expiration of the initial Term of this Lease, or the then applicable
Renewal Term, as the case may be. Thereafter, the Market Rate for the particular
Renewal Term shall be calculated pursuant to Subsection C below and Landlord
shall inform Tenant of the Market Rate. Such calculations shall be final and
shall not be recalculated at the actual commencement of such Renewal Term.
Tenant agrees and acknowledges that Landlord, in its sole and absolute
discretion and as a condition precedent to Tenant's exercising of either of its
options to extend the Term, may require that Tenant deposit with Landlord a
letter of credit (in addition to the Letter of Credit provided under Section 21)
in an amount which is reasonably satisfactory to Landlord in its sole
discretion. However, Landlord shall not require an additional letter of credit
(and instead shall only require that Tenant deposit with Landlord cash in an
amount equal to the difference between the cash portion of the Security Deposit
then held by Landlord and the amount of Base Rent payable during the last month
of such Renewal Term) if both of the following are satisfied: (i) Tenant has not
been in material default in the performance of any of its obligations (beyond
any applicable notice, grace and cure period expressly provided hereunder) on
more than three (3) occassions during the original Term, and (ii) Landlord is
not required to provide any tenant improvements or allowances in connection with
Tenant's exercising of such extension option. If Tenant fails to timely give its
notice of exercise, Tenant will be deemed to have waived its option to extend.
C. Market Rate shall be determined as follows:
43
<PAGE>
(1) If Tenant provides Landlord with its binding notice of
exercise pursuant to Subsection B above, then prior to the commencement date of
such Renewal Term Landlord and Tenant shall commence negotiations to agree upon
the Market Rate. If Landlord and Tenant are unable to reach agreement within
twenty-one (21) days of Landlord's receipt of Tenant's notice of exercise, then
the Market Rate shall be determined in accordance with Section C(2) below.
(2) If Landlord and Tenant are unable to reach agreement on the
Market Rate within said twenty-one (21) day period, then within the next seven
(7) days, Landlord and Tenant shall each simultaneously submit to the other in a
sealed envelope its good faith estimate of the Market Rate. If the higher of
such estimates is not more than one hundred five percent (105%) of the lower,
then the Market Rate shall be the average of the two. Otherwise, the dispute
shall be resolved by arbitration in accordance with Section C(3) below.
(3) Within seven (7) days after the exchange of estimates, the
parties shall select as an arbitrator an independent MAI appraiser with at least
five (5) years of experience in appraising office space in the metropolitan area
in which the Project is located (a "Qualified Appraiser"). If the parties cannot
-------------------
agree on a Qualified Appraiser, then within a second period of seven (7) days,
each shall select a Qualified Appraiser and within ten (10) days thereafter the
two appointed Qualified Appraisers shall select a third Qualified Appraiser and
the third Qualified Appraiser shall be the sole arbitrator. If one party shall
fail to select a Qualified Appraiser within the second seven (7) day period,
then the Qualified Appraiser chosen by the other party shall be the sole
arbitrator.
D. Within twenty-one (21) days after submission of the matter to the
arbitrator, the arbitrator shall determine the Market Rate by choosing whichever
of the estimates submitted by Landlord and Tenant the arbitrator judges to be
more accurate. The arbitrator shall notify Landlord and Tenant of its decision,
which shall be final and binding. If the arbitrator believes that expert advice
would materially assist him, the arbitrator may retain one or more qualified
persons to provide expert advice. The fees of the arbitrator and the expenses of
the arbitration proceeding, including the fees of any expert witnesses retained
by the arbitrator, shall be paid by the party whose estimate is not selected.
Each party shall pay the fees of its respective counsel and the fees of any
witness called by that party.
E. Tenant's option to extend is personal to Tenant, is limited to
that portion of the Premises which Tenant occupies at the time such option is
exercised, and may not be exercised or assigned, voluntarily or involuntarily,
by or to any person or entity other than Tenant or a Permitted Transferee,
without Landlord's prior written consent, which Landlord may withhold in its
sole and absolute discretion. Tenant's option to extend this Lease is subject to
the conditions that: (i) on the date that Tenant delivers its binding notice
exercising an option to extend, Tenant is not in default under this Lease after
the expiration of any applicable notice, grace and cure periods which may be
provided herein, and (ii) Tenant shall not have assigned the Lease.
44
<PAGE>
32. Tenant's First Right to Negotiate Re Potential Expansion Space.
--------------------------------------------------------------
Landlord hereby informs Tenant that Landlord may have the right to expand the
size of the Building (or one or more of the other Project Buildings) by
approximately 20,000 rentable square feet (the "Potential Expansion Space").
Landlord hereby grants Tenant the first right to negotiate with Landlord as to
the Potential Expansion Space on the terms and conditions set forth in this
Section 32. Landlord shall not expand the size of any Project Buildings without
first notifying Tenant of its intent to do so ("Landlord's Expansion Notice").
At any time prior to Tenant's receipt of Landlord's Expansion Notice, Tenant may
notify Landlord of Tenant's interest in the Potential Expansion Space ("Tenant's
Expansion Notice") Upon Landlord's receipt of Tenant's Expansion Notice,
Landlord shall promptly prepare and deliver Landlord's Expansion Notice to
Tenant. Landlord's Expansion Notice shall be prepared in good faith and include
the material business terms and conditions upon which Landlord would process
such application, construct such Potential Expansion Space and lease such space
to Tenant. Tenant shall have five (5) days following its receipt of Landlord's
Expansion Notice to respond in writing to Landlord as to whether or not Tenant
is interested in seeking the necessary approvals from the City of San Jose for
the Potential Expansion Space on the terms set forth in Landlord's Expansion
Notice. Tenant's failure to respond within such five (5) day period shall be
deemed to be Tenant's election to pass on the Potential Expansion Space. If
Tenant notifies Landlord within such five (5) day period that it is interested
in such Potential Expansion Space, Landlord and Tenant shall process an
application for such Potential Expansion Space with the City of San Jose on the
terms and conditions which are contained in Landlord's Expansion Notice (or on
those terms and conditions that mutually acceptable to both parties at such
time). If the parties are unable to agree on such terms and conditions within
the thirty (30) day period immediately following Landlord's receipt of Tenant's
notice stating that Tenant is interested in the Potential Expansion Space, then
Tenant shall be deemed to have passed on the Potential Expansion Space and
Landlord shall be free to process an application to expand another Project
Building to utilize the Potential Expansion Space, unless Tenant elects, at its
sole cost and expense, to process such application (provided that Landlord's
approval of the applicable plans is obtained prior to the submission of any such
application), and assuming the necessary approvals are obtained and that such
approvals are reasonably acceptable to both Landlord and Tenant, construct such
Potential Expansion Space as an addition to the Building (subject to the
provisions of Section 5 hereof) and pay for all permits, licenses and fees
associated therewith. In the event Tenant elects to perform the construction of
the Potential Expansion Space as described in the preceding sentence, Landlord
agrees that (i) it shall cooperate (at no cost to Landlord), as may be necessary
as the owner of the Project, with the processing of such application, and (ii)
that during the initial Term of this Lease (but not during any extension period)
that Landlord would not charge any Base Rent for such Expansion Space; provided
that Tenant would be responsible for all utility costs and other Operating Costs
and Taxes relating to the Expansion Space. Upon completion of the construction
of such Expansion Space, Landlord and Tenant shall enter into an amendment of
this Lease to modify the description of the Premises and Tenant's Proportionate
Share hereunder to include the Expansion Space. Tenant agrees and acknowledges
that such Expansion Space improvements shall become Landlord's property upon
completion thereof and that all warranties obtained in connection with such
construction shall be assigned to Landlord upon receipt thereof by Tenant.
Tenant understands that any application submitted to the City of San Jose for
45
<PAGE>
permission to construct the Potentail Expansion Space as an addition to the
Building, is subject to discretionary approval by the City of San Jose, and
Tenant agrees and acknowledges that Landlord shall have no liability to Tenant
whatsoever if the City of San Jose, and Tenant agrees and acknowledges that
Landlord shall have no liability to Tenant whatsoever if the City of San Jose:
(i) denies the application for such Potential Expansion Space, (ii) approves the
application but allows an expansion of less than 20,000 rentable square feet, or
(iii) approves the application but imposes conditions in connection therewith
which are unacceptable to Landlord or Tenant (e.g., allows the expansion but
requires Landlord to dedicate land or construct certain offsite improvements,
such as a new traffic signal, as a condition of such approval). Tenant's first
right of negotiation for the Potential Expansion Space is personal to Tenant and
may not be exercised or assigned (except pursuant to a Permitted Transfer),
voluntarily or involuntarily, by or to any person or entity other than Tenant or
a Permitted Transferee, without Landlord's prior written consent, which Landlord
may withhold in its sole and absolute discretion. Tenant may only exercise the
right granted in this Section 32 if: (i) on the date that Tenant delivers
Tenant's Expansion Notice to Landlord regarding its interest in the Potential
Expansion Space, Tenant is not in default under this Lease after the expiration
of any applicable notice, grace and cure periods which may be provided herein,
and (ii) Tenant shall not have assigned the Lease (except pursuant to a
Permitted Transfer).
33. Tenant's First Right to Negotiate Re Building 7 in Phase II. Landlord
-----------------------------------------------------------
hereby grants Tenant the first right to negotiate with Landlord on the 55,295
rentable square feet of space located in Building 7 in Phase II of the Project
(the "First Negotiation Space") on the following terms and conditions. When the
First Negotiation Space becomes available, Landlord shall deliver written notice
to Tenant informing Tenant of the availability of such space ("Landlord's First
Negotiation Space Notice"). Landlord's First Negotiation Space Notice shall
contain the material business terms (e.g. rent, term and lease deposit
requirements) on which Landlord would agree to Lease the First Negotiation Space
to Tenant. Tenant shall have five (5) days following its receipt of Landlord's
First Negotiation Space Notice to respond in writing to Landlord as to whether
or not Tenant is interested in leasing the First Negotiation Space on the terms
set forth in Landlord's First Negotiation Space Notice. Tenant's failure to
respond within such five (5) day period shall be deemed to be Tenant's election
to pass on the First Negotiation Space. If Tenant timely notifies Landlord in
writing of its desire to lease the First Negotiation Space on the terms set
forth in Landlord's First Negotiation Space Notice, then Landlord and Tenant
agree to execute an amendment to this Lease to incorporate the First Negotiation
Space and those terms set forth in Landlord's First Negotiation Space Notice (or
such other terms which may be agreed to by Landlord and Tenant at that time). In
the event Landlord and Tenant are unable to agree in writing on the terms for
the lease of the First Negotiation Space within the five (5) day period
following Tenant's receipt of Landlord's First Negotiation Space Notice (or in
the event Tenant passes on such space, or is deemed to have passed on such
space), then Landlord shall be free to market the First Negotiation Space to any
third parties without any liability to Tenant. Landlord and Tenant agree to
negotiate in good faith taking into consideration the rental rates of similar
projects in the geographic area of the Project (including the rent, operating
costs, and all other monetary payments that Landlord could obtain for the
Expansion Space from a third party desiring to lease such space). For purposes
of the foregoing, it should be
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<PAGE>
assumed that the First Negotiation Space will be used for the highest and best
use allowed under the Lease. Tenant's first right of negotiation for the First
Negotiation Space is personal to Tenant and may not be exercised or assigned
(except pursuant to a Permitted Transfer), voluntarily or involuntarily, by or
to any person or entity other than Tenant or a Permitted Transferee, without
Landlord's prior written consent, which Landlord may withhold in its sole and
absolute discretion. Tenant may only exercise the right of first negotiation
granted in this Section 33 if: (i) on the date that Tenant delivers its notice
regarding its interest in the First Negotiation Space, Tenant is not in default
under this Lease after the expiration of any applicable notice, grace and cure
periods which may be provided herein, and (ii) Tenant shall not have assigned
the Lease (except pursuant to a Permitted Transfer).
IN WITNESS WHEREOF, the parties hereto have executed this Lease.
LANDLORD TENANT
CARRAMERICA REALTY
CORPORATION, a Maryland corporation NAVISITE, INC.,
a Delaware corporation
By: /s/ Philip L. Hawkins By: /s/ Kenneth W. Hale
-------------------------- ------------------------
Print Name: Philip L. Hawkins Print Name: Kenneth W. Hale
-------------------------- ------------------------
Print Title: Chief Operating Officer Print Title: CFO
-------------------------- ------------------------
Date: 5/25/99
47
<PAGE>
EXHIBIT A
PLAN OF THE PREMISES/PROJECT
<TABLE>
<CAPTION>
Phase I Phase II Total
------- -------- -----
<S> <C> <C> <C>
Site Area: 21.3 Acres 7.25 Acres 28.55 Acres
Parking: 1,155 Spaces 450 Spaces 1,605 Spaces
35 HC Spaces 9 HC Spaces 44 HC Spaces
------------ ----------- ------------
1,190 Total 459 Total 1,649 Spaces
Total Building Area: 350,000 sq ft 110,590 sq ft 460,590 sq ft
Area Coverage:
Building 37.7% 26.5%
Parking 34.3% 49.4%
Landscaping 28.0% 24.1%
FAR 35.0% 35.0%
</TABLE>
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<PAGE>
EXHIBIT B
RULES AND REGULATIONS
1. Tenant shall not place anything, or allow anything to be placed
near the glass of any window, door, partition or wall which may, in Landlord's
reasonable judgment, appear unsightly from outside of the Project.
2. The Project directory, if any, shall be used by Landlord to display
names and locations of tenants in the Project. No tenant shall use or make any
changes to such directories without Landlord's prior written consent, which
consent shall not be unreasonably withheld or delayed.
3. The sidewalks, halls, passages, exits, entrances, elevators and
stairways shall not be obstructed by Tenant or used by Tenant for any purposes
other than for ingress to and egress from the Premises, unless Tenant is the
sole occupant of the Building. Tenant shall lend its full cooperation to keep
such areas free from all obstruction and in a clean and sightly condition and
shall move all supplies, furniture and equipment as soon as possible following
receipt directly to the Premises and move all such items and waste being taken
from the Premises (other than waste customarily removed by employees of the
Building) directly to the shipping platform at or about the time arranged for
removal therefrom. Tenant shall not permit its employees or invitees to access
the roof of the Building, except for those employees or contractors who must
access the roof to install, maintain or remove the Dish Equipment or to perform
other obligations under this Lease.
4. The toilet rooms, urinals, wash bowls and other apparatuses shall
not be used for any purposes other than that for which they were constructed,
and no foreign substance of any kind whatsoever shall be thrown therein, and to
the extent caused by Tenant or its employees or invitees, the expense of any
breakage, stoppage or damage resulting from the violation of this rule shall be
borne by Tenant.
5. Tenant shall not cause any unnecessary janitorial labor or services
by reason of Tenant's carelessness or indifference in the preservation of good
order and cleanliness.
6. Tenant shall not install or operate any refrigerating, heating or
air conditioning apparatus, or carry on any mechanical business without the
prior written consent of Landlord, which consent shall not be unreasonably
withheld or delayed; use the Premises for housing, lodging or sleeping purposes;
or permit preparation or warming of food in the Premises (warming of coffee and
individual meals with employees and guests excepted). Tenant shall not occupy or
use the Premises or permit the Premises to be occupied or used for any purpose,
act or thing which is in violation of any Governmental Requirement or which may
be dangerous to persons or property.
7. Except for the Approved Hazardous Substances List, Tenant shall not
bring upon, use or keep in the Premises or the Project any kerosene, gasoline or
inflammable or combustible
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fluid or material, or any other articles deemed hazardous to persons or
property, or use any method of heating or air conditioning other than that
supplied by Landlord.
8. Landlord shall, in its reasonable discretion, direct electricians
as to where and how telephone and other wires are to be introduced. No boring or
cutting for wires is to be allowed without the consent of Landlord, which
consent shall not be unreasonably withheld or delayed. The location of
telephones, call boxes and other office equipment affixed to the Premises shall
be subject to the approval of Landlord, which consent shall not be unreasonably
withheld or delayed.
9. Upon termination of the lease, Tenant shall deliver to Landlord all
keys and passes for offices, rooms, parking lot and toilet rooms.
10. Tenant shall not install linoleum, tile, carpet or other floor
covering so that the same shall be affixed to the floor of the Premises in any
manner except as approved by Landlord which consent shall not be unreasonably
withheld or delayed.
11. Without the prior written consent of Landlord, which consent shall
not be unreasonably withheld or delayed, Tenant shall not use the name of the
Project or any picture of the Project in connection with, or in promoting or
advertising the business of, Tenant, except Tenant may use the address of the
Project as the address of its business.
12. Tenant assumes full responsibility for protecting the Premises
from theft, robbery and pilferage, which may arise from a cause other than
Landlord's negligence or willful misconduct, which includes keeping doors locked
and other means of entry to the Premises closed and secured.
13. Peddlers, solicitors and beggars shall be reported to the office
of the Project or as Landlord otherwise reasonably requests.
14. Tenant shall not advertise the business, profession or activities
of Tenant conducted in the Project in any manner which violates the letter or
spirit of any code of ethics adopted by any recognized association or
organization pertaining to such business, profession or activities.
15. No bicycle (except in those areas which may be designated for
bicycles by Landlord) or other vehicle and no animals or pets shall be allowed
in the Premises, halls, freight docks, or any other parts of the Building except
that blind persons may be accompanied by "seeing eye" dogs. Tenant shall not
make or permit any unreasonable noise, vibration or odor to emanate from the
Premises, or do anything therein tending to create, or maintain, a nuisance, or
do any act tending to injure the reputation of the Building or disturb the other
tenants in the Project.
16. Tenant shall not do or permit the manufacture, sale, purchase, use
or gift of any fermented, intoxicating or alcoholic beverages without obtaining
written consent of Landlord.
2
<PAGE>
17. Tenant shall not unreasonably disturb the quiet enjoyment of any
other tenant.
18. Following the lapsing of Tenant's extension rights under the
Lease, Landlord may place and keep on the exterior of the Building signs
advertising the Premises for Rent during the last six (6) months of the Term.
19. Except as may be contained in plans approved by Landlord, no
equipment, mechanical ventilators, awnings, special shades or other forms of
window covering shall be permitted either inside or outside the windows of the
Premises without the prior written consent of Landlord, which consent shall not
be unreasonably withheld or delayed, and then only at the expense and risk of
Tenant, and they shall be of such shape, color, material, quality, design and
make as may be approved by Landlord, which approval shall not be unreasonably
withheld or delayed.
20. Tenant shall not during the term of this Lease canvas or solicit
other tenants of the Building for any purpose.
21. Except as provided in Section 6.D of the Lease, Tenant shall not
install or operate any phonograph, musical or sound-producing instrument or
device, radio receiver or transmitter, TV receiver or transmitter, or similar
device in the Building or Project Common Areas, nor install or operate any
antenna, aerial, wires or other equipment inside or outside the Building, nor
operate any electrical device from which may emanate electrical waves which may
interfere with or impair radio or television broadcasting or reception from or
in the Building or elsewhere, without in each instance the prior written
approval of Landlord, which consent shall not be unreasonably withheld or
delayed. The use thereof, if permitted, shall be subject to control by Landlord
to the end that others shall not be unreasonably disturbed.
22. Tenant shall promptly remove all rubbish and waste from the
Premises.
23. Tenant shall not exhibit, sell or offer for sale, Rent or exchange
in the Premises or at the Project any article, thing or service, except those
ordinarily embraced within the use of the Premises specified in Section 6 of
this Lease, without the prior written consent of Landlord which consent shall
not be unreasonably withheld or delayed.
24. Tenant shall not overload any floors in the Premises or any public
corridors or elevators in the Building.
25. Tenant shall not do any painting on the exterior of the Building,
or mark, paint, cut or drill into, drive nails or screws into, or in any way
deface any part of the exterior of the Building or which is a structural
component of the Building, outside or inside, without the prior written consent
of Landlord, which consent shall not be unreasonably withheld or delayed.
26. Whenever Landlord's consent, approval or satisfaction is required
under these Rules, then unless otherwise stated, any such consent, approval or
satisfaction must be obtained in advance, such consent or approval may be
granted or withheld in Landlord's sole discretion, and Landlord's satisfaction
shall be determined in its sole judgment.
3
<PAGE>
27. Tenant and its employees shall cooperate in all fire drills
conducted by Landlord in the Building.
4
<PAGE>
EXHIBIT C
TENANT IMPROVEMENT AGREEMENT
This Tenant Improvement Agreement ("Agreement") is an integral part of the Lease
("Lease") relating to certain Premises described in the Lease. Capitalized terms
used in this Agreement not otherwise defined herein shall have the meaning given
such terms in the Lease. Landlord and Tenant agree as follows with respect to
the Tenant Improvements, if any, to be installed in the Premises:
1. INITIAL TENANT IMPROVEMENTS.
(a) Plans. Tenant shall cause to be performed the improvements
-----
(the "Tenant Improvements") in and about the Premises in accordance with plans
-------------------
and specifications prepared by Tenant and approved by Landlord (the "Plans"),
-----
which approvals shall not be unreasonably withheld. Tenant shall cause the Plans
to be prepared, at Tenant's cost, by a registered professional architect and
mechanical and electrical engineer(s). Such engineer(s) shall be approved, in
advance, by the Landlord. The Plans (including any changes thereto) shall be
prepared in accordance with Landlord's Tenant Improvements Guidelines attached
hereto as Exhibit C-1. Tenant shall furnish the initial draft of the Plans to
-----------
Landlord for Landlord's review and approval. After receipt of the initial Plans,
Landlord shall promptly either provide comments to such Plans or approve the
same. If Landlord provides Tenant with comments to the initial draft of the
Plans, Tenant shall provide revised Plans to Landlord incorporating Landlord's
comments within one week after receipt of Landlord's comments. Promptly
following Landlord's receipt of such revised Plans, Landlord shall either
provide comments to such revised Plans or approve such Plans. The process
described above shall be repeated, if necessary, until the Plans have been
finally approved by Landlord. Tenant hereby agrees that the Plans for the Tenant
Improvements shall comply with all applicable Governmental Requirements.
Landlord's approval of the Plans shall be solely for the purposes of authorizing
construction of the Tenant Improvements, and shall not be deemed to be an
approval of the technical merits of the Plans nor a verification that such
Tenant Improvements and/or the Plans comply with applicable Governmental
Requirements. Tenant shall be solely responsible for ensuring that the Tenant
Improvements are designed and constructed in accordance with all applicable
Governmental Requirements.
(b) Construction by Tenant. Tenant shall be solely responsible
----------------------
for the construction of the Tenant Improvements in and about the Premises.
Tenant shall construct the Tenant Improvements in accordance with the approved
Plans and in accordance with all rules, regulations, codes, statutes, ordinances
and laws of all government and quasi-governmental authorities and in a good and
workman-like manner. Landlord's sole obligation with respect to the Tenant
Improvements shall be to provide the Tenant Improvement Allowance (as described
below), and Landlord shall have no responsibility whatsoever for the
construction of the Tenant Improvements. The Tenant Improvements also shall be
constructed with new materials of good quality and with adequately trained and
supervised labor using currently approved methods of their particular trade.
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<PAGE>
(c) Contractor. Prior to commencement of construction, Tenant
----------
shall select a general contractor which is reasonably acceptable to Landlord
("Contractor") to construct the Tenant Improvements. The Contractor shall be
licensed by the State of California and bondable. The construction contract
("Construction Contract") for the Tenant Improvements shall be between Tenant
(not Landlord) and Contractor.
(d) Construction Process. Tenant shall not commence the
--------------------
construction of any Tenant Improvements until after Landlord and Tenant have
agreed on the approved Plans and selection of the Contractor. Thereafter, Tenant
shall be responsible for completing the construction of the Tenant Improvements
in accordance with the approved Plans.
(e) Insurance. Prior to Contractor's entry onto the Premises to
---------
commence construction of the Tenant Improvements, Tenant shall furnish Landlord
with sufficient evidence that Tenant and Contractor are carrying worker's
compensation insurance and general liability insurance in amounts and in the
manner described in Section 9 of the Lease.
(f) Compliance. The Tenant Improvements and all materials
----------
incorporated therein shall comply with the approved Plans, as may be revised
from time to time pursuant to the terms of this Agreement, and shall be free
from all design, material and workmanship defects. Tenant and Contractor shall
comply with all applicable laws, regulations, permits and other approvals
applicable to construction of the Tenant Improvements.
(g) Liens. Tenant shall defend and indemnify Landlord and hold
-----
it harmless from any and all claims, losses, demands, judgments, settlements,
costs and expenses, including reasonable attorneys' fees, resulting from any act
or omission of Tenant or anyone claiming by, through, or under Tenant, in
connection with construction of the Tenant Improvements, for any mechanics' lien
or other lien filed against the Premises or the Building or against other
property of Landlord (whether or not the lien is valid or enforceable). Tenant
shall, at its own expense, (i) cause any such liens to be discharged of record,
or (ii) cause to be recorded a bond in compliance with CC Section 3143, within a
reasonable time, not to exceed thirty (30) days, after the later of (a) Tenant's
actual notice of the lien or (b) the date of filing.
(h) Indemnity. Tenant shall indemnify, defend (with counsel
---------
reasonably satisfactory to Landlord) and hold Landlord harmless from and against
any and all suits, claims, actions, loss, cost or expense (including claims for
workers' compensation, attorneys' fees and costs) based on personal injury or
property damage caused in, or contract claims (including, but not limited to
claims for breach of warranty) arising from, construction of the Tenant's
Improvements, except to the extent caused by Landlord's acts or omissions.
Tenant shall repair or replace any portion of the Building or item of Landlord's
equipment or any of Landlord's real or personal property damaged, lost or
destroyed in construction of the Tenant Improvements, except to the extent the
damage, loss or destruction is the result of Landlord's acts or omissions.
Notwithstanding the foregoing, in the event Tenant fails to complete such repair
or replacement work within ten (10) days following Tenant's receipt of
Landlord's written notice therefor (or if
2
<PAGE>
the nature of such work is such that more than ten (10) days is required, then
in the event Tenant fails to commence such work within such ten (10) days and
thereafter diligently prosecute such work to completion to the reasonable
satisfaction of Landlord), then Landlord may (but shall have no obligation to)
cause such work to be performed and/or completed at Tenant's sole cost and
expense.
(i) Management Fee. Tenant agrees and acknowledges that Tenant
--------------
shall pay Landlord a management fee ("Management Fee") in connection with
Landlord's review of the Plans and the construction of the Tenant Improvements.
The Management Fee shall be equal to three percent (3%) of the Tenant
Improvement costs; provided in no event shall such the amount of the Management
Fee paid to Landlord exceed Twenty-Nine Thousand Dollars ($29,000). Tenant
agrees that Landlord shall receive a prorata portion of the Management Fee with
each disbursement from the Tenant Improvement Allowance (i.e., three percent
(3%) of each invoice submitted by Tenant to Landlord for the Tenant Improvement
costs shall be paid to Landlord out of the Tenant Improvement Allowance as its
Management Fee up to the maximum Management Fee (i.e. Twenty-Nine Thousand
Dollars ($29,000)).
(j) Notices. Tenant shall notify Landlord at least ten (5)
-------
business days prior to the commencement of construction of any Tenant
Improvements and permit Landlord to post on the Premises such notices of
nonresponsibility, and such other notices to other tenants in the Project, as
Landlord may deem reasonable under the circumstances.
2. CHANGE ORDERS. Tenant shall not make any change to the approved
Plans without Landlord's prior approval, which approval shall not be
unreasonably withheld; provided, however, that Landlord may withhold its consent
if such requested change would affect the structural components or exterior
appearance of the Building. Landlord shall promptly approve or disapprove any
change requests following Landlord's receipt of a proposed change request. If
Landlord does not approve of the plans and specifications for the change order
request, Landlord shall advise Tenant of the revisions required. Tenant shall
revise and redeliver the plans and specifications to Landlord within five (5)
business days of Landlord's advice or Tenant shall be deemed to have abandoned
its request for such change order request. Tenant shall pay for all preparations
and revisions of plans and specifications, and the construction of all change
order requests, subject to Tenant Improvement Allowance. All approved change
order requests to the approved Plans shall be in writing and shall be signed by
both Landlord and Tenant prior to the change being made. Notwithstanding
Landlord's approval of any changes to the approved Plans, the dollar amount of
the Tenant Improvement Allowance shall not be increased.
2. TENANT IMPROVEMENT ALLOWANCE. Landlord shall contribute an amount
up to $1,327,000.00 ($20.00 per square foot) ("Tenant Improvement Allowance")
----------------------------
toward the costs incurred for the Tenant Improvements and Change Orders relating
to the construction of the Tenant Improvements, in accordance with and subject
to the following provisions. Not sooner than the date on which the Tenant
Improvements work within the Premises has been commenced, Tenant may submit
invoices to Landlord for payment out of the Tenant Improvement Allowance to
reimburse Tenant for Tenant Improvements costs incurred for work
3
<PAGE>
actually performed within or about the Premises. Following Landlord's receipt of
such invoices, Landlord shall within thirty (30) days thereafter pay Tenant for
the amount requested in such invoice; provided in no event shall Landlord be
obligated to pay Tenant more than the maximum amount of the Tenant Improvement
Allowance. Any expenses incurred by Tenant for the Tenant Improvement work in
excess of the Tenant Improvement Allowance shall be at Tenant's sole cost and
expense. Landlord shall have no obligation to disburse any portion of the Tenant
Improvement Allowance which has not be requested by Tenant pursuant to the terms
hereof on or before the sixtieth (60th) day after the Commencement Date, and any
portion of the Tenant Improvement Allowance still held by Landlord after such
date shall be deemed forfeited by Tenant and shall not be applied against
Tenant's other payment obligations under the Lease.
3. COMMENCEMENT DATE DELAY. Except as set forth in item 11 in the
Schedule to the Lease, the Commencement Date shall not be dependent upon the
completion or substantial completion of Tenant Improvements. Landlord agrees to
provide all approvals (or the reasons for not granting such approvals) to Tenant
within a reasonable time period which shall exceed five (5) business days of
Landlord's receipt of Tenant's written request therefor (provided that such
request is accompanied by all applicable documents, plans or other information
reasonably necessary for Landlord to render such decision), unless the nature of
such request is such that more time will be required to properly review such
request in which case Landlord shall inform Tenant of this fact during such five
(5) business day period (such as may be the case if Landlord has to engage a
structural engineer or other specialist to review Tenant's request). Landlord's
failure to provide its response within the foregoing time frame shall be deemed
a "Landlord Delay" for purposes of this Agreement. If Tenant fails (despite
Tenant's due diligence and best efforts) to substantially complete the Tenant
Improvements (i.e., the Tenant Improvements are sufficiently complete so that a
temporary certificate of occupancy can be issued) on or before the Commencement
Date, then Landlord agrees that the Commencement Date shall be delayed for each
day of such delay in the substantial completion of the Tenant Improvements which
Tenant can prove is solely attributable to Landlord Delay.
4. AS-BUILTS. Upon completion of construction of the Tenant
Improvements, Tenant shall deliver to Landlord "as-built" drawings for the
completed Tenant Improvements.
5. ACCESS BY TENANT PRIOR TO COMMENCEMENT OF TERM. Tenant and the
Contractor and their agents shall be allowed to enter the Premises prior to the
Commencement Date to construct the Tenant Improvements therein, conditioned upon
Tenant's:
(a) working in harmony with Landlord and Landlord's agents,
contractors, workmen, mechanics and suppliers and with other tenants and
occupants of the Project;
(b) complying with any other reasonable rules and regulations
which Landlord may impose in connection with the construction of the Tenant
Improvements.
6. MISCELLANEOUS. Terms used in this Exhibit C shall have the meanings
assigned to them in the Lease. The terms of this Exhibit C are subject to the
terms of the Lease
4
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and all of the covenants, obligations, promises, terms and conditions of
Landlord and Tenant which are contained in the Lease shall apply during the term
of this Agreement (notwithstanding the fact that the Commencement Date has yet
to occur).
5
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EXHIBIT C-1
TENANT IMPROVEMENT GUIDELINES
<TABLE>
<CAPTION>
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High Technology Workplace
Tenant Improvements Design Specifications
CarrAmerica
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Building Element Comments
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<S> <C>
1. General Tenant Improvements Specifications The following Tenant Improvement Design Specifications are applicable
to the review and approval of Tenant Improvement (TI) designs
submitted to Carr America by Tenants or prospective Tenants
- ------------------------------------------------------------------------------------------------------------------------------------
a. Application To be effective, these Tenant Improvement Design Specifications
should be reviewed with the Tenant and incorporated into the Lease.
- ------------------------------------------------------------------------------------------------------------------------------------
b. Review and approval Tenant Improvements drawings shall be reviewed at the end of TI
Schematic Design, and also when Final TI Construction Documents are
completed. Written comments are to be provided to the Tenant and to
the TI designer at each stage. CarrAmerica comments shall be
incorporated into the TI designs prior to the commencement of TI
construction. An approved set of TI Construction Documents will be
retained by CarrAmerica. Where "design-build" specifications are
used, CarrAmerica shall review and approve all design build plans and
specifications provided by the design-build contractor prior to
construction.
- ------------------------------------------------------------------------------------------------------------------------------------
c. Inspection and Acceptance TI specifications shall include a requirement that the Tenant and TI
Contractor cooperate with CarrAmerica in the review and acceptance of
the TI as follows:
1. TI construction will be reviewed by a CarrAmerica representative
at intervals appropriate to the course of the work and the size of
the TI project, preferably in the company of the TI designer.
2. When TI work is substantially complete, a CarrAmerica
representative will accompany the TI designer on a walk-through of
the work to ensure the completion of the TI work in accordance with
the approved designs.
3. CarrAmerica will receive a copy of a Certificate of Substantial
Completion provided by the TI designer, with correction list items
noted.
4. A CarrAmerica Representative will follow up with the Tenant on the
completion of correction list items.
- ------------------------------------------------------------------------------------------------------------------------------------
d. Project Record Drawing, warranties and instructions TI Plans and specifications will include a requirement that the TI
Contractor maintain a set of record drawings showing all changes made
to the design during the course of construction. A copy of the TI
Project Record Drawings will be delivered to CarrAmerica when TI work
is completed. Copies of warranties and instructions for all HVAC
equipment shall be delivered to CarrAmerica.
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</TABLE>
6
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<TABLE>
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<S> <C>
e. Code compliance Construction by Tenant must comply with all codes, ordinances and
regulations applying to the TI design and construction. The tenant
must provide a copy of the Certificate of Occupancy and/or inspection
sign-offs prior to occupying the TI's.
- ------------------------------------------------------------------------------------------------------------------------------------
f. Modifications to building shell and exterior Changes to the building shell and any exterior tenant improvements
(equipment pads, enclosures, etc.) are subject to CarrAmerica's
express written approval. Tenants are responsible for obtaining all
required public works, building and planning approvals for such
changes, copies of which shall be provided to CarrAmerica.
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2. Core Area Tenant Improvements
- ------------------------------------------------------------------------------------------------------------------------------------
a. General Core Area improvements by Tenants should comprehensively integrate
stairs, elevators and elevator equipment rooms, lobbies, restrooms,
shafts and other core elements to maximize the overall efficiency of
the buildings for current and future uses, to provide maximum
flexibility for future TI reconfigurations, and to support the
overall economic value of the building.
Shafts, stairs and other core elements should be consolidated as
much as possible.
- ------------------------------------------------------------------------------------------------------------------------------------
b. Efficiency Targets TI core designs should achieve a rentable-to-gross-area ratio of 96%
and, where applicable, a multi-tenant floor factor of 112%.
- ------------------------------------------------------------------------------------------------------------------------------------
c. Electrical closets Locate near exterior door. Minimize bus duct run to transformer.
Provide sufficient space for capacity expansion for manufacturing,
labs, clean rooms, and other common high-technology uses.
- ------------------------------------------------------------------------------------------------------------------------------------
d. Restrooms Core area restroom configurations should prevent direct sightline
access from lobbies, but should be readily accessible and easy to
find. The following specifications apply to the design of restrooms.
- ------------------------------------------------------------------------------------------------------------------------------------
i. Partitions Wall/floor mounted heavy-duty metal toilet partitions with honeycomb
core and factory baked enamel finish.
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ii. Fixtures Wall-mounted wc's with heavy-duty flushometer valves. Reinforced
saddles and heavy-duty flushometer valves for wall-mounted urinals.
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iii. Sinks and counters Bottom-set sinks in corian or equivalent countertops; provide 4"
backsplash where counters meet walls.
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iv. Faucets One sink nearest towel dispenser to provide "paddle" handicapped
accessible faucet handles. Other sinks to have spring-loaded
automatic-closing hot and cold water faucets.
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v. Accessories Fully recessed Bobrick stainless restroom accessories or equal.
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vi. Hose bibb and floor drain Provide a floor drain and hose bib with security handle at each
restroom mounted at 18" AFF.
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</TABLE>
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<TABLE>
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<S> <C>
vii. Janitors closet Provide a janitor's closet integrated with the plan of each pair of restrooms to
include:
Mop sink with hot and cold water.
Sealed concrete floor.
Ceramic tile wainscot surrounding mopsink; all other walls 5/8" greenboard
with two coats of mildew-resistant semi-gloss plaint over one coat of primer.
Built-in storage.
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viii. Finishes and construction See Section 3 for additional specifications on restroom wall, floor and ceiling
construction and finishes.
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e. Corridors Corridors should provide for efficient traffic flow and long-term flexibility, and
should conform to the following specifications:
1. Walls, ceilings, flooring, and lighting as noted under general improvements
specifications in Section 3.
2. Provide cleaning outlets at maximum 20' o.c.
3. Corridors in or near loading and service areas should provide a fire-treated
5/8" finish-painted plywood wainscot below a 2x6 finished bump rail at 36"
AFF.
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f. Drinking fountains and coolers Locate close to lobby in a semi-recessed alcove; provide handicapped accessible
units where required by code.
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g. Elevators and elevator machine rooms
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i. Number and type Provide a minimum of one pre-engineered hydraulic elevator per two-story building.
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ii. Elevator lobby Minimum lobby clearance in front of elevator shall be 10 ft.; 12 ft. preferred.
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iii. Elevator pit Elevator pit should be treated with ironite or similar water-resistant barrier.
Provide a pit access ladder.
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iv. Cab Cab finishes should be very durable and easy to clean.
Cab should be equipped with a security phone and all code-mandated handicapped
access devices.
Provide at least one elevator with minimum 4'-0" door width and 8'-0" ceiling
height with heavy-duty back and side rails and pad hooks for furniture and
freight.
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v. Elevator shaft and equipment rooms Elevator shafts and equipment rooms shall be enclosed with full height walls, two
layers of 5/8" GWB mounted on acoustical clips each side with fiberglass batt
sound insulation in all walls, sealed acoustically at wall tops and bottoms.
The elevator equipment room should be located on ground floor for ease of
maintenance access. Elevator equipment room doors shall have sound seals. Provide
containment curb or tray around hydraulic pump assembly to control fluid leaks.
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h. Telephone equipment rooms Provide amble ventilation, and space for additional backboards and equipment
cabinets for a full range of telecommunications support services; locate telephone
equipment rooms near communications conduit building entry points, and near
exterior of building shell to simplify installation of future additional
ventilation/cooling.
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</TABLE>
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<S> <C>
i. Loading, materials handling, and high 2x6 bump rails, 4'-0" high 5/8" fire-treated plywood wainscot, and
traffic areas 12 ga corner guards to 48" AFF on all outside corners in loading
and materials handling areas.
Heavy-duty full-welded door frames (no knock-down frames), heavy-
duty hinges, and 24" high kick plates on all doors in loading,
materials handling and high traffic areas.
Door frames shall be secured to 16 ga. jamb studs which are
continuous from floor to floor.
See Section III for wall, floor and ceiling construction and
finishes.
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3. General Specifications, Interior Improvements
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a. Flooring and base, general Carpet is the preferred floor finish in offices and corridors.
Other finishes will be considered.
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i. Lobby floors Lobby floors: Daltile glazed pavers 8" x 8" or equal or better.
Upgraded stone products, if selected, should be selected for
durability and ease of maintenance as well as appearance.
Wood floors in lobbies are discouraged.
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ii. Restroom floors and base Thinset, dryset ceramic tile floor and 4" base throughout
restrooms: 2" square Daltile, price Code 3 or equal or better, all
installed with moisture barrier or Laticrete, and installed to meet
Ceramic Tile Institute specifications.
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iii. Carpet and base Minimum 32 oz. looped pile direct glue down. Base Armstrong or
Burke.
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iv. Sheet vinyl Armstrong Classic Corlon, or equal or better.
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v. Vinyl composition tile Vinyl Composition Tile (VCT) where installed: Armstrong Premium
Excelon or equal or better.
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vi. Exposed concrete floors Any exposed concrete floors shall receive a sealer.
- ------------------------------------------------------------------------------------------------------------------------------------
vii. Transition strips Provide hardwood or stone transition strips between tile and
adjacent flooring materials.
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b. Wall construction and finishes, general General: All walls to be constructed from 5/8" GWB over 3 5/8" 25
ga metal studs at 16" oc. Metal studs shall extend to structure
above as necessary to prevent lateral deformation of wall. Walls
shall not depend on ceiling grid for stiffness. All GWB shall be
finished to USG standards or better.
Except where noted below, walls shall be skip-trowelled and
textured with minimum one prime and two finish coats of flat
latex paint.
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i. Lobby walls Lobbies: consider upgrading lobby wall finishes to tile, stone, or
other superior and durable material.
- ------------------------------------------------------------------------------------------------------------------------------------
ii. Restroom walls Restrooms: All wet areas shall receive full-height 4" square semi-
gloss finish Daltile, Price Group 3 or equal or better. Other
restrooms walls shall receive vinyl wallcovering or two coats of
mildew-resistant latex paint over one coat of primer.
All restrooms walls shall receive 5/8" greenboard in lieu of
standard GWB.
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</TABLE>
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iii. Loading, materials handling, and high traffic 5/8" GWB on 16ga metal studs at 16" oc.; walls shall extend to
area walls structure above. walls Loading areas may be fire taped only. See
additional requirements under Section 2.i.
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iv. Exposed columns All exposed columns shall be cleaned, primed, and receive two coats
of semi-gloss enamel.
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c. Ceilings, general: Ceiling shall be 2'-0" x 2' x 0" suspension system by Armstrong with
24" x 24" x 5/8" "Cortega" tegular edge ceiling panels, or equal or
better, except where noted below. Monolithic ceiling grids in all
office and lab areas are required.
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i. Lobby ceilings Lobby ceilings: 5/8" GWB on 20 ga metal studs at 12" o.c. at minimum
12 ft. AFF; one prime and two finish coats flat latex. Architectural
expression in lobby ceilings is encouraged.
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ii. Restroom ceilings Restroom ceilings: 5/8" GWB on 20 ga metal studs at 12" o.c. at
minimum 9'-0" AFF w/two coats mildew-resistant semi-gloss latex over
one coat primer.
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iii. Loading and service areas Loading and service areas: space may be open to structure above if
desired.
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iv. Open ceilings in offices Where ceilings in offices are left open to structure for design
reasons, entire underside of structure shall be cleaned and painted
with two coats of semi-gloss latex over one coat primer.
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d. Lighting, general: 2' x 4' three-tube high-efficiency flourescent fixtures with
electronic ballasts and 18-cell parabolic lenses, except where noted
below; use compact flourescent downlights where accent lighting is
desired.
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i. Lobby lighting Maximize use of compact flourescent downlights where light fixtures
are visible. Consider use of indirect lighting and architectural
lighting to enhance appearance of lobbies.
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ii. Restroom lighting Above counters and sinks: 12" x 4'12" x 8' two-tube flourescents with
eggcrate grilles. Provide recessed compact flourescent downlights
elsewhere in restrooms.
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iii. Loading, materials handling, and high-traffic Chain-hung industrial fixtures where open ceilings are permitted,
areas otherwise apply general specification.
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iv. f. Window coverings Exterior windows to receive 1" horizontal mini-blinds by Levolor or
equal, color selected by building shell designer. Interior windows,
where desired, to receive 1" horizontal mini-blinds by Levolor or
equal, color selected by TI designer.
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g. Interior cabinets and millwork All interior cabinets, countertops and other millwork shall be
finished with plastic laminate, or equal or better. Where upgraded
millwork in wood, stone or other materials is desired, materials and
finishes shall conform to the highest industry standards.
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d. Doors, frames and hardware
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1. Doors 3'-0" x 9'x0" x 1-3/4" solid core wood with paint grade wood veneer
finish.
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</TABLE>
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<S> <C>
2. Frames Anodized or baked enamel frames with mitered and welded corners (no
knockdown frames).
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3. Locksets and latchsets Heavy duty commercial Schlage "D" series or equal latchsets and
locksets with Schlage "Sparta" satin chromium lever style handles, or
equal or better. Doors in lobby areas, major conference rooms and
other public areas shall have Heavy Duty mortise type Schlage "L"
series latchsets and locksets with satin chromium Schlage "03" or
"17" style lever handles, or equal or better.
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4. Hinges Heavy duty ball-bearing hinges to match hardware.
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4. Heating, Ventilating and Air Conditioning Systems
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a. General Description Tenant shall design and install a complete variable air volume (VAV)
heating, ventilating and air conditioning (HVAC) system in accordance
with the following design specifications for all office, core area
and general use areas. Where tenant requires specialized HVAC designs
to support specialized manufacturing, labs or other uses, tenant
shall provide design criteria and performance specifications for the
systems with the schematic design submittal.
- ------------------------------------------------------------------------------------------------------------------------------------
b. General specifications standards All TI designs and installations shall conform to the latest
applicable editions of the following standards:
AMCA - Air Movement and Control Association
ANSI - American National Standards Institute
ARI - American Refrigeration Institute
ASTM - American Society for Testing and Materials
ASHRAE - American Society of Heating, Refrigeration and Air
Conditioning Engineers
ASME - American Society of Mechanical Engineers
AABC - Associated Air Balance Council
SMACNA - Sheet Metal and Air Conditioning Contractors National
Association
All applicable Plumbing, Mechanical, Electrical and Building Codes
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c. Review, approval, inspection, acceptance, and In additional to those submittals and procedures identified in
record drawings. Section 1.b., c., and d. above, the Tenant shall provide the
following:
1. One complete set of detailed operating and maintenance
instructions and spare parts list
2. Domestic water chlorinating certificates
3. One complete set of warranties and guarantees
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d. Air balancing Final air balancing and report shall be contracted and furnished by
CarrAmerica at tenant's expense.
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e. HVAC Design Capacities The systems shall be designed to provide for a minimum of 350 gsf/ton
of capacity. 300 gsf/ton is preferred. Higher capacities may be
applicable to specialized applications where identified by the
Tenant.
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</TABLE>
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<S> <C>
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f. Materials and Equipment Furnish and install McQuay RoofPak Singlezone Heating and Cooling Units Model
RDT or equal or better, specifically designed for rooftop applications.
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i. Cabinet insulation Each unit cabinet shall be fully insulated with min. 1", 3/4 lb. neoprene
coated glass fiber.
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ii. Cabinet finishes Phosphatized baked enamel meeting ASTM B117 for salt-spray resistance.
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iii. Access doors 17 ga. galv. steel with staggered engagement latches.
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iv. Frame and base 8 ga. and 13 ga. (900B) galvanized steel, Formed recess in base shall seat on
gasketed roof curb.
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v. Return air plenum Units shall include a 100% return air plenum allowing air to enter from the
bottom or back of the unit.
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vi. Outside air hood Units shall include a 100% outside air hood and draw-through filter section.
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vii. Dampers Units shall include McQuay UltraSeal low-leak dampers with two position actuator,
including outside air economizer damper with 0-100% capacity, of modulating
spring return type with adjustable comparative enthalpy control.
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viii. Draw-through filter section Units shall include an integrated filter rack and 12" American Air Filter Varical
Stnd 900, Class 1 filters.
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ix. Fan Assemblies All fans shall be statically, dynamically balanced at the factory, and include
200,000 hr. greasable ball bearings,and shall be mounted on rubber-in-shear or
spring isolators with seismic restraints.
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x. Fan Motors All fan motors shall be heavy duty 1800 rpm with adjustable belt tension and 150%
service factor.
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xi. Variable Frequency Drives Variable Frequency Drive Inverters with bypass contactors shall be provided for
supply and return fans.
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xii. Cooling coils .0060" copper tubes w/HI-F rippled and corrugated fins, interlaced two-circuit,
multi-row design, five rows, 12 fins/inch; include stainless steel positively
sloped drip pan with drain connector extending through unit base.
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xiii. Smoke detectors Ionization type in supply and return air openings.
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xiv. Condensing section Heavy duty Copeland Discus reciprocating semi-hermetic compressors on resilient
isolators. Multi-row 3/8" o.d. high-efficiency rifled copper condenser coils.
Heavy duty direct-drive condenser fan/motor assemblies with stainless steel blades
and three-phase non-reversing motors; each refrigeration circuit shall include
sight glass, filter drier, and 15 degree liquid subcooling circuit.
- ------------------------------------------------------------------------------------------------------------------------------------
xv. Refrigeration control Two refrigeration circuits per unit, including liquid line solenoid valve, oil
pressure switch, high pressure switch, low pressure switch, compressor control
circuit switch, and pumpdown switch. A McQuay Speedtrol fan speed control shall
provide for refrigeration circuit operation at ambient temperatures down to 20
degrees.
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</TABLE>
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<S> <C>
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xvi. Microprocessor Control System Each unit shall have a complete McQuay Microtech 800/802c Microprocessor Control
System or equal, including temperature and pressure sensors, input/output board,
main processor board, displays, keyboards, and staging boards as required, all
factory mounted and tested, including the following features:
1. A stand alone DDC controller
2. LED complete system status board
3. Optically isolated input/output design
4. Surge protection
5. RS 232 port PC connection
6. Built-in programmable time schedule with non-volatile memory
7. Time schedule readable from Network Master Panel or Remote Monitoring Panel
8. Space sensors for constant volume or VAV applications
9. Input/Output functions and user interactions equal to or better than McQuay
Microtech software
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xvii. Gas heater Stainless steel primary combustion chamber, headers, primary and secondary tubes.
section Modulating forced draft natural gas burners with pre-purge timing, flame
supervision, combustion air proving switch, and spark ignition. Gas train shall
include redundant shutoff valves, pressure regulator, shutoff cock, pilot gas
valve, pilot pressure regulator, and pilot shutoff cock.
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xviii. Other required 48" blank access sections at draw-through and blow-through locations. Fused
features disconnect switch for each unit. Service lights at supply and return section with
switch and 20A 110v outlet. Phase failure protection. Ground fault protection.
- ------------------------------------------------------------------------------------------------------------------------------------
g. Roof curbs Insulated pre-manufactured one-piece 12ga stainless steel custom-built roof
curbs. Curbs shall:
1. Provide for complete perimeter support of the unit.
2. Be custom made for the roof slope, and shall provide level installation of
the unit without shims or other means of leveling the unit.
3. Include integral crickets and curb-top drips.
4. Include gaskets for weatherproof joint between curb and unit.
5. Provide for minimum of 12" separation between unit frame and roof.
- -----------------------------------------------------------------------------------------------------------------------------------
h. Air distribution
- -----------------------------------------------------------------------------------------------------------------------------------
i. Sound attenuators Provide sound attenuators to IAC recommendations
- -----------------------------------------------------------------------------------------------------------------------------------
ii. Ducts, general Spiral wound or oval galvanized sheet metal ducts to meet SMACNA standards using
companion-flanged joints with gaskets. Weld all medium pressure fittings. Where
necessary use rectangular sheet metal ducts with following SMACNA guage/pressure
recommendations.
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iii. Splitter dampers Not permitted.
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</TABLE>
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<S> <C>
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iv. Flex duct and connections: Ducts upstream of VAV units shall be hard-piped; downstream of VAV units
shall be acoustical alumaflex 6'-0" maximum length.
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v. Fire and smoke dampers 100% free area, UL listed with clearly marked door access to fusible links.
- -----------------------------------------------------------------------------------------------------------------------------------
vi. Ductwork joint tape "Hardcast"
- -----------------------------------------------------------------------------------------------------------------------------------
vii. Insulated duct All ducts located in non-conditioned spaces shall be insulated and shall be
wrapped with a vapor barrier.
- -----------------------------------------------------------------------------------------------------------------------------------
viii. Diffusers, registers and grilles Neck velocities maximum 600 fpm. Outlet duct to terminals sized to 500 cfm
maximum. Supply diffusers in ceilings shall be perforated face with
adjustable cores. Return grilles shall be hex code face. Locate dampers well
away from diffusers to minimize noise. Linear and other architectural
diffusers shall be used in lobby ceilings and other public spaces.
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5. Plumbing
- -----------------------------------------------------------------------------------------------------------------------------------
a. Codes and regulations Comply with the National Plumbing Code, and all applicable local codes and
regulations. Where in conflict, the code requiring the higher-quality or more
complete installation shall govern.
- -----------------------------------------------------------------------------------------------------------------------------------
b. Piping Use black iron or copper pipe where applicable. PVC or ABS pipe is not
permitted, even if allowed by code.
- -----------------------------------------------------------------------------------------------------------------------------------
c. Labs and hazardous materials areas In labs or other facilities where hazardous materials are used, provide
CarrAmerica with copies of approved OSHA and EPA disposal procedures. Use of
sanitary waste lines for disposal is not permitted.
- -----------------------------------------------------------------------------------------------------------------------------------
d. Plumbing hardware All restroom and other core area plumbing hardware shall be Kohler or equal
or better. All toilets and urinals shall have automatic shut-off valves.
- -----------------------------------------------------------------------------------------------------------------------------------
e. Plumbing fixtures All restroom and other core area plumbing fixtures shall be as follows:
Water closet: American Standard Afwall Wall Mounted Toilet #2477.016
Urinal: American Standard Wall Allbrook Wall Mounted Urinal #6541.132
Lavatory: American Standard Ovalyn Under Counter Lavatory #0470.039
- -----------------------------------------------------------------------------------------------------------------------------------
f. Cleanouts Provide cleanouts at a maximum of 30'-0" o.c. in all waste lines.
- -----------------------------------------------------------------------------------------------------------------------------------
g. Pipe compound Use Teflon pipe dope only. Lead solder is not permitted.
- -----------------------------------------------------------------------------------------------------------------------------------
6. Electrical
- -----------------------------------------------------------------------------------------------------------------------------------
a. Codes and regulations Comply with the latest edition of the National Electric Code, and all other
applicable codes and regulations. Where in conflict, the code requiring the
higher-quality or more complete installation shall govern.
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</TABLE>
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<S> <C>
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b. Conductors, conduit, fittings All conductors shall be copper. No aluminum conductors are permitted, even if
allowed by code. All conductors shall be in rigid steel conduit or Electrical
Metallic Tubing (EMT) where permitted by code. All boxes and fittings shall
be galvanized steel. No plastic boxes or fittings are permitted, even if
allowed by code.
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c. Light fixture ballasts All flourescent light fixtures shall have electronic T-8 ballasts. No
ballasts containing PCB's are permitted.
- -----------------------------------------------------------------------------------------------------------------------------------
7. Fire protection
- -----------------------------------------------------------------------------------------------------------------------------------
a. Codes and regulations All fire sprinkler installations shall comply with NFPA13, with Factory
Mutual (FM) requirements, and with all other applicable local codes and
regulations.
- -----------------------------------------------------------------------------------------------------------------------------------
b. Drawings and calculations Prior to installation of fire sprinklers, provide CarrAmerica with complete
sets of sprinkler shop drawings, including calculations, for review by
CarrAmerica's FM representative. Do not proceed with installation without FM
approval.
- -----------------------------------------------------------------------------------------------------------------------------------
c. Sprinkler heads Lobbies: Concealed heads with cover plates painted to match ceiling.
Offices: Flush chrome heads, or semi-recessed with two-piece escutcheons to
match ceiling. Open ceilings where permitted: Exposed heads.
- -----------------------------------------------------------------------------------------------------------------------------------
d. Fire alarm systems Tenant-installed fire alarm systems shall have automatic dailers to call in
to a central station monitor.
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8. Fixtures, furnishings and equipment Provide high-quality durable lobby furnishings planters and entrance mats in
lobby spaces compatible with the lobby architectural design. Multiple-
building TI projects should provide a consistent approach to fixtures and
furnishing in all lobbies.
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</TABLE>
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EXHIBIT D
MORTGAGES CURRENTLY AFFECTING THE PROJECT
[To be determined prior to Execution]
1
<PAGE>
EXHIBIT E
LANDLORD'S SIGNAGE STANDARDS
Attached you will find the signage standards for the following sign type:
Exterior (Permanent) Page #
Entrance Identification 1
Primary Directional 2
Secondary Directional 3
Primary Tenant Identification 4
Building Address 5
Building Entry Logo Application 6
Driveway Entrance/Welcome 7
Miscellaneous 8
Exterior (Temporary)
Site/Leasing Sign 9
Interior (Permanent)
Elevator (Corporate Identification) 10
Directory Identification 11
Room Identification 12
Tenant Plaque 13
Suite Identification 14
Suite Directional 15
Reception Area Sign 16
[Diagrams relating to Signage standards]
1
<PAGE>
EXHIBIT G
GUARANTY
FOR VALUE RECEIVED, and as an inducement to CarrAmerica Realty Corporation
("Landlord") to enter into a certain lease dated as of April 30, 1999, as it may
hereafter be further amended, the "Lease") with NaviSite, Inc., a Delaware
corporation Tenant"), the undersigned ("Guarantor"), CMGI, a Delaware
corporation, whose address is 100 Brickstone Square, Andover, MA 01810,
unconditionally and irrevocably undertakes and guarantees to Landlord, its
successors and assigns, the payment and performance of all obligations of Tenant
under the Lease (the "Liabilities"), including the full payment, when due, of
all rent, including without limitation, Base Rent, Operating Cost Share Rent,
Tax Share Rent and Additional Rent. This Guaranty is absolute, independent and
continuing under all circumstances, and is a guaranty of payment and
performance, not of collection, subject to termination in accordance with
Section 5(i) below.
1. REPRESENTATIONS. Guarantor hereby represents and warrants to Landlord
that:
(a) the financial statements of Guarantor furnished to Landlord in
connection with this Guaranty (i) are true and correct in all material respects,
(ii) have been prepared in accordance with generally accepted accounting
principles consistently applied, and (iii) present fairly the financial
condition of Guarantor as of the respective dates thereof, and that no material
adverse change has occurred in the financial condition of Guarantor since such
dates;
(b) Guarantor has no knowledge of any material fact concerning Tenant
or its financial condition which has not been disclosed to Landlord and might
adversely affect Landlord's decision to enter into the Lease;
(c) Guarantor is not in default under any agreement, the effect of
which could materially adversely affect performance of its obligations under
this Guaranty; and
(d) There are no actions, suits or proceedings pending or, to the best
of its knowledge, threatened against the Guarantor before any court or any other
governmental authority of any kind which could materially adversely affect
performance of its obligations under this Guaranty.
2. WAIVERS. Guarantor hereby expressly waives, to the maximum extent
permitted by law, all defenses available to a guarantor or surety, whether the
waiver is specifically herein enumerated or not, including, without limitation,
the following:
(a) any notice of nonpayment, nonperformance or nonobservance, or
proof of notice or demand and all other notices and demands otherwise required
by law which the undersigned may lawfully waive;
(b) all diligence in collection of any of the Liabilities or any
obligation hereunder;
(c) the benefit of all appraisement, valuation, marshalling,
forbearance, stay,
1
<PAGE>
extension, redemption, homestead, exemption and moratorium laws now or hereafter
in effect;
(d) any rights against Tenant arising because of Guarantor's payment
of any Liabilities, by way of subrogation of the rights of Landlord or
otherwise;
(e) any obligation Landlord may have to disclose to Guarantor any
facts Landlord now or hereafter may know or have reasonably available to it
regarding Tenant or its financial condition;
(f) all defenses of suretyship;
(g) any defense based on the negligence of Landlord in administering
the Lease, or taking or failing to take any action in connection therewith;
(h) any statute of limitations affecting the enforcement of this
Guaranty of Lease; and
(i) any right of set-off or compensation against amounts due under
this Guaranty of Lease.
3. COVENANTS AND AGREEMENTS. Subject to Section 5(i) below, Guarantor
covenants and agrees that:
(a) in the event of a default by Tenant under the Lease, Landlord may
proceed against Guarantor before, after or simultaneously with proceeding
against Tenant;
(b) this Guaranty shall be absolute and unconditional and shall not be
terminated, affected or impaired in any manner by reason of: (i) Landlord's
assertion against Tenant of any of the rights or remedies reserved to Landlord
under the Lease; (ii) the release of Tenant from any of the Liabilities by
operation of law or otherwise; (iii) the commencement of summary or other
proceedings against Tenant; (iv) Landlord's failure to enforce any of its rights
against Tenant; (v) the granting by Landlord of any extensions of time to
Tenant; (vi) any amendment, addition, assignment, sublease, transfer, renewal,
extension or other modification of the Lease, whether or not Guarantor shall
have knowledge or have been notified of or agreed or consented thereto; (vii)
the cessation of Tenant's liability for any cause whatsoever; or (viii) any
disability or defense of any kind now existing of Guarantor with respect to any
provision of this Guaranty;
(c) Guarantor shall be bound by all the provisions, terms, conditions,
restrictions and limitations contained in the Lease which are to be observed or
performed by Tenant thereunder, the same as if Guarantor were named as the
tenant therein;
(d) Guarantor shall not sell, lease, transfer, convey or assign any of
its assets if such action will have a material adverse effect on Guarantor's
business or financial condition.
(e) If at any time any part of any payment previously applied by
Landlord to
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<PAGE>
any of the Liabilities is rescinded or returned by Landlord for any reason,
including the insolvency, bankruptcy or reorganization of Tenant, such
Liabilities shall be deemed to have continued in existence to the extent that
such payment is rescinded or returned, and this Guaranty shall be reinstated as
to such Liabilities;
(f) Guarantor hereby subordinates, and shall cause any entity which
Guarantor directly or indirectly controls to subordinate, any claims or liens of
Guarantor or such affiliate against Tenant of any kind to all of the
Liabilities; and
(g) If the Lease is disaffirmed by a Trustee in Bankruptcy for Tenant,
Guarantor shall, at the election of Landlord, either assume the Lease and
perform all of the covenants, terms and conditions of Tenant thereunder, or
enter into a new lease for the remaining Term, which said new lease shall be in
form and substance identical to the Lease.
4. MISCELLANEOUS.
(a) Landlord's failure to insist in any one or more instances upon
strict performance or observance of any of the terms of the Lease or to exercise
any rights therein shall not be construed to be a waiver for the future of such
term or right but the same shall remain in full force and effect.
(b) If Landlord takes action to enforce this Guaranty, Guarantor shall
pay to Landlord upon demand all costs, including reasonable attorneys' fees,
incurred by Landlord in connection therewith, together with interest thereon
computed at the rate of 12% per annum from the date paid by Landlord until the
date repaid in full.
(c) All of Guarantor's obligations hereunder shall be binding upon
Guarantor's successors and assigns. For purposes of this Guaranty, the word
"Tenant" shall also include the successors and assigns of Tenant. Each immediate
and successive assignee or transferee of any interest in any of the Liabilities
and this Guaranty shall, to the extent of such interest, be entitled to the
benefits of this Guaranty.
(d) This Guaranty shall be construed in accordance with the laws of
the State of California. Guarantor irrevocably (i) agrees that any suit, action
or other legal proceeding relating to this Guaranty may be brought only in the
Superior Court of Santa Clara County or in the State Court of California, at
Landlord's option; (ii) consents to the jurisdiction of each such court in any
such suit, action or proceeding; (iii) waives any objection which Guarantor may
have to the laying of venue in any such suit, action or proceeding in either
such court; and (iv) agrees to join Landlord in any petition for removal to
either such court. Guarantor hereby irrevocably appoints _______________________
its authorized agent ("Agent") in the State of California to accept on its
behalf service of process for purposes of any such suit, action or proceeding.
Landlord may obtain personal jurisdiction and perfect service of process through
the Agent or by any other means now or hereafter permitted by applicable law.
(e) GUARANTOR HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES
ANY RIGHTS THAT GUARANTOR MAY HAVE TO A TRIAL BY JURY IN ANY LITIGATION ARISING
IN ANY WAY IN CONNECTION WITH THIS GUARANTY, OR ANY OTHER STATEMENTS OR
3
<PAGE>
ACTIONS OF LANDLORD. GUARANTOR ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL
INDUCEMENT FOR LANDLORD TO ENTER INTO THE LEASE.
(f) The undersigned agrees to execute and deliver to Landlord, from
time to time, upon five (5) days notice from Landlord, a certificate addressed
to Landlord, any mortgagee or prospective mortgagee, or any prospective
purchaser, certifying (i) that this Guaranty of Lease is unmodified and in full
force and effect and (ii) to such other matters as Landlord may reasonably
request. The undersigned further agrees that upon request by Landlord from time
to time, the undersigned shall furnish Landlord, within five (5) days of receipt
of such request, with a copy of the undersigned's financial statements, in form
and substance reasonably satisfactory to Landlord, reflecting the undersigned's
current financial condition. The undersigned represents and warrants that all
financial statements, records and information furnished by the undersigned to
Landlord in connection with this Guaranty of Lease are true, correct and
complete in all respects.
(g) If any provision of this Guaranty of Lease or the application
thereof to any person or circumstance shall, for any reason and to any extent,
be invalid or unenforceable, the remainder of this Guaranty of Lease and the
application of that provision to other provisions or circumstances shall not be
affected but rather shall be enforced to the fullest extent permitted by law.
(h) All capitalized terms used in this Guaranty shall have the same
meanings as are given to such terms in the Lease, unless otherwise specifically
defined in this Guaranty.
(i) Within fifteen (15) days of the later of (a) Landlord?s receipt of
evidence reasonably satisfactory to Landlord that Tenant has become a public
company (i.e., its stock is traded on a nationally recognized stock market, such
as the NYSE or NASDAQ), and (b) Landlord receipt of a Letter of Credit (meeting
the requirements set forth below) in the amount of $2,388,660.00, Landlord
agrees that it shall deliver this Guaranty to Tenant and that this Guaranty (and
Guarantor?s obligations hereunder) shall terminate upon Tenant?s receipt
thereof. The Letter of Credit shall (i) be in the form of an unconditional and
irrevocable letter of credit which is reasonably acceptable to Landlord, (ii)
name Landlord as a beneficiary, (iii) expressly allow Landlord to draw upon it
(including partial withdrawals) at any time from time to time by delivering to
the issuer and Tenant written certification that Landlord is entitled to draw
thereunder as a result of Tenant?s default under the Lease (after expiration of
any applicable notice, grace and cure periods granted thereunder), (iv) be
drawable on an FDIC-insured financial institution satisfactory to Landlord, (v)
be redeemable in the state of California in one of the nine counties comprises
the San Francisco-Oakland-San Jose area (the "Bay Area"), (vi) allow partial
draws, and (vii) be transferable to any successor to Landlord?s interest in this
Lease at no cost to Landlord, provided that only the first transfer of the
Letter of Credit by Landlord during the term of the Lease shall be at no cost to
Landlord.
4
<PAGE>
IN WITNESS WHEREOF, this Guaranty is executed as of May ___, 1999.
GUARANTOR
CMGI,
a Delaware corporation
By:____________________________
Name:__________________________
Title:_________________________
5
<PAGE>
EXHIBIT 10.8
TERM NOTE
Boston, Massachusetts
$279,100 July 1, 1998
FOR VALUE RECEIVED, NaviSite Internet Services Corporation, a Delaware
corporation (the "Company"), hereby promises to pay to Peter Kirwan Jr. (the
-------
"Holder"), on or before January 2, 2000 (the "Maturity Date"), as set forth
- ------- -------------
herein, the principal amount of $279,100, as may be adjusted as a result of
offsets described in Section 1 hereof or prepayment pursuant to Section 2
hereof. This Note shall bear interest at the rate of 5.5% per annum,
(calculated on the basis of a three hundred sixty-five (365) day year for the
actual number of days involved) for the period beginning on the date hereof and
continuing for the remainder of the term hereof. The accrued interest hereon,
shall be payable to Dornbush Mensch Mandelstam & Schaeffer, LLP, as agent for
the Holder (the "Holder's Agent"), in equal installments of $7,675.25 each (as
may be adjusted as a result of offsets described in Section 1 hereof or
prepayment pursuant to Section 2 hereof) at the close of the six-month periods
ended January 2, 1999 and July 2, 1999 with the final payment of accrued
interest to be paid with the outstanding principal on January 2, 2000. All
payments of principal, interest and other amounts payable on or in respect of
this Note or the indebtedness evidenced hereby shall be made to Holder at the
address set forth below, in lawful money of the United States of America. Any
payments of principal or interest not paid when due shall bear interest as a
rate per annum of twelve percent (12.00%).
1. Description of Note.
-------------------
This Note is issued pursuant to a certain purchase agreement ("Purchase
--------
Agreement") dated as of the date hereof and entered into by Holder, the Company,
- ---------
Servercast Communications, L.L.C., a Delaware limited liability company
("Servercast") and the members of Servercast. The Holder of this Note, by its
- ------------
acceptance hereof, shall be subject to the terms of Section 8 of the Purchase
Agreement and the terms of the Escrow Agreement ("Escrow Agreement") to be
entered into by and among the Company, the Member Representative (as defined in
the Escrow Agreement) and the escrow agent named therein prior to any payment of
principal under this Note. Holder hereby acknowledges and agrees that the
Company may offset against the principal of, and accrued interest due on, this
Note by any and all claims for indemnification the Company has under Section 8
of the Purchase Agreement in accordance with the terms and conditions provided
in Section 8 thereof. Holder further acknowledges that 20% of any principal
payable to the Holder under this Note shall be delivered into an escrow fund in
accordance with the terms and conditions of the Escrow Agreement.
2. Prepayment of Principal.
-----------------------
The Company may, at its option, prepay from time to time all or any part of
this Note without premium but together with interest accrued on the principal
amount so prepaid on the date of prepayment.
1
<PAGE>
3. Loss of Note.
------------
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Note and of indemnity
reasonably satisfactory to it, and upon reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
this Note (in case of mutilation), the Company will make and deliver in lieu of
this Note a new Note of like tenor and unpaid principal amount and dated as of
the date to which interest has been paid on the unpaid principal amount of this
Note in lieu of which such new Note is made and delivered.
4. CMG Guarantee. CMG Information Services, Inc. ("Guarantor"), a Delaware
------------- ---------
corporation and the parent corporation of the Company, hereby guarantees the
payment of this Note; provided, however, CMG's guarantee hereof shall terminate
-------- -------
upon the earlier of (a) the closing of an initial public offering of the
Company's common stock pursuant to an effective registration statement filed
under the Securities Act of 1933, as amended, (b) the sale of the Company
pursuant to a merger with or the sale of all or substantially all of the
Company's assets to an acquirer with a net worth of at least $15 million, or (c)
the Company's payment of all amounts owed under this Note.
5. General.
-------
5.1 Governing Law. This Note shall be governed by and construed in
-------------
accordance with the law of the Commonwealth of Massachusetts, excluding the body
of law relating to conflict of laws. Notwithstanding anything to the contrary
contained herein, in no event may the effective rate of interest collected or
received by the Holder exceed that which may be charged, collected or received
by the Holder under applicable law.
5.2 Interpretation. If any term or provision of this Note shall be held
--------------
invalid, illegal or unenforceable, the validity of all other terms and
provisions hereof shall in no way be affected thereby.
5.3. Amendment. The terms of this Note may be amended or waiver of
---------
compliance of any term hereof or thereof may be obtained by the Company with the
written consent of Holder.
5.4. Assignment. This Note shall not be assigned by either the Company or
----------
the Holder without the prior written consent of the other party, which consent
shall not be unreasonably withheld.
5.5. Notices. Any notice or other communication required or permitted
--------
hereunder shall be in writing and shall be deemed given when so delivered in
person, by overnight courier, by facsimile transmission (with receipt confirmed
by telephone or by automatic transmission report) or two business days after
being sent by registered or certified mail (postage prepaid, return receipt
requested), as follows:
(a) if to the Company, to:
NaviSite Internet Services Corporation
300 Federal Street
Andover, MA 01810
Attention: Chief Financial Officer
Telephone: 978/552-3300
Facsimile: 978/552-3500
2
<PAGE>
with a copy to:
Palmer & Dodge LLP
One Beacon Street
Boston, MA 02108-3190
Attention: William Williams II
Telephone: 617/573-0100
Facsimile: 617/227-4420
(b) if to the Holder, to:
Peter Kirwan Jr.
615 Hudson Street #3
NY, NY 10003
with a copy to the Holder's Agent:
Dornbush Mensch Mandelstam & Schaeffer, LLP
747 Third Avenue
New York, New York 10017
Attention: Landey Strongin, Esq.
Telephone: (212) 759-3300
Facsimile: (212) 753-7673
Any party may by notice given in accordance with this Section 5.5 to the other
parties designate another address or person for receipt of notices hereunder.
5.6. Saturdays, Sundays, Holidays. If any date that may at any time be
----------------------------
specified in this Note as a date for the making of any payment of interest under
this Note shall fall on Saturday, Sunday or on a day which in Massachusetts
shall be a legal holiday, then the date for the making of that payment shall be
the next subsequent day which is not a Saturday, Sunday or legal holiday.
[Remainder of Page Intentionally Left Blank
Signature Page Immediately Follows]
3
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Note as of the date
first above written.
NAVISITE INTERNET SERVICES CORPORATION
By: /s/ Robert B. Eisenberg
-----------------------------------------------
Name:
Title:
CMG INFORMATION SERVICES, INC., as Guarantor
pursuant to Section 4 hereof
By: /s/ Andrew Hajducky
-----------------------------------------------
Name:
Title:
4
<PAGE>
EXHIBIT 10.9
BONUS AGREEMENT
This BONUS AGREEMENT (this "Agreement") dated as of July 1, 1998 is entered
into by and between NaviSite Internet Services Corporation, a Delaware
corporation ("NaviSite"), and Peter Kirwan Jr. ("Employee").
WHEREAS, NaviSite, Servercast Communications, L.L.C., a Delaware limited
liability company ("Servercast"), Employee, and the members of the Servercast
have entered into a Purchase Agreement, dated as of the date hereof (the
"Purchase Agreement"), providing for the purchase by NaviSite from the members
of Servercast all of the issued and outstanding membership interests of
Servercast;
WHEREAS, NaviSite desires to reward the Employee if Servercast achieves
certain financial milestones.
NOW, THEREFORE, in consideration of the promises, and the mutual covenants
and agreements contained herein and for other good and valuable consideration,
the receipt, adequacy and sufficiency of which are hereby acknowledged, the
parties hereby agree as follows:
1. Bonuses.
-------
(a) In the event (i) the total revenues attributable to the business of
Servercast for the one-year period ended July 1, 1999 (the "Target Period")
equal or exceed $1,984,690 ("Revenue Goal"); and (ii) the operating losses
(EBITDA) of Servercast for the Target Period are less than or equal to
$2,162,126 ("Income Goal"), NaviSite shall pay Employee, subject to Sections 3
and 5 hereof, an incentive bonus in the amount of $154,125 (the "1999 Bonus").
(b) In the event (i) the total revenues attributable to the business of
Servercast for the Target Period are less than the Revenue Goal but greater than
or equal to $992,345, and (ii) the operating losses (EBITDA) of Servercast for
the Target Period are greater than the Income Goal but less than or equal to
$3,243,189, then NaviSite shall pay Employee, subject to Sections 3 and 5
hereof, an amount equal to the 1999 Bonus reduced by higher of either (x) the
percentage that such gross revenues are less than the Revenue Goal or (y) the
percentage that such losses exceed the Income Goal.
(c) In the event (i) the total revenues attributable to the business of
Servercast for the Target Period are less than $992,345; or (ii) the operating
losses (EBITDA) of Servercast for the Target Period are greater than $3,243,189,
NaviSite shall not be obligated to pay and Employee shall not be entitled to
receive any bonus.
(d) In the event (i) the total revenues attributable to the business of
Servercast for the Target Period exceed the Revenue Goal by twenty percent (20%)
or more; and (ii) the operating losses (EBITDA) of Servercast for the Target
Period are less than or equal to $1,729,700, NaviSite shall pay Employee,
subject to Sections 4 and 6 hereof, the 1999 Bonus plus an additional $77,0625
(the "Premium Bonus").
1
<PAGE>
2. NaviSite Funding Obligation. NaviSite shall provide Servercast during the
---------------------------
Target Period with a minimum of $2,100,000 in aggregate cash funding ("NaviSite
--------
Funding Obligation"), whether through the purchase or leasing of assets,
- ------------------
contribution of cash or any other property by NaviSite to Servercast. In the
case of NaviSite's leasing of assets for Servercast, only the sum of lease
payments accrued and paid during the Target Period will be counted toward the
fulfillment of the NaviSite Funding Obligation.
3. Escrowed Amounts. Twenty (20%) of any amounts payable to Employee (the
----------------
"Escrowed Amounts") pursuant to the 1999 Bonus and the Premium Bonus, if any,
shall be delivered into an escrow fund pursuant to the terms of the Escrow
Agreement dated of even date hereof by and among NaviSite, the Member
Representative (as the term is defined in the Escrow Agreement) and the escrow
agent named therein.
4. Stock Option Grant. NaviSite will grant Employee a non-statutory stock
------------------
option (the "Employee Option") to purchase up to Fifty Thousand (50,000) shares
("Option Shares") of NaviSite Common Stock, par value $0.01 per share, at a
purchase price of $.93 per share. The Employee Option shall vest as to one-
fourth (1/4) of the Option Shares (12,500 shares) on July 1, 1999 (the "First
Vesting Date") while the remainder of the Option Shares shall vest monthly
thereafter at the end of each one-month period following the First Vesting Date
in thirty-six (36) equal portions of one-forty-eighth (1/48) of the Option
Shares (1,042 shares), provided the Employee continues to be employed as an
employee of NaviSite or to provide services as a consultant to NaviSite. The
Employee Option shall (i) be exercisable only as to the vested portion of the
Option Shares, and (ii) expire on the fifth anniversary of the date of grant of
the Employee Option.
5. Termination of Employment. Employee's employment hereunder may be
-------------------------
terminated either by Employee or by NaviSite at any time upon ten (10) days
prior written notice.
(a) If prior to July 1, 1999 (i) Employee terminates his employment without
Just Cause, or (ii) NaviSite terminates Employee's employment for Cause (as
defined below), Employee shall forfeit any right to receive any bonus payments
pursuant to this Agreement.
(b) If after July 1, 1999 but prior to July 1, 2000 (i) Employee terminates
his employment without Just Cause, or (ii) NaviSite terminates Employee's
employment for Cause, Employee shall forfeit the Escrowed Amounts, if any,
delivered into escrow on behalf of the Employee pursuant to Section 4 hereof and
any amounts delivered into escrow pursuant to Section 1.3 of the Purchase
Agreement.
(c) If either (i) NaviSite terminates Employee's employment without Cause
or (ii) Employee terminates his employment with Just Cause, Employee shall
remain eligible to receive the bonuses in accordance with the terms and
conditions of Section 1 hereof and shall be entitled to receive any Escrowed
Amounts, if any within thirty (30) days of NaviSite's delivery of written Notice
of Termination (as defined below).
(d) For purposes of this Agreement, "Cause" shall mean (i) any act of
Employee involving fraud, embezzlement, theft, misrepresentation, dishonesty or
moral turpitude, (ii) Employee's indictment for a material crime on the basis of
alleged facts of such a serious nature that NaviSite has reasonable cause to
believe that Employee cannot effectively discharge his duties and
responsibilities, or Employee's indictment for the commission of a material
business-related crime, (iii) any gross or willful misconduct by Employee,
(iv) neglect or insubordination by Employee in
2
<PAGE>
the performance of his duties not cured within ten (10) days receipt of written
notice from NaviSite; or (v) any material breach by Employee of this Agreement
or any non-competition agreement between Employee and NaviSite.
(e) For purposes of this Agreement, "Just Cause" shall mean (i) a material
reduction from Employee's salary agreed to with NaviSite prior to the first
anniversary of this Agreement, or (ii) requiring Employee to relocate his or her
residence more than 50 miles from his current residence.
6. Notice of Termination. Any termination of employment by NaviSite or by
---------------------
Employee shall be communicated by written Notice of Termination (as defined
below) to the other party hereto in accordance with Section 9 hereof. For
purposes of this Agreement, a "Notice of Termination" shall mean a notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of employment under the provision so indicated.
7. Survival. The provisions of Sections 5, 7, 8 and 9 shall survive the
--------
termination of this Agreement in all events.
8. Notices. Any notice or other communication required or permitted hereunder
-------
shall be in writing and shall be deemed given when so delivered in person, by
overnight courier, by facsimile transmission (with receipt confirmed by
telephone or by automatic transmission report) or two business days after being
sent by registered or certified mail (postage prepaid, return receipt
requested), as follows:
(a) if to the NaviSite, to:
NaviSite Internet Services Corporation
300 Federal Street
Andover, MA 01810
Attention: Chief Financial Officer
Telephone: 978/552-3300
Facsimile: 978/552-3500
with a copy to:
Palmer & Dodge LLP
One Beacon Street
Boston, MA 02108-3190
Attention: William Williams II
Telephone: 617/573-0100
Facsimile: 617/227-4420
(b) if to Employee, to:
Peter Kirwan Jr.
615 Hudson Street #3
NY, NY 10014
3
<PAGE>
with a copy to:
Dornbush Mensch Mandelstam & Schaeffer, LLP
747 Third Avenue
New York, New York 10017
Attention: Landey Strongin, Esq.
Telephone: (212) 759-3300
Facsimile: (212) 753-7673
Any party may by notice given in accordance with this Section 8 to the other
parties designate another address or person for receipt of notices hereunder.
9. General.
-------
(a) Assignment. This Agreement may not be assigned by either party without
----------
the prior written consent of the other party.
(b) Entire Agreement. This Agreement, the Purchase Agreement and the
----------------
Escrow Agreement contains the entire agreement between NaviSite and Employee
with respect to the subject matter hereof and there have been no oral or other
agreements of any kind whatsoever as a condition precedent or inducement to the
signing of this Agreement or otherwise concerning this Agreement or the subject
matter hereof.
(c) Withholding Taxes. Employee shall pay to NaviSite, or make provision
-----------------
satisfactory to NaviSite for payment of, any taxes required by law to be
withheld with respect to any payments to Employee hereunder no later than the
date of the event creating the tax liability. NaviSite may, to the extent
permitted by law, deduct any such tax obligations from any payment of any kind
otherwise due to the Employee.
(d) Continuation of Employment or Consulting Relationship. Employee shall
-----------------------------------------------------
have no right to continued employment or service as an employee or consultant of
NaviSite by virtue of this Agreement.
(e) Arbitration. In the event any dispute shall arise between NaviSite and
-----------
Employee with respect to any of the terms and conditions of this Agreement, then
such dispute shall be submitted and finally settled in accordance with Section
9.5 of the Purchase Agreement. The parties agree not to institute any litigation
or proceedings against each other in connection with this Agreement except as
provided in this Section 9(e) hereof.
(f) Amendments. This Agreement may not be amended, nor shall any waiver,
----------
change, modification, consent or discharge be effected except by an instrument
in writing executed by or on behalf of the party against whom enforcement of any
waiver, change, modification, consent or discharge is sought.
(g) Severability. If any term or provision of this Note shall be held
------------
invalid, illegal or unenforceable, the validity of all other terms and
provisions hereof shall in no way be affected thereby.
4
<PAGE>
(h) Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument, and in pleading or
proving any provision of this Agreement, it shall not be necessary to produce
more than one of such counterparts.
(i) Section Headings. The headings contained in this Agreement are for
----------------
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
(j) Governing Law. This Agreement shall be governed by and construed and
-------------
enforced in accordance with the law (other than the law governing conflict of
law questions) of the Commonwealth of Massachusetts.
[Remainder of Page Intentionally Left Blank]
5
<PAGE>
IN WITNESS WHEREOF, the parties have been executed or caused to be executed
this Agreement as of the date first above written.
NAVISITE INTERNET SERVICES CORPORATION
By: /s/ Robert B. Eisenberg
-----------------------------------------------
Name:
Title:
EMPLOYEE:
/s/ Peter C. Kirwan, Jr.
--------------------------------------------------
Name: Peter C. Kirwan, Jr.
6
<PAGE>
EXHIBIT 10.14
SECURED CONVERTIBLE DEMAND NOTE
-------------------------------
$20,000,000 MAY 1, 1999
Andover, Massachusetts
FOR VALUE RECEIVED, the undersigned NAVISITE, INC. , a Delaware corporation
(the "Borrower"), hereby promises to pay to the order of CMGI, INC., a Delaware
--------
corporation (the "Lender"), ON DEMAND the aggregate unpaid principal amount of
------
all advances made hereunder, together with accrued interest thereon, from time
to time outstanding under this Note. Interest, if not paid, shall be added to
principal monthly (and interest shall thereafter accrue thereon) on the last day
of each calendar month at the rate of seven percent (7%) per annum based on the
average of (i) the aggregate unpaid principal amount of all advances made
hereunder as of the last day of the immediately preceding month and (ii) the
aggregate unpaid principal amount of all advances made hereunder as of the last
day of the month for which interest is being calculated. The unpaid principal
balance and all accrued interest on this Note at any time shall be determined
from the records of the Lender which shall constitute presumptive evidence of
such amounts and may be summarized on Schedule I hereto, which may be updated by
----------
the Lender from time to time to reflect new advances and repayment or conversion
of indebtedness. As soon as practicable after each January 31, April 30, July 31
and October 31 (each a "Fiscal Quarter End"), the Borrower shall provide notice
------------------
to the Lender of the Conversion Price (as defined below) applicable to the
fiscal quarter then ended. NOTWITHSTANDING THE FOREGOING, NOTHING IN THIS NOTE
SHALL OBLIGATE THE LENDER TO MAKE ANY ADVANCES HEREUNDER.
Advances in the aggregate amount of $10,760,822 (representing $5,347,705
advanced on or about January 31, 1999 and an additional $5,413,117 advanced on
or about April 30, 1999, in each case including interest accrued during the
applicable fiscal quarter) made by the Lender to the Borrower prior to the date
hereof, shall be converted into 490,332 shares of Series B Stock (as defined
below) of the Borrower (based upon applicable conversion prices of $12.74 and
$76.68, respectively) as soon as practicable after the date hereof without
further accrual of interest thereon and shall not constitute advances hereunder.
The Lender, in its sole discretion, will at any time and from time to time
have the option, exercisable by written notice to the Borrower in substantially
the form attached as Exhibit A hereto, to require the Borrower to satisfy all or
---------
any part of the indebtedness represented by this Note (including both principal
and accrued interest) by issuing to the Lender (or its designee(s)) shares of
the Borrower's capital stock in the following manner:
(A) prior to a Qualified Public Offering (as defined below), the
Borrower shall issue that number of shares of its Series B Convertible
Preferred Stock, $0.01 par value per share
<PAGE>
(the "Series B Stock"), equal to one-tenth of the quotient of (i) the
--------------
aggregate amount of principal and interest to be so converted for any
particular date divided by (ii) the applicable Conversion Price (as
-------
defined below, proportionately adjusted in the event that from time to time
following the date of determination thereof there occurs any stock
dividend, stock split, reverse stock split, recapitalization, or other
similar event affecting the Borrower's Series B Stock); and
(B) following a Qualified Public Offering, the Borrower shall issue
that number of shares of its common stock, $0.01 par value per share (the
"Common Stock"), equal to the quotient of (i) the aggregate amount of
------------
principal and interest to be so converted for any particular date divided
-------
by (ii) the applicable Conversion Price (as defined below, proportionately
adjusted in the event that from time to time following the date of
determination thereof there occurs any stock dividend, stock split, reverse
stock split, recapitalization, or other similar event affecting the
Borrower's Common Stock).
A "Qualified Public Offering" shall mean a transaction which triggers the
-------------------------
mandatory conversion into Common Stock of the Series B Stock pursuant to the
terms of Section 5(b) of the Certificate of Designation of the Series B Stock.
The "Conversion Price" applicable to the conversion of the principal amount
----------------
of advances made, and interest accrued, during any particular fiscal quarter
shall be determined as of the Fiscal Quarter End for that particular fiscal
quarter by dividing (i) the total enterprise valuation of the Borrower (as
determined by the Board of Directors of the Borrower in good faith and in a
manner satisfactory to the Lender in all respects) as of the Fiscal Quarter End
for that particular fiscal quarter by (ii) the number of shares of the
Borrower's Common Stock outstanding at such Fiscal Quarter End determined on a
fully-diluted, as-if-converted basis (and assuming the conversion of all
convertible securities, the grant of all options available under any option
plans and the exercise of all options, whether vested and unvested, warrants and
other rights to acquire equity interests in the Borrower of any nature
whatsoever). It is expressly contemplated that advances made, and interest
accrued, during each fiscal quarter will have a different applicable Conversion
Price depending upon the total enterprise valuation and number of shares of
Common Stock deemed outstanding as of the Fiscal Quarter End for that particular
fiscal quarter. Notwithstanding the foregoing, (i) the Conversion Price
applicable to the principal amount of advances made, and interest accrued,
during the fiscal quarter in which a Qualified Public Offering occurs shall be
equal to the price per share of Common Stock to the public in such offering and
(ii) the Conversion Price applicable to the principal amount of any advances
made, and interest accrued, during a fiscal quarter if the Lender elects to
convert such advances and/or interest prior to the Fiscal Quarter End of such
fiscal quarter shall be the Conversion Price in effect for the immediately
preceding fiscal quarter.
This Note may be voluntarily prepaid in whole or in part at any time
without premium or penalty upon thirty (30) days' written notice to the Lender.
Any such prepayment shall be applied to advances and compounded interest in
inverse order of incurrence.
<PAGE>
If any payment of principal or interest hereon shall become due on a day
which is not a day on which banks are open for normal business hours in Andover
or Boston, Massachusetts, such payment shall be made on the next succeeding
business day and such extension of time shall in such case be included in
computing interest in connection with such payment.
Payments of both principal and interest hereon shall be made in immediately
available funds at the office of the Lender at Andover, Massachusetts or at such
other place as the Lender shall designate to the Borrower in writing, in lawful
money of the United States of America.
This Note is secured by certain assets of the Borrower pursuant to a
certain Security Agreement and a certain Intellectual Property Security
Agreement, each dated as of the date hereof (the "Security Agreements") between
-------------------
the Borrower and the Lender. The rights of the Lender under the Security
Agreements are in addition to any other rights and remedies (including other
rights of setoff) which the Lender may have. The Lender shall be permitted to
exercise its rights as a secured party under the Security Agreements to the
extent permitted by applicable law.
Except to the extent otherwise required by the context of this Note, the
word "Lender" wherever used herein shall mean and include the holder of this
Note originally issued to CMGI, Inc.
This Note for all purposes shall be governed by and construed in accordance
with the laws of the Commonwealth of Massachusetts without regard to its
conflicts of law rules. The Borrower waives presentment, demand, notice, protest
and all other demands and notices in connection with the delivery, acceptance,
performance, default and enforcement of this Note. The Borrower hereby
irrevocably and unconditionally submits, for itself and its property, to the
non-exclusive jurisdiction of the courts of the Commonwealth of Massachusetts
and of the United States District Court for the District of Massachusetts, and
any appellate court of such courts, in any action or proceeding arising out of
or relating to this Note or the Security Agreements, or for recognition or
enforcement of any judgment, and the Borrower hereby irrevocably and
unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in such Massachusetts court (or, to the
extent permitted by law, in such federal court). The Borrower agrees that a
final judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. Nothing in this Note shall affect any right that the Lender may
otherwise have to bring any action or proceeding relating to this Note against
the Borrower or its properties in the courts of any jurisdiction.
THE LENDER AND THE BORROWER AGREE THAT NEITHER OF THEM NOR ANY ASSIGNEE OR
SUCCESSOR SHALL (A) SEEK A JURY TRIAL IN ANY LAWSUIT, PROCEEDING, COUNTERCLAIM
OR ANY OTHER ACTION BASED UPON, OR ARISING OUT OF, THIS NOTE, ANY RELATED
INSTRUMENTS, ANY COLLATERAL OR THE DEALINGS OR THE RELATIONSHIP BETWEEN OR AMONG
ANY OF THEM, OR (B) SEEK TO CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION IN
WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. THE PROVISIONS OF THIS
<PAGE>
PARAGRAPH HAVE BEEN FULLY DISCUSSED BY THE LENDER AND THE BORROWER, AND THESE
PROVISIONS SHALL BE SUBJECT TO NO EXCEPTIONS. NEITHER THE LENDER NOR THE
BORROWER HAS AGREED WITH OR REPRESENTED TO THE OTHER THAT THE PROVISIONS OF THIS
PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL INSTANCES.
If any provision of this Note shall be held invalid or unenforceable by any
court of competent jurisdiction, that holding shall not invalidate or render
unenforceable any other provision hereof.
<PAGE>
Executed and delivered as a sealed instrument in Andover, Massachusetts as
of the date first above written.
NAVISITE, INC.
By: /s/ Joel B. Rosen
-----------------------------------------
Name: Joel B. Rosen
Title: Chief Executive Officer
<PAGE>
SCHEDULE I
ACTIVITY PURSUANT TO
SECURED CONVERTIBLE DEMAND NOTE
OF
NAVISITE, INC.
Dated: May 1, 1999
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
DATE PRINCIPAL PAYMENT APPLICABLE NEW
AMOUNT OF RECEIVED OR CONVERSION PRINCIPAL
ADVANCE INDEBTEDNESS PRICE BALANCE
CONVERTED
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
</TABLE>
<PAGE>
EXHIBIT A
---------
Notice of Election to Convert
TO: NAVISITE, INC.
Reference is made to the Secured Convertible Demand Note of NaviSite, Inc.
dated May 1, 1999 (the "Note"). Capitalized terms used herein and not defined
herein shall have the meanings given them in the Note. In accordance with the
terms of the Note, the undersigned hereby elects to convert the following
indebtedness into shares of Series B Stock or Common Stock, as the case may be:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Number of Shares of
Date of Advance or Amount of Series B Stock (or
Capitalization of Indebtedness to be Applicable Common Stock) to be
Interest Converted Conversion Price Issued
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
____________________________________________________________________________________
____________________________________________________________________________________
____________________________________________________________________________________
____________________________________________________________________________________
____________________________________________________________________________________
____________________________________________________________________________________
</TABLE>
Please issue a certificate or certificates representing said shares of
Series B Stock or Common Stock, as the case may be, in the name of the
undersigned or in such other name as is specified below:
____________________________________________
(Name)
____________________________________________
(Address)
____________________________________________
CMGI, INC.
By:_________________________________________
Name:
Title:
<PAGE>
Exhibit 10.15
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INTELLECTUAL PROPERTY SECURITY AGREEMENT
BETWEEN
NAVISITE, INC.
AND
CMGI, INC.
------------------------------------------------
Dated as of May 1, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Title
-----
Section Page
- ------- ----
Recitals..................................................................... 1
Agreement.................................................................... 1
Section 1. Pledge........................................................... 1
Section 2. Secured Obligations.............................................. 3
Section 3. No Release....................................................... 3
Section 4. Supplements; Further Assurances.................................. 3
Section 5. Representations and Warranties of Pledgor........................ 4
Section 6. Covenants........................................................ 5
Section 7. Transfers and Other Liens........................................ 8
Section 8. Remedies upon Default............................................ 8
Section 9. Application of Proceeds.......................................... 9
Section 10. Expenses........................................................ 9
Section 11. No Waiver; Cumulative Remedies.................................. 10
Section 12. The Lender May Perform; the Lender Appointed Attorney-in-Fact... 10
Section 13. Indemnity....................................................... 10
Section 14. Litigation...................................................... 12
Section 15. Modifications in Writing........................................ 12
Section 16. Termination; Release............................................ 12
<PAGE>
Section 17. Reinstatement................................................... 13
Section 18. Notes........................................................... 13
Section 20. Continuing Security Interest; Assignment........................ 13
Section 21. Governing Law; Terms............................................ 13
Section 22. Consent To Jurisdiction and Service of Process.................. 14
Section 23. Severability of Provisions...................................... 14
Section 24. Execution in Counterparts....................................... 14
Section 25. Headings........................................................ 15
Section 26. Obligations Absolute............................................ 15
Section 27. Waiver of Single Action......................................... 15
Section 28. Future Advances................................................. 16
SCHEDULES
Schedule A Patents
Schedule B Trademarks & Service Marks
Schedule C Copyrights
Schedule D Liens
Schedule E Required Consents & Licenses
Schedule F Claims, Litigation, Etc.
<PAGE>
INTELLECTUAL PROPERTY SECURITY AGREEMENT
Dated as of May 1, 1999
This INTELLECTUAL PROPERTY SECURITY AGREEMENT (this "Agreement"), is
---------
made as of May 1, 1999, by and between NAVISITE, INC. a Delaware corporation
having its principal place of business at One Hundred Brickstone Square,
Andover, Massachusetts 01810 ("Pledgor"), in favor of CMGI, INC., having an
-------
office at One Hundred Brickstone Square, Andover, Massachusetts 01810 (the
"Lender").
------
RECITALS
--------
A. The Lender has agreed to make certain advances (the "Loans") to the
-----
Pledgor, which advances shall be evidenced by a Secured Convertible Demand Note
dated as of May 1, 1999 (the "Convertible Note") and a Secured Demand Note dated
----------------
May 1, 1999 (the "Demand Note," and, together with the Convertible Note, the
-----------
"Notes").
-----
B. Pledgor is the owner of the Pledged Collateral (as defined below)
C. It is a condition precedent to the Lender's willingness to make the
Loans that Pledgor shall execute and deliver, among other agreements, this
Agreement.
D. This Agreement is given by Pledgor in favor of the Lender to secure the
payment and performance of all of the Secured Obligations (as defined below).
E. This Agreement, the Notes, the Security Agreement between the Lender and
the Pledgor of even date herewith, and all documents executed in connection with
any of the foregoing are collectively referred to herein as the "Loan
----
Documents."
- ---------
AGREEMENT
---------
NOW, THEREFORE, in consideration of the foregoing premises and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Pledgor and the Lender hereby agree as follows:
Section 1. Pledge. Pledgor hereby pledges and grants to the Lender a
------
continuing first priority security interest in all of Pledgor's right, title and
interest, whether now existing or hereafter
1
<PAGE>
acquired, in and to the following property (collectively, the "Pledged
-------
Collateral") to secure all of the Secured Obligations:
- ----------
(a) Patents issued or assigned to and all patent applications made by
Pledgor and all exclusive licenses to Pledgor from third parties or other rights
to use patents owned by such third parties, including, without limitation, the
patents, patent applications and exclusive licenses listed on Schedule A hereto,
----------
along with any and all (1) inventions and improvements described and claimed
therein, (2) reissues, divisions, continuations, extensions and
continuations-in-part thereof, (3) income, royalties, damages, claims and
payments now and hereafter due and/or payable under and with respect thereto,
including, without limitation, damages and payments for past, present or future
infringements thereof, (4) rights to sue for past, present and future
infringements thereof, and (5) any other rights corresponding thereto throughout
the world (collectively, "Patents");
-------
(b) Trademarks (including service marks), federal and state trademark
registrations and applications made by Pledgor (excluding Federal Intent To Use
Applications), common law trademarks and trade names owned by or assigned to
Pledgor, all registrations and applications for the foregoing and all exclusive
licenses from third parties of the right to use trademarks of such third
parties, including, without limitation, the registrations, applications and
exclusive licenses listed on Schedule B hereto, along with any and all (1)
----------
renewals thereof, (2) income, royalties, damages and payments now and hereafter
due and/or payable with respect thereto, including, without limitation, damages,
claims and payments for past or future infringements thereof, (3) rights to sue
for past, present and future infringements thereof, and (4) and any other rights
corresponding thereto throughout the world (collectively, "Trademarks");
----------
(c) Copyrights, registered or unregistered, owned by or assigned to
Pledgor, and all exclusive licenses to Pledgor from third parties to use
copyrights owned by such third parties, including, without limitation, the
registrations, applications and exclusive licenses listed on Schedule C hereto,
----------
along with any and all (1) renewals and extensions thereof, (2) income,
royalties, damages, claims and payments now and hereafter due and/or payable
with respect thereto, including, without limitation, damages and payments for
past, present or future infringements thereof, (3) rights to sue for past,
present and future infringements thereof, and (4) and any other rights
corresponding thereto throughout the world (collectively, "Copyrights");
----------
(d) The entire goodwill of Pledgor's business and other general intangibles
(including know-how, trade secrets, customer lists, proprietary information,
inventions, methods, procedures and formulae) connected with the use of and
symbolized by Trademarks of Pledgor; and
(e) All Proceeds (as defined under the Uniform Commercial Code as in effect
in any relevant jurisdiction (the "UCC") or other relevant law) of any of the
---
foregoing, and in any event including, without limitation, any and all (1)
proceeds of any insurance, indemnity, warranty or guaranty payable to the Lender
or to Pledgor from time to time with respect to any of the Pledged Collateral,
(2) payments (in any form whatsoever) made or due and payable to Pledgor from
time to time in connection with any requisition, confiscation, condemnation,
seizure or forfeiture of all
2
<PAGE>
or any part of the Pledged Collateral by any governmental authority (or any
person acting on behalf of a governmental authority), (3) instruments
representing amounts receivable in respect of any Patents, Trademarks or
Copyrights, (4) products of the Pledged Collateral and (5) other amounts from
time to time paid or payable under or in connection with any of the Pledged
Collateral. Notwithstanding the foregoing, "Pledged Collateral" shall not
include any rights of Pledgor under any contract, agreement, license or
instrument to the extent that such contract, agreement, license or instrument
prohibits the assignment thereof or grant of a lien therein.
Section 2. Secured Obligations. The security interest hereby granted shall
-------------------
secure the due and punctual payment and performance of the following liabilities
and obligations of the Pledgor (herein called the "Secured Obligations"):
-------------------
(1) Principal of and premium, if any, and interest on the Loans;
(2) Any and all obligations of the Pledgor under the Notes; and
(3) Any and all other obligations of the Pledgor to the Lender,
whether direct or indirect, absolute or contingent, due or to become due or
now existing or hereafter arising, including, without limitation, any and
all other fees, premiums, penalties or other indebtedness of the Pledgor to
the Lender.
Section 3. No Release. Nothing set forth in this Agreement shall relieve
----------
Pledgor from the performance of any term, covenant, condition or agreement on
Pledgor's part to be performed or observed under or in respect of any of the
Pledged Collateral or from any liability to any person or entity (each a
"Person") under or in respect of any of the Pledged Collateral or impose any
------
obligation on the Lender to perform or observe any such term, covenant,
condition or agreement on Pledgor's part to be so performed or observed or
impose any liability on the Lender for any act or omission on the part of
Pledgor relating thereto or for any breach of any representation or warranty on
the part of Pledgor contained in this Agreement or any other Loan Document or
under or in respect of the Pledged Collateral or made in connection herewith or
therewith. The obligations of Pledgor contained in this Section 3 shall survive
the termination of this Agreement and the discharge of Pledgor's other
obligations hereunder and under the other Loan Documents.
Section 4. Supplements; Further Assurances. Pledgor (1) agrees that it will
-------------------------------
join with the Lender in executing and, at its own expense, will file and refile,
or permit the Lender to file and refile, such financing statements, continuation
statements and other documents (including, without limitation, this Agreement
and exclusive licenses to use software and other property protected by
copyright), in such offices (including, without limitation, the United States
Patent and Trademark Office, appropriate state trademark offices and the United
States Copyright Office), as the Lender may reasonably deem necessary or
appropriate, wherever required or permitted by law in order to perfect and
preserve the rights and interests granted to the Lender hereunder, and (2)
hereby authorizes the Lender to file financing statements and amendments,
relative to all or any part of the Pledged Collateral, without the signature of
Pledgor where permitted by law and agrees to do such
3
<PAGE>
further acts and things, and to execute and deliver to the Lender such
additional assignments, agreements, powers and instruments, as the Lender may
reasonably require to carry into effect the purposes of this Agreement or better
to assure and confirm unto the Lender its respective rights, powers and remedies
hereunder. Pledgor shall, upon the reasonable request of the Lender, and hereby
authorizes the Lender to, take any and all such actions as may be deemed
advisable by the Lender to perfect and preserve the rights and interests granted
to the Lender with respect to the Pledged Collateral wherever located. All of
the foregoing shall be at the sole cost and expense of Pledgor.
Section 5. Representations and Warranties of Pledgor. Pledgor hereby
-----------------------------------------
represents and warrants to the Secured Parties as follows:
(a) Pledgor is, and, as to Pledged Collateral acquired by it from time to
time after the date hereof, Pledgor will be, the sole and exclusive owner
or, as applicable, licensee of all Pledged Collateral, subject to Section
7. The pledge and security interest created by this Agreement shall not at
any time be subject to any prior lien, pledge, security interest,
encumbrance, assignment, collateral assignment or charge of any kind,
including, without limitation, any filing or agreement to file a financing
statement as debtor under the UCC or any similar statute or any
subordination arrangement in favor of any party other than Pledgor
(collectively, "Liens"). Pledgor further represents and warrants to the
-----
Lender that Schedules A, B and C hereto, respectively, are true, correct
--------------------
and complete lists as of the date hereof of all Patents, registered
Trademarks and Trademark applications and registered Copyrights and
Copyright applications owned by Pledgor and that Schedules D, E and F
--------------------
hereto are true and correct with respect to the matters set forth therein
as of the date hereof.
(b) Pledgor has full corporate power, authority and legal right to pledge
and grant a security interest in the Pledged Collateral in accordance with
the terms of this Agreement and this Agreement has been duly and validly
executed and delivered by Pledgor, constitutes the legal, valid and binding
obligation of Pledgor, enforceable against Pledgor in accordance with its
terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium or other laws affecting creditors' rights generally and subject
to general principles of equity, regardless of whether considered in a
proceeding in equity or at law.
(c) Except as set forth on Schedule E hereto and except for filings with
----------
the Patent and Trademark Office, under the UCC and under applicable foreign
law, no authorization, consent, approval, license, qualification or formal
exemption from, nor any filing, declaration or registration with, any court
(other than in connection with the exercise of judicial remedies),
governmental agency or regulatory authority, or with any securities
exchange or any other Person is required in connection with (1) the pledge
by Pledgor of the Pledged Collateral pursuant to this Agreement, or the
execution, delivery or performance by Pledgor of this Agreement, (2) the
grant of a security interest (including the priority thereof when the
appropriate filings have been made and accepted) in, the Pledged Collateral
by Pledgor in the manner and for the purpose contemplated by this Agreement
or (3) the exercise of the
4
<PAGE>
rights and remedies of the Lender created hereby.
(d) Pledgor has made and will continue to make all necessary filings and
recordations from time to time and use appropriate statutory notice to
protect its interests in the Pledged Collateral, including, without
limitation, appropriate recordations of its interests in the Patents and
Trademarks in the United States Patent and Trademark Office and in
corresponding offices wherever it does business using such Patents and
Trademarks throughout the world and its claims to Copyrights in the United
States Copyright Office, in each case including exclusive licenses and as
otherwise requested from time to time by the Lender, but in any event all
in a manner consistent with prudent and commercially reasonable business
practices.
(e) Pledgor owns or has rights to use all the Pledged Collateral and all
rights with respect to any of the foregoing used in, necessary for or
material to Pledgor's business as currently conducted and as contemplated
to be conducted pursuant to the Loan Documents. To Pledgor's best
knowledge, the use of such Pledged Collateral by Pledgor does not infringe
on the rights of any Person and, except as set forth on Schedule F attached
hereto, no material claim has been made and remains outstanding that
Pledgor's use of the Pledged Collateral does or may violate the rights of
any third person.
(f) Upon filings and the acceptance thereof in the appropriate offices
under the UCC and in the United States Patent and Trademark Office and the
United States Copyright Office, this Agreement will create a valid and duly
perfected first priority lien and security interest in the United States in
the Pledged Collateral, subject to no Liens.
Section 6. Covenants. (a) On a continuing basis, Pledgor will, at the
---------
expense of Pledgor, subject to any prior licenses, Liens and restrictions, make,
execute, acknowledge and deliver, and file and record in the proper filing and
recording offices, all such instruments or documents, including, without
limitation, appropriate financing and continuation statements, exclusive
licenses and collateral agreements, and take all such action (limited, as
aforesaid, if applicable) as may reasonably be deemed necessary or appropriate
by the Lender (i) to carry out the intent and purposes of this Agreement, (ii)
to assure and confirm to the Lender the grant or perfection of a security
interest in the Pledged Collateral for the benefit of the Lender, and (iii)
during the continuation of an Event of Default, to enable the Lender to exercise
and enforce their rights and remedies hereunder with respect to any Pledged
Collateral. Without limiting the generality of the foregoing, Pledgor:
(A) will not enter into any agreement that would impair or
conflict with Pledgor's obligations hereunder;
(B) will, from time to time, upon the Lender's request, cause
its books and records to be marked with such legends or segregated in such
manner as the Lender may specify and take or cause to be taken such other action
and adopt such procedures as the Lender may specify to give notice or to perfect
the security interest in the Pledged Collateral intended to be conveyed
5
<PAGE>
hereby;
(C) will, promptly following its becoming aware thereof, notify the Lender
of
(i) any materially adverse determination in any proceeding in the
United States Patent and Trademark Office or United States Copyright Office with
respect to any Patent, Trademark or Copyright material to Pledgor's business; or
(ii) any written claim received, the institution of any proceeding or
any materially adverse determination in any federal, state, local or foreign
court or administrative bodies (other than the U.S. Patent and Trademark Office
or the U.S. Copyright Office) regarding Pledgor's claim of ownership in or right
to use any of the Pledged Collateral, its right to register the Pledged
Collateral, or its right to keep and maintain such registration in full force
and effect;
(D) will properly maintain and protect the Pledged Collateral to the extent
necessary or appropriate for the conduct of Pledgor's business (as presently
conducted and as contemplated by the Loan Documents) and consistent with
Pledgor's current practice in accordance with applicable statutory requirements;
(E) will not grant or permit to exist any Lien upon or with respect to the
Pledged Collateral or any portion thereof except Liens in favor of the Lender
for itself and the Lender or as permitted under this Agreement and Liens
permitted by Section 7 hereof, and will not execute any security agreement or
financing statement covering any of the Pledged Collateral except in the name of
the Lender for itself and the Secured Parties or as permitted under this
Agreement;
(F) except in accordance with prudent and commercially reasonable business
practices, will not permit to lapse or become abandoned, settle or compromise
any pending or future litigation or administrative proceeding with respect to
the Pledged Collateral without the consent of the Lender, or contract for sale
or otherwise dispose of the Pledged Collateral or any portion thereof except
pursuant to Section 7 hereof;
(G) upon Pledgor obtaining knowledge thereof, will promptly notify the
Lender in writing of any event which may reasonably be expected to materially
adversely affect the value of the Pledged Collateral or any portion thereof, the
ability of Pledgor or the Lender to dispose of the Pledged Collateral or any
portion thereof or the rights and remedies of the Lender in relation thereto
including, without limitation, a levy or threat of levy or any legal process
against the Pledged Collateral or any portion thereof;
(H) until the Lender exercises its rights to make collection, will
diligently keep commercially reasonable records respecting the Pledged
Collateral;
(I) subject to the first sentence of this Section 6(a), hereby authorizes
the Lender, in its sole discretion, to file one or more financing or
continuation statements and amendments
6
<PAGE>
thereto, relative to all or any part of the Pledged Collateral without the
signature of Pledgor where permitted by law;
(J) will furnish to the Lender from time to time statements and amended
schedules further identifying and describing the Pledged Collateral and such
other materials evidencing or reports pertaining to the Pledged Collateral as
the Lender may from time to time reasonably request, all in reasonable detail;
(K) will pay when due any and all taxes, levies, maintenance fees, charges,
assessments, licenses fees and similar taxes or impositions payable in respect
of the Pledged Collateral, that, if not paid, could result in a material adverse
effect, before the same shall become delinquent or in default, except where (a)
the validity or amount thereof is being contested in good faith by appropriate
proceedings, (b) Pledgor has set aside on its books adequate reserves with
respect thereto in accordance with GAAP and (c) the failure to make payment
pending such contest could not reasonably be expected to result in a material
adverse effect;
(L) will comply in all material respects with all laws, rules and
regulations applicable to the Pledged Collateral; and
(M) will deposit with the Lender, at such times as the Lender shall
reasonably request, copies of all source code of all software owned by Pledgor
as the Lender shall request which is material to the operation of Pledgor's
business and such source code copy shall be of the most current version of all
software and shall include all modifications and enhancements thereto and shall
be annotated so as to be easily understood by a software technician of
reasonable proficiency.
(b) If, before the Secured Obligations shall have been paid and satisfied
in full in cash or cash equivalents, Pledgor shall, (1) obtain any rights to any
additional Pledged Collateral or (2) become entitled to the benefit of any
additional Pledged Collateral or any renewal or extension thereof, including any
reissue, division, continuation, or continuation-in-part of any Patent, or any
improvement on any Patent, the provisions of this Agreement shall automatically
apply thereto and any item enumerated in clause 6(b)(1) or clause 6(b)(2) with
respect to Pledgor shall automatically constitute Pledged Collateral if such
would have constituted Pledged Collateral at the time of execution of this
Agreement, and be subject to the Lien and security interest created by this
Agreement without further action by any party. Pledgor shall, at least once in
each calendar quarter, provide to the Lender written notice of any of the
foregoing. In addition, Pledgor shall, at least once in each calendar quarter,
provide written notice to the Lender of all applications for Patents and all
applications for registration of Trademarks or Copyrights made during the
preceding calendar quarter. Pledgor agrees, promptly following the written
request by the Lender, to confirm the attachment of the lien and security
interest created by this Agreement to any rights described in clause 6(b)(1) or
clause 6(b)(2) above if such would have constituted Pledged Collateral at the
time of execution of this Agreement by execution of an instrument in form
acceptable to the Lender.
(c) Pledgor authorizes the Lender to modify this Agreement by amending
Schedules
7
<PAGE>
A, B and/or C annexed hereto to include any future Pledged Collateral of
- -------------
Pledgor, including, without limitations any of the items listed in Section 6(b).
(d) Pledgor shall file and prosecute diligently all applications
for Patents, Trademarks or Copyrights now or hereafter pending that would be
useful or beneficial to the businesses of Pledgor to which any such applications
pertain, and to do all acts necessary to preserve and maintain all rights in the
Pledged Collateral unless such Pledged Collateral has become obsolete to
Pledgor's business or otherwise does not merit prosecution, as reasonably
determined by Pledgor consistent with prudent and commercially reasonable
business practices. Any and all costs and expenses incurred in connection with
any such actions shall be borne by Pledgor. Except in accordance with prudent
and commercially reasonable business practices, Pledgor shall not abandon any
right to file a Patent, Trademark or Copyright application or any pending
Patent, Trademark or Copyright application or any Patent, Trademark or Copyright
without the consent of the Lender.
Section 7. Transfers and Other Liens. Pledgor will not (a) sell, convey,
-------------------------
assign or otherwise dispose of, or grant any option with respect to, any of the
Pledged Collateral except for licensing in the ordinary course of business or
(b) create or permit to exist any Lien upon or with respect to any of the
Pledged Collateral, except for Liens for taxes, assessments or government
charges or claims the payment of which is not at the time required and inchoate
Liens imposed by law (each of which shall, except to the extent otherwise
required by law, be subordinate to the lien created by this Agreement) and the
lien granted to the Lender under this Agreement.
Section 8. Remedies upon Default.
---------------------
(a) If any Event of Default shall have occurred and be continuing, the
Lender may to the full extent permitted by law (1) exercise any and all rights
as beneficial and legal owner of the Pledged Collateral, including, without
limitation, perfecting assignment of any and all contractual rights and powers
with respect to the Pledged Collateral and (2) sell or assign or grant a license
to use, or cause to be sold, assigned or licensed any or all of the Pledged
Collateral (in the case of Trademarks, along with the goodwill associated
therewith) or any part thereof, in each case, free of all rights and claims of
Pledgor therein and thereto. In accordance with such rights, the Lender shall
have (A) the right to cause any or all of the Pledged Collateral to be
transferred of record into the name of the Lender or its nominee and (B) the
right to impose (i) such limitations and restrictions on the sale or assignment
of the Pledged Collateral as the Secured Parties may deem to be necessary or
appropriate to comply with any law, rule or regulation (federal, state or local)
having applicability to the sale or assignment, and (ii) any necessary or
appropriate requirements for any required governmental approvals or consents.
(b) Except as provided in this Section 8 and other express notice
provisions of the Loan Documents, Pledgor hereby expressly waives, to the
fullest extent permitted by applicable law, any and all notices, advertisements,
hearings or process of law in connection with the exercise by the Secured
Parties of any of their rights and remedies hereunder.
8
<PAGE>
(c) Pledgor agrees that, to the extent notice of sale shall be required by
law, ten (10) days' notice from the Lender of the time and place of any public
sale or of the time after which a private sale or other intended disposition is
to take place shall be commercially reasonable notification of such matters. In
addition to the rights and remedies provided in this Agreement and in the other
Loan Documents, the Secured Parties shall have all the rights and remedies of a
secured party under the UCC.
(d) Except as otherwise provided herein, Pledgor hereby waives, to the
fullest extent permitted by applicable law, notice or judicial hearing in
connection with the Lender's taking possession or the Lender's disposition of
any of the Pledged Collateral, including, without limitation, any and all prior
notice and rights to a hearing for any prejudgment remedy or remedies and any
such right which Pledgor would otherwise have under law, and Pledgor hereby
further waives to the extent permitted by applicable law: (1) all damages
occasioned by any such taking of possession; (2) all other requirements as to
the time, place and terms of sale or other requirements with respect to the
enforcement of the Secured Parties' rights hereunder; and (3) all rights of
redemption, appraisal, valuation, stay, extension or moratorium now or hereafter
in force under any applicable law. Any sale of, or the grant of options to
purchase, or any other realization upon, any Pledged Collateral shall operate to
divest all right, title, interest, claim and demand, either at law or in equity,
of Pledgor therein and thereto, and shall be a perpetual bar both at law and in
equity against Pledgor and against any and all Persons claiming or attempting to
claim the Pledged Collateral so sold, optioned or realized upon, or any part
thereof, from, through or under Pledgor.
Section 9. Application of Proceeds. The proceeds of any Pledged Collateral
-----------------------
obtained pursuant to the exercise of any remedy set forth in Section 8 shall be
applied, together with any other sums then held by the Lender pursuant to this
Agreement, promptly by the Lender:
First, to the payment of all costs and expenses, fees, commissions and
-----
taxes of such sale, collection or other realization, including, without
limitation, reasonable reimbursement to the Lender, and its agents and
counsel for all expenses, fees, liabilities and advances made or incurred
by them in connection therewith and all expenses, liabilities and advances
made or incurred by the Lender in connection therewith, together with
interest on each such amount at the rate then in effect under the Notes;
Second, to the payment of all other costs and expenses of such sale,
------
collection or other realization, including, without limitation, reasonable
reimbursement to the Lender and its agents and counsel for all expenses,
fees, liabilities and advances made or incurred by them in connection
therewith and all costs, liabilities and indebtedness made or incurred by
the Lender in connection therewith together with interest on each such
amount at the highest rate then in effect under the Notes;
Third, to the indefeasible payment in full in cash of the Secured
-----
Obligations, ratably according to the unpaid amounts thereof, without
preference or priority of any kind among amounts so due and payable; and
9
<PAGE>
Fourth, to Pledgor, or its successors or assigns, or to
------
whomsoever may be lawfully entitled to receive the same or as a court
of competent jurisdiction may direct, of any surplus then remaining
from such Proceeds.
Section 10. Expenses. Pledgor will pay on demand all expenses of the Lender
--------
and the Secured Parties in connection with the preparation, waiver or amendment
of this Agreement or other Loan Documents executed in connection therewith, or
the administration, default or collection of the Loans or administration,
default, collection in connection with the Lender's exercise, preservation or
enforcement of any of its rights, remedies or options thereunder, including,
without limitation, reasonable fees and disbursements of outside legal counsel
or accounting, consulting, brokerage or other similar professional fees or
expenses, and any fees or expenses associated with any travel or other costs
relating to any appraisals or examinations conducted in connection with the
Secured Obligations or any Collateral therefor, and the amount of all such
expenses shall, until paid, bear interest at the rate applicable to principal
hereunder (including any default rate).
Section 11. No Waiver; Cumulative Remedies. (a) No failure on the part of
------------------------------
the Lender or the Secured Parties to exercise, no course of dealing with respect
to, and no delay on the part of the Lender in exercising, any right, power or
remedy hereunder shall operate as a waiver thereof; nor shall any single or
partial exercise of any such right, power or remedy hereunder preclude any other
or further exercise thereof or the exercise of any other right, power or remedy.
The remedies herein provided are cumulative and are not exclusive of any
remedies provided by law.
(b) In the event the Lender shall have instituted any proceeding to enforce
any right, power or remedy under this instrument by foreclosure, sale, entry or
otherwise, and such proceeding shall have been discontinued or abandoned for any
reason or shall have been determined adversely to the Lender, then and in every
such case, Pledgor and the Lender shall, to the extent permitted by applicable
law, be restored to their respective former positions and rights hereunder with
respect to the Pledged Collateral, and all rights, remedies and powers of the
Lender shall continue as if no such proceeding had been instituted.
Section 12. The Lender May Perform; the Lender Appointed Attorney-in-Fact.
-------------------------------------------------------------
If Pledgor shall fail to do any act or thing that it has covenanted to do
hereunder or any warranty on the part of Pledgor contained herein shall be
breached, the Lender may (but shall not be obligated to) do the same or cause it
to be done or remedy any such breach, and may expend funds for such purpose. Any
and all amounts so expended by the Lender shall be paid by Pledgor promptly upon
demand therefor, with interest at the highest rate then in effect under the
Notes during the period from and including the date on which such funds were so
expended to the date of repayment. Pledgor's obligations under this Section 12
shall survive the termination of this Agreement and the discharge of Pledgor's
other obligations hereunder. Pledgor hereby appoints the Lender its attorney-in-
fact with an interest, with full authority in the place and stead of Pledgor and
in the name of Pledgor, or otherwise, from time to time in the Lender's
reasonable discretion to take any action and to execute any instruments
consistent with the terms of this Agreement and the other Loan Documents which
the Lender may deem necessary or advisable to accomplish the purposes of this
Agreement. The
10
<PAGE>
foregoing grant of authority is a power of attorney coupled with an interest and
such appointment shall be irrevocable for the term of this Agreement. Pledgor
hereby ratifies all that such attorney shall lawfully do or cause to be done by
virtue hereof.
Section 13. Indemnity.
---------
(a) Indemnity. Pledgor agrees to indemnify, reimburse and hold the Lender
---------
and its successors, assigns, employees, agents and servants (collectively,
"Indemnitees") harmless from and against any and all liabilities, obligations,
damages, injuries, penalties, claims, demands, actions, suits, judgments and any
and all costs and expenses (including, without limitation, attorneys' fees and
expenses and the allocated costs of internal counsel) of whatsoever kind and
nature imposed on, asserted against or incurred by any of the Indemnitees in any
way relating to or arising out of this Agreement or the other Loan Documents or
in any other way connected with the administration of the transactions
contemplated hereby or the enforcement of any of the terms hereof, or the
preservation of any rights hereunder, or in any way relating to or arising out
of the manufacture, processing, ownership, ordering, purchase, delivery,
control, acceptance, lease, financing, possession, operation, condition, sale,
return or other disposition, or use of the Pledged Collateral (including,
without limitation, latent or other defects, whether or not discoverable, any
claim for patent, trademark, trade secret or copyright infringement), the
violation of the laws of any country, state or other governmental body or unit,
any tort (including, without limitation, claims arising or imposed under the
doctrine of strict liability, or for or on account of injury to or the death of
any Person (including any Indemnitee)), or property damage, or contract claim;
provided that Pledgor shall have no obligation to an Indemnitee hereunder to the
extent it is finally judicially determined that such indemnified liabilities
arise solely from the gross negligence or willful misconduct of that Indemnitee.
Upon written notice by any Indemnitee of the assertion of such a liability,
obligation, damage, injury, penalty, claim, demand, action, judgment or suit,
Pledgor shall assume full responsibility for the defense thereof. If any action,
suit or proceeding arising from any of the foregoing is brought against any
Indemnitee, Pledgor shall, if requested by such Indemnitee, resist and defend
such action, suit or proceeding or cause the same to be resisted and defended by
counsel reasonably satisfactory to such Indemnitee. Each Indemnitee shall,
unless any other Indemnitee has made the request described in the preceding
sentence and such request has been complied with, have the right to employ its
own counsel (or internal counsel) to investigate and control the defense of any
matter covered by the indemnity set forth in this Section 13 and the fees and
expenses of such counsel shall be paid by Pledgor; provided that, only to the
extent that no conflict exists between or among the Indemnitees as reasonably
determined by the Indemnitees, Pledgor shall not be obligated to pay the fees
and expenses of more than one counsel for all Indemnitees as a group with
respect to any such matter, action, suit or proceeding.
(b) Misrepresentations. Without limiting the application of subsection
------------------
13(a), Pledgor agrees to pay, indemnify and hold each Indemnitee harmless from
and against any loss, costs, damages and expenses which such Indemnitee may
suffer, expend or incur in consequence of or growing out of any
misrepresentation by Pledgor in this Agreement or any of the other Loan
Documents or in any statement or writing contemplated by or made or delivered
pursuant to or in
11
<PAGE>
connection with this Agreement or any of the other Loan Documents.
(c) Contribution. If and to the extent that the obligations of Pledgor
------------
under this Section 13 are unenforceable for any reason, Pledgor hereby agrees to
make the maximum contribution to the payment and satisfaction of such
obligations that is permissible under applicable law.
(d) Survival. The obligations of Pledgor contained in this Section 13 shall
--------
survive the termination of this Agreement and the discharge of Pledgor's other
obligations hereunder and under the other Loan Documents.
(e) Reimbursement. Any amounts paid by any Indemnitee as to which such
-------------
Indemnitee has the right to reimbursement shall constitute Secured Obligations
secured by the Pledged Collateral.
Section 14. Litigation.
----------
(a) Pledgor shall have the right to commence and prosecute in its own name,
as real party in interest, for its own benefit and at its own expense, such
applications for protection of Pledged Collateral, suits, proceedings or other
actions for infringement, counterfeiting, unfair competition, dilution or other
damage as are in its reasonable business judgment necessary to protect the
Pledged Collateral. Pledgor shall promptly notify the Lender in writing as to
the commencement and prosecution of any such actions, or threat thereof relating
to the Pledged Collateral and shall provide to the Lender such information with
respect thereto as may be reasonably requested. The Lender shall provide all
reasonable and necessary cooperation in connection with any such suit,
proceeding or action, including, without limitation, joining as a necessary
party.
(b) Upon the occurrence and during the continuation of an Event of Default,
the Lender shall have the right but shall in no way be obligated to file
applications for protection of the Pledged Collateral and/or bring suit in the
name of Pledgor or the Lender to enforce the Pledged Collateral and any license
thereunder; in the event of such suit, Pledgor shall, at the request of the
Lender, do any and all lawful acts and execute any and all documents required by
the Lender in aid of such enforcement and Pledgor shall promptly, upon demand,
reimburse and indemnify the Lender, as the case may be, for all costs and
expenses incurred by the Lender in the exercise of its rights under this Section
14. In the event that the Lender shall elect not to bring suit to enforce the
Pledged Collateral, Pledgor agrees to use all reasonable measures, whether by
action, suit, proceeding or otherwise, to prevent the infringement,
counterfeiting or other diminution in value of any of the Pledged Collateral by
others and for that purpose agrees to diligently maintain any action, suit or
proceeding against any person so infringing necessary to prevent such
infringement as is in the reasonable business judgment of Pledgor necessary to
protect the Pledged Collateral and the Lender shall provide, at Pledgor's
expense, all necessary and reasonable assistance to Pledgor to maintain such
action.
Section 15. Modifications in Writing. No amendment, modification,
------------------------
supplement,
12
<PAGE>
termination or waiver of or to any provision of this Agreement, nor consent to
any departure by Pledgor therefrom, shall be effective unless the same shall be
in writing and signed by the Lender and, except in the case of any such
termination, waiver or consent, by the Pledgor. Any amendment, modification or
supplement of or to any provision of this Agreement, any waiver of any provision
of this Agreement, and any consent to any departure by Pledgor from the terms of
any provision of this Agreement, shall be effective only in the specific
instance and for the specific purpose for which made or given. Except where
notice is specifically required by this Agreement or any other Loan Document, no
notice to or demand on Pledgor in any case shall entitle Pledgor to any other or
further notice or demand in similar or other circumstances.
Section 16. Termination; Release. When all the Secured Obligations (other
--------------------
than Secured Obligations in the nature of continuing indemnitees or expense
reimbursement obligations not yet due and payable) have been paid in full and
have been terminated and the Lender and the Pledgor agree to terminate this
Agreement, this Agreement shall terminate. Upon termination of this Agreement,
the Lender shall, upon the request and at the expense of Pledgor, forthwith
assign, transfer and deliver to Pledgor against receipt and without recourse to
or warranty by the Lender, such of the Pledged Collateral to be released (in the
case of a release) as may be in the possession of the Lender and as shall not
have been sold or otherwise applied pursuant to the terms hereof, on the order
of and at the expense of Pledgor, and proper instruments (including UCC
termination statements on Form UCC-3 and documents suitable for recordation in
the United States Patent and Trademark Office, the United States Copyright
Office or similar domestic or foreign authority) acknowledging the termination
of this Agreement or the release of such Pledged Collateral, as the case may be.
Section 17. Reinstatement. Notwithstanding the provisions of Section 16,
-------------
this Agreement shall continue to be effective or be reinstated, as the case may
be, if at any time any amount received by the Lender in respect of the Secured
Obligations is rescinded or must otherwise be restored or returned by the Lender
upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of
Pledgor or upon the appointment of any intervenor or conservator of, or trustee
or similar official for, Pledgor or any substantial part of its properties, or
otherwise, all as though such payments had not been made.
Section 18. Notes. Notwithstanding any other provision of this Agreement,
-----
the rights of the parties hereunder are subject to the provisions of the Notes,
including the provisions thereof pertaining to the rights and responsibilities
of the Lender.
Section 19. Notices. All notices, consents, approvals, elections and other
-------
communications hereunder shall be in writing (whether or not the other
provisions of this Agreement expressly so provide) and shall be deemed to have
been duly given if delivered by hand or overnight courier service, mailed by
certified or registered mail or sent by telephonic facsimile (fax), as follows:
(i) if to the Lender, to CMGI, Inc., 100 Brickstone Square, Andover,
Massachusetts 01810, Attention: Chief Financial Officer, and (ii) if to the
Debtor, to NaviSite, Inc., 100 Brickstone Square, Andover, Massachusetts 01810,
Attention: Chief Financial Officer.
13
<PAGE>
Section 20. Continuing Security Interest; Assignment. This Agreement shall
----------------------------------------
create a continuing security interest in the Pledged Collateral and shall (a)
remain in full force and effect until the payment in full in cash of all Secured
Obligations, (b) be binding upon Pledgor, its successors and assigns, and (c)
inure, together with the rights and remedies of the Secured Parties hereunder,
to the benefit of the Lender and its successors, transferees and assigns; no
other Persons (including, without limitation, any other creditor of Pledgor)
shall have any interest herein or any right or benefit with respect hereto.
Without limiting the generality of the foregoing clause 20(c), any the Lender
may assign or otherwise transfer any indebtedness held by it secured by this
Agreement to any other Person, and such other Person shall thereupon become
vested with all the benefits in respect thereof granted to the Lender, herein or
otherwise, subject however, to the provisions of the Notes.
Section 21. GOVERNING LAW; TERMS. THIS AGREEMENT SHALL BE GOVERNED BY, AND
--------------------
SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH
OF MASSACHUSETTS, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW, EXCEPT TO
THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE INTEREST HEREUNDER, OR
REMEDIES HEREUNDER IN RESPECT OF ANY PARTICULAR INTELLECTUAL PROPERTY ARE
GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE COMMONWEALTH OF
MASSACHUSETTS.
Section 22. CONSENT TO JURISDICTION AND SERVICE OF PROCESS. ALL JUDICIAL
----------------------------------------------
PROCEEDINGS BROUGHT AGAINST PLEDGOR WITH RESPECT TO THIS AGREEMENT MAY BE
BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE
COMMONWEALTH OF MASSACHUSETTS AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT,
PLEDGOR ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND
UNCONDITIONALLY THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND
IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION
WITH THIS AGREEMENT. THE PARTIES HERETO HEREBY IRREVOCABLY WAIVE TRIAL BY JURY,
AND PLEDGOR HEREBY IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING, WITHOUT
LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF
FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY
SUCH ACTION NOR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS. IN THE EVENT THAT
PLEDGOR DESIGNATES AND APPOINTS ANY PERSON AS ITS AGENTS AND SUCH PERSON
IRREVOCABLY AGREES IN WRITING TO SERVE AS PLEDGOR'S AGENT TO RECEIVE ON
PLEDGOR'S BEHALF SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDINGS IN ANY SUCH
COURT, SUCH SERVICE IS HEREBY ACKNOWLEDGED BY PLEDGOR TO BE EFFECTIVE AND
BINDING SERVICE IN EVERY RESPECT. A COPY OF SUCH PROCESS SO SERVED SHALL BE
MAILED BY REGISTERED MAIL TO PLEDGOR, AND PLEDGOR HEREBY AGREES THAT SERVICE
UPON IT BY MAIL CONSTITUTES SUFFICIENT NOTICE. NOTHING HEREIN SHALL AFFECT THE
RIGHT TO SERVE PROCESS IN ANY OTHER
14
<PAGE>
MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF THE LENDER TO BRING
PROCEEDINGS AGAINST PLEDGOR IN THE COURTS OF ANY OTHER JURISDICTION.
Section 23. Severability of Provisions. Any provision of this Agreement
--------------------------
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
Section 24. Execution in Counterparts. This Agreement and any amendments,
-------------------------
waivers, consents or supplements hereto may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed to be an original, but all
such counterparts together shall constitute one and the same agreement.
Section 25. Headings. The Section headings used in this Agreement are for
--------
convenience of reference only and shall not affect the construction of this
Agreement.
Section 26. Obligations Absolute. To the extent permitted by applicable
--------------------
law, all obligations of Pledgor hereunder shall be absolute and unconditional
irrespective of:
(a) any bankruptcy, insolvency, reorganization, arrangement, readjustment,
composition liquidation or the like of Pledgor or any other subsidiary of
Pledgor;
(b) any lack of validity or enforceability of the Notes, any other Loan
Document, or any other agreement or instrument relating thereto;
(c) any change in the time, manner or place of payment of, or in any other
term of, all or any of the Secured Obligations, or any other amendment or waiver
of or any consent to any departure from the Notes, any other Loan Document, or
any other agreement or instrument relating thereto;
(d) any exchange, release or non-perfection of any other collateral, or any
release or amendment or waiver of or consent to any departure from any
guarantee, for all or any of the Secured Obligations; or
(e) any exercise or non-exercise, or any waiver of any right, remedy, power
or privilege under or in respect of this Agreement or any other Loan Document
except as specifically set forth in a waiver granted pursuant to the provisions
of Section 15 hereof.
Section 27. Waiver of Single Action. Pledgor hereby waives to the greatest
-----------------------
extent permitted under law the right to a discharge of any of the Secured
Obligations under any statute or rule of law now or hereafter in effect which
provides that the exercise of any particular right or
15
<PAGE>
remedy as provided for herein (by judicial proceedings or otherwise) constitutes
the exclusive means for satisfaction of the Secured Obligations or which makes
unavailable any further judgment or any other right or remedy provided for
herein because the Lender elected to proceed with the exercise of such initial
right or remedy or because of any failure by the Lender to comply with laws that
prescribe conditions to the entitlement to such subsequent judgment or the
availability of such subsequent right or remedy. In the event that,
notwithstanding the foregoing waiver, any court shall for any reason hold that
such subsequent judgment or action is not available to the Lender, Pledgor shall
not (a) introduce in any other jurisdiction any judgment so holding as a defense
to enforcement against Pledgor of any remedy in the Notes or executed in
connection with the Notes or (b) seek to have such judgment recognized or
entered in any other jurisdiction, and any such judgment shall in all events be
limited in application only to the state or jurisdiction where rendered and only
with respect to the collateral referred to in such judgment.
Section 28. Future Advances. This Agreement shall secure the payment of any
---------------
amounts advanced from time to time pursuant to the Notes.
Section 29. Construction in Event of Conflict. Simultaneously with the
---------------------------------
execution of this Agreement, the parties are entering into a Security Agreement
(the "Security Agreement"). In the event of any conflict between this Agreement
------------------
and the Security Agreement, the terms of this Agreement shall control.
16
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as a
sealed instrument as of the date first above written.
NAVISITE, INC.
By: /s/ Joel B. Rosen
-----------------------------------
Name: Joel B. Rosen
Title: Chief Executive Officer
CMGI, INC.
By: /s/ Andrew J. Hajducky
-----------------------------------
Name: Andrew J. Hajducky III
Title: Chief Financial Officer
<PAGE>
SCHEDULE A
PATENTS
(including exclusive licenses)
[To be furnished by Pledgor]
<PAGE>
SCHEDULE B
TRADEMARKS & SERVICE MARKS
(including registrations and applications and exclusive licenses)
[To be furnished by Pledgor]
<PAGE>
SCHEDULE C
COPYRIGHTS
(including registrations and applications and exclusive licenses)
[To be furnished by Pledgor]
<PAGE>
SCHEDULE D
LIENS
[To be furnished by Pledgor]
<PAGE>
SCHEDULE E
REQUIRED CONSENTS AND LICENSES
[To be furnished by Pledgor]
<PAGE>
SCHEDULE F
CLAIMS, LITIGATION, ETC.
[To be furnished by Pledgor]
<PAGE>
Exhibit 10.16
SECURITY AGREEMENT
This SECURITY AGREEMENT (this "Agreement"), dated as of May 1, 1999, is by
and between NAVISITE, INC., a Delaware corporation having its principal place of
business at One Hundred Brickstone Square, Andover, Massachusetts 01810 (the
"Debtor") and CMGI, INC., a Delaware corporation having an address at One
------
Hundred Brickstone Square, Andover, Massachusetts 01810 (the "Lender").
------
W I T N E S S E T H:
WHEREAS, the Lender has agreed, in its sole discretion, to advance funds to
the Debtor from time to time (the "Loans"), which Loans shall be evidenced by a
-----
Secured Convertible Demand Note dated as of May 1, 1999 (the "Convertible Note")
----------------
and a Secured Demand Note dated May 1, 1999 (the "Demand Note," and, together
-----------
with the Convertible Note, the "Notes"); and
-----
WHEREAS, the willingness of the Lender to make the Loans is subject to the
condition, among others, that the Debtor shall execute and deliver this
Agreement and grant the security interest hereinafter described;
NOW THEREFORE, in consideration of the willingness of the Lender to make
the Loans to the Debtor, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, it is hereby agreed,
with the intent to be legally bound, as follows:
1. Defined Terms. Except as otherwise expressly defined herein, all
-------------
capitalized terms shall have the meanings ascribed to them in the Notes.
2. Security Interest. As security for the Secured Obligations described
-----------------
in paragraph 3 hereof, the Debtor hereby grants to the Lender a security
interest in and lien on all of the tangible and intangible personal property and
fixtures of the Debtor, including without limitation the property described
below, whether now owned or existing or hereafter acquired or arising, together
with any and all additions thereto and replacements therefor and proceeds and
products thereof (hereinafter referred to collectively as the "Collateral"):
----------
(a) all of the Debtor's tangible personal property, including without
limitation all present and future goods, inventory (including without limitation
all printed materials, merchandise, raw materials, work in process, finished
goods and supplies), equipment, merchandise, furniture, fixtures, office
supplies, motor vehicles, machinery, paper, tools, computers, and associated
equipment now owned or hereafter acquired, including, without limitation, the
tangible personal property used in the operation of the businesses of the
Debtor;
(b) to the extent that such rights are assignable as collateral, the
Debtor's rights under all present and future authorizations, permits, licenses
and franchises issued, granted or licensed to the Debtor for the operation of
its business, including without limitation each of the authorizations, permits,
licenses and franchises (if any) listed on the Intellectual Property Security
Agreement executed this date from the Debtor to the Lender;
<PAGE>
(c) to the extent that such rights are assignable, all of the Debtor's
rights under all present and future vendor or customer contracts and all
franchise, distribution, construction, engineering, management, direct marketing
and advertising and related agreements; and
(d) all of the Debtor's other personal property, including, without
limitation, all present and future accounts, accounts receivable, investment
property, rights to proceeds of letters of credit, contract rights, general
intangibles (including without limitation, all goodwill, all trademarks,
intellectual property to the extent assignable as collateral, all customer
lists, vendor lists, and other printed materials, including all catalogs,
indexes, lists, data and other documents and papers relating thereto, blue
prints, designs and research and development), any information stored on any
medium, including electronic medium, related to any of the personal property of
the Debtor, all instruments, documents and chattel paper, and all debts,
obligations and liabilities in whatever form owing to the Debtor from any
person, firm or corporation or any other legal entity, whether now existing or
hereafter arising, now or hereafter received by or belonging or owing to the
Debtor, and all guaranties and security therefor.
Any of the foregoing terms which are defined in the Uniform Commercial Code
shall have the meaning provided in the Uniform Commercial Code as supplemented
and expanded by the foregoing.
3. Secured Obligations. The security interest hereby granted shall
-------------------
secure the due and punctual payment and performance of the following liabilities
and obligations of the Debtor (herein called the "Secured Obligations"):
-------------------
(a) Principal of and premium, if any, and interest on the Loans;
(b) Any and all obligations of the Debtor to the Lender under the
Notes; and
(c) Any and all other obligations of the Debtor to the Lender.
4. Perfection Certificate. The Debtor has delivered to the Lender a
----------------------
Perfection Certificate in the form appended hereto as Schedule I. The Debtor
represents to the Lender that the completed Perfection Certificate delivered to
the Lender is true and correct in every respect and the facts contained in such
certificate are accurate. The Debtor shall supplement the Perfection
Certificate promptly after obtaining information which would require a
correction or addition to the Perfection Certificate.
5. Special Warranties and Covenants of the Debtor. The Debtor hereby
----------------------------------------------
warrants and covenants to the Lender that:
(a) The address shown at the beginning of this Agreement is the
current principal place of business of the Debtor, and all of the Debtor's
current additional places of business, if any, and the locations of all of the
Collateral currently are listed in the Perfection Certificate delivered pursuant
to Section 4 above. The Debtor will not change its principal or any other place
of business, or the location of any Collateral from the locations set forth in
the Perfection Certificate, or make
2
<PAGE>
any change in the Debtor's name or conduct the Debtor's business operations
under any fictitious business name or trade name, without, in any such case, at
least thirty (30) days' prior written notice to the Lender.
(b) Except for the security interest created hereunder, the Debtor is
the owner or, as applicable, licensee of the Collateral free from any lien,
security interest or encumbrance and the Debtor will defend the Collateral
against all claims and demands of all persons at any time claiming the same or
any interest therein.
(c) Except as otherwise consented to in writing by the Lender, the
Debtor will not, other than in the ordinary course of business, sell or
otherwise dispose of any of the Collateral or any interest therein nor will the
Debtor create, incur or permit to exist any mortgage, lien, charge, encumbrance
or security interest whatsoever with respect to the Collateral.
(d) Except for Collateral that is obsolete or no longer used in the
Debtor's business, the Debtor will keep the Collateral in good order and repair
(normal wear excepted) and adequately insured at all times. The Debtor will pay
promptly when due all taxes and assessments on the Collateral or for its use or
operation, except for taxes and assessments contested in good faith and for
which adequate reserves are created. The Lender may at its option discharge any
taxes, liens, security interests or other encumbrances to which any Collateral
is at any time subject, and may, upon the failure of the Debtor to do so in
accordance with the terms hereof, purchase insurance on any Collateral and pay
for the repair, maintenance or preservation thereof, and the Debtor agrees to
reimburse the Lender on demand for any payments or expenses incurred by the
Lender pursuant to the foregoing authorization and any unreimbursed amounts
shall constitute Secured Obligations for all purposes hereof.
(e) The Collateral, other than intellectual property licensed from
third parties, may be transferred to a third party upon a default without the
consent of any other third party, in accordance with and to the extent permitted
by applicable law.
(f) The Debtor will promptly execute and deliver to the Lender such
financing statements, certificates and other documents or instruments as may be
necessary to enable the Lender to perfect or from time to time renew the
security interest granted hereby, including, without limitation, such financing
statements, certificates and other documents as may be necessary to perfect a
security interest in any additional Collateral hereafter acquired by the Debtor
or in any replacements or proceeds thereof. The Debtor authorizes and appoints
the Lender, in case of need, to execute such financing statements, certificates
and other documents pertaining to the Lender's security interest in the
Collateral in its stead, with full power of substitution, as the Debtor's
attorney in fact. The Lender may from time to time request and the Debtor shall
deliver copies of all customer lists and vendor lists. The Debtor further
agrees that a carbon, photographic or other reproduction of a security agreement
or financing statement is sufficient as a financing statement under this
Agreement.
(g) The Debtor will give the Lender notice of each office at which
records of the Debtor pertaining to all intangible items of Collateral are kept.
Except as may be provided in such
3
<PAGE>
notice, the records concerning all intangible Collateral are and will be kept at
the address shown at the beginning of this Agreement as the principal place of
business of the Debtor.
(h) To the extent that the Debtor is a beneficiary under any written
letter of credit now or hereafter issued in favor of the Debtor, the Debtor
shall deliver such letter of credit to the Lender. The Lender shall from time
to time, at the request and expense of the Debtor, make such arrangements with
the Debtor as are in the Lender's reasonable judgment necessary and appropriate
so that the Debtor may make any drawing to which the Debtor is entitled under
such letter of credit, without impairment of the Lender's perfected security
interest in the Debtor's rights to the proceeds of such letter of credit or in
the actual proceeds of such drawing. At the Lender's request, the Debtor shall,
for any letter of credit, whether or not written, now or hereinafter issued in
favor of the Debtor as beneficiary, execute and deliver to the issuer or any
confirmer of such letter of credit an assignment of proceeds form, in favor of
the Lender and satisfactory to the Lender and such issuer or (as the case may
be) such confirmer, requiring the proceeds of any drawing under such letter of
credit to be paid directly to the Lender for application under the Notes.
6. Fixtures, etc. It is the intention of the parties hereto that none of
-------------
the Collateral shall become fixtures and the Debtor will take all such
reasonable action or actions as may be necessary to prevent any of the
Collateral from becoming fixtures. Without limiting the generality of the
foregoing, the Debtor will, if requested by the Lender, use commercially
reasonable efforts to obtain waivers of lien, in form satisfactory to the
Lender, from each lessor of real property on which any of the Collateral is or
is to be located.
7. Events of Default. The Debtor shall be in default under this
-----------------
Agreement (an "Event of Default") upon the happening of any Event of Default
----------------
under the Notes.
8. Rights and Remedies of Lender. Upon the occurrence of any Event of
-----------------------------
Default, such default not having previously been waived, remedied or cured, the
Lender shall have the following rights and remedies:
(a) All rights and remedies provided by law, including without
limitation those provided by the Uniform Commercial Code;
(b) all rights and remedies provided in this Agreement; and
(c) All rights and remedies provided in any other agreement, document
or instrument pertaining to the Secured Obligations.
9. Right of Lender to Dispose of Collateral, etc. Upon the occurrence of
---------------------------------------------
any Event of Default, such Event of Default not having previously been waived,
remedied or cured, but subject to the provisions of the Uniform Commercial Code
or other applicable law, the Lender shall have the right to take possession of
the Collateral and, in addition thereto, the right to enter upon any premises on
which the Collateral or any part thereof may be situated and remove the same
therefrom. The Lender may require the Debtor to make the Collateral (to the
extent the same is moveable) available to the Lender at a place to be designated
by the Lender which is reasonably convenient to
4
<PAGE>
both parties or transfer any information related to the Collateral to the Lender
by electronic medium. Unless the Collateral is perishable or threatens to
decline speedily in value or is of a type customarily sold on a recognized
market, the Lender will give the Debtor at least ten (10) days' prior written
notice in accordance with paragraph 18 hereof of the time and place of any
public sale of any of the Collateral or of the time after which any private sale
or any other intended disposition thereof is to be made. Any such notice shall
be deemed to meet any requirement hereunder or under any applicable law
(including the Uniform Commercial Code) that reasonable notification be given of
the time and place of such sale or other disposition.
10. Notes. Notwithstanding any other provision of this Agreement, the
-----
rights of the parties hereunder are subject to the provisions of the Notes.
11. Right of Lender to Use and Operate Collateral, etc. Upon the
--------------------------------------------------
occurrence of any Event of Default, such default not having previously been
waived, remedied or cured, but subject to the provisions of the Uniform
Commercial Code or other applicable law, the Lender shall have the right and
power to take possession of all or any part of the Collateral, and to exclude
the Debtor and all persons claiming under the Debtor wholly or partly therefrom,
and thereafter to hold, store, and/or use, operate, manage and control the same.
Upon any such taking of possession, the Lender may, from time to time, at the
expense of the Debtor, make all such repairs, replacements, alterations,
additions and improvements to and of the Collateral as the Lender may deem
proper. In any such case the Lender shall have the right to manage and control
the Collateral and to carry on the business and to exercise all rights and
powers of the Debtor in respect thereto as the Lender shall deem best, including
the right to enter into any and all such agreements with respect to the
operation of the Collateral or any part thereof as the Lender may see fit; and
the Lender shall be entitled to collect and receive all rents, issues, profits,
fees, revenues and other income of the same and every part thereof. Such rents,
issues, profits, fees, revenues and other income shall be applied to pay the
expenses of holding and operating the Collateral and of conducting the business
thereof, and of all maintenance, repairs, replacements, alterations, additions
and improvements, and to make all payments which the Lender may be required or
may elect to make, if any, for taxes, assessments, insurance and other charges
upon the Collateral or any part thereof, and all other payments which the Lender
may be required or authorized to make under any provision of this Agreement
(including legal costs and attorneys' fees). The remainder of such rents,
issues, profits, fees, revenues and other income shall be applied as provided in
paragraph 13. Without limiting the generality of the foregoing or limiting in
any way the rights of the Lender under applicable law, at any time after (i) the
entire principal balance of any Loan shall have become due and payable (whether
at maturity, by acceleration or otherwise) and (ii) the Lender shall have
provided to the Debtor not less than ten (10) days' prior written notice of its
intention to apply for a receiver, the Lender shall be entitled to apply for and
have a receiver appointed under state or federal law by a court of competent
jurisdiction in any action taken by the Lender to enforce its rights and
remedies hereunder in order to manage, protect, preserve, sell and otherwise
dispose of all or any portion of the Collateral and continue the operation of
the business of the Debtor, and to collect all revenues and profits thereof and
apply the same to the payment of all expenses and other charges of such
receivership, including the compensation of the receiver, and to the payment of
the Secured Obligations as aforesaid until a sale or other disposition of such
Collateral shall be finally made and consummated. THE DEBTOR HEREBY IRREVOCABLY
CONSENTS TO AND WAIVES ANY RIGHT TO OBJECT
5
<PAGE>
TO OR OTHERWISE CONTEST THE APPOINTMENT OF A RECEIVER AS PROVIDED ABOVE. THE
DEBTOR (I) GRANTS SUCH WAIVER AND CONSENT KNOWINGLY AFTER HAVING DISCUSSED THE
IMPLICATIONS THEREOF WITH COUNSEL, (II) ACKNOWLEDGES THAT (A) THE UNCONTESTED
RIGHT TO HAVE A RECEIVER APPOINTED FOR THE FOREGOING PURPOSES IS CONSIDERED
ESSENTIAL BY THE LENDER IN CONNECTION WITH THE ENFORCEMENT OF ITS RIGHTS AND
REMEDIES HEREUNDER AND UNDER THE NOTES, AND (B) THE AVAILABILITY OF SUCH
APPOINTMENT AS A REMEDY UNDER THE FOREGOING CIRCUMSTANCES WAS A MATERIAL FACTOR
IN INDUCING THE LENDER TO MAKE THE LOANS TO THE DEBTOR, AND (III) AGREES TO
ENTER INTO ANY AND ALL STIPULATIONS IN ANY LEGAL ACTIONS, OR AGREEMENTS OR OTHER
INSTRUMENTS IN CONNECTION WITH THE FOREGOING AND TO COOPERATE FULLY WITH THE
LENDER IN CONNECTION WITH THE ASSUMPTION AND EXERCISE OF CONTROL BY THE RECEIVER
OVER ALL OR ANY PORTION OF THE COLLATERAL. THE LENDER ACKNOWLEDGES AND AGREES
THAT NOTHING IN THIS PARAGRAPH 11 SHALL BE DEEMED TO CONSTITUTE A WAIVER OF THE
DEBTOR'S RIGHT TO FILE FOR PROTECTION UNDER TITLE 11 OF THE UNITED STATES CODE
AT ANY TIME PRIOR TO THE APPOINTMENT OF A RECEIVER.
12. Collection of Accounts Receivable, etc. Upon the occurrence of any
--------------------------------------
Event of Default, such default not having previously been waived, remedied or
cured, the Lender may notify or may require the Debtor to notify account
debtors, including without limitation, customers and vendors, obligated on any
or all of the Debtor's accounts receivable, whether now existing or hereafter
arising, to make payment directly to the Lender, and may take possession of all
proceeds of any accounts in the Debtor's possession, and may take any other
steps which the Lender deems necessary or advisable to collect any or all such
accounts receivable or other Collateral or proceeds thereof.
13. Proceeds of Collateral. After deducting all costs and expenses of
----------------------
collection, storage, custody, sale or other disposition and delivery (including
legal costs and attorneys' fees) and all other charges against the Collateral,
the residue of the proceeds of any such sale or disposition shall be applied to
the payment of the Secured Obligations in such order of priority as the Lender
shall determine and any surplus shall be returned to the Debtor or to any person
or party lawfully entitled thereto (including, if applicable, any subordinated
creditors of the Debtor). By way of enlargement and not by way of limitation of
the rights of the Lender under applicable law or the Notes, the Lender shall be
entitled to allocate its application of the Collateral, and the proceeds
thereof, to the Secured Obligations (including without limitation the Loans) in
such proportions and in such order as the Lender, in its sole discretion, shall
decide (consistent with the Notes). In the event the proceeds of any sale,
lease or other disposition of the Collateral hereunder are insufficient to pay
all of the Secured Obligations in full, the Debtor will be liable for the
deficiency, together with interest thereon at the maximum rate provided in the
Notes, and the cost and expenses of collection of such deficiency, including (to
the extent permitted by law) without limitation reasonable attorneys' fees,
expenses and disbursements.
6
<PAGE>
14. Waivers, etc. The Debtor hereby waives presentment, demand, notice,
------------
protest and, except as is otherwise provided herein, all other demands and
notices in connection with this Agreement or the enforcement of the Lender's
rights hereunder or in connection with any Secured Obligations or any
Collateral; consents to and waives notice of the granting of renewals,
extensions of time for payment or other indulgences to the Debtor or to any
account debtor in respect of any account receivable or to any other third party,
or substitution, release or surrender of any Collateral, the addition or release
of persons primarily or secondarily liable on any Secured Obligation or on any
account receivable or other Collateral, the acceptance of partial payments on
any Secured Obligation or on any account receivable or other Collateral and/or
the settlement or compromise thereof. No delay or omission on the part of the
Lender in exercising any right hereunder shall operate as a waiver of such right
or of any other right hereunder. Any waiver of any such right on any one
occasion shall not be construed as a bar to or waiver of any such right on any
future occasion. THE DEBTOR FURTHER WAIVES ANY RIGHT IT MAY HAVE UNDER THE
CONSTITUTION OF THE COMMONWEALTH OF MASSACHUSETTS, UNDER THE CONSTITUTION OF ANY
STATE IN WHICH ANY OF THE COLLATERAL MAY BE LOCATED, OR UNDER THE CONSTITUTION
OF THE UNITED STATES OF AMERICA, TO NOTICE (OTHER THAN ANY REQUIREMENT OF NOTICE
PROVIDED HEREIN) OR TO A JUDICIAL HEARING PRIOR TO THE EXERCISE OF ANY RIGHT OR
REMEDY PROVIDED BY THIS AGREEMENT TO THE LENDER AND WAIVES ITS RIGHTS, IF ANY,
TO SET ASIDE OR INVALIDATE ANY SALE DULY CONSUMMATED IN ACCORDANCE WITH THE
FOREGOING PROVISIONS HEREOF ON THE GROUNDS (IF SUCH BE THE CASE) THAT THE SALE
WAS CONSUMMATED WITHOUT A PRIOR JUDICIAL HEARING. The Debtor's waivers under
this section have been made voluntarily, intelligently and knowingly and after
the Debtor has been apprized and counseled by its attorneys as to the nature
thereof and its possible alternative rights.
15. Termination; Assignment, etc. This Agreement and the security
----------------------------
interest in the Collateral created hereby shall terminate when all of the
Secured Obligations have been paid and finally discharged in full and the Lender
and the Debtor agree to terminate this Agreement. In such event, the Lender
agrees to execute appropriate releases of liens on the Collateral. No waiver by
the Lender or by any other holder of Secured Obligations of any default shall be
effective unless in writing nor operate as a waiver of any other default or of
the same default on a future occasion. In the event of a sale or assignment of
part or all of the Secured Obligations by the Lender, the Lender may assign or
transfer its respective rights and interest under this Agreement in whole or in
part to the purchaser or purchasers of such Secured Obligations, whereupon such
purchaser or purchasers shall become vested with all of the powers and rights of
the Lender hereunder.
16. Reinstatement. Notwithstanding the provisions of paragraph 15, this
-------------
Agreement shall continue to be effective or be reinstated, as the case may be,
if at any time any amount received by the Lender in respect of the Secured
Obligations is rescinded or must otherwise be restored or returned by the Lender
upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of
the Debtor or any subsidiary or upon the appointment of any intervener or
conservator of, or trustee or similar official for, the Debtor or any subsidiary
or any substantial part of any of their properties, or otherwise, all as though
such payments had not been made.
7
<PAGE>
17. Governmental Approval. Prior to or, where permitted, upon the
---------------------
exercise by the Lender of any power, right, privilege or remedy pursuant to this
Agreement which requires any consent, approval, registration, qualification or
authorization of any governmental authority or instrumentality, the Debtor will
execute and deliver, or will cause the execution and delivery of, all
applications, certificates, instruments and other documents and papers that the
Debtor may be required to obtain for such governmental consent, approval,
registration, qualification or authorization.
18. Notices. All notices, consents, approvals, elections and other
-------
communications hereunder shall be in writing (whether or not the other
provisions of this Agreement expressly so provide) and shall be deemed to have
been duly given if delivered by hand or overnight courier service, mailed by
certified or registered mail or sent by facsimile, as follows: (i) if to the
Lender, to CMGI, Inc., 100 Brickstone Square, Andover, Massachusetts 01810,
Attention: Chief Financial Officer, facsimile number: 978-684-3672, and (ii) if
to the Debtor, to NaviSite, Inc., 100 Brickstone Square, Andover, Massachusetts
01810, Attention: Chief Financial Officer, facsimile number: 978-684-3596.
19. Miscellaneous. This Agreement shall inure to the benefit of the
-------------
Lender and be binding upon the Lender and the Debtor and their respective
successors and assigns. In case any provision in this Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
This Agreement may be executed in two counterparts, each of which shall be an
original, but both of which together shall constitute one instrument.
20. Governing Law; Jurisdiction; Waiver of Jury Trial. This Agreement,
-------------------------------------------------
including the validity hereof and the rights and obligations of the parties
hereunder, shall be construed in accordance with and governed by the laws of the
Commonwealth of Massachusetts. The Debtor, to the extent that it may lawfully
do so, hereby consents to service of process, and to be sued, in the
Commonwealth of Massachusetts and consents to the jurisdiction of the courts of
the Commonwealth of Massachusetts and the United States District Court for the
District of Massachusetts, as well as to the jurisdiction of all courts to which
an appeal may be taken from such courts, for the purpose of any suit, action or
other proceeding arising out of any of the Secured Obligations or with respect
to the transactions contemplated hereby, and expressly waives any and all
objections it may have as to venue in any such courts. The Debtor further
agrees that a summons and complaint commencing an action or proceeding in any of
such courts shall be properly served and shall confer personal jurisdiction if
served personally or by certified mail to it at its address provided in
paragraph 18 hereof or as otherwise provided under the laws of the Commonwealth
of Massachusetts.
THE DEBTOR IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY
PROCEEDING HEREAFTER INSTITUTED BY OR AGAINST THE DEBTOR IN RESPECT OF ITS
OBLIGATIONS HEREUNDER OR THE TRANSACTIONS CONTEMPLATED HEREBY.
21. Construction in Event of Conflict. Simultaneously with the execution
---------------------------------
of this Agreement, the parties are entering into an Intellectual Property
Security Agreement (the "IP
--
8
<PAGE>
Security Agreement"). In the event of any conflict between this Agreement and
- ------------------
the IP Security Agreement, the terms of the IP Security Agreement shall control.
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as a
sealed instrument as of the date first above written.
NAVISITE, INC.
By: /s/ Joel B. Rosen
--------------------------------------------
Name: Joel B. Rosen
Title: Chief Executive Officer
CMGI, INC.
By: /s/ Andrew J. Hajducky
--------------------------------------------
Name: Andrew J. Hajducky III
Title: Chief Financial Officer
<PAGE>
Schedule I
----------
Officer's Certificate
The undersigned, Joel B. Rosen, of NaviSite, Inc., a Delaware corporation
(the "Company"), hereby certifies, and agrees on behalf of the Company (the
"Pledgor Corporation"), as follows:
Set forth below are all the locations where the Company maintains any
material amount (fair market value of $10,000 or more) of Collateral (as defined
in the Security Agreement between the Company and CMGI, Inc. dated as of May 1,
1999) of the Company (whether or not in the possesion of the Company):
Andover,Massachusettes
New York, New York
Phoenix, Arizona
San Jose, California
Scotts Valley, California
IN WITNESS WHEREOF, I have hereunto set my hand this ____ day of ____,
1999.
NAVISITE, INC.
BY: /s/ Joel B. Rosen
-----------------------------
Name: Joel B. Rosen
Title: Chief Executive Officer
<PAGE>
EXHIBIT 21.1
List of Subsidiaries
Subsidiary State of Organization
- ---------- ---------------------
Servercast Communications, L.L.C. Delaware
<PAGE>
Exhibit 23.2
ACCOUNTANTS' CONSENT AND REPORT ON SCHEDULE
The Board of Directors
NaviSite, Inc.:
The audits referred to in our report dated May 28, 1999, except for note
12(d), which is as of June 3, 1999, included the related financial statement
schedule as of July 31, 1996, 1997 and 1998, and for the period from July 1,
1996 through July 31, 1996 and each of the years in the two year period ended
July 31, 1998, included in the Registration Statement. This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement schedule
based on our audits. In our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
We consent to the inclusion of our report dated May 28, 1999, except for note
12(d), which is as of June 3, 1999, with respect to the consolidated balance
sheets of NaviSite, Inc., as of July 31, 1997 and 1998, and the related
consolidated statements of operations, changes in stockholders' equity
(deficit), and cash flows for the period from July 1, 1996 through July 31,
1996 and each of the years in the two year period ended July 31, 1998, which
report appears in this Registration Statement, and to the references to our
firm under the headings "Selected Consolidated Financial Data," and "Experts"
in this Registration Statement.
KPMG LLP
/s/ KPMG LLP
Boston, Massachusetts
July 22, 1999
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
The Members
Servercast Communications, L.L.C.:
We consent to the inclusion of our report on Servercast Communications,
L.L.C. dated May 28, 1999 in the prospectus constituting part of this
Registration Statement on Form S-1 of NaviSite, Inc. and to the reference to
our firm under the heading "Experts" in the prospectus.
KPMG LLP
/s/ KPMG LLP
Boston, Massachusetts
July 22, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR 9-MOS
<FISCAL-YEAR-END> JUL-31-1997 JUL-31-1998 JUL-31-1999
<PERIOD-START> AUG-01-1996 AUG-01-1997 AUG-01-1998
<PERIOD-END> JUL-31-1997 JUL-31-1998 APR-30-1999
<CASH> 0 0 0
<SECURITIES> 0 0 0
<RECEIVABLES> 245 496 1,435
<ALLOWANCES> 0 7 100
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 339 933 2,839
<PP&E> 1,690 4,075 8,128
<DEPRECIATION> 133 683 1,810
<TOTAL-ASSETS> 2,010 5,479 10,286
<CURRENT-LIABILITIES> 2,905 14,455 18,107
<BONDS> 0 0 0
0 0 13
0 0 0
<COMMON> 80 81 1
<OTHER-SE> (975) (10,147) (9,829)
<TOTAL-LIABILITY-AND-EQUITY> 2,010 5,479 10,286
<SALES> 3,361 4,029 6,817
<TOTAL-REVENUES> 3,361 4,029 6,817
<CGS> 3,494 8,876 13,294
<TOTAL-COSTS> 3,494 8,876 13,294
<OTHER-EXPENSES> 814 4,229 8,593
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 1 85 330
<INCOME-PRETAX> (948) (9,172) (15,436)
<INCOME-TAX> 0 0 0
<INCOME-CONTINUING> 0 0 0
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (948) (9,172) (15,436)
<EPS-BASIC> (.12) (1.02) (1.01)
<EPS-DILUTED> (.12) (1.02) (1.01)
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