<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 20, 2000
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
GOMEZ ADVISORS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7375 04-3371645
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
55 OLD BEDFORD ROAD
LINCOLN, MA 01773
(781) 257-2000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------------
JULIO GOMEZ
CHIEF EXECUTIVE OFFICER
GOMEZ ADVISORS, INC.
55 OLD BEDFORD ROAD
LINCOLN, MA 01773
(781) 257-2000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
WITH COPIES TO:
<TABLE>
<S> <C> <C>
LEWIS J. GEFFEN, ESQ. FREDERIC G. HAMMOND RICHARD B. VILSOET, ESQ.
MINTZ, LEVIN, COHN, FERRIS, VICE PRESIDENT, BUSINESS AFFAIRS SHEARMAN & STERLING
GLOVSKY AND POPEO, P.C. AND GENERAL COUNSEL 599 LEXINGTON AVENUE
ONE FINANCIAL CENTER GOMEZ ADVISORS, INC. NEW YORK, NY 10022
BOSTON, MA 02111 55 OLD BEDFORD ROAD (212) 848-4000
(617) 542-6000 LINCOLN, MA 01773
(781) 257-2000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are being offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
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>
TITLE OF EACH CLASS PROPOSED MAXIMUM AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED OFFERING PRICE (1) REGISTRATION FEE (2)
<S> <C> <C>
Common Stock, $0.0001 par value per share................... $60,000,000 $15,840
</TABLE>
(1) Estimated solely for the purpose of calculating the amount of registration
fee pursuant to Rule 457(o) under the Securities Act, as amended.
(2) Calculated pursuant to Rule 457(a) based on an estimate of the proposed
maximum aggregate offering price.
------------------------------
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, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED , 2000
PROSPECTUS
SHARES
[LOGO]
GOMEZ ADVISORS, INC.
COMMON STOCK
------------------
This is Gomez Advisors, Inc.'s initial public offering. Gomez
Advisors, Inc. is selling all of the shares.
We expect the public offering price to be between $ and
$ per share. Currently, no public market exists for the shares.
After pricing of the offering, we expect that the shares will be quoted on the
Nasdaq National Market under the symbol "GOMZ."
INVESTING IN THE COMMON STOCK INVOLVES RISKS THAT ARE DESCRIBED IN THE "RISK
FACTORS" SECTION BEGINNING ON PAGE 5 OF THIS PROSPECTUS.
<TABLE>
<CAPTION>
PER SHARE TOTAL
------------ ------------
<S> <C> <C>
Public offering price....................................... $ $
Underwriting discount....................................... $ $
Proceeds, before expenses, to Gomez Advisors, Inc........... $ $
</TABLE>
The underwriters may also purchase up to an additional shares at the
public offering price, less the underwriting discount, within 30 days from the
date of this prospectus to cover over-allotments.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The shares will be ready for delivery on or about , 2000.
------------------------
MERRILL LYNCH & CO.
U.S. BANCORP PIPER JAFFRAY
THE ROBINSON-HUMPHREY COMPANY
------------------------
The date of this prospectus is , 2000.
<PAGE>
[Graphical flow chart representing the service offerings of Gomez Advisors,
Inc.]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Prospectus Summary.......................................... 1
Risk Factors................................................ 5
Special Note Regarding Forward-Looking Statements........... 17
Use of Proceeds............................................. 18
Dividend Policy............................................. 18
Capitalization.............................................. 19
Dilution.................................................... 20
Selected Consolidated Financial Data........................ 21
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 22
Business.................................................... 31
Management.................................................. 47
Related Party Transactions.................................. 55
Principal Stockholders...................................... 58
Description of Capital Stock................................ 60
Shares Eligible for Future Sale............................. 64
Underwriting................................................ 66
Legal Matters............................................... 70
Experts..................................................... 70
Where You Can Find Additional Information................... 71
Index to Consolidated Financial Statements.................. F-1
</TABLE>
------------------------
You should rely only on the information contained in this prospectus. We
have not, and the underwriters have not, authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information in this prospectus is accurate only as of the date on the front
cover of this prospectus. Our business, financial condition, results of
operations and prospects may have changed since that date.
------------------------
GOMEZ ADVISORS, the stylized Gomez logo, GOMEZ, GOMEZ.COM, GOMEZPRO,
GOMEZWIRE, SCORECARD, JUMPSTART, GOMEZPRO DATA STATION, SAVINGS CENTER, THE
E-COMMERCE AUTHORITY, GOMEZ ALLIANCE, INTERNET BROKER SCORECARD, INTERNET
BANKING SCORECARD, INTERNET TRAVEL AGENT SCORECARD, INTERNET BOOKSELLER
SCORECARD, INTERNET AUCTION SCORECARD, INTERNET AUTO BUYING SCORECARD, INTERNET
GROCERY SERVICES SCORECARD, INTERNET MUSIC STORE SCORECARD, INTERNET PET STORE
SCORECARD, INTERNET VIDEO STORE SCORECARD, INTERNET SPORTS STORE SCORECARD,
INTERNET INSURANCE SCORECARD, INTERNET DRUG STORE SCORECARD, INTERNET FURNITURE
STORE SCORECARD, INTERNET AIRLINES SCORECARD, INTERNET APPAREL STORE SCORECARD,
INTERNET COMPUTER STORE SCORECARD, INTERNET TOY STORE SCORECARD, INTERNET
TRAFFIC REPORT and THE .COM THAT RATES THE .COMS are trademarks and service
marks of Gomez Advisors. All other trademarks, service marks or trade names
referred to in this prospectus are the property of their respective owners.
i
<PAGE>
PROSPECTUS SUMMARY
BECAUSE THIS IS ONLY A SUMMARY, IT DOES NOT CONTAIN ALL OF THE INFORMATION
THAT MAY BE IMPORTANT TO YOU. YOU SHOULD READ THE ENTIRE PROSPECTUS, INCLUDING
"RISK FACTORS" AND OUR FINANCIAL STATEMENTS AND THE ACCOMPANYING NOTES BEFORE
DECIDING TO INVEST IN OUR COMMON STOCK. UNLESS OTHERWISE INDICATED, INFORMATION
IN THIS PROSPECTUS GIVES EFFECT TO THE CHANGE IN OUR FISCAL YEAR END TO
DECEMBER 31 FROM MARCH 31, EFFECTIVE AT DECEMBER 31, 1999.
GOMEZ ADVISORS, INC.
We help businesses grow online by providing them with targeted customer
leads as well as data and tools relating to the e-commerce competitive
environment and consumer marketplace. To address the consumer's time-consuming
and confusing task of finding and selecting a provider of products and services
on the Internet and the difficulty for e-commerce businesses to attract and
retain customers, we have developed a proprietary methodology of collecting and
cataloging consumer experience data. At the core of our GOMEZ.COM and GOMEZPRO
service offerings is our proprietary database of online consumer experience
data. This data is presented to consumers as our INTERNET SCORECARD ranking
system. This unique ranking system defines the standards of quality in specific
e-commerce industries and measures e-commerce providers in those industries
against these standards. Our GOMEZ.COM portal provides objective e-commerce
information that is designed to attract consumers who are in the process of
selecting an e-commerce provider and who are, therefore, more likely to transact
business contemporaneously with selecting that provider. Our GOMEZPRO.COM
subscription Web site and additional GOMEZPRO services leverage our proprietary
methodology by providing online consumer experience data and measurement tools
that allow businesses to better formulate and execute their e-commerce strategy.
We believe that through providing targeted lead generation and consumer
experience measurement tools, we have developed a business model with multiple
revenue streams that utilizes common resources and is replicable across
industries, both domestic and international.
GOMEZ.COM
We provide targeted leads for e-commerce businesses through objective tools
and content designed to help consumers select the most suitable e-commerce
provider. The INTERNET SCORECARD ranking system and other tools and content
provided on our GOMEZ.COM portal make it easier for consumers to objectively
identify and evaluate e-commerce businesses, engage in transactions with these
businesses, learn more about select e-commerce industries and obtain special
values on e-commerce products and services. We provide targeted leads to a
variety of companies including CarOrder.com, Charles Schwab and E*TRADE.
We use our proprietary data analysis tools to collect and organize
e-commerce Web site information in a SCORECARD format for 28 industries. Each
SCORECARD ranks established and emerging e-commerce businesses within an
industry based upon a proprietary methodology. An example is our INTERNET BROKER
SCORECARD, which reviews 142 Internet securities brokerage firms and ranks 57 of
these firms based on 290 criteria. Our SCORECARDS cover a range of industries,
including Internet banking, Internet travel agents, Internet auto buying and
Internet auctions. We have included a complete list of the SCORECARDS we provide
as of March 31, 2000 on page 37 of this prospectus. We have added 23 SCORECARDS
since August 1, 1999, and expect to add an additional 5 by year end. We believe
that our SCORECARDS have become a leading source on the analysis of e-commerce
businesses as evidenced by over 300 media mentions a month for each of the last
six months on cable networks such as CNN and CNBC and in publications such as
THE NEW YORK TIMES and THE WALL STREET JOURNAL. We also provide other services
to consumers, including news, editorials and commentary through GOMEZWIRE,
educational content and tutorials through JUMPSTART, special promotions designed
to facilitate e-commerce transactions through SAVINGSCENTER, and links to
e-commerce businesses through ASK GOMEZ.
1
<PAGE>
GOMEZPRO
We believe GOMEZPRO provides e-commerce businesses a unique solution for
reducing the costs associated with acquiring and retaining customers. Through
GOMEZPRO, we provide businesses with real-time data and analysis of customer
experience. The detailed data that we summarize in our INTERNET SCORECARDS is
provided to our GOMEZPRO clients, and we complement this data with analysis
tools and additional services. Our data analysis tools enable e-commerce
businesses to understand more effectively the e-commerce competitive
environment, target e-commerce consumers, attract and retain more customers and
align business strategies and initiatives with consumer needs. Because our
GOMEZPRO services utilize the same proprietary data analysis tools used to
develop our INTERNET SCORECARDS, we believe that we provide businesses with a
unique ability to evaluate consumer experience and the detailed competitive
landscape within e-commerce industries. The client base for our GOMEZPRO
services includes "bricks and mortar" businesses seeking to establish an
e-commerce presence as well as existing online businesses that seek the tools to
execute their e-commerce strategy. A sample of these clients includes DLJDIRECT,
Fidelity Investments and PayLess Drug Stores.
In addition to a more detailed SCORECARD analysis, GOMEZPRO.COM subscribers
receive analysis tools including comparative up to the minute reports monitoring
the speed at which Web sites are downloaded and displayed from multiple
geographic locations, polls and surveys analyzing customer behavior, e-commerce
and technology news and trend analysis, and vendor reviews. We also provide
advanced market data analysis reports that include online consumer trend data
and Web site performance monitoring data in the Internet banking, brokerage and
retail industries. Furthermore, we make available to our GOMEZPRO clients
advisory services designed to align businesses' growth with consumer needs.
GROWTH STRATEGY
Our objective is to be the leading provider of customer acquisition and
retention solutions to e-commerce businesses. We intend to achieve our objective
by increasing the visibility of our SCORECARDS in the media, which we believe
will result in increased consumer awareness and use. Consequently, we believe
increased consumer use will result in business awareness of GOMEZ ADVISORS and
greater demand for our services. To achieve our objective we intend to:
- build on our existing brand awareness and maintain the trust of e-commerce
consumers and businesses;
- syndicate our content to increase consumer exposure to our services;
- expand our GOMEZ.COM service offerings to additional industries;
- expand GOMEZPRO services into e-commerce industries for which we provide
SCORECARDS; and
- expand our international efforts in selected markets.
------------------------
We were incorporated in the State of Delaware on May 22, 1997. Our principal
executive offices are located at 55 Old Bedford Road, Lincoln, Massachusetts
01773. Our telephone number is (781) 257-2000 and our Web site addresses are
www.gomez.com and www.gomezpro.com. Information contained on our Web sites is
not a part of this prospectus.
2
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by Gomez
Advisors............................. shares
Shares outstanding after the
offering............................. shares
Use of proceeds........................ We intend to use the net proceeds:
- to market existing services,
- to develop and market new products and
services,
- to add personnel,
- to expand our network operations and physical
facilities,
- for working capital, and
- for other general corporate purposes, including
possible acquisitions of or investments in
complementary businesses, products or
technologies.
We cannot specify with certainty all of the
particular uses for the net proceeds. See "Use of
Proceeds."
Risk factors........................... See "Risk Factors" and other information included
in this prospectus for a discussion of factors
you should carefully consider before deciding to
invest in shares of our common stock.
Proposed Nasdaq National Market
symbol............................... GOMZ
</TABLE>
The number of shares of common stock outstanding is based on 15,360,949
shares of common stock outstanding on March 31, 2000. This number excludes:
- 6,012,085 shares of common stock authorized for issuance under our stock
options plans, under which options to purchase 5,693,584 shares were
outstanding at a weighted average exercise price of $3.50 per share and
318,501 shares were available for grant as of March 31, 2000; and
- 247,059 shares of common stock issuable upon the exercise of warrants
outstanding as of March 31, 2000 at a weighted average exercise price of
$7.08 per share.
This number assumes that the underwriters' over-allotment options are not
exercised. If the over-allotment options are exercised in full, we will issue
and sell an additional shares.
INFORMATION IN PROSPECTUS
You should be aware that, except as otherwise noted, all information in this
prospectus:
- reflects the automatic conversion of all of our outstanding shares of
redeemable convertible preferred stock and preferred stock into a total of
11,282,112 shares of common stock upon the completion of this offering;
- reflects the amendment and restatement of our restated certificate of
incorporation upon completion of this offering; and
- reflects the reclassification and conversion of our class A common stock
into our common stock in October 1999.
3
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The following table summarizes our historical statements of operations for
the period from inception (May 22, 1997) through March 31, 1998, the twelve
months ended March 31, 1999, and the nine months ended December 31, 1999. Also
set forth below is our summary consolidated balance sheet data as of
December 31, 1999:
- on an actual basis;
- on a pro forma basis giving effect to the automatic conversion of all of
our shares of redeemable convertible preferred stock and Series A
Preferred Stock outstanding as of December 31, 1999 into a total of
9,752,839 shares of common stock upon the completion of this offering; and
- on a pro forma as adjusted basis giving effect to the automatic conversion
of all outstanding shares of redeemable convertible preferred stock and
Series A Preferred Stock into a total of 11,282,112 shares of common stock
(which includes 1,996,273 shares of redeemable convertible preferred stock
sold subsequent to December 31, 1999), the repurchase of 500 shares of
Series A Preferred Stock in February 2000, and the accretion of additional
dividends on Series B Redeemable Convertible Preferred Stock at March 31,
2000 and the sale of shares of common stock in this offering
at an assumed initial public offering price of $ per share, after
deducting the underwriters' fees and estimated offering expenses payable
by us.
This information should be read in conjunction with our consolidated
financial statements and the accompanying notes which are included in this
prospectus.
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION TWELVE MONTHS NINE MONTHS
(MAY 22, 1997) TO ENDED ENDED
MARCH 31, 1998 MARCH 31, 1999 DECEMBER 31, 1999
----------------- -------------- -----------------
<S> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS:
Net revenues.................................... $ 298 $ 1,539 $ 3,241
Loss from operations............................ (357) (16,366) (13,557)
Net loss........................................ (357) (17,859) (13,462)
Net loss applicable to common stockholders...... (357) (17,859) (13,698)
Net loss per share:
Basic and diluted net loss per common
share(1)...................................... $(370.27) $ (44.87) $ (6.53)
Basic and diluted weighted average common shares
outstanding................................... 963 398,044 2,096,595
Pro forma net loss per common share
(unaudited)(1)................................ $ (1.11)
Pro forma basic and diluted common shares
outstanding................................... 12,356,567
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
-------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.............................. $ 16,427 $ 16,427
Working capital........................................ 14,256 14,256
Total assets........................................... 19,960 19,960
Redeemable convertible preferred stock................. 22,143 --
Stockholders' equity (deficit)......................... (5,920) 16,223
</TABLE>
- ------------------------
(1) Computed on the basis described in Note 2(k) of the Notes to our
consolidated financial statements.
4
<PAGE>
RISK FACTORS
ANY INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU
SHOULD CONSIDER CAREFULLY THE FOLLOWING RISKS BEFORE YOU DECIDE TO BUY OUR
COMMON STOCK. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS COULD
BE HARMED, THE VALUE OF OUR COMMON STOCK COULD DECLINE AND YOU COULD LOSE ALL OR
PART OF YOUR INVESTMENT.
RISKS RELATED TO OUR BUSINESS
WE HAVE A LIMITED OPERATING HISTORY WHICH MAKES IT DIFFICULT TO EVALUATE OUR
BUSINESS AND OUR PROSPECTS
We have only a limited operating history upon which you can evaluate our
business and prospects. We began operations in May 1997. You must consider the
risks and uncertainties frequently encountered by early stage companies, many of
which are beyond our control, in new and rapidly evolving markets. Some of these
risks and uncertainties relate to our ability to:
- implement and successfully execute our business strategy and sales and
marketing initiatives;
- increase traffic to our Web sites;
- increase our brand recognition;
- anticipate and adapt to our evolving industry;
- enhance and expand our services;
- retain current customers and attract new customers to our GOMEZ.COM and
GOMEZPRO services;
- respond to our competitors;
- attract, retain and motivate qualified personnel; and
- manage our anticipated growth.
We cannot assure you that we will be successful in addressing these risks
and uncertainties.
WE HAVE INCURRED SUBSTANTIAL LOSSES SINCE INCEPTION AND MAY BE UNABLE TO ACHIEVE
PROFITABILITY
We have incurred substantial losses since our inception and we expect our
operating losses to continue in the future. We incurred losses from operations
of $16.4 million for the twelve month period ending March 31, 1999 and
$13.6 million for the nine month period ending December 31, 1999 and, as of
December 31, 1999, our accumulated deficit was $31.9 million. We expect our
operating expenses to increase significantly, especially in the areas of product
development, sales and marketing and brand promotion. Accordingly, we will need
to generate increased revenues to become profitable. If our revenues fail to
grow at anticipated rates or our operating expenses increase without a
commensurate increase in our revenues, our financial condition will be
negatively impacted. Although we have experienced growth in net revenues, users
and the number of customers in recent periods, we cannot be certain that our
growth rates will continue at their current levels. In fact, we may not have any
revenue growth and our revenues could decline.
5
<PAGE>
WE EXPECT OUR RESULTS OF OPERATIONS TO FLUCTUATE FROM QUARTER TO QUARTER AND IF
OUR QUARTERLY RESULTS ARE BELOW THE EXPECTATIONS OF SECURITIES ANALYSTS AND
INVESTORS, THE PRICE OF OUR COMMON STOCK MAY DECLINE
Our revenues and operating results have fluctuated significantly and are
expected to continue to fluctuate significantly due to a variety of factors,
many of which are outside of our control. These factors include:
- demand for our services;
- our ability to attract and retain customers;
- the announcement or introduction of new products or services by us and our
competitors;
- the renewal rate of subscriptions to GOMEZPRO;
- the level of product, service and price competition;
- changes in operating expenses;
- seasonal fluctuations in purchasing patterns of consumers;
- changes in the mix of services offered;
- changes in our sales and marketing strategy; and
- general economic factors.
A substantial portion of our operating expenses is related to personnel
costs, marketing programs and overhead, which cannot be adjusted quickly and are
therefore relatively fixed in the short term. Our operating expense levels are
based, in significant part, on our expectations of future revenues on a
quarterly basis. If actual revenues on a quarterly basis are below our
expectations, or if our expenses precede increased revenues, our financial
condition would be materially and adversely affected because a relatively small
amount of our costs and expenses varies with revenues in the short term.
Due to these and other factors we believe that period-to-period comparisons
of our results of operations may not be meaningful and should not be relied upon
as indicators of our future performance. It is possible that in some future
periods our results of operations may be below the expectations of public market
analysts and investors. If this occurs, the price of our common stock may
decline.
THE LOSS OF THE SERVICES OF OUR KEY PERSONNEL, OR OUR FAILURE TO ATTRACT AND
RETAIN OTHER HIGHLY QUALIFIED PERSONNEL IN THE FUTURE, COULD HARM OUR BUSINESS
Our success depends to a significant extent on our founders, Julio Gomez,
John Robb and Dr. Alexander D. Stein and their ability to operate effectively,
both independently and together. The loss of Messrs. Gomez, Robb or Dr. Stein or
any other members of senior management could delay or prevent the implementation
of our business plan. Our business depends also on our ability to attract and
retain additional qualified personnel. We may be unable to continue hiring
additional personnel as our business grows because competition for personnel,
particularly for employees with technical and financial expertise, is intense
and the costs of hiring and retaining such personnel are high. If one or more of
our existing or future employees resigns to join a competitor or to form a
competing company, any resulting loss of existing or potential customers or
other unauthorized disclosure or use of our proprietary information, technical
knowledge, practices, procedures or customer lists could harm the expansion of
our business and customer base, and force us to incur unanticipated costs.
6
<PAGE>
BECAUSE THE INTERNET PERFORMANCE MEASUREMENT INDUSTRY IS IN ITS INFANCY, THE
PRICING AND ACCEPTANCE OF OUR SERVICES IS UNCERTAIN
Because our industry is still in its infancy, the pricing of our services is
subject to rapid and frequent change. We may be forced for competitive or
technical reasons to reduce prices for some of our services, or to offer them
free of charge. These circumstances would reduce our revenues and could harm our
business. Additionally, our markets are still evolving, and we have little basis
to assess demand for different types of products or services or to evaluate
whether our services will be accepted by the markets or the businesses we rank.
If our services do not gain broad market acceptance or the businesses that we
rank do not contract with us for lead generation, our business may fail.
WE OPERATE IN HIGHLY COMPETITIVE MARKETS AND WE MAY NOT BE ABLE TO SUCCESSFULLY
COMPETE IN THESE MARKETS
The markets for e-commerce business intelligence products and services and
for online advertising and sponsorship are intensely competitive. We expect
competition to increase because these markets have no substantial barriers to
entry. Competition may also increase as a result of industry consolidation.
In the market for e-commerce business intelligence products and services,
our direct competitors include Keynote Systems, Inc., Media Metrix, Inc. and
NetRatings, Inc. and evaluation services and publications, such as Dow Jones,
BARRONS and SMARTMONEY. We also compete indirectly in this market with the
internal planning and marketing staffs of our current and prospective customers
as well as other information providers, such as electronic and print publishing
companies, survey-based general market research firms and general business
consulting firms.
We believe the principal competitive factors in the e-commerce business
intelligence products and services market are:
- credibility and quality of service offerings;
- brand equity and awareness;
- proprietary data collection methodologies;
- comprehensiveness of service offerings; and
- timeliness.
We compete directly and indirectly for online advertising and sponsorship
revenues with many established search engines and directories, such as Yahoo!,
Excite and Lycos and other Web sites, especially Web sites that provide
e-commerce consumer information or marketing services, such as About.com,
BeFree, BizRate, CompareNet, DoubleClick, go2net and MyPoints.
We believe the principal competitive factors in the online advertising and
sponsorship market are:
- quality of the advertising environment;
- number of leads and customers generated;
- costs of customer acquisition;
- demographic profile of the audience;
- number of consumers visiting the site;
- length and frequency of each consumer's visit to the site; and
- brand awareness.
7
<PAGE>
Many of our existing competitors in these markets, as well as a number of
potential new competitors, have longer operating histories, greater name
recognition, larger user and client bases and significantly greater financial,
technical and marketing resources than we do. This may enable them to respond
more quickly than we can to competitive developments, or to devote greater
resources to the development, promotion and sale of their products and services.
Our competitors may be able to undertake more extensive marketing campaigns,
adopt more aggressive pricing policies and make more attractive offers to
potential employees, clients and strategic partners. Our competitors may develop
products and services that are equal or superior to the services offered by us
or that achieve greater market acceptance than our services. In addition,
current and potential competitors may establish cooperative relationships among
themselves or with third parties to improve their ability to address the needs
of our customers and Web site users. As a result, it is possible that new
competition may emerge and rapidly acquire significant market share. Increased
competition may result in price reductions, reduced revenues, loss of clients
and reduced traffic to our Web sites, as well as different pricing, service or
marketing decisions. We cannot assure you that we will be able to compete
successfully against current or future competitors.
WE MAY NEED ADDITIONAL FINANCING FOR OUR FUTURE CAPITAL NEEDS, WHICH WE MAY NOT
BE ABLE TO OBTAIN
If we are unable to increase our revenues as anticipated, we will need to
raise additional funds. We may also need additional financing if we:
- decide to expand faster than planned;
- develop new or enhanced services or products ahead of schedule;
- need to respond to competitive pressures; or
- decide to acquire complementary products, businesses or technologies.
We cannot be certain that we will be able to raise additional funds on terms
favorable to us or at all. If future financing is not available or is not
available on acceptable terms, we may not be able to fund our future needs.
Although there can be no assurance, based on our current operating plan, we
believe that the net proceeds from this offering, together with available funds,
will be sufficient to meet our anticipated needs for at least twelve months. If
our cash requirements exceed current expectations, we will need to raise
additional equity or debt capital prior to that time, and there can be no
assurance that adequate additional financing on acceptable terms will be
available if needed at that time.
IF WE ARE UNABLE TO MANAGE OUR GROWTH, IMPROVE OUR EXISTING SYSTEMS AND
IMPLEMENT NEW SYSTEMS, PROCEDURES AND CONTROLS, OUR FUTURE SUCCESS WILL BE
IMPAIRED
We are currently experiencing a period of rapid expansion. Future expansion
will be necessary to implement our business strategies. As a result, we will
need to expand our technical, finance, administrative and operations staff and
other key personnel. Additionally, we will need to improve our existing systems
and implement new systems, procedures and controls to manage this growth. If we
fail to effectively manage our growth and to upgrade our accounting systems and
controls, our ability to retain existing customers and attract new customers
will be impaired and we may incur higher operating costs than we currently
expect.
WE MAY NOT BE ABLE TO ADAPT AS INTERNET TECHNOLOGIES AND CLIENT DEMANDS CONTINUE
TO EVOLVE
To be successful, we must adapt to rapidly changing Internet technologies
and continually enhance the features of the services provided on our Web sites.
We could incur substantial, unanticipated costs if we need to modify our Web
sites, software and infrastructure to incorporate new technologies demanded by
our Web site users or customers. We may use new technologies ineffectively or we
may fail to adapt our Web sites and network infrastructure to user requirements
or emerging industry
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standards. If we fail to keep pace with the technological demands of our Web
site users and customers for new services, products and enhancements, our
business will suffer.
TO BE COMPETITIVE, WE MUST CONTINUE TO DEVELOP NEW AND ENHANCED SERVICES, AND
OUR FAILURE TO DO SO MAY ADVERSELY AFFECT OUR PROSPECTS
Our market is characterized by rapid technological change, frequent new
product and service introductions, changes in customer requirements and evolving
industry standards. The introduction of services embodying new technologies and
the emergence of new industry standards could render our existing services
obsolete. Our revenue growth depends upon our ability to develop and introduce a
variety of new services and service enhancements to address the increasingly
sophisticated needs of our clients. We have experienced delays in releasing new
services and service enhancements and may experience similar delays in the
future. To date, these delays have not had a material effect on our business. If
we experience material delays in introducing new services and enhancements,
clients may forgo purchasing or renewing our services and purchase those of our
competitors.
BECAUSE A SMALL NUMBER OF OUR CLIENTS HAVE ACCOUNTED FOR, AND ARE LIKELY TO
CONTINUE TO ACCOUNT FOR, A SUBSTANTIAL PORTION OF OUR REVENUES, OUR REVENUES
COULD DECLINE DUE TO THE LOSS OF ONE OF THESE CLIENTS; A SUBSTANTIAL NUMBER OF
OUR CLIENTS ARE IN THE FINANCIAL SERVICES INDUSTRY AND A DECLINE IN THAT
INDUSTRY COULD SUBSTANTIALLY REDUCE OUR REVENUES
Historically, we have had very few clients from which we have derived the
majority of our revenue and, if we were to lose any one of these clients, our
revenue would decrease substantially. For the nine month period ending
December 31, 1999, E*TRADE accounted for 19% of our total revenues. Web Street
Securities and Waterhouse Securities accounted for 16% and 12% of our total
revenues, respectively, for the fiscal year ending March 31, 1999. Additionally,
receivables from E*TRADE were $480,000 at December 31, 1999, representing
approximately 30% of our outstanding accounts receivable on that date. We cannot
be certain that clients that have accounted for significant revenues in past
periods, individually or as a group, will renew our services and continue to
generate revenues in any future period. See "Business--Consumer and Client
Relationships" for additional information about our clients.
Additionally, a substantial portion of our revenues comes from businesses in
the financial services industry. An economic downturn in this industry could
cause a substantial decline in our revenues.
WE INTEND TO EXPAND OUR BUSINESS; IF WE ARE NOT SUCCESSFUL, OUR BUSINESS COULD
BE SERIOUSLY HARMED
If we are not successful in expanding our business, our brand and business
could be seriously harmed. We may choose to expand our operations by promoting
new or complementary services, expanding the breadth and depth of services
offered, expanding our market presence through relationships with third parties
or developing new Web sites. In addition, we may pursue the acquisition of new
or complementary businesses or technologies, although we have no present
understandings, commitments or agreements with respect to any material
acquisitions or investments. We may not be able to successfully expand our
business and operations in a cost-effective or timely manner, and we cannot be
certain that any such efforts would increase overall market acceptance.
Furthermore, any new product, service or Web site launched by us that is not
favorably received by consumers or clients could damage our reputation or our
brand recognition. Expansion of our operations in this manner could also require
significant additional expenses and development and operations resources and
would strain our management, financial and operational resources.
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IF WE ARE UNABLE TO SAFEGUARD THE CONFIDENTIAL INFORMATION IN OUR DATA
WAREHOUSE, OUR REPUTATION MAY BE HARMED AND WE MAY BE EXPOSED TO LIABILITY
We currently retain highly confidential consumer information in a secure
data warehouse. We cannot assure you, however, that we will be able to prevent
unauthorized individuals from gaining access to this data warehouse. Any
unauthorized access to our servers could result in the misappropriation of
confidential consumer information or cause interruptions in our services. If any
compromise or breach of security were to occur, it could harm our reputation and
expose us to possible liability. In addition, our reputation may be harmed if we
lose consumer information maintained in our data warehouse due to systems
interruptions or other reasons. It is also possible that one of our employees or
other authorized or unauthorized personnel could attempt to misuse confidential
consumer information, which would harm our reputation and expose us to
liability.
As a result of these concerns, we may incur significant costs to protect
against the threat of security breaches or to alleviate problems caused by
security breaches, and we may be subject to legal claims if unauthorized third
parties gain access to our system and alter, destroy or misappropriate
information in our database. Also, any public perception that we engaged in the
unauthorized release of information, whether or not correct, would adversely
affect our ability to attract and retain clients.
IF WE ARE UNABLE TO MAINTAIN OUR REPUTATION OR ARE UNSUCCESSFUL IN DEVELOPING
OUR BRAND, WE MAY BE PREVENTED FROM REMAINING COMPETITIVE AND ATTRACTING AND
RETAINING CLIENTS
We believe that our future success will depend on our ability to maintain
and strengthen the GOMEZ ADVISORS brand and to establish and maintain a good
reputation, which will depend, in turn, largely on the success of our marketing
efforts and our ability to provide our clients with high-quality service. To
promote the GOMEZ ADVISORS brand, we intend to increase our marketing expenses,
and we may incur other types of expenses in order to create and maintain brand
loyalty among our clients. However, we cannot assure you that our efforts will
succeed in maintaining and strengthening our brand or our reputation. If we fail
to successfully promote and maintain our brand or our reputation, or incur
excessive expenses attempting to promote and maintain our brand or our
reputation, our business will be harmed.
THE SUCCESS OF OUR BUSINESS DEPENDS, IN PART, ON E-COMMERCE BUSINESSES RENEWING
THEIR SUBSCRIPTIONS FOR OUR SERVICES AND PURCHASING ADDITIONAL SERVICES
A significant portion of our revenues is derived from GOMEZPRO
subscriptions. Our clients have no obligation to renew our services and could
cease using our services once subscriptions expire. We cannot assure you that we
will experience high subscription renewal rates. Our subscription renewals may
decline as a result of a number of factors, including consolidation in the
Internet industry. If our renewals decline, our revenues could decline unless we
are able to obtain additional clients or sources of revenues.
SYSTEM FAILURES OR OTHER UNFORESEEN DISRUPTIONS TO OUR COMPUTER SYSTEM COULD
HARM OUR BUSINESS
The distribution of our services via the Internet utilizes proprietary
technology which resides principally on one computer system. The continued and
uninterrupted performance of our computer system is critical to our success. Any
system failure that causes interruptions in our ability to provide our services
to our clients and Web site users, including failures that affect our ability to
collect data or provide data and analysis via the Internet, could reduce client
and user satisfaction and, if sustained or repeated, would reduce the
attractiveness of our services and our ability to attract customers. We may in
the future move our facilities to a new location which could interrupt the
performance of our computer system and result in a system failure. An increase
in the volume of traffic to our Web sites could strain the capacity of our
software or hardware, which could lead to slower response times or
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system failures. In addition, because we have incorporated third-party software
into our systems and we depend upon Internet service providers to afford
consumers access to our services, we are limited in our ability to prevent
system failures.
Our operations are dependent on our ability to protect our computer system
against damage from computer viruses, fire, power loss, telecommunications
failures, security breaches, vandalism and other malicious acts, and similar
unexpected adverse events. To the extent that our activities involve the storage
and transmission of proprietary information, security breaches could disrupt our
business, damage our reputation and expose us to a risk of loss or litigation
and possible liability. We could also be liable for claims based on the misuse
of personal information, such as for unauthorized marketing purposes. We may
need to spend a great deal of money and use other resources to protect against
the threat of such security breaches or to alleviate problems caused by such
breaches, which would have a negative impact on our financial condition.
In addition, a failure of our telecommunications providers to provide the
data communications capacity in the time frame required by us for any reason
could cause interruptions in the delivery of our services. Unanticipated
problems affecting our systems have from time to time in the past caused, and in
the future could cause, delays and interruptions in the delivery of our
services. Any system failure, security breach or other damage that interrupts or
delays our operations will harm our business.
IF WE ARE NOT ABLE TO PROTECT AND ENFORCE OUR TRADEMARKS AND PROPRIETARY RIGHTS,
WE MAY LOSE THE RIGHTS TO USE IMPORTANT DATA ANALYSIS METHODS OR BE REQUIRED TO
PAY SIGNIFICANT FEES
We regard our analytical methodology, our SCORECARDS and our Web sites'
content as proprietary. We rely primarily upon a combination of trade secret
protection, employee and third-party confidentiality and non-disclosure
agreements, license agreements and other intellectual property protection
methods to protect our proprietary rights. Currently, we have no registered
patents or trademarks. It is possible that unauthorized third parties could copy
or replicate portions of our products or obtain or use information that we
regard as proprietary. We cannot be certain that the steps taken by us will be
adequate to deter unauthorized use of our proprietary information or that we
will be able to afford the high cost required to enforce our intellectual
property rights. Enforcement of such rights could be time consuming and
expensive. The loss of any of those rights could result in our being prohibited
from using our data analysis methods or the requirement that we pay significant
license fees to use such data analysis methods. Further, we cannot be certain
that the non-disclosure and other contractual arrangements we use to protect our
proprietary rights will not be breached, that we will have adequate remedies for
any breach or that our trade secrets will not otherwise become known to or be
independently developed by competitors.
WE MAY NOT BE ABLE TO PROTECT OUR DOMAIN NAMES AGAINST ALL INFRINGERS, WHICH
COULD DECREASE THE VALUE OF OUR BRAND NAME AND PROPRIETARY RIGHTS
We currently have the rights to the Internet domain names GOMEZ.COM,
GOMEZPRO.COM, SCORECARD.COM, GOMEZADVISORS.COM and GOMEZNETWORKS.COM and other
international domain names. Domain names generally are regulated by Internet
regulatory bodies. The regulation of domain names in the United States and in
foreign countries is subject to change. Regulatory bodies could establish
additional top-level domains, appoint additional domain name registrars or
modify the requirements for holding domain names. The relationship between
regulations governing domain names and laws protecting trademarks and similar
proprietary rights is unclear. Therefore, we may be unable to prevent third
parties from acquiring domain names that infringe upon or otherwise decrease the
value of our brand name, trademarks and other proprietary rights.
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WE MAY FACE LIABILITY FOR PUBLISHING INDICES THAT EVALUATE AND RANK THE RELATIVE
INTERNET PERFORMANCE OF WEB SITES.
Our publicly available SCORECARDS evaluate the relative performance of Web
sites in particular e-commerce industries. Some companies whose Web sites have
performed poorly in our rankings have asserted that our rankings are not
indicative of the quality of their products and services. Companies could
potentially bring a claim against us if they believe that their business has
been harmed by their low ranking on our SCORECARDS or if the information we
provide is inaccurate. In addition, if the information published in one of our
SCORECARDS is inaccurate, we could lose credibility in the marketplace. Loss of
credibility or claims based on inaccurate or misleading information could harm
our ability to attract new clients and retain existing clients, and could result
in potentially expensive litigation against us on such theories as defamation,
trade libel or unfair competition.
IMPROVEMENTS TO THE INFRASTRUCTURE OF THE INTERNET COULD REDUCE OR ELIMINATE
DEMAND FOR OUR INTERNET PERFORMANCE MEASUREMENT SERVICES
The demand for our Internet performance measurement services could be
reduced or eliminated if future improvements to the infrastructure of the
Internet lead companies to conclude that measuring and evaluating the
performance of their Web sites is no longer important to their business. The
Internet is a complex, heterogeneous network of communications networks with
multiple operators and vendors supplying and managing the underlying
infrastructure as well as connections to this infrastructure. Because the
inherent complexity of the Internet currently causes significant e-commerce
quality of service problems for companies, the vendors and operators that supply
and manage the underlying infrastructure are continuously seeking to improve the
speed, availability, reliability and consistency of the Internet. If these
vendors and operators succeed in significantly improving the performance of the
Internet, which would result in corresponding improvements in the performance of
companies' Web sites, demand for our services would likely decline.
WE DEPEND UPON STRATEGIC RELATIONSHIPS WITH MEDIA, INTERNET AND TECHNOLOGY
COMPANIES, AND WE MAY NOT BE ABLE TO MAINTAIN AND DEVELOP STRATEGIC
RELATIONSHIPS SUCCESSFULLY
We view our strategic relationships with media, Internet and technology
companies as a key factor in our overall business strategy, and we cannot be
certain that we will be successful in developing new strategic relationships or
that our strategic partners will view such relationships as significant to their
own business or that they will continue their commitment to us in the future.
Our results of operations may be materially adversely affected if any strategic
partner discontinues its relationship with us for any reason. Additionally, any
party to a strategic agreement with us may fail to perform its contractual
obligations and we cannot be certain that we could enforce any such agreement.
We do not generally establish minimum performance requirements for our strategic
partners but instead rely on their voluntary efforts. In addition, many of our
agreements may be terminated by either party with little notice. Therefore, we
cannot be certain that these relationships will be successful.
WE MAY FACE DIFFICULTIES ASSIMILATING AND MAY INCUR COSTS ASSOCIATED WITH ANY
FUTURE ACQUISITIONS
We may acquire or invest in businesses, products or technologies that we
feel could complement or expand our business, augment our market coverage,
enhance our technical capabilities or that may otherwise offer growth
opportunities. We currently have no understandings or agreements relating to any
acquisition. Acquisitions could create risks for us, including:
- difficulties in assimilation of acquired personnel, operations and
technologies;
- unanticipated costs associated with the acquisitions;
- diversion of management's attention from other business concerns;
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- adverse effects on existing business relationships with resellers of our
services and our clients; and
- use of substantial portions of our available cash, including the proceeds
of this offering, to consummate the acquisitions.
WE MAY FACE CHALLENGES IN CONNECTION WITH OUR PLANNED INTERNATIONAL EXPANSION
AND OUR BUSINESS WILL BE SUSCEPTIBLE TO ADDITIONAL RISKS ASSOCIATED WITH
INTERNATIONAL OPERATIONS
Our current strategy includes expansion of our services to measure Internet
performance of e-commerce businesses located outside of the United States. Our
expansion into international markets will require management's attention and a
commitment of significant resources. Conducting international operations will
subject us to risks we do not face in the United States and include:
- currency exchange rate fluctuations;
- unexpected changes in foreign regulatory requirements;
- maintaining and servicing computer hardware in distant locations;
- longer accounts receivable payment cycles and difficulties in collecting
accounts receivable;
- difficulties in managing and staffing international operations;
- potentially adverse tax consequences, including restrictions on the
repatriation of earnings;
- difficulty navigating a wide variety of foreign laws; and
- reduced protection for intellectual property rights in some countries.
The Internet may not be used as widely in other countries and the adoption
of e-commerce may evolve slowly or may not evolve at all. We cannot assure you
that we will be successful in developing and marketing our services in markets
outside the United States.
RISKS RELATED TO THE INTERNET INDUSTRY
DEMAND FOR OUR SERVICES MAY DECREASE IF GROWTH IN THE USE OF THE INTERNET OR
E-COMMERCE DOES NOT CONTINUE OR DECLINES
Our future success depends in part on the continued growth in, and use of,
the Internet and e-commerce. We cannot be certain that this growth will continue
or that a sufficient number of consumers will adopt and continue to use the
Internet as a medium of commerce. The development of the Internet and e-commerce
as a viable commercial marketplace is subject to a number of factors, including
the following:
- the early stage development of e-commerce and buyers' unwillingness to
shift their purchasing habits from traditional vendors to e-commerce
vendors;
- insufficient Internet infrastructure to support expected growth;
- inconsistent quality of service as a result of outages or other delays
occurring throughout the Internet infrastructure;
- insufficient availability of telecommunications services or changes in
telecommunications services that could result in slower response times;
and
- adverse publicity and consumer concern about the security of e-commerce
transactions that could discourage its acceptance and growth.
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If the Internet does not continue to grow, or if e-commerce is not adopted
as a medium of commerce by a broad base of consumers, our business may not grow
or may grow at a slower rate than we anticipate.
BREACHES OF SECURITY ON THE INTERNET MAY ADVERSELY AFFECT OUR BUSINESS BY
SLOWING THE GROWTH OF E-COMMERCE AND ONLINE ADVERTISING AND EXPOSE US TO
LIABILITY
The need to securely transmit confidential information, such as credit card
and other personal information, over the Internet has been a significant barrier
to e-commerce and communications over the Internet. Any well-publicized
compromise of security could deter more people from using the Internet or from
using it to conduct transactions that involve transmitting confidential
information, such as purchases of goods or services. Furthermore, decreased
traffic and e-commerce sales as a result of general security concerns could
cause advertisers to reduce their amount of online spending.
WE COULD FACE LIABILITY FOR INFORMATION DISPLAYED ON AND COMMUNICATIONS THROUGH
OUR WEB SITES
We may be subjected to claims for defamation, negligence, copyright or
trademark infringement or claims based on other theories relating to the
information we publish on our Web sites. Litigants have brought these types of
claims against Internet companies as well as print publications in the past. In
addition, based on the links we provide to other Web sites, we could also be
subjected to claims based upon online content we do not control that is
accessible from our Web sites. Claims may also be based on statements made and
actions taken as a result of materials posted by members on bulletin boards.
Such claims could divert our management's attention and resources and result in
substantial costs to us.
WE FACE RISKS ASSOCIATED WITH GOVERNMENT REGULATION OF AND LEGAL UNCERTAINTIES
SURROUNDING THE INTERNET
Any new law or regulation pertaining to the Internet, or the application or
interpretation of existing laws, could increase our cost of doing business. Laws
and regulations directly applicable to Internet communications, commerce and
advertising are becoming more prevalent. Additionally, several states have
proposed legislation that would limit the uses of personal user information
gathered using the Internet. The law governing the Internet, however, remains
largely unsettled, even in areas where there has been some legislative action.
It may take years to determine whether and how existing laws governing
intellectual property, copyright, privacy, obscenity, libel, taxation and
provision of financial services apply to the Internet. In addition, the growth
and development of e-commerce may prompt calls for more stringent consumer
protection laws, both in the United States and abroad.
RISKS RELATED TO THIS OFFERING
OUR STOCK PRICE WILL FLUCTUATE AFTER THIS OFFERING, WHICH COULD RESULT IN
SUBSTANTIAL LOSSES FOR INVESTORS
Although the initial public offering price of our common stock will be
determined based on several factors, the market price for our common stock will
vary from the initial offering price after trading commences. This could result
in a substantial loss to investors. The market price of the common stock may
fluctuate significantly in response to a number of factors, some of which are
beyond our control, including:
- quarterly variations in operating results;
- changes in financial estimates by securities analysts;
- changes in market valuation of Internet companies;
- announcements by us of significant contracts, acquisitions, strategic
partnerships, joint ventures or capital commitments;
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- loss of a major client;
- additions or departures of key personnel;
- any shortfall in revenues or net income or any increase in losses from
levels expected by securities analysts;
- future sales of common stock; and
- stock market price and volume fluctuations, which are particularly common
among highly volatile securities of Internet companies.
The trading prices of Internet-related companies and e-commerce companies
have been especially volatile. Investors may be unable to resell their shares of
our common stock at or above the offering price. In the past, securities class
action litigation has often been brought against a company following periods of
volatility in the market price of its securities. We may in the future be the
target of similar litigation. Securities litigation could result in substantial
costs and divert management's attention and resources.
FUTURE SALES OF OUR COMMON STOCK MAY CAUSE OUR STOCK PRICE TO DECLINE
If our stockholders sell substantial amounts of our common stock in the
public market following this offering, the market price of our common stock
could decline. Based on shares outstanding as of March 31, 2000, upon completion
of this offering we will have outstanding shares of common stock,
assuming no exercise of the underwriters' over-allotment option. Of these
shares, the shares of our common stock sold in this offering will be
freely tradable, without restriction, in the public market. Our directors,
officers and other stockholders have entered into lock-up agreements in
connection with this offering, generally providing that they will not sell,
otherwise dispose of or transfer any of the economic consequences of ownership
of our common stock or other securities without the prior written consent of
Merrill Lynch. The lock-up restrictions will expire 180 days after the date of
this prospectus. As a result, a substantial number of shares of our common stock
will be eligible for sale in the public market after the expiration of the
customary lock-up period following an initial public offering.
In addition, approximately shares under outstanding options and
approximately shares available for grant under our stock option plans as
of March 31, 2000 will become eligible for sale in the public market once
permitted by provisions of various vesting agreements, lock-up agreements and
Rules 144 and 701 under the Securities Act, as applicable. Additionally, under
our stock plans, options fully vest upon a change of control of Gomez
Advisors.
PURCHASERS OF SHARES IN THIS OFFERING WILL INCUR IMMEDIATE AND SUBSTANTIAL
DILUTION
The initial public offering price is expected to be substantially higher
than the book value per share of our outstanding common stock. As a result,
investors purchasing common stock in this offering will incur immediate
substantial dilution of approximately $ per share. In addition, we have
issued options to acquire common stock at prices significantly below the initial
offering price. To the extent these outstanding options are ultimately
exercised, there will be further dilution to investors in this offering.
FUTURE ISSUANCES OF PREFERRED STOCK OR CONVERTIBLE DEBT MAY DILUTE THE RIGHTS OF
OUR COMMON STOCKHOLDERS AND THE VALUE OF OUR COMMON STOCK
If we raise additional funds through the sale of equity or convertible debt
securities, your percentage ownership will be reduced. In addition, these
transactions may dilute the value of your stock. Our board of directors will
have the authority to issue up to 10,000,000 shares of preferred stock
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and to determine the price, privileges and other terms of such shares. The board
of directors may exercise this authority without the approval of the
stockholders. We may issue securities that have rights, preferences and
privileges senior to the common stock we are offering, or any of our other
securities currently outstanding. The rights of the holders of common stock may
be adversely affected by the rights of the holders of any preferred stock that
may be issued in the future.
WE WILL HAVE BROAD DISCRETION TO USE THE PROCEEDS FROM THE OFFERING AND YOU MAY
NOT AGREE WITH OUR USE
Our management will have broad discretion over the application of the net
proceeds of this offering and you may not agree with the use of the proceeds.
Because of the number and variety of factors that could determine our use of the
net proceeds from this offering, there can be no assurance that such uses will
not vary substantially from our current intentions.
WE DO NOT INTEND TO PAY CASH DIVIDENDS IN THE NEAR FUTURE
We have not paid cash dividends since our inception and do not intend to pay
cash dividends in the foreseeable future.
PROVISIONS OF DELAWARE LAW AND OUR CHARTER COULD MAKE A THIRD-PARTY ACQUISITION
OF US DIFFICULT EVEN IF THE CHANGE OF CONTROL WOULD BE FAVORED BY STOCKHOLDERS
The anti-takeover provisions of Delaware law could make it more difficult
for a third party to acquire control of us, even if the change in control would
be beneficial to stockholders. Our certificate of incorporation and by-laws also
contain provisions that may discourage, delay or prevent a merger or acquisition
that a stockholder may consider favorable. These provisions include:
- a classified board of directors, with three classes of directors each
serving a staggered three-year term;
- the ability of the board of directors to issue preferred stock without
stockholder approval; and
- the inability of our stockholders to call a special meeting or act by
written consent.
OUR OFFICERS AND DIRECTORS AND SOME EXISTING STOCKHOLDERS WILL EXERCISE
SIGNIFICANT CONTROL OVER GOMEZ ADVISORS AND COULD PREVENT OR DELAY BENEFICIAL
CORPORATE ACTIONS
After this offering, our executive officers and directors and existing
stockholders will own or control approximately % of our outstanding common
stock. As a result, these stockholders will be able to exercise significant
control over all matters requiring stockholder approval, including the election
of directors and approval of significant corporate transactions, which could
delay or prevent another entity from acquiring or merging with us. See
"Principal Stockholders."
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business," and elsewhere in this prospectus constitute
forward-looking statements. These statements involve known and unknown risks,
uncertainties, and other factors that may cause our or our industry's actual
results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by these forward-looking statements. In some
cases, you can identify forward-looking statements by terminology like "may,"
"will," "should," "expects," "plans," "anticipates," "believes," "estimates,"
"predicts," "potential," "continue" or the negative of these terms or other
comparable terminology.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. We are under no duty to update any of the
forward-looking statements after the date of this prospectus to conform these
statements to actual results.
This prospectus contains estimates of market growth related to the Internet
and e-commerce. These estimates have been included in studies published by
nationally-known market research firms. These estimates assume that certain
events, trends and activities will occur. These estimates have been produced by
industry analysts based on trends to date, their knowledge of technologies and
markets, and customer research, but these events are forecasts only and are
subject to inherent uncertainty. There can be no assurance that, even if these
assumptions are correct, we will experience similar growth or market acceptance.
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USE OF PROCEEDS
The net proceeds that we will receive from our sale of common stock in this
offering are estimated to be approximately $ million, based upon our
assumed initial offering price of $ per share, after deducting the
underwriters' fees and estimated offering expenses payable by us.
We currently intend to use the net proceeds of this offering as follows:
- to market our existing services;
- to develop and market new products and services;
- to add personnel;
- to expand our network operations and physical facilities;
- for working capital; and
- for general corporate purposes, including possible acquisitions of or
investments in complementary businesses, products or technologies.
At the present time, we have no understandings, commitments or agreements
with respect to any material acquisition. Pending the use of the net proceeds of
the offering for the purposes described above, we intend to invest such funds in
short-term, interest-bearing, investment-grade securities.
The foregoing discussion is merely an estimate based on our current business
plans. Our actual expenditures may vary depending upon circumstances not yet
known, such as the time actually required to reach profitability, or to
successfully develop new products. Accordingly, our management will have broad
discretion in the application of the net proceeds.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock. We
currently intend to retain future earnings, if any, to finance operations and
expand our business. Therefore, we do not anticipate paying any cash dividends
in the foreseeable future.
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CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999:
- on an actual basis,
- on a pro forma basis giving effect to the automatic conversion of all of
our shares of redeemable convertible preferred stock and Series A
Preferred Stock outstanding as of December 31, 1999 into a total of
9,752,839 shares of common stock upon the completion of this offering; and
- on a pro forma as adjusted basis giving effect to the automatic conversion
of all outstanding shares of redeemable convertible preferred stock and
Series A Preferred Stock into a total of 11,282,112 shares of common stock
(which includes 1,996,273 shares of redeemable convertible preferred stock
sold subsequent to December 31, 1999), the repurchase of 500 shares of
Series A Preferred Stock in February 2000, and the accretion of additional
dividends on Series B Redeemable Convertible Preferred Stock at March 31,
2000 and the sale of an aggregate of shares of common stock in
this offering, after deducting the underwriting fees and estimated
offering expenses payable by us, and the application of the net proceeds
from this offering.
This information should be read in conjunction with our consolidated
financial statements and the accompanying notes appearing elsewhere in this
prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Redeemable Convertible Preferred Stock.................... $22,143 $ -- $
------- ------- ------------
Series A Preferred stock:
$0.01 par value; 10,000 shares designated, 4,905 shares
issued and outstanding actual and no shares pro forma
and pro forma as adjusted............................... 1,500 -- --
Common Stock, $0.0001 par value; 40,000,000 shares
authorized, 3,695,666 shares issued and outstanding
actual and 13,448,505 shares issued and outstanding pro
forma and pro forma as adjusted......................... -- 1
Additional paid-in capital................................ 31,270 54,912
Deferred stock-based compensation......................... (6,777) (6,777)
Accumulated deficit....................................... (31,913) (31,913)
------- ------- ------------
Total stockholders' (deficit) equity.................. (5,920) 16,223
------- ------- ------------
Total capitalization.................................. $16,223 $16,223
======= ======= ============
</TABLE>
The number of shares of common stock outstanding excludes:
- 6,012,085 shares of common stock authorized for issuance under our stock
option plans, under which 5,693,584 shares of common stock are issuable
upon the exercise of options outstanding at March 31, 2000, at a weighted
average exercise price of $3.50 per share; and
- 247,059 shares of common stock issuable upon the exercise of warrants
outstanding as of March 31, 2000, at a weighted average exercise price of
$7.08 per share.
19
<PAGE>
DILUTION
Our pro forma net tangible book value as of December 31, 1999, after giving
effect to the automatic conversion of our redeemable convertible preferred
stock, and Series A Preferred Stock into a total of 9,752,839 shares of common
stock (which excludes 1,996,273 shares of Series C Convertible Preferred Stock
sold subsequent to December 31, 1999, the repurchase of 500 shares of Series A
Preferred Stock in February 2000, and the accretion of additional dividends on
Series B Redeemable Convertible Preferred Stock at March 31, 2000) upon the
completion of this offering, was $16.2 million or $1.21 per share of common
stock. Pro forma net tangible book value per share represents the amount of
total tangible assets less total liabilities, divided by the number of shares of
common stock outstanding. Assuming the sale by us of shares of
common stock in this offering at an assumed initial public offering price of
$ per share, and the application of the estimated net proceeds from this
offering, our pro forma net tangible book value as of December 31, 1999 would
have been $ million, or $ per share of common stock. This represents
an immediate increase in pro forma net tangible book value of $
per share to our existing stockholders and an immediate dilution in pro forma
net tangible book value of $ per share to new investors purchasing
shares in this offering. The following table illustrates this dilution on a per
share basis:
<TABLE>
<S> <C> <C>
Assumed public offering price per share..................... $
Pro forma net tangible book value per share as of December
31, 1999................................................ $ 1.21
Pro forma increase per share attributable to new
investors...............................................
-------
Pro forma net tangible book value per share after this
offering..................................................
-------
Pro forma dilution per share to new investors............... $
=======
</TABLE>
The following table summarizes, on a pro forma basis as of December 31,
1999, the total number of shares of common stock purchased from us, the total
consideration paid to us and the average price per share paid by the existing
stockholders and by the new investors, based upon an assumed initial public
offering price of $ per share for shares purchased in this
offering, before deducting the estimated underwriting discounts and commissions
and offering expenses:
<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% 100%
================== ==== =================== ====
</TABLE>
These tables assume no exercise of any outstanding stock options or warrants
to purchase common stock including:
- 6,012,085 shares of common stock authorized for issuance under our stock
option plans, under which 5,693,584 shares of common stock are issuable
upon the exercise of outstanding options as of March 31, 2000 at a
weighted average exercise price of $3.50 per share; and
- 247,059 shares of common stock issuable pursuant to warrants issued after
December 31, 1999 at a weighted average exercise price of $7.08 per share.
To the extent such options are exercised, there will be further dilution to the
new investors.
Assuming these options and warrants are exercised, our pro forma net
tangible book value at December 31, 1999 would be $1.26 per share, representing
an immediate increase in pro forma net tangible book value of $.05 per share to
our existing stockholders and an immediate dilution in pro forma net tangible
book value of $ per share to new investors.
20
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our consolidated financial statements and the
notes to those statements included elsewhere in this prospectus. The
consolidated statement of operations data for the period from May 22, 1997
(inception) through March 31, 1998, for the twelve months ended March 31, 1999
and for the nine months ended December 31, 1999 and summary consolidated balance
sheet data as of March 31, 1998, March 31, 1999 and December 31, 1999 have been
derived from our audited consolidated financial statements appearing elsewhere
in this prospectus and have been audited by Arthur Andersen LLP.
<TABLE>
<CAPTION>
PERIOD FROM NINE MONTHS
MAY 22, 1997 12 MONTHS ENDED
(INCEPTION) THROUGH ENDED DECEMBER 31,
MARCH 31, 1998 MARCH 31, 1999 1999
------------------- -------------- -------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net revenues.................................... $ 298 $ 1,539 $ 3,241
Total operating expenses........................ 655 17,905 16,798
Loss from operations............................ (357) (16,366) (13,557)
Net loss applicable to common stockholders...... (357) (17,859) (13,698)
Basic and diluted net loss per common share..... $(370.27) $ (44.87) $ (6.53)
Basic and diluted weighted average common shares
outstanding................................... 963 398,044 2,096,595
Pro forma net loss per common share............. (1.11)
Pro forma basic and diluted weighted average
common shares outstanding..................... 12,356,567
</TABLE>
<TABLE>
<CAPTION>
AS OF
MARCH 31, AS OF
------------------- DECEMBER 31,
1998 1999 1999
-------- -------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................................. $ 134 $ 36 $ 16,427
Working capital............................................ (422) (325) 14,256
Total assets............................................... 341 1,050 19,960
Redeemable convertible preferred stock..................... -- -- 22,143
Total stockholders' equity (deficit)....................... (332) 357 (5,920)
</TABLE>
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION OF OUR FINANCIAL CONDITION AND RESULTS OF
OPERATIONS SHOULD BE READ TOGETHER WITH THE FINANCIAL STATEMENTS AND THE RELATED
NOTES INCLUDED ELSEWHERE IN THIS PROSPECTUS. THIS DISCUSSION CONTAINS
FORWARD-LOOKING STATEMENTS BASED ON OUR CURRENT EXPECTATIONS, ASSUMPTIONS,
ESTIMATES AND PROJECTIONS. THESE FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND
UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED
IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING
THOSE DESCRIBED IN THE "RISK FACTORS" SECTION AND ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
We help businesses grow online by providing them with targeted customer
leads as well as data and tools relating to the e-commerce competitive
environment and consumer marketplace. Our GOMEZ.COM portal is designed to
attract consumers who are in the process of selecting an e-commerce provider to
meet their needs and who are, therefore, more likely to transact business online
contemporaneously with that provider. Our GOMEZPRO.COM Web site and additional
GOMEZPRO services provide online consumer experience measurement tools that are
designed to assist businesses in executing their e-commerce strategy.
Gomez Advisors, Inc. was founded in May 1997 to provide e-commerce decision
support to both consumers and businesses. In June 1997, we introduced the
INTERNET BROKER SCORECARD on the GOMEZ.COM consumer Internet portal. Our
SCORECARD methodology provides rankings and analysis of e-commerce companies
that are designed to provide consumers with a more efficient and informed
Internet experience. As of March 31, 2000, we have added SCORECARDS in an
additional 27 e-commerce industries. Since March 1999, we have offered GOMEZPRO
services in the online brokerage and banking industries. In February 2000, we
expanded our GOMEZPRO service offerings to 23 additional e-commerce industries.
We generate a substantial portion of our revenues from a limited number of
customers. For the twelve month period ended March 31, 1999, Web Street
Securities and Waterhouse Securities accounted for 16.2% and 12.0% of our total
revenues, respectively. For the nine month period ended December 31, 1999,
E*TRADE accounted for 19.2% of our total net revenues. Additionally, receivables
from E*TRADE were $480,000 at December 31, 1999, representing approximately 30%
of our outstanding accounts receivable on that date. No other single customer
accounted for more than 10% of our total revenues during these periods.
We have incurred net losses of $31.7 million from inception (May 22, 1997)
to December 31, 1999. We believe that we will continue to incur net losses for
at least the next two years, and possibly longer, and that the rate at which we
will incur such losses will increase significantly from current levels. We
anticipate our losses will increase because we expect to incur additional costs
and expenses related to personnel, brand development, marketing, and other
promotional activities, content development, technology and infrastructure
development. As a result, we will need to generate significant revenues to
achieve profitability and may never achieve profitability.
We changed our fiscal year end to December 31 from March 31, effective at
December 31, 1999. As a result of this change we have reported the results of
our operations for the nine months ended December 31, 1999.
NET REVENUES
Net revenues consist of total revenues from our GOMEZ.COM and GOMEZPRO
service offerings net of allowances.
GOMEZ.COM. We generate revenues by promoting contact between consumers and
businesses in industries for which we provide SCORECARDS or merchant
certification. We charge businesses that have agreed to pay for lead generation
a fee when a consumer engages in designated transactions with such
22
<PAGE>
business via our Web site. These fees vary based on the type of transaction the
consumer conducts with the participating provider. We began generating revenues
from these lead generation services in June 1998. We focus on generating fees
from leads that result in high value transactions and customer acquisitions in
industries where the customer acquisition cost is relatively high. Revenues are
recognized when a consumer has completed the transaction and there are no
further conditions or obligations and our receipt of payment from the provider
is fixed and determinable and collection is probable.
GOMEZPRO. GOMEZPRO revenues are typically subscription or service based. We
generally invoice our customers in advance and recognize revenue over the
subscription period or as services are performed.
- GOMEZPRO DATA STATION. We sell annual subscriptions to the GOMEZPRO DATA
STATION to companies interested in e-commerce. Each subscription provides
businesses with access to our GOMEZPRO.COM Web site where the basic suite
of GOMEZPRO DATA STATION services are featured. Subscriptions are provided
on a company-wide basis and vary according to the industry tracked. For
additional subscription fees, businesses have the opportunity to increase
the number of industries tracked by the GOMEZPRO DATA STATION.
- ADVANCED DATA SERVICES. We sell subscriptions to our consumer market
intelligence data and sell reports to e-commerce business. These services
are delivered electronically and in print format at clients' requests.
- ADVISORY SERVICES. We are paid on either a per-project or retainer basis
to advise businesses interested in e-commerce on a variety of issues
relating to our service offerings, market and new venture assessment, Web
site evaluation and customer acquisition and retention.
DIRECT COSTS OF NET REVENUES. Direct costs of net revenues consist
principally of documentation, production, Web site administration and
maintenance costs, and payroll and benefits related to research, advisory and
delivery of our services.
DIRECT MARKETING INCENTIVES. Direct marketing incentive payments consist of
incentive payments we make to consumers who enter into transactions through our
GOMEZ.COM Web site with participating providers.
SALES AND MARKETING. Sales and marketing expenses consist primarily of
salaries, commissions and bonuses earned by sales and marketing personnel, costs
of sales and marketing programs, and public relations costs. We believe that a
significant increase in our sales and marketing efforts is essential for us to
maintain our market position and to continue to build our brand and to further
increase acceptance of our services. As a result, we expect that sales and
marketing expenses will increase significantly and continue to account for a
significant portion of our operating expenses.
ENGINEERING. Engineering expenses consist primarily of salaries and related
expenses for technical personnel and system development costs.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of salaries and related expenses for management personnel, accounting,
legal and administrative expenses, professional service fees and other general
corporate expenses. We expect our general and administrative expenses to
increase in absolute dollars as we expand our administrative staff and incur
additional costs related to the anticipated growth of our business as a public
company.
STOCK BASED COMPENSATION. We recorded deferred stock-based compensation in
connection with stock options granted and common stock issued during the fiscal
year ended March 31, 1999 and the nine months ended December 31, 1999 related to
our recapitalization in January 1999. The deferred stock-based compensation
amount represents the difference between the exercise price of stock option
grants or purchase price of common stock and the deemed fair value of our common
stock on the date
23
<PAGE>
of grant or sale. These amounts are being amortized over the vesting periods of
the applicable agreements. We currently expect the aggregate unamortized amount
of $6.8 million to be expensed upon the closing of this offering.
PROVISION FOR INCOME TAXES. No provision for federal and state income taxes
has been recorded because we have experienced net losses since inception which
have resulted in deferred tax assets. In light of our recent history of
operating losses, we have provided a valuation allowance for our deferred tax
assets as we are presently unable to conclude that it is more likely than not
that the deferred tax asset will be realized.
RECAPITALIZATION OF GOMEZ ADVISORS
Prior to January 22, 1999, we were a wholly-owned subsidiary of The Ashton
Technology Group, Inc., or Ashton. On January 22, 1999, we entered into an
exchange agreement with Ashton and certain of our officers and officers of
Ashton. Under the exchange agreement, we converted $1,475,000 of debt owed to
Ashton into shares of our common stock, which were then converted into 4,905
shares of Series A Preferred Stock. In addition, some executives of Ashton
exchanged their equity interests in us and cash in the amount of $10,000 for
1,000,000 shares of our common stock. In connection with the exchange agreement,
we issued an additional 631,000 shares of common stock to employees of Ashton at
the direction of Ashton in April and May 1999. Also, in connection with the
exchange agreement, our founders exchanged their equity interests in us, and
cash in the amount of $21,030 for 2,103,000 shares of common stock, and options
to purchase 3,003,000 shares of common stock.
RECENT DEVELOPMENTS
In February 2000, we issued 1,996,273 shares of Series C Convertible
Preferred Stock for proceeds of approximately $10,000,000.
On February 18, 2000, we repurchased 98,039 shares of common stock from
Mr. John Robb, our president and chief operating officer, at a purchase price of
$5.10 per share, for an aggregate of $500,000.
On February 23, 2000, we repurchased 500 shares of Series A Preferred Stock
for $2,550,000 from the Ashton Technology Group, Inc., a greater than five
percent beneficial stockholder. Each share of Series A Preferred Stock is
convertible into 1,000 shares of common stock, and the purchase price of the
Series A Preferred Stock in this transaction was based on an as converted value
of common stock of $5.10 per share.
On March 6, 2000 we repurchased 98,039 shares of common stock from
Mr. Julio Gomez, our chairman of the board of directors and chief executive
officer, at a purchase price of $5.10 per share, for an aggregate of $500,000.
RESULTS OF OPERATIONS
In view of the rapidly changing nature of our business and our limited
operating history, we believe that a historical comparison of revenue and
operating results is not necessarily meaningful and should not be relied upon as
an indication of future performance. This is particularly true of companies such
as ours that operate in new and rapidly evolving markets. As a result, our
prospects must be considered in light of the risks, expenses and difficulties
encountered by companies in their early state of development, particularly
companies in new and rapidly evolving markets, such as ours.
24
<PAGE>
The table below sets forth certain of our consolidated statements of
operations data expressed as a percentage of net revenues. The historical
results are not necessarily indicative of results to be expected for any future
period.
<TABLE>
<CAPTION>
INCEPTION FISCAL YEAR NINE
(MAY 22, 1997) ENDED MONTHS ENDED
TO MARCH 31, MARCH 31, DECEMBER 31,
1998 1999 1999
------------------- ------------------- -------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net revenues......................... $ 298 100% $ 1,539 100% $ 3,241 100%
Costs and expenses:
Direct costs of net revenues....... 216 72.4 781 50.7 2,312 71.3
Direct marketing incentives........ -- -- -- -- 486 15.0
Sales and marketing................ 75 25.1 365 23.7 4,244 130.9
Engineering........................ 268 89.8 754 49.0 1,753 54.1
General and administrative......... 96 32.2 463 30.1 1,211 37.3
Stock-based compensation........... -- 0.0 15,542 1,009.7 6,792 209.6
----- ------ -------- -------- -------- ------
Total operating expenses......... 655 219.5 17,905 1,163.2 16,798 (518.2)
Loss from operations................. (357) (119.5) (16,366) (1063.2) (13,557) (418.2)
Other expense........................ -- -- -- -- -- --
Interest income...................... -- -- 7 0.4 96 3.1
Interest expense..................... -- -- (1,500) (97.5) (1) --
----- ------ -------- -------- -------- ------
Net loss............................. $(357) (119.5)% $(17,859) (1,160.3)% $(13,462) (415.3)%
===== ====== ======== ======== ======== ======
</TABLE>
FISCAL YEAR ENDED MARCH 31, 1999 COMPARED TO THE NINE MONTHS ENDED
DECEMBER 31, 1999
NET REVENUES. Our net revenues were $1,539,000 for the fiscal year ended
March 31, 1999 and $3,241,000 for the nine months ended December 31, 1999,
representing an increase of $1,702,000, or 111%. Net revenues from GOMEZ.COM
were $529,000 for the fiscal year ended March 31, 1999 and $1,485,000 for the
nine months ended December 31, 1999, representing an increase of $956,000 or
181%. Net revenues from GOMEZPRO were $1,010,000 for the fiscal year ended
March 31, 1999 and $1,757,000 for the nine months ended December 31, 1999,
representing an increase of $747,000 or 74%. The increase in net revenue for
GOMEZ.COM was attributable to the introduction of lead generation and
transaction-based revenues on the GOMEZ.COM Web site in June 1999. The increase
in net revenue for GOMEZPRO was attributable to an increase in the number of
GOMEZPRO subscriptions and market data deliveries.
DIRECT COSTS OF NET REVENUES. Direct costs of net revenues were $781,000
for the fiscal year ended March 31, 1999 and $2,312,000 for the nine months
ended December 31, 1999, representing an increase of $1,531,000 or 196%. This
increase was primarily attributable to the increase in salaries, overhead and
production costs associated with the delivery of additional GOMEZPRO services
during the nine months ended December 31, 1999.
DIRECT MARKETING INCENTIVES Direct marketing incentives were $486,000 for
the nine months ended December 31, 1999. We began making payments to our users
in July 1999 who enter into transactions with participating online businesses
through our GOMEZ.COM portal.
SALES AND MARKETING. Our sales and marketing expenses were $365,000 for the
fiscal year ended March 31, 1999 and $4,244,000 for the nine months ended
December 31, 1999, representing an increase of $3,879,000 or 1,063%. This
increase was primarily attributable to a radio advertising campaign in
25
<PAGE>
three major markets, as well as the public relations fees associated with the
campaign. The increase also reflects an increase in sales and marketing
personnel, promotional activities, as well as salaries and referral fees to
recruit and hire sales managers, sales representatives and client managers.
ENGINEERING. Engineering expenses were $754,000 for the fiscal year ended
March 31, 1999 and $1,753,000 for the nine months ended December 31, 1999,
representing an increase of $999,000 or 132%. This increase was attributable to
an increase in personnel associated with continued development of our services.
GENERAL AND ADMINISTRATIVE. Our general and administrative expenses were
$463,000 for the fiscal year ended March 31, 1999 and $1,211,000 for the nine
months ended December 31, 1999, representing an increase of $747,000 or 161%.
This increase was primarily attributable to hiring additional employees to
support the growth of our business.
STOCK BASED COMPENSATION. We recorded stock based compensation expense of
$15,542,000 for the year ending March 31, 1999 and $6,792,000 for the nine
months ended December 31, 1999 related to common stock and common stock options
issued as part of our recapitalization.
LOSS FROM OPERATIONS. Our operating loss from operations was $16,366,000
for the fiscal year ended March 31, 1999 and $13,557,000 for the nine months
ended December 31, 1999, representing a decrease of $2,809,000 or 17%. Our loss
from operations from GOMEZ.COM was $8,360,000 for the fiscal year ended
March 31, 1999 and $7,322,000 for the nine months ended December 31, 1999. The
$1,038,000 decrease in loss from operations was primarily attributable to the
decrease in stock based compensation expense from $7,771,000 for the fiscal year
ended March 31, 1999 to $3,396,000 for the nine months ended December 31, 1999.
Operating expenses for GOMEZ.COM excluding stock based compensation increased
primarily related to the hiring of additional employees and launching a
marketing campaign. Our loss from operations from GOMEZPRO was $7,720,000 for
the fiscal year ended March 31, 1999 and $4,974,000 for the nine months ended
December 31, 1999. The $2,746,000 decrease in operating loss was primarily
attributable to the decrease in stock based compensation expense from $7,771,000
for the fiscal year ended March 31, 1999 to $3,396,000 for the nine months ended
December 31, 1999. Operating expenses for GOMEZPRO excluding stock based
compensation increased primarily related to hiring additional employees,
increased overhead expenses and development costs to support the growth of our
business.
INTEREST INCOME (EXPENSE), NET. Net interest expense was $1,493,000 for the
year ended March 31, 1999 and net interest income was $95,000 for the nine
months ended December 31, 1999, representing an increase of $1,588,000 or 106%.
Our interest expense for the fiscal year ended March 31, 1999 was primarily the
result of $1,500,000 of non-cash interest expense relating to the exchange of
debt for shares of common stock pursuant to the exchange agreement with Ashton.
NET LOSS. Our net loss was $17,859,000 for the year ended March 31, 1999
and $13,462,000 for the nine months ended December 31, 1999 as a result of the
matters discussed above.
PERIOD FROM INCEPTION (MAY 22, 1997) TO MARCH 31, 1998 COMPARED TO THE
FISCAL YEAR ENDED MARCH 31, 1999
NET REVENUES. Our net revenues were $298,000 for the period from inception
(May 22, 1997) to March 31, 1998 and $1,539,000 for the year ended March 31,
1999, representing an increase of $1,241,000, or 416%. Net revenues from
GOMEZPRO were $298,000 for the period from inception to March 31, 1998 and
$1,010,000 for the fiscal year ended March 31, 1999, representing an increase of
$712,000 or 239%. Net revenues from GOMEZ.COM were $529,000 for the fiscal year
ended March 31, 1999, the first year we offered GOMEZ.COM services. The increase
in net revenues from GOMEZPRO was primarily attributable to the increase in
advisory services and advanced data services.
26
<PAGE>
DIRECT COSTS OF NET REVENUES. Direct costs of net revenues were $216,000
for the period from inception to March 31, 1998 and $781,000 for the fiscal year
ended March 31, 1999, representing an increase of $565,000 or 262%. The increase
was attributable to an increase in salaries, overhead and production costs
associated with the delivery of additional services during the period ended
March 31, 1999.
SALES AND MARKETING. Our sales and marketing expenses were $75,000 for the
period from inception to March 31, 1998 and $365,000 for the fiscal year ended
March 31, 1999, representing an increase of $290,000 or 387%. This increase was
primarily attributable to an increase in sales and marketing personnel,
promotional activities, as well as, salaries and referral fees to recruit and
hire sales managers, sales representatives and client managers.
ENGINEERING. Engineering expenses were $268,000 for the period from
inception to March 31, 1998 and $754,000 for the year ended March 31, 1999,
representing an increase of $486,000 or 181%. This increase was primarily
attributable to the increase in personnel associated with continued development
of our services.
GENERAL AND ADMINISTRATIVE. Our general and administrative expenses were
$96,000 for the period from inception to March 31, 1998 and $463,000 for the
year ended March 31, 1999, representing an increase of $367,000 or 382%. This
increase was primarily related to hiring additional employees to support the
growth of our business.
STOCK BASED COMPENSATION. We recorded stock based compensation expense of
$15,542,000 for the twelve months ending March 31, 1999.
INTEREST INCOME (EXPENSE), NET. There was no interest expense for the
period from inception to March 31, 1998. Net interest expense was $1,493,000 for
the year ended March 31, 1999. This increase was primarily attributable to
interest related to the exchange of shares pursuant to the exchange agreement
with Ashton, offset by interest income from cash and cash equivalents.
LOSS FROM OPERATIONS. Our loss from operations was $357,000 for the period
from inception to March 31, 1998 and $16,366,000 for the year ended March 31,
1999, representing an increase of $16,010,000 or 4,497%. The loss from
operations from GOMEZ.COM was $229,000 from inception to March 31, 1998 and
$8,360,000 for the fiscal year ended March 31, 1999. The $8,131,000 increase in
loss from operations was primarily attributable the recognition of stock based
compensation expense of $7,771,000 in the fiscal year ended March 31, 1999 as
well as the hiring of additional employees and increased overhead expenses to
support the growth of our business. Our loss from operations from GOMEZPRO was
$25,000 from inception to March 31, 1998 and was $7,720,000 for the fiscal year
ended March 31, 1999. The $7,695,000 increase in loss from operations was
primarily attributable to the recognition of stock based compensation expense of
$7,771,000 in the fiscal year ended March 31, 1999.
NET LOSS. Our net loss was $357,000 for the period from inception to
March 31, 1998 and $17,859,000 for the year ended March 31, 1999 as a result of
the matters discussed above.
27
<PAGE>
SELECTED QUARTERLY RESULTS OF OPERATIONS
The following table presents unaudited quarterly results of operations for
calendar 1999 in absolute dollars and as a percentage of our net revenues for
each quarter. These tables should be read in conjunction with our consolidated
financial statements and related notes appearing elsewhere in this prospectus.
This data has been derived from our unaudited financial statements that have
been prepared on the same basis as the audited financial statements and include
all adjustments (consisting only of normal recurring adjustments) that we
consider necessary for a fair presentation of our financial position and
operating results for the quarters presented. We believe quarter-to-quarter
comparisons of our financial results are not necessarily indicative of the
results of operations for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1999 1999 1999 1999
------------------- ---------------- ---------------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues.............. $ 416 100.0% $ 630 100.0% $ 1,009 100.0% $ 1,603 100.0%
Costs and expenses:
Direct costs of net
revenues.............. 329 79.1 566 89.8 816 80.9 930 58.0
Direct marketing
incentives............ -- -- -- -- 64 6.3 422 26.3
Sales and marketing..... 66 15.9 845 134.1 1,501 148.8 1,898 118.4
Engineering............. 217 52.2 423 67.1 654 64.8 677 42.2
General and
administrative........ 185 44.3 385 61.2 440 43.6 384 24.1
Stock-based
compensation.......... 15,542 3,736.1 1,432 227.3 1,563 154.9 3,798 236.9
-------- -------- ------- ------ ------- ------ ------- ------
Total operating
expenses............ 16,339 3,927.6 3,651 579.5 5,038 499.3 8,109 505.9
Loss from operations...... (15,923) (3,827.6) (3,021) (479.5) (4,029) (399.3) (6,506) (405.9)
Interest income........... 1 -- 41 6.5 21 2.1 32 2.0
Interest expense.......... (1,500) (360.4) -- -- -- -- -- --
-------- -------- ------- ------ ------- ------ ------- ------
Net loss.................. $(17,422) (4,188.0)% $(2,980) (473.0)% $(4,008) (397.2)% $(6,474) (403.9)%
======== ======== ======= ====== ======= ====== ======= ======
</TABLE>
We ran a radio advertising campaign commencing in the quarter ended
June 30, 1999 in three major markets. As a result of this campaign, both
revenues and advertising expense included in sales and marketing increased
substantially in the quarters ended September 30, 1999 and December 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have funded our operations primarily through private
placements of our common stock and redeemable convertible preferred stock with
venture capital firms and private investors and borrowings from The Ashton
Technology Group, Inc. As of December 31, 1999, we have raised approximately
$22.6 million, net of offering costs, from the sale of common stock and
preferred stock.
Net cash used in operating activities was $262,000 for the period from
inception to March 31, 1998, $622,000 for the fiscal year ended March 31, 1999
and $4,360,000 for the nine months ended December 31, 1999. For each of these
periods, net cash used in operating activities was primarily the result of net
operating losses and changes in working capital, including accounts receivable
and prepaid expenses and deferred revenues, offset in the fiscal year ended
March 31, 1999 and the nine months ended December 31, 1999 by non-cash stock
compensation expense of $15,542,000 and $6,792,000,
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<PAGE>
respectively, and by non-cash interest expense of $1,500,000 during the fiscal
year ended March 31, 1999.
Net cash used in investing activities was primarily for purchases of
property and equipment. Capital expenditures totaled $101,000 for the period
from inception to March 31, 1998, $399,000 for the fiscal year ended March 31,
1999 and $1,884,000 for the nine months ended December 31, 1999. Our capital
expenditures consisted of purchases of property and equipment operating
resources to manage our operations, including computer hardware and software,
office furniture and equipment and leasehold improvements. Purchases of computer
equipment represent the largest component of our capital expenditures. We expect
capital expenditures to increase for the foreseeable future as we increase the
number of our employees, increase the size of our operating facilities, and
improve and expand our information systems. For the year ending December 31,
2000, we anticipate that capital expenditures will be at least $5,000,000.
Our financing activities provided $498,000 for the period from inception to
March 31, 1998, $1,204,000 for the fiscal year ended March 31, 1999 and
$22,364,000 in the nine months ended December 31, 1999. For the period from
inception to March 31, 1998 and the fiscal year ended March 31, 1999, the
proceeds consisted primarily of loans from The Ashton Technology Group, Inc. In
the nine months ended December 31, 1999, $5,227,000 consisted of the net
proceeds received in connection with the private placement of our Series B
Redeemable Convertible Preferred Stock, and $17,267,000 consisted of the net
proceeds received in connection with the private placement of our Series C
Convertible Preferred Stock.
As of December 31, 1999, we had $16,427,000 of cash and cash equivalents.
Our principal commitments at December 31, 1999 consisted of $24,681,000 of the
redeemable convertible preferred stock and the dividends thereon.
As of December 31, 1999, we had net operating loss carryforwards of
$7,526,000. These carryforwards expire through 2019. Under the provisions of the
Internal Revenue Code, substantial changes in our ownership may limit the amount
of net operating loss carryforwards that could be utilized annually in the
future to offset taxable income.
We currently intend to use the net proceeds of this offering to market our
existing services, to develop and market new products and services, to add
personnel, to expand our network operations and physical facilities, for working
capital, and for general corporate purposes, including possible acquisitions of
or investments in complementary businesses, products or technologies. Although
we have not identified any specific businesses, products or technologies that we
may acquire or entered into any current agreements or negotiations with respect
to any such transactions, from time to time we may evaluate such opportunities.
Pending such uses, the net proceeds will be invested in short-term,
interest-bearing, investment-grade securities.
Our future liquidity and capital resources will depend on numerous factors.
For example, our pace of expansion will affect our future capital requirements,
as well as deciding to further expand brand awareness at a more rapid pace.
However, we believe that the proceeds of this offering, along with our existing
balance of cash and cash equivalents will be sufficient to meet our working
capital and anticipated capital expenditure needs for at least the next
12 months. Thereafter, we may require additional sources of funds to continue to
support the business. We cannot assure you that such capital, if needed, will be
available or will be available on terms acceptable us.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
As of December 31, 1999, we had cash and cash equivalents of $16,427,000
consisting of cash and highly liquid cash equivalents. Our interest income could
be sensitive to changes in the general level of U.S. interest rates,
particularly because most of our cash equivalents are invested in short-term
debt instruments. We did not hold derivative financial instruments as of
December 31, 1999 and have never
29
<PAGE>
held any such instruments. Currently all of our net revenues and expenses are
denominated in U.S. dollars and as a result we have experienced no foreign
exchange gains or losses to date. We do not expect to effect a material amount
of transactions in foreign currencies during the year ending December 31, 2000.
We have not engaged in foreign currency hedging to date.
RECENT ACCOUNTING PRONOUNCEMENTS
The Securities and Exchange Commission issued Staff Accounting Bulletin
(SAB) No. 101, REVENUE RECOGNITION, in December 1999. This bulletin established
guidelines for revenue recognition and is effective for periods beginning after
March 15, 2000. We believe that the adoption of the guidance provided in SAB
No. 101 will not have a material impact on future operating results.
SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES,
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. SFAS No. 133 requires that an entity recognize all
derivatives as either assets or liabilities in the balance sheet and measure
those instruments at fair value. SFAS No. 133, as amended by SFAS No. 137, is
effective for all fiscal quarters of fiscal years beginning after June 15, 2000.
SFAS No. 133 is not expected to have a material impact on our consolidated
financial statements.
30
<PAGE>
BUSINESS
OVERVIEW
We help businesses grow online by providing them with targeted customer
leads as well as data and tools relating to the e-commerce competitive
environment and consumer marketplace. To address the consumer's time-consuming
and confusing task of finding and selecting a provider of products and services
on the Internet and the difficulty for e-commerce businesses to attract and
retain customers, we have developed a proprietary methodology of collecting and
cataloging consumer experience data. At the core of our GOMEZ.COM and GOMEZPRO
service offerings is our proprietary database of online consumer experience
data. This data is presented to consumers as our INTERNET SCORECARD ranking
system. This unique ranking system defines the standards of quality in specific
e-commerce industries and measures e-commerce providers in those industries
against these standards. Our GOMEZ.COM portal provides objective e-commerce
information that is designed to attract consumers who are in the process of
selecting an e-commerce provider and who are, therefore, more likely to transact
business contemporaneously with selecting that provider. Our GOMEZPRO.COM
subscription Web site and additional GOMEZPRO services leverage our proprietary
methodology by providing online consumer experience data and measurement tools
that allow businesses to better formulate and execute their e-commerce strategy.
We believe that through providing targeted lead generation and consumer
experience measurement tools, we have developed a business model with multiple
revenue streams that utilizes common resources and is replicable across
industries and into international marketplaces.
We provide targeted leads for e-commerce businesses through objective tools
and content designed to help consumers select the most suitable e-commerce
provider. The INTERNET SCORECARD ranking system and other tools and content
provided on our GOMEZ.COM portal, make it easier for consumers to objectively
identify and evaluate e-commerce businesses, engage in transactions with these
businesses, learn more about select e-commerce industries and obtain special
values on e-commerce products and services. We provide targeted leads to various
companies including CarOrder.com, Charles Schwab and E*TRADE.
We believe GOMEZPRO provides e-commerce businesses a unique solution for
reducing the costs associated with acquiring and retaining customers. Through
GOMEZPRO, we provide businesses with real-time data and analysis of customer
experience. The detailed data that we summarize in our INTERNET SCORECARDS is
provided to our GOMEZPRO clients, and we complement this data with analysis
tools and additional services. Our data analysis tools enable e-commerce
businesses to understand more effectively the e-commerce competitive
environment, target e-commerce consumers to attract and retain more customers
and align business strategies and initiatives with consumer needs. Because our
GOMEZPRO services utilize the same proprietary data analysis tools used to
develop our INTERNET SCORECARDS, we believe that we provide businesses with a
unique ability to evaluate consumer experience and the detailed competitive
landscape within e-commerce industries. The client base for GOMEZPRO and our
advisory services includes "bricks and mortar" businesses seeking to establish
an e-commerce presence as well as existing online businesses that seek the tools
to execute their e-commerce strategy. A sample of these clients includes
DLJDIRECT, Fidelity Investments and PayLess Drug Stores.
Our growth strategy includes increasing the visibility of our INTERNET
SCORECARDS in the media, which we believe will result in increased consumer
awareness and use. Consequently, we believe increased consumer use will further
business awareness of GOMEZ ADVISORS and greater demand for our services.
INDUSTRY BACKGROUND
The Internet is a rapidly growing global interactive medium, enabling
millions of people to share information, communicate and conduct business.
According to a June 1999 International Data Corporation, or IDC, study, there
were over 140 million Internet users worldwide at the beginning of 1999. IDC
estimates Internet users will grow to over 500 million in 2003, representing a
29%
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<PAGE>
compound annual growth rate. Of these worldwide users, IDC estimates that there
were over 62 million Internet users in the United States at the beginning of
1999, which they expect to grow to over 175 million in 2003.
As the Internet has become more popular, it has emerged as a primary
business channel and has fueled strong growth in the number and total value of
e-commerce transactions. According to IDC, the total worldwide value of
e-commerce transactions in 1999 was $111.4 billion and is projected to grow to
$1.3 trillion in 2003. This represents a compound annual growth rate of 85.4%.
Consequently, consumers have an increasing need for data and tools to help them
quickly and efficiently identify and evaluate the e-commerce businesses that
will provide them with the experience that best suits their needs. Likewise,
e-commerce businesses seek the data and tools to enable them to accurately
measure the consumer's online experience. Understanding the consumer's online
experience will enable e-commerce businesses to improve that experience, reduce
customer acquisition costs and compete more effectively.
From a consumer's perspective, the need for direction and guidance in
identifying and evaluating e-commerce businesses is growing as the number of
e-commerce businesses increases total retail sites. For example, according to
dmoz.com, a collaborative effort organized by Netscape to create an open
directory of Internet sites, as of April 5, 2000 there were 2,130 Web sites
selling books, 1,975 Web sites selling cars and 4,427 Web sites selling sporting
goods. We believe many of these businesses are unknown to the average consumer.
The following table, which represents typical search results for a sampling
of e-commerce provider categories, presents the magnitude of the challenge
facing consumers in identifying the providers that best suit their needs.
REPRESENTATIVE SEARCH RESULTS FOR E-COMMERCE BUSINESSES FROM LEADING SEARCH
ENGINES(1)
<TABLE>
<CAPTION>
SEARCH RESULTS
---------------------------------------------------
TERM SEARCHED LYCOS GO NETWORK ALTA VISTA NORTHERN LIGHT
- ------------- -------- ---------- ---------- --------------
<S> <C> <C> <C> <C>
Online Brokers............................ 178,782 5,352,461 7,484 373,100
Online Pharmacies......................... 29,405 5,352,455 3,626 160,185
Online Toy Stores......................... 40,455 5,352,444 954 81,395
Online Travel Agents...................... 114,152 5,352,452 2,845 218,745
</TABLE>
- ------------------------
(1) Measured as of April 12, 2000
Even Yahoo!, a popular directory of Web sites, can overwhelm consumers with
hundreds or thousands of alphabetically ordered listings. For instance, the
Yahoo! directories for online brokers and travel agents listed 366 and 210
matches, respectively, as of April 12, 2000.
Businesses are equally challenged by the dramatic growth in the e-commerce
market. The proliferation of e-commerce businesses makes it increasingly
expensive to acquire customers. Many e-commerce businesses have embarked on
advertising campaigns, which we believe have generally yielded unsatisfactory
results. According to Forrester Research, worldwide Internet advertising
spending is expected to grow from $3.3 billion in 1999 to $24.1 billion in 2003.
This represents a compound annual growth rate of 64%. Consumer response to
banner advertising, however, has led advertisers and marketers to question the
effectiveness of such marketing campaigns. According to Jupiter Communications,
an internet market research firm, online direct marketing programs offer 5% to
15% response rates compared to response rates for "banner" ads which have
declined from 2.0% to 0.5% over the past two years. Furthermore, even when
advertising campaigns result in increased Web site traffic, we believe that many
consumers leave Web sites without transacting business due to deficiencies in
product and service offerings. Therefore, businesses must find more effective
and cost-efficient means of competing by understanding and responding
effectively to the needs and desires of
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<PAGE>
e-commerce consumers, evaluating their product and service offerings in
comparison to their competitors and targeting the e-commerce consumers on which
to focus their marketing and selling efforts.
THE GOMEZ ADVISORS SOLUTION
To address the consumer's time-consuming and confusing tasks of finding and
selecting a provider of products and services on the Internet and the difficulty
for e-commerce businesses to attract and retain customers, we have developed a
proprietary methodology of collecting and cataloging consumer experience data.
This data is presented to consumers as our INTERNET SCORECARD ranking system.
This unique ranking system defines the standards of quality in specific
e-commerce industries and measures e-commerce providers in these industries
against these standards. For example, the following chart illustrates how we
simplify the consumer's task of selecting an e-commerce provider by filtering
the thousands of possible providers to an ordered list of industry leaders:
<TABLE>
<CAPTION>
LYCOS SEARCH PROVIDERS EVALUATED PROVIDERS RANKED
INDUSTRY SCORECARD ENGINE HITS(1) BY GOMEZ ADVISORS ON GOMEZ.COM
- ------------------ -------------- ------------------- ----------------
<S> <C> <C> <C>
Online Brokers......................... 178,782 142 57
Online Pharmacies...................... 29,405 33 10
Online Toy Stores...................... 40,445 208 18
Online Travel Agents................... 114,152 51 25
</TABLE>
- ------------------------
(1) As of April 12, 2000
To narrow the number of Web sites evaluated and ultimately ranked, we apply
minimum standards of service to identify those firms that serve at least
regional or national audiences and that provide a broad range of services.
GOMEZ.COM
We provide targeted leads for e-commerce businesses through objective tools
and content designed to help consumers select the most suitable e-commerce
provider. Our GOMEZ.COM portal is designed to attract consumers who are in the
process of selecting the e-commerce provider that best meets their needs and who
are, therefore, more likely to transact business contemporaneously with
selecting that provider. We believe that focusing on consumer needs increases
the likelihood that a consumer will transact business online and, therefore,
become a source of targeted leads for e-commerce providers. We believe that our
targeted lead generation provides a better return on marketing investments for
e-commerce providers. The tools and content provided on our GOMEZ.COM portal
make it easier for consumers to:
- IDENTIFY AND EVALUATE E-COMMERCE BUSINESSES. Our GOMEZ.COM portal enables
consumers to identify and evaluate e-commerce businesses by providing
objective data and analysis through our proprietary SCORECARD rankings,
comparison tools, consumer polls and consumer ratings and reviews. Our
SCORECARDS evaluate and compare the online service offerings of businesses
in 28 e-commerce industries. In addition to the overall rankings, our
SCORECARDS also rank e-commerce businesses based on customized consumer
profiles.
- ENGAGE IN TRANSACTIONS WITH RATED E-COMMERCE BUSINESSES. Our GOMEZ.COM
portal provides a direct link to the site of every business that we review
and rank. By aggregating information about all major companies in an
industry, we simplify the navigation and searching process for the
e-commerce consumer. Our GOMEZ.COM portal gives consumers the ability to
request information online, initiate online transactions and open accounts
with many e-commerce businesses. Furthermore, because our SCORECARDS serve
to create awareness of and comfort with the
33
<PAGE>
industries we cover, we believe consumers using our GOMEZ.COM portal are
more likely to engage in online transactions.
- LEARN MORE ABOUT SELECT E-COMMERCE INDUSTRIES AND TOPICS. Our Web site
displays targeted content designed to increase consumer knowledge of
e-commerce industries and, consequently, consumer comfort level in
transacting business online. For example, through the GOMEZWIRE feature of
GOMEZ.COM, we provide news, editorials and original commentary written by
our staff and non-staff writers and others, as well as selected articles
from syndicated sources. Our JUMPSTART feature provides educational
content and tutorials relating to information that we believe is of
interest to consumers.
- OBTAIN SPECIAL VALUES ON E-COMMERCE PRODUCTS AND SERVICES. We provide
consumers with special savings on e-commerce products and services in our
SAVINGS CENTER on GOMEZ.COM. Through the SAVINGS CENTER, visitors to
GOMEZ.COM may take advantage of promotions, many of which are exclusive to
our users, on products and services in over 15 targeted e-commerce
industries.
Because consumers using our tools and content are more likely to understand
e-commerce industries and the businesses within those industries, we believe
that they are more likely to transact business online.
GOMEZPRO
Our GOMEZPRO.COM subscription Web site and additional GOMEZPRO services
leverage our proprietary methodology by providing online consumer experience
data and measurement tools that allow businesses to better formulate and execute
their e-commerce strategy. The foundation of our GOMEZPRO.COM subscription Web
site is the underlying data used to create our SCORECARDS on GOMEZ.COM. Through
our GOMEZPRO DATA STATION, businesses receive access to SCORECARD data in
greater depth than provided to consumers and have access to historical tracking
data. For example, the underlying real time historical Web site performance data
that is used as a criteria for our SCORECARDS is made available to businesses
who subscribe to the GOMEZPRO DATA STATION. This data, combined with real time
access to consumer polls and surveys of consumers on GOMEZ.COM and affiliated
Web sites, provides e-commerce professionals with consumer experience
measurement tools. Our GOMEZPRO services are designed to enable e-commerce
businesses to:
- UNDERSTAND THE E-COMMERCE COMPETITIVE ENVIRONMENT. With GOMEZPRO, we have
built upon our e-commerce consumer-based expertise to offer e-commerce
businesses an industry tool to more effectively understand the online
competitive environment. The focus of our GOMEZPRO DATA STATION has grown
out of our consumer-focused SCORECARDS and analysis in targeted e-commerce
industries. Because the GOMEZPRO DATA STATION is the primary outlet for
analysis used to develop our SCORECARDS, we believe it provides e-commerce
businesses unparalleled competitive detail of their particular industry.
- TARGET E-COMMERCE CONSUMERS TO ATTRACT AND RETAIN MORE CUSTOMERS. Our
GOMEZPRO DATA STATION also provides tools to measure and evaluate
e-commerce Web site performance, consumer experience, consumer behavior
and the competitive position of e-commerce businesses. The
industry-specific consumer information and analysis provided to e-commerce
businesses via the GOMEZPRO DATA STATION are valuable resources that help
them decide which consumers to target, what features to add and what
providers might offer those features. Furthermore, because of our access
to GOMEZ.COM users, we are able to survey consumers and communicate
real-time results of those surveys on the GOMEZPRO DATA STATION. These
surveys provide e-commerce businesses with consumer information that
complements our other data and tools.
- ALIGN BUSINESS STRATEGIES AND INITIATIVES WITH CONSUMER NEEDS. We have a
team of advisors to assist firms in applying the data presented by
GOMEZPRO services to their e-commerce business
34
<PAGE>
strategies. In particular, our advisors provide briefings to highlight
each industry's competitive landscape, new venture assessments of proposed
online endeavors and Web site benchmarking compared to industry norms.
We believe that the interplay between the tools available through the
GOMEZPRO DATA STATION and the exposure to anonymous consumer information
gathered from the GOMEZ.COM portal better enable e-commerce businesses to
attract and retain customers.
OUR GROWTH STRATEGY
Our objective is to be the leading provider of customer acquisition and
retention solutions to e-commerce businesses. To achieve our objective we intend
to:
BUILD ON OUR EXISTING BRAND AWARENESS AND MAINTAIN THE TRUST OF E-COMMERCE
CONSUMERS AND BUSINESSES. To date, we have built brand awareness by emphasizing
public exposure of our industry analysts and SCORECARDS through targeted radio
and other national media coverage. We believe that our SCORECARDS have become a
leading source on the analysis of e-commerce businesses as evidenced by over 300
media mentions a month for each of the last six months on cable networks such as
CNN and CNBC and in publications such as THE NEW YORK TIMES and THE WALL STREET
JOURNAL. Media validation of our SCORECARDS serves to build trust in our brand,
awareness of our services and generates additional customer leads for the
businesses we rank. We intend to increase the existing brand awareness of GOMEZ
ADVISORS and our services among consumers and e-commerce businesses by:
- continuing to develop our profile as a trusted expert in the industries
that we analyze through media exposure of our SCORECARDS and industry
analysts;
- using a targeted advertising campaign including radio, print and
television advertising;
- expanding our strategic relationships with major online portals and
service providers;
- providing syndicated GOMEZ.COM content and tools linked to the GOMEZ.COM
portal to members of the GOMEZ ALLIANCE network of third party Web sites;
- promoting the use of our "Seal of Approval" to businesses which receive
superior rankings on our SCORECARDS;
- increasing awareness of special promotions through GOMEZWIRE, so that
consumers will be more likely to use GOMEZ.COM when seeking to transact
business online; and
- expanding the use of our merchant certification symbol, which certifies
e-commerce providers as having satisfied certain objective minimum
standards of quality.
We believe that we have established a trusted brand of e-commerce
information analysis tools. We intend to maintain this trust by continuing to
apply our proprietary methodology on a consistent basis and maintaining the
confidentiality and privacy of consumer information.
SYNDICATE OUR CONTENT TO INCREASE CONSUMER EXPOSURE TO OUR SERVICES. In
March 2000, we established the GOMEZ ALLIANCE network of third party Web sites
which provide syndicated GOMEZ.COM content and tools with links to the GOMEZ.COM
portal. We believe that third party Web sites will find membership in the GOMEZ
ALLIANCE network beneficial because it will provide those Web sites with
valuable objective content, incentives and promotions for visitors to those Web
sites and a revenue stream from transactions completed by those visitors
referred to GOMEZ.COM. In addition to reinforcing our brand awareness, we expect
our GOMEZ ALLIANCE network to increase leads for our e-commerce clients.
EXPAND OUR GOMEZ.COM SERVICE OFFERINGS TO ADDITIONAL INDUSTRIES. We intend
to expand our service offerings into industries that are likely to be confusing
to consumers such as those characterized by a large number of e-commerce
transactions or high value transactions that are offered by a large number
35
<PAGE>
of providers. We prioritize our expansion within those industries by examining
the size of the industry, the value of customer relationships, the number of
competing businesses and whether our existing SCORECARDS are easily adaptable to
them. We believe that because of our expertise and easily adaptable proprietary
methodology, we are able to penetrate new markets rapidly and efficiently. For
example, since August 1, 1999, we have implemented SCORECARD coverage of 23 new
industries, including Internet mortgages, Internet auto buying and Internet
airlines. We currently intend to expand our SCORECARDS to include additional
industries, such as Internet service providers, Internet credit card providers
and wireless communications providers.
EXPAND GOMEZPRO SERVICES INTO E-COMMERCE INDUSTRIES FOR WHICH WE PROVIDE
SCORECARDS. We intend to leverage our warehouse of consumer experience data and
the expansion of GOMEZ.COM by offering GOMEZPRO services in many of the same
industries that our SCORECARDS rank. We believe that expanding the industries
covered by GOMEZ.COM increases SCORECARD visibility in the media, and results in
increased consumer awareness and use. Consequently, consumer use results in
business awareness of GOMEZ ADVISORS and greater demand for our services. Since
March 1999, we have offered GOMEZPRO services in the Internet brokerage and
banking industries. In February 2000, we expanded our GOMEZPRO service offerings
into 23 additional e-commerce industries.
EXPAND OUR INTERNATIONAL EFFORTS IN SELECTED MARKETS. With e-commerce
proliferation occurring worldwide, we intend to create market specific
SCORECARDS replicating both GOMEZ.COM and GOMEZPRO services internationally. We
believe that some of the same conditions that fostered the emergence of
e-commerce in the United States are now occurring in Europe and Asia. These
conditions include telecommunications deregulation and unrestricted Internet
access. Accordingly, we have recently established subsidiaries and opened
offices in London, England, and Tokyo, Japan. We expect to introduce INTERNET
BROKER SCORECARDS in Japan and the United Kingdom in the second quarter of 2000.
OUR SERVICE OFFERINGS
GOMEZ.COM
We believe that the key to providing targeted leads for e-commerce
businesses is to focus on consumer needs by providing objective tools and
content to help consumers select the most suitable e-commerce businesses for
their needs. Our consumer-focused GOMEZ.COM portal attracts and serves
transaction oriented consumers by providing:
- proprietary SCORECARD rankings;
- editorial and educational content;
- search and navigation capabilities; and
- targeted promotions.
36
<PAGE>
SCORECARDS. The primary feature of our GOMEZ.COM portal is our SCORECARDS.
Each SCORECARD is a unique ranking system, based on our proprietary methodology
that evaluates and compares the online service offerings of e-commerce
businesses in a particular industry. As of March 31, 2000, we featured
SCORECARDS for the following industries on GOMEZ.COM:
<TABLE>
<CAPTION>
E-COMMERCE E-COMMERCE NUMBER OF
PROVIDERS PROVIDERS NUMBER OF CUSTOMIZED
SCORECARD INDUSTRY EVALUATED(1) RANKED(2) REVIEW CRITERIA RANKING PROFILES LAUNCH DATE
- ------------------ ------------ ---------- --------------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
PERSONAL FINANCE
Internet Banking.............. 293 60 188 5 June 1998
Internet Broker............... 142 57 290 5 June 1997
Internet Home Buying.......... 22 17 195 4 January 2000
Internet Insurance............ 56 11 166 4 August 1999
Internet Mortgages............ 38 21 144 4 October 1999
TRAVEL
Internet Airlines............. 51 13 182 4 September 1999
Internet Car Rental........... 22 9 147 5 December 1999
Internet Hotel Services....... 54 38 185 4 March 2000
Internet Travel Agent......... 51 25 227 4 October 1998
SHOPPING
Internet Apparel Store........ 195 18 159 5 September 1999
Internet Bookseller........... 147 32 215 4 December 1998
Internet Gifts................ 215 18 85 5 November 1999
Internet Music Store.......... 170 25 168 5 August 1999
Internet Sports Store......... 260 10 145 5 August 1999
Internet Toy Store............ 208 18 167 5 December 1999
Internet Video Store.......... 94 31 159 5 August 1999
AUTOS
Internet Auto Buying.......... 112 12 204 5 August 1999
Internet Auto Manufacturers... 41 27 159 5 December 1999
DYNAMIC PRICING
Internet Auctions............. 208 20 157 4 April 1999
Internet Buying Services...... 18 13 134 4 February 2000
HEALTH
Internet Drug Store........... 33 10 213 4 August 1999
Internet Health Content....... 33 21 201 5 January 2000
COMPUTERS & OFFICE
Internet Computer Store....... 231 27 135 4 October 1999
Internet Electronics Store.... 174 14 219 5 December 1999
HOME & GARDEN
Internet Furniture Store...... 56 12 135 4 September 1999
Internet Grocery Services..... 20 11 134 4 August 1999
Internet Home Furnishings
Store....................... 57 23 177 4 March 2000
Internet Pet Store............ 39 10 168 5 August 1999
</TABLE>
- ------------------------------
(1) Indicates the number of e-commerce providers actively evaluated to determine
whether they satisfy minimum service levels to be ranked by us.
(2) All e-commerce providers which satisfy our minimum service levels are ranked
regardless of their business relationship with us.
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<PAGE>
Our SCORECARD rankings are publicly available on GOMEZ.COM and are updated
quarterly. We currently intend to expand our SCORECARDS to include additional
industries, such as Internet service providers, Internet credit card providers
and wireless communications providers.
A standard objective methodology applies to all SCORECARDS we create. In
developing our SCORECARDS, we first establish objective evaluation criteria
based on our proprietary methodology. To create the criteria, we review all of
the features and services that are delivered online, and to some degree offline,
across an industry. We then evaluate and finalize the criteria through an
internal peer review process. Once a SCORECARD framework is developed, we
assemble data and prepare objective analysis of the Web sites in a particular
industry using a binary, or yes/no, method to determine whether specific
criteria are satisfied. This rigid process ensures objectivity and consistency
in data assembly and analysis over time. Our analysts collect data using the
following methods:
- Web site examination;
- performance monitoring of secure and non-secure Web site pages;
- pricing transactions;
- mock transactions or account opening;
- customer service interaction by telephone and through the Internet; and
- supplemental questionnaires completed by providers.
We determine which providers are ranked within an industry by applying
objective minimum acceptable standards to their products or services. These
standards include requiring the provider's product or service offerings to be
available nationwide or within a broad geographic region and the availability of
a broad range of products and services. Providers not satisfying our minimum
ranking standards are not ranked. Furthermore, all providers which satisfy our
minimum ranking standards are ranked regardless of their desire to be ranked or
not.
After identifying, gathering and analyzing data on e-commerce businesses, we
rank these businesses according to industry and provide consumers with the
ability to sort through and view our rankings according to the following five
key standard categories:
- ease of use;
- customer confidence;
- on-site resources;
- relationship services; and
- overall cost.
In addition to the overall rankings based on the five key standard
categories, our SCORECARDS also rank e-commerce businesses based on four to five
additional customized consumer profiles particular to each industry we rank. For
example, our INTERNET TRAVEL AGENT SCORECARD ranks online travel agencies based
on consumer profiles for a business traveler, a leisure traveler and a bargain
traveler and our INTERNET CAR RENTAL SCORECARD ranks online car rental agencies
based on consumer profiles for road warriors, vacationers, bargain hunters and
occasional renters.
CONTENT. Our Web site displays content designed to increase consumer
knowledge of e-commerce industries and, consequently, consumer comfort level in
transacting business online. In addition to our SCORECARDS, GOMEZ.COM contains
editorial and educational content relating to each of the e-commerce industries
that we analyze. Through the GOMEZWIRE feature of GOMEZ.COM, we provide news,
editorials and commentary. Many of the articles published on GOMEZWIRE are
written by our staff and based on our proprietary analysis. We also publish
third-party editorials written expressly for GOMEZWIRE, as well
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as selected articles from syndicated sources. ASK GOMEZ is a knowledge-based
tool that helps consumers find the information and tools most appropriate for
them on GOMEZ.COM. Our JUMPSTART features provide educational content and
tutorials relating to information that we believe is of interest to consumers.
For instance, our Online Mortgage Primer JUMPSTART provides educational content
explaining the application and funding process, useful calculators to set
budgets and select the right loan and other subjects that are likely to be of
interest to a consumer researching online mortgages.
SEARCH AND NAVIGATION. We provide a direct link from GOMEZ.COM to the site
of every business that we rank. By aggregating information about and access to
all major companies within an industry on one Web site, we simplify the
navigation and searching process for the e-commerce consumer.
TARGETED LEAD GENERATION. An important aspect of our GOMEZ.COM site is that
our content provides consumers with the incentive to initiate online
transactions or open accounts with e-commerce businesses. Our lead generation
process promotes transactions by allowing consumers viewing our SCORECARDS to
easily request information online from each e-commerce business we rank.
Furthermore, we provide consumers with special promotions on e-commerce products
and services in our online SAVINGS CENTER on GOMEZ.COM. Through the SAVINGS
CENTER, visitors to our site may take advantage of promotions, many of which are
exclusive to GOMEZ.COM users, on products and services in over 15 targeted
e-commerce industries. By aggregating rankings, promotions and links to the
sites of e-commerce businesses in one place, consumers are encouraged to
complete e-commerce transactions.
GOMEZ.COM REVENUE MODEL
We generate revenues by promoting contact between consumers and businesses
in industries for which we provide SCORECARDS or merchant certification. We
believe that consumers who use GOMEZ.COM are in the process of selecting which
e-commerce provider meets their particular needs and are, therefore, more likely
to transact business contemporaneously with selecting that provider.
We charge businesses that have agreed to pay for lead generation a fee when
a consumer engages in designated transactions with such businesses via our Web
site. These fees vary based on the type of transaction the consumer conducts
with the participating provider. We focus on generating fees from leads that
result in high value transactions and customer acquisitions in industries where
the customer acquisition cost is relatively high. For example, Internet
automobile sellers pay us a fee for leads which result in automobile sales by
such automobile sellers to consumers who arrive at the automobile seller's Web
site through GOMEZ.COM. We believe that our lead-based revenue model provides a
better return on marketing investment for e-commerce providers because they pay
us only if consumers transact business with them.
Not all of the industries in which we provide SCORECARDS generate
significant GOMEZ.COM revenues. In industries where transaction values and
customer acquisition costs are lower, we provide our SCORECARDS primarily to
enhance value to consumers and to expand our database of consumer experience
data available for our GOMEZPRO services.
GOMEZPRO
Our GOMEZPRO.COM subscription Web site and additional GOMEZPRO services
utilize our proprietary data collection and cataloging methodology by providing
online consumer experience measurement tools that allow businesses to better
execute their e-commerce strategy. With GOMEZPRO, we have built upon our
e-commerce consumer-based expertise to offer e-commerce businesses a useful tool
to more effectively understand the online competitive environment and reduce
customer acquisition costs. The GOMEZPRO services we currently offer consist of
our GOMEZPRO DATA STATION, GOMEZPRO ADVANCED DATA SERVICES AND TOOLS and
GOMEZPRO ADVISORY SERVICES.
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GOMEZPRO DATA STATION. The focus of the GOMEZPRO DATA STATION has grown out
of our consumer-focused SCORECARDS and analysis in various e-commerce
industries. Because the GOMEZPRO DATA STATION is the primary outlet for analysis
used to develop our SCORECARDS, we believe it provides e-commerce businesses an
unparalleled competitive overview of the particular industry. Subscribers to the
GOMEZPRO DATA STATION receive the following data analysis tools:
- IN DEPTH ACCESS TO AND ANALYSIS OF THE DATA COMPILED TO DEVELOP
SCORECARDS. Subscribers receive a more thorough analysis of the consumer
online experience based on the same proprietary methodology used to
develop our SCORECARDS. This data allows businesses to view current and
historical SCORECARD results across multiple customized viewing profiles,
compare their Web site's features against their competitors' Web site
features and analyze factors important to consumer experience across
multiple industries.
- COMPARATIVE UP TO THE MINUTE WEB SITE PERFORMANCE REPORTS. Our up to the
minute Web site performance reports monitor the reliability of and speed
at which Web pages are downloaded and displayed from multiple geographic
locations. These reports allow our clients to continuously monitor both
the public and secure portions of their Web sites. Additionally, our
automated service continually collects Web page download and display speed
data from all of the companies in each SCORECARD industry and aggregates
the data into easy to understand charts, graphs and tables. This tool
enables e-commerce businesses to analyze the aggregated data to determine
their Web sites' strengths and weaknesses compared to their competitors'
offerings. For example, an online broker can directly compare its Web site
performance against any other SCORECARD ranked provider for all
performance metrics. We believe our Web site performance monitoring tool
is the only one that combines the analysis of secure and public access Web
site data, comparative Web site performance, and current and historical
industry-specific performance data.
- POLLS AND SURVEYS ANALYZING CONSUMER BEHAVIOR. We display up to the minute
polls and surveys of consumers using the GOMEZ.COM Web site and other
consumer Web sites, so that e-commerce businesses can gauge prevailing
consumer sentiment. These polls and surveys typically include between
300-500 respondents and address current e-commerce events and industry
trends. For example, we have polled consumers regarding their comfort
ordering products online during the holiday season and sought their
responses to recent e-commerce businesses systems failures due to "hacker"
attacks.
- INDUSTRY ANALYSIS. Through our SCORECARD process, industry events and
vendor briefings, our analysts generate analysis on a series of topics on
a weekly basis. This analysis helps our clients identify the competitive
landscape, prioritize development efforts and reduce customer acquisition
costs. Briefs are published frequently, providing insight and recommended
actions to help e-commerce professionals make decisions on a timely basis.
In addition, our vendor briefings provide detailed analysis of vendors
that provide infrastructure and services to the e-commerce industries we
rank.
- E-COMMERCE NEWS AND ANALYSIS. In addition to our own analysis, our
real-time filtered data feed provides industry specific filtered news
which allows subscribers to keep abreast of the latest developments in
e-commerce.
We believe that e-commerce businesses will increasingly recognize that the
industry-specific analysis and consumer information provided via the GOMEZPRO
DATA STATION are useful resources that can help them build more competitive
products and services and attract and retain e-commerce customers.
GOMEZPRO ADVANCED DATA SERVICES. We believe that many users of the GOMEZPRO
DATA STATION will find that they have particular needs for certain tools and
more detailed industry data that complement those provided in our GOMEZPRO data
station. To address this need, we have developed advanced
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services available through the GOMEZPRO.COM Web site. We have initially focused
on creating consumer market data to complement our GOMEZPRO services. Our
consumer market intelligence services include subscriptions to a range of market
research data in the banking, brokerage and retail industries. We intend to
expand these services into additional industries including health and travel.
In addition, our analysts combine this market research with polls and
surveys of consumers using GOMEZ.COM and our affiliates' Web sites to create
bi-annual market studies and monthly trend-analysis. These studies are organized
using the same five key standard categories that organize our SCORECARDS. For
example, our "State of Online Investing" report contains general online
investing industry information and industry specific analysis provided by our
analysts that is organized according to various consumer investor profiles.
Furthermore, we are continuing to build relationships with leading market
research firms to create market research materials relating to online services.
We believe that our industry specific research and analysis provides e-commerce
businesses with an advanced tool to help them compete more effectively in the
Internet marketplace.
GOMEZPRO ADVISORY SERVICES. We have a team of advisors to assist firms in
applying the data presented by GOMEZPRO services to their e-commerce business
strategies. In particular, our advisors provide briefings to highlight each
industry's competitive landscape, new venture assessments of proposed online
endeavors and Web site benchmarking compared to industry norms. Among the
clients we serve are systems integrators who build Web-based platforms for
clients seeking effective e-commerce solutions.
GOMEZPRO REVENUE MODEL
We generate revenues through GOMEZPRO in the following ways:
GOMEZPRO DATA STATION REVENUES. We sell annual subscriptions to the
GOMEZPRO DATA STATION to e-commerce businesses. Each subscription provides
businesses with access to our GOMEZPRO.COM Web site where the basic suite of
GOMEZPRO DATA STATION services are featured. Subscriptions are provided on a
company-wide basis and vary according to the industry tracked. For
additional subscription fees, businesses have the opportunity to gain access
to additional industries presented in the GOMEZPRO DATA STATION. We believe
that the current growth in e-commerce will increase our opportunities to
generate revenues from businesses within newly developed industries and from
existing clients which desire to track the development of new industries.
GOMEZPRO ADVANCED DATA SERVICES REVENUES. We sell subscriptions to our
consumer market intelligence data and sell reports to e-commerce business.
These services are delivered electronically and in print form at clients'
requests.
GOMEZPRO ADVISORY SERVICE REVENUES. We are paid on either a per-project
or retainer basis to advise and consult with e-commerce businesses on a
variety of issues relating to our service offerings, market and new venture
assessment, Web site evaluation and customer acquisition and retention.
STRATEGIC RELATIONSHIPS
We believe that forming strategic relationships with third party Web sites
can increase our brand awareness and be a source of significant lead generation
to our GOMEZ.COM portal. We have developed relationships with third parties
toward meeting these goals. We have relationships with major online portals and
service providers, such as America Online, Hoovers, Cnet.com and ZDnet. These
online portals and service providers feature our content and links to the
GOMEZ.COM portal. We believe that our GOMEZ.COM content and tools are highly
desirable to portals and service providers. We intend to continue to pursue
relationships with third parties that will provide the largest possible audience
for our services.
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INTERNATIONAL OPERATIONS
Having established a business model in the United States, we have begun our
international expansion efforts by initially targeting two markets with
e-commerce characteristics similar to United States markets. We believe that
some of the same conditions that fostered the emergence of e-commerce in the
United States are now occurring in Europe and Asia. These conditions include
telecommunications deregulation and unrestricted Internet access. We recently
established subsidiaries and opened offices in London and Tokyo in order to
fulfill the need for British and Japanese consumers to identify and evaluate
e-commerce businesses suitable for their particular needs. We intend to develop
SCORECARDS for some of the same e-commerce industries we serve in the United
States, but with criteria specifically tailored for the British and Japanese
markets. We expect to introduce INTERNET BROKER SCORECARDS in Japan and the
United Kingdom in the second quarter of 2000. In addition, we expect to
introduce our service offerings to other major European and Asian markets.
SALES AND MARKETING
We have a direct sales force that targets e-commerce businesses within the
industries we rank. Our sales force is currently divided into two segments, each
with a particular focus:
- GOMEZ.COM. Our GOMEZ.COM sales force primarily focuses on establishing
performance marketing arrangements with e-commerce businesses whereby we
receive payments for leads generated. Furthermore, this sales force is
currently seeking to expand the membership of our GOMEZ ALLIANCE network.
- GOMEZPRO BUSINESS WEB SITE. With respect to our GOMEZPRO DATA STATION and
advanced data and tools, our sales staff primarily targets companies
within the industries we analyze. Furthermore, our sales representatives
work with our clients to find the appropriate blend of advanced data and
tools to complement the GOMEZPRO DATA STATION. To further meet our
clients' needs, our sales representatives make our advisory services
available to supplement our service offerings.
Our sales representatives receive a base salary and we motivate their
performance by structuring commissions based on revenue and sales goals.
Our primary marketing objective is to build a trusted brand of e-commerce
information analysis tools. To date, our other marketing efforts have consisted
of public relations efforts with national media outlets and limited radio
advertising in select, targeted markets. In addition, through our SCORECARDS, we
have begun to establish the GOMEZ ADVISORS brand among our targeted consumer
group. Our SCORECARDS have been cited frequently by national and trade
publications as a leading authority on online service offerings. Members of our
management team and analyst staff are frequently quoted by national newspapers
and magazines and appear on television programs as industry experts.
We have begun to market our services to further build our brand, increase
awareness of GOMEZ.COM and increase demand for our GOMEZPRO services. In
addition to continuing our public relations efforts with national media outlets
and limited radio advertising, our current marketing strategies include:
- CONSUMER INCENTIVES. We promote our lead generation program by providing
incentives for consumers to conduct transactions or open accounts through
GOMEZ.COM. These incentives include cash payments, gift certificates and
other benefits.
- ONLINE AND TRADITIONAL ADVERTISING. We intend to expand our current
efforts by implementing a targeted, multi-media advertising campaign that
will include both online and traditional advertising and promotions. We
expect to increase our visibility through speaking engagements, print
media, radio, television, Internet media, direct mailing, industry and
trade show appearances and distribution of press and sales kits.
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- ALLIANCES. We believe that strategic relationships with leading Internet
service providers and portals will increase awareness of the GOMEZ
ADVISORS brand by exposing the users of these sites to our knowledge and
insights. We currently have several strategic relationships that provide
for the distribution of our editorial content on other Web sites and we
continue to evaluate potential alliances. In addition, in March 2000, we
established the GOMEZ ALLIANCE network, which provides syndicated GOMEZ
ADVISORS content to third party Web sites with links to the GOMEZ.COM
portal.
- LEVERAGE THE GOMEZ ADVISORS BRAND. Businesses have begun to quote our
rankings in their own advertisements and on their own Web sites and we
have recently begun to license the use of our "Seal of Approval" to
businesses which receive superior rankings on our SCORECARDS. As
businesses continue to use our rankings and our "Seal of Approval" as a
means to validate and promote their products and services, we believe that
awareness of our brand will increase. In addition, we have recently
established a merchant certification program which certifies e-commerce
providers as having satisfied certain objective minimum standards of
quality. Our program has certified over 1500 small and niche e-commerce
providers.
CONSUMER AND CLIENT RELATIONSHIPS
We believe that GOMEZ.COM content generates a community of consumers with
demographics which are highly desirable to e-commerce businesses. According to a
January 2000 Ernst & Young LLP report, Internet users have an average annual
income of $59,000, whereas according to NDS/Claritas, as of February 2000
GOMEZ.COM users have an average income of $71,100.
In December 1999, NPD Online conducted a survey for us of a group of over
60,000 online individuals, which was a representative sample of the online
population. We received 23,451 respondents to the survey. The survey indicated
that the most aggressive online buyer, the "hyper buyer," comprises 19.2% of the
online population. The "hyper buyer" is defined as an online user who buys
online at least once every two weeks. According to NPD online, while the hyper
buyer is less than 20% of the online population, the group generates 50% of
total e-commerce spending. We believe that these consumers not only have a
higher propensity to transact business online but also a high level of
disposable income. We have built GOMEZ.COM to attract the most active online
consumers, including "hyper buyers."
The client base for GOMEZPRO and our complementary advisory services
includes "bricks and mortar" businesses seeking to establish an e-commerce
presence as well as existing online businesses looking to execute and enhance
their e-commerce strategies. We began marketing and selling our
subscription-based GOMEZPRO services in March 1999 and we have sold these
services to over 70 business clients. The following is a representative client
list selected from our top twenty clients based on revenues for the nine months
ended December 31, 1999:
AB Watley
Ameritrade
Charles Schwab
DLJDIRECT
E*TRADE
Fidelity Investments
Instinet
MyDiscountBroker
Stockwalk
USABancShares
Waterhouse Securities
WingspanBank.com
E*TRADE accounted for 19% of our total revenues, for the period ending
December 31, 1999. For the twelve month period ending March 31, 1999, Web Street
Securities and Waterhouse Securities accounted for 16% and 12% of our total
revenues, respectively. We expect that a small number of customers will continue
to account for a substantial portion of our revenues for the forseeable future.
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TECHNOLOGY AND INFRASTRUCTURE
We believe that our system architecture and proprietary technology provide
us with an important competitive advantage. Our system architecture was designed
with an emphasis on scalability, performance, availability and reliability. Our
software platform has been built using standard components, including Microsoft
SQL relational database server, server-side Java, Visual Basic, Cold Fusion,
Linux and Windows NT. We believe this architecture accommodates any data feed
from any current or prospective data provider and supports any original content
production through a proprietary dynamic publishing system.
Our software and databases run on multiple high-speed servers that are
connected by high-capacity connections and are organized into multiple tiers.
Each tier functions to address specific data storage and data traffic
considerations to enhance reporting and real-time transactional performance.
Scalability is a term used to describe the ability of an application to
handle greater traffic when additional servers are added to a system.
Scalability is particularly important for growth-stage Internet applications
where demand can grow rapidly and unpredictably. Our servers are connected not
only within a given tier but also between tiers. This multi-tiered server design
enables us to add, extend, duplicate or exchange the specific servers requiring
the enhancement within the system as needed, without recompiling the rest of the
system or interrupting services.
The multi-tiered server design better enables us to provide our customers
with highly-available and reliable uninterrupted service. Each tier is comprised
of multiple connected servers performing similar tasks, each of which has its
own power supply. If a server fails, that server's tasks are automatically
reassigned to another running computer. In addition, identical data is also
stored in various locations. This redundant design enhances the ability of the
system to tolerate the failure of an individual server or failures in system
storage without the loss of data or the ability to give our customers' real-time
operating capability.
The connections from the network data center into the multi-tiered servers
are also designed to provide customers with reliable, uninterrupted service. We
regularly test and maintain the multiple connections between our servers, and
regularly test the connections between the network data center and the Internet.
Our engineering and hosting center personnel monitor traffic patterns and
congestion points and reroute traffic flows in an effort to reduce end-user
response times. We provide monitoring and support services required to maintain
transaction availability 24 hours a day, 365 days a year.
Our operations are dependent on our ability to maintain our computer and
telecommunications systems in effective working order and to protect our systems
against damage from fire, natural disaster, power loss, telecommunications
failure or similar events. Our systems infrastructure, Web site and database
servers are hosted at our facility in Lincoln, Massachusetts. We have
communications lines from multiple providers, including Cable and Wireless and
Frontier GlobalCenter, multiple back-up systems, as well as 24-hour monitoring
and engineering support.
COMPETITION
CUSTOMER ACQUISITION REVENUES. We compete directly and indirectly for
online advertising and sponsorship revenues with many established search engines
and directories, such as Yahoo!, Excite and Lycos and other Web sites,
especially Web sites that provide e-commerce consumer information or marketing
services, such as About.com, BeFree, BizRate, CompareNet, DoubleClick, go2net
and MyPoints.
We believe the principal competitive factors in this market are:
- quality of the advertising environment;
- number of leads and customers generated;
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- costs of customer acquisition;
- demographic profile of the audience;
- number of consumers visiting the site;
- length and frequency of each consumer's visit to the site; and
- brand awareness.
We believe that the content of GOMEZ.COM generates a community of individuals
with demographics which are highly desirable for online advertisers.
BUSINESS-FOCUSED E-COMMERCE INTELLIGENCE PRODUCTS AND SERVICES. We compete
in the market for e-commerce business intelligence products and services
directly with other independent providers of such products and services,
including Keynote Systems, Inc., Media Metrix, Inc. and NetRatings, Inc., and
evaluation services and publications, such as Dow Jones, BARRONS and SMARTMONEY.
We also compete indirectly in this market with the internal planning and
marketing staffs of our current and prospective clients as well as other
information providers such as electronic and print publishing companies,
survey-based general market research firms and general business consulting
firms.
We believe the principal competitive factors in this market are:
- credibility and quality of product and service offerings;
- brand equity and awareness;
- proprietary data collection methodologies;
- comprehensiveness of product and service offerings; and
- timeliness.
We believe we have a competitive advantage based on the consumer and e-commerce
focus of our business intelligence service as well as our online delivery
platform. In contrast to many of our competitors, our efforts are focused on
consumer interactions with e-commerce businesses.
Many of our existing competitors in these markets, as well as prospective
competitors, have longer operating histories, greater brand recognition, larger
user bases and significantly greater financial, technical and marketing
resources than we do. In addition, we expect competition to increase because
there are no substantial barriers to entry in these markets and competitors can
launch Web sites at relatively low cost. We cannot be certain that we will be
able to compete effectively in these markets.
INTELLECTUAL PROPERTY
We regard our analytical methodology, our SCORECARDS and our Web sites'
content as proprietary. We rely primarily upon a combination of copyright,
trademark, trade secret protection, employee and third-party confidentiality and
non-disclosure agreements, license agreements and other intellectual property
protection methods to protect our proprietary rights. We do not currently hold
any patents.
We have applied for registered trademark status for certain of our services
in the United States and other international jurisdictions. It is possible that
unauthorized third parties could copy or replicate certain portions of our
services or obtain or use information that we regard as proprietary. We cannot
be certain that the steps taken by us will be adequate to deter unauthorized use
of our proprietary information or that we will be able to afford the high cost
required to enforce intellectual property rights. Further, we cannot be sure
that the non-disclosure and other contractual arrangements we use to protect our
proprietary rights will not be breached, that we will have adequate remedies for
any such breach or that our trade secrets will not otherwise become known to, or
be independently developed by, competitors.
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We currently have rights to the domain names GOMEZ.COM, GOMEZPRO.COM,
SCORECARD.COM, GOMEZADVISORS.COM, GOMEZNETWORKS.COM and other international
domain names. Because the relationship between regulations governing domain
names and laws protecting trademarks and similar proprietary rights is unclear,
we could be unable to prevent third parties from acquiring domain names that
infringe or otherwise decrease the value of our trademarks and other proprietary
rights.
GOVERNMENT REGULATION
We are subject, both directly and indirectly, to various laws and
governmental regulations relating to our business. There are currently few laws
or regulations directly applicable to commercial online services or the
Internet. However, due to the increasing popularity and use of commercial online
services and the Internet, it is possible that a number of laws and regulations
may be adopted. These laws and regulations may cover issues including, for
example, user privacy, pricing and characteristics and quality of products and
services. Moreover, the applicability to commercial online services and the
Internet of existing laws governing issues including, for example, property
ownership, libel and personal privacy, and provision of online financial
services is uncertain and could expose us to substantial liability. Any new
legislation or regulation or the application of existing laws and regulations to
the Internet could have a material and adverse effect on our business.
In addition, because our services are available over the Internet anywhere
in the world, multiple jurisdictions may claim that we are required to qualify
to do business as a foreign corporation in each of those jurisdictions. Our
failure to qualify as a foreign corporation in a jurisdiction where we are
required to do so could subject us to taxes and penalties for the failure to
qualify. It is possible that state and foreign governments might also attempt to
regulate our transmissions of content on our Web sites or prosecute us for
violations of their laws. There can be no assurance that violations of local
laws will not be alleged or charged by state or foreign governments, that we
might not unintentionally violate these laws or that these laws will not be
modified, or new laws enacted, in the future.
EMPLOYEES
As of March 31, 2000, we employed a total of 107 full-time employees, of
which 12 were in finance and administration, 33 were in sales, marketing and
business development, 25 were in technology development and design and 37 were
either SCORECARD experts or in editorial or advisory services. Our future
success will depend in substantial part upon our ability to attract and retain
highly qualified employees. Competition for such personnel is intense, and there
can be no assurance that we will be able to retain our senior management or
other key employees, or that we will be able to attract and retain additional
qualified personnel in the future. Our employees are not represented by any
collective bargaining organization and we consider our relations with our
employees to be good.
FACILITIES
Our executive offices are located in Lincoln, Massachusetts where we
currently sub-lease approximately 22,500 square feet of space under a lease
which expires on September 30, 2000. We intend to either renew the sub-lease
upon its expiration or enter into new lease arrangements for separate
facilities. We also currently lease approximately 5,000 square feet of space in
Concord, Massachusetts under a lease which expires on March 31, 2001.
LEGAL PROCEEDINGS
We are not a party to any material legal proceedings; however, we may from
time to time become party to various legal proceedings arising in the ordinary
course of our business.
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MANAGEMENT
The following table sets forth information concerning our directors,
executive officers and senior management:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- --------
<S> <C> <C>
Julio Gomez............................ 40 Chief Executive Officer and Chairman of the Board of
Directors
John Robb.............................. 37 President, Chief Operating Officer and Director
Dr. Alexander D. Stein................. 39 Executive Vice President
Charles E. Huggins..................... 40 Vice President, Finance
Frederic G. Hammond.................... 40 Vice President, Business Affairs and General Counsel
Edward W. Kane......................... 50 Director
K. Ivan F. Gothner..................... 41 Director
Peter R. Roberts....................... 45 Director
</TABLE>
JULIO GOMEZ co-founded Gomez Advisors and has served as our chief executive
officer and as a director since our inception in May 1997 and has served as
chairman of our board of directors since April 1999. From June 1996 to
May 1997, Mr. Gomez served as a senior money and technology analyst for
Forrester Research, Inc. From June 1994 to June 1996, Mr. Gomez served as
chairman and chief executive officer of Corby North Bridge, Inc., formerly known
as R.W. Corby and Co. prior to merging with North Bridge Securities in 1994.
Mr. Gomez founded North Bridge Securities, Inc., a securities firm, in 1992.
JOHN ROBB co-founded Gomez Advisors and has served as our president and
chief operating officer since April 1999 and as a director since January 1999.
From July 1997 to April 1999, Mr. Robb served as our vice president,
infrastructure and research. From June 1995 to March 1997, Mr. Robb served as a
senior Internet technology analyst for Forrester Research, Inc. Mr. Robb
attended Yale University School of Management from September 1993 to May 1995.
From March 1993 to July 1993, he was a consultant at The Gartner Group.
DR. ALEXANDER D. STEIN co-founded Gomez Advisors and has served as our
executive vice president since April 1999. From July 1997 to April 1999,
Dr. Stein served as our vice president, advisory services. From December 1994 to
July 1997, Dr. Stein served in a variety of capacities for D.E. Shaw & Co., an
investment bank, most recently as senior vice president. From 1991 to
December 1994, Dr. Stein served as a principal engineer at Digital Equipment
Corporation.
CHARLES E. HUGGINS has served as our vice president, finance since
December 1999. From 1989 to December 1999, Mr. Huggins served as vice president,
chief financial officer and treasurer of Kazmaier Associates, Inc., a group of
consumer product and service companies operating primarily in the sporting goods
industry.
FREDERIC G. HAMMOND has served as our vice president, business affairs and
general counsel since April 1999. From 1992 to March 1999, Mr. Hammond served as
general counsel of Avid Technology, Inc., a publicly-owned developer of
technology used in digital nonlinear video and audio editing and special effects
production.
EDWARD W. KANE has served as a director since February 2000. Since 1997,
Mr. Kane has served as a senior managing director of HarbourVest Partners, the
successor to Hancock Venture Partners, a private equity investment company,
which he co-founded in 1982. He is a trustee of the University of Pennsylvania.
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K. IVAN F. GOTHNER has served as a director since our inception. Since 1997,
Mr. Gothner has served as a managing director and founder of Adirondack Capital,
LLC, a private merchant banking firm. From 1995 to 1997, Mr. Gothner served as a
managing director of First United Equities Corporation. From 1994 to 1995,
Mr. Gothner served as the executive vice president and interim chief operating
officer of Breasy Medical Equipment (USA) Inc. Mr. Gothner is also a director of
The Ashton Technology Group, Inc.
PETER R. ROBERTS has served as a director since January 2000. Since 1993,
Mr. Roberts has served as a managing director of BancBoston Ventures, Inc., a
private equity investment company that focuses on information technology
investments.
CLASSIFIED BOARD OF DIRECTORS
Our board of directors is divided into three classes as nearly equal in
number as possible. Each year the stockholders elect the members of one of the
three classes to a three-year term of office. Mr. Gomez serves in the class
whose term expires in 2000; Messrs. Gothner and Robb serve in the class whose
term expires in 2001; and Messrs. Roberts and Kane serve in the class whose term
expires in 2002.
COMMITTEES OF THE BOARD OF DIRECTORS
Upon completion of this offering, our board of directors will have a
compensation committee and an audit committee. The compensation committee will
review and make recommendations to the board of directors regarding salaries and
incentive compensation for all employees and consultants. It will review and
approve salaries, benefits and bonuses for all executive officers. The
compensation committee will also administer our stock plans.
The audit committee will review the result and scope of audits and other
services provided by our independent public accountants. This committee will
also review the report on our financial statements prepared by the auditors
following the audit, and our accounting and financial policies in general. It
also will review management's procedures and policies with respect to our
internal accounting controls. The initial members of the audit committee will be
Messrs. Roberts, Kane and Gothner.
COMPENSATION OF DIRECTORS
Our directors do not receive an annual retainer or any fees for attending
regular meetings of the board of directors. Directors are reimbursed for
reasonable out-of-pocket expenses incurred in attending such meetings. In
addition, non-employee directors are eligible to receive grants of non-qualified
stock options under our stock plans, and we may, in the future, grant such
options to non-employee directors as an incentive to join or remain on our board
of directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Upon completion of this offering, the compensation committee of our board of
directors will consist of K. Ivan F. Gothner and Peter R. Roberts, none of whom
has been an officer or employee of Gomez Advisors at any time since our
inception. No executive officer of Gomez Advisors serves as a member of the
board of directors or compensation committee of any entity that has one or more
executive officers serving as a member of our board of directors or compensation
committee. Prior to the formation of the compensation committee, the board of
directors as a whole made decisions relating to the compensation of our
executive officers.
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<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table sets forth the total
compensation paid or accrued during the nine month period ended December 31,
1999 and the twelve month period ended March 31, 1999 to our chief executive
officer and our two next most highly compensated executive officers who earned
more than $100,000 during the nine month period ended December 31, 1999 and the
twelve month period ended March 31, 1999. No other executive officer earned
greater than $100,000 in the nine month period ended December 31, 1999 or the
twelve month period ended March 31, 1999. The table below sets forth
compensation for the nine month period ending December 31, 1999 and the twelve
month period ending March 31, 1999 due to the change in our fiscal year end to
December 31 from March 31, effective at December 31, 1999. Mr. Huggins joined us
as vice president, finance in December 1999. He receives a base salary of
$115,000.
In accordance with the rules of the Securities and Exchange Commission, or
SEC, the compensation set forth in the table below does not include medical,
group life or other benefits which are available to all of our salaried
employees and perquisites and other benefits, securities or property which do
not exceed the lesser of $50,000 or 10% of the person's salary and bonus shown
in the table.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL -------------
FISCAL COMPENSATION SHARES
PERIOD -------------------- UNDERLYING
NAME AND PRINCIPAL POSITION END SALARY($) BONUS($) OPTIONS (#)
- --------------------------- --------- --------- -------- -------------
<S> <C> <C> <C> <C>
Julio Gomez................................................. 12/31/99 143,500 -- --
Chief Executive Officer and Chairman of the Board 3/31/99 145,670 -- 1,501,000
John Robb................................................... 12/31/99 143,500 -- --
President and Chief Operating Officer 3/31/99 145,670 -- 751,000
Dr. Alexander D. Stein...................................... 12/31/99 143,500 -- --
Executive Vice President 3/31/99 145,672 -- 751,000
</TABLE>
OPTION GRANTS. The following table sets forth information as to stock
options granted during the nine month period ended December 31, 1999 and the
twelve month period ended March 31, 1999 to each of the executive officers named
in the Summary Compensation Table above. The table sets forth stock option
grants for two fiscal periods due to the change in our fiscal year end to
December 31 from March 31, effective at December 31, 1999. In accordance with
the rules of the SEC, also shown below are hypothetical gains that could be
achieved for the respective options if exercised at the end of the option term.
The 5% and 10% assumed annual rates of compounded stock price appreciation are
mandated by the rules of the SEC and do not represent an estimate or projection
of our future common stock prices. The potential realizable values at 5% and 10%
appreciation are calculated by:
- multiplying the number of shares of common stock under the option by the
assumed initial public offering price of $ per share;
- assuming that the aggregate stock value derived from that calculation
compounds at the annual 5% or 10% rate shown in the table until the
expiration of the options; and
- subtracting from that result the aggregate option exercise price.
Actual gains, if any, on stock option exercises will be dependent on the future
performance of our common stock.
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<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR (PERIOD)
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------
PERCENTAGE POTENTIAL REALIZABLE
OF TOTAL VALUE AT ASSUMED
NUMBER OF OPTIONS ANNUAL RATES OF STOCK
SECURITIES GRANTED TO PRICE APPRECIATION FOR
FISCAL UNDERLYING EMPLOYEES EXERCISE OPTION TERM
PERIOD OPTIONS DURING PRICE EXPIRATION --------------------------------
NAME END GRANTED PERIOD PER SHARE DATE 0% 5% 10%
- ---- -------- ---------- ---------- --------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Julio Gomez............ 12/31/99 -- 26.3% -- -- -- -- --
3/31/99 1,500,000(1) $ 0.01 1/22/04
500,000(1) $ 1.00
1,501,000(2) $ 0.011
John Robb.............. 12/31/99 -- 13.1% -- -- -- -- --
3/31/99 750,000(1) $ 0.01 1/22/04
250,000(1) $ 1.00
751,000(2) $ 0.011
Dr. Alexander D. 12/31/99 -- 13.1% -- -- -- -- --
Stein................ 3/31/99 750,000(1) $ 0.01 1/22/04
250,000(1) $ 1.00
751,000(2) $ 0.011
</TABLE>
- ------------------------
(1) These options were granted pursuant to our 1998 Stock Plan. These options
were exchanged and canceled on January 22, 1999 in connection with our
recapitalization and are no longer outstanding. See "Related Party
Transactions."
(2) These options were granted pursuant to our 1999 Long-Term Incentive Stock
Plan in connection with our recapitalization. One half of the shares subject
to these options were exercisable immediately upon grant, one quarter were
exercisable on January 22, 2000, and the remaining quarter of the shares
subject to these options will become exercisable upon completion of this
offering.
OPTION EXERCISES AND YEAR-END OPTION VALUES. The following table sets forth
certain information with respect to the total value of options held by each
executive officer named in the Summary Compensation Table as of December 31,
1999 and March 31, 1999. No shares were acquired on the exercise of stock
options by these individuals during these periods. The table sets forth the
value of options held for two periods due to the change in our fiscal year end
to December 31 from March 31, effective at December 31, 1999. Because there was
no public trading market for the common stock as of December 31, 1999 or
March 31, 1999, the value of the unexercised in-the-money options at fiscal
year-end have been calculated on the basis of the assumed initial public
offering price of $ per share multiplied by the number of shares underlying
the options minus the applicable per share exercise price.
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<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR (PERIOD) AND
FISCAL YEAR (PERIOD) END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT FISCAL PERIOD-END FISCAL PERIOD-END
FISCAL PERIOD ------------------------------ ---------------------------
NAME END EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Julio Gomez........................ 12/31/99 750,500 750,500
3/31/99 750,500 750,500
John Robb.......................... 12/31/99 375,500 375,500
3/31/99 375,500 375,500
Dr. Alexander D. Stein............. 12/31/99 375,500 375,500
3/31/99 375,500 375,500
</TABLE>
EMPLOYMENT AGREEMENTS
Effective upon the closing of this offering, we intend to enter into
employment agreements with Julio Gomez, our chairman of the board of directors
and chief executive officer, John Robb, our president and chief operating
officer and Dr. Alexander D. Stein, our executive vice president. The material
provisions of these agreements are as follows:
TERM. Each of these agreements provides for an initial term of two years
and automatically renews for successive two year terms unless notice of
non-renewal is given by either Gomez Advisors or the executive officer.
COMPENSATION. Under these agreements, each of these officers receives a
base salary of $180,000 which may be increased at the discretion of the board of
directors. In addition, each of these officers is entitled to the standard
benefits and bonus plans that we offer our executives.
TERMINATION. In the event that we terminate any of these officers without
cause or the officer resigns for good reason, that officer is entitled to
severance payments for twelve months equal to his salary immediately prior to
the termination.
TERMINATION FOLLOWING A CHANGE OF CONTROL. If, following a change of
control of Gomez Advisors (which is defined in the agreements as the occurrence
of (a) any transfer of all or substantially all of the assets of the company,
(b) individuals who constituted the board of directors on the date of the
employment agreement ceasing to constitute a majority of the board of directors,
(c) any consolidation or merger of the company or (d) any person becoming the
beneficial owner of 25% or more of either the outstanding shares of common stock
of the company or the combined voting power of the securities having the right
to vote in an election of the board of directors), we terminate any of these
officers without cause, any of the officers resigns for good reason or we choose
not to extend any of the officer's employment agreement, that officer will
receive a lump sum payment equal to two and one-half years' base salary plus any
earned but unpaid bonus for the prior fiscal year.
OTHER PROVISIONS. Each of these employment agreements also contains a one
year post-termination non-compete and non-solicitation provision.
EMPLOYEE BENEFIT PLANS
1998 STOCK PLAN. Our 1998 Stock Plan was approved by our board of directors
and by our stockholders in January 1998. Under this stock plan, we may grant
incentive stock options, nonqualified stock options, stock appreciation rights
and stock grants, collectively referred to as stock awards. As of March 31,
2000, a total of 600,000 shares of common stock had been reserved for issuance
under this
51
<PAGE>
plan, of which 27,665 shares had been issued pursuant to stock options granted
under this plan, 572,335 shares were subject to outstanding options with a
weighted average exercise price of $2.19 per share and no shares were available
for future grant.
This plan is administered by our board of directors and upon completion of
this offering will be administered by our compensation committee. The board of
directors determines the terms of stock awards granted pursuant to this plan,
including:
- the exercise price and the number of shares subject to each stock award;
- the vesting schedule for options;
- the termination or cancellation provisions applicable to stock awards; and
- the conditions relating to our right to reacquire shares subject to stock
awards.
The maximum term of options granted under this plan is ten years and some
options fully vest upon a change of control of Gomez Advisors.
In addition, if we are acquired, the board of directors may provide that
outstanding options under this stock plan shall be: assumed by the successor or
acquiring company; exercised within a specified number of days or the options
will terminate; or terminated in exchange for a cash payment equal to the value
of the option at the time we are acquired.
1999 LONG-TERM INCENTIVE STOCK PLAN. Our 1999 Long-Term Incentive Stock
Plan was approved by our board of directors and by our stockholders in
January 1999. Under this stock plan, we may grant stock, stock options, stock
grants, stock appreciation rights, restricted shares, performance-based awards
or other stock-based awards, collectively referred to as stock awards. As of
March 31, 2000, a total of 3,003,000 shares of common stock had been reserved
for issuance under this stock plan, of which 563,250 shares had been issued
pursuant to stock options granted under this stock plan, 2,439,750 shares were
subject to outstanding stock options with a weighted average exercise price of
$0.011 per share and no shares were available for future grant.
This stock plan is administered by our board of directors and upon
completion of this offering will be administered by our compensation committee.
The board of directors determines the terms of stock awards granted pursuant to
this stock plan, including:
- performance objectives;
- vesting or exercisability schedules;
- price;
- restrictions;
- option or performance periods;
- dividend rights;
- post-retirement and termination rights; and
- payment alternatives.
In the event of a reorganization, merger, consolidation or other similar
transaction involving us, the board of directors may make any changes that it
deems necessary or desirable to the terms of stock awards to preserve the
intended benefits of the stock plan for Gomez Advisors and for the participants
in the stock plan. All options granted under this stock plan fully vest upon a
change of control of Gomez Advisors.
52
<PAGE>
1999 STOCK PLAN. Our 1999 Stock Plan was approved by our board of directors
and shareholders in February 1999. Under this stock plan, we may grant incentive
stock options, nonqualified stock options, stock appreciation rights and stock
grants, collectively referred to as stock awards. As of March 31, 2000, a total
of 3,000,000 shares of common stock had been reserved for issuance under this
stock plan, of which no shares had been issued pursuant to stock awards granted
under this stock plan, 2,681,499 shares were subject to outstanding options with
a weighted average exercise price of $6.95 and 318,501 shares were available for
future grant. In April, 2000, our board of directors authorized the reservation
of an additional 1,000,000 shares of common stock for issuance under this stock
plan pending stockholder approval.
This stock plan is administered by our board of directors and upon
completion of this offering will be administered by our compensation committee.
The board of directors determines the terms of stock awards granted pursuant to
this stock plan, including:
- the exercise or purchase price and the number of shares subject to each
stock award;
- the vesting schedule for options;
- the termination or cancellation provisions applicable to stock awards; and
- the conditions relating to our right to reacquire shares subject to stock
awards.
The maximum term of options granted under this stock plan is ten years and some
options granted fully vest upon a change of control of Gomez Advisors.
In addition, if we are acquired, the board of directors may provide that
outstanding options under this stock plan shall be: assumed by the successor or
acquiring company; exercised within a specified number of days or the options
will terminate; or terminated in exchange for a cash payment equal to the value
of the option at the time we are acquired.
2000 EMPLOYEE STOCK PURCHASE PLAN. Our 2000 Employee Stock Purchase Plan
was approved by our board of directors in April 2000. Under this employee stock
purchase plan, our eligible employees can purchase shares of our common stock.
Employees, including officers and employee directors, are eligible to
participate in this plan if they are customarily employed by us for more than
20 hours per week and more than five months in any calendar year. Our
compensation committee will administer the stock purchase plan. We have
initially reserved 200,000 shares of common stock for issuance under this
purchase plan.
The plan permits participants to purchase common stock through payroll
deductions of up to 15% of the participant's total compensation. Stock may be
purchased under the plan at a price equal to 85% of the fair market value of our
stock on either the date of purchase or the first day of the offering period,
whichever is lower. Each offering period under this plan will be for two years
and will consist of four six-month purchase periods. Subject to meeting federal
and state securities law requirements, the stock purchase plan will become
effective upon the consummation of this offering, or as soon as practicable
thereafter and the first offering period will begin on that date. The first
purchase period may be more or less than six months long. Offering periods
thereafter will begin on March 1 and September 1. Individuals who become
eligible employees after the start date of an offering period may join the stock
purchase plan on any subsequent semi-annual entry date within that offering
period. A participant will not be able to purchase shares having a fair market
value of more than $25,000, determined as of the first day of the applicable
offering period, for each calendar year in which the employee participates in
this plan. Employees are not eligible to participate in this stock purchase plan
if they are 5% stockholders, or would become 5% stockholders as a result of
their participation in this plan.
If a participant withdraws from the stock purchase plan, any contributions
that have not been used to purchase shares shall be refunded. A participant who
has withdrawn may not participate in the stock
53
<PAGE>
purchase plan again until the next offering period. Participation ends
automatically upon termination of employment with us.
Our 2000 Employee Stock Purchase Plan is intended to qualify as an employee
stock purchase plan under Section 423 of the Internal Revenue Code. The board of
directors may terminate or amend the stock purchase plan, subject to shareholder
approval in some circumstances. Unless terminated earlier by the board of
directors, the stock purchase plan will have a term of 10 years.
401(K) PLAN. We maintain a retirement and deferred savings plan for our
employees that is intended to qualify as a tax-qualified plan under the Internal
Revenue Code. The 401(k) Plan provides that each participant may contribute up
to the statutory limit of $10,500 in calendar year 2000. Under this plan we do
not match employee contributions.
LIMITATION OF DIRECTORS' LIABILITY AND INDEMNIFICATION
The Delaware General Corporation law authorizes corporations to limit or
eliminate, subject to certain conditions, the personal liability of directors to
corporations and their stockholders for monetary damages for breach of their
fiduciary duties. Our certificate of incorporation limits the liability of our
directors to the fullest extent permitted by Delaware law.
Our certificate of incorporation and bylaws also provide that we will
indemnify any of our directors and officers who, by reason of the fact that he
or she is one of our officers or directors, is involved in a legal proceeding of
any nature. We will repay certain expenses incurred by a director or officer in
connection with any civil or criminal action or proceeding, specifically
including actions by us or in our name (derivative suits). Such indemnifiable
expenses include, to the maximum extent permitted by law, attorney's fees,
judgments, civil or criminal fines, settlement amounts and other expenses
customarily incurred in connection with legal proceedings. A director or officer
will not receive indemnification if he or she is found not to have acted in good
faith and in a manner he or she reasonably believed to be in, or not opposed to,
our best interest.
Such limitation of liability and indemnification does not affect the
availability of equitable remedies. In addition, we have been advised that in
the opinion of the SEC, indemnification for liabilities arising under the
Securities Act is against public policy as expressed in the Securities Act and
is therefore unenforceable.
There is no pending litigation or proceeding involving any of our directors,
officers, employees or agents 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.
54
<PAGE>
RELATED PARTY TRANSACTIONS
SERIES C REDEEMABLE CONVERTIBLE PREFERRED STOCK OFFERING
In November and December of 1999 and February of 2000, we raised gross
proceeds of approximately $29 million from the issue and sale of a total of
5,711,112 shares of Series C Convertible Preferred Stock in a private placement
to 28 investors at a price of $5.10 per share. BancBoston Ventures, Inc., a
greater than five percent beneficial stockholder of Gomez Advisors, purchased
1,764,705 shares of Series C Convertible Preferred Stock. HarbourVest Partners
VI--Direct Fund, LP, a greater than five percent beneficial stockholder of Gomez
Advisors, purchased 980,393 shares of Series C Convertible Preferred Stock.
SOFTVEN No. 2 Investment Enterprise Partnership, a greater than five percent
beneficial stockholder of Gomez Advisors, purchased 980,392 shares of Series C
Convertible Preferred Stock. Peter R. Roberts, one of our directors, is a
managing director of BancBoston Ventures, Inc. and was elected to our board of
directors pursuant to an investor rights agreement. Edward W. Kane, one of our
directors, is a senior managing director of HarbourVest Partners and was elected
to our board of directors pursuant to an investor rights agreement. The
provisions of the investor rights agreement that relate to the election of
directors will terminate upon the closing of this offering. See "Description of
Capital Stock--Registration Rights."
Additionally, the investor rights agreement entered into in connection with
our Series C Convertible Preferred Stock offering grants certain rights to
register shares of our common stock under the Securities Act to Julio Gomez,
John Robb, Dr. Alexander D. Stein, The Ashton Technology Group, Inc. and the
purchasers of our Series C Convertible Preferred Stock, including BancBoston
Ventures, Inc., HarbourVest Partners VI--Direct Fund, LP and SOFTVEN No. 2
Investment Enterprise Partnership.
In April 2000, we issued to BancBoston Robertson Stephens, Inc., an
affiliate of BancBoston Ventures, Inc., a greater than five percent beneficial
stockholder of Gomez Advisors, a warrant to purchase an aggregate of 147,059
shares of our common stock at a price per share of $5.10. The warrant expires
five years after the date of the closing of this offering. The warrant was
issued in connection with BancBoston Robertson Stephens Inc.'s service as
placement agent for the Series C Convertible Preferred Stock offering.
REPURCHASES OF CAPITAL STOCK
On February 18, 2000, we repurchased 98,039 shares of common stock from
Mr. Robb, our president and chief operating officer at a purchase price of $5.10
per share, for an aggregate of $500,000.
On February 23, 2000, we repurchased 500 shares of Series A Preferred Stock
for $2,550,000 from the Ashton Technology Group, Inc., a greater than five
percent beneficial stockholder. Each share of Series A Preferred Stock is
convertible into 1,000 shares of common stock, and the purchase price of the
Series A Preferred Stock in this transaction was based on an as converted value
of common stock of $5.10 per share.
On March 6, 2000, we repurchased 98,039 shares of common stock from
Mr. Gomez, our chairman of the board of directors and chief executive officer,
at a purchase price of $5.10 per share, for an aggregate of $500,000.
RECAPITALIZATION OF GOMEZ ADVISORS
Prior to January 22, 1999, we operated as a wholly owned subsidiary of The
Ashton Technology Group, Inc. Upon our formation in May 1997, Ashton paid
$25,000 to us as consideration for 1,000 shares of our common stock and also
agreed to provide advances to fund our operations in the amount of $1,475,000.
By January 22, 1999, Ashton had fully funded its commitment to us. On
January 22,
55
<PAGE>
1999, an exchange agreement was entered into by and among Gomez Advisors,
Ashton, Messrs. Gomez and Robb, Dr. Stein, K. Ivan F. Gothner and several Ashton
employees. Pursuant to the exchange agreement:
- Ashton exchanged all of its rights and interest in the $1,475,000 of
advances made by Ashton to us for an additional 59,000 shares of our
common stock, and subsequently exchanged all 60,000 shares of our common
stock that it held for 4,905 shares of our Series A Preferred Stock;
- Mr. Gothner, a member of our board of directors as well as a director of
Ashton, exchanged options to purchase 300,000 shares of our common stock
at an exercise price of $0.01 per share and paid $0.01 per share for
300,000 shares of our common stock;
- Mr. Gomez, our chief executive officer and chairman of the board,
exchanged options to purchase 1,500,000 shares of our common stock at an
exercise price of $0.01 per share and paid $0.01 per share for 1,051,000
shares of our common stock;
- Mr. Gomez exchanged options to purchase 500,000 shares of our common stock
at an exercise price of $1.00 per share for an option to purchase
1,501,000 shares of our common stock at $0.011 per share pursuant to our
1999 Long-Term Incentive Plan;
- Mr. Robb, president and chief operating officer and a member of our board
of directors, exchanged options to purchase 750,000 shares of our common
stock at an exercise price of $0.01 per share and paid $0.01 per share for
526,000 shares of our common stock;
- Mr. Robb exchanged options to purchase 250,000 shares of our common stock
at an exercise price of $1.00 per share for an option to purchase 751,000
shares of our common stock at $0.011 per share pursuant to our 1999
Long-Term Incentive Plan;
- Dr. Stein, our executive vice president, professional services, exchanged
options to purchase 750,000 shares of our common stock at an exercise
price of $0.01 per share and paid $0.01 per share for 526,000 shares of
our common stock;
- Dr. Stein exchanged options to purchase 250,000 shares of our common stock
at an exercise price of $1.00 per share for an option to purchase 751,000
shares of our common stock at $0.011 per share pursuant to our 1999
Long-Term Incentive Plan; and
- we issued 1,331,000 shares of our common stock for sale at $0.01 per share
to certain affiliates of Ashton and other persons.
For additional information, please see note 6(b) of the notes to our
consolidated financial statements.
Each outstanding share of our Series A Preferred Stock is convertible into
1,000 shares of our common stock.
STOCKHOLDERS AGREEMENT IN CONNECTION WITH THE RECAPITALIZATION OF GOMEZ ADVISORS
In connection with the recapitalization, Gomez Advisors, Ashton,
Messrs. Gomez, Robb and Gothner, Dr. Stein and other stockholders entered into a
stockholders agreement, dated as of January 22, 1999 and as amended as of
December 31, 1999, whereby, among other things:
- certain registration rights were granted to Ashton, certain executives and
employees of Ashton, Messrs. Gomez, Robb, Gothner and Dr. Stein;
- Mr. Gothner was effectively prohibited from voting his shares of common
stock prior to the earlier of January 22, 2001, or the consummation of an
underwritten initial public offering of our common stock;
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<PAGE>
- prior to an initial public offering of our common stock, each of the
parties to the agreement are restricted from transferring any of their
shares except in certain limited circumstances; and
- Mr. Gothner is required to forfeit all of his shares of common stock to us
at a price equal to $0.01 per share, if he is no longer employed (as a
direct employee or a consultant) by Ashton or Gomez Advisors on the
earlier to occur of (a) January 22, 2001 or (b) the consummation of an
initial public offering of our common stock.
OTHER TRANSACTIONS WITH THE ASHTON TECHNOLOGY GROUP INC.
Between January 22, 1999 and the closing of our offer and sale of Series B
Redeemable Convertible Preferred Stock in April 1999, Ashton advanced us
additional funds in the amount of $171,440. These advances were repaid in full
by us on April 16, 1999.
During our fiscal year ended March 31, 1999, we incurred expenses of $48,387
for insurance premiums provided through Ashton. The services were not provided
by Ashton or any of its affiliates. We have reimbursed Ashton in full for the
cost of these services.
On October 27, 1999, Ashton advanced us additional funds in the amount of
$413,000. These advances were repaid in full by us on November 3, 1999.
ADIRONDACK CAPITAL, LLC
Adirondack Capital, LLC, a private merchant banking firm, provided financial
advisory services to us in connection with our offer and sale of 1,100,000
shares of Series B Redeemable Convertible Preferred Stock in April 1999. In
exchange for such financial advisory services, we paid Adirondack $50,000.
Mr. Gothner, a member of our board of directors, serves as managing director of
Adirondack.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of our common stock and common stock equivalents (our preferred stock
on an as converted basis) as of March 31, 2000, and as adjusted to reflect the
sale of our common stock offered by this prospectus by:
- each of our executive officers;
- each of our directors;
- all of our current directors and executive officers as a group; and
- each stockholder known by us to own beneficially more than 5% of our
common stock.
Beneficial ownership is determined in accordance with the rules of the SEC
and includes voting or investment power with respect to the securities.
Securities that may be acquired by an individual or group within 60 days of
March 31, 2000, pursuant to the exercise of options or warrants, are deemed to
be outstanding for the purpose of computing the percentage ownership of such
individual or group, but are not deemed to be outstanding for the purpose of
computing the percentage ownership of any other person shown in the table.
Except as indicated in footnotes to this table, we believe that the stockholders
named in this table have sole voting and investment power with respect to all
shares of common stock and common stock equivalents shown to be beneficially
owned by them based on information provided to us by those stockholders.
Percentage of ownership is based on 15,360,949 shares of common stock and common
stock equivalents outstanding on March 31, 2000.
<TABLE>
<CAPTION>
PERCENT OF SHARES
BENEFICIALLY OWNED
-------------------
NUMBER OF SHARES BEFORE AFTER
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED OFFERING OFFERING
- ------------------------ ------------------ -------- --------
<S> <C> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS
Julio Gomez(1).............................................. 2,421,961 14.4%
John Robb(2)................................................ 1,146,461 7.1%
Dr. Alexander Stein(3)...................................... 1,253,000 8.0%
K. Ivan F. Gothner(4)....................................... 4,705,000 30.6%
Edward W. Kane(5)........................................... 980,393 6.4%
Peter R. Roberts(6)......................................... 1,764,705 11.5%
All current executive officers and directors as a group 12,467,599 70.0%
(6 persons)...............................................
OTHER 5% STOCKHOLDERS
The Ashton Technology Group, Inc............................ 4,405,000 28.7%
1900 Market Street
Suite 701
Philadelphia, PA 19103
BancBoston Ventures, Inc.................................... 1,764,705 11.5%
100 Federal Street
Boston, MA 02110
HarbourVest Partners VI--Direct Fund, LP.................... 980,393 6.4%
One Financial Center
Boston, MA 02111
SOFTVEN No. 2 Investment Enterprise Partnership............. 980,392 6.4%
c/o Softbank Corporation
3-23 Kanda-Nishikicho
Chiyoda-ku, Tokyo 101-0054
Japan
</TABLE>
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<PAGE>
- ------------------------
(1) The information regarding Julio Gomez includes (a) 1,125,750 shares
underlying options which are exercisable within 60 days of March 31, 2000,
(b) 375,250 shares underlying options which are exercisable upon completion
of this offering, (c) 12,000 shares held by Mr. Gomez's children and
(d) 310,000 shares held by Seven Star Ventures, LLC. Mr. Gomez is the
managing member of Seven Star Ventures, LLC. Mr. Gomez disclaims any
beneficial ownership of the shares held by Seven Star Ventures, LLC, except
to the extent of his pecuniary interest in these shares, if any.
(2) The information regarding John Robb includes (a) 563,250 shares underlying
options which are exercisable within 60 days of March 31, 2000, (b)
187,750 shares underlying options which are exercisable upon completion of
this offering and (c) 130,000 shares held by Ad Astra, LLC. Mr. Robb is the
managing member of Ad Astra, LLC. Mr. Robb disclaims any beneficial
ownership of the shares held by Ad Astra, LLC, except to the extent of his
pecuniary interest in these shares, if any.
(3) The information regarding Dr. Alexander Stein includes (a) 187,750 shares
underlying options which are exercisable upon completion of this offering,
(b) 12,000 shares held by Dr. Stein's children and (c) 310,000 shares held
by New Internet Ventures, LLC. Dr. Stein is the managing member of New
Internet Ventures, LLC. Dr. Stein disclaims any beneficial ownership of the
shares held by New Internet Ventures, LLC, except to the extent of his
pecuniary interest in these shares, if any.
(4) The information regarding K. Ivan F. Gothner includes 4,405,000 shares held
by The Ashton Technology Group, Inc. of which Mr. Gothner is a director.
Mr. Gothner expressly disclaims any beneficial ownership of the shares held
by The Ashton Technology Group, Inc., except to the extent of his pecuniary
interest in these share, if any.
(5) The information regarding Edward W. Kane includes 980,393 shares held by
HarbourVest Partners VI--Direct Fund II, LP of which Mr. Kane is a Senior
Managing Director. Mr. Kane disclaims ownership of the shares held by
HarbourVest Partners VI--Direct Fund II, LP, except to the extent of his
pecuniary interest in these shares, if any.
(6) The information regarding Peter R. Roberts includes 1,764,705 shares held by
BancBoston Ventures, Inc., of which Mr. Roberts is a managing director.
Mr. Roberts disclaims any beneficial ownership of the shares held by
BancBoston Ventures, Inc., except to the extent of his pecuniary interest in
these shares, if any.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon completion of this offering, we will be authorized to issue 100,000,000
shares of common stock, $.0001 par value per share and 10,000,000 shares of
preferred stock, $.0001 par value per share, and there will be
shares of common stock and no shares of preferred stock outstanding. Assuming
the conversion of our preferred stock, as of March 31, 2000, we had 15,360,949
shares of common stock outstanding and held of record by 173 stockholders. As of
March 31, 2000, there were outstanding options to purchase 5,693,584 shares of
common stock and outstanding warrants to purchase 247,059 shares of common
stock.
COMMON STOCK
Holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders, and do not have
cumulative voting rights. Subject to preferences that may be applicable to any
outstanding shares of preferred stock, holders of common stock are entitled to
receive ratably such dividends, if any, as may be declared from time to time by
our board of directors out of funds legally available for dividend payments. All
outstanding shares of common stock are fully paid and nonassessable, and the
holders of common stock have no preferences or rights of conversion, exchange or
pre-exemption. In the event of any liquidation, dissolution or winding-up of our
affairs, holders of common stock will be entitled to share ratably in our assets
that are remaining after payment or provision for payment of all of our debts
and obligations and after liquidation payments to holders of outstanding shares
of preferred stock, if any.
PREFERRED STOCK
The preferred stock, if issued, would have priority over the common stock
with respect to dividends and other distributions, including the distribution of
assets upon liquidation. Our board of directors has the authority, without
further stockholder authorization, to issue from time to time shares of
preferred stock in one or more series and to fix the terms, limitations,
relative rights and preferences and variations of each series. Although we have
no present plans to issue any shares of preferred stock, the issuance of shares
of preferred stock, or the issuance of rights to purchase such shares, could
decrease the amount of earnings and assets available for distribution to the
holders of common stock, could adversely affect the rights and powers, including
voting rights, of common stock, and could have the effect of delaying, deterring
or preventing a change of control of Gomez Advisors or an unsolicited
acquisition proposal.
WARRANTS
As of the date of this prospectus the following warrants were outstanding:
- A warrant to purchase 147,059 shares of our common stock at an exercise
price of $5.10 per share. This warrant expires five years after the date
of the closing of this offering.
- A warrant to purchase 100,000 shares of our common stock at an exercise
price equal to the price of the common stock in this offering. This
warrant expires on June 18, 2001.
Each of these warrants contains provisions for the adjustment of the exercise
price and the aggregate number of shares issuable upon the exercise of the
warrant in the event of stock dividends, stock splits, reorganizations, and
reclassifications and consolidations.
REGISTRATION RIGHTS
Certain holders of shares of our common stock are entitled to registration
rights with respect to those shares as described below. These registration
rights are subject to certain conditions and limitations, including the rights
of the underwriters of an offering to limit the number of shares
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<PAGE>
included in any such registration under certain circumstances. All expenses,
other than underwriting discounts and selling commissions, incurred in
connection with registrations effected in connection with the following rights
will be borne by us.
DEMAND RIGHTS. Beginning 180 days after completion of our initial public
offering, the holders of 5,986,000 shares of common stock and 2,439,750 shares
of common stock issuable upon the exercise of outstanding options will have
certain rights to cause us to register those shares under the Securities Act. We
may be required to effect up to four such registrations, provided that any such
demand for registration must be made by the holders of at least 67% of these
shares then outstanding. Stockholders with these registration rights who are not
part of an initial registration demand are entitled to notice and are entitled
to include their shares of common stock in the registration.
Beginning 180 days after completion of our initial public offering, the
holders of an additional 5,711,112 shares of common stock and 147,059 shares of
common stock issuable upon the exercise of an outstanding warrant will have
certain rights to cause us to register those shares under the Securities Act. We
may be required to effect up to two such registrations. Stockholders with these
registration rights who are not part of an initial registration demand are
entitled to notice and are entitled to include their shares of common stock in
the registration.
Beginning 270 days after completion of this offering, the holders of an
additional 1,166,000 shares of common stock will have a one-time right to cause
us to register those shares under the Securities Act. Stockholders with these
registration rights who are not part of an initial registration demand are
entitled to notice and are entitled to include their shares of common stock in
the registration.
PIGGYBACK RIGHTS. If at any time after this offering we propose to register
any of our equity securities under the Securities Act, other than in connection
with
- our stock plans or similar plans; or
- a registration relating solely to a business combination or merger
involving us;
the holders of 6,877,112 shares of common stock are entitled to notice of such
registration and are entitled to include their common stock in the registration.
Beginning one year after the completion of this offering, if we propose to
register any of our equity securities under the Securities Act, subject to the
same exceptions listed above, the holders of an additional 8,367,672 shares of
common stock and 2,439,750 shares of common stock issuable upon the exercise of
outstanding options are entitled to notice of such registration and are entitled
to include their common stock in the registration.
SHELF REGISTRATION RIGHTS. The holders of 5,711,112 shares of common stock
will have the right to cause us to register these shares on a Form S-3, provided
that we are eligible to use this form. We will not be required to effect more
than one registration on Form S-3 in any twelve month period and the aggregate
offering price of the shares to be registered in such registration, based on the
then current market price of our common stock, is required to be at least
$2.0 million.
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
The provisions of Delaware law and of our certificate of incorporation and
by-laws discussed below could discourage or make it more difficult to accomplish
a proxy contest or other change in our management or the acquisition of control
by a holder of a substantial amount of our voting stock. It is possible that
these provisions could make it more difficult to accomplish, or could deter,
transactions that stockholders may otherwise consider to be in their best
interests or the best interests of Gomez Advisors.
DELAWARE STATUTORY BUSINESS COMBINATIONS PROVISION. Section 203 of the
Delaware General Corporation Law prohibits a Delaware corporation from engaging
in any of a broad range of business
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<PAGE>
combinations, such as mergers, consolidations and sales of assets, with an
"interested stockholder" for a period of three years from the date that such
person became an interested stockholder unless:
- the transaction that results in the person becoming an interested
stockholder, or the business combination, is approved by the board of
directors of the corporation before the person becomes an interested
stockholder,
- the interested stockholder acquires 85% or more of the outstanding voting
stock of the corporation in the same transaction that makes it an
interested stockholder, or
- on or after the date the person becomes an interested stockholder, the
business combination is approved by the corporation's board of directors
and by holders of at least two-thirds of the corporation's outstanding
voting stock, excluding shares owned by the interested stockholder, at a
meeting of the stockholders.
Under Section 203, an "interested stockholder" is defined as any person that
is
- the owner of 15% or more of the outstanding voting stock of the
corporation,
- an affiliate or associate of the corporation and the owner of 15% or more
of the outstanding voting stock of the corporation at any time within the
three-year period immediately prior to the date on which it is sought to
be determined whether such person is an interested stockholder, or
- an affiliate or associate of such person.
Pursuant to an exception within Section 203, none of our stockholders
existing prior to the offering are subject to the restrictions of Section 203.
CLASSIFIED BOARD OF DIRECTORS. Our board of directors is divided into three
classes as nearly equal in number as possible. Each year, the stockholders elect
the members of one of the three classes to a three-year term of office.
Mr. Gomez serves in the class whose term expires in 2000; Messrs. Gothner and
Robb serve in the class whose term expires in 2001; and Messrs. Roberts and Kane
serve in the class whose term expires in 2002. All directors elected to our
classified board of directors will serve until the election and qualification of
their respective successors or their earlier resignation or removal. The board
of directors is authorized to create new directorships and to fill such
positions so created and is permitted to specify the class to which any such new
position is assigned. The person filling such position would serve for the term
applicable to that class. The board of directors (or its remaining members, even
if less than a quorum) is also empowered to fill vacancies on the board of
directors occurring for any reason for the remainder of the term of the class of
directors in which the vacancy occurred. Members of the board of directors may
only be removed for cause. These provisions are likely to increase the time
required for stockholders to change the composition of the board of directors.
For example, in general, at least two annual meetings will be necessary for
stockholders to effect a change in a majority of the members of the board of
directors.
ADVANCE NOTICE PROVISIONS FOR STOCKHOLDER PROPOSALS AND STOCKHOLDER
NOMINATIONS OF DIRECTORS. Our by-laws provide that, for nominations to the
board of directors or for other business to be properly brought by a stockholder
before a meeting of stockholders, the stockholder must first have given timely
notice of the proposal in writing to our Secretary. For an annual meeting, a
stockholder's notice generally must be delivered not less than 45 days nor more
than 75 days prior to the anniversary of the mailing date of the proxy statement
for the previous year's annual meeting. For a special meeting, the notice must
be delivered not earlier than 90 days and not later than 60 days prior to the
special meeting or within ten days following the day on which public
announcement of the meeting is first made. Detailed requirements as to the form
of the notice and information required in the notice are specified in the
by-laws. If it is determined that business was not properly brought before a
meeting in accordance with our by-law provisions, such business will not be
conducted at the meeting.
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<PAGE>
SPECIAL MEETINGS OF STOCKHOLDERS. Special meetings of the stockholders may
be called only by the chairman of our board of directors or our board of
directors pursuant to a resolution adopted by a majority of the total number of
directors.
NO STOCKHOLDER ACTION BY WRITTEN CONSENT. Our certificate of incorporation
does not permit our stockholders to act by written consent. As a result, any
action to be effected by our stockholders must be effected at a duly called
annual or special meeting of the stockholders.
SUPER-MAJORITY STOCKHOLDER VOTE REQUIRED FOR CERTAIN ACTIONS. The Delaware
General Corporation Law provides generally that the affirmative vote of a
majority of the shares entitled to vote on any matter is required to amend a
corporation's certificate of incorporation or by-laws, unless the corporation's
certificate of incorporation or by-laws, as the case may be, requires a greater
percentage. Our certificate of incorporation requires the affirmative vote of
the holders of at least 80% of our outstanding voting stock to amend or repeal
any of the provisions discussed in this section of this prospectus entitled
"Delaware Law and Certain Charter and By-law Provisions" or to reduce the number
of authorized shares of common stock or preferred stock. This 80% stockholder
vote would be in addition to any separate class vote that might in the future be
required pursuant to the terms of any preferred stock that might then be
outstanding. An 80% vote is also required for any amendment to, or repeal of,
our by-laws by the stockholders. Our by-laws may be amended or repealed by a
simple majority vote of the board of directors.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock will be Boston
EquiServe LLP.
LISTING
We have applied to list our common stock on the Nasdaq National Market under
the symbol "GOMZ."
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there was no public market for our common stock.
Future sales of substantial amounts of our common stock in the public market
could adversely affect market prices prevailing from time to time. Furthermore,
because only a limited number of shares will be available for sale shortly after
this offering due to existing contractual and legal restrictions on resale as
described below, there may be sales of substantial amounts of our common stock
in the public market after the restrictions lapse. This may adversely affect the
prevailing market price and our ability to raise equity capital in the future.
Upon the completion of this offering, we will have a total of shares
of common stock outstanding, assuming no exercise of the underwriters'
over-allotment option, no exercise of options and warrants outstanding at
March 31, 2000 and the conversion of all outstanding shares of preferred stock.
Of these shares, the shares sold in this offering will be freely
transferable without restriction or registration under the Securities Act,
except for any shares purchased by our "affiliates," as that term is defined in
Rule 144 under the Securities Act. The remaining shares of common stock will be
deemed "restricted securities" as defined under Rule 144. Restricted securities
may not be sold publicly unless they are registered under the Securities Act or
are sold pursuant to Rules 144 or 701 under the Securities Act or another
exemption from registration. As a result of the contractual 180 day lock-up
period described below and the provisions of Rules 144 and 701, these shares
will be available for sale in the public market as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES DATE
- ---------------- ----
<S> <C>
................. On the date of this prospectus.
................. After 90 days from the date of this prospectus.
................. After 180 days from the date of this prospectus (subject, in
some cases, to volume limitations).
................. At various times after 180 days from the date of this
prospectus (subject, in some cases, to volume limitations).
</TABLE>
LOCK-UP AGREEMENTS
Gomez Advisors, our directors, executive officers and other stockholders and
option holders have each agreed not to offer, pledge, sell, contract to sell,
sell any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase, lend or otherwise transfer
or dispose of, directly or indirectly, any shares of common stock or any
securities convertible into or exercisable or exchangeable for common stock, for
a period of 180 days from the date of this prospectus, without the prior written
consent of Merrill Lynch, subject to limited exceptions. However, Merrill Lynch
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.
RULE 144
In general, under Rule 144, as currently in effect, commencing in 90 days
after the date of this prospectus, a person, including an affiliate of ours, who
has beneficially owned shares 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
(a) 1% of the then outstanding shares of common stock (approximately
shares immediately after this offering) or (b) the average weekly trading
volume in the common stock during the four calendar weeks preceding the date on
which notice of such sale is filed, subject to various restrictions. In
addition, a person who is not deemed to have been an affiliate of ours at any
time during the 90 days preceding the sale and who has beneficially owned the
shares proposed to be sold for at least two years would be entitled to sell
those shares under Rule 144(k) without regard to the requirements described
above. To the extent that shares were acquired from an affiliate, such person's
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<PAGE>
holding period for the purpose of effecting a sales under Rule 144 commences on
the date of transfer from the affiliate.
RULE 701
Subject to the limitations on the aggregate offering price of a transaction
and other conditions, Rule 701 may be relied upon with respect to the resale of
securities originally purchased from us by our employees, directors, officers or
consultants prior to the date we become subject to the reporting requirements of
the Securities Exchange Act of 1934, or the Exchange Act, under written
compensatory benefit plans or written contracts relating to the compensation of
these persons. In addition, the SEC has indicated that Rule 701 will apply to
typical stock options granted by an issuer before it becomes subject to the
reporting requirements of the Exchange Act, along with the shares acquired upon
exercise of the options, including exercises after the date of this prospectus.
Securities issued in reliance on Rule 701 are restricted securities and, subject
to the contractual restrictions described above, beginning 90 days after the
date of this prospectus, may be sold by persons other than affiliates subject
only to the manner of sale provisions of Rule 144 and by affiliates under
Rule 144 without compliance with its minimum holding period requirements.
REGISTRATION RIGHTS
Upon completion of this offering, the holders of 15,244,784 shares of common
stock and 2,586,809 shares of common stock issuable upon the exercise of
outstanding options and warrants, or their transferees, will be entitled to
various rights with respect to the registration of these shares under the
Securities Act. Registration of these shares under the Securities Act would
result in these shares becoming freely tradable without restriction under the
Securities Act immediately upon the effectiveness of the registration, except
for shares purchased by affiliates. See "Description of Capital
Stock--Registration Rights" for a more complete description of these
registration rights.
STOCK OPTIONS
As of March 31, 2000, options to purchase a total of 5,693,584 shares of
common stock under our stock option plans were outstanding and exercisable.
of the shares subject to options are subject to lock-up agreements.
An additional 318,501 shares of common stock were available for future option
grants under our stock plans.
Upon completion of this offering, we intend to file a registration statement
under the Securities Act covering all shares of common stock subject to
outstanding options or issuable pursuant to our 1998 Stock Plan, 1999 Long-Term
Incentive Plan, 1999 Stock Plan and the 2000 Employee Stock Purchase Plan.
Subject to Rule 144 volume limitations applicable to affiliates, shares
registered under any registration statements will be available for sale in the
open market, beginning 90 days after the date of the prospectus, except to the
extent that the shares are subject to vesting restrictions with us or the
contractual restrictions described above.
ISSUANCE OF ADDITIONAL SHARES
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 our stock
plans.
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<PAGE>
UNDERWRITING
Merrill Lynch, Pierce, Fenner & Smith Incorporated, U.S. Bancorp Piper
Jaffray and The Robinson-Humphrey Company LLC are acting as representatives of
the underwriters named below. Subject to the terms and conditions described in a
purchase agreement between us and the underwriters, we have agreed to sell to
the underwriters, and the underwriters severally have agreed to purchase from
us, the number of shares listed opposite their names below.
<TABLE>
<CAPTION>
NUMBER
OF
UNDERWRITER SHARES
- ----------- --------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated......................................
U.S. Bancorp Piper Jaffray Inc..............................
The Robinson-Humphrey Company LLC...........................
-------
Total.............................................
=======
</TABLE>
The underwriters have agreed to purchase all of the shares sold under the
purchase agreement if any of these shares are purchased. If an underwriter
defaults, the purchase agreement provides that the purchase commitments of the
nondefaulting underwriters may be increased or the purchase agreement may be
terminated.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act, or to contribute to payments the
underwriters may be required to make in respect of those liabilities.
The underwriters are offering the shares, subject to prior sale, when, as
and if issued to and accepted by them, subject to approval of legal matters by
their counsel, including the validity of the shares, and other conditions
contained in the purchase agreement, such as the receipt by the underwriters of
officer's certificates and legal opinions. The underwriters reserve the right to
withdraw, cancel or modify offers to the public and to reject orders in whole or
in part.
Offers and sales outside the United States, if any, will be made through the
underwriters' international broker-dealer affiliates.
COMMISSIONS AND DISCOUNTS
The representatives have advised us that the underwriters propose initially
to offer the shares to the public at the initial public offering price on the
cover page of this prospectus and to dealers at that price less a concession not
in excess of $ per share. The underwriters may allow, and the
dealers may reallow, a discount not in excess of $ per share to
other dealers. After the initial public offering, the public offering price,
concession and discount may be changed.
The following table shows the public offering price, underwriting discount
and proceeds before expenses to Gomez Advisors. The information assumes either
no exercise or full exercise by the underwriters of their over-allotment
options.
<TABLE>
<CAPTION>
PER SHARE WITHOUT OPTION WITH OPTION
--------- -------------- -----------
<S> <C> <C> <C>
Public offering price.................................... $ $ $
Underwriting discount.................................... $ $ $
Proceeds, before expenses, to Gomez Advisors............. $ $ $
</TABLE>
The expenses of the offering, not including the underwriting discount, are
estimated at $ and are payable by Gomez Advisors.
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<PAGE>
OVER-ALLOTMENT OPTION
We have granted options to the underwriters to purchase up to
additional shares at the public offering price less the underwriting discount.
The underwriters may exercise these options for 30 days from the date of this
prospectus solely to cover any over-allotments. If the underwriters exercise
these options, each will be obligated, subject to conditions contained in the
purchase agreements to purchase a number of additional shares proportionate to
that underwriter's initial amount reflected in the above table.
RESERVED SHARES
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to % of the shares offered by this prospectus
for sale to some of our directors, officers, employees, business associates and
related persons. If these persons purchase reserved shares, this will reduce the
number of shares available for sale to the general public. Any reserved shares
that are not orally confirmed for purchase within one day of the pricing of this
offering will be offered by the underwriters to the general public on the same
terms as the other shares offered by this prospectus.
NO SALES OF SIMILAR SECURITIES
We and our executive officers and directors and other stockholders have
agreed, with exceptions, not to sell or transfer any common stock for 180 days
after the date of this prospectus without first obtaining the written consent of
Merrill Lynch. Specifically, we and these other individuals have agreed not to
directly or indirectly
- offer, pledge, sell or contract to sell any common stock,
- sell any option or contract to purchase any common stock,
- purchase any option or contract to sell any common stock,
- grant any option, right or warrant for the sale of any common stock,
- lend or otherwise dispose of or transfer any common stock,
- request or demand that we file a registration statement related to the
common stock, or
- enter into any swap or other agreement that transfers, in whole or in
part, the economic consequence of ownership of any common stock whether
any such swap or transaction is to be settled by delivery of shares or
other securities, in cash or otherwise.
This lockup provision applies to common stock and to securities convertible
into or exchangeable or exercisable for or repayable with common stock. It also
applies to common stock owned now or acquired later by the person executing the
agreement or for which the person executing the agreement later acquires the
power of disposition.
QUOTATION ON THE NASDAQ NATIONAL MARKET
We expect the shares of stock to be approved for quotation on the Nasdaq
National Market, subject to notice of issuance, under the symbol "GOMZ."
Before this offering, there has been no public market for our common stock.
The initial public offering price will be determined through negotiations among
us and the representatives and lead manager. In addition to prevailing market
conditions, the factors to be considered in determining the initial public
offering price are
- the valuation multiples of publicly traded companies that the
representatives believe to be comparable to us,
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- our financial information,
- the history of, and the prospects for, our company and the industry in
which we compete,
- an assessment of our management, its past and present operations, and the
prospects for, and timing of, our future revenues,
- the present state of our development, and
- the above factors in relation to market values and various valuation
measures of other companies engaged in activities similar to ours.
An active trading market for the shares may not develop. It is also possible
that after the offering the shares will not trade in the public market at or
above the initial public offering price.
The underwriters do not expect to sell more than 5% of the shares in the
aggregate to accounts over which they exercise discretionary authority.
PRICE STABILIZATION, SHORT POSITIONS AND PENALTY BIDS
Until the distribution of the shares is completed, SEC rules may limit
underwriters and selling group members from bidding for and purchasing our
common stock. However, the representatives may engage in transactions that
stabilize the price of the common stock, such as bids or purchases to peg, fix
or maintain that price.
If the underwriters create a short position in the common stock in
connection with the offering, i.e., if they sell more shares than are listed on
the cover of this prospectus, the representatives may reduce that short position
by purchasing shares in the open market. The representatives may also elect to
reduce any short position by exercising all or part of the over-allotment option
described above. Purchases of the common stock to stabilize its price or to
reduce a short position may cause the price of the common stock to be higher
than it might be in the absence of such purchases.
The representatives may also impose a penalty bid on underwriters and
selling group members. This means that if the representatives purchase shares in
the open market to reduce the underwriter's short position or to stabilize the
price of such shares, they may reclaim the amount of the selling concession from
the underwriters and selling group member who sold those shares. The imposition
of a penalty bid may also affect the price of the shares in that it discourages
resales of those shares.
Neither we nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the common stock. In addition, neither
we nor any of the underwriters makes any representation that the representatives
or the lead manager will engage in these transactions or that these
transactions, once commenced, will not be discontinued without notice.
UK SELLING RESTRICTIONS
Each underwriter has agreed that
- it has not offered or sold and will not offer or sell any shares of common
stock to persons in the United Kingdom, except to persons whose ordinary
activities involve them in acquiring, holding, managing or disposing of
investments (as principal or agent) for the purposes of their businesses
or otherwise in circumstances which do not constitute an offer to the
public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995;
- it has complied and will comply with all applicable provisions of the
Financial Services Act 1986 with respect to anything done by it in
relation to the common stock in, from or otherwise involving the United
Kingdom; and
68
<PAGE>
- it has only issued or passed on and will only issue or pass on in the
United Kingdom any document received by it in connection with the issuance
of common stock to a person who is of a kind described in Article 11(3) of
the Financial Services Act 1986 (Investment Advertisements) (Exemptions)
Order 1996 as amended by the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1997 or is a person to whom such
document may otherwise lawfully be issued or passed on.
NO PUBLIC OFFERING OUTSIDE THE UNITED STATES
No action has been or will be taken in any jurisdiction, except in the
United States, that would permit a public offering of the shares of common
stock, or the possession, circulation or distribution of this prospectus or any
other material relating to our company or shares of our common stock in any
jurisdiction where action for that purpose is required. Accordingly, the shares
of our common stock may not be offered or sold, directly or indirectly, and
neither this prospectus nor any other offering material or advertisements in
connection with the shares of common stock may be distributed or published, in
or from any country or jurisdiction except in compliance with any applicable
rules and regulations of any such country or jurisdiction.
Purchasers of the shares offered by this prospectus may be required to pay
stamp taxes and other charges in accordance with the laws and practices of the
country of purchase in addition to the offering price on the cover page of this
prospectus.
69
<PAGE>
LEGAL MATTERS
The validity of the shares of common stock offered by us in this offering
will be passed upon for us by Mintz, Levin, Cohn, Ferris, Glovsky and Popeo,
P.C., Boston, Massachusetts. As of the date of this prospectus, a member of
Mintz Levin owns an aggregate of 9,804 shares of our common stock. Certain legal
matters relating to this offering will be passed upon for the underwriters by
Shearman & Sterling, New York, New York.
EXPERTS
The audited consolidated financial statements included in this prospectus
and elsewhere in the registration statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said report.
70
<PAGE>
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the
Securities Act, with respect to the common stock offered by this prospectus.
This prospectus, which is part of the registration statement, omits certain
information, exhibits, schedules and undertakings set forth in the registration
statement. For further information pertaining to us and our common stock,
reference is made to such registration statement and the exhibits and schedules
to the registration statement. Statements contained in this prospectus as to the
contents or provisions of any documents referred to in this prospectus are not
necessarily complete, and in each instance where a copy of the document has been
filed as an exhibit to the registration statement, reference is made to the
exhibit for a more complete description of the matters involved.
You may read and copy all or any portion of the registration statement
without charge at the office of the SEC at 450 Fifth Street, N.W., Washington,
D.C. 20549. Copies of the registration statement may be obtained from the SEC at
prescribed rates from the Public Reference Section of the SEC at such address,
and at the SEC's regional offices located at 7 World Trade Center, 13th Floor,
New York, New York 10048, and at Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. In addition, registration statements and certain
other filings made with the SEC electronically are publicly available through
the SEC's Web site at http://www.sec.gov. The registration statement, including
all exhibits and amendments to the registration statement, has been filed
electronically with the SEC.
We intend to furnish our stockholders with annual reports containing
financial statements audited by our independent public accountants, and will
make available quarterly reports for the first three quarters of each fiscal
year containing unaudited financial information and such other periodic reports
as we may determine to be appropriate or as may be required by law.
71
<PAGE>
GOMEZ ADVISORS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Report of Independent Public Accountants.................... F-2
Consolidated Balance Sheets as of March 31, 1999, December
31, 1999 and Pro Forma December 31, 1999.................. F-3
Consolidated Statements of Operations for the Period from
Inception (May 22, 1997) to March 31, 1998, the twelve
months ended March 31, 1999 and the Nine Months Ended
December 31, 1999......................................... F-4
Consolidated Statements of Redeemable Convertible Preferred
Stock and Stockholders' (Deficit) Equity for the Period
from Inception (May 22, 1997) to March 31, 1998, the
Twelve Months Ended March 31, 1999 and the Nine Months
Ended December 31, 1999 and Pro Forma December 31, 1999... F-5
Consolidated Statements of Cash Flows for the Period from
Inception (May 22, 1997) to March 31, 1998, the Twelve
Months Ended March 31, 1999 and the Nine Months Ended
December 31, 1999......................................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Gomez Advisors, Inc.:
We have audited the accompanying consolidated balance sheets of Gomez
Advisors, Inc. (a Delaware corporation) and subsidiary as of March 31, 1999 and
December 31, 1999 and the related consolidated statements of operations,
redeemable convertible preferred stock, stockholders' (deficit) equity and cash
flows for the period from inception (May 22, 1997) to March 31, 1998, the twelve
months ended March 31, 1999 and the nine months ended December 31, 1999. 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 auditing standards generally
accepted in the United States. 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 Gomez Advisors, Inc. and
subsidiary as of March 31, 1999 and December 31, 1999 and the results of their
operations and their cash flows for the period from inception (May 22, 1997) to
March 31, 1998, the twelve months ended March 31, 1999 and the nine months ended
December 31, 1999 in conformity with accounting principles generally accepted in
the United States.
/s/ ARTHUR ANDERSEN LLP
BOSTON, MASSACHUSETTS
MARCH 30, 2000 (except for the
matters discussed in Note 12(b) and (c),
for which the date is April 5, 2000)
F-2
<PAGE>
GOMEZ ADVISORS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, 1999
---------------------------
MARCH 31, PRO FORMA
1999 (NOTE 3)
------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............................. $ 35,883 $ 16,426,931 $ 16,426,931
Accounts receivable, net of allowance of $18,000 and
$113,000, respectively.............................. 331,901 1,488,543 1,488,543
Other current assets.................................. -- 78,758 78,758
------------ ------------ ------------
Total current assets.............................. 367,784 17,994,232 17,994,232
------------ ------------ ------------
Property and Equipment, Net............................. 399,671 1,954,312 1,954,312
Other Assets............................................ 282,241 11,791 11,791
------------ ------------ ------------
Total assets...................................... $ 1,049,696 $ 19,960,335 $ 19,960,335
============ ============ ============
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable...................................... $ 167,431 $ 1,078,601 $ 1,078,601
Accrued liabilities................................... 255,000 1,426,203 1,426,203
Deferred revenue...................................... 99,275 1,232,963 1,232,963
Amounts due to affiliate.............................. 171,206 -- --
------------ ------------ ------------
Total current liabilities......................... 692,912 3,737,767 3,737,767
------------ ------------ ------------
Commitments and Contingencies (Note 6)
Redeemable Convertible Preferred Stock, $0.01 par value
(Note 8).............................................. -- 22,142,936 --
Stockholders' Equity (Deficit):
Series A Preferred stock, $0.01 par value--
Designated--10,000 shares
Issued and outstanding--4,905 shares at March 31,
1999 and December 31, 1999 and no shares on a pro
forma basis at December 31, 1999.................. 1,500,000 1,500,000 --
Common stock, $0.0001 par value--
Authorized--29,940,000 shares at March 31, 1999 and
40,000,000 shares at December 31, 1999 and pro
forma December 31, 1999
Issued--3,103,000 shares, 3,695,666 shares and
13,448,505 shares at March 31, 1999, December 31,
1999 and pro forma December 31, 1999,
respectively...................................... 310 369 1,344
Additional paid-in capital............................ 27,487,848 31,270,151 54,912,112
Deferred stock-based compensation..................... (10,415,470) (6,777,475) (6,777,475)
Accumulated deficit................................... (18,215,904) (31,913,413) (31,913,413)
------------ ------------ ------------
Total stockholders' equity (deficit).............. 356,784 (5,920,368) 16,222,568
------------ ------------ ------------
Total liabilities and stockholders' equity
(deficit)....................................... $ 1,049,696 $ 19,960,335 $ 19,960,335
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
\
GOMEZ ADVISORS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION TWELVE MONTHS NINE MONTHS
(MAY 22, 1997) ENDED ENDED
TO MARCH 31, MARCH 31, DECEMBER 31,
1998 1999 1999
-------------- ------------- ------------
<S> <C> <C> <C>
Net Revenues........................................ $ 298,421 $ 1,539,207 $ 3,241,370
Costs and Expenses:
Direct costs of net revenues...................... 216,123 780,622 2,312,164
Direct marketing incentives....................... -- -- 485,900
Sales and marketing............................... 74,932 365,329 4,244,013
Engineering....................................... 267,923 754,256 1,752,846
General and administrative........................ 96,133 463,142 1,210,463
Stock-based compensation(1)....................... -- 15,541,658 6,792,495
--------- ------------ ------------
Total operating expenses........................ 655,111 17,905,007 16,797,881
--------- ------------ ------------
Loss from operations............................ (356,690) (16,365,800) (13,556,511)
Interest expense.................................... -- (1,500,000) (897)
Interest income..................................... 189 6,550 95,690
Other expense....................................... (69) (84) (603)
--------- ------------ ------------
Net loss........................................ (356,570) (17,859,334) (13,462,321)
Accretion of dividends on preferred stock....... -- -- (235,188)
--------- ------------ ------------
Net loss applicable to common stockholders.... $(356,570) $(17,859,334) $(13,697,509)
========= ============ ============
Basic and Diluted Net Loss per Common Share (Note
2(j))........................................... $ (370.27) $ (44.87) $ (6.53)
========= ============ ============
Basic and Diluted Weighted Average Common Shares
Outstanding..................................... 963 398,044 2,096,595
========= ============ ============
Pro Forma Net Loss per Common Share (Note 2(j))
(unaudited)..................................... $ (1.11)
============
Pro Forma Basic and Diluted Weighted Average Common
Shares Outstanding (unaudited).................... 12,356,567
============
</TABLE>
- ------------------------
(1) The following summarizes the departmental allocation of stock-based
compensation:
<TABLE>
<S> <C> <C> <C>
General and administrative.......................... $ -- $ 9,924,965 $ 5,265,895
Direct costs of net revenues........................ -- 5,616,693 1,526,600
--------- ------------ ------------
15,541,658 6,792,495
========= ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
GOMEZ ADVISORS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' (DEFICIT) EQUITY
<TABLE>
<CAPTION>
STOCKHOLDERS' (DEFICIT) EQUITY
-------------------------------------------------------------------------------
REDEEMABLE CONVERTIBLE SERIES A
PREFERRED STOCK PREFERRED STOCK COMMON STOCK
------------------------- ----------------------- ------------------------ ADDITIONAL
NUMBER OF CARRYING NUMBER OF CARRYING NUMBER OF $0.0001 PAR PAID
SHARES VALUE SHARES VALUE SHARES VALUE IN CAPITAL
---------- ------------ --------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, Inception (May 22,
1997)............................ -- $ -- -- $ -- -- $ -- $ --
Issuance of common stock........ -- -- -- -- 1,000 -- 25,000
Net loss........................ -- -- -- -- -- -- --
---------- ------------ ------ ----------- ---------- ------ -----------
Balance, March 31, 1998........... -- -- -- -- 1,000 -- 25,000
Issuance of common stock........ -- -- -- -- 3,103,000 310 30,720
Issuance of shares pursuant to
exchange agreement............ -- -- 4,905 1,500,000 (1,000) -- (25,000)
Noncash interest expense related
to issuance of shares pursuant
to exchange agreement......... -- -- -- -- -- -- 1,500,000
Deferred stock--based
compensation related to
exchange agreement............ -- -- -- -- -- -- 25,957,128
Amortization of deferred
stock--based compensation
expense related to exchange
agreement..................... -- -- -- -- -- -- --
Net loss........................ -- -- -- -- -- -- --
---------- ------------ ------ ----------- ---------- ------ -----------
Balance, March 31, 1999........... -- -- 4,905 1,500,000 3,103,000 310 27,487,848
Issuance of common stock........ -- -- -- -- 631,000 63 6,247
Exercise of stock options....... -- -- -- -- 11,666 1 35,831
Repurchase and retirement of
restricted common stock....... -- -- -- -- (50,000) (5) (495)
Issuance of Series B redeemable
convertible preferred stock,
net of issuance costs of
$399,947...................... 1,100,000 5,100,053 -- -- -- -- 126,816
Issuance of Series C redeemable
convertible preferred stock,
net of issuance costs of
$2,137,984.................... 3,714,839 16,807,695 -- -- -- -- 459,404
Deferred stock-based
compensation related to
amended stockholder's
agreement..................... -- -- -- -- -- -- 3,154,500
Amortization of deferred
stock-based compensation
expense related to exchange
agreement..................... -- -- -- -- -- -- --
Accretion of dividends on
redeemable convertible
preferred stock............... -- 235,188 -- -- -- -- --
Net loss........................ -- -- -- -- -- -- --
---------- ------------ ------ ----------- ---------- ------ -----------
Balance, December 31, 1999........ 4,814,839 22,142,936 4,905 1,500,000 3,695,666 369 31,270,151
Conversion of redeemable
convertible preferred stock
and Series A preferred stock
into common stock
(unaudited)................... (4,814,839) (22,142,936) (4,905) (1,500,000) 9,752,839 975 23,641,961
---------- ------------ ------ ----------- ---------- ------ -----------
Pro Forma Balance, December 31,
1999 (Unaudited)................ -- $ -- -- $ -- 13,448,505 $1,344 $54,912,112
========== ============ ====== =========== ========== ====== ===========
<CAPTION>
STOCKHOLDERS' (DEFICIT) EQUITY
-------------------------------------------
TOTAL
DEFERRED STOCKHOLDERS'
STOCK-BASED ACCUMULATED (DEFICIT)
COMPENSATION DEFICIT EQUITY
------------ ------------ -------------
<S> <C> <C> <C>
Balance, Inception (May 22,
1997)............................ $ -- $ -- $ --
Issuance of common stock........ -- -- 25,000
Net loss........................ -- (356,570) (356,570)
------------ ------------ ------------
Balance, March 31, 1998........... -- (356,570) (331,570)
Issuance of common stock........ -- -- 31,030
Issuance of shares pursuant to
exchange agreement............ -- -- 1,475,000
Noncash interest expense related
to issuance of shares pursuant
to exchange agreement......... -- -- 1,500,000
Deferred stock--based
compensation related to
exchange agreement............ (25,957,128) -- --
Amortization of deferred
stock--based compensation
expense related to exchange
agreement..................... 15,541,658 -- 15,541,658
Net loss........................ -- (17,859,334) (17,859,334)
------------ ------------ ------------
Balance, March 31, 1999........... (10,415,470) (18,215,904) 356,784
Issuance of common stock........ -- -- 6,310
Exercise of stock options....... -- -- 35,832
Repurchase and retirement of
restricted common stock....... -- -- (500)
Issuance of Series B redeemable
convertible preferred stock,
net of issuance costs of
$399,947...................... -- -- 126,816
Issuance of Series C redeemable
convertible preferred stock,
net of issuance costs of
$2,137,984.................... -- -- 459,404
Deferred stock-based
compensation related to
amended stockholder's
agreement..................... (3,154,500) -- --
Amortization of deferred
stock-based compensation
expense related to exchange
agreement..................... 6,792,495 -- 6,792,495
Accretion of dividends on
redeemable convertible
preferred stock............... -- (235,188) (235,188)
Net loss........................ -- (13,462,321) (13,462,321)
------------ ------------ ------------
Balance, December 31, 1999........ (6,777,475) (31,913,413) (5,920,368)
Conversion of redeemable
convertible preferred stock
and Series A preferred stock
into common stock
(unaudited)................... -- -- 22,142,936
------------ ------------ ------------
Pro Forma Balance, December 31,
1999 (Unaudited)................ $(6,777,475) $(31,913,413) $ 16,222,568
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
GOMEZ ADVISORS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM FOR THE FOR THE
INCEPTION TWELVE MONTHS NINE MONTHS
(MAY 22, 1997) ENDED ENDED
TO MARCH 31, MARCH 31, DECEMBER 31,
1998 1999 1999
-------------- ------------- ------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss.............................................. $(356,570) $(17,859,334) $(13,462,321)
Adjustments to reconcile net loss to net cash used in
operating activities--
Depreciation and amortization....................... 10,870 89,092 329,308
Amortization of noncash stock based compensation.... -- 15,541,658 6,792,495
Noncash interest expense related to issuance of
shares pursuant to exchange agreement............. -- 1,500,000 --
Changes in current assets and liabilities--
Accounts receivable............................... (115,843) (216,058) (1,156,642)
Other current assets.............................. -- -- (78,758)
Accounts payable.................................. 173,161 (5,730) 911,170
Accrued liabilities............................... 26,217 228,783 1,171,203
Deferred revenue.................................. -- 99,275 1,133,688
--------- ------------ ------------
Net cash used in operating activities........... (262,165) (622,314) (4,359,857)
--------- ------------ ------------
Cash Flows from Investing Activities:
Purchases of property and equipment................... (100,701) (398,932) (1,883,949)
(Increase) decrease in other assets................... (588) (281,653) 270,450
--------- ------------ ------------
Net cash used in investing activities........... (101,289) (680,585) (1,613,499)
--------- ------------ ------------
Cash Flows from Financing Activities:
Increase in amounts due to affiliate.................. 472,917 1,173,289 --
Repayment of amounts due to affiliate................. -- -- (171,206)
Proceeds from the issuance common stock............... 25,000 31,030 6,310
Proceeds from the sale of Series B redeemable
convertible preferred stock, net of issuance
costs............................................... -- -- 5,226,869
Proceeds from the sale of Series C redeemable
convertible preferred stock, net of issuance
costs............................................... -- -- 17,267,099
Repurchase of restricted common stock................. -- -- (500)
Proceeds from the exercise of stock options........... -- -- 35,832
--------- ------------ ------------
Net cash provided by financing activities....... 497,917 1,204,319 22,364,404
--------- ------------ ------------
Net Increase (Decrease) in Cash and Cash Equivalents.... 134,463 (98,580) 16,391,048
Cash and Cash Equivalents, beginning of period.......... -- 134,463 35,883
--------- ------------ ------------
Cash and Cash Equivalents, end of period................ $ 134,463 $ 35,883 $ 16,426,931
========= ============ ============
Supplemental Disclosure of Noncash Financing Activities:
Issuance of shares pursuant to exchange agreement..... $ -- $ 1,475,000 $ --
========= ============ ============
Conversion of common stock to preferred stock......... $ -- $ 1,500,000 $ --
========= ============ ============
Accretion of dividends on redeemable convertible
preferred stock..................................... $ -- $ -- $ 235,188
========= ============ ============
Noncash interest related to warrants issued in
connection with Series B and Series C redeemable
convertible preferred stock......................... $ -- $ -- $ 586,220
========= ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-6
<PAGE>
GOMEZ ADVISORS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) OPERATIONS
Gomez Advisors, Inc. (the Company), a Delaware corporation, was incorporated
on May 22, 1997. Upon incorporation, the Company issued 1,000 shares of common
stock to the Ashton Technology Group, Inc. (Ashton) for $25,000. Ashton agreed
to provide $1,475,000 in additional financing to support the Company's
operations. Prior to January 22, 1999, the Company was operated as a wholly
owned subsidiary of Ashton. On January 22, 1999, the Company consummated a
recapitalization by entering into an exchange agreement with Ashton and the
three founders of the Company (see Note 9 (d)).
The Company provides an online portal which is designed to attract consumers
who are in the process of selecting an e-commerce provider to meet their needs
and who are, therefore, more likely to transact business online
contemporaneously with that provider. The Company also offers online customer
experience measurement tools that are designed to assist businesses in executing
their e-commerce strategy.
The Company is subject to risks common to rapidly growing, technology
companies, including limited operating history, dependence of key personnel,
rapid technological change, competition from substitute services and larger
companies, and the need for additional financing and continued market acceptance
of the Company's services.
In August 1999, the Company changed its fiscal year-end for accounting
purposes from March 31 to December 31. Therefore, the consolidated statements of
operations included in these financial statements are for the period from
inception (May 22, 1997) to March 31, 1998, the twelve months ended March 31,
1999 and the nine months ended December 31, 1999.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements reflect the application
of the following significant accounting policies, as discussed below and
elsewhere in the notes to the consolidated financial statements.
(A) 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 amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(B) PRINCIPLES OF CONSOLIDATION
In June 1999, the Company formed a wholly owned subsidiary, Concord
Bowling, Inc. (CBI). These consolidated financial statements include the
accounts of the Company and CBI. All significant intercompany transactions have
been eliminated in consolidation.
(C) REVENUE RECOGNITION
The Company generates revenue from the operation of two Internet portal
sites that provide online information, tools and resources to help consumers
find e-commerce firms that are suitable for their needs and to help e-commerce
businesses identity, acquire and retain customers. As described in Note (10),
the Company has two operating segments, GOMEZ.COM and GOMEZPRO. GOMEZ.COM
includes
F-7
<PAGE>
GOMEZ ADVISORS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
revenue from lead generation and transaction-based revenue and advertising and
sponsorship revenue. GOMEZPRO includes subscription and advisory revenue.
LEAD GENERATION AND TRANSACTION-BASED REVENUE
Lead generation and transaction-based revenues are generated by facilitating
contact between individuals who are Gomez members (member) and online businesses
that have contracted with the Company. The Company charges the on-line
businesses either a fixed payment per lead generation or opened account or a
percentage of the total retail sale to a referred member. Revenue is recognized
upon the completion of the earnings process which is when a consumer has
completed the transaction and there are no further conditions or obligations to
the on-line business. In addition, the Company may determine to pay an incentive
payment to the referred member for using the Gomez website. The Company
determines the amount of the incentive payments and retains credit risk with the
online businesses. The Company records gross revenue on the amounts they receive
from the on-line businesses and records the expense related to the incentive
payments given to the member as marketing incentive expense. For the nine months
ended December 31, 1999, the amount related to incentive payments was
approximately $486,000.
SUBSCRIPTION REVENUE
Subscription revenue is generated from the sale of subscriptions to the
GOMEZPRO DATA STATION, which contains a detailed analysis of the data compiled
to develop the Company's SCORECARDS. Subscriptions are typically sold in
12-month terms and revenue is recognized ratably over the period the services
are provided.
ADVISORY REVENUE
Advisory revenue generally represents advisory services provided by the
Company on a fixed-fee or time-and-materials basis. Advisory revenue is
recognized as the services are performed.
Deferred revenue consists of amounts billed or collected by the Company
prior to satisfying the above revenue recognition criteria and relates primarily
to subscription, advertising and advisory contracts.
Included in net revenues is approximately $59,000 and $29,000 for the
periods ended December 31, 1999 and March 31, 1999, respectively, related to
barter transactions. The Company has valued these transactions at the fair value
of services rendered.
(D) CASH AND CASH EQUIVALENTS
The Company accounts for investments under Statement of Financial Accounting
Standards (SFAS) No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY
SECURITIES. The Company considers all highly liquid investments with original
maturities of 90 days or less at the time of purchase to be cash equivalents. At
March 31, 1999 and December 31, 1999, cash equivalents consisted primarily of
money market funds.
F-8
<PAGE>
GOMEZ ADVISORS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(E) DEPRECIATION AND AMORTIZATION
The Company provides for depreciation and amortization using the
straight-line method by charges to operations in amounts estimated to allocate
the cost of property and equipment over their estimated useful lives, as
follows:
<TABLE>
<CAPTION>
ESTIMATED MARCH 31, DECEMBER 31,
ASSET CLASSIFICATION USEFUL LIFE 1999 1999
- -------------------- ------------- --------- ------------
<S> <C> <C> <C>
Computer and office equipment............................ 3-5 years $455,036 $1,692,083
Furniture and fixtures................................... 7 years 39,473 142,612
Computer software........................................ 3 years -- 264,391
Leasehold improvements................................... Life of lease 5,123 284,495
-------- ----------
499,632 2,383,581
Less accumulated depreciation and amortization........... 99,961 429,269
-------- ----------
$399,671 $1,954,312
======== ==========
</TABLE>
Depreciation expense for the periods ended March 31, 1998, March 31, 1999
and December 31, 1999 was approximately $11,000, $89,000 and $329,000,
respectively.
(F) DIRECT COSTS OF NET REVENUES
Direct costs of net revenues consist principally of documentation,
production, Web site administration and maintenance costs and payroll and
benefits related to research and technical personnel.
(G) DIRECT MARKETING INCENTIVES
The Company has programs directed at obtaining new customers. Certain
programs result in the customer receiving an immediate financial benefit in
exchange for completing transactions with GOMEZ.COM merchants. The Company
expenses the related costs when the customer agrees to begin service.
(H) SALES AND MARKETING EXPENSE
Sales and marketing expense includes payroll and related benefits of sales
people, advertising and other marketing expenses. Also included in sales and
marketing expense are costs of incentive payments given to members related to
lead generation and transaction-based revenue. For the nine months ended
December 31, 1999, the amount related to incentive payments is approximately
$486,000.
(I) STOCK-BASED COMPENSATION EXPENSE
Stock-based compensation relates to stock option and common stock grants to
certain officers and other individuals at exercise prices below the deemed fair
market value at the date of grant. Stock-based compensation expense of
approximately $15,542,000 and $6,792,000, respectively, is included in the
Company's consolidated statements of operations for the year ended March 31,
1999 and the nine months ended December 31, 1999. There was no stock-based
compensation for the period ended March 31, 1998.
SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, defines a
fair-value-based method of accounting for employee stock options and other
stock-based compensation issued at fair market value.
F-9
<PAGE>
GOMEZ ADVISORS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Compensation expense related to employee stock-based compensation arising from
this method of accounting can be reflected in the financial statements or,
alternatively, entities can continue to follow the intrinsic value method of APB
No. 25 and disclose in the financial statement footnotes the pro forma net loss
and loss-per-share effect of the fair-value-based accounting. The Company has
adopted the disclosure-only alternative (see Note 9(e)). The Company accounts
for options and warrants granted to nonemployees using the fair-value method
prescribed by SFAS No. 123.
(J) CONCENTRATIONS OF CREDIT RISK
Financial instruments that subject the Company to credit risk consist of
cash and cash equivalents and accounts receivable. The Company maintains the
majority of its cash balances with financial institutions. Concentrations of
credit risk with respect to accounts receivable is limited to certain customers
to whom the Company makes substantial sales. To reduce risk, the Company
routinely assesses the financial strength of its customers and, as a
consequence, believes that its accounts receivable credit risk exposure is
limited. The Company operates in two industry segments (See Note 10) and derives
substantially all of its revenues from domestic customers.
The following table summarizes the number of customers that individually
comprise greater than 10% of net revenues and accounts receivable for the
periods presented:
<TABLE>
<CAPTION>
PERIODS ENDED
------------------------------------
MARCH 31, MARCH 31, DECEMBER 31,
1998 1999 1999
--------- --------- ------------
<S> <C> <C> <C>
Revenue--
Customer A................................. 29% 16% *
Customer B................................. 25 * *
Customer C................................. 18 * *
Customer D................................. 10 12 *
Customer E................................. * * 19%
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1999
--------- ------------
<S> <C> <C>
Accounts Receivable--
Customer A................................................ * *
Customer B................................................ * *
Customer C................................................ * *
Customer D................................................ 23% *
Customer E................................................ 12 30%
Customer F................................................ 14 *
Customer G................................................ * 12
</TABLE>
- ------------------------
*Less than 10%.
(K) NET LOSS PER SHARE
In accordance with SFAS No. 128, EARNINGS PER SHARE, basic and diluted net
loss per common share is calculated by dividing the net loss applicable to
common stockholders by the weighted average number of vested common shares
outstanding during the period. Diluted net loss per common share is the same as
basic net loss per common share, since the effects of the Company's potentially
dilutive
F-10
<PAGE>
GOMEZ ADVISORS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
securities are antidilutive for all periods presented. Antidilutive securities,
which consist of stock options, warrants and unvested common stock that are not
included in diluted net loss per share, were 100,000, 4,705,000 and 6,327,000 as
of March 31, 1998, March 31, 1999 and December 31, 1999, respectively. Pro forma
net loss per share gives effect to the conversion of preferred stock not
included in the computation of basic and diluted net loss per share that will
automatically convert upon the completion of the Company's proposed initial
public offering (on an as-converted basis) from the original date of issuance,
as well as restricted common stock which will become vested upon the completion
of the proposed initial public offering. Upon consummation of the proposed
initial public offering, all of the preferred stock outstanding as of
December 31, 1999 will automatically convert into an aggregate of 9,752,839
shares of common stock.
In accordance with Staff Accounting Bulletin (SAB) No. 98, the Company has
determined that there were no nominal issuances of the Company's common stock
prior to the Company's planned initial public offering. The following table
reconciles the weighted average common shares outstanding to the shares used in
the computation of basic and diluted and pro forma basic and diluted weighted
average common shares outstanding:
<TABLE>
<CAPTION>
FOR THE PERIODS ENDED,
------------------------------------
MARCH 31, MARCH 31, DECEMBER 31,
1998 1999 1999
--------- --------- ------------
<S> <C> <C> <C>
Historical:
Basic and diluted shares--
Weighted average common shares outstanding.............. 963 586,933 3,701,918
Less--Weighted average unvested common shares
outstanding........................................... -- 188,889 1,605,323
--- ------- ----------
Basic and diluted weighted average common shares
outstanding......................................... 963 398,044 2,096,595
=== ======= ==========
Pro Forma:
Weighted average shares of common stock outstanding used
in computing basic and diluted net loss per share....... 2,096,595
Weighted average shares common shares issuable upon
conversion of preferred stock........................... 8,654,648
Weighted average restricted common shares vested upon the
completion of an initial public offering (Note 9(d)).... 1,605,324
----------
Pro forma basic and diluted weighted average common
shares outstanding.................................. 12,356,567
==========
</TABLE>
(L) COMPREHENSIVE LOSS
As of April 1, 1998, the Company adopted SFAS No. 130, REPORTING
COMPREHENSIVE INCOME. SFAS No. 130 requires disclosure of all components of
comprehensive income (loss) on an annual and interim basis. Comprehensive income
(loss) is defined as the change in equity of a business enterprise during a
period from transactions and other events and circumstances from nonowner
sources. The Company's comprehensive loss is equal to its reported net loss for
all periods presented.
F-11
<PAGE>
GOMEZ ADVISORS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(M) FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments consist principally of cash, accounts receivable and
accounts payable. The estimated fair value of these instruments approximates
their carrying value.
(N) SOFTWARE DEVELOPMENT COSTS
Statement of Position (SOP) No. 98-1, ACCOUNTING FOR THE COSTS OF COMPUTER
SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE, requires capitalization of
certain qualifying internal-use-software development costs that are incurred
during the application development stage subsequent to the establishment of
technological feasibility and the completion of a working model, which are
amortized over the software's estimated useful life. Costs of enhancements to
internal-use computer software are capitalized and amortized over the software's
estimated useful life if they result in additional functionality and are
qualified expenditures. Based on the Company's internal-use software development
process, technological feasibility has been established upon completion of a
working model and additional development costs have not been significant.
Accordingly, the Company had charged all such costs to operating expenses in the
accompanying consolidated statements of operations.
(O) DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES,
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. SFAS No. 133 requires that an entity recognize all
derivatives as either assets or liabilities in the balance sheet and measure
those instruments at fair value. SFAS No. 133, as amended by SFAS No. 137, is
effective for all fiscal quarters of fiscal years beginning after June 15, 2000.
SFAS No. 133 is not expected to have a material impact on the Company's
consolidated financial statements.
(P) RECENT ACCOUNTING PRONOUNCEMENTS
The Securities and Exchange Commission issued SAB No. 101, REVENUE
RECOGNITION, in December 1999. This bulletin established guidelines for revenue
recognition and is effective for periods beginning after March 15, 2000. The
Company believes that the adoption of the guidance provided in SAB No. 101 will
not have a material impact on future operating results.
(3) PRO FORMA CONVERSION AND RETIREMENT OF PREFERRED STOCK
On April 5, 2000, the Board of Directors of the Company authorized
management to pursue an initial public offering (IPO) of the Company's common
stock. Upon closing of the Company's proposed IPO, all of the Company's
Series A, Series B and Series C preferred stock will automatically convert into
9,752,839 shares of common stock. The pro forma effect of the conversion of the
preferred stock on stockholders' equity (deficit) has been presented separately
in the Company's accompanying consolidated balance sheets and consolidated
statements of stockholders' equity (deficit) and Note 8(b), assuming the
conversion had occurred as of December 31, 1999.
F-12
<PAGE>
GOMEZ ADVISORS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(4) ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1999
--------- ------------
<S> <C> <C>
Accrued member incentive fees......................... $ -- $ 161,275
Accrued stock issuance costs.......................... 220,000 984,248
Other accrued liabilities............................. 35,000 280,680
-------- ----------
$255,000 $1,426,203
======== ==========
</TABLE>
(5) INCOME TAXES
The Company follows the liability method of accounting for income taxes in
accordance with the provisions of SFAS No. 109, ACCOUNTING FOR INCOME TAXES,
whereby a deferred tax asset or liability is determined based on the difference
between the financial statement and tax bases of assets and liabilities as
measured by enacted tax rates. The components of the Company's net deferred tax
assets are approximately as follows at March 31, 1999 and December 31, 1999:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1999
--------- ------------
<S> <C> <C>
Net operating loss carryforwards..................... $ 462,850 $ 3,030,625
Depreciation and amortization........................ (5,622) (26,438)
Other................................................ 21,343 147,388
--------- -----------
478,571 3,151,575
Less--Valuation allowance............................ (478,571) (3,151,575)
--------- -----------
$ -- $ --
========= ===========
</TABLE>
The Company has recorded a full valuation allowance against the deferred tax
assets consisting primarily of its net operating loss carryforwards in the
accompanying consolidated financial statements, as it is more likely than not
that these benefits will not be realizable in future years' tax returns.
At March 31, 1999 and December 31, 1999, the Company had available a net
operating loss carryforward of approximately $1,149,000 and $7,526,000,
respectively, which expires through 2019. Prior to January 23, 1999, the Company
was included in Ashton's consolidated tax return. The net operating loss
carryforwards include losses generated and not used while the Company was part
of Ashton's consolidated tax return. This carryforward is subject to review and
possible adjustment by the Internal Revenue Service. The Internal Revenue Code
(IRC) contains provisions that may limit the Company's use of the carryforward
in the event that there are significant changes in the ownership, as defined in
Section 382 of the IRC. The Company has experienced changes in ownership in
connection with the Series B and Series C redeemable convertible preferred stock
financings but does not believe its net operating loss carryforwards will be
limited by these changes in ownership.
(6) COMMITMENTS AND CONTINGENCIES
(A) OPERATING LEASES
Beginning January 1998, the Company leased certain office space under
operating lease agreements through March 2001. Included in the accompanying
consolidated statements of operations
F-13
<PAGE>
GOMEZ ADVISORS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(6) COMMITMENTS AND CONTINGENCIES (CONTINUED)
for the periods ended March 31, 1998, March 31, 1999 and December 31, 1999 is
rent expense of approximately $25,000, $89,000 and $271,000, respectively,
related to these leases.
The approximate future minimum annual rent due under the operating lease
agreements as of December 31, 1999 are as follows:
<TABLE>
<CAPTION>
TOTAL
--------
<S> <C>
2000........................................................ $415,000
2001........................................................ 26,000
--------
$441,000
========
</TABLE>
(B) CONTINGENCIES
As discussed in Note 9(d), the Company consummated a recapitalization of its
outstanding common stock by entering into an Exchange Agreement with Ashton,
certain officers of Ashton and certain officers of the Company. Certain officers
of the Company have agreed to reimburse the Company should certain tax costs
associated with such recapitalization be adjusted in the future. As a result of
the foregoing, in the opinion of management, an adjustment of such tax cost, if
any, is not expected to have a material impact on the Company's results of
operations or financial position.
(7) AMOUNTS DUE TO AFFILIATE
During 1998, the Company was financed by advances from a party affiliated
with the Company (Ashton). In January 1999, the Company entered into an
agreement with Ashton to formally forgive $1,475,000 of the amounts due in
exchange for 59,000 shares of common stock (see Note 9(d)). The Company recorded
the forgiveness as a capital contribution, as reflected in the accompanying
consolidated financial statements. In addition, the Company has recorded an
interest charge of $1,500,000 included in the accompanying statement of
operations for the period ended March 31, 1999 related to this transaction (see
Note 9(d)). Amounts due to Ashton, which consisted primarily of working capital
advances, general and administrative services and operating expenses, were
approximately $171,000 at March 31, 1999. This amount was repaid to Ashton
during 1999. There were no amounts outstanding at December 31, 1999.
(8) REDEEMABLE CONVERTIBLE PREFERRED STOCK AND PREFERRED STOCK
(A) PREFERRED STOCK
The Company has authorized 10,000,000 shares of preferred stock with a $0.01
par value, 10,000 of which are designated as Series A preferred stock (Series A
Preferred Stock), 1,300,000 designated as Series B redeemable convertible
preferred stock (Series B Preferred Stock) and 6,000,000 designated as Series C
redeemable convertible preferred stock (Series C Preferred Stock).
The rights, preferences and privileges of the preferred stock are as
follows:
DIVIDENDS
The holders of the Series A Preferred Stock are entitled to noncumulative
dividends of 0.5% of the liquidation preference. The holders of the Series B
Preferred Stock are entitled to cumulative dividends at rate a of 6% of the
liquidation preference. These dividends accrete semiannually in arrears on the
last day of March and September of each year, commencing on September 30, 1999.
Series B
F-14
<PAGE>
GOMEZ ADVISORS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(8) REDEEMABLE CONVERTIBLE PREFERRED STOCK AND PREFERRED STOCK (CONTINUED)
Preferred Stock dividends are payable if and as declared by the Board, at the
option of the Company, in either (i) cash, (ii) by the issuance of additional
shares of Series B Preferred Stock or (iii) by a combination of both. At
December 31, 1999, dividends have accreted on the Series B Preferred Stock of
approximately $165,000. No dividends may be declared or paid on the Company's
common stock, unless all cumulative dividends have been paid on the Series B
Preferred Stock.
The holders of the Series C Preferred Stock are entitled to cumulative
dividends at a rate of 8% of the liquidation preference. No dividends may be
declared on Series A Preferred Stock or common stock unless all Series C
Preferred Stock dividends have been paid. The holders of the Series C Preferred
Stock are entitled to participate in any dividends declared on any other class
of capital stock. At December 31, 1999, dividends have accreted on the Series C
Preferred Stock of approximately $70,000.
To date, no dividends have been declared. The Company has provided for
Series B and C Preferred Stock cumulative dividends by accreting charges against
the accumulated deficit with corresponding increases to the carrying value of
Series B and C Preferred Stock. The cumulative dividends aggregated
approximately $235,000 for the nine months ended December 31, 1999.
CONVERSION
Each share of Series A Preferred Stock is convertible, at the option of the
holder, into 1,000 shares of common stock, subject to adjustment, as defined.
Each share of Series B preferred stock is convertible, at the option of the
holder, into the number of share obtained by dividing (i) the liquidation
preference plus (ii) all accrued but unpaid dividends by the conversion price
($5.00 subject to adjustment, as defined), currently 1.03 shares of common stock
for each share of Series B Preferred Stock. Each share of Series C Preferred
Stock is convertible, at the option of the holder, into one share of common
stock, subject to adjustment as defined.
Upon the closing of an IPO, all outstanding shares of Series A and Series B
Preferred Stock automatically convert into shares of common stock at the same
conversion ratio as would have been utilized upon an optional conversion. All
outstanding shares of Series C Preferred Stock automatically convert into shares
of common stock at the same ratio as would have been utilized upon an optional
conversion upon the completion of a Qualified Initial Public Offering (Qualified
Offering). A Qualified Offering is defined as an IPO with net proceeds of
$20,000,000 and a per share offering price of not less that $10.20 per share.
VOTING RIGHTS
The Series A Preferred stockholders and Series C Preferred stockholders are
entitled to vote on all matters with the common stockholders as one class of
stock. The Series A Preferred stockholders and Series C Preferred stockholders
are entitled to the number of votes equal to the number of shares of common
stock into which each share of the Series A Preferred Stock and Series C
Preferred Stock are then convertible. The Series B Preferred stockholders do not
have voting rights.
LIQUIDATION
In the event of any voluntary or involuntary liquidation, dissolution or
winding-up of the corporation, the holders of the Series B and Series C
Preferred Stock are entitled to be paid first an amount equal to $5.00 per share
of Series B Preferred Stock and $5.10 per share of Series C Preferred Stock plus
all accrued and unpaid dividends. If the liquidation occurs after January 1,
2001, the
F-15
<PAGE>
GOMEZ ADVISORS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(8) REDEEMABLE CONVERTIBLE PREFERRED STOCK AND PREFERRED STOCK (CONTINUED)
Series C Preferred Stock liquidation preference will increase to $12.75 per
share. Following payment in full to the Series B and C Preferred stockholders,
the Series A Preferred stockholders are entitled to be paid a liquidation
preference of $300.71 per share plus all accrued and unpaid dividends. Following
the payment to the Series A Preferred stockholders, the Series A and C Preferred
stockholders are entitled to receive additional distributions, on a pro rata
basis, as if converted, until the holders of the Series A Preferred Stock have
received an aggregate liquidation preference of $3,058.10 per share. Following
payment in full to the holders of Series A and Series C Preferred Stock, the
remaining assets shall be distributed on a pro rata basis among the holders of
the Company's common stock.
REDEMPTION RIGHTS
The Company has the right to redeem the outstanding shares of Series A
Preferred Stock at any time at a price in cash equal to the liquidation
preference plus all accrued and unpaid dividends.
The Series B Preferred Stock may not be redeemed by the Company prior to the
fourth anniversary date of the issuance date. On or after the fourth anniversary
date, the Company shall have the option to redeem, in whole or in part, all
outstanding shares of Series B Preferred Stock at the redemption price
(initially $5.00 per share) plus all accrued and unpaid dividends. On or after
the third anniversary, if an initial public offering registration statement has
not been filed, then the holders of at least two-thirds of the Series B
Preferred Stock can require the Company to redeem all of such requesting
holders' shares at the liquidation preference plus all accrued and unpaid
dividends.
At the request of the holders of at least two-thirds of the Series C
Preferred Stock then outstanding, the Company shall redeem one-third of the then
outstanding shares of Series C Preferred Stock on December 30 of 2004, 2005 and
2006 at a redemption price per share equal to the greater of the original
conversion price or the conversion price as adjusted plus all accrued and unpaid
dividends.
(B) REDEEMABLE CONVERTIBLE PREFERRED STOCK
The following is a summary of the activity related to Series B and Series C
Preferred Stock:
<TABLE>
<CAPTION>
SERIES B SERIES C
REDEEMABLE CONVERTIBLE REDEEMABLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK
---------------------- ----------------------- TOTAL
NUMBER OF REDEMPTION NUMBER OF REDEMPTION REDEMPTION
SHARES VALUE SHARES VALUE VALUE
--------- ---------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, March 31, 1999............ -- $ -- -- $ -- $ --
Issuance of Series B Preferred
Stock............................ 1,100,000 5,500,000 -- -- 5,500,000
Issuance of Series C Preferred
Stock............................ -- -- 3,714,839 18,945,679 18,945,679
Accretion of dividends on Series B
Preferred Stock.................. -- 165,000 -- -- 165,000
Accretion of dividends on Series C
Preferred Stock.................. -- -- -- 70,188 70,188
--------- ---------- --------- ----------- -----------
1,100,000 $5,665,000 3,714,839 $19,015,867 $24,680,867
========= ========== ========= =========== ===========
</TABLE>
F-16
<PAGE>
GOMEZ ADVISORS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(9) STOCKHOLDERS' EQUITY (DEFICIT)
(A) COMMON STOCK
The Company had previously authorized 33,000,000 shares of common stock, of
which 60,000 were classified as Class A $0.0001 par value common stock and
29,940,000 were classified as $0.0001 par value common stock. In October 1999,
the Company amended its Certificate of Incorporation to authorize 40,000,000
shares of one class of common stock, $0.0001 par value. In connection with this
amendment, all Class A common stock was reclassified as common stock $0.0001 par
value.
(B) STOCK SPLIT
In January 1999, the Company consummated a 1,000-for-1 split of its
outstanding common stock by declaring a stock dividend to all of the holders of
record of its outstanding common stock as of January 27, 1999. All share amounts
in the accompanying consolidated financial statements have been retroactively
adjusted to reflect this stock split. The common stock outstanding as of
March 31, 1998 were not subject to the stock split.
(C) RESERVED SHARES
The Company has reserved the following number of shares of common stock for
the conversion of preferred stock and issuance of stock options and warrants.
<TABLE>
<S> <C>
Series A Preferred Stock.................................... 4,905,000
Series B Preferred Stock.................................... 1,133,000
Series C Preferred Stock.................................... 3,714,839
Stock options and warrants.................................. 8,334,000
----------
18,086,839
==========
</TABLE>
(D) RECAPITALIZATION
On January 22, 1999, the Company consummated a recapitalization of its
outstanding common stock by entering into an Exchange Agreement with Ashton,
certain officers of Ashton and certain officers of the Company.
As discussed in Note 1, the Company's initial capitalization was from
Ashton, who purchased 1,000 shares of common stock in exchange for $25,000. From
the period of inception through the recapitalization date, Ashton had funded the
operations of the Company. On the date of recapitalization, the Company owed
Ashton $1,475,000 for prior advances. This debt was converted into 59,000 shares
of the Company's common stock. Ashton's then total 60,000 shares of common stock
of the Company were converted into 4,905 shares of Series A Preferred Stock. The
value of the Series A Preferred Stock issued to Ashton was at an implied as
converted to common stock value of $.30 per share, which was deemed to be below
the current fair value of common stock of $3.50. The Company has recorded an
interest charge related to beneficial conversion of approximately $1,500,000
which was the aggregate amount of the debt converted to preferred stock in the
accompanying consolidated statement of operations for the 12 months ended
March 31, 1999.
In addition, certain executives of Ashton (Ashton Executives) exchanged
their equity interests in the Company in connection with the recapitalization
for 1,000,000 shares of common stock and
F-17
<PAGE>
GOMEZ ADVISORS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(9) STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
proceeds of $10,000. The Company has the right to repurchase any unvested common
shares from any Ashton Executive that is no longer employed by Ashton or its
subsidiaries at a certain price, as defined, for a two-year period from the date
of issuance or until the completion of an IPO, if sooner. The Company will
follow EITF 96-18 and mark to market the 1,000,000 common shares issued to
Ashton employees. The Company calculated a compensation charge of approximately
$4,990,000 in relation to the exchange of these equity interests based on a
value of $5.00 per share, which was deemed to be the fair value as of March 31,
1999. This charge is being recorded over the two-year vesting period which will
be accelerated upon an IPO. The Company has recorded compensation expense of
approximately $416,000 and $1,871,000 in the accompanying consolidated
statements of operation related to these shares for the year ended March 31,
1999 and the nine months ended December 31, 1999, respectively.
In connection with the Exchange Agreement, the Company also issued an
additional 631,000 shares of Common Stock to Ashton employees designated by
Ashton. These shares were issued in April and May of 1999 at $0.01 per share and
are subject to the restrictions and vesting discussed above. The Company will
follow EITF 96-18 and mark to market the 631,000 common shares issued to the
Ashton employees. The Company calculated a charge of approximately $3,149,000 in
relation to the issuance of these additional shares based on a value of $5.00
per share, which was deemed to be the fair value. The Company has recorded
compensation expense of $1,050,000 in the accompanying consolidated statement of
operation related to these shares for nine months ended December 31, 1999. In
October 1999, the Company repurchased 50,000 shares of this restricted stock
from a former Ashton Executive for approximately $500. These shares were
canceled by the Company.
Also in connection with the Exchange Agreement, the founders of the Company
exchanged their equity interests in the Company for 2,103,000 shares of common
stock and proceeds of $21,030 and options to purchase 3,003,000 shares of common
stock at an exercise price of $0.011 per share. The shares were initially
granted to the founders of the Company in January 1999 with no restrictions or
vesting. In connection with a subsequent financing during December 1999, the
founders of the Company entered into an amended stockholder's agreement in which
they voluntarily accepted restrictions and vesting on these shares. The vesting
period begins December 30, 1999 at which time 50% of the shares are vested, an
additional 25% become vested at December 30, 2000 and the final 25% on
December 30, 2001. The vesting fully accelerates upon the completion of an IPO
by the Company. The Company calculated a compensation charge of $7,339,000 in
relation to the common stock received by the founders based on a value of $3.50
per share, which was deemed to be the fair value at that time. In addition, the
Company calculated an additional compensation charge of $3,154,500 in connection
with the amended stockholder's agreement in December 1999. This charge was based
on a value of $5.00 per share, which was deemed to be the fair value at that
time. This charge is recorded over the vesting period of the shares of common
stock. The Company has recorded a compensation expense of approximately
$6,792,000 in the accompanying consolidated statement of operation for the nine
months ended December 31, 1999. In addition, the Company calculated a charge of
approximately $10,479,000 in relation to the issuance of the 3,003,000 options
to purchase common stock, also based upon the $3.50 fair value. The Company
recorded compensation expense of approximately $7,786,000 in relation to these
options for the twelve months ended March 31, 1999. The remaining charge of
approximately $2,693,000 will be recorded over the remaining vesting period.
F-18
<PAGE>
GOMEZ ADVISORS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(9) STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
(E) STOCK OPTION PLANS
1998 STOCK PLAN
In 1998, the Company approved the Gomez Advisors, Inc. 1998 Stock Plan (the
1998 Plan), pursuant to which 600,000 shares of common stock were reserved for
stock options, stock grants and other stock-based awards. Issuances under the
1998 Plan expire in 10 years from issue date. Under the 1998 Plan, the Company
may grant both incentive stock options and nonqualified options, as well as
award or sell shares of common stock to employees, directors or consultants of
the Company. All option grants, prices and vesting periods are determined by the
Board of Directors. Options generally vest annually over three years. However,
certain option grants contain provisions to accelerate vesting upon defined
events. As of December 31, 1999, there are 46,334 shares available for future
grant under the 1998 plan.
1999 STOCK PLAN
In 1999, the Board of Directors approved the Gomez Advisors, Inc. 1999 Stock
Plan (the 1999 Plan), pursuant to which 3,000,000 shares of common stock were
reserved for stock options, stock grants and other stock-based awards. Issuances
under the 1999 Plan generally expire 10 years from issue date. Under the 1999
Plan, the Company may grant both incentive stock options and nonqualified
options, as well as award or sell shares of common stock to employees, directors
or consultants of the Company. All option grants, prices and vesting are
determined by the Board of Directors. Options generally vest annually over three
years. However, certain option grants contain provisions to accelerate vesting
upon defined events. As of December 31, 1999, there are 1,899,000 shares
available for future grant under the 1999 Plan.
1999 LONG-TERM INCENTIVE STOCK PLAN
In 1999, the Board of Directors approved the 1999 Long-term Incentive Stock
Plan (the 1999 Incentive Plan), pursuant to which 3,003,000 shares of common
stock were reserved for stock options, stock grants and other stock-based
awards. Issuances under the 1999 Incentive Plan generally expire 10 years from
issue date. Under the 1999 Incentive Plan, the Company may grant both incentive
stock options and nonqualified options, as well as award or sell shares of
common stock to employees, directors or consultants of the Company. All option
grants and prices are determined by the Board of Directors. Options under the
plan typically vest as follows (i) 50% on the date of grant, (ii) 25% on the
first anniversary and (iii) 25% on the second anniversary. However, certain
option grants contain provisions to accelerate vesting upon defined events. As
of December 31, 1999, there are no shares available for future grant under the
1999 Incentive Plan.
F-19
<PAGE>
GOMEZ ADVISORS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(9) STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
Stock option activity under the 1998 Plan, the 1999 Plan and the 1999
Long-Term Incentive Stock Plan is summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE PRICE EXERCISE PRICE
SHARES PER SHARE PER SHARE
---------- -------------- --------------
<S> <C> <C> <C>
Inception (May 22, 1997)................ -- $ -- $ --
Granted............................... 100,000 1.00 1.00
---------- ---------- -----
Outstanding March 31, 1998.............. 100,000 1.00 1.00
Granted............................... 7,605,000 0.01-5.00 0.37
Canceled.............................. (4,000,000) 0.01-1.00 0.26
---------- ---------- -----
Outstanding, March 31, 1999............. 3,705,000 0.01-5.00 0.50
Granted............................... 1,016,000 5.00 5.00
Exercised............................. (11,666) 2.00-3.50 3.07
Canceled.............................. (63,334) 2.00-5.00 3.58
---------- ---------- -----
Outstanding, December 31, 1999.......... 4,646,000 $0.01-5.00 $1.43
========== ========== =====
Exercisable, March 31, 1999............. 1,534,834 $0.01-1.00 $0.03
========== ========== =====
Exercisable, December 31, 1999.......... 1,673,841 $1.00-3.50 $0.22
========== ========== =====
</TABLE>
There were no shares exercisable at March 31, 1998.
The following table summarizes information relating to currently outstanding
and exercisable options as of December 31, 1999.
<TABLE>
<CAPTION>
OUTSTANDING
- -----------------------------------------------------------------------
WEIGHTED
AVERAGE
REMAINING
CONTRACTUAL EXERCISABLE
EXERCISE NUMBER OF LIFE NUMBER OF
PRICES SHARES (IN YEARS) SHARES
- -------- --------- ----------- -----------
<S> <C> <C> <C>
$0.01 3,003,000 2.81 1,501,500
1.00 100,000 8.11 33,334
2.00 345,000 8.57 115,004
3.50 97,000 8.93 24,003
5.00 1,101,000 9.56 --
--------- ---------
4,646,000 1,673,841
========= =========
</TABLE>
The Company has computed the pro forma disclosures required under SFAS
No. 123 for options granted to employees using the Black-Scholes option pricing
model prescribed by SFAS No. 123. The
F-20
<PAGE>
GOMEZ ADVISORS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(9) STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
assumptions used and the weighted average information for the periods ended
March 31, 1998, March 31, 1999 and December 31, 1999 are as follows:
<TABLE>
<CAPTION>
MARCH 31, MARCH 31, DECEMBER 31,
1998 1999 1999
---------- ---------- ------------
<S> <C> <C> <C>
Risk-free interest rates................................ 5.41-5.61% 4.18-5.63% 5.08-6.03%
Expected dividend yield................................. -- -- --
Expected life........................................... 3 years 3 years 3 years
Expected volatility..................................... 70% 70% 70%
Weighted average fair value per share of options
granted............................................... $ 0.50 $ 1.68 $ 2.51
Weighted-average remaining contractual life of options
outstanding........................................... 5.1 years 4.7 years 9.9 years
</TABLE>
Had compensation expense from the Company's stock option plan been
determined consistent with SFAS No. 123, net loss and net loss per share would
have been approximately as follows:
<TABLE>
<CAPTION>
PERIODS ENDED
---------------------------------------
MARCH 31, MARCH 31, DECEMBER 31,
1998 1999 1999
--------- ------------ ------------
<S> <C> <C> <C>
Net loss applicable to common stockholders--
As reported.......................................... $(356,570) $(17,859,334) $(13,697,509)
========= ============ ============
Pro forma............................................ $(359,626) $(18,424,716) $(15,295,426)
========= ============ ============
Basic and diluted net loss per share--
As reported.......................................... $ (370.27) $ (44.87) $ (6.53)
========= ============ ============
Pro forma............................................ $ (373.44) $ (46.29) $ (7.30)
========= ============ ============
</TABLE>
(F) WARRANTS
In September 1999, the Company issued a warrant to purchase 100,000 shares
of common stock in connection with the Series B Preferred Stock financing at an
exercise price of the greater of (i) $10 per share or (ii) the per share
offering price of the Company's common stock in an initial public offering if an
initial public offering has occurred prior to the date of exercise. The warrant
is exercisable beginning December 18, 1999 and expires on June 18, 2001. The
Company has recorded a noncash charge of approximately $127,000 related to these
options, which has been included as a Series B Preferred Stock offering cost in
the nine months ended December 31, 1999.
In connection with the Series C Preferred Stock financing, the Company
incurred an obligation to issue warrants to purchase 111,445 shares of common
stock at an exercise price of $5.10 per share. In connection with these
warrants, the Company has recorded a noncash charge of approximately $459,000 as
a component of the offering costs of the Series C Preferred Stock financing.
(10) SEGMENT AND GEOGRAPHIC INFORMATION
The Company has adopted SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION. SFAS No. 131 establishes standards for
reporting information regarding operating
F-21
<PAGE>
GOMEZ ADVISORS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(10) SEGMENT AND GEOGRAPHIC INFORMATION (CONTINUED)
segments in annual financial statements and requires selected information for
those segments to be presented in interim financial reports issued to
stockholders. SFAS No. 131 also establishes standards for related disclosures
about products and services and geographic areas. Operating segments are
identified as components of an enterprise about which separate discrete
financial information is available for evaluation by the chief operating
decision maker, or decision making group, in making decisions how to allocate
resources and assess performance. The Company's chief decision maker, as defined
under SFAS No. 131, is the Chief Executive Officer.
The Company views its operations and manages its business as two segments,
electronic commerce from its Web site (GOMEZ.COM) and data tools and advisory
services (GOMEZPRO). The Company's reportable segments are strategic business
units that provide distinct services to the end customer. They are managed
separately because each business requires different marketing and management
strategies. The Company's approach is based on the way that management organizes
the segments within the Company for making operating decisions and assessing
performance.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies.
<TABLE>
<CAPTION>
GOMEZ.COM GOMEZPRO OTHER TOTAL
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Period from inception (May 22, 1997) to
March 31, 1998--
Net revenues........................... $ -- $ 298,421 $ -- $ 298,421
=========== =========== ============ ============
Operating expenses..................... $ (228,841) $ (273,571) $ (152,699) $ (655,111)
=========== =========== ============ ============
Segment income (loss).................. $ (228,841) $ 24,850 $ (152,699) $ (356,690)
=========== =========== ============ ============
Identifiable assets.................... $ 154,560 $ 30,543 $ 155,622 $ 340,725
=========== =========== ============ ============
Twelve months ended March 31, 1999--
Net revenues........................... $ 529,458 $ 1,009,749 $ -- $ 1,539,207
=========== =========== ============ ============
Operating expenses..................... $(1,118,348) $ (958,512) $ (286,490) $ (2,363,349)
Stock-based compensation............... 7,770,829 7,770,829 -- 15,541,658
----------- ----------- ------------
Segment income (loss).................. $(8,359,719) $(7,719,592) $ (286,489) $(16,365,800)
=========== =========== ============ ============
Identifiable assets.................... $ 232,549 $ 459,056 $ 358,091 $ 1,049,696
=========== =========== ============ ============
Nine months ended December 31, 1999
Net revenues........................... $ 1,484,741 $ 1,756,629 $ -- $ 3,241,370
=========== =========== ============ ============
Operating expenses..................... $(5,410,615) $(3,333,895) $ (1,260,676) $(10,005,386)
Stock-based compensation............... 3,396,247 3,396,248 -- 6,792,495
----------- ----------- ------------ ------------
Segment (loss) income.................. $(7,322,321) $(4,973,514) $ (1,260,676) $(13,556,511)
=========== =========== ============ ============
Identifiable assets.................... $ 1,559,877 $ 1,554,653 $ 16,845,805 $ 19,960,335
=========== =========== ============ ============
</TABLE>
F-22
<PAGE>
GOMEZ ADVISORS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(11) ALLOWANCE FOR DOUBTFUL ACCOUNTS
A summary of the allowance for doubtful accounts is as follows:
<TABLE>
<CAPTION>
TWELVE
MONTHS NINE MONTHS
ENDED ENDED
MARCH 31, DECEMBER 31,
1999 1999
--------- ------------
<S> <C> <C>
Balance, beginning of period.......................... $ -- $ 18,000
Provision for doubtful accounts..................... 18,000 95,000
Write-offs.......................................... -- --
------- --------
Balance, beginning of period.......................... $18,000 $113,000
======= ========
</TABLE>
(12) SUBSEQUENT EVENTS
(A) EQUITY TRANSACTIONS
In February 2000, the Company repurchased 500 shares of Series A Preferred
Stock from Ashton, for approximately $2,550,000 on an as converted into common
stock basis, the Company paid $5.10 per share for the repurchased stock.
In February and March 2000, the Company repurchased 196,078 shares of common
stock from two founders of the Company. Each founder sold 98,039 shares for
proceeds of $500,000 each.
In February 2000, the Company sold an additional 1,996,273 shares of
Series C Preferred Stock at $5.10 per share for total proceeds of approximately
$10 million. In connection with the sale of additional shares of Series C
Preferred Stock, the Company issued warrants to purchase 35,614 shares of common
stock at an exercise price of $5.10 per share.
(B) 1999 STOCK PLAN
In April 2000, the Company's board of directors authorized the reservation
of an additional 1,000,000 shares of common stock for issuance under the 1999
Stock Plan.
(C) 2000 EMPLOYEE STOCK PURCHASE PLAN
In April 2000, the Company's board of directors and shareholders approved
the 2000 Employee Stock Purchase Plan. The Company has reserved 200,000 shares
of common stock for issuance under this purchase plan.
F-23
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Through and including , 2000 (the 25(th) day after the date of
this prospectus), all dealers effecting transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
SHARES
GOMEZ ADVISORS, INC.
COMMON STOCK
---------------------
PROSPECTUS
---------------------
MERRILL LYNCH & CO.
U.S. BANCORP PIPER JAFFRAY
THE ROBINSON-HUMPHREY COMPANY
, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth an itemization of all estimated expenses, all
of which we will pay, in connection with the issuance and distribution of the
securities being registered. All amounts are estimates except for the SEC
registration fee, the NASD filing fee and the Nasdaq National Market listing
fee:
<TABLE>
<S> <C>
SEC registration fee........................................ $15,840
NASD filing fee............................................. 6,500
Nasdaq National Market listing fee.......................... *
Printing and engraving fees................................. *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Blue sky fees and expenses.................................. *
Transfer agent and registrar fees........................... *
Miscellaneous............................................... *
-------
Total................................................. *
=======
</TABLE>
- ------------------------
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our certificate of incorporation provides that we shall indemnify to the
fullest extent authorized by the Delaware General Corporation Law, each person
who is involved in any litigation or other proceeding because such person is or
was a director or officer of Gomez Advisors or is or was serving as an officer
or director of another entity at our request, against all expense, loss or
liability reasonably incurred or suffered in connection therewith. Our
certificate of incorporation provides that the right to indemnification includes
the right to be paid expenses incurred in defending any proceeding in advance of
its final disposition, provided, however, that such advance payment will only be
made upon delivery to us of an undertaking, by or on behalf of the director or
officer, to repay all amounts so advanced if it is ultimately determined that
such director is not entitled to indemnification. If we do not pay a proper
claim for indemnification in full within 60 days after we receive a written
claim for such indemnification, the certificate of incorporation and our bylaws
authorize the claimant to bring an action against us and prescribe what
constitutes a defense to such action.
Section 145 of the Delaware General Corporation Law permits a corporation to
indemnify any director or officer of the corporation against expenses (including
attorney's fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred in connection with any action, suit or proceeding brought by
reason of the fact that such person is or was a director or officer of the
corporation, if such person acted in good faith and in a manner that he
reasonably believed to be in, or not opposed to, the best interests of the
corporation, and, with respect to any criminal action or proceeding, if he or
she had no reason to believe his or her conduct was unlawful. In a derivative
action, (I.E., one brought by or on behalf of the corporation), indemnification
may be provided only for expenses actually and reasonably incurred by any
director or officer in connection with the defense or settlement of such an
action or suit if such person acted in good faith and in a manner that he or she
reasonably believed to be in, or not opposed to, the best interests of the
corporation, except that no indemnification shall be provided if such person
shall have been adjudged to be liable to the corporation, unless and only to the
extent that the court in which the action or suit was brought shall
II-1
<PAGE>
determine that the defendant is fairly and reasonably entitled to indemnity for
such expenses despite such adjudication of liability.
Pursuant to Section 102(b)(7) of the Delaware General Corporation Law,
Article Tenth of our certificate of incorporation eliminates the liability of a
director to us or our stockholders for monetary damages for such a breach of
fiduciary duty as a director, except for liabilities arising:
- from any breach of the director's duty of loyalty to us or our
stockholders;
- from acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- under Section 174 of the Delaware General Corporation Law; and
- from any transaction from which the director derived an improper personal
benefit.
We carry insurance policies insuring our directors and officers against
certain liabilities that they may incur in their capacity as directors and
officers.
Additionally, reference is made to the Purchase Agreement filed as
Exhibit 1.1 hereto, which provides for indemnification by the underwriters of
Gomez Advisors, our directors and officers who sign the Registration Statement
and persons who control Gomez Advisors, under certain circumstances.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In the three years preceding the filing of this Registration Statement, we
have sold the following securities that were not registered under the Securities
Act as summarized below. The share information provided below reflects the
1,000-for-1 split of the Class A common stock effected on January 27, 1999. Upon
completion of this offering our outstanding securities will automatically
convert as follows:
- each share of Series A Preferred Stock will convert into 1,000 shares of
common stock;
- each share of Series B Redeemable Convertible Preferred Stock will convert
into one share of common stock; and
- each share of Series C Convertible Preferred Stock will convert into one
share of common stock.
(A) ISSUANCES OF CAPITAL STOCK AND WARRANTS
The sale and issuance of the securities described in paragraphs (1) through
(10) below were deemed to be exempt from registration under the Securities Act
by virtue of Section 4(2) or Regulation D promulgated under the Securities Act.
(1) In May 1997 we issued and sold a total of 1,000 shares of common stock
to The Ashton Technology Group Inc. for $25,000.
(2) On January 22, 1999 we issued 59,000 shares of common stock to The
Ashton Technology Group Inc. in exchange for $1,475,000 in debt obligations owed
by us.
(3) On January 22, 1999 we issued 4,905 shares of Series A Preferred Stock
to The Ashton Technology Group Inc. in exchange for the 60,000 shares of our
common stock it held.
(4) On January 22, 1999 we issued and sold a total of 3,103,000 shares of
Class A common stock at a price per share of $0.01 to six affiliates of Gomez
Advisors for total proceeds of $31,030.
(5) On April 13, 1999 we issued and sold a total of 581,000 shares of
Class A common stock at a price per share of $0.01 to 5 persons affiliated with
The Ashton Technology Group Inc. for total proceeds of $5,810.
II-2
<PAGE>
(6) On April 14, 1999 and April 28, 1999 we issued and sold a total of
1,100,000 shares of Series B Redeemable Convertible Preferred Stock at a price
per share of $5.00 to 70 investors in a private placement for total proceeds of
$5.5 million.
(7) On May 21, 1999 we issued and sold a total of 50,000 shares of Class A
common stock at a price per share of $0.01 to 4 persons for total proceeds of
$500.
(8) On November 2, 1999, December 30, 1999 and February 15, 2000, we issued
and sold a total of 5,711,112 shares of Series C Convertible Preferred Stock at
a price per share of $5.10 to 28 investors in a private placement for total
proceeds of $29,126,671. BankBoston Robertson Stephens acted as placement agent
in the offering and received a fee of $1,925,000.
(9) In September 1999, we issued a warrant to purchase 100,000 shares of our
common stock at an exercise price equal to the price of the common stock in this
offering to one investor.
(10) In April 2000, we issued a warrant to purchase 147,059 shares of our
common stock at an exercise price of $5.10 per share to BankBoston Robertson
Stephens in connection with services as placement agent in the offering of
Series C Convertible Preferred Stock.
(B) CERTAIN GRANTS AND EXERCISES OF STOCK OPTIONS
The sale and issuance of the securities described below were deemed to be
exempt from registration under the Securities Act in reliance on Section 4(2) of
the Securities Act, or Regulation D promulgated thereunder, or Rule 701
promulgated under Section 3(b) of the Securities Act, as transactions by an
issuer not involving a public offering or transactions pursuant to compensatory
benefit plans and contracts relating to compensation as provided under
Rule 701. The recipients of securities in each such transaction represented
their intention to acquire the securities for investment only and not with a
view to or for sale in connection with any distribution thereof and appropriate
legends were affixed to the share certificates and instruments issued in such
transactions. All recipients had adequate access, through their relationships
with Gomez Advisors, to information about us.
As of March 31, 2000, we had issued options to purchase a total of 5,693,584
shares of common stock under our stock plans, all of which are currently
outstanding and exercisable, at a weighted average exercise price of $3.50 per
share.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- --------------------- ------------------------------------------------------------
<C> <S>
* 1.1 Form of Purchase Agreement
3.1 Restated Certificate of Incorporation of Gomez Advisors,
Inc.
3.2 Certificate of Designation, Preferences and Rights of Series
C Convertible Preferred Stock of Gomez Advisors, Inc.
3.3 Certificate of Amendment to Restated Certificate of
Incorporation of Gomez Advisors, Inc., filed December 30,
1999
3.4 Certificate of Amendment to Restated Certificate of
Incorporation of Gomez Advisors, Inc., filed February 15,
2000
* 3.5 Restated Certificate of Incorporation of Gomez Advisors,
Inc. to be filed upon completion of the offering
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- --------------------- ------------------------------------------------------------
<C> <S>
3.6 Amended and Restated Bylaws of Gomez Advisors, Inc.
* 3.7 Restated Bylaws of Gomez Advisors, Inc. to be effective upon
completion of the offering.
* 4.1 Form of Common Stock Certificate
* 5.1 Opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo,
P.C. with respect to the legality of securities being
registered
10.1 Exchange Agreement, dated as of January 22, 1999, among
Gomez Advisors, Inc., The Ashton Technology Group Inc.,
Julio Gomez, John Robb, Alexander Stein, Fredric W.
Rittereiser, K. Ivan F. Gothner and Arthur J. Bacci
10.2 Stockholders Agreement, dated as of January 22, 1999 and
amended as of December 31, 1999, among Gomez Advisors, Inc.,
The Ashton Technology Group Inc., Julio Gomez, John Robb,
Alexander Stein, Fredric W. Rittereiser, K. Ivan F. Gothner
and Arthur J. Bacci
10.3 Form of Subscription Agreement for Series B Redeemable
Convertible Preferred Stock
10.4 Form of Preferred Stock Purchase Agreement for Series C
Convertible Preferred Stock, dated as of November 2, 1999
and amended as of December 30, 1999, among Gomez Advisors,
Inc. and the purchasers of Series C Convertible Preferred
Stock.
10.5 Investor Rights Agreement, made as of November 2, 1999 and
amended as of December 30, 1999, among Gomez Advisors, Inc.,
The Ashton Technology Group Inc., Julio Gomez, John Robb,
Alexander Stein, certain executives of the Ashton Technology
Group Inc. and the purchasers of Series C Convertible
Preferred Stock
10.6 Amendment to Series C Documents, dated as of February 15,
2000, among Gomez Advisors, Inc., The Ashton Technology
Group Inc., Julio Gomez, John Robb, Alexander Stein, certain
executives of the Ashton Technology Group Inc. and the
purchasers of Series C Convertible Preferred Stock
10.7 The Gomez Advisors, Inc. 1998 Stock Plan
10.8 The Gomez Advisors, Inc. 1999 Long-Term Incentive Plan
10.9 The Gomez Advisors, Inc. 1999 Stock Plan
* 10.10 2000 Employee Stock Purchase Plan
10.11 Lease, covering term commencing January 1, 1998 and ending
March 31, 2001 between USTrust and Gomez Advisors, Inc.
10.12 Sublease, dated June 15, 1999 between FASTech Integration,
Inc. and Gomez Advisors, Inc.
10.13 First Lease Amendment, dated April 20, 1999, by and between
Military Retail Registered LLP and Gomez Advisors, Inc.
10.14 Form of Gomez Advisors, Inc. Executive Officer Employment
Agreement
21.1 Subsidiaries
23.1 Consent of Arthur Andersen LLP
* 23.2 Consent of Mintz Levin Cohn Ferris Glovsky and Popeo, P.C.
(see Exhibit 5.1)
24.1 Powers of Attorney (See page II-5)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- --------------------- ------------------------------------------------------------
<C> <S>
27.1 Financial Data Schedule
</TABLE>
- ------------------------
* To be filed by amendment.
(B) FINANCIAL STATEMENT SCHEDULES
Financial Statement Schedules are omitted because the information is
included in our financial statements or notes to those financial statements.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the Purchase Agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described under Item 14 above, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed
to be part of this registration statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in Lincoln,
Massachusetts, on April 20, 2000.
<TABLE>
<S> <C> <C>
GOMEZ ADVISORS, INC.
By: /s/ JULIO GOMEZ
-----------------------------------------
Julio Gomez
CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
We the undersigned officers and directors of Gomez Advisors, Inc., hereby
severally constitute and appoint Julio Gomez, John Robb, Alexander D. Stein,
Charles E. Huggins and Frederic G. Hammond and each of them singly (with full
power to each of them to act alone), our true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution in each of them for
him and in his name, place and stead, and in any and all capacities, to sign any
and all amendments (including post-effective amendments) to this Registration
Statement (or any other Registration Statement for the same offering that is to
be effective upon filing pursuant to Rule 462(b) under the Securities Act of
1933), and to file the same, with all exhibits thereto and 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 or necessary to be done in
and about the premises, as full to all intents and purposes as he 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 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 held on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JULIO GOMEZ Chairman of the Board and Chief
------------------------------------------- Executive Officer (principal April 20, 2000
Julio Gomez executive officer)
/s/ CHARLES E. HUGGINS Vice President, Finance
------------------------------------------- (principal financial officer) April 20, 2000
Charles E. Huggins
/s/ JOHN ROBB President, Chief Operating
------------------------------------------- Officer and Director April 20, 2000
John Robb
/s/ KENNETH GEORGE Director of Finance (principal
------------------------------------------- accounting officer) April 20, 2000
Kenneth George
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ K. IVAN F. GOTHNER Director
------------------------------------------- April 20, 2000
K. Ivan F. Gothner
/s/ EDWARD W. KANE Director
------------------------------------------- April 20, 2000
Edward W. Kane
/s/ PETER R. ROBERTS Director
------------------------------------------- April 20, 2000
Peter R. Roberts
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- --------------------- ----------------------
<C> <S>
* 1.1 Form of Purchase Agreement
3.1 Restated Certificate of Incorporation of Gomez Advisors,
Inc.
3.2 Certificate of Designation, Preferences and Rights of Series
C Convertible Preferred Stock of Gomez Advisors, Inc.
3.3 Certificate of Amendment to Restated Certificate of
Incorporation of Gomez Advisors, Inc., filed December 30,
1999
3.4 Certificate of Amendment to Restated Certificate of
Incorporation of Gomez Advisors, Inc., filed February 15,
2000
* 3.5 Restated Certificate of Incorporation of Gomez Advisors,
Inc. to be filed prior to completion of the offering
3.6 Amended and Restated Bylaws of Gomez Advisors, Inc.
* 3.7 Restated Bylaws of Gomez Advisors, Inc. to be effective upon
completion of the offering
* 4.1 Form of Common Stock Certificate
* 5.1 Opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo,
P.C. with respect to the legality of securities being
registered
10.1 Exchange Agreement, dated as of January 22, 1999, among
Gomez Advisors, Inc., The Ashton Technology Group Inc.,
Julio Gomez, John Robb, Alexander Stein, Fredric W.
Rittereiser, K. Ivan F. Gothner and Arthur J. Bacci
10.2 Stockholders Agreement, dated as of January 22, 1999 and
amended as of December 31, 1999, among Gomez Advisors, Inc.,
The Ashton Technology Group Inc., Julio Gomez, John Robb,
Alexander Stein, Fredric W. Rittereiser, K. Ivan F. Gothner
and Arthur J. Bacci
10.3 Form of Subscription Agreement for Series B Redeemable
Convertible Preferred Stock
10.4 Form of Preferred Stock Purchase Agreement for Series C
Convertible Preferred Stock, dated as of November 2, 1999
and amended as of December 30, 1999, among Gomez Advisors,
Inc. and the purchasers of Series C Convertible Preferred
Stock
10.5 Investor Rights Agreement, made as of November 2, 1999 and
amended as of December 30, 1999, among Gomez Advisors, Inc.,
The Ashton Technology Group Inc., Julio Gomez, John Robb,
Alexander Stein, certain executives of the Ashton Technology
Group Inc. and the purchasers of Series C Convertible
Preferred Stock
10.6 Amendment to Series C Documents, dated as of February 15,
2000, among Gomez Advisors, Inc., The Ashton Technology
Group Inc., Julio Gomez, John Robb, Alexander Stein, certain
executives of the Ashton Technology Group Inc. and the
purchasers of Series C Convertible Preferred Stock
10.7 The Gomez Advisors, Inc. 1998 Stock Plan
10.8 The Gomez Advisors, Inc. 1999 Long-Term Incentive Plan
10.9 The Gomez Advisors, Inc. 1999 Stock Plan
* 10.10 2000 Employee Stock Purchase Plan
10.11 Lease, covering term commencing January 1, 1998 and ending
March 31, 2001 between USTrust and Gomez Advisors, Inc.
10.12 Sublease, dated June 15, 1999 between FASTech Integration,
Inc. and Gomez Advisors, Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- --------------------- ----------------------
<C> <S>
10.13 First Lease Amendment, dated April 20, 1999, by and between
Military Retail Registered LLP and Gomez Advisors, Inc.
10.14 Form of Gomez Advisors, Inc. Executive Officer Employment
Agreement
21.1 Subsidiaries
23.1 Consent of Arthur Andersen LLP
* 23.2 Consent of Mintz Levin Cohn Ferris Glovsky and Popeo, P.C.
(see Exhibit 5.1)
24.1 Powers of Attorney (See page II-6)
27.1 Financial Data Schedule
</TABLE>
- ------------------------
* To be filed by amendment.
<PAGE>
Exhibit 3.1
RESTATED
CERTIFICATE OF INCORPORATION
OF
GOMEZ ADVISORS, INC.
Adopted in accordance with the
provisions of Sections 242 and 245
of the General Corporation Law of the State of Delaware
Gomez Advisors, Inc., a Delaware corporation, hereby certifies as follows:
1. The name of the corporation is Gomez Advisors, Inc. The date of the
filing of its original Certificate of Incorporation with the Secretary of State
of the State of Delaware was May 22, 1997.
2. This Restated Certificate of Incorporation amends and restates the
provisions of the Certificate of Incorporation of said corporation and was duly
adopted pursuant to resolutions adopted by the Board of Directors and
Stockholders of the corporation in accordance with the provisions of Sections
242 and 245 of the General Corporation Law of the State of Delaware (the
"Delaware General Corporation Law").
3. The text of the Certificate of Incorporation is hereby amended and
restated to read in its entirety as follows:
FIRST: The name of the corporation is Gomez Advisors, Inc. (the
"Corporation").
SECOND: The address of the registered office of the Corporation in the
State of Delaware is c/o United Corporate Services. Inc., 15 East North Street
in the City of Dover, County of Kent. The name of its registered agent at that
address is United Corporate Services, Inc.
THIRD: The nature of the business and the objects and purposes proposed to
be transacted, promoted and carried on, are to do any or all the things herein
mentioned, as fully and to the same extent as natural persons might or could do,
and in any part of the world. viz: The purpose of the Corporation is to engage
in any lawful act or activity for which corporations may be organized under the
Delaware General Corporation Law (the "DGCL").
FOURTH: The total number of shares of capital stock which the Corporation
shall have authority to issue is 50,000,000 shares, of which (i) 40,000,000
shares shall be classified as Common Stock., $.0001 par value per share ("Common
Stock") and (ii) 10,000,000 shares shall be classified as Preferred Stock, $.01
par value per share ("Preferred Stock").
<PAGE>
The following is a statement of the designations, preferences and relative
participating or other special rights, and the limitations or restrictions, if
any, in respect of each class of capital stock of the Corporation.
A. COMMON STOCK.
1. General. The voting, dividend and liquidation rights of the
holders of Common Stock are subject to and qualified by the rights of the
holders of the Preferred Stock of any series as may be designated by the Board
of Directors of the Corporation (the "Board") upon any issuance of the Preferred
Stock of any series.
2. Voting. The holders of the Common Stock are entitled to one vote
for each share held at all meetings of stockholders. There shall be no
cumulative voting.
3. Dividends. Dividends may be declared and paid on the Common Stock
from funds lawfully available therefor as and when determined by the Board and
subject to any preferential dividend rights of any then outstanding Preferred
Stock.
4. Liquidation. Upon the dissolution or liquidation of the
Corporation, whether voluntary or involuntary, holders of Common stock will be
entitled to receive all assets of the Corporation available for distribution to
its stockholders, subject to any preferential or participating rights of any
then outstanding Preferred Stock.
B. PREFERRED STOCK.
1. General. The Preferred Stock may be issued in one or more series.
The number, designation and all of the powers, preferences and rights and the
qualifications, limitations or restrictions of the shares of any series of
Preferred Stock may be fixed by the Board as provided in section 151 of the
DGCL. Different series of Preferred Stock shall not be construed to constitute
different classes of shares for the purposes of voting by classes unless
expressly so provided. The number of authorized shares of Preferred Stock may be
increased or decreased (but not below the number of shares thereof then
outstanding) by the affirmative vote of the holders of a majority of the capital
stock of the Corporation entitled to vote thereon, without a vote of the holders
of the Preferred Stock or of any series thereof, voting as a separate class,
unless a vote of any such holders is required pursuant to the terms of any
Preferred Stock Designation.
2. Designation. Of the 10,000,000 shares of Preferred Stock,
1,310,000 shares are designated as set forth in this Article FOURTH, paragraph
B. There is hereby established a series of Preferred Stock designated the
"Series A Convertible Preferred Stock" (the "Series A Preferred Stock"),
consisting of 10,000 shares of Preferred Stock, $.01 par value per share, and
having the relative rights, designations, preferences, qualifications,
privileges, limitations, and restrictions applicable thereto as set forth on
Exhibit A attached hereto and made a part hereof. There is hereby established a
series of Preferred Stock designated the "Series B Convertible Preferred Stock"
(the "Series B Preferred Stock"), consisting of 1,300,000 shares of
2
<PAGE>
Preferred Stock, $.01 par value per share, and having the relative rights,
designations, preferences, qualifications, privileges, limitations, and
restrictions applicable thereto as set forth on Exhibit B attached hereto and
made a part hereof.
Upon the effectiveness of this Restated Certificate of Incorporation each
outstanding share of Class A Common Stock, $.0001 par value per share, of the
Corporation will be reclassified, changed and converted in to one share of
Common Stock of the Corporation.
FIFTH: The number of directors constituting the entire Board shall be not
less than three nor more than nine as determined from time to time by resolution
of the Board. The Board shall consist of three classes, designated as Class I,
Class II, and Class III, respectively, with the size of each class determined
from time to time by resolution of the Board. Each of such classes shall consist
of a number of directors as equal as possible, with no class having more than
one director more than any other class. Except for the initial directors in each
class who shall have terms of office of one, two and three years, respectively,
each class of directors shall thereafter have a term of office of three years
and until their respective successors shall have been elected and qualified or
until a director's earlier resignation or removal. Any director may resign at
any time upon notice to the Corporation.
SIXTH: All action required or permitted to be taken by the Corporation's
stockholders shall be effected either at a duly called Annual or Special Meeting
or by consent of the stockholders, as provided in Section 228 of the DGCL.
SEVENTH: The Corporation shall to the fullest extent permitted by Section
145 of the DGCL, as amended from time to time, indemnify all persons whom it may
indemnify pursuant thereto.
EIGHTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of the DGCL or on the application of trustees in
dissolution or of any receiver or receivers appointed for this Corporation under
the provisions of Section 279 of the DGCL order a meeting of the creditors or
class of creditors, and/or of the stockholders or class of stockholders, of this
Corporation, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three-fourths in value of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders, of this Corporation, as the case may be, agree to any compromise
or arrangement and to any reorganization of this Corporation as a consequence of
such compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors or
stockholders or class of stockholders of this Corporation, as the case may be,
and also on this Corporation.
3
<PAGE>
NINTH: 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 law, and all rights and powers conferred
upon stockholders, directors and officers are subject to this reservation.
TENTH: The Board is expressly authorized (by action taken by a majority of
the entire Board) to make, alter, amend or repeal the Bylaws of the Corporation
in a manner not inconsistent with the laws of the State of Delaware or this
Certificate of Incorporation, subject to the power of the stockholders of the
Corporation having voting power to alter, amend or repeal the Bylaws of the
corporation.
I, THE UNDERSIGNED, being the President of the corporation, has executed
this Amended and Restated Certificate of Incorporation this __ day of October,
1999 and affirm the contents to be true and correct under the penalties of
perjury.
_________________________________________
Julio Gomez, Chairman and Chief Executive
Officer
4
<PAGE>
EXHIBIT A
TERMS OF SERIES A CONVERTIBLE PREFERRED STOCK
OF
GOMEZ ADVISORS, INC.
Designation of Series A Convertible Preferred Stock. There is hereby
established a series of preferred stock having a par value of $.01 per share,
with a liquidation preference of $3,058.10 per share (the "Liquidation
Preference") which shall be designated as Series A Convertible Voting Preferred
Stock (the "Series A Preferred Stock") consisting of 10,000 shares, having
voting powers, designations, preferences, limitations, restrictions and relative
rights as follows:
1. Ranking. The Series A Preferred Stock shall rank, with respect to
dividend distributions and distributions upon the liquidation, winding-up and
dissolution of the Company, (a) senior to all classes of common stock of the
Company and to each other class of capital stock or series of preferred stock
established after the Series A Preferred Stock Issue Date by the Board of
Directors the terms of which do not expressly provide that it ranks senior to or
on a parity with the Series A Preferred Stock as to dividend distributions and
distributions upon the liquidation, winding-up and dissolution of the Company
(collectively referred to with the common stock of the Company as "Junior
Securities"); (b) on a parity with any additional shares of preferred stock
issued by the Company in the future and any other class of capital stock or
series of preferred stock issued by the Company established after the Series A
Preferred Stock Issue Date by the Board of Directors the terms of which
expressly provide that such class or series will rank on a parity with the
Series A Preferred Stock as to dividend distributions and distributions upon the
liquidation, winding-up and dissolution of the Company (collectively referred to
as "Parity Securities"); and (c) junior to each class of capital stock or series
of preferred stock issued by the Company established after the Series A
Preferred Stock Issue Date by the Board of Directors the terms of which
expressly provide that such class or series will rank senior to the Series A
Preferred Stock as to dividend distributions and distributions upon the
liquidation, winding-up and dissolution of the Company (collectively referred to
as "Senior Securities").
No dividend whatsoever shall be declared or paid upon any outstanding
share of the Series A Preferred Stock with respect to any dividend period unless
all dividends for all preceding dividend periods have been declared and paid, or
declared and a sufficient sum set apart for the payment of such dividend, upon
all outstanding shares of Senior Securities.
2. Dividends.
(a) Non-cumulative dividends may be declared and paid on the Series A
Preferred Stock at the rate per annum of 0.5% of the Liquidation Preference per
share from funds lawfully available therefor as and when determined by the Board
and subject to any preferential dividend rights of any then outstanding Senior
Securities. Dividends shall be payable in cash or by the issuance of additional
shares of Series A Preferred Stock (including fractional shares) having an
aggregate Liquidation Preference equal to the amount of such dividends. The
issuance of such
5
<PAGE>
additional shares of Series A Preferred Stock shall constitute "payment" of the
related dividend for all purposes of this Certificate of Designation. Dividends
payable on the Series A Preferred Stock will be computed on the basis of a
360-day year consisting of twelve 30-day months.
(b) Unless dividends declared on all outstanding shares of Series A
Preferred Stock for all past dividend periods shall have been paid, then: (i) no
dividend shall be declared or paid upon, or any sum set apart for the payment of
dividends upon, any shares of Junior Securities (including any class of common
stock); (ii) no other distribution shall be declared or made upon, or any sum
set apart for the payment of dividends upon, any shares of Junior Securities;
(iii) no shares of Junior Securities shall be purchased, redeemed or otherwise
acquired or retired for value (excluding an exchange for shares of other Junior
Securities) by the Company or any of its Subsidiaries; and (iv) no monies shall
be paid into or set apart or made available for a sinking or other like fund for
the purchase, redemption or other acquisition or retirement for value of any
shares of Junior Securities by the Company or any of its Subsidiaries.
(c) If after all dividends declared on the outstanding shares of Series A
Preferred Stock have been paid, the Company shall declare a dividend or
distribution on any class of common stock, then in each such case the holders of
the then outstanding Series A Preferred Stock shall be entitled to participate
in and receive their proportionate share of any such dividend or distribution as
though the holders of the Series A Preferred Stock were the holders of the
number of shares of common stock into which their respective shares of Series A
Preferred Stock are convertible as of the record date fixed for the
determination of the holders of such common stock entitled to receive such
dividend or distribution.
(d) To the extent permitted by law, all declared but unpaid dividends
shall accrue dividends (payable in the form provided in Section 2(a)) at the
rate per annum of 0.5% of the aggregate unpaid amount from their respective
dividend payment date until paid in full.
3. Conversion.
(a) Unless previously redeemed by the Company pursuant to Section 5,
concurrently with the consummation of an initial underwritten public offering
pursuant to an effective registration statement under the Securities Act
covering the offer and sale of the Company's Common Stock, par value $.0001 per
share (the "Common Stock"), to the public (an "IPO"), all outstanding shares of
Series A Preferred Stock shall be automatically converted into Common Stock at
the Conversion Price. The number of shares of Common Stock issuable for each
share of Series A Preferred Stock upon conversion shall be determined by
dividing the Liquidation Preference plus all accrued and unpaid dividends on
such share of Series A Preferred Stock by the Conversion Price. Immediately
following such conversion, the rights of the holders of converted Series A
Preferred Stock shall cease and the Persons entitled to receive the Common Stock
upon the conversion of the Series A Preferred Stock shall be treated for all
purposes as the owners of such Common Stock. Additionally, promptly following
such conversion, the Company shall give written notice thereof to each record
holder of Series A Preferred Stock, including instructions to be followed to
obtain a certificate for the shares of Common Stock into which such holder's
Series A Preferred Stock was converted.
6
<PAGE>
(b) Unless previously redeemed by the Company pursuant to Section 5, at
the option of a holder of Series A Preferred Stock, all (but not less than all)
outstanding shares of Series A Preferred Stock held by such holder of Series A
Preferred Stock may be converted into Common Stock at the Conversion Price. The
number of shares of Common Stock issuable for each share of Series A Preferred
Stock upon conversion shall be determined by dividing the Liquidation Preference
plus all accrued and unpaid dividends on such share of Series A Preferred Stock
by the Conversion Price. Immediately following such conversion, the rights of
the holders of converted Series A Preferred Stock shall cease and the Persons
entitled to receive the Common Stock upon the conversion of the Series A
Preferred Stock shall be treated for all purposes as the owners of such Common
Stock.
(c) In order for a holder to exercise its/his rights to convert Series A
Preferred Stock a holder must (i) surrender the certificate or certificates
evidencing the shares of Series A Preferred Stock to be converted, duly endorsed
in a form reasonably satisfactory to the Company, at the office of the Company
or transfer agent for the Series A Preferred Stock, (ii) notify the Company at
such office that it/he elects to convert Series A Preferred Stock and the number
of shares to be converted, (iii) state in writing the name or names in which
it/he wishes the certificate or certificates for shares of Common Stock to be
issued, and (iv) pay any transfer or similar tax if required pursuant to Section
14. The date on which the holder satisfies all such requirements shall be the
"Conversion Date." As soon as practical after the Conversion Date, the Company
shall deliver a certificate or certificates for the number of shares of Common
Stock issuable upon the conversion. The Person in whose name the Common Stock
certificate is registered shall be treated as the stockholder of record on and
after the Conversion Date.
(d) The Company has reserved and shall continue to reserve out of its
authorized but unissued Common Stock or its Common Stock held in treasury a
sufficient number of shares of Common Stock to permit the conversion of all
outstanding shares of the Series A Preferred Stock. All shares of Common Stock
issuable upon conversion of Series A Preferred Stock shall be duly authorized,
fully paid and nonassessable. The Company shall comply with all securities laws
regulating the issuance of shares of Common Stock upon conversion of Series A
Preferred Stock.
(e) Upon the consummation of any consolidation or reorganization of the
Company or the merger of the Company with or into any other entity or the sale
or transfer of all or substantially all the assets of the Company pursuant to
which the Company's Common Stock is converted into other securities, cash or
assets (any of the foregoing, a "Consolidation"), each holder of Series A
Preferred Stock shall be entitled to either (i) convert each share of Series A
Preferred Stock into the kind and amount of securities, cash or other assets
which a holder of the number of shares of Common Stock deliverable upon
conversion of such holder's Series A Preferred Stock would have been entitled to
upon the Consolidation, or (ii) receive cash equal to the aggregate Liquidation
Preference of the shares of Series A Preferred Stock held by such holder.
(f) In case the outstanding shares of Common Stock shall be subdivided
into a greater number of shares of Common Stock, the Conversion Price in effect
at the opening of business on
7
<PAGE>
the day following the day upon which such subdivision becomes effective shall be
proportionately decreased and, conversely, in case the outstanding shares of
Common Stock shall be combined into a smaller number of shares of Common Stock,
the Conversion Price in effect at the opening of business on the day following
the day upon which such combination becomes effective shall be proportionately
increased. Such reduction or increase, as the case may be, shall become
effective immediately after the opening of business on the day following the day
upon which such subdivision or combination becomes effective.
(g) Whenever the Conversion Price is adjusted, the Company shall promptly
mail to holders of Series A Preferred Stock a notice of the adjustment, first
class mail, postage prepaid,. The Company shall file with the transfer agent for
the Series A Preferred Stock, if any (and make available to holders of Series A
Preferred Stock upon request), a certificate from the Company's independent
public accountants briefly stating the facts requiring the adjustment and the
manner of computing it.
(h) Any provision of this Section 3 to the contrary notwithstanding, no
adjustment in the Conversion Price of the Series A Preferred Stock shall be made
if the amount of such adjustment would be less than 1% thereof, but any such
amount shall be carried forward and an adjustment with respect thereto shall be
made at the time of and together with any such subsequent adjustment which,
together with such amount and any other amount or amounts so carried forward,
shall aggregate 1% of the Conversion Price or more.
4 Liquidation Rights. Upon any voluntary or involuntary liquidation,
dissolution or winding-up of the Company, each holder of shares of the Series A
Preferred Stock will be entitled to payment out of the assets of the Company
available for distribution of an amount equal to the Liquidation Preference per
share of Series A Preferred Stock, plus accrued and unpaid dividends, to the
date fixed for liquidation, dissolution or winding-up of the Company, before any
distribution is made on any Junior Securities, including, without limitation,
common stock of the Company. After payment in full of the Liquidation Preference
and all accrued and unpaid dividends to which holders of Series A Preferred
Stock are entitled, such holders will not be entitled to any further
participation in any distribution of assets of the Company. If, upon any
voluntary or involuntary liquidation, dissolution or winding-up of the Company,
the amounts payable with respect to the Series A Preferred Stock and all other
Parity Securities are not paid in full, the holders of the Series A Preferred
Stock and the Parity Securities will share equally and ratably in any
distribution of assets of the Company in proportion to the full Liquidation
Preference and accrued and unpaid dividends to which each is entitled. However,
neither the voluntary sale, conveyance, exchange or transfer (for cash, shares
of stock, securities or other consideration) of all or substantially all of the
property or assets of the Company nor the consolidation or merger of the Company
with or into one or more Persons will be deemed to be a voluntary or involuntary
liquidation, dissolution or winding-up of the Company, unless such sale,
conveyance, exchange or transfer shall be in connection with a liquidation,
dissolution or winding-up of the Company.
8
<PAGE>
5 Redemption by the Company.
(a) At all times, the Company shall have the option to redeem, in whole or
in part (subject to the legal availability of funds therefor), all outstanding
shares of Series A Preferred Stock at a price (the "Redemption Price") in cash
equal to the Liquidation Preference thereof, plus accrued and unpaid dividends
(including an amount equal to a prorated dividend for any partial dividend
period) to the Redemption Date (as hereinafter defined). The Company shall not
be required to make sinking fund payments with respect to the Series A Preferred
Stock.
(b) In case of the redemption of less than all of the shares of Series A
Preferred Stock outstanding at the time, the shares to be redeemed shall be
selected pro rata or by lot as determined by the Company in its sole discretion.
(c) Notice of any redemption shall be sent by or on behalf of the Company
not less than 90 days prior to the date specified for redemption in such notice
(the "Redemption Date") by first class mail, postage prepaid, to all holders of
record of the Series A Preferred Stock at their last addresses as they shall
appear on the books of the Company; provided, however, that no failure to give
such notice or any defect therein or in the mailing thereof shall affect the
validity of the proceedings for the redemption of any shares of Series A
Preferred Stock except as to the holder to whom the Company has failed to give
notice or except as to the holder to whom notice was defective. In addition to
any information required by law or by the applicable rules of any exchange upon
which Series A Preferred Stock may be listed or admitted to trading, such notice
shall state: (i) the Redemption Date; (ii) the Redemption Price; (iii) the
number of shares of Series A Preferred Stock to be redeemed and, if less than
all shares held by such holder are to be redeemed, the number of such shares to
be redeemed; (iv) the place or places where certificates for such shares are to
be surrendered for payment of the Redemption Price, including any procedures
applicable to redemptions to be accomplished through book-entry transfers; and
(v) that any declared dividends on the shares to be redeemed will cease to
accumulate on the Redemption Date. Upon the mailing of any such notice of
redemption, the Company shall become obligated to redeem at the Redemption Date
all shares called for redemption.
(d) If notice has been mailed in accordance with Section 5(c) above and,
provided that on or before the Redemption Date specified in such notice, all
funds necessary for such redemption shall have been set aside by the Company,
separate and apart from its other funds in trust for the pro rata benefit of the
holders of the shares so called for redemption, so as to be and to continue to
be available therefor, then, from and after the Redemption Date, any declared
dividends on the shares of the Series A Preferred Stock so called for redemption
shall cease to accumulate, and such shares shall no longer be deemed to be
outstanding and shall not have the status of shares of Series A Preferred Stock,
and all rights of the holders thereof as stockholders of the Company (except the
right to receive from the Company the Redemption Price) shall cease. Upon
surrender, in accordance with such notice, of the certificates for any shares so
redeemed (properly endorsed or assigned for transfer, if the Company shall so
require and the notice shall so state), such shares shall be redeemed by the
Company at the Redemption Price. In case fewer than all the shares represented
by any such certificate are redeemed, a new certificate
9
<PAGE>
or certificates shall be issued representing the unredeemed shares without cost
to the holder thereof.
(e) No Series A Preferred Stock may be redeemed except with funds legally
available for the purpose. The Company shall take all actions required or
permitted under the DGCL to permit any such redemption.
(f) Notwithstanding the foregoing provisions of this Section 5, unless all
declared dividends on all outstanding shares of Series A Preferred Stock shall
have been paid or contemporaneously are declared and paid, none of the shares of
Series A Preferred Stock shall be redeemed.
6 Voting Rights.
Each share of the Series A Preferred Stock shall entitle the holder
thereof to one vote per share of Common Stock into which each share of Series A
Preferred Stock could be converted. The holders of the Series A Preferred Stock
shall have the right to vote, together with the holders of all the outstanding
shares of Common Stock, and not by classes, except as otherwise required by
Delaware law, on all matters on which holders of the Common Stock are entitled
to vote.
7 Amendment. This Certificate of Designation shall not be amended, either
directly or indirectly, or through merger or consolidation with another entity,
in any manner that would alter or change the powers, preferences or special
rights of the Series A Preferred Stock so as to affect them adversely without
the affirmative vote of the holders of a majority of the outstanding Series A
Preferred Stock, voting separately as a class.
8 Exclusion of Other Rights. Except as may otherwise be required by law,
the shares of Series A Preferred Stock shall not have any voting powers,
preferences and relative, participating, optional or other special rights, other
than those specifically set forth in this resolution (as such resolution may be
amended from time to time) and in the Certificate of Incorporation.
9 Headings of Subdivisions. The headings of the various subdivisions
hereof are for convenience of reference only and shall not affect the
interpretation of any of the provisions hereof.
10 Severability of Provisions. If any voting powers, preferences and
relative, participating, optional and other special rights of the Series A
Preferred Stock and qualifications, limitations and restrictions thereof set
forth in this resolution (as such resolution may be amended from time to time)
is invalid, unlawful or incapable of being enforced by reason of any rule of law
or public policy, all other voting powers, preferences and relative,
participating, optional and other special rights of Series A Preferred Stock and
qualifications, limitations and restrictions thereof set forth in this
resolution (as so amended) which can be given effect without the invalid,
unlawful or unenforceable voting powers, preferences and relative,
participating, optional and other special rights of Series A Preferred Stock and
qualifications, limitations and
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restrictions thereof shall, nevertheless, remain in full force and effect, and
no voting powers, preferences and relative, participating, optional or other
special rights of Series A Preferred Stock and qualifications, limitations and
restrictions thereof herein set forth shall be deemed dependent upon any other
such voting powers, preferences and relative, participating, optional or other
special rights of Series A Preferred Stock and qualifications, limitations and
restrictions thereof unless so expressed herein.
11 Reissuance of Series A Preferred Stock. Shares of Series A Preferred
Stock that have been issued and reacquired in any manner, including shares
purchased or redeemed or exchanged or converted, shall (upon compliance with any
applicable provisions of the laws of Delaware) have the status of authorized but
unissued shares of Series A Preferred Stock of the Company undesignated as to
series and may be designated or redesignated and issued or reissued, as the case
may be, as part of any series or class of Preferred Stock of the Company other
than Series A Preferred Stock.
12 Mutilated or Missing Series A Preferred Stock Certificates. If any of
the Series A Preferred Stock certificates shall be mutilated, lost, stolen or
destroyed, the Company shall issue, in exchange and in substitution for and upon
cancellation of the mutilated Series A Preferred Stock certificate, or in lieu
of and substitution for the Series A Preferred Stock certificate lost, stolen or
destroyed, a new Series A Preferred Stock certificate of like tenor and
representing an equivalent amount of shares of Series A Preferred Stock, but
only upon receipt of evidence of such loss, theft or destruction of such Series
A Preferred Stock certificate and indemnity, if requested, satisfactory to the
Company and the transfer agent (if other than the Company).
13 Notices. In case at any time or from time to time there shall be (i)
any taking by the Company of record of the holders of any class of securities of
the Company for the purpose of determining the holders thereof who are entitled
to receive any dividend or other distribution, or (ii) a Consolidation or any
event described in the first sentence of Section 4, then the Company shall mail
to each holder of shares of Series A Preferred Stock at such holder's address as
it appears on the transfer books of the Company, as promptly as possible, but in
any event at least ten (10) days prior to the applicable date hereinafter
specified, a notice stating (a) the date on which a record is to be taken for
the purpose of such dividend or distribution or, if a record is not to be taken,
the date as of which the holder of the common stock of record to be entitled to
such dividend or distribution are to be determined, or (b) the date on which
such Consolidation or liquidation, dissolution or winding-up of the Company is
expected to become effective. Such notice also shall specify the date as of
which it is expected that holders of common stock of record shall be entitled to
exchange their common stock for shares of stock or other securities or property
or cash deliverable upon such Consolidation.
14 Transfer Taxes. The issuance or delivery of certificates for Common
Stock upon the conversion of shares of Series A Preferred Stock shall be made
without charge to the converting holder of shares of Series A Preferred Stock
for such certificates or for any tax in respect of the issuance or delivery of
such certificates or the securities represented thereby, and such certificates
shall be issued or delivered in the respective names of, or (subject to
compliance with the applicable provisions of federal and state securities laws)
in such names as may be
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directed by, the holders of the shares of Series A Preferred Stock converted;
provided, however, that the Company shall not be required to pay any tax which
may be payable in respect of any transfer involved in the issuance and delivery
of any such certificate in a name other than that of the holder of the shares of
Series A Preferred Stock converted, and the Company shall not be required to
issue or deliver such certificate unless or until the Person or Persons
requesting the issuance or delivery thereof shall have paid to the Company the
amount of such transfer tax or shall have established to the reasonable
satisfaction of the Company that such tax has been paid.
15 Certain Remedies. Any registered holder of Series A Preferred Stock
shall be entitled to an injunction or injunctions to prevent breaches of the
provisions of this Certificate of Designation and to enforce specifically the
terms and provisions of this Certificate of Designation in any court of the
United States, or any state thereof having jurisdiction, this being in addition
to any remedy to which such holder may be entitled at law or in equity.
16 Certain Definitions. As used in this Certificate of Designation, the
following terms shall have the following meanings (with terms defined in the
singular having comparable meanings when used in the plural and vice versa and
masculine words include the feminine and the neuter and vice versa), unless the
context otherwise requires:
"Business Day" means any day except a Saturday, a Sunday or any day on
which banking institutions in New York, New York are required or authorized by
law or other governmental action to be closed.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Common Stock, par value $.0001 per share, of the
Company.
"Conversion Price" shall initially equal the Liquidation Preference and
thereafter shall be subject to adjustment from time to time pursuant to the
terms of paragraph 3 hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Person" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust, unincorporated organization, government
or any agency or political subdivision thereof or any other entity.
"Series A Preferred Stock Issue Date" means the date on which the Series A
Preferred Stock is originally issued by the Company under this Certificate of
Designation.
"Securities Act" means the Securities Act of 1933, as amended.
"Subsidiary" as to any Person, is a corporation, limited liability company
or other entity of which shares or other rights or securities having voting
power to elect a majority of the board
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of directors or other governing body are at the time owned, directly or
indirectly, through one or more intermediaries, by such Person.
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EXHBIT B
TERMS OF SERIES B CONVERTIBLE PREFERRED STOCK
OF
GOMEZ ADVISORS, INC.
Designation of Series B Convertible Preferred Stock. There is hereby
established a series of preferred stock having a par value of $.01 per share,
with a liquidation preference of $5.00 per share (the "Liquidation Preference")
which shall be designated as Series B Convertible Preferred Stock (the "Series B
Preferred Stock") consisting of 1,300,000 shares, having voting powers,
designations, preferences, limitations, restrictions and relative rights as
follows:
1. Ranking. The Series B Preferred Stock shall rank, with respect to
dividend distributions and distributions upon the liquidation, winding-up and
dissolution of the Company, (a) senior to all classes of common stock of the
Company, the Series A Preferred Stock, par value $.01 per share, of the Company
(the "Series A Preferred Stock") and to each other class of capital stock or
series of preferred stock established after the Series B Preferred Stock Issue
Date by the Board of Directors the terms of which do not expressly provide that
it ranks senior to or on a parity with the Series B Preferred Stock as to
dividend distributions and distributions upon the liquidation, winding-up and
dissolution of the Company (collectively referred to with the common stock of
the Company as "Junior Securities"); (b) on a parity with any additional shares
of preferred stock issued by the Company in the future and any other class of
capital stock or series of preferred stock issued by the Company established
after the Series B Preferred Stock Issue Date by the Board of Directors the
terms of which expressly provide that such class or series will rank on a parity
with the Series B Preferred Stock as to dividend distributions and distributions
upon the liquidation, winding-up and dissolution of the Company (collectively
referred to as "Parity Securities"); and (c) junior to each class of capital
stock or series of preferred stock issued by the Company established after the
Series B Preferred Stock Issue Date by the Board of Directors the terms of which
expressly provide that such class or series will rank senior to the Series B
Preferred Stock as to dividend distributions and distributions upon the
liquidation, winding-up and dissolution of the Company (collectively referred to
as "Senior Securities").
No dividend whatsoever shall be declared or paid upon any outstanding
share of the Series B Preferred Stock with respect to any dividend period unless
all dividends for all preceding dividend periods have been declared and paid, or
declared and a sufficient sum set apart for the payment of such dividends, upon
all outstanding shares of Senior Securities.
2. Dividends.
(a) Subject to any preferential dividend rights of any then outstanding
Senior Securities, the holders of shares of the Series B Preferred Stock shall
be entitled to receive, when, as and if dividends are declared by the Board of
Directors out of funds of the Company legally available therefor, cumulative
preferential dividends from the Series B Preferred Stock Issue Date accruing at
the rate of 6% of the Liquidation Preference per share per annum, payable
semi-
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annually in arrears on each of the last days of March and September or, if any
such date is not a Business Day, on the next succeeding Business Day (each, a
"Dividend Payment Date"), to the holders of record as of the next preceding
March 15 and September 15, (each, a "Record Date"). Dividends shall be payable
in (i) cash, (ii) by the issuance of additional shares of Series B Preferred
Stock (including fractional shares) having an aggregate Liquidation Preference
equal to the amount of such dividends or (iii) by a combination thereof. The
issuance of such additional shares of Series B Preferred Stock shall constitute
"payment" of the related dividend for all purposes of this Certificate of
Designation. The first dividend payment on the Series B Preferred Stock shall be
made on September 30, 1999. Dividends payable on the Series B Preferred Stock
will be computed on the basis of a 360-day year consisting of twelve 30-day
months.
(b) Dividends on the Series B Preferred Stock shall accumulate whether or
not the Company has earnings or profits, whether or not there are funds legally
available for the payment of such dividends and whether or not dividends are
declared. Dividends will accumulate to the extent they are not paid on the
Dividend Payment Date for the period to which they relate. The Company shall
take all actions required or permitted under the Delaware General Corporation
Law (the "DGCL") to permit the payment of dividends on the Series B Preferred
Stock, including, without limitation, through the revaluation of its assets in
accordance with the DGCL, to make or keep funds legally available for the
payment of dividends.
(c) No dividend whatsoever shall be declared or paid upon, or any sum set
apart for the payment of dividends upon, any outstanding share of the Series B
Preferred Stock with respect to any dividend period unless all dividends for all
preceding dividend periods have been declared and paid, or declared and a
sufficient sum set apart for the payment of such dividend, upon all outstanding
shares of the Series B Preferred Stock. Unless full cumulative dividends on all
outstanding shares of Series B Preferred Stock for all past dividend periods
shall have been declared and paid, or declared and a sufficient sum for the
payment thereof set apart, then: (i) no dividend (other than a dividend payable
solely in shares of any Junior Security) shall be declared or paid upon, or any
sum set apart for the payment of dividends upon, any shares of Junior Securities
(including any class of common stock); (ii) no other distribution shall be
declared or made upon, or any sum set apart for the payment of dividends upon,
any shares of Junior Securities; (iii) no shares of Junior Securities shall be
purchased, redeemed or otherwise acquired or retired for value (excluding an
exchange for shares of other Junior Securities) by the Company or any of its
Subsidiaries; and (iv) no monies shall be paid into or set apart or made
available for a sinking or other like fund for the purchase, redemption or other
acquisition or retirement for value of any shares of Junior Securities by the
Company or any of its Subsidiaries. Holders of the Series B Preferred Stock will
not be entitled to any dividends, whether payable in cash, property or stock, in
excess of the full cumulative dividends as herein described.
3. Conversion.
(a) Unless previously redeemed by the Company pursuant to Section 5,
concurrently with the consummation of an initial underwritten public offering
pursuant to an effective registration statement (the "IPO Registration
Statement") under the Securities Act covering the offer and sale of the
Company's Common Stock, par value $.0001 per share (the "Common
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<PAGE>
Stock"), to the public (an "IPO"), all outstanding shares of Series B Preferred
Stock shall be automatically converted into Common Stock at the Conversion Price
in effect on the date of which the holder satisfies all of the conversion
requirements of subsection 3(c) hereof (the "Conversion Date"). The number of
shares of Common Stock issuable for each share of Series B Preferred Stock upon
conversion shall be determined by dividing the Liquidation Preference plus all
accumulated and unpaid dividends on such share of Series B Preferred Stock by
the Conversion Price. Immediately following such conversion, the rights of the
holders of converted Series B Preferred Stock shall cease and the Persons
entitled to receive the Common Stock upon the conversion of the Series B
Preferred Stock shall be treated for all purposes as the owners of such Common
Stock. Additionally, promptly following such conversion, the Company shall give
written notice thereof to each record holder of Series B Preferred Stock,
including Instructions to be followed to obtain a certificate for the shares of
Common Stock into which such holder's Series B Preferred Stock was converted.
(b) Unless previously redeemed by the Company pursuant to Section 5, at
the option of a holder of Series B Preferred Stock, all (but not less than all)
outstanding shares of Series B Preferred Stock held by such holder of Series B
Preferred Stock may be converted into Common Stock at the Conversion Price. The
number of shares of Common Stock issuable for each share of Series B Preferred
Stock upon conversion shall be determined by dividing the Liquidation Preference
plus all accumulated and unpaid dividends on such share of Series B Preferred
Stock by the Conversion Price. Immediately following such conversion, the rights
of the holders of converted Series B Preferred Stock shall cease and the Persons
entitled to receive the Common Stock upon the conversion of the Series B
Preferred Stock shall be treated for all purposes as the owners of such Common
Stock.
(c) In order for a holder to exercise its/his rights to convert Series B
Preferred Stock, a holder must (i) surrender the certificate or certificates
evidencing the shares of Series B Preferred Stock to be converted, duly endorsed
in a form reasonably satisfactory to the Company, at the office of the Company
or transfer agent for the Series B Preferred Stock, (ii) notify the Company at
such office that he elects to convert Series B Preferred Stock and the number of
shares to be converted, (iii) state in writing the name or names in which he
wishes the certificate or certificates for shares of Common Stock to be issued,
and (iv) pay any transfer or similar tax if required pursuant to Section 14. The
date on which the holder satisfies all such requirements shall be the Conversion
Date. As soon as practical after the Conversion Date, the Company shall deliver
a certificate or certificates for the number of shares of Common Stock issuable
upon the conversion. The Person in whose name the Common Stock certificate is
registered shall be treated as the stockholder of record on and after the
Conversion Date.
(d) The Company has reserved and shall continue to reserve out of its
authorized but unissued Common Stock or its Common Stock held in treasury a
sufficient number of shares of Common Stock to permit the conversion of all
outstanding shares of the Series B Preferred Stock. All shares of Common Stock
issuable upon conversion of Series B Preferred Stock shall be duly authorized,
fully paid and nonassessable. The Company shall comply with all securities laws
regulating the issuance of shares of upon conversion of Series B Preferred
Stock.
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<PAGE>
(e) Upon the consummation of any consolidation or reorganization of the
Company or the merger of the Company with or into any other entity or the sale
or transfer of all or substantially all the assets of the Company pursuant to
which the Company's Common Stock is converted into other securities, cash or
assets (any of the foregoing, a "Consolidation"), each holder of Series B
Preferred Stock shall be entitled to convert each share of Series B Preferred
Stock into the kind and amount of securities, cash or other assets which a
holder of the number of shares of Common Stock deliverable upon conversion of
such holder's Series B Preferred Stock would have been entitled to upon the
consummation of the Consolidation.
(f) In case the outstanding shares of Common Stock shall be subdivided
into a greater number of shares of Common Stock, the Conversion Price in effect
at the opening of business on the day following the day upon which such
subdivision becomes effective shall be proportionately decreased and,
conversely, in case the outstanding shares of Common Stock shall be combined
into a smaller number of shares of Common Stock, the Conversion Price in effect
at the opening of business on the day following the day upon which such
combination becomes effective shall be proportionately increased. Such reduction
or increase, as the case may be, shall become effective immediately after the
opening of business on the day following the day upon which such subdivision or
combination becomes effective.
(g) Whenever the Conversion Price is adjusted, the Company shall promptly
mail to holders of Series B Preferred Stock a notice of the adjustment, first
class mail, postage prepaid. The Company shall file with the transfer agent for
the Series B Preferred Stock, if any (and make available to holders of Series B
Preferred Stock upon request), a certificate from the Company's independent
public accountants briefly stating the facts requiring the adjustment and the
manner of computing it.
(h) Any provision of this Section 3 to the contrary notwithstanding, no
adjustment in the Conversion Price of the Series B Preferred Stock shall be made
if the amount of such adjustment would be less than 1% thereof, but any such
amount shall be carried forward and an adjustment with respect thereto shall be
made at to time of and together with any such subsequent adjustment which,
together with such amount and any other amount or amounts so carried forward,
shall aggregate 1% of the Conversion Price or more.
(i) The Company shall not issue any fractional shares of Common Stock upon
the conversion of Series B Preferred Stock. Instead, the Company shall round the
results of a conversion up to the nearest full share of Common Stock.
4. Liquidation Rights. Upon any voluntary or involuntary liquidation,
dissolution or winding-up of the Company, each holder of shares of the Series B
Preferred Stock will be entitled to payment out of the assets of the Company
available for distribution of an amount equal to the Liquidation Preference per
share of Series B Preferred Stock, plus accumulated and unpaid dividends, to the
date fixed for liquidation, dissolution or winding-up of the Company, before any
distribution is made on any Junior Securities, Including, without limitation,
Series A Preferred Stock and common stock of the Company. After payment in full
of the Liquidation Preference and all accumulated and unpaid dividends to which
holders of Series B Preferred
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<PAGE>
Stock are entitled, such holders will not be entitled to any further
participation in any distribution of assets of the Company. If, upon any
voluntary or involuntary liquidation, dissolution or winding-up of the Company,
the amounts payable with respect to the Series B Preferred Stock and all other
Parity Securities are not paid in full, the holders of the Series B Preferred
Stock and the Parity Securities will share equally and ratably in any
distribution of assets of the Company in proportion to the full Liquidation
Preference and accumulated and unpaid dividends to which each is entitled.
However, neither the voluntary sale, conveyance, exchange or transfer (for cash,
shares of stock, securities or other consideration) of all or substantially all
of to property or assets of the Company nor the consolidation or merger of the
Company with or into one or more Persons will be deemed to be a voluntary or
involuntary liquidation, dissolution or winding-up of the Company, unless such
sale, conveyance, exchange or transfer shall be in connection with a
liquidation, dissolution or winding-up of the Company.
5. Redemption by the Company.
(a) Except pursuant to Section 5(g) herein, the Series B Preferred Stock
may not be redeemed by the Company prior to the fourth anniversary of the Series
B Preferred Stock Issue Date (the "Fourth Anniversary"). On or after the Fourth
Anniversary, the Company shall have the option to redeem, in whole or in part
(subject to the legal availability of funds therefor), all outstanding shares of
Series B Preferred Stock at a price (the "Redemption Price" ) in cash equal to
the Liquidation Preference thereof, plus accumulated and unpaid dividends
(including an amount equal to a prorated dividend for any partial dividend
period) through the date fixed for redemption). The Company shall not be
required to make sinking fund payments with respect to the Series B Preferred
Stock.
(b) In case of the redemption of less than all of the shares of Series B
Preferred Stock outstanding at the time, the shares to be redeemed shall be
selected pro rata or by lot as determined by the Company in its sole discretion.
(c) Notice of any redemption shall be sent by or on behalf of the Company
not less than 30 nor more than 60 days prior to the date specified for
redemption in such notice (the "Redemption Date") by first class mail, postage
prepaid, to all holders of record of the Series B Preferred Stock at their last
addresses as they shall appear on the books of the Company: provided, however,
that no failure to give such notice or any defect therein or in the mailing
thereof shall affect the validity of the proceedings for the redemption of any
shares of Series B Preferred Stock except as to the holder to whom the Company
has failed to give notice or except as to the holder to whom notice was
defective. In addition to any information required by law or by the applicable
rules of any exchange upon which Series B Preferred Stock may be listed or
admitted to trading, such notice shall state: (i) the Redemption Date; (ii) the
Redemption Price; (iii) the number of shares of Series B Preferred Stock to be
redeemed and, if less than all shares held by such holder are to be redeemed,
the number of such shares to be redeemed; (iv) the place or places where
certificates for such shares are to be surrendered for payment of the Redemption
price, including any procedures applicable to redemptions to be accomplished
through book-entry transfers; and (v) that any dividends on the shares to be
redeemed will cease to accumulate
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on the Redemption Date. Upon the mailing of any such notice of redemption, the
Company shall become obligated to redeem at the Redemption Date all shares
called for redemption.
(d) If notice has been mailed in accordance with Section 5(c) above and,
provided that on or before the Redemption Date specified in such notice, all
funds necessary for such redemption shall have been set aside by the Company,
separate and apart from its other funds in trust for the pro rata benefit of the
holders of the shares so called for redemption, so as to be and to continue to
be available therefor, then, from and after the Redemption Date, any declared
dividends on the shares of the Series B Preferred Stock so called for redemption
shall cease to accumulate, and such shares shall no longer be deemed to be
outstanding and shall not have the status of shares of Series B Preferred Stock,
and all rights of the holders thereof as stockholders of the Company (except the
right to receive from the Company the Redemption Price) shall cease. Upon
surrender, in accordance with such notice, of the certificates for any shares so
redeemed (properly endorsed or assigned for transfer, if the Company shall so
require and the notice shall so state), such shares shall be redeemed by the
Company at the Redemption Price. In case fewer than all the shares represented
by any such certificate are redeemed, a new certificate or certificates shall be
issued representing the unredeemed shares without cost to the holder thereof.
(e) No Series B Preferred Stock may be redeemed except with funds legally
available for the purpose. The Company shall take all actions required or
permitted under the DGCL to permit any such redemption.
(f) Notwithstanding the foregoing provisions of this Section 5, unless all
declared dividends on all outstanding shares of Series B Preferred Stock shall
have been paid or contemporaneously are declared and paid, none of the shares of
Series B Preferred Stock shall be redeemed.
(g) On or after the third anniversary of the Series B Preferred Stock
Issue Date (the "Third Anniversary"), if the IPO Registration Statement has not
been filed with the Commission, holders of at least 67% of the shares of Series
B Preferred Stock then outstanding can require the Company, by written request
(the "Redemption Request"), to redeem all of such requesting holders' shares of
Series B Preferred Stock at the Redemption Price within 60 days after the
receipt by the Company of the Redemption Request. Upon the Company's receipt of
the Redemption Request, the Company, within 10 business days, shall give notice
of such request to each holder appearing on the Company's records as a record
holder of the Series B Preferred Stock as of the date the Company receives such
request who are not included in such request (the "Non-Participating
Stockholders"). In order to exercise their redemption rights, each Non
Participating Stockholder must notify the Company in writing of its intention to
be included in the Redemption Request within 10 business days after the Company
has delivered such notice to the Non-Participating Stockholders.
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6. Voting Rights.
(a) The holders of record of shares of the Series B Preferred Stock shall
have no voting rights, except as required by law and as hereinafter provided in
this Section 6.
(b) The Company shall not, without the affirmative vote or consent of the
holders of at least a majority of the shares of Series B Preferred Stock then
outstanding (with shares held by the Company or any of its affiliates not being
considered to be outstanding for the purpose of this subsection 6(b)) voting or
consenting as the case may be, as one class:
(i) authorize, create (by way of reclassification or otherwise) or
issue any Senior Securities or any obligation or security
convertible or exchangeable into or evidencing the right to
purchase, shares of any class or series of Senior Securities;
(ii) amend or otherwise alter this Certificate of Designation
(including the provisions of Section 6 hereof) in any manner that
adversely affects the specified rights, preferences, privileges or
voting rights of the holders of the Series B Preferred Stock; or
(iii) authorize the issuance of any additional shares of the Series
B Preferred Stock.
(c) Without the consent of each holder affected, an amendment supplement
or waiver of the Company's Certificate of Incorporation or of this Certificate
of Designation may not (with respect to any shares of Series B Preferred Stock
held by a non-consenting holder):
(i) alter the voting rights with respect to the Series B Preferred
Stock or reduce the number of shares of the Series B Preferred Stock
whose holders must consent to an amendment, supplement or waiver;
(ii) reduce the Liquidation Preference of or alter the provisions
with respect to the redemption of the Series B Preferred Stock;
(iii) reduce the rate of or change the rime for payment of dividends
on any share of the Series B Preferred Stock;
(iv) make any share of Series B Preferred Stock payable in any form
other than that stated in this Certificate of Designation;
(v) make any change in the provisions of this Certificate of
Designation relating to waivers of the rights of holders of the
Series B Preferred Stock to receive the Liquidation Preference and
dividends on the Series B Preferred Stock;
(vi) waive any redemption payment with respect to any share of
Series B Preferred Stock other than as provided for in this
Certificate of Designation; or
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(vii) make any change in the foregoing amendment and waiver
provisions.
(d) The Company in its sole discretion may without vote or consent of any
holders of the Series B Preferred Stock amend or supplement this Certificate of
Designation:
(i) to cure any ambiguity, defect or inconsistency;
(ii) to provide for uncertificated Series B Preferred Stock in
addition to or in place of certificated Series B Preferred stock; or
(iii) to make any change that would provide any additional rights or
benefits to the holders of the Series B Preferred Stock or that does
not adversely affect the legal rights under this Certificate of
Designation of any such holder.
Except as set forth above, (x) the creation, authorization or issuance of any
shares of Junior Securities, Parity Securities or Senior Securities or (y) the
increase or decrease in the amount of authorized capital stock of any class,
including any preferred stock, shall not require the consent of the holders of
the Series B Preferred Stock and shall not be deemed to affect adversely the
rights, preferences, privileges, special rights or voting rights of holders of
shares of the Series B Preferred Stock.
7. Amendment. This Certificate of Designation shall not be amended, either
directly or indirectly, or through merger or consolidation with another entity,
in any manner that would alter or change the powers, preferences or special
rights of the Series B Preferred Stock so as to affect them adversely without
the affirmative vote of the holders of a majority of the outstanding Series B
Preferred Stock, voting separately as a class.
8. Exclusion of Other Rights. Except as may otherwise be required by law,
the shares of Series B Preferred Stock shall not have any voting powers,
preferences and relative, participating, optional or other special rights, other
than those specifically set forth in this resolution (as such resolution may be
amended from time to time) and in the Certificate of Incorporation. The shares
of Series B Preferred Stock shall have no preemptive or subscription rights.
9. Headings of Subdivisions. The headings of the various subdivisions
hereof are for convenience of reference only and shall not affect the
interpretation of any of the provisions hereof.
10. Severability of Provisions. If any voting powers, preferences and
relative, participating, optional and other special rights of the Series B
Preferred Stock and qualifications, limitations and restrictions thereof set
forth in this resolution (as such resolution may be amended from time to time)
is invalid, unlawful or incapable of being enforced by reason of any rule of law
or public policy, all other voting powers, preferences and relative,
participating, optional and other special rights of Series B Preferred Stock and
qualifications, limitations and
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restrictions thereof set forth in this resolution (as so amended) which can be
given effect without the invalid, unlawful or unenforceable voting powers,
preferences and relative, participating, optional and other special rights of
Series B Preferred Stock and qualifications, limitations and restrictions
thereof shall, nevertheless, remain in full force and effect, and no voting
powers, preferences and relative, participating, optional or other special
rights of Series B Preferred Stock and qualifications, limitations and
restrictions thereof herein set forth shall be deemed dependent upon any other
such voting powers, preferences and relative, participating, optional or other
special rights of Series B Preferred Stock and qualifications, limitations and
restrictions thereof unless so expressed herein.
11. Reissuance of Series B Preferred Stock. Shares of Series B Preferred
Stock that have been issued and reacquired in any manner, including shares
purchased or redeemed or exchanged or converted, shall (upon compliance with any
applicable provisions of the laws of Delaware) have the status of authorized but
unissued shares of preferred stock of the Company undesignated as to series and
may be designated or redesignated and issued or reissued, as the case may be, as
part of any series or class of preferred stock of the Company, provided that any
reissuance of such shares as Series B Preferred Stock must be in compliance with
the terms hereof.
12. Mutilated or Missing Series B Preferred Stock Certificates. If any of
the Series B Preferred Stock certificates shall be mutilated, lost, stolen or
destroyed, the Company shall issue, in exchange and in substitution for and upon
cancellation of the mutilated Series B Preferred Stock certificate, or in lieu
of and substitution for the Series B Preferred Stock certificate lost, stolen or
destroyed, a new Series B Preferred Stock certificate of like tenor and
representing an equivalent amount of shares of Series B Preferred Stock, but
only upon receipt of evidence of such loss, theft or destruction of such Series
B Preferred Stock certificate and indemnity, if requested, satisfactory to the
Company and the transfer agent (if other than the Company).
13. Notices. In case at any time or from time to time there shall be a
Consolidation or any event described in the first sentence of Section 4, then
the Company shall mail to each holder of shares of Series B Preferred Stock at
such holder's address as it appears on the transfer books of the Company, as
promptly as possible, but in any event at least ten (10) days prior to the
applicable date hereinafter specified, a notice stating the date on which such
Consolidation or liquidation, dissolution or winding-up of the Company is
expected to become effective. Such notice also shall specify the date as of
which it is expected that holders of common stock of record shall be entitled to
exchange their common stock for shares of stock or other securities or property
or cash deliverable upon such Consolidation.
14. Transfer Taxes. The issuance or delivery of certificates for Common
Stock upon the conversion of shares of Series B Preferred Stock shall be made
without charge to the converting holder of shares of Series B Preferred Stock
for such certificates or for any tax in respect of the issuance or delivery of
such certificates or the securities represented thereby, and such certificates
shall be issued or delivered in the respective names of, or (subject to
compliance with the applicable provisions of federal and state securities laws)
in such names as may be directed by, the holders of the shares of Series B
Preferred Stock converted; provided, however,
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that the Company shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issuance and delivery of any such
certificate in a name other than that of the holder of the shares of Series B
Preferred Stock converted, and the Company shall not be required to issue or
deliver such certificate unless or until the Person or Persons requesting the
issuance or delivery thereof shall have paid to the Company the amount of such
transfer tax or shall have established to the reasonable satisfaction of the
Company that such tax has been paid.
15. Certain Definitions. As used in this Certificate of Designation, the
following terms shall have the following meanings (with terms defined in the
singular having comparable meanings when used in the plural and vice versa and
masculine words include the feminine and the neuter and vice versa), unless the
context otherwise requires:
"Business Day" means any day except a Saturday, a Sunday or any day on
which banking institutions in New York, New York are required or authorized by
law or other governmental action to be closed.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Common Stock, par value $.0001 per share, of the
Company.
"Conversion Price" shall initially equal the Liquidation Preference and
thereafter shall be subject to adjustment from time to time pursuant to the
terms of paragraph 3 hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Person" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust, unincorporated organization, government
or any agency or political subdivision thereof or any other entity.
"Series B Preferred Stock Issue Date" means the date on which the Series B
Preferred Stock is originally issued by the Company under this Certificate of
Designation.
"Securities Act" means the Securities Act of 1933, as amended.
"Subsidiary" as to any Person, is a corporation, limited liability company
or other entity of which shares or other rights or securities having voting
power to elect a majority of the board of directors or other governing body are
at the time owned, directly or indirectly, through one or more intermediaries,
by such Person.
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Exhibit 3.2
CERTIFICATE OF DESIGNATION, PREFERENCES,
AND RIGHTS OF
SERIES C CONVERTIBLE PREFERRED STOCK
OF
GOMEZ ADVISORS, INC.
Gomez Advisors, Inc., a Delaware corporation (the "Corporation"), does
hereby certify that, pursuant to authority conferred on the Board of Directors
of the Corporation by the Certificate of Incorporation of the Corporation, as
amended, and pursuant to the provisions of Section 151 of Title 8 of the
Delaware Code, the Board of Directors, at a meeting of its members held on
October 27, 1999, adopted a resolution providing for the designation,
preferences and relative, participating, optional or other rights, and
qualifications, limitations or restrictions thereof, of six million (6,000,000)
shares of the Corporation's Preferred Stock, par value $.01 per share, which
resolution is as follows:
RESOLVED: That pursuant to the authority granted to and vested in the Board
of Directors of the Corporation in accordance with the provisions
of the Certificate of Incorporation, as amended, of the
Corporation, the Board hereby designates a series of Preferred
Stock of the Corporation, par value $.01 per share (the "Preferred
Stock"), consisting of 6,000,000 shares of the authorized unissued
Preferred Stock, as Series C Convertible Preferred Stock (the
"Series C Preferred"), and hereby fixes such designation and
number of shares, and the powers, preferences and relative,
participating, optional or other rights, and the qualifications,
limitations and restrictions thereof as set forth below, and that
the officers of the Corporation, and each acting singly, are
hereby authorized, empowered and directed to file with the
Secretary of State of the State of Delaware a Certificate of
Designation, Preferences and Rights of the Series C Convertible
Preferred Stock, as such officer or officers shall deem necessary
or advisable to carry out the purposes of this Resolution.
Series C Convertible Preferred Stock. The preferences, privileges and
restrictions granted to or imposed upon the Corporation's Series C Convertible
Preferred Stock, par value $.01 per share, or the holders thereof, are as
follows:
1. Liquidation Rights.
(a) Treatment at Liquidation, Dissolution or Winding Up.
(i) Except as otherwise provided in Section 1(b) below, in the event
of any liquidation, dissolution or winding up of the affairs of the
Corporation, whether voluntary or involuntary, the holders of the
Redeemable Series B Convertible Preferred Stock, $.01 per share, par value
(the "Series B Preferred") and the Series C Preferred shall be entitled to
be
<PAGE>
paid first out of the assets of the Corporation available for distribution
to holders of the Corporation's capital stock of all classes, before
payment or distribution of any of such assets to the holders of any other
class or series of the Corporation's capital stock designated to be junior
to the Series C Preferred, an amount equal to $5.10 per share of Series C
Preferred and an amount of $5.00 per share of Series B Preferred (which
amounts shall be subject to equitable adjustment whenever there shall
occur a stock dividend, distribution, combination of shares,
reclassification or other similar event with respect to Series B Preferred
and Series C Preferred and, as so adjusted from time to time, is
hereinafter referred to as the "Base Liquidation Price") plus all
dividends accrued or declared but unpaid, to and including the date full
payment shall be tendered to the holders of Series B Preferred and Series
C Preferred with respect to such liquidation, dissolution or winding up.
(ii) Following payment in full to the holder of the Series B
Preferred and Series C Preferred of all amounts distributable to them
under Section 1(a)(i) hereof, the remaining assets of the Corporation
available for distribution to holders of the Corporation Capital Stock
shall be distributed on a pro rata basis among the holders of the Series A
Convertible Preferred Stock, $.01 par value per share, (the "Series A
Preferred") at a liquidation preference of $3,058.10 per share.
(iii) Following payment in full to the holders of Series A Preferred
of all amounts distributable to them under Section 1(a)(ii) hereof, the
remaining assets of the Corporation available for distribution to holders
of the Corporation's capital stock shall be distributed on a pro rata
basis among the holders of the Common Stock.
(iv) If the assets of the Corporation shall be insufficient to
permit the payment in full to the holders of Series B Preferred and Series
C Preferred of all amounts distributable to them under Section 1(a)(i)
hereof, then the entire assets of the Corporation available for such
distribution shall be distributed among the holders of Series B Preferred
and Series C Preferred in proportion to the aggregate preferential amount
for each such series and within each series on a pro rata basis among the
shareholders of such series.
(b) Treatment of Reorganizations, Consolidations, Mergers and Sales of
Assets. Except as otherwise provided in Subsection 2(d)(vii) hereof, a
Reorganization (as defined in Subsection 2(d)(vii) hereof) shall be regarded as
a liquidation, dissolution or winding up of the affairs of the Corporation
within the meaning of this Section 1, provided, however, that the holders of at
least a majority of the outstanding shares of the Series C Preferred upon the
occurrence of a Reorganization shall have the option to elect the benefits of
Subsection 2(d)(vii) hereof for the Series C Preferred in lieu of receiving
payment in liquidation, dissolution or winding up of the Corporation pursuant to
this Section 1. The provisions of this Subsection 1(b) shall not apply to any
reorganization, merger or consolidation involving (1) only a change in the state
of incorporation of the Corporation, (2) a merger of the Corporation with or
into a wholly-owned subsidiary of the Corporation which is incorporated in the
United States of America, or (3) an acquisition by merger, reorganization or
consolidation, in which the Corporation is substantively the surviving
corporation and operates as a going concern, of another corporation which is
incorporated in the United States of America and which is engaged in a business
similar to or related to the business of the Corporation and which does not
involve a change in the terms of the Series C Preferred or of the Common Stock.
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(c) Distributions other than Cash. Whenever the distribution provided for
in this Section 1 shall be payable 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.
2. Conversion. The holders of Series C Preferred shall have conversion
rights as follows (the "Conversion Rights"):
(a) Right to Convert; Conversion Price. Each share of Series C Preferred
shall be convertible, without the payment of any additional consideration by the
holder thereof and at the option of the holder thereof, at any time after the
date of issuance of such share, at the office of the Corporation or any transfer
agent for the Series C Preferred, into such number of fully paid and
non-assessable shares of Common Stock as is determined by dividing $5.10 by the
Conversion Price, determined as hereinafter provided, in effect at the time of
conversion. The Conversion Price for purposes of calculating the number of
shares of Common Stock deliverable upon conversion without the payment of any
additional consideration by the holder of Series C Preferred (the "Conversion
Price") shall initially be $5.10. Such initial Conversion Price shall be subject
to adjustment, in order to adjust the number of shares of Common Stock into
which Series C Preferred is convertible, as hereinafter provided.
(b) Mechanics of Conversion. Before any holder of Series C Preferred shall
be entitled to convert the same into full shares of Common Stock, such holder
shall surrender the certificate or certificates therefor, duly endorsed, at the
office of the Corporation or of any transfer agent for the Series C Preferred,
and shall give written notice to the Corporation at such office that such holder
elects to convert the same and shall state therein the name of such holder or
the name or names of the nominees of such holder in which such holder wishes the
certificate or certificates for shares of Common Stock to be issued. No
fractional shares of Common Stock shall be issued upon conversion of any shares
of Series C Preferred. In lieu of any fractional shares of Common Stock to which
the holder would otherwise be entitled, the Corporation shall pay cash equal to
such fraction multiplied by the then effective Conversion Price. The Corporation
shall, as soon as practicable thereafter, issue and deliver at such office to
such holder of Series C Preferred, or to such holder's nominee or nominees, a
certificate or certificates for the number of shares of Common Stock to which
such holder shall be entitled as aforesaid, together with cash in lieu of any
fraction of a share. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such surrender of the
shares of Series C Preferred to be converted, and the person or persons entitled
to receive the shares of Common Stock issuable upon conversion shall be treated
for all purposes as the record holder or holders of such shares of Common Stock
on such date.
(c) Automatic Conversion.
(i) Each share of Series C Preferred shall automatically be
converted into shares of Common Stock at the then effective Conversion
Price upon:
(A) The closing of a firm commitment underwritten public
offering pursuant to an effective registration statement under the
Securities Act of 1933, as
3
<PAGE>
amended, covering the offer and sale of Common Stock for the account
of the Corporation to the public at an initial public offering price
per share of not less than $5.61 (subject to equitable adjustment in
the event of any stock dividend, stock split, combination,
reorganization, recapitalization or similar event involving a change
in the Common Stock) with net proceeds to the Corporation of not
less than $15,000,000 (a "Qualified Initial Public Offering"); or
(B) The written election of the holders of not less than
two-thirds in voting power of the then outstanding shares of Series
C Preferred to require such mandatory conversion.
(ii) Upon the occurrence of an event specified in Section 2(c)(i)
hereof, all shares of Series C Preferred shall be converted automatically
without any further action by any holder of such shares and whether or not
the certificate or certificates representing such shares are surrendered
to the Corporation or the transfer agent for the Series C Preferred,
provided, however, that the Corporation shall not be obligated to issue a
certificate or certificates evidencing the shares of Common Stock into
which such shares of Series C Preferred were convertible unless the
certificate or certificates representing such shares of Series C Preferred
being converted are either delivered to the Corporation or the transfer
agent of the Series C Preferred, or the holder notifies the Corporation or
such transfer agent that such certificate or certificates have been lost,
stolen, or destroyed and executes and delivers an agreement satisfactory
to the Corporation to indemnify the Corporation from any loss incurred by
it in connection therewith and, if the Corporation so elects, provides an
appropriate indemnity.
(iii) Upon the automatic conversion of Series C Preferred, each
holder of Series C Preferred shall surrender the certificate or
certificates representing such holder's shares of Series C Preferred at
the office of the Corporation or of the transfer agent for the Series C
Preferred. Thereupon, there shall be issued and delivered to such holder,
promptly at such office and in such holder's name as shown on such
surrendered certificate or certificates, a certificate or certificates for
the number of shares of Common Stock into which the shares of Series C
Preferred surrendered were convertible on the date on which such automatic
conversion occurred. No fractional shares of Common Stock shall be issued
upon the automatic conversion of Series C Preferred. In lieu of any
fractional shares of Common Stock to which the holder would otherwise be
entitled, the corporation shall pay cash equal to such fraction multiplied
by the then effective Conversion Price.
(d) Adjustments to Conversion Price for Diluting Issues.
(i) Special Definitions. For purposes of this Section 2(d), the
following definitions shall apply:
(A) "Option" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire Common Stock or
Convertible Securities.
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<PAGE>
(B) "Original Issue Date" shall mean the date on which shares
of Series C Preferred were first issued.
(C) "Convertible Securities" shall mean any evidences of
indebtedness, shares (other than Common Stock and Series C
Preferred) or other securities directly or indirectly convertible
into or exchangeable for Common Stock.
(D) "Additional Shares of Common Stock" shall mean all shares
of Common Stock issued (or, pursuant to Section 2(d)(iii), deemed to
be issued) by the Corporation after the Original Issue Date, other
than the following (collectively, "Excluded Shares"):
(I) shares of Common Stock issued or issuable upon
conversion of shares of Series A Preferred, Series B Preferred
or Series C Preferred;
(II) shares of Common Stock issued or issuable as a
dividend on the Series A Preferred, Series B Preferred or
Series C Preferred;
(III) by reason of a dividend, stock split or other
distribution on shares of Common Stock;
(IV) up to 3,000,000 options to purchase shares of
Common Stock issued or issuable to officers, employees or
directors of, or consultants to, the Corporation pursuant to
the Corporation's 1999 Stock Plan;
(V) shares of Common Stock issued or issuable upon the
exercise of the Options referred to in the foregoing clause
(IV); and
(VI) shares of Common Stock issued or issuable upon the
exercise of Options to purchase shares of Common Stock granted
pursuant to the Corporation's 1998 Stock Plan and 1999
Long-Term Incentive Plan.
(ii) No Adjustment of Conversion Price. No adjustment in the number
of shares of Common Stock into which a share of Series C Preferred is
convertible shall be made by adjustment in the Conversion Price in respect
of the issuance of Additional Shares of Common Stock or otherwise unless
(i) the consideration per share for an Additional Share of Common Stock
issued or deemed to be issued by the Corporation is less than the
Conversion Price in effect on the date of, and immediately prior to, the
issue of such Additional Shares of Common Stock and, (ii) prior to such
issuance, the Corporation fails to receive written notice from the holders
of at least a majority of the then outstanding shares of Series C
Preferred agreeing that no such adjustment shall be made as the result of
the issuance of Additional Shares of Common Stock.
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<PAGE>
(iii) Issue of Securities Deemed Issue of Additional Shares of
Common Stock.
(A) Options and Convertible Securities. In the event the
Corporation at any 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 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) of Common Stock issuable upon the
exercise of such Options or, in the case of Convertible Securities
and Options therefor, 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 issue 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 2(d)(v) hereof) of such Additional
Shares of Common Stock would be less than the Conversion Price in
effect on the date of and immediately prior to such issue, 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 Conversion Price shall
be made upon the subsequent issue of Convertible Securities or
shares of Common Stock upon the exercise of such Options or
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 in the consideration payable to the Corporation, or
decrease in the number of shares of Common Stock issuable upon
the exercise, conversion or exchange thereof, the Conversion
Price computed upon the original issue 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;
(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 Conversion
Price computed upon the original issue 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 Convertible Securities or
Options for Common Stock the only Additional Shares of
Common Stock issued were the shares of Common Stock, if
any, actually issued upon the
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<PAGE>
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 issue of all such
Options, whether or not exercised, plus the
consideration actually received by the Corporation upon
such exercise, or for the issue 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 issue 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 issue of all such Options, whether or not exercised,
plus the consideration deemed to have been received by
the Corporation (determined pursuant to Section 2(d)(v))
upon the issue of the Convertible Securities with
respect to which such Options were actually exercised;
(IV) No readjustment pursuant to clause (II) or (III)
above shall have the effect of increasing the Conversion Price
to an amount which exceeds the lower of (a) the Conversion
Price on the original adjustment date, or (b) the Conversion
Price that would have resulted from any issuance of Additional
Shares of Common Stock between the original adjustment date
and such readjustment date;
(V) In the case of any Options which expire by their
terms not more than 30 days after the date of issue thereof,
no adjustment of the Conversion Price shall be made until the
expiration or exercise of all such Options, whereupon such
adjustment shall be made in the same manner provided in clause
(III) above; and
(VI) If such record date shall have been fixed and such
Options or Convertible Securities are not issued on the date
fixed therefor, the adjustment previously made in the
Conversion Price which became effective on such record date
shall be canceled as of the close of business on such record
date, and thereafter the Conversion Price shall be adjusted
pursuant to this Section 2(d)(iii) as of the actual date of
their issuance.
(B) Stock Dividends, Stock Distributions and Subdivisions. In
the event the Corporation at any time or from time to time after the
Original Issue Date shall declare or pay any dividend or make any
other distribution on the Common Stock payable in Common Stock or
effect a subdivision of the outstanding shares of
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Common Stock (by reclassification or otherwise than by payment of a
dividend in Common Stock), then and in any such event, Additional
Shares of Common Stock shall be deemed to have been issued:
(I) In the case of any such dividend or distribution,
immediately after the close of business on the record date for
the determination of holders of any class of securities
entitled to receive such dividend or distribution, or
(II) In the case of any such subdivision, at the close
of business on the date immediately prior to the date upon
which corporate action becomes effective.
If such record date shall have been fixed and no part of such
dividend shall have been paid on the date fixed therefor, the
adjustment previously made for the Conversion Price which became
effective on such record date shall be canceled as of the close of
business on such record date, and thereafter the Conversion Price
shall be adjusted pursuant to this Section 2(d)(iii) as to the time
of actual payment of such dividend.
(iv) Adjustment of Conversion Price Upon Issuance of Additional
Shares of Common Stock.
(A) In the event the Corporation shall issue Additional Shares
of Common Stock (including, without limitation, Additional Shares of
Common Stock deemed to be issued pursuant to Section 2(d)(iii) but
excluding Additional Shares of Common Stock deemed to be issued
pursuant to Section 2(d)(iii)(B), which event is dealt with in
Section 2(d)(vi) hereof), without consideration or for a
consideration per share less than the applicable Conversion Price in
effect on the date of and immediately prior to such issue, then and
in such event, such Conversion Price shall be reduced, concurrently
with such issue in order to increase to number of shares of Common
Stock into which the Series C Preferred is convertible, to a price
(calculated to the nearest cent) determined by multiplying such
Conversion Price by a fraction, the numerator of which shall be (I)
the number of shares of Common Stock outstanding immediately prior
to such issue (including shares of Common Stock issuable pursuant to
the exercise or conversion of any outstanding Option or convertible
Securities) plus (II) the number of shares of Common Stock which the
aggregate consideration received or deemed to have been received by
the Corporation for the total number of Additional Shares of Common
Stock so issued would purchase at such Conversion Price, and the
denominator of which shall be (I) the number of shares of Common
Stock outstanding immediately prior to such issue (including shares
of Common Stock issuable pursuant to the exercise or conversion of
any outstanding Option or convertible Securities) plus (II) the
number of Additional Shares of Common Stock so issued or deemed to
be issued.
(B) Notwithstanding anything to the contrary contained herein,
the applicable Conversion Price in effect at the time Additional
Shares of Common
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Stock are issued or deemed to be issued shall not be reduced
pursuant to Section 2(d)(iv)(A) hereof at such time if the amount of
such reduction would be an amount less than $0.01, but any such
amount shall be carried forward and reduction with respect thereto
made at the time of and together with any subsequent reduction
which, together with such amount and any other amount or amounts so
carried forward, shall aggregate $0.01 or more.
(v) Determination of Consideration. For purposes of this Section
2(d), the consideration received by the Corporation for the issue of any
Additional Shares of Common Stock shall be computed as follows:
(A) Cash and Property. Such consideration shall:
(I) Insofar as it consists of cash, be computed at
the aggregate amounts of cash received by the Corporation
excluding amounts paid or payable for accrued interest or
accrued dividends;
(II) Insofar as it consists of property other than
cash, be computed at the fair market value thereof at the time
of such issue, as determined in good faith by the Board of
Directors; and
(III) In the event that 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, computed as provided in clauses (I)
and (II) above, as determined in good faith by the Board of
Directors.
(B) 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 2(d)(iii)(A),
relating to Options and Convertible Securities, shall be determined
by dividing (I) the total amount, if any, received or receivable by
the Corporation as consideration for the issue 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 (II) 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.
(vi) Adjustment for Dividends, Distributions, Subdivisions,
Combinations or Consolidations of Common Stock.
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(A) Stock Dividends, Distributions or Subdivisions. In the
event the Corporation shall issue Additional Shares of Common Stock
pursuant to Section 2(d)(iii)(B) in a stock dividend, stock
distribution or subdivision, the Conversion Price in effect
immediately prior to such stock dividend, stock distribution or
subdivision shall, concurrently with the effectiveness of such stock
dividend, stock distribution or subdivision, be proportionately
decreased.
(B) Combinations or Consolidations. 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 Conversion Price in effect
immediately prior to such combination or consolidation shall,
concurrently with the effectiveness of such combination or
consolidation, be proportionately increased.
(vii) 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, recapitalization,
reclassification or exchange of shares provided for elsewhere in this
Section 2) or a consolidation or merger of the Corporation, or a sale of
all or substantially all of the assets of the Corporation, other than a
merger, consolidation or sale of all or substantially all of the assets of
the Corporation in a transaction in which the shareholders of the
Corporation immediately prior to the transaction possess more than 50% of
the voting securities of the surviving entity (or parent, if any)
immediately after the transaction (a "Reorganization"), then, as a part of
and as a condition to such Reorganization, provision shall be made so that
the holders of shares of the Series C Preferred shall thereafter be
entitled to receive upon conversion of the shares of the Series C
Preferred the same kind and amount of stock or other securities or
property (including cash) of the Corporation, or of the successor
corporation resulting from such Reorganization, to which such holder would
have been entitled if such holder had converted its shares of the Series C
Preferred immediately prior to the effective time of such Reorganization.
In any such case, appropriate adjustment shall be made in the application
of the provisions of this Section 2 to the end that the provisions of this
Section 2 (including adjustment of the Conversion Price then in effect and
the number of shares of Common Stock or other securities issuable upon
conversion of the shares of the Series C Preferred) shall be applicable
after such Reorganization in as nearly equivalent manner as may be
reasonably practicable.
In the case of a transaction to which both this Subsection 2(d)(vii)
and Subsection 1(b) hereof apply, the holders of at least a majority of
the outstanding shares of the Series C Preferred upon the occurrence of a
Reorganization shall have the option to elect treatment either under this
Subsection 2(d)(vii) or under Subsection 1(b) hereof, notice of which
election shall be given in writing to the Corporation not less than five
(5) business days prior to the effective date of such Reorganization. If
no such election is timely made, the provisions of Subsection 1(b) and not
of this Subsection 2(d)(vii) shall apply.
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The provisions of this Subsection 2(d)(vii) shall not apply to any
reorganization, merger or consolidation involving (1) only a change in the
state of incorporation of the Corporation, (2) a merger of the Corporation
with or into a wholly-owned subsidiary of the Corporation which is
incorporated in the United States of America, or (3) an acquisition by
merger, reorganization or consolidation, in which the Corporation is
substantively the surviving corporation and operates as a going concern,
of another corporation which is incorporated in the United States of
America and which is engaged in a business similar to or related to the
business of the Corporation and which does not involve a change in the
terms of the Series C Preferred or of the Common Stock.
(e) No Impairment. The Corporation shall 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 to be observed or performed hereunder by the Corporation but shall at
all times in good faith assist in the carrying out of all the provisions of this
Section 2 and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the holders of Series C
Preferred against impairment.
(f) Certificate as to Adjustments. Upon the occurrence of each adjustment
or readjustment of the Conversion Price or Conversion Ratio pursuant to this
Section 2, the Corporation at its expense shall promptly compute such adjustment
or readjustment in accordance with the terms hereof and furnish to each affected
holder of Series C Preferred, a certificate 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 affected holder of Series C Preferred furnished to such holder a
like certificate setting forth (i) such adjustments and readjustments, (ii) the
Conversion Price or Conversion Ratio 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 conversion of each share of Series C Preferred.
(g) Notices of Record Date. In the event of 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 (other
than a cash dividend which is the same as cash dividends paid in previous
quarters) or other distribution, the Corporation shall mail to each holder of
Series C Preferred at least ten (10) days prior to such record date a notice
specifying the date on which any such record is to be taken for the purpose of
such dividend or distribution.
(h) Common Stock Reserved. The Corporation shall reserve and keep
available out of its authorized but unissued Common Stock such number of shares
of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of Series C Preferred.
(i) Certain Taxes. The Corporation shall pay any issue or transfer taxes
payable in connection with the conversion of any shares of Series C Preferred,
provided, however, that the Corporation shall not be required to pay any tax
which may be payable in respect of any transfer to a name other than that of the
holder of such Series C Preferred.
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(j) Closing of Books. The corporation shall at no time close its transfer
books against the transfer of any Series C Preferred, or of any shares of Common
Stock issued or issuable upon the conversion of any shares of Series C Preferred
in any manner which interferes with the timely conversion or transfer of such
Series C Preferred.
3. Voting Rights.
(a) Except as otherwise required by law or this Certificate of
Incorporation the holders of Series C Preferred shall be entitled to notice of
any stockholders' meeting and to vote together with all of Series of Preferred
Stock and Common Stock as a single class upon any matter submitted to the
stockholders for a vote, on the following basis:
o Holders of Series C Preferred shall have that number of votes per
share of Series C Preferred as is equal to the number of shares
of Common Stock into which each such share of Series C Preferred
held by such holder could be converted on the date for
determination of stockholders entitled to vote at the meeting.
4. Dividend Rights.
(a) The holders of the Series C Preferred Stock shall be entitled to
receive out of legally available funds a rate of 8% per annum, payable as, if
and when declared by the Board of Directors of the Corporation (the "Series C
Dividends"). The right to such dividends shall not be cumulative, and,
therefore, if not declared in any year, the right to such dividends shall
terminate and shall not carry forward to the next year. From time to time the
Board of Directors of the Corporation may declare and pay dividends in shares of
Series A Preferred, but only if all accrued Series C Dividends shall have been
paid in full prior to the date of any such declaration, payment or distribution.
From time to time the Board of Directors of the Corporation may declare and pay
dividends or distributions on shares of the Common Stock, but only if (1) all
accrued Series C Dividends shall have been paid in full prior to the date of any
such declaration, payment or distribution and (2) no shares of Series C
Preferred remain outstanding on the date of any such declaration, payment or
distribution;
(b) If, with the consent of the holders of at least a majority of the
outstanding Series C Preferred, the Board of Directors of the Corporation shall
declare a dividend payable upon the then outstanding shares of the Common Stock
(other than a dividend payable entirely in shares of the Common Stock of the
Corporation), then the Board of Directors shall declare at the same time a
dividend upon the then outstanding shares of the Series C Preferred payable at
the same time as the dividend paid on the Common Stock, in an amount equal to
the amount of dividends per share of Series C Preferred as would have been
payable on the largest number of whole shares of Common Stock which each share
of Series C Preferred held by each holder thereof would have received if such
Series C Preferred had been converted to Common Stock pursuant to the provisions
of Section 2 hereof as of the record date for the determination of holders of
Common Stock entitled to receive such dividends; and
(c) In the event the Board of Directors of the Corporation shall declare a
dividend payable upon any class or series of capital stock of the corporation
other than Common Stock, the
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Board of Directors shall declare at the same time a dividend upon the then
outstanding shares of Series C Preferred, payable at the same time as such
dividend on such other class or series of capital stock in an amount equal to
(i) in the case of any series or class convertible into Common Stock, that
dividend per share of Series C Preferred as would equal the dividend payable on
such other class or series determined as if all such shares of such class or
series had been converted to Common Stock and all shares of Series C Preferred
have been converted to Common Stock on the record date for the determination of
holders entitled to receive such dividend or (ii) if such class or series of
Capital Stock is not convertible into Common Stock, at a rate per share of
Series C Preferred determined by dividing the amount of the dividend payable on
each share of such class or series of capital stock by the original issuance
price of such class or series of capital stock and multiplying such fraction by
the Base Liquidation Price then in effect.
(d) Notwithstanding the foregoing provisions of this Section 4: (i) upon
any conversion of the Series C Preferred pursuant to Section 2 above, all
accrued and unpaid dividends on such shares of Series C Preferred to and until
the date of such conversion shall be forfeited and shall not be due and payable;
and (ii) the payment of all or any portion of accrued and unpaid dividends on
Series C Preferred may be waived by the affirmative vote of holders of not less
than a majority in interest of the Series C Preferred, voting as a separate
class.
5. No Reissuance of Series C Preferred. No share or shares of Series C
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.
6. Redemption.
(a) At the request of the holders of at least two-thirds (2/3) of the
shares of Series C Preferred then outstanding in accordance with Section 6(c)
hereof (the "Redemption Notice") made at any time after October 29, 2004, the
Corporation shall redeem on the Redemption Date (as such term is defined in
Section 6(c) hereof), unless otherwise prevented by law, at a redemption price
per share equal to the greater of the original Conversion Price, being $5.10 per
share, or the Conversion Price as adjusted at the Redemption Date for such
Series C Preferred, plus an amount equal to any accrued or declared but unpaid
dividends thereon, thirty-three and one-third percent (33-1/3%) of the Series C
Preferred, and in the two subsequent years thereafter (beginning on the
anniversary of the Redemption Date) thirty-three and one-third percent (33-1/3%)
of the Series C Preferred. The total sum payable per share of Series C Preferred
on the Redemption Date or on the subsequent anniversaries of the Redemption
Date, as the case may be, is hereinafter referred to as the "Redemption Price,"
and the payment to be made on the Redemption Date is hereinafter referred to as
the "Redemption Payment."
(b) On and after the Redemption Date, all rights of the holders of Series
C Preferred being redeemed by the Corporation pursuant to Section 6(a), except
the right to receive the Redemption Price per share of Series C Preferred as
hereinafter provided, shall cease and terminate, and such shares of Series C
Preferred shall no longer be deemed to be outstanding, whether or not the
certificates representing such shares have been received by the Corporation;
provided, however, that, notwithstanding anything to the contrary set forth
herein, (A) if the
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Corporation defaults in the payment of the Redemption Payment, the rights of the
holders of Series C Preferred with respect to such shares of Series C Preferred
shall continue until the Corporation cures such default, and (B) without
limiting any other rights of the holders of Series C Preferred, upon the
occurrence of a subsequent liquidation or Reorganization, with respect to the
shares of Series C Preferred in respect of which no Redemption Payment has been
received by the holders of Series C Preferred, such holders shall be accorded
the Liquidation rights set forth in Section 1 hereof in respect of such
remaining shares, as if no prior redemption request had been made.
(c) The holders of Series C Preferred shall send the Redemption Notice
pursuant to this Section 6 by first-class, certified mail, return receipt
requested, postage prepaid, to the Corporation at its principal place of
business or to any transfer agent of the Corporation. Within five (5) business
days of receipt of the Redemption Notice, the Corporation shall notify in
writing all other Series C Preferred holders of the request for the redemption
of Series C Preferred (the "Corporation Notice"). On the twentieth (20th)
business day following the date upon which the Corporation received Redemption
Notice, the Corporation shall pay the holders of Series C Preferred the
applicable Redemption Price pursuant to the terms of Section 6(a), provided that
the Corporation or its transfer agent has received the certificate(s)
representing the shares of Series C Preferred to be redeemed. Such payment date
shall be referred to herein as the "Redemption Date". If, on the Redemption
Date, less than all the shares of Series C Preferred may be legally redeemed by
the Corporation, the redemption of such Series C Preferred shall be pro rata
subject to the thirty-three and one-third percent (33-1/3%) limitation set forth
in Section 6(a) hereof, if applicable, and any shares of Series C Preferred not
redeemed shall be redeemed, at the holder's election, on any date following such
Redemption Date on which the Corporation may lawfully redeem such shares, again
subject to such thirty-three and one third percent (33-1/3%) limitation, if
applicable. The Corporation shall redeem (unless otherwise prevented by law) the
shares of Series C Preferred on the Redemption Date and the Corporation shall
promptly advise the holders of Series C Preferred of such Redemption Date or of
the relevant facts applicable thereto preventing such redemption. Upon
redemption of only a portion of the number of shares covered by a Series C
Preferred certificate, the Corporation shall issue and deliver to or upon the
written order of the holder of such Series C Preferred certificate, at the
expense of the Corporation, a new certificate covering the number of shares of
the Series C Preferred representing the unredeemed portion of the Series C
Preferred certificate, which new certificate shall entitle the holder thereof to
all the rights, powers and privileges of a holder of such shares.
(d) Shares of the Series C Preferred are not subject to or entitled to the
benefit of any sinking fund.
7. Residual Rights. All rights accruing to the outstanding shares of the
Corporation not expressly provided for in the terms of the Series C Preferred
shall be vested in the Common Stock or other series or classes of the
Corporation's capital stock.
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The holders of the Series C Preferred shall vote as a separate class with
respect to any matter or proposed action as to which applicable law or this
Certificate of Incorporation require the vote, consent, or approval of the
holders of the Series C Preferred.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designation to be signed by its duly authorized officer this 29th day of
October, 1999.
GOMEZ ADVISORS, INC.
By: /s/ Julio Gomez
--------------------------------
Name: Julio Gomez
Title: CEO
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Exhibit 3.3
CERTIFICATE OF AMENDMENT TO
RESTATED CERTIFICATE OF INCORPORATION
OF
GOMEZ ADVISORS, INC.
It is hereby certified that:
1. The name of the corporation is Gomez Advisors, Inc. (the "Corporation").
2. The Restated Certificate of Incorporation of the Corporation is hereby
amended by deleting in their entirety Sections 1 through 7 of the
Certificate of Designation of the Corporation's Series C Convertible
Preferred Stock filed with the Secretary of State of the State of Delaware
on October 29, 1999 and inserting in lieu thereof Sections 1 through 7
attached as Exhibit A hereto.
3. The Restated Certificate of Incorporation of the Corporation is hereby
amended by deleting Section 4 of the "Terms of Series A Convertible
Preferred Stock" attached as Exhibit A thereto and inserting in lieu
thereof the following:
"4. Liquidation Rights. Upon any voluntary or involuntary
liquidation, dissolution or winding-up of the Company, following payment
in full to the holders of all Senior Securities of all amounts
distributable to them hereunder and before any distribution is made on any
Junior Securities (including, without limitation, common stock of the
Company), each holder of shares of the Series A Preferred Stock will be
entitled to payment out of the assets of the Company available for
distribution of an amount equal to $300.71 per share (which amount shall
be subject to equitable adjustment whenever there shall occur a stock
dividend, distribution, combination of shares, reclassification or other
similar event with respect to the Series A Preferred Stock) plus all
dividends accrued or declared but unpaid, to and including the date full
payment shall be tendered to the holders of Series A Preferred Stock with
respect to such liquidation, dissolution or winding up. Following payment
in full to the holders of the Series A Preferred Stock of all amounts
distributable to them pursuant to the previous sentence, the remaining
assets of the Company available for distribution to holders of the
Company's capital stock shall be distributed pro rata on an as-converted
basis among the holders of the Series A Preferred Stock and the holders of
the Company's Series C Convertible Preferred Stock, par value $.01 per
share (the "Series C Preferred Stock"), until such time as the holders of
the Series A Preferred Stock shall have received, including amounts
received pursuant to the previous sentence, an amount per share equal to
the Liquidation Preference. After payment in full of the Liquidation
Preference and all accrued and unpaid dividends to which holders of Series
A Preferred Stock are entitled pursuant to the foregoing, such holders
will not be entitled to any further participation in any distribution of
assets of the Company. If, upon any voluntary or involuntary liquidation,
dissolution or winding-up of the Company, the amounts payable with respect
to the Series A Preferred Stock and all other Parity
<PAGE>
Securities are not paid in full, the holders of the Series A Preferred
Stock and the Parity Securities will share equally and ratably in any
distribution of assets of the Company in proportion to the full
Liquidation Preference and accrued and unpaid dividends to which each is
entitled. However, neither the voluntary sale, conveyance, exchange or
transfer (for cash, shares of stock, securities or other consideration) of
all or substantially all of the property or assets of the Company nor the
consolidation or merger of the Company with or into one or more Persons
will be deemed to be a voluntary or involuntary liquidation, dissolution
or winding-up of the Company, unless such sale, conveyance, exchange or
transfer shall be in connection with a liquidation, dissolution or
winding-up of the Company.
4. The Restated Certificate of Incorporation of the Corporation is hereby
amended by deleting the introduction to the "Terms of Series A Convertible
Preferred Stock" attached as Exhibit A thereto and inserting in lieu
thereof the following:
"Designation of Series A Convertible Preferred Stock. There is
hereby established a series of preferred stock having a par value of $.01
per share, with a liquidation preference of $3,058.10 per share (which
amount shall be subject to equitable adjustment whenever there shall occur
a stock dividend, distribution, combination of shares, reclassification or
other similar event with respect to the Series A Preferred Stock and, as
so adjusted from time to time, is hereinafter referred to as the
"Liquidation Preference") which shall be designated as Series A
Convertible Voting Preferred Stock (the "Series A Preferred Stock")
consisting of 10,000 shares, having voting powers, designations,
preferences, limitations, restrictions and relative rights as follows:"
5. The Restated Certificate of Incorporation of the Corporation is hereby
amended by deleting the introduction to the "Terms of Series B Convertible
Preferred Stock" attached as Exhibit B thereto and inserting in lieu
thereof the following:
"Designation of Series B Convertible Preferred Stock. There is
hereby established a series of preferred stock having a par value of $.01
per share, with a liquidation preference of $5.00 per share (which amount
shall be subject to equitable adjustment whenever there shall occur a
stock dividend, distribution, combination of shares, reclassification or
other similar event with respect to the Series B Preferred Stock and, as
so adjusted from time to time, is hereinafter referred to as the
"Liquidation Preference") which shall be designated as Series B
Convertible Voting Preferred Stock (the "Series B Preferred Stock")
consisting of 1,300,000 shares, having voting powers, designations,
preferences, limitations, restrictions and relative rights as follows:"
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<PAGE>
6. This Certificate of Amendment to Restated Certificate of Incorporation has
been duly adopted in accordance with the provisions of Section 151 of the
General Corporation Law of the state of Delaware.
EXECUTED, effective as of the 30th day of December, 1999
/s/ Julio Gomez
-------------------------------------------------
Julio Gomez, Chairman and Chief Executive Officer
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EXHIBIT A
Series C Convertible Preferred Stock. The preferences, privileges and
restrictions granted to or imposed upon the Corporation's Series C Convertible
Preferred Stock, par value $.01 per share, or the holders thereof, are as
follows:
1. Liquidation Rights.
(a) Treatment at Liquidation, Dissolution or Winding Up.
(i) Except as otherwise provided in Section 1(b) below, in the event
of any liquidation, dissolution or winding up of the affairs of the
Corporation, whether voluntary or involuntary, the holders of the Series B
Convertible Preferred Stock, $.01 per share, par value (the "Series B
Preferred") and the Series C Preferred shall be entitled to be paid first
out of the assets of the Corporation available for distribution to holders
of the Corporation's capital stock of all classes, before payment or
distribution of any of such assets to the holders of any other class or
series of the Corporation's capital stock designated to be junior to the
Series C Preferred, an amount equal to $5.00 per share (but not in excess
of the cost basis thereof) of Series B Preferred and an amount of $5.10
per share of Series C Preferred (each of which amounts shall be subject to
equitable adjustment whenever there shall occur a stock dividend,
distribution, combination of shares, reclassification or other similar
event with respect to the Series B Preferred and the Series C Preferred
and, as so adjusted from time to time, is hereinafter referred to,
respectively, as the "Series B Base Liquidation Price" and the "Series C
Base Liquidation Price") plus all dividends accrued or declared but
unpaid, to and including the date full payment shall be tendered to the
holders of Series B Preferred and Series C Preferred with respect to such
liquidation, dissolution or winding up. The amount distributed among the
Series B Preferred and the Series C Preferred shall be distributed in
proportion to the aggregate preferential amount for each series and within
each series based on the number of shares of such series held by the
respective holder
(ii) Following payment in full to the holders of the Series B
Preferred and Series C Preferred of all amounts distributable to them
under Section 1(a)(i) hereof, the remaining assets of the Corporation
available for distribution to holders of the Corporation's capital stock
shall be distributed on a pro rata basis among the holders of the Series A
Convertible Voting Preferred Stock, $.01 par value per share (the "Series
A Preferred") at an initial liquidation preference of $300.71 per share
(which amount shall be subject to equitable adjustment whenever there
shall occur a stock dividend, distribution, combination of shares,
reclassification or other similar event with respect to the Series A
Preferred) plus all dividends accrued or declared but unpaid, to and
including the date full payment shall be tendered to the holders of Series
A Preferred with respect to such liquidation, dissolution or winding up.
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(iii) Following payment in full to the holders of the Series A
Preferred of all amounts distributable to them under Section 1(a)(ii)
hereof, the remaining assets of the Corporation available for distribution
to holders of the Corporation's capital stock shall be distributed pro
rata on an as-converted basis among the holders of the Series A Preferred
and the Series C Preferred, until such time as the holders of the Series A
Preferred shall have received, including amounts received under Section
1(a)(ii) above, an aggregate liquidation preference of $3,058.10 per share
(which amount shall be subject to equitable adjustment whenever there
shall occur a stock dividend, distribution, combination of shares,
reclassification or other similar event with respect to the Series A
Preferred).
(iv) Following payment in full to the holders of Series A Preferred
and the Series C Preferred of all amounts distributable to them under
Section 1(a)(iii) hereof, the remaining assets of the Corporation
available for distribution to holders of the Corporation's capital stock
shall be distributed on a pro rata basis among the holders of the Common
Stock.
(v) If the assets of the Corporation shall be insufficient to permit
the payment in full to the holders of Series B Preferred and Series C
Preferred of all amounts distributable to them under Section 1(a)(i)
hereof, then the entire assets of the Corporation available for such
distribution shall be distributed among the holders of Series B Preferred
and Series C Preferred in proportion to the aggregate preferential amount
for each such series and within each series on a pro rata basis among the
shareholders of such series.
(b) Treatment of Reorganizations, Consolidations, Mergers and Sales of
Assets. Except as otherwise provided in Subsection 2(d)(vii) hereof, a
Reorganization (as defined in Subsection 2(d)(vii) hereof) shall be regarded as
a liquidation, dissolution or winding up of the affairs of the Corporation
within the meaning of this Section 1, provided, however, that the holders of at
least a majority of the outstanding shares of the Series C Preferred upon the
occurrence of a Reorganization shall have the option to elect the benefits of
Subsection 2(d)(vii) hereof for the Series C Preferred in lieu of receiving
payment in liquidation, dissolution or winding up of the Corporation pursuant to
this Section 1. The provisions of this Subsection 1(b) shall not apply to any
reorganization, merger or consolidation involving (1) only a change in the state
of incorporation of the Corporation or (2) a merger of the Corporation with or
into a wholly-owned subsidiary of the Corporation which is incorporated in the
United States of America.
(c) Distributions other than Cash. Whenever the distribution provided for
in this Section 1 shall be payable 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.
2. Conversion. The holders of Series C Preferred shall have conversion
rights as follows (the "Conversion Rights"):
(a) Right to Convert; Conversion Price. Each share of Series C Preferred
shall be convertible, without the payment of any additional consideration by the
holder thereof and at the option of the holder thereof, at any time after the
date of issuance of such share, at the office of the Corporation or any transfer
agent for the Series C Preferred, into such number of fully paid and
non-
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<PAGE>
assessable shares of Common Stock as is determined by dividing $5.10 by the
Conversion Price, determined as hereinafter provided, in effect at the time of
conversion. The Conversion Price for purposes of calculating the number of
shares of Common Stock deliverable upon conversion without the payment of any
additional consideration by the holder of Series C Preferred (the "Conversion
Price") shall initially be $5.10. Such initial Conversion Price shall be subject
to adjustment, in order to adjust the number of shares of Common Stock into
which Series C Preferred is convertible, as hereinafter provided.
(b) Mechanics of Conversion. Before any holder of Series C Preferred shall
be entitled to convert the same into full shares of Common Stock, such holder
shall surrender the certificate or certificates therefor, duly endorsed, at the
office of the Corporation or of any transfer agent for the Series C Preferred,
and shall give written notice to the Corporation at such office that such holder
elects to convert the same and shall state therein the name of such holder or
the name or names of the nominees of such holder in which such holder wishes the
certificate or certificates for shares of Common Stock to be issued. No
fractional shares of Common Stock shall be issued upon conversion of any shares
of Series C Preferred. In lieu of any fractional shares of Common Stock to which
the holder would otherwise be entitled, the Corporation shall pay cash equal to
such fraction multiplied by the then effective Conversion Price. The Corporation
shall, as soon as practicable thereafter, issue and deliver at such office to
such holder of Series C Preferred, or to such holder's nominee or nominees, a
certificate or certificates for the number of shares of Common Stock to which
such holder shall be entitled as aforesaid, together with cash in lieu of any
fraction of a share. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such surrender of the
shares of Series C Preferred to be converted, and the person or persons entitled
to receive the shares of Common Stock issuable upon conversion shall be treated
for all purposes as the record holder or holders of such shares of Common Stock
on such date.
(c) Automatic Conversion.
(i) Each share of Series C Preferred shall automatically be
converted into shares of Common Stock at the then effective Conversion
Price upon:
(A) The closing of a firm commitment underwritten public
offering pursuant to an effective registration statement under the
Securities Act of 1933, as amended, covering the offer and sale of
Common Stock for the account of the Corporation to the public at an
initial public offering price per share of not less than $10.20
(subject to equitable adjustment in the event of any stock dividend,
stock split, combination, reorganization, recapitalization or
similar event involving a change in the Common Stock) with net
proceeds to the Corporation of not less than $20,000,000 (a
"Qualified Initial Public Offering"); or
(B) The written election of the holders of not less than a
majority in voting power of the then outstanding shares of Series C
Preferred to require such mandatory conversion.
(ii) Upon the occurrence of an event specified in Section 2(c)(i)
hereof, all shares of Series C Preferred shall be converted automatically
without any further action by
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<PAGE>
any holder of such shares and whether or not the certificate or
certificates representing such shares are surrendered to the Corporation
or the transfer agent for the Series C Preferred, provided, however, that
the Corporation shall not be obligated to issue a certificate or
certificates evidencing the shares of Common Stock into which such shares
of Series C Preferred were convertible unless the certificate or
certificates representing such shares of Series C Preferred being
converted are either delivered to the Corporation or the transfer agent of
the Series C Preferred, or the holder notifies the Corporation or such
transfer agent that such certificate or certificates have been lost,
stolen, or destroyed and executes and delivers an agreement satisfactory
to the Corporation to indemnify the Corporation from any loss incurred by
it in connection therewith and, if the Corporation so elects, provides an
appropriate indemnity.
(iii) Upon the automatic conversion of Series C Preferred, each
holder of Series C Preferred shall surrender the certificate or
certificates representing such holder's shares of Series C Preferred at
the office of the Corporation or of the transfer agent for the Series C
Preferred. Thereupon, there shall be issued and delivered to such holder,
promptly at such office and in such holder's name as shown on such
surrendered certificate or certificates, a certificate or certificates for
the number of shares of Common Stock into which the shares of Series C
Preferred surrendered were convertible on the date on which such automatic
conversion occurred. No fractional shares of Common Stock shall be issued
upon the automatic conversion of Series C Preferred. In lieu of any
fractional shares of Common Stock to which the holder would otherwise be
entitled, the corporation shall pay cash equal to such fraction multiplied
by the then effective Conversion Price.
(d) Adjustments to Conversion Price for Diluting Issues.
(i) Special Definitions. For purposes of this Section 2(d), the
following definitions shall apply:
(A) "Option" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire Common Stock or
Convertible Securities.
(B) "Original Issue Date" shall mean the date on which shares
of Series C Preferred were first issued.
(C) "Convertible Securities" shall mean any evidences of
indebtedness, shares (other than Common Stock and Series C
Preferred) or other securities directly or indirectly convertible
into or exchangeable for Common Stock.
(D) "Additional Shares of Common Stock" shall mean all shares
of Common Stock issued (or, pursuant to Section 2(d)(iii), deemed to
be issued) by the Corporation after the Original Issue Date, other
than the following (collectively, "Excluded Shares"):
(I) shares of Common Stock issued or issuable upon
conversion of shares of Series A Preferred, Series B Preferred
or Series C Preferred;
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(II) shares of Common Stock issued or issuable as a
dividend on the Series A Preferred, Series B Preferred or
Series C Preferred;
(III) Options to purchase shares of Common Stock issued
or issuable to officers, employees or directors of, or
consultants to, the Corporation pursuant to the Corporation's
1999 Stock Plan;
(IV) shares of Common Stock issued or issuable upon the
exercise of the Options referred to in the foregoing clause
(III); and
(V) shares of Common Stock issued or issuable upon the
exercise of Options to purchase shares of Common Stock granted
pursuant to the Corporation's 1998 Stock Plan and 1999
Long-Term Incentive Plan.
(ii) No Adjustment of Conversion Price. No adjustment in the number
of shares of Common Stock into which a share of Series C Preferred is
convertible shall be made by adjustment in the Conversion Price in respect
of the issuance of Additional Shares of Common Stock or otherwise unless
(i) the consideration per share for an Additional Share of Common Stock
issued or deemed to be issued by the Corporation is less than the
Conversion Price in effect on the date of, and immediately prior to, the
issue of such Additional Shares of Common Stock and, (ii) prior to such
issuance, the Corporation fails to receive written notice from the holders
of at least a majority of the then outstanding shares of Series C
Preferred agreeing that no such adjustment shall be made as the result of
the issuance of Additional Shares of Common Stock.
(iii) Issue of Securities Deemed Issue of Additional Shares of
Common Stock.
(A) Options and Convertible Securities. In the event the
Corporation at any 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 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) of Common Stock issuable upon the
exercise of such Options or, in the case of Convertible Securities
and Options therefor, 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 issue 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 2(d)(v) hereof) of such Additional
Shares of Common Stock would be less than the Conversion Price in
effect on the date of and immediately prior to such issue, 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:
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(I) No further adjustment in the Conversion Price shall
be made upon the subsequent issue of Convertible Securities or
shares of Common Stock upon the exercise of such Options or
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 in the consideration payable to the Corporation, or
decrease in the number of shares of Common Stock issuable upon
the exercise, conversion or exchange thereof, the Conversion
Price computed upon the original issue 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;
(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 Conversion
Price computed upon the original issue 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 Convertible Securities or
Options for Common Stock the only Additional Shares of
Common Stock issued were the 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 issue of all such Options, whether or not
exercised, plus the consideration actually received by
the Corporation upon such exercise, or for the issue 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 issue 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 issue of all such Options, whether or not exercised,
plus the consideration deemed to have been received by
the Corporation (determined pursuant to Section 2(d)(v))
upon the issue of the Convertible
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<PAGE>
Securities with respect to which such Options were
actually exercised;
(IV) No readjustment pursuant to clause (II) or (III)
above shall have the effect of increasing the Conversion Price
to an amount which exceeds the lower of (a) the Conversion
Price on the original adjustment date, or (b) the Conversion
Price that would have resulted from any issuance of Additional
Shares of Common Stock between the original adjustment date
and such readjustment date;
(V) In the case of any Options which expire by their
terms not more than 30 days after the date of issue thereof,
no adjustment of the Conversion Price shall be made until the
expiration or exercise of all such Options, whereupon such
adjustment shall be made in the same manner provided in clause
(III) above; and
(VI) If such record date shall have been fixed and such
Options or Convertible Securities are not issued on the date
fixed therefor, the adjustment previously made in the
Conversion Price which became effective on such record date
shall be canceled as of the close of business on such record
date, and thereafter the Conversion Price shall be adjusted
pursuant to this Section 2(d)(iii) as of the actual date of
their issuance.
(B) Stock Dividends, Stock Distributions and Subdivisions. In
the event the Corporation at any time or from time to time after the
Original Issue Date shall declare or pay any dividend or make any
other distribution on the Common Stock payable in Common Stock or
effect a subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in
Common Stock), then and in any such event, Additional Shares of
Common Stock shall be deemed to have been issued (and an adjustment
shall be made pursuant to Section 2(d)(vi) hereof):
(I) In the case of any such dividend or distribution,
immediately after the close of business on the record date for
the determination of holders of any class of securities
entitled to receive such dividend or distribution, or
(II) In the case of any such subdivision, at the close
of business on the date immediately prior to the date upon
which corporate action becomes effective.
If such record date shall have been fixed and no part of such
dividend shall have been paid on the date fixed therefor, the
adjustment previously made for the Conversion Price which became
effective on such record date shall be canceled as of the close of
business on such record date, and thereafter the Conversion Price
shall be adjusted pursuant to this Section 2(d)(iii) as to the time
of actual payment of such dividend.
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(iv) Adjustment of Conversion Price Upon Issuance of Additional
Shares of Common Stock.
(A) In the event the Corporation shall issue Additional Shares
of Common Stock (including, without limitation, Additional Shares of
Common Stock deemed to be issued pursuant to Section 2(d)(iii) but
excluding Additional Shares of Common Stock deemed to be issued
pursuant to Section 2(d)(iii)(B), which event is dealt with in
Section 2(d)(vi) hereof), without consideration or for a
consideration per share less than the applicable Conversion Price in
effect on the date of and immediately prior to such issue, then and
in such event, such Conversion Price shall be reduced, concurrently
with such issue in order to increase the number of shares of Common
Stock into which the Series C Preferred is convertible, to a price
(calculated to the nearest cent) determined by multiplying such
Conversion Price by a fraction, the numerator of which shall be (I)
the number of shares of Common Stock outstanding immediately prior
to such issue (including shares of Common Stock issuable pursuant to
the exercise or conversion of any outstanding Option or convertible
Securities) plus (II) the number of shares of Common Stock which the
aggregate consideration received or deemed to have been received by
the Corporation for the total number of Additional Shares of Common
Stock so issued would purchase at such Conversion Price, and the
denominator of which shall be (I) the number of shares of Common
Stock outstanding immediately prior to such issue (including shares
of Common Stock issuable pursuant to the exercise or conversion of
any outstanding Option or Convertible Securities) plus (II) the
number of Additional Shares of Common Stock so issued or deemed to
be issued.
(B) Notwithstanding anything to the contrary contained herein,
the applicable Conversion Price in effect at the time Additional
Shares of Common Stock are issued or deemed to be issued shall not
be reduced pursuant to Section 2(d)(iv)(A) hereof at such time if
the amount of such reduction would be an amount less than $0.01, but
any such amount shall be carried forward and reduction with respect
thereto made at the time of and together with any subsequent
reduction which, together with such amount and any other amount or
amounts so carried forward, shall aggregate $0.01 or more.
(v) Determination of Consideration. For purposes of this Section
2(d), the consideration received by the Corporation for the issue of any
Additional Shares of Common Stock shall be computed as follows:
(A) Cash and Property. Such consideration shall:
(I) Insofar as it consists of cash, be computed at
the aggregate amounts of cash received by the Corporation
excluding amounts paid or payable for accrued interest or
accrued dividends;
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(II) Insofar as it consists of property other than
cash, be computed at the fair market value thereof at the time
of such issue, as determined in good faith by the Board of
Directors; and
(III) In the event that 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, computed as provided in clauses (I)
and (II) above, as determined in good faith by the Board of
Directors.
(B) 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 2(d)(iii)(A),
relating to Options and Convertible Securities, shall be determined
by dividing (I) the total amount, if any, received or receivable by
the Corporation as consideration for the issue 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 (II) 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.
(vi) Adjustment for Dividends, Distributions, Subdivisions,
Combinations or Consolidations of Common Stock.
(A) Stock Dividends, Distributions or Subdivisions. In the
event the Corporation shall issue Additional Shares of Common Stock
pursuant to Section 2(d)(iii)(B) in a stock dividend, stock
distribution or subdivision, the Conversion Price in effect
immediately prior to such stock dividend, stock distribution or
subdivision shall, concurrently with the effectiveness of such stock
dividend, stock distribution or subdivision, be proportionately
decreased.
(B) Combinations or Consolidations. 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 Conversion Price in effect
immediately prior to such combination or consolidation shall,
concurrently with the effectiveness of such combination or
consolidation, be proportionately increased.
(vii) 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
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subdivision, combination, recapitalization, reclassification or exchange
of shares provided for elsewhere in this Section 2 or a consolidation or
merger of the Corporation, or a sale of all or substantially all of the
assets of the Corporation, other than a merger, consolidation or sale of
all or substantially all of the assets of the Corporation in a transaction
in which the shareholders of the Corporation immediately prior to the
transaction possess more than 50% of the voting securities of the
surviving entity (or parent, if any) immediately after the transaction (a
"Reorganization"), then, as a part of and as a condition to such
Reorganization, provision shall be made so that the holders of shares of
the Series C Preferred shall thereafter be entitled to receive upon
conversion of the shares of the Series C Preferred the same kind and
amount of stock or other securities or property (including cash) of the
Corporation, or of the successor corporation resulting from such
Reorganization, to which such holder would have been entitled if such
holder had converted its shares of the Series C Preferred immediately
prior to the effective time of such Reorganization. In any such case,
appropriate adjustment shall be made in the application of the provisions
of this Section 2 to the end that the provisions of this Section 2
(including adjustment of the Conversion Price then in effect and the
number of shares of Common Stock or other securities issuable upon
conversion of the shares of the Series C Preferred) shall be applicable
after such Reorganization in as nearly equivalent manner as may be
reasonably practicable.
In the case of a transaction to which both this Subsection 2(d)(vii)
and Subsection 1(b) hereof apply, the holders of at least a majority of
the outstanding shares of the Series C Preferred upon the occurrence of a
Reorganization shall have the option to elect treatment either under this
Subsection 2(d)(vii) or under Subsection 1(b) hereof, notice of which
election shall be given in writing to the Corporation not less than five
(5) business days prior to the effective date of such Reorganization. If
no such election is timely made, the provisions of Subsection 1(b) and not
of this Subsection 2(d)(vii) shall apply.
The provisions of this Subsection 2(d)(vii) shall not apply to any
reorganization, merger or consolidation involving (1) only a change in the
state of incorporation of the Corporation or (2) a merger of the
Corporation with or into a wholly-owned subsidiary of the Corporation
which is incorporated in the United States of America.
(e) No Impairment. The Corporation shall 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 to be observed or performed hereunder by the Corporation but shall at
all times in good faith assist in the carrying out of all the provisions of this
Section 2 and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the holders of Series C
Preferred against impairment.
(f) Certificate as to Adjustments. Upon the occurrence of each adjustment
or readjustment of the Conversion Price pursuant to this Section 2, the
Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each affected
holder of Series C Preferred, a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based.
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<PAGE>
The Corporation shall, upon the written request at any time of any affected
holder of Series C Preferred, furnish to such holder a like certificate setting
forth (i) such adjustments and readjustments, (ii) the 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 conversion of
each share of Series C Preferred.
(g) Notices of Record Date. In the event of 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 (other
than a cash dividend which is the same as cash dividends paid in previous
quarters) or other distribution, the Corporation shall mail to each holder of
Series C Preferred at least ten (10) days prior to such record date a notice
specifying the date on which any such record is to be taken for the purpose of
such dividend or distribution.
(h) Common Stock Reserved. The Corporation shall reserve and keep
available out of its authorized but unissued Common Stock such number of shares
of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of Series C Preferred.
(i) Certain Taxes. The Corporation shall pay any issue or transfer taxes
payable in connection with the conversion of any shares of Series C Preferred,
provided, however, that the Corporation shall not be required to pay any tax
which may be payable in respect of any transfer to a name other than that of the
holder of such Series C Preferred.
(j) Closing of Books. The Corporation shall at no time close its transfer
books against the transfer of any Series C Preferred, or of any shares of Common
Stock issued or issuable upon the conversion of any shares of Series C Preferred
in any manner which interferes with the timely conversion or transfer of such
Series C Preferred.
3. Voting Rights.
(a) Except as otherwise required by law or this Certificate of
Incorporation the holders of Series C Preferred shall be entitled to notice of
any stockholders' meeting and to vote together with all of Series of Preferred
Stock and Common Stock as a single class upon any matter submitted to the
stockholders for a vote. Holders of Series C Preferred shall have that number of
votes per share of Series C Preferred as is equal to the number of shares of
Common Stock into which each such share of Series C Preferred held by such
holder could be converted on the date for determination of stockholders entitled
to vote at the meeting.
(b) The Corporation shall not, without first having obtained the
affirmative vote or written consent of the holders of not less than two-thirds
in voting power of the outstanding shares of Series C Preferred:
(i) amend its Certificate of Incorporation if such amendment would alter
or change the preferences, rights, privileges or powers of, or the restrictions
provided for the benefit of, the Series C Preferred;
(ii) create, authorize or issue any other class or series of capital stock
or any security
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convertible into or evidencing the right to purchase shares of any class or
series of capital stock of the Corporation pari passu with the Series C
Preferred or having any preference or priority superior to such preference or
priority of the Series C Preferred;
(iii) reclassify any shares of Common Stock into shares of capital stock
of the Corporation pari passu with the Series C Preferred or having any
preference or priority superior to such preference or priority of the Series C
Preferred;
(iv) purchase, redeem, retire, or otherwise acquire for value any shares
of its capital stock (or rights, options or warrants to purchase such shares)
now or hereafter outstanding, return any capital to its stockholders (such
transactions being hereinafter referred to as "Distributions"), declare or pay
any dividends or make any distribution of assets to its stockholders as such,
except for (i) redemption of the Corporation's preferred stock in accordance
with its terms and (ii) repurchases of shares of Common Stock held by employees,
consultants, directors, or officers of the Corporation that are subject to stock
repurchase agreements under which the Corporation has the right to repurchase
such shares in the event of termination of employment or otherwise;
(v) enter into any transaction or series of related transactions involving
the merger or consolidation of the Corporation or the sale of all or
substantially of the capital stock or the assets of the Corporation if, after
such transaction or series of transactions, holders of the Corporation's capital
stock immediately prior to the first of such transactions shall cease to own at
least a majority of the issued and outstanding capital stock of the Corporation
or any successor or transferee entity;
(vi) purchase or acquire any stock or other securities of, or all or
substantially all of the assets or properties of, any person or entity or any
other assets, in any transaction or series of related transactions, if such
assets or the assets of such person or entity would have an aggregate book value
in excess of ten percent (10%) of the Corporation's net worth;
(vii) other than in the ordinary course of business and other than
dispositions of obsolete assets, the Corporation will not, nor shall it permit
any of its Subsidiaries to, sell, lease, encumber or otherwise dispose of or
agree to sell, lease, encumber or otherwise dispose of, in any transaction or
series of related transactions, assets having an aggregate book value in excess
of ten percent (10%) of the Corporation's net worth; or
(viii) incur Indebtedness (as defined below) in excess of $5,000,000,
unless such action has been approved by each of the Series C Directors.
"Indebtedness" shall include, without limitation, (A) all obligations of the
Corporation for borrowed money, or with respect to deposits or advances of any
kind (other than deposits, advances or excess payments accepted in connection
with the sale by the Corporation of products or services in the ordinary course
of business), (ii) all obligations of the Corporation evidenced by bonds,
debentures, notes or similar instruments, (iii) all obligations of the
Corporation upon which interest charges are customarily paid (other than
obligations accepted in connection with the purchase by the Corporation of
products or services in the ordinary course of business), (iv) all obligations
of the Corporation under conditional sale or other title retention agreements
relating to property purchased by the Corporation, (v) all obligations of the
Corporation issued or assumed as the deferred purchase price of property or
services (other than accounts payable to suppliers incurred in the ordinary
course of business and paid when due), (vi) all indebtedness of others secured
by (or for which the holder of such
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Indebtedness has an existing right, contingent or otherwise, to be secured by)
any lien or security interest on property owned or acquired by the Corporation
whether or not the obligations secured thereby have been assumed, (vii) all
obligations of the corporation under leases required to be accounted for as
capital leases under generally accepted accounting principles, and (viii) all
guarantees (contingent or otherwise) by the Corporation of indebtedness of any
other Person.
4. Dividend Rights.
(a) The holders of the Series C Preferred Stock shall be entitled to
receive out of legally available funds a rate of 8% per annum, payable as, if
and when declared by the Board of Directors of the Corporation (the "Series C
Dividends"). The right to such dividends shall be cumulative, and, therefore, if
not declared in any year, the right to such dividends shall carry forward to the
next year. From time to time the Board of Directors of the Corporation may
declare and pay dividends on shares of Series A Preferred, but only if all
accrued Series C Dividends shall have been paid in full prior to the date of any
such declaration, payment or distribution. From time to time the Board of
Directors of the Corporation may declare and pay dividends or distributions on
shares of the Common Stock, but only if (1) all declared and unpaid Series C
Dividends shall have been paid in full prior to the date of any such
declaration, payment or distribution and (2) no shares of Series C Preferred
remain outstanding on the date of any such declaration, payment or distribution;
(b) If, with the consent of the holders of at least a majority of the
outstanding Series C Preferred, the Board of Directors of the Corporation shall
declare a dividend payable upon the then outstanding shares of the Common Stock
(other than a dividend payable entirely in shares of the Common Stock of the
Corporation), then the Board of Directors shall declare at the same time a
dividend upon the then outstanding shares of the Series C Preferred payable at
the same time as the dividend paid on the Common Stock, in an amount equal to
the amount of dividends per share of Series C Preferred as would have been
payable on the largest number of whole shares of Common Stock which each share
of Series C Preferred held by each holder thereof would have received if such
Series C Preferred had been converted to Common Stock pursuant to the provisions
of Section 2 hereof as of the record date for the determination of holders of
Common Stock entitled to receive such dividends; and
(c) In the event the Board of Directors of the Corporation shall declare a
dividend payable upon any class or series of capital stock of the Corporation
other than Common Stock, the Board of Directors shall declare at the same time a
dividend upon the then outstanding shares of Series C Preferred, payable at the
same time as such dividend on such other class or series of capital stock in an
amount equal to (i) in the case of any series or class convertible into Common
Stock, that dividend per share of Series C Preferred as would equal the dividend
payable on such other class or series determined as if all such shares of such
class or series had been converted to Common Stock and all shares of Series C
Preferred have been converted to Common Stock on the record date for the
determination of holders entitled to receive such dividend or (ii) if such class
or series of Capital Stock is not convertible into Common Stock, at a rate per
share of Series C Preferred determined by dividing the amount of the dividend
payable on each share of such class or series of capital stock by the original
issuance price of such class or series of capital stock and multiplying such
fraction by the Series C Base Liquidation Price then in effect.
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(d) Notwithstanding the foregoing provisions of this Section 4: (i) upon
any conversion of the Series C Preferred pursuant to Section 2 above, all
accrued or declared and unpaid dividends on such shares of Series C Preferred to
and until the date of such conversion shall be forfeited and shall not be due
and payable; and (ii) the payment of all or any portion of accrued or declared
and unpaid dividends on Series C Preferred may be waived by the affirmative vote
of holders of not less than a majority in interest of the Series C Preferred,
voting as a separate class.
5. No Reissuance of Series C Preferred. No share or shares of Series C
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.
6. Redemption.
(a) At the request of the holders of at least two-thirds (2/3) of the
shares of Series C Preferred then outstanding, such request to be made in
writing in accordance with Section 6(c) hereof (the "Redemption Notice"),
received by the Corporation no later than sixty (60) days prior to December 30,
2004, the Corporation shall redeem on December 30th of each of 2004, 2005 and
2006 (each, a Redemption Date"), unless otherwise prevented by law, thirty-three
and one-third percent (33-1/3%) of the then outstanding shares of Series C
Preferred, at a redemption price per share equal to the greater of the original
Conversion Price, being $5.10 per share, or the Conversion Price as adjusted as
of such Redemption Date for such Series C Preferred, plus an amount equal to any
accrued or declared but unpaid dividends thereon. The total sum payable per
share of Series C Preferred on each Redemption Date is hereinafter referred to
as the "Redemption Price," and the payment to be made on each Redemption Date is
hereinafter referred to as the "Redemption Payment."
(b) On and after each Redemption Date, all rights of any holder of Series
C Preferred with respect to those shares of Series C Preferred being redeemed on
such Redemption Date by the Corporation pursuant to Section 6(a), except the
right to receive the Redemption Price per share of Series C Preferred as
hereinafter provided, shall cease and terminate, and such shares of Series C
Preferred shall no longer be deemed to be outstanding, whether or not the
certificates representing such shares have been received by the Corporation;
provided, however, that, notwithstanding anything to the contrary set forth
herein, (A) if the Corporation defaults in the payment of the Redemption
Payment, the rights of the holders of Series C Preferred with respect to such
shares of Series C Preferred shall continue until the Corporation cures such
default, (B) without limiting any other rights of the holders of Series C
Preferred, upon the occurrence of a subsequent liquidation or Reorganization,
with respect to the shares of Series C Preferred in respect of which no
Redemption Payment has been received by the holders of Series C Preferred, such
holders shall be accorded the liquidation rights set forth in Section 1 hereof
in respect of such remaining shares, as if no prior redemption request had been
made and (C) in the event of a default by the Corporation in the payment of the
Redemption Payment (other than their being insufficient funds legally
available), any unpaid balance of a Redemption Price shall accrue interest at
the rate of seven percent (7%) per annum, payable quarterly in arrears, until
paid in full.
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(c) The Redemption Notice sent pursuant to this Section 6 shall be sent by
first-class, certified mail, return receipt requested, postage prepaid, to the
Corporation at its principal place of business or to any transfer agent of the
Corporation. Within five (5) business days of receipt of the Redemption Notice,
the Corporation shall notify in writing all other Series C Preferred holders of
the request for the redemption of Series C Preferred (the "Corporation Notice")
and of the first Redemption Date. On each Redemption Date, the Corporation shall
pay the holders of Series C Preferred the applicable Redemption Price pursuant
to the terms of Section 6(a), provided that the Corporation or its transfer
agent has received the certificate(s) representing the shares of Series C
Preferred to be redeemed. Such payment date shall be referred to herein as the
"Redemption Date". If, on the Redemption Date, less than all the shares of
Series C Preferred may be legally redeemed by the Corporation, the redemption of
such Series C Preferred shall be pro rata subject to the thirty-three and
one-third percent (33-1/3%) limitation set forth in Section 6(a) hereof, if
applicable, and any shares of Series C Preferred not redeemed shall be redeemed,
at the holder's election, on any date following such Redemption Date on which
the Corporation may lawfully redeem such shares, again subject to such
thirty-three and one third percent (33-1/3%) limitation, if applicable. The
Corporation shall redeem (unless otherwise prevented by law) the shares of
Series C Preferred being redeemed on the applicable Redemption Date and the
Corporation shall promptly advise the holders of Series C Preferred of such
Redemption Date or of the relevant facts applicable thereto preventing such
redemption. Upon redemption of only a portion of the number of shares covered by
a Series C Preferred certificate, the Corporation shall issue and deliver to or
upon the written order of the holder of such Series C Preferred certificate, at
the expense of the Corporation, a new certificate covering the number of shares
of the Series C Preferred representing the unredeemed portion of the Series C
Preferred certificate, which new certificate shall entitle the holder thereof to
all the rights, powers and privileges of a holder of such shares.
(d) Shares of the Series C Preferred are not subject to or entitled to the
benefit of any sinking fund.
7. Residual Rights. All rights accruing to the outstanding shares of the
Corporation not expressly provided for in the terms of the Series C Preferred
shall be vested in the Common Stock or other series or classes of the
Corporation's capital stock.
The holders of the Series C Preferred shall vote as a separate class with
respect to any matter or proposed action as to which applicable law or this
Certificate of Incorporation require the vote, consent, or approval of the
holders of the Series C Preferred.
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Exhibit 3.4
CERTIFICATE OF AMENDMENT TO
RESTATED CERTIFICATE OF INCORPORATION
OF
GOMEZ ADVISORS, INC.
It is hereby certified that:
1. The name of the corporation is Gomez Advisors, Inc. (the "Corporation").
2. The Restated Certificate of Incorporation of the Corporation is hereby
amended by deleting in its entirety clause (i) of Section 1(a) of the
Certificate of Designation of the Corporation's Series C Convertible
Preferred Stock filed with the Secretary of State of the State of Delaware
on October 29, 1999 and inserting in lieu thereof the following new clause
(i) of Section 1(a):
"(i) Except as otherwise provided in Section 1(b) below, in the
event of any liquidation, dissolution or winding up of the affairs of the
Corporation, whether voluntary or involuntary, the holders of the Series B
Convertible Preferred Stock, $.01 per share, par value (the "Series B
Preferred") and the Series C Preferred shall be entitled to be paid first
out of the assets of the Corporation available for distribution to holders
of the Corporation's capital stock of all classes, before payment or
distribution of any of such assets to the holders of any other class or
series of the Corporation's capital stock designated to be junior to the
Series C Preferred, an amount equal to:
(A) $5.00 per share (but not in excess of the cost basis
thereof) of Series B Preferred (which amount shall be subject to
equitable adjustment whenever there shall occur a stock dividend,
distribution, combination of shares, reclassification or other
similar event with respect to the Series B Preferred and, as so
adjusted from time to time, is hereinafter referred to as the
"Series B Base Liquidation Price"); and:
(B) (y) $5.10 per share of Series C Preferred if such
liquidation, dissolution or winding up occurs on or prior to January
1, 2001 or (z) $12.75 per share of Series C Preferred if such
liquidation, dissolution or winding up occurs after January 1, 2001
(each of which amounts shall be subject to equitable adjustment
whenever there shall occur a stock dividend, distribution,
combination of shares, reclassification or other similar event with
respect to the Series C Preferred and, as so adjusted from time to
time, is hereinafter referred to as the "Series C Base Liquidation
Price"),
in each case plus all dividends accrued or declared but unpaid, to and
including the date full payment shall be tendered to the holders of Series
B Preferred and Series C Preferred with respect to such liquidation,
dissolution or winding up. The amount distributed among the Series B
Preferred and the Series C Preferred shall be distributed in proportion to
the
<PAGE>
aggregate preferential amount for each series and within each series based
on the number of shares of such series held by the respective holder."
3. The Restated Certificate of Incorporation of the Corporation is hereby
amended by deleting in its entirety clause (A) of Section 2(c)(i) of the
Certificate of Designation of the Corporation's Series C Convertible
Preferred Stock filed with the Secretary of State of the State of Delaware
on October 29, 1999 and inserting in lieu thereof the following new clause
(A) of Section 2(c)(i):
"(A) The closing of a firm commitment underwritten public offering
pursuant to an effective registration statement under the Securities Act
of 1933, as amended, covering the offer and sale of Common Stock for the
account of the Corporation to the public at an initial public offering
price per share of not less than $10.20 (subject to equitable adjustment
in the event of any stock dividend, stock split, combination,
reorganization, recapitalization or similar event involving a change in
the Common Stock) with net proceeds to the Corporation of not less than
$20,000,000 (a "Qualified Initial Public Offering"); provided, however, in
the event that such Qualified Initial Public Offering is consummated after
January 1, 2001, then the Conversion Price in effect immediately prior to
such automatic conversion shall, if greater than the Late IPO Threshold
Amount (as defined below) be reduced to an amount equal to the Late IPO
Threshold Amount. The Late IPO Threshold Amount for purposes of
calculating the number of shares of Common Stock deliverable upon such
automatic conversion (the "Late IPO Threshold Amount") shall be $2.04
(subject to equitable adjustment in the event of any stock dividend, stock
split, combination, reorganization, recapitalization or similar event
involving a change in the Common Stock)."
4. [The Restated Certificate of Incorporation of the Corporation is hereby
amended [insert amendment to REDEMPTION provisions]
5. The Restated Certificate of Incorporation of the Corporation is hereby
amended by deleting the second sentence of Section 3(a) of the "Terms of
Series A Convertible Preferred Stock" attached as Exhibit A thereto and
inserting in lieu thereof the following new second sentence of said
Section 3(a):
"The number of shares of Common Stock issuable for each share of
Series A Preferred Stock upon conversion shall be determined by dividing
$3,058.10 plus all accrued and unpaid dividends on such share of Series A
Preferred Stock by the Conversion Price."
6. The Restated Certificate of Incorporation of the Corporation is hereby
amended by deleting the second sentence of Section 3(a) of the "Terms of
Series B Convertible Preferred Stock" attached as Exhibit B thereto and
inserting in lieu thereof the following new second sentence of said
Section 3(a):
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"The number of shares of Common Stock issuable for each share of
Series B Preferred Stock upon conversion shall be determined by dividing
$5.00 plus all accrued and unpaid dividends on such share of Series B
Preferred Stock by the Conversion Price."
7. This Certificate of Amendment to Restated Certificate of Incorporation has
been duly adopted in accordance with the provisions of Section 151 of the
General Corporation Law of the state of Delaware.
EXECUTED, effective as of the 15 day of February, 2000
/s/ Julio Gomez
-------------------------------------------------
Julio Gomez, Chairman and Chief Executive Officer
3
<PAGE>
Exhibit 3.6
GOMEZ ADVISORS, INC.
AMENDED AND RESTATED BY-LAWS
ARTICLE I - STOCKHOLDERS
Section 1. Annual Meeting.
An annual meeting of the stockholders, for the election of directors to
succeed those whose terms expire and for the transaction of such other business
as may properly come before the meeting, shall be held at ten o'clock a.m. or
such other time as is determined by the Board of Directors, on such date (other
than a Saturday, Sunday or legal holiday) as is determined by the Board of
Directors, which date shall be within thirteen (13) months subsequent to the
later of the date of incorporation or the last annual meeting of stockholders,
and at such place as the Board of Directors shall each year fix.
Section 2. Special Meetings.
Subject to the rights of the holders of any class or series of preferred
stock of the Corporation, special meetings of stockholders of the Corporation
may be called only by the (i) Chairman of the Board of Directors or (ii) the
Board of Directors pursuant to a resolution adopted by a majority of the total
number of directors authorized. Special meetings of the stockholders may be held
at such place within or without the State of Delaware as may be stated in such
resolution.
Section 3. Notice of Meetings.
Written notice of the place, date, and time of all meetings of the
stockholders shall be given, not less than ten (10) nor more than sixty (60)
days before the date on which the meeting is to be held, to each stockholder
entitled to vote at such meeting, except as otherwise provided herein or
required by law (meaning, here and hereinafter, as required from time to time by
the Delaware General Corporation Law or the Certificate of Incorporation of the
Corporation).
When a meeting is adjourned to another place, date or time, written notice
need not be given of the adjourned meeting if the place, date and time thereof
are announced at the meeting at which the adjournment is taken; provided,
however, that if the date of any adjourned meeting is more than thirty (30) days
after the date for which the meeting was originally noticed, or if a new record
date is fixed for the adjourned meeting, written notice of the place, date, and
time of the adjourned meeting shall be given in conformity herewith. At any
adjourned meeting,
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any business may be transacted which might have been transacted at the original
meeting.
Section 4. Quorum.
At any meeting of the stockholders, the holders of a majority of all of the
shares of the stock entitled to vote at the meeting, present in person or by
proxy, shall constitute a quorum for all purposes, unless or except to the
extent that the presence of a larger number may be required by law. Where a
separate vote by a class or classes is required, a majority of the shares of
such class or classes present in person or represented by proxy shall constitute
a quorum entitled to take action with respect to that vote on that matter.
If a quorum shall fail to attend any meeting, the chairman of the meeting
or the holders of a majority of the shares of stock entitled to vote who are
present, in person or by proxy, may adjourn the meeting to another place, date,
or time.
Section 5. Organization.
The Chairman of the Board of Directors or, in his or her absence, such
person as the Board of Directors may have designated or, in his or her absence,
the chief executive officer of the Corporation or, in his or her absence, such
person as may be chosen by the holders of a majority of the shares entitled to
vote who are present, in person or by proxy, shall call to order any meeting of
the stockholders and act as chairman of the meeting. In the absence of the
Secretary of the Corporation, the secretary of the meeting shall be such person
as the chairman of the meeting appoints.
Section 6. Conduct of Business.
The Chairman of the Board of Directors or his or her designee or, if
neither the Chairman of the Board nor his or her designee is present at the
meeting, then a person appointed by a majority of the Board of Directors, shall
preside at, and act as chairman of, any meeting of the stockholders. The
chairman of any meeting of stockholders shall determine the order of business
and the procedures at the meeting, including such regulation of the manner of
voting and the conduct of discussion as he or she deems to be appropriate.
Section 7. Proxies and Voting.
At any meeting of the stockholders, every stockholder entitled to vote may
vote in person or by proxy authorized by an instrument in writing filed in
accordance with the procedure established for the meeting.
Each stockholder shall have one (1) vote for every share of stock entitled
to vote which is
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registered in his or her name on the record date for the meeting, except as
otherwise provided herein or required by law.
All voting, including on the election of directors but excepting where
otherwise required by law, may be by a voice vote; provided, however, that upon
demand therefor by a stockholder entitled to vote or his or her proxy, a vote by
ballot shall be taken.
Except as otherwise provided in the terms of any class or series of
preferred stock of the Corporation, all elections shall be determined by a
plurality of the votes cast, and except as otherwise required by law, all other
matters shall be determined by a majority of the votes cast.
Section 8. Action Without Meeting.
Any action required to be taken at any annual or special meeting of
stockholders, or any action which may be taken at any annual or special meeting
of such stockholders, may be taken without a meeting, without prior notice and
without a vote, if a consent or consents in writing, setting forth the action so
taken, shall be (1) signed and dated by 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 thereon
were present and voted and (2) delivered to the Corporation within sixty (60)
days of the earliest dated consent by delivery to its registered office in the
State of Delaware (in which case delivery shall be by hand or by certified or
registered mail, return receipt requested), its principal place of business, or
an officer or agent of the Corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Prompt notice of the
taking of the corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not consented in writing.
Section 9. Stock List.
A complete list of stockholders entitled to vote at any meeting of
stockholders, arranged in alphabetical order for each class of stock and showing
the address of each such stockholder and the number of shares registered in his
or her name, shall be open to the examination of any such stockholder, for any
purpose germane to the meeting, during ordinary business hours for a period of
at least ten (10) 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 stock list shall also be kept at the place of the meeting during the
whole time thereof and shall be open to the examination of any such stockholder
who is present. Such list shall presumptively determine the identity of the
stockholders entitled to vote at the meeting and the number of shares held by
each of them.
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ARTICLE II - BOARD OF DIRECTORS
Section 1. Number, Election, Tenure and Qualification.
The number of directors constituting the entire Board shall be not less
than three nor more than nine as determined from time to time by resolution of
the Board. The Board shall consist of three classes, designated as Class I,
Class II, and Class III, respectively, with the size of each class determined
from time to time by resolution of the Board. Each of such classes shall consist
of a number of directors as equal as possible, with no class having more than
one director more than any other class. Except for the initial directors in each
class who shall have terms of office of one, two and three years, respectively,
each class of directors shall thereafter have a term of office of three years
and until their respective successors shall have been elected and qualified or
until a director's earlier resignation or removal. Any director may resign at
any time upon notice to the Corporation. Except as provided in the Certificate
of Incorporation or Section 2 of this Article, directors shall be elected by a
plurality of the votes cast at annual meetings of the stockholders, and each
director so elected shall hold office until the annual meeting which coincides
with the end of his or her term and until his or her successor is duly elected
and qualified, or until his or her earlier resignation or removal. Directors
need not be stockholders.
Section 2. Vacancies and Newly Created Directorships.
Subject to the rights of the holders of any class or series of preferred
stock of the Corporation to elect directors, newly created directorships
resulting from any increase in the authorized number of directors or any
vacancies in the Board of Directors resulting from death, resignation,
retirement, disqualification, removal from office or other cause may be filled
only by a majority vote of the directors then in office, though less than a
quorum, or the sole remaining director. No decrease in the number of authorized
directors constituting the Board of Directors shall shorten the term of any
incumbent director.
Section 3. Resignation and Removal.
Any director may resign at any time upon written notice to the Corporation
at its principal place of business or to the chief executive officer or
secretary. Such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some other
event. Any director or the entire Board of Directors may be removed, with or
without cause, by the holders of a majority of the shares then entitled to vote
at an election of directors, unless otherwise specified by law or the
Certificate of Incorporation.
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Section 4. Regular Meetings.
Regular meetings of the Board of Directors shall be held at such place or
places, on such date or dates, and at such time or times as shall have been
established by the Board of Directors and publicized among all directors. A
written notice of each regular meeting shall not be required.
Section 5. Special Meetings.
Special meetings of the Board of Directors may be called by the Chairman of
the Board of Directors, if any, the President, the Treasurer, the Secretary or
one or more of the directors then in office and shall be held at such place, on
such date, and at such time as they or he or she shall fix. Notice of the place,
date, and time of each such special meeting shall be given each director by whom
it is not waived by mailing written notice not less than three (3) days before
the meeting or orally, by telegraph, telex, cable or telecopy given not less
than twenty-four (24) hours before the meeting. Unless otherwise indicated in
the notice thereof, any and all business may be transacted at a special meeting.
Section 6. Quorum.
At any meeting of the Board of Directors, a majority of the total number of
members of the Board of Directors shall constitute a quorum for all purposes. If
a quorum shall fail to attend any meeting, a majority of those present may
adjourn the meeting to another place, date, or time, without further notice or
waiver thereof.
Section 7. Action by Consent.
Unless otherwise restricted by the Certificate of Incorporation or these
By-Laws, any action required or permitted to be taken at any meeting of the
Board of Directors or of any committee thereof may be taken without a meeting,
if all members of the Board or committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of proceedings
of the Board or committee.
Section 8. Participation in Meetings By Conference Telephone.
Members of the Board of Directors, or of any committee thereof, may
participate in a meeting of such Board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other and such participation shall
constitute presence in person at such meeting.
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Section 9. Conduct of Business.
At any meeting of the Board of Directors, business shall be transacted in
such order and manner as the Board may from time to time determine, and all
matters shall be determined by the vote of a majority of the directors present,
except as otherwise provided herein or required by law.
Section 10. Powers.
The Board of Directors may, except as otherwise required by law, exercise
all such powers and do all such acts and things as may be exercised or done by
the Corporation, including, without limiting the generality of the foregoing,
the unqualified power:
(1) To declare dividends from time to time in accordance with law;
(2) To purchase or otherwise acquire any property, rights or
privileges on such terms as it shall determine;
(3) To authorize the creation, making and issuance, in such form
as it may determine, of written obligations of every kind,
negotiable or non-negotiable, secured or unsecured, to borrow
funds and guarantee obligations, and to do all things
necessary in connection therewith;
(4) To remove any officer of the Corporation with or without
cause, and from time to time to devolve the powers and duties
of any officer upon any other person for the time being;
(5) To confer upon any officer of the Corporation the power to
appoint, remove and suspend subordinate officers, employees
and agents;
(6) To adopt from time to time such stock, option, stock purchase,
bonus or other compensation plans for directors, officers,
employees and agents of the Corporation and its subsidiaries
as it may determine;
(7) To adopt from time to time such insurance, retirement, and
other benefit plans for directors, officers, employees and
agents of the Corporation and its subsidiaries as it may
determine; and,
(8) To adopt from time to time regulations, not inconsistent with
these By-Laws, for the management of the Corporation's
business and affairs.
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Section 11. Compensation of Directors.
Directors, as such, may receive, pursuant to a resolution of the Board of
Directors, fixed fees and other compensation for their services as directors,
including, without limitation, their services as members of committees of the
Board of Directors.
ARTICLE III - COMMITTEES
Section 1. Committees of the Board of Directors.
The Board of Directors, by a vote of a majority of the Board of Directors,
may from time to time designate committees of the Board, with such lawfully
delegable powers and duties as it thereby confers, to serve at the pleasure of
the Board and shall, for those committees and any others provided for herein,
elect a director or directors to serve as the member or members, designating, if
it desires, other directors as alternate members who may replace any absent or
disqualified member at any meeting of the committee. Any such committee, to the
extent provided in the resolution of the Board of Directors, 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 in reference to amending the
Certificate of Incorporation, adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the Corporation's property and assets, recommending to the
stockholders a dissolution of the Corporation or a revocation of a dissolution,
or amending the By-Laws of the Corporation. Any committee so designated may
exercise the power and authority of the Board of Directors to declare a
dividend, to authorize the issuance of stock or to adopt a certificate of
ownership and merger pursuant to Section 253 of the Delaware General Corporation
Law if the resolution which designates the committee or a supplemental
resolution of the Board of Directors shall so provide. In the absence or
disqualification of any member of any committee and any alternate member in his
or her place, the member or members of the committee present at the meeting and
not disqualified from voting, whether or not he or she or they constitute a
quorum, may by unanimous vote appoint another member of the Board of Directors
to act at the meeting in the place of the absent or disqualified member.
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Section 2. Conduct of Business.
Each committee may determine the procedural rules for meeting and
conducting its business and shall act in accordance therewith, except as
otherwise provided herein or required by law. Adequate provision shall be made
for notice to members of all meetings; one-third (1/3) of the members shall
constitute a quorum; and all matters shall be determined by a majority vote of
the members present. Action may be taken by any committee without a meeting if
all members thereof consent thereto in writing, and the writing or writings are
filed with the minutes of the proceedings of such committee.
ARTICLE IV - OFFICERS
Section 1. Enumeration.
The officers of the Corporation shall be the President, the Treasurer, the
Secretary and such other officers as the Board of Directors or the Chairman of
the Board may determine, including, but not limited to, the Chairman of the
Board of Directors, one or more Vice Presidents, Assistant Treasurers and
Assistant Secretaries.
Section 2. Election.
The Chairman of the Board, if any, the President, the Treasurer and the
Secretary shall be elected annually by the Board of Directors at their first
meeting following the annual meeting of the stockholders. The Board of Directors
or the Chairman of the Board, if any, may, from time to time, elect or appoint
such other officers as it or he or she may determine, including, but not limited
to, one or more Vice Presidents, Assistant Treasurers and Assistant Secretaries.
Section 3. Qualification.
No officer need be a stockholder. The Chairman of the Board, if any, and
any Vice Chairman appointed to act in the absence of the Chairman, if any, shall
be elected by and from the Board of Directors, but no other officer need be a
director. Two or more offices may be held by any one person. If required by vote
of the Board of Directors, an officer shall give bond to the Corporation for the
faithful performance of his or her duties, in such form and amount and with such
sureties as the Board of Directors may determine. The premiums for such bonds
shall be paid by the Corporation.
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Section 4. Tenure and Removal.
Each officer elected or appointed by the Board of Directors shall hold
office until the first meeting of the Board of Directors following the next
annual meeting of the stockholders and until his or her successor is elected or
appointed and qualified, or until he or she dies, resigns, is removed or becomes
disqualified, unless a shorter term is specified in the vote electing or
appointing said officer. Each officer appointed by the Chairman of the Board, if
any, shall hold office until his or her successor is elected or appointed and
qualified, or until he or she dies, resigns, is removed or becomes disqualified,
unless a shorter term is specified by any agreement or other instrument
appointing such officer. Any officer may resign by giving written notice of his
or her resignation to the Chairman of the Board, if any, the President, or the
Secretary, or to the Board of Directors at a meeting of the Board, and such
resignation shall become effective at the time specified therein. Any officer
elected or appointed by the Board of Directors may be removed from office with
or without cause by vote of a majority of the directors. Any officer appointed
by the Chairman of the Board, if any, may be removed with or without cause by
the Chairman of the Board.
Section 5. Chairman of the Board.
The Chairman of the Board, if any, shall preside at all meetings of the
Board of Directors and stockholders at which he or she is present and shall have
such authority and perform such duties as may be prescribed by these By-Laws or
from time to time be determined by the Board of Directors. The Chairman of the
Board shall also have the power and authority to determine the compensation and
duties of all officers, employees and agents of the Corporation.
Section 6. President.
The President shall, subject to the control and direction of the Board of
Directors, have and perform such powers and duties as may be prescribed by these
By-Laws or from time to time be determined by the Board of Directors.
Section 7. Vice Presidents.
The Vice Presidents, if any, in the order of their election, or in such
other order as the Board of Directors may determine, shall have and perform the
powers and duties of the President (or such of the powers and duties as the
Board of Directors may determine) whenever the President is absent or unable to
act. The Vice Presidents, if any, shall also have such other powers and duties
as may from time to time be determined by the Board of Directors.
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Section 8. Treasurer and Assistant Treasurers.
The Treasurer shall, subject to the control and direction of the Board of
Directors, have and perform such powers and duties as may be prescribed in these
By-Laws or be determined from time to time by the Board of Directors. All
property of the Corporation in the custody of the Treasurer shall be subject at
all times to the inspection and control of the Board of Directors. Unless
otherwise voted by the Board of Directors, each Assistant Treasurer, if any,
shall have and perform the powers and duties of the Treasurer whenever the
Treasurer is absent or unable to act, and may at any time exercise such of the
powers of the Treasurer, and such other powers and duties, as may from time to
time be determined by the Board of Directors.
Section 9. Secretary and Assistant Secretaries.
The Board of Directors shall appoint a Secretary and, in his or her
absence, an Assistant Secretary. The Secretary or, in his or her absence, any
Assistant Secretary, shall attend all meetings of the directors and shall record
all votes of the Board of Directors and minutes of the proceedings at such
meetings. The Secretary or, in his or her absence, any Assistant Secretary,
shall notify the directors of their meetings, and shall have and perform such
other powers and duties as may from time to time be determined by the Board of
Directors. If the Secretary or an Assistant Secretary is elected but is absent
from any meeting of directors, a temporary secretary may be appointed by the
directors at the meeting
Section 10. Bond.
If required by the Board of Directors, any officer shall give the
Corporation a bond in such sum and with such surety or sureties and upon such
terms and conditions as shall be satisfactory to the Board of Directors,
including without limitation a bond for the faithful performance of the duties
of his office and for the restoration to the Corporation of all books, papers,
vouchers, money and other property of whatever kind in his or her possession or
under his control and belonging to the Corporation.
Section 11. Action with Respect to Securities of Other Corporations.
Unless otherwise directed by the Board of Directors, the President, the
Treasurer or any officer of the Corporation authorized by the President shall
have power to vote and otherwise act on behalf of the Corporation, in person or
by proxy, at any meeting of stockholders of or with respect to any action of
stockholders of any other corporation in which this Corporation may hold
securities and otherwise to exercise any and all rights and powers which this
Corporation may possess by reason of its ownership of securities in such other
corporation.
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ARTICLE V - STOCK
Section 1. Certificates of Stock.
Each stockholder shall be entitled to a certificate signed by, or in the
name of the Corporation by the Chairman of the Board of Directors, or the
President or a Vice President, and by the Treasurer or an Assistant Treasurer,
or the Secretary or an Assistant Secretary, certifying the number of shares
owned by him or her. Any or all of the signatures on the certificate may be by
facsimile.
Section 2. Transfers of Stock.
Transfers of stock shall be made only upon the transfer books of the
Corporation kept at an office of the Corporation or by transfer agents
designated to transfer shares of the stock of the Corporation. Except where a
certificate is issued in accordance with Section 4 of this Article of these
By-Laws, an outstanding certificate for the number of shares involved shall be
surrendered for cancellation before a new certificate is issued therefor.
Section 3. Record Date.
In order that the Corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders, or to receive payment of
any dividend or other distribution or allotment of any rights or to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may fix a record
date, which record date shall not precede the date on which the resolution
fixing the record date is adopted and which record date shall not be more than
sixty (60) nor less than ten (10) days before the date of any meeting of
stockholders, nor more than sixty (60) days prior to the time for such other
action as hereinbefore described; provided, however, that if no record date is
fixed by the Board of Directors, 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, and, for determining stockholders entitled to
receive payment of any dividend or other distribution or allotment of rights or
to exercise any rights of change, conversion or exchange of stock or for any
other purpose, the record date shall be at the close of business on the day on
which the Board of Directors adopts a resolution relating thereto.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
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Section 4. Lost, Stolen or Destroyed Certificates.
In the event of the loss, theft or destruction of any certificate of stock,
another may be issued in its place pursuant to such regulations as the Board of
Directors may establish concerning proof of such loss, theft or destruction and
concerning the giving of a satisfactory bond or bonds of indemnity.
Section 5. Regulations.
The issue, transfer, conversion and registration of certificates of stock
shall be governed by such other regulations as the Board of Directors may
establish.
Section 6. Interpretation.
The Board of Directors shall have the power to interpret all of the terms
and provisions of these By-Laws, which interpretation shall be conclusive.
ARTICLE VI - NOTICES
Section 1. Notices.
Except as otherwise specifically provided herein or required by law, all
notices required to be given to any stockholder, director, officer, employee or
agent shall be in writing and may in every instance be effectively given by hand
delivery to the recipient thereof, by depositing such notice in the mail,
postage paid, or by sending such notice by courier service, prepaid telegram or
mailgram, or telecopy, cable, or telex. Any such notice shall be addressed to
such stockholder, director, officer, employee or agent at his or her last known
address as the same appears on the books of the Corporation. The time when such
notice is received, if hand delivered, or dispatched, if delivered through the
mail or by courier, telegram, mailgram, telecopy, cable, or telex shall be the
time of the giving of the notice.
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Section 2. Waiver of Notice.
A written waiver of any notice, signed by a stockholder, director, officer,
employee or agent, whether before or after the time of the event for which
notice is to be given, shall be deemed equivalent to the notice required to be
given to such stockholder, director, officer, employee or agent. Neither the
business nor the purpose of any meeting need be specified in such a waiver.
Attendance of a director or stockholder at a meeting without protesting prior
thereto or at its commencement the lack of notice shall also constitute a waiver
of notice by such director or stockholder.
ARTICLE VII - INDEMNIFICATION
Section 1. Actions other than by or in the Right of the Corporation.
The Corporation 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 or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Corporation) by reason of the
fact that he or she 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 expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him or her in connection with such action, suit or proceeding if he
or she acted in good faith and in a manner he or she reasonably believed to be
in or not opposed to the best interests of the Corporation, and, with respect to
any criminal action or proceedings, had no reasonable cause to believe his or
her conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he or she reasonably believed to be
in or not opposed to the best interests of the Corporation, and, with respect to
any criminal action or proceeding, had reasonable cause to believe that his or
her conduct was unlawful.
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Section 2. Actions by or in the Right of the Corporation.
The Corporation 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 or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he or she 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 expenses (including attorneys'
fees) actually and reasonably incurred by him or her in connection with the
defense or settlement of such action or suit if he acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best
interests of the Corporation and except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Corporation unless and only to the extent that the
Court of Chancery of the State of Delaware or the court in which such action or
suit was brought shall determine upon application that, despite the adjudication
of liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Court of
Chancery of the State of Delaware or such other court shall deem proper.
Section 3. Success on the Merits.
To the extent that any person described in Section 1 or Section 2 of this
Article has been successful on the merits or otherwise in defense of any action,
suit or proceeding referred to in said Sections, or in defense of any claim,
issue or matter therein, he or she shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him or her in
connection therewith.
Section 4. Specific Authorization.
Any indemnification under Section 1 or Section 2 of this Article (unless
ordered by a court) shall be made by the Corporation only as authorized in the
specific case upon a determination that indemnification of any person described
in said Sections is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in said Sections. Such determination
shall be made (1) by the Board of Directors by a majority vote of a quorum
consisting of directors who were not parties to such action, suit or proceeding,
or (2) if such a quorum is not obtainable, or, even if obtainable, a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion, or (3) by the stockholders of the Corporation.
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Section 5. Advance Payment.
Expenses incurred in defending any civil, criminal, administrative, or
investigative action, suit or proceeding may be paid by the Corporation in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of any person described in said Section to
repay such amount if it shall ultimately be determined that he or she is not
entitled to indemnification by the Corporation as authorized in this Article.
Section 6. Non-Exclusivity.
The indemnification and advancement of expenses provided by, or granted
pursuant to, the other Sections of this Article shall not be deemed exclusive of
any other rights to which those provided indemnification or advancement of
expenses may be entitled under any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in such person's
official capacity and as to action in another capacity while holding such
office.
Section 7. Insurance.
The Board of Directors may authorize, by a vote of the majority of the full
board, the Corporation 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 him or her and incurred
by him or her in any such capacity, or arising out of his or her status as such,
whether or not the corporation would have the power to indemnify him or her
against such liability under the provisions of this Article.
Section 8. Continuation of Indemnification and Advancement of Expenses.
The indemnification and advancement of expenses provided by, or granted
pursuant to, this Article shall continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
Section 9. Severability.
If any word, clause or provision of this Article or any award made
hereunder shall for any reason be determined to be invalid, the provisions
hereof shall not otherwise be affected thereby but shall remain in full force
and effect.
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Section 10. Intent of Article.
The intent of this Article is to provide for indemnification and
advancement of expenses to the fullest extent permitted by Section 145 of the
General Corporation Law of Delaware. To the extent that such Section or any
successor section may be amended or supplemented from time to time, this Article
shall be amended automatically and construed so as to permit indemnification and
advancement of expenses to the fullest extent from time to time permitted by
law.
ARTICLE VIII - CERTAIN TRANSACTIONS
Section 1. Transactions with Interested Parties.
No contract or transaction between the Corporation and one or more of its
directors or officers, or between the Corporation and any other corporation,
partnership, association, or other organization in which one or more of its
directors or officers are directors or officers, or have a financial interest,
shall be void or voidable solely for this reason, or solely because the director
or officer is present at or participates in the meeting of the Board or
committee thereof which authorizes the contract or transaction or solely because
the votes of such director or officer are counted for such purpose, if:
(a) The material facts as to his or her 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
(b) The material facts as to his or her 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
(c) 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 thereof, or the stockholders.
Section 2. Quorum.
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.
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ARTICLE IX - MISCELLANEOUS
Section 1. Facsimile Signatures.
In addition to the provisions for use of facsimile signatures elsewhere
specifically authorized in these By-Laws, facsimile signatures of any officer or
officers of the Corporation may be used whenever and as authorized by the Board
of Directors or a committee thereof.
Section 2. Corporate Seal.
The Board of Directors may provide a suitable seal, containing the name of
the Corporation, which seal shall be in the charge of the Secretary. If and when
so directed by the Board of Directors or a committee thereof, duplicates of the
seal may be kept and used by the Treasurer or by an Assistant Secretary or
Assistant Treasurer.
Section 3. Reliance upon Books, Reports and Records.
Each director, each member of any committee designated by the Board of
Directors, and each officer of the Corporation shall, in the performance of his
or her duties, be fully protected in relying in good faith upon the books of
account or other records of the Corporation and upon such information, opinions,
reports or statements presented to the Corporation by any of its officers or
employees, or committees of the Board of Directors so designated, or by any
other person as to matters which such director or committee member reasonably
believes are within such other person's professional or expert competence and
who has been selected with reasonable care by or on behalf of the Corporation.
Section 4. Fiscal Year.
Except as otherwise determined by the Board of Directors from time to time,
the fiscal year of the Corporation shall end on the last day of December of each
year.
Section 5. Time Periods.
In applying any provision of these By-Laws which requires that an act be
done or not be done a specified number of days prior to an event or that an act
be done during a period of a specified number of days prior to an event,
calendar days shall be used, the day of the doing of the act shall be excluded,
and the day of the event shall be included.
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ARTICLE X - AMENDMENTS
These By-Laws may be amended, added to, rescinded or repealed by the
stockholders or by the Board of Directors, when such power is conferred upon the
Board of Directors by the Certificate of Incorporation, at any meeting of the
stockholders or of the Board of Directors, provided notice of the proposed
change was given in the notice of the meeting or, in the case of a meeting of
the Board of Directors, in a notice given not less than two (2) days prior to
the meeting.
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EXHIBIT 10.1
EXCHANGE AGREEMENT
EXCHANGE AGREEMENT, dated as of January 22, 1999 (the "Agreement"),
among GOMEZ ADVISORS, INC., a Delaware corporation ("Issuer"), THE ASHTON
TECHNOLOGY GROUP, INC., a Delaware corporation ("Ashton"), JULIO GOMEZ, an
individual ("Gomez"), JOHN ROBB, an individual ("Robb"), ALEXANDER STEIN, an
individual ("Stein", and together with Gomez and Robb, the "Gomez Principals"),
FREDRIC W. RITTEREISER, an individual ("Rittereiser"), K. IVAN F. GOTHNER, an
individual ("Gothner"), and ARTHUR J. BACCI, an individual ("Bacci", and
together with Rittereiser and Gothner, the "Ashton Executives").
R E C I T A L S:
Each of Issuer and Ashton desires to exchange all of Ashton's rights
and interest in $1,475,000 of loans made by Ashton to Issuer (including all
accrued interest, the "Ashton Loans") for 59,000 shares (the "Old Shares") of
Common Stock, par value $.0001 per share, of Issuer (the "Old Common Stock").
Each of Issuer and Ashton desires to exchange 60,000 shares (the
"Exchanged Shares") of Old Common Stock owned by Ashton for 4,905 shares (the
"Preferred Shares") of Convertible Voting Preferred Stock, par value $.01 per
share, of Issuer (the "Preferred Stock").
Issuer and each Ashton Executive desire to exchange all of the
Ashton Executives' rights and interest in options to purchase 1,500,000 shares
of Old Common Stock at an exercise price of $.01 per share (the "Ashton
Options") and the sum of $10,000 for 1,000 shares (the
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"Ashton Executives Shares") of Class A Common Stock, par value $.0001 per share,
of Issuer (the "New Common Stock").
Each of Issuer and Gomez desire to exchange all of Gomez's rights
and interest in options to purchase 1,500,000 shares of Old Common Stock at an
exercise price of $.01 per share (the "Gomez Founder Options") and the sum of
$10,510 for 1,051 shares (the "Gomez Shares") of New Common Stock. In addition,
each of Issuer and Gomez desire to exchange all of Gomez's rights and interest
in options to purchase 1,000,000 shares of Old Common Stock at an exercise price
of $1.00 per share (the "Gomez Incentive Options") for options to purchase 1,501
shares of New Common Stock pursuant to an option agreement in the form of
Exhibit A hereto (the "New Gomez Options").
Each of Issuer and Robb desire to exchange all of Robb's rights and
interest in options to purchase 750,000 shares of Old Common Stock at an
exercise price of $.01 per share (the "Robb Founder Options") and the sum of
$5,260 for 526 shares (the "Robb Shares") of New Common Stock. In addition, each
of Issuer and Robb desire to exchange all of Robb's rights and interest in
options to purchase 500,000 shares of Old Common Stock at an exercise price of
$1.00 per share (the "Robb Incentive Options") for options to purchase 751
shares of New Common Stock pursuant to an option agreement in the form of
Exhibit A hereto (the "New Robb Options").
Each of Issuer and Stein desire to exchange all of Stein's rights
and interest in options to purchase 750,000 shares of Old Common Stock at an
exercise price of $.01 per share (the "Stein Founder Options") and the sum of
$5,260 for 526 shares (the "Stein Shares", and together with the Gomez Shares
and the Robb Shares, the "Gomez Principals Shares") of New Common Stock. In
addition, each of Issuer and Stein desire to exchange all of Stein's rights and
interest in options to purchase 500,000 shares of Old Common Stock at an
exercise price of $1.00 per share (the "Stein Incentive Options") for options to
purchase 751 shares of New
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Common Stock pursuant to an option agreement in the form of Exhibit A hereto
(the "New Stein Options", and together with the New Gomez Options and the New
Robb Options, the "Gomez Principals Options").
In consideration of the foregoing recitals and the mutual agreements
hereinafter set forth, the parties agree as follows:
1. The Exchange.
1.1 Subscription for and Issuance of the Old Shares. Ashton hereby
subscribes for, and Issuer herewith issues and delivers to Ashton, the Old
Shares, registered in the name of Ashton. In exchange for the issuance of the
Old Shares to Ashton, Ashton hereby releases, discharges and holds harmless
Issuer from any and all claims, damages, liabilities, costs and expenses of any
kind which Ashton had, has or may have arising from, in connection with, or
relating to the Ashton Loans. Ashton hereby acknowledges receipt of certificates
evidencing the Old Shares, registered in the name of Ashton.
1.2 Subscription for and Issuance of the Preferred Shares. Ashton
hereby subscribes for, and Issuer herewith issues and delivers to Ashton, the
Preferred Shares, registered in the name of Ashton, in exchange for the transfer
and delivery by Ashton to Issuer of the Exchanged Shares, duly endorsed to
Issuer. Ashton hereby acknowledges receipt of certificates evidencing the
Preferred Shares, registered in the name of Ashton. Ashton has herewith
delivered to Issuer, and Issuer hereby acknowledges receipt of, certificates
evidencing the Exchanged Shares, duly endorsed to Issuer.
1.3 Subscription for and Issuance of the Ashton Executives Shares.
(a) Rittereiser hereby subscribes for, and Issuer herewith issues and delivers
to Rittereiser, 500 shares of New Common Stock, registered in the name of
Rittereiser. In exchange for such
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issuance, Rittereiser hereby (i) delivers a check payable to the order of Issuer
in the amount of $5,000, and (ii) releases, discharges and holds harmless Issuer
from any and all claims, damages, liabilities, costs and expenses of any kind
which Rittereiser had, has or may have arising from, in connection with, or
relating to the Ashton Options. Rittereiser hereby acknowledges receipt of
certificates evidencing 500 shares of New Common Stock, registered in the name
of Rittereiser. Issuer hereby acknowledges receipt of a check from Rittereiser
in the amount of $5,000.
(b) Gothner hereby subscribes for, and Issuer herewith issues and
delivers to Gothner, 300 shares of New Common Stock, registered in the name of
Gothner. In exchange for such issuance, Gothner hereby (i) delivers a check
payable to the order of Issuer in the amount of $3,000, and (ii) releases,
discharges and holds harmless Issuer from any and all claims, damages,
liabilities, costs and expenses of any kind which Gothner had, has or may have
arising from, in connection with, or relating to the Ashton Options. Gothner
hereby acknowledges receipt of certificates evidencing 300 shares of New Common
Stock, registered in the name of Gothner. Issuer hereby acknowledges receipt of
a check from Gothner in the amount of $3,000.
(c) Bacci hereby subscribes for, and Issuer herewith issues and
delivers to Bacci, 200 shares of New Common Stock, registered in the name of
Bacci. In exchange for such issuance, Bacci hereby (i) delivers a check payable
to the order of Issuer in the amount of $2,000, and (ii) releases, discharges
and holds harmless Issuer from any and all claims, damages, liabilities, costs
and expenses of any kind which Bacci had, has or may have arising from, in
connection with, or relating to the Ashton Options. Bacci hereby acknowledges
receipt of certificates evidencing 200 shares of New Common Stock, registered in
the name of Bacci. Issuer hereby acknowledges receipt of a check from Bacci in
the amount of $2,000.
1.4 Subscription for and Issuance of the Gomez Shares; Issuance of
New Gomez Options. (a) Gomez hereby subscribes for, and Issuer herewith issues
and delivers to Gomez, the Gomez Shares, registered in the name of Gomez. In
exchange for such issuance, Gomez
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hereby (i) delivers a check payable to the order of Issuer in the amount of
$10,510, and (ii) releases, discharges and holds harmless Issuer from any and
all claims, damages, liabilities, costs and expenses of any kind which Gomez
had, has or may have arising from, in connection with, or relating to the Gomez
Founder Options. Gomez hereby acknowledges receipt of certificates evidencing
the Gomez Shares, registered in the name of Gomez. Issuer hereby acknowledges
receipt of a check from Gomez in the amount of $10,510.
(b) Issuer herewith issues and delivers to Gomez, the New Gomez
Options, registered in the name of Gomez. In exchange for such issuance, Gomez
hereby releases, discharges and holds harmless Issuer from any and all claims,
damages, liabilities, costs and expenses of any kind which Gomez had, has or may
have arising from, in connection with, or relating to the Gomez Incentive
Options. Gomez hereby acknowledges receipt of the New Gomez Options, registered
in the name of Gomez.
1.5 Subscription for and Issuance of the Robb Shares; Issuance of
New Robb Options. (a) Robb hereby subscribes for, and Issuer herewith issues and
delivers to Robb, the Robb Shares, registered in the name of Robb. In exchange
for such issuance, Robb hereby (i) delivers a check payable to the order of
Issuer in the amount of $5,260, and (ii) releases, discharges and holds harmless
Issuer from any and all claims, damages, liabilities, costs and expenses of any
kind which Robb had, has or may have arising from, in connection with, or
relating to the Robb Founder Options. Robb hereby acknowledges receipt of
certificates evidencing the Robb Shares, registered in the name of Robb. Issuer
hereby acknowledges receipt of a check from Robb in the amount of $5,260.
(b) Issuer herewith issues and delivers to Robb, the New Robb
Options, registered in the name of Robb. In exchange for such issuance, Robb
hereby releases, discharges and holds harmless Issuer from any and all claims,
damages, liabilities, costs and expenses of any
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kind which Robb had, has or may have arising from, in connection with, or
relating to the Robb Incentive Options. Robb hereby acknowledges receipt of the
New Robb Options, registered in the name of Robb.
1.6 Subscription for and Issuance of the Stein Shares; Issuance of
New Stein Options. (a) Stein hereby subscribes for, and Issuer herewith issues
and delivers to Stein, the Stein Shares, registered in the name of Stein. In
exchange for such issuance, Stein hereby (i) delivers a check payable to the
order of Issuer in the amount of $5,260, and (ii) releases, discharges and holds
harmless Issuer from any and all claims, damages, liabilities, costs and
expenses of any kind which Stein had, has or may have arising from, in
connection with, or relating to the Stein Founder Options. Stein hereby
acknowledges receipt of certificates evidencing the Stein Shares, registered in
the name of Stein. Issuer hereby acknowledges receipt of a check from Stein in
the amount of $5,260.
(b) Issuer herewith issues and delivers to Stein, the New Stein
Options, registered in the name of Stein. In exchange for such issuance, Stein
hereby releases, discharges and holds harmless Issuer from any and all claims,
damages, liabilities, costs and expenses of any kind which Stein had, has or may
have arising from, in connection with, or relating to the Stein Incentive
Options. Stein hereby acknowledges receipt of the New Stein Options, registered
in the name of Stein.
2. Representations and Warranties of Ashton. As an inducement to each of the
other parties hereto to enter into this Agreement, Ashton hereby represents and
warrants to each other party hereto as follows:
2.1 Due Authorization, Etc. Ashton has all requisite power and
authority to enter into this Agreement, to carry out its obligations hereunder
and to consummate the transactions contemplated hereby. The execution, delivery
and performance of this Agreement by Ashton
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have been duly authorized by all required corporate action on the part of
Ashton. This Agreement has been duly executed and delivered by Ashton and
(assuming due authorization, execution and delivery by the other parties hereto)
this Agreement constitutes the legal, valid and binding obligation of Ashton,
enforceable against Ashton in accordance with its terms.
2.2 No Conflicts. The execution and delivery by Ashton of this
Agreement and the consummation of the transactions contemplated hereby will not
conflict with or result in a breach of the provisions of, or constitute a
default under, or result in any violation of, or require any consent under, or
give to any third party any rights of termination, amendment, acceleration,
suspension, revocation or cancellation of, or result in the creation of any Lien
(as defined in Section 2.4) on any of the Shares (as defined in Section 5.5) or
on any of the assets or properties of Ashton pursuant to (x) the Certificate of
Incorporation or Bylaws of Ashton, or (y) any note, bond, mortgage or indenture,
contract, agreement, lease, sublease, license, permit, franchise or other
instrument or arrangement to which Ashton is a party.
2.3 Securities Act of 1933. (a) Ashton understands that (i) the
Preferred Shares and the Old Shares have not been registered under the
Securities Act of 1933, as amended (the "Act"), (ii) the Preferred Shares and
the Old Shares are being acquired in a transaction exempt from the registration
requirements of the Act and may not be transferred unless registered under the
Act or exempt from such registration and (iii) the certificates representing the
Preferred Shares and the Old Shares bear a restrictive legend to the foregoing
effect.
(b) Ashton acknowledges that (i) it is fully familiar with the terms
of Issuer's Certificate of Incorporation and Bylaws and the rights and
preferences of the Preferred Shares and other classes of Issuer's capital stock;
(ii) it is fully familiar with Issuer's financial condition, business activities
and prospects; (iii) there is no assurance of any return on Ashton's investment
in Issuer; (iv) Ashton may lose the entire amount of its investment in Issuer;
and (v) the Preferred Shares are an illiquid investment and, for various reasons
(including the absence of a public
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trading market in the Preferred Shares and in Issuer's common stock), Ashton may
be required to hold the Preferred Shares indefinitely.
2.4 Title to the Exchanged Shares. (a) Ashton owns the Exchanged
Shares, free and clear of any claims, liens, pledges, security interests,
mortgages or other encumbrances of any kind ("Liens").
(b) (i) Ashton has the complete and unrestricted power and
unqualified right to assign, transfer, convey and deliver the Exchanged Shares
to Issuer without penalty or other adverse consequence, and (ii) following the
deliveries contemplated hereby, Issuer will acquire ownership of the Exchanged
Shares, free and clear of any Liens.
3. Representations and Warranties of the Ashton Executives. As an inducement to
each of the other parties hereto to enter into this Agreement, each of the
Ashton Executives, jointly and severally, hereby represents and warrants to each
other party hereto as follows:
3.1 Due Execution, Etc. Each Ashton Executive has all requisite
legal capacity to enter into this Agreement, to carry out his obligations
hereunder and to consummate the transactions contemplated hereby. This Agreement
has been duly executed and delivered by each Ashton Executive and (assuming due
authorization, execution and delivery by the other parties hereto) this
Agreement constitutes the legal, valid and binding obligation of each Ashton
Executive, enforceable against each Ashton Executive in accordance with its
terms.
3.2 No Conflicts. The execution and delivery by each Ashton
Executive of this Agreement and the consummation of the transactions
contemplated hereby will not conflict with or result in a breach of the
provisions of, or constitute a default under, or result in any violation of, or
require any consent under, or give to any third party any rights of termination,
amendment,
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acceleration, suspension, revocation or cancellation of, or result in the
creation of any Lien on any of the Shares or on any of the assets or properties
of the Ashton Executives pursuant to any note, bond, mortgage or indenture,
contract, agreement, lease, sublease, license, permit, franchise or other
instrument or arrangement to which such Ashton Executive is a party.
3.3 Securities Act of 1933. (a) Each Ashton Executive understands
that (i) the Ashton Executive Shares have not been registered under the Act,
(ii) the Ashton Executives Shares are being acquired in a transaction exempt
from the registration requirements of the Act and may not be transferred unless
registered under the Act or exempt from such registration and (iii) the
certificates representing the Ashton Executives Shares bear a restrictive legend
to the foregoing effect.
(b) Each Ashton Executive acknowledges that (i) he is fully familiar
with the terms of Issuer's Certificate of Incorporation and Bylaws and the
rights and preferences of the Ashton Executive Shares and other classes of
Issuer's capital stock; (ii) he is fully familiar with Issuer's financial
condition, business activities and prospects; (iii) there is no assurance of any
return on his investment in Issuer; (iv) he may lose the entire amount of his
investment in Issuer; and (v) the Ashton Executive Shares are an illiquid
investment and, for various reasons (including the absence of a public trading
market in shares of New Common Stock), he may be required to hold the Ashton
Executive Shares indefinitely.
4. Representations and Warranties of the Gomez Principals. As an inducement to
each of the other parties hereto to enter into this Agreement, each of the Gomez
Principals, jointly and severally, hereby represents and warrants to each other
party hereto as follows:
4.1 Due Execution, Etc. Each Gomez Principal has all requisite legal
capacity to enter into this Agreement, to carry out his obligations hereunder
and to consummate the transactions contemplated hereby. This Agreement has been
duly executed and delivered by each Gomez Principal and (assuming due
authorization, execution and delivery by the other
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parties hereto) this Agreement constitutes the legal, valid and binding
obligation of each Gomez Principal, enforceable against each Gomez Principal in
accordance with its terms.
4.2 No Conflicts. The execution and delivery by each Gomez Principal
of this Agreement and the consummation of the transactions contemplated hereby
will not conflict with or result in a breach of the provisions of, or constitute
a default under, or result in any violation of, or require any consent under, or
give to any third party any rights of termination, amendment, acceleration,
suspension, revocation or cancellation of, or result in the creation of any Lien
on any of the Shares or on any of the assets or properties of the Gomez
Principals pursuant to any note, bond, mortgage or indenture, contract,
agreement, lease, sublease, license, permit, franchise or other instrument or
arrangement to which such Gomez Principal is a party.
4.3 Securities Act of 1933. (a) Each Gomez Principal understands
that (i) the Gomez Principals Shares and the Gomez Principals Options have not
been registered under the Act, (ii) the Gomez Principal Shares and the Gomez
Principals Options are being acquired in a transaction exempt from the
registration requirements of the Act and may not be transferred unless
registered under the Act or exempt from such registration and (iii) the
certificates representing the Gomez Principals Shares and the Gomez Principals
Options bear a restrictive legend to the foregoing effect.
(b) Each Gomez Principal acknowledges that (i) he is fully familiar
with the terms of Issuer's Certificate of Incorporation and Bylaws and the
rights and preferences of the Gomez Principals Shares, the Gomez Principals
Options and other classes of Issuer's capital stock; (ii) he is fully familiar
with Issuer's financial condition, business activities and prospects; (iii)
there is no assurance of any return on his investment in Issuer; (iv) he may
lose the entire amount of his investment in Issuer; and (v) the Gomez Principals
Shares and the Gomez Principals Options are an illiquid investment and, for
various reasons (including the absence of a public trading market in Issuer's
common stock), he may be required to hold the Gomez
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Principals Shares and the Gomez Principals Options indefinitely.
5. Representations and Warranties of Issuer. As an inducement to each of the
parties hereto to enter into this Agreement, Issuer hereby represents and
warrants to each party hereto as follows:
5.1 Due Authorization, Etc. Issuer has all requisite power and
authority to enter into this Agreement, to carry out its obligations hereunder
and to consummate the transactions contemplated hereby. The execution, delivery
and performance of this Agreement by Issuer have been duly authorized by all
required corporate action on the part of Issuer. This Agreement has been duly
executed and delivered by Issuer, and (assuming due authorization, execution and
delivery by the other parties hereto) this Agreement constitutes the legal,
valid and binding obligation of Issuer, enforceable against Issuer in accordance
with its terms.
5.2 Certificate of Designation. Attached hereto as Exhibit B is a
true and correct copy of the Certificate of Designation governing the Preferred
Shares (the "Certificate of Designation").
5.3 No Conflicts. The execution and delivery by Issuer of this
Agreement and the consummation of the transaction contemplated hereby will not
conflict with or result in a breach of the provisions of, or constitute a
default under, or result in any violation of, or require any consent under, or
give to any third party any rights of termination, amendment, acceleration,
suspension, revocation or cancellation of, or result in the creation of any Lien
on any of the Shares or on any of the assets or properties of Issuer pursuant to
(x) the Certificate of Incorporation or Bylaws of Issuer, or (y) any note, bond,
mortgage or indenture, contract, agreement, lease, sublease, license, permit,
franchise or other instrument or arrangement to which Issuer is a party.
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5.4 Securities Act of 1933. (a) In accordance with Section 3(a)(9)
of the Act, the offer, issuance and delivery of the Preferred Shares to Ashton
in accordance with the terms hereof is exempt from the registration requirements
of the Act. The issuance and delivery of any additional shares of Preferred
Stock as a dividend payment on the Shares (the "Dividend Shares") in accordance
with the Certificate of Designation is exempt from the registration requirements
of the Act.
(b) Assuming the accuracy of the representations and warranties set
forth in Section 2.3, Section 3.3 and Section 4.3, the offer, issuance and
delivery of the Old Shares, the Ashton Executive Shares and the Gomez Principals
Shares in accordance with the terms hereof are exempt from the registration
requirements of the Act.
5.5 Title to the Shares. The Preferred Shares, Dividend Shares, the
Old Shares, the Ashton Executive Shares and the Gomez Principals Shares
(collectively, the "Shares") have been duly authorized for issuance and, upon
issuance in accordance with the terms hereof, will be validly issued, fully paid
and nonassessable. The issuance of the Shares is not subject to any preemptive
or similar rights.
6. Covenants.
6.1 Stockholders Agreement. Concurrently with the execution and
delivery of this Agreement, each of the parties hereto shall enter into the
Stockholders Agreement in the form of Exhibit C.
6.2 Employee Incentive Plan of Issuer. Concurrently with the
execution and delivery of this Agreement, Issuer's board of directors and
stockholders shall adopt and approve the Employee Incentive Plan in the form of
Exhibit D (the "Employee Incentive Plan").
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6.3 Issuance to Other Employees of Ashton. The Company hereby
reserves 631 shares of New Common Stock to be issued to certain employees of
Ashton (the "Ashton Employees") at a price of $10.00 per share of New Common
Stock at the direction of Ashton; provided, however, that the number of shares
of New Common Stock and the price per share shall be appropriately adjusted in
the event of any increase or decrease in the number of issued shares of New
Common Stock resulting from a subdivision or consolidation of shares or other
capital adjustment, or the payment of a stock dividend or other increase or
decrease in such shares, effected without receipt of consideration by Issuer, or
other change in corporate or capital structure. Each Ashton Employee who
receives shares of New Common Stock pursuant to this Section 6.3 shall become a
party to the Stockholders Agreement and shall be deemed to be an "Ashton
Executive" thereunder.
7. Miscellaneous.
7.1 Amendments. This Agreement may not be amended or terminated nor
may any provision hereof be waived except by a writing signed by or on behalf of
all parties hereto or, in the case of a waiver, by the party against whom such
waiver may be asserted.
7.2 Survival of Representations and Warranties. All representations
and warranties contained herein or made in writing by or on behalf of any party
hereto in connection herewith shall survive until the expiration of any
applicable statute of limitations.
7.3 Successors and Assigns. The provisions of this Agreement shall
bind and inure to the benefit of the respective successors and assigns of the
parties, whether so expressed or not.
7.4 Notices. All notices, consents, instructions and other
communications required or permitted under this Agreement (collectively,
"Notice") shall be effective only if given in writing and shall be considered to
have been duly given when (i) delivered by hand, (ii)
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sent by telecopier (with receipt confirmed), provided that a copy is mailed (on
the same date) by certified or registered mail, return receipt requested,
postage prepaid, or (iii) received by the addressee, if sent by Express Mail,
Federal Express or other reputable express delivery service (receipt requested),
or by first class certified or registered mail, return receipt requested,
postage prepaid. Notice shall be sent in each case to the appropriate addresses
or telecopier numbers set forth below (or to such other addresses and telecopier
numbers as a party may from time to time designate as to itself by notice
similarly given to the other parties in accordance herewith, which shall not be
deemed given until received by the addressee). Notice shall be given:
(1) to Issuer at:
Gomez Advisors, Inc.
97 Lowell Road, Suite 13
Concord, MA 01742
Attn: President
Telecopier: (978) 287-0086
(2) to Ashton at:
The Ashton Technology Group, Inc.
1900 Market Street, Suite 701
Philadelphia, PA 19103
Attn: President
Telecopier: (215) 636-3560
(3) to the Ashton Executives at:
c/o The Ashton Technology Group, Inc.
1900 Market Street, Suite 701
Philadelphia, PA 19103
Attn: President
Telecopier: (215) 636-3560
(4) to the Gomez Principals at:
c/o Gomez Advisors, Inc.
97 Lowell Road, Suite 13
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Concord, MA 01742
Attn: President
Telecopier: (978) 287-0086
7.5 Construction of Terms. When the context in which words are used
in this Agreement indicates that such is the intent, singular words shall
include the plural and vice versa and masculine words shall include the feminine
and the neuter genders and vice versa. References herein to Articles, Sections,
Exhibits, Schedules or other subdivisions are to the appropriate subdivisions of
this Agreement unless the context otherwise requires. The words "herein",
"hereof", and "hereunder" and other words of similar import refer to this
Agreement as a whole and not to any particular Article, Section, Exhibit,
Schedule or other subdivision.
7.6 Descriptive Headings. The descriptive headings of the several
Articles and Sections of this Agreement are inserted for convenience only and do
not constitute a part of this Agreement.
7.7 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware without giving effect to
the conflict of laws provisions thereof.
7.8 Entire Agreement. This Agreement, and the other writings,
documents and agreements referred to herein or delivered pursuant hereto,
contain the entire agreement among the parties with respect to the subject
matter hereof and supersede all prior and contemporaneous arrangements or
understandings with respect thereto, including, without limitation, that certain
unexecuted Memorandum of Understanding between Gomez and Ashton dated December
22, 1997. Each of the parties hereto acknowledge that, following the
consummation of the transactions contemplated hereby, other than the equity
securities and options of Issuer to be issued in accordance with this Agreement
and any options or other equity securities to be issued in accordance with
Issuer's Employee Incentive Plan, there are no outstanding shares of capital
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stock or other equity securities, options, warrants, convertible securities or
other rights, agreements, arrangements or commitments of any character relating
to the equity interests of Issuer or obligating Issuer to issue or sell any
shares of capital stock of, or any other interest in, Issuer.
7.9 Severability. Any provision of this Agreement that 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, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
7.10 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, and it shall not be
necessary in making proof of this Agreement to produce or account for more than
one such counterpart as long as each party shall have signed an original
counterpart.
7.11 Further Action. Each of the parties hereto shall cooperate
fully with the other parties and shall use all reasonable efforts to take, or
cause to be taken, all appropriate action, do or cause to be done all things
necessary, proper or advisable under applicable laws, and execute and deliver
such documents and other papers as may be required or appropriate to carry out
the provisions of this Agreement and consummate and make effective the
transactions contemplated hereby.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
GOMEZ ADVISORS, INC.
By: /s/ Julio Gomez
----------------------------------------
Name: Julio Gomez
Title: President
THE ASHTON TECHNOLOGY GROUP, INC.
By: /s/ Fredric W. Rittereiser
----------------------------------------
Name: Fredric Rittereiser
Title: President & CEO
/s/ Julio Gomez
--------------------------------------------
JULIO GOMEZ
/s/ John Robb
--------------------------------------------
JOHN ROBB
/s/ Alexander Stein
--------------------------------------------
ALEXANDER STEIN
/s/ Fredric W. Rittereiser
--------------------------------------------
FREDRIC W. RITTEREISER
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/s/ K. Ivan F. Gothner
--------------------------------------------
K. IVAN F. GOTHNER
/s/ Arthur J. Bacci
--------------------------------------------
ARTHUR J. BACCI
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EXHIBIT 10.2
STOCKHOLDERS AGREEMENT
of
GOMEZ ADVISORS, INC.
(A Delaware Corporation)
Effective as of January 22, 1999
<PAGE>
STOCKHOLDERS AGREEMENT, dated as of January 22, 1999, by and among
GOMEZ ADVISORS, INC., a Delaware corporation (the "Company"), THE ASHTON
TECHNOLOGY GROUP, INC., a Delaware corporation ("Ashton"), JULIO GOMEZ, an
individual ("Gomez"), JOHN M. ROBB, an individual ("Robb"), ALEXANDER STEIN, an
individual ("Stein", and together with Gomez and Robb, the "Gomez Principals"),
FREDRIC W. RITTEREISER, an individual ("Rittereiser"), K. IVAN F. GOTHNER, an
individual ("Gothner"), and ARTHUR J. BACCI, an individual ("Bacci").
RECITALS:
As of the date of this Agreement, the Company is entering into an
Exchange Agreement (the "Exchange Agreement") with the other parties hereto.
After giving effect to the transactions contemplated by the Exchange
Agreement, the Company is authorized by its Restated Certificate of
Incorporation (the "Certificate of Incorporation") to issue (i) 60,000 shares of
its Common Stock, par value $.0001 per share, of which no shares are
outstanding, (ii) 29,940,000 shares of its Class A Common Stock, par value
$.0001 per share (the "Common Stock"), of which 3,003 are outstanding, (iii)
2,990,000 shares of its preferred stock, par value $.01 per share, of which no
shares are outstanding, and (iv) 10,000 shares of its Series A Convertible
Voting Preferred Stock, par value $.01 per share, of which 4,905 shares are
outstanding.
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The parties wish to (i) provide for the voting of the Shares (as
defined herein), certain rights and obligations relating to the transfer of
Shares and certain other arrangements concerning the governance of the Company
and related business matters, and (ii) provide registration rights with respect
to certain shares of Common Stock, all as set forth herein.
In consideration of the foregoing recitals and of the mutual
agreements contained herein, the parties agree as follows:
1. Construction.
1.1 Definitions. As used herein the following terms shall have the
following meanings:
Affiliate: with respect to a specified Person, an officer or
director of such Person, or a Person who, directly or indirectly through one or
more intermediaries, owns, Controls, is owned or Controlled by, or is under
common ownership or Control with, the Person specified.
Agreement: this Stockholders Agreement, dated as of the date hereof,
as amended from time to time.
Appraiser: the meaning set forth in Section 6.3.
Ashton Executives: together, Rittereiser, Gothner, Bacci and any
other person who, after the date of this Agreement,
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purchases shares of Common Stock pursuant to Section 6.3 of the Exchange
Agreement.
Ashton Executive Shares: all shares of Common Stock owned now or in
the future by the Ashton Executives and their Permitted Transferees, and any
Common Stock issued with respect to such Common Stock by way of a stock dividend
or stock split or in connection with a combination of shares, recapitalization,
merger, consolidation or other reorganization.
Ashton Shares: all shares of Common Stock owned now or in the future
by Ashton, the Ashton Executives and their Permitted Transferees, the shares of
Common Stock issued upon conversion of the Preferred Stock and any Common Stock
issued with respect to such Common Stock by way of a stock dividend or stock
split or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization.
ATG Shares: all shares of Common Stock owned now or in the future by
Ashton and its Permitted Transferees, the shares of Common Stock issued upon
conversion of the Preferred Stock and any Common Stock issued with respect to
such Common Stock by way of a stock dividend or stock split or in connection
with a combination of shares, recapitalization, merger, consolidation or other
reorganization.
Board: the Board of Directors of the Company.
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Certificate of Incorporation: the meaning set forth in the Recitals.
Common Stock: the meaning set forth in the Recitals.
Company: the meaning set forth in the introductory paragraph.
Control: (including, with correlative meaning, the terms "Controlled
by" and "under common Control with"), as used with respect to any Person, means
the possession, direct or indirect, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.
Disability: an individual's inability, due to physical or mental
incapacity or impairment, to fully perform the tasks usually encountered in such
individual's employment with the Company for at least 90 consecutive days, or
for a period shorter than 90 consecutive days as determined by the Board after
consultation with a medical expert.
for cause: with respect to any Stockholder who has an employment
agreement with the Company, as set forth in such employment agreement;
otherwise, any of the following: (i) the willful failure or refusal, after
notice thereof, to perform specific directives of the Board, Chief Executive
Officer or President of the Company, when such directives are consistent
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with the scope and nature of the employee's duties and responsibilities; (ii)
willful dishonesty of the employee affecting the Company; (iii) chronic
alcoholism or drug abuse; (iv) the employee's conviction for committing a felony
or any crime involving moral turpitude or fraud; (iv) engagement in negligence
or conduct injurious to the Company or its affiliates; or (v) substantial and
repeated failure of the employee to adequately perform the employee's duties and
responsibilities to the Company, continuing after notice thereof.
Gomez Shares: all shares of Common Stock owned now or in the future
by the Gomez Principals and their Permitted Transferees, the shares of Common
Stock issued upon exercise of the Gomez Principals Options (as defined in the
Exchange Agreement) and any Common Stock issued with respect to such Common
Stock by way of a stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization.
IPO: an initial underwritten public offering pursuant to an
effective registration statement under the Securities Act covering the offer and
sale of Common Stock to the public.
Nominee: the meaning set forth in Section 2.1.
Note: a subordinated promissory note of the Company with the
following terms: (i) a maturity date four years after the Note Issue Date (but
which may be prepaid at any time without
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penalty); (ii) principal and interest payments to commence on the first
anniversary of the Note Issue Date; (iii) principal and interest payable in
annual installments comprising 25% of the original principal amount of the Note
plus interest accrued on the unpaid principal amount of the Note to the date of
such payment; (iv) interest to accrue on all unpaid principal from the date of
the Note at a rate equal to the lowest rate that would not cause the recognition
of imputed or deemed interest pursuant to the Internal Revenue Code of 1986, as
amended, and the rules and regulations thereunder; and (v) payment subordinated
to the payment of all other indebtedness of the Company except Notes (all of
which shall rank pari passu).
Note Issue Date: the date of issuance by the Company of any Note.
Permitted Transferee: the issue, spouse or family trust of a
Stockholder to whom Shares are transferred by such Stockholder (i) by will or
the laws of descent or distribution or (ii) by gift without consideration of any
kind.
Person: an individual, firm, corporation, trust, joint venture,
partnership, limited liability company, association, unincorporated organization
or other entity or any governmental body or subdivision, agency, commission or
authority thereof.
Preferred Stock: the Series A Convertible Voting Preferred Stock,
par value $.01 per share, of the Company.
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<PAGE>
Securities Act: the Securities Act of 1933, as amended.
Shares: outstanding shares of Common Stock and Preferred Stock,
including, without limitation, any shares of Common Stock or other securities
resulting from the exercise of stock options, a conversion, split-up,
combination, recapitalization, dividend or exchange.
Stockholder: Each Person (other than the Company) who shall be a
party to this Agreement whether in connection with the execution and delivery
hereof as of the date hereof, as a purchaser of any shares of Common Stock
pursuant to Section 6.3 of the Exchange Agreement, as a transferee of Shares who
becomes bound by the provisions hereof pursuant to Section 6 of this Agreement
or otherwise, so long as such Person shall beneficially own any Shares.
Subsidiary: as to any Person, a corporation, limited liability
company or other entity of which shares or other rights or securities having
voting power to elect a majority of the board of directors or other governing
body are at the time owned, directly or indirectly, through one or more
intermediaries, by such Person.
Termination Date: the earlier to occur of (i) the date that is two
years following the date hereof and (ii) the consummation of the IPO.
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Transfer: the meaning set forth in Section 5.1.
1.2 Interpretation. When the context in which words are used in this
Agreement indicates that such is the intent, singular words include the plural
and vice versa and masculine words include the feminine and the neuter and vice
versa. References herein to Sections are to the appropriate sections of this
Agreement unless otherwise expressly so stated. The words "herein", "hereof" and
"hereunder" and other words of similar import refer to this Agreement as a whole
and not to any particular Section or other subdivision.
1.3 Headings. The headings or captions included in this Agreement
are inserted for convenience of reference only and shall not be construed to
define or limit the scope, extent or intent of this Agreement or any of its
provisions.
8
<PAGE>
2. Board of Directors.
2.1 Voting for Directors. Initially, the Board shall consist of the
following six directors: Stein and Rittereiser as Class III Directors, Robb and
Gothner as Class II Directors, and Gomez and Bacci as Class I Directors. For so
long as the IPO shall not have occurred, such number of directors shall not be
increased or decreased. Each Stockholder shall vote all Shares now or hereafter
owned by him or her, at any regular or special meeting of stockholders called
for the purpose, for, or otherwise consent to, the election to the Board of the
individuals nominated in accordance with Section 2.2 (the "Nominees").
2.2 Nominees. (a) For so long as the IPO shall not have occurred,
Nominees for election to the Board shall be selected as follows:
(i) Gomez shall be entitled to designate one Nominee which shall
initially be Gomez; provided, however, that if such designated
Nominee is a Person other than Gomez, then such designee shall not
be eligible to be elected to the Board unless such designee is
approved by a majority of the other directors of the Company;
provided, further, that if Gomez shall cease to be an executive
officer of the Company, the right to designate one Nominee pursuant
to this paragraph (i) shall be vested in Robb and Stein; and
provided, further, that if both Robb and Stein shall cease to be
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<PAGE>
executive officers of the Company, the right to designate one
Nominee pursuant to this paragraph (i) shall be vested in the Board.
(ii) Robb shall be entitled to designate one Nominee which shall
initially be Robb; provided, however, that if such designated
Nominee is a Person other than Robb, then such designee shall not be
eligible to be elected to the Board unless such designee is approved
by a majority of the other directors of the Company; provided,
further, that if Robb shall cease to be an executive officer of the
Company, the right to designate one Nominee pursuant to this
paragraph (ii) shall be vested in Gomez (for so long as Gomez is an
executive officer of the Company), subject to the approval of Ashton
which shall not be unreasonably withheld; and provided, further,
that if Gomez shall cease to be an executive officer of the Company,
the right to designate one Nominee pursuant to this paragraph (ii)
shall be vested in the Board.
(iii) Stein shall be entitled to designate one Nominee which shall
initially be Stein; provided, however, that if such designated
Nominee is a Person other than Stein, then such designee shall not
be eligible to be elected to the Board unless such designee is
approved by a majority of the other directors of the Company;
provided, further, that if Stein shall cease to be an
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<PAGE>
executive officer of the Company, the right to designate one Nominee
pursuant to this paragraph (iii) shall be vested in Gomez (for so
long as Gomez is an executive officer of the Company), subject to
the approval of Ashton which shall not be unreasonably withheld; and
provided, further, that if Gomez shall cease to be an executive
officer of the Company, the right to designate one Nominee pursuant
to this paragraph (iii) shall be vested in the Board.
(iv) Ashton shall be entitled to designate three Nominees which
shall initially be Rittereiser, Gothner and Bacci; provided,
however, that if Ashton and the Ashton Executives shall together own
less than 5% of the outstanding Shares, then the Board shall be
entitled to remove from the Board any Nominees then serving as a
director pursuant to this paragraph (iv), and the right to designate
three Nominees pursuant to this paragraph (iv) shall be vested in
the Board.
(b) From and after such time as the IPO shall have been consummated,
subject to the approval of Ashton, which approval shall not be unreasonably
withheld, two additional independent Nominees who are not employees of the
Company, Stockholders or Permitted Transferees of Stockholders shall be
designated by Gomez; provided, however, that following the election of such two
independent Nominees to the Board, the
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voting requirements of this Section 2 shall terminate and have no further force
or effect.
2.3 Substitution. If any Nominee designated as provided in Section
2.2 shall be unable or unwilling to serve on the Board or shall resign
therefrom, the Person or Persons who designated such Nominee shall be entitled
to designate a replacement (provided that such Person or Persons are then
entitled to designate a Nominee pursuant to the provision of Section 2.2 that
governed the designation of the original Nominee), and the Person designated as
a replacement shall then be a Nominee for the purposes of this Agreement.
2.4 Removal. Each Stockholder agrees that if, at any time, such
Stockholder is then entitled to vote for the removal of directors of the Company
(other than any vote to remove a director for cause), then such Stockholder will
not vote any of his or her Shares in favor of the removal of (i) any director
who shall have been designated or nominated by the Board unless the Board
consents to such removal or (ii) any director who shall have been designated or
nominated by a Stockholder unless such removal shall have been consented to in
writing by the Stockholder making such designation or nomination.
3. Voting of Ashton Executives Shares. From the date hereof until
the Termination Date, each Ashton Executive shall cause the shares of Common
Stock owned by such Ashton Executive to be voted at any meeting of the
stockholders of the Company or
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in any consent in lieu of such a meeting for and/or against any proposal in the
same proportion as all other Shares are voted at such meeting or consent in lieu
of meeting, as the case may be.
4. Forfeiture of Shares by Ashton Executives. Notwithstanding the
provisions of Section 6 of this Agreement, if any Ashton Executive is no longer
employed (as a direct employee or as a consultant) by Ashton or any of its
Subsidiaries (including the Company) on or after the date hereof and prior to
the Termination Date, then such Ashton Executive shall forfeit his Shares to the
Company and the Company shall have the right and obligation to purchase from
such Ashton Executive (including any Permitted Transferees of such Ashton
Executive) or his or her estate, and such Ashton Executive (including any
Permitted Transferees of such Ashton Executive) or his or her estate shall have
the right and obligation to sell to the Company, all of the Shares owned by such
Ashton Executive (and such Ashton Executive's Permitted Transferees) promptly
after such event at a purchase price equal to the purchase price paid by such
Ashton Executive for such Shares.
5. Restrictions on Transferability of Shares.
5.1 Certain Definitions. For the purposes of this Section 5
"Transfer", as to any Shares, means any transfer, sale, exchange, assignment,
the creation of any option or right to purchase, security interest or other
encumbrance, and any other disposition of any kind, whether voluntary or
involuntary,
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affecting title to, possession of or voting rights in respect of such Shares, or
any interest therein.
5.2 Restriction on Transfer. Except as required hereunder, until the
consummation of the IPO, no Stockholder may Transfer or permit the Transfer of
any of his or her Shares to any Person except (i) with the prior approval of the
Board or (ii) to a Permitted Transferee who shall have been approved by the
Board, but, in each case, only if such transferee shall agree to be bound by the
terms and conditions of this Agreement, including, without limitation, the
obligations to sell Shares set forth in Section 6. The Company shall not
Transfer on its books any certificates evidencing Shares or certificates in lieu
thereof unless the related provisions of this Agreement shall have been complied
with. Any purported Transfer in violation of this Agreement shall be void.
5.3 Legends. Each certificate evidencing Shares now or hereafter
registered in the name of any Stockholder shall be endorsed with a legend
substantially as follows:
The shares evidenced by this certificate are subject to the
restrictions contained in a Stockholders Agreement, effective as of
January __, 1999, among the Company and certain stockholders of the
Company, a copy of which is on file in the offices of the Company
and will be furnished to the holder of this certificate upon
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written request and without charge. Ownership, voting and transfer
of such shares are subject to the terms of such Agreement. The
holder of this certificate, by acceptance hereof, agrees to be bound
by all the terms of such Agreement, as the same is in effect from
time to time. No vote, sale, assignment, encumbrance, pledge,
transfer or other hypothecation or disposition of such shares shall
be made except in compliance with such Agreement.
60 Mandatory Purchase on Death, Disability, or Termination of
Employment.
6.1 Death or Disability. Subject to the provisions of Section 4 of
this Agreement, in the event of the death or Disability of a Stockholder prior
to the IPO, the Company shall have the right and obligation to purchase from
such Stockholder (including any Permitted Transferees of such Stockholder) or
his or her estate, and such Stockholder (including any Permitted Transferees of
such Stockholder) or his or her estate shall have the right and obligation to
sell to the Company, all of the Shares held by such Stockholder (and such
Stockholder's Permitted Transferees) at the time of such event at a purchase
price equal to the Share Value (as defined in Section 6.3) of such Shares. The
purchase price for the Shares to be purchased shall be paid, at the option of
the Company in its sole discretion, in cash or by delivery of cash (equal to at
least 20% of the purchase price)
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and a Note in principal amount equal to the balance of such purchase price,
against receipt by the Company of all duly executed instruments and documents
necessary to transfer all right, title and interest of the sellers in the Shares
to the Company, free and clear of all liens, claims and encumbrances. Except as
provided in the next sentence, the closing of such purchase and sale shall take
place within 10 business days of the event giving rise to such purchase and
sale, except that in the event of an appraisal as contemplated by the first
sentence of Section 6.3, such closing shall take place within 10 business days
after the issuance of the report of the Appraiser. Notwithstanding the previous
sentence, if the event giving rise to the purchase and sale is the death of the
Stockholder, then the closing of such purchase and sale shall take place as
promptly as practicable (including, if possible, within the periods specified in
the previous sentence), but in no event more than five business days after the
appointment of the legal representative of the deceased Stockholder.
6.2 Termination of Employment. Subject to the provisions of Section
4 of this Agreement, in the event that, prior to the IPO, any Stockholder's
employment with Ashton and/or its Subsidiaries (including the Company) is (i)
terminated by Ashton and/or its Subsidiaries for cause, or (ii) voluntarily
terminated by a Stockholder other than as a result of such Stockholder's death
or Disability, then the Company shall have the right and obligation to purchase
from the Stockholder (including any Permitted Transferees of such Stockholder),
and
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such Stockholder (including any Permitted Transferees of such Stockholder) shall
have the right and obligation to sell to the Company, all of the Shares held by
such Stockholder (and such Stockholder's Permitted Transferees) promptly after
such event. The purchase price for such Shares shall be determined as follows:
(i) if such Stockholder voluntarily terminates his employment with the Company
other than because of a Disability, then the purchase price shall be the Share
Value for such Shares, provided, that, in determining the Share Value, the
Appraiser (as defined in Section 6.3) shall take into account the diminution in
value of the Company resulting from the termination of employment of such
Stockholder; or (ii) if the employment of such Stockholder is terminated by the
Company for cause, then the purchase price shall be for an amount equal to the
lesser of (X) the Share Value for such Shares or (Y) the purchase price paid by
such Stockholder for such Shares. The purchase price for the Shares to be so
purchased shall be paid, at the option of the Company in its sole discretion, in
cash or by delivery at the closing of cash (equal to at least 20% of the
purchase price) and a Note in principal amount equal to the balance of such
purchase price, against receipt by the Company of all duly executed instruments
and documents necessary to transfer all right, title and interest of the sellers
in the Shares to the Company, free and clear of all liens, claims and
encumbrances. The closing of such purchase and sale shall take place within 10
business days of the event giving rise to such purchase and sale, except that in
the event of an appraisal as contemplated by the first sentence of Section 6.3,
such closing shall take place within 10
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business days after the issuance of the report of the Appraiser.
6.3 Determination of Share Value. Subject to the provisions set
forth below, for purposes of this Agreement, "Share Value" shall be determined
by an appraisal of the Shares made by an independent accountant or investment
banking professional selected by the Board who shall be knowledgeable in valuing
the capital stock of companies engaged in businesses similar to the business
engaged in by the Company (the "Appraiser"); provided, however, that if such an
appraisal shall have been issued at any time during the preceding 12 months,
then, unless the Board elects to make a new appraisal of the Shares, the Share
Value shall be as set forth in such appraisal and no new appraisal shall be
required. Notwithstanding the preceding sentences, the Board may order an
appraisal of the Shares to determine Share Value at any time if the Board
believes that there has been, since the date of the last determination of Share
Value, a material adverse change in the business, operations, assets or
liabilities, employee relationships, customer relationships, results of
operations, prospects or the condition (financial or otherwise) of the Company.
The fees and disbursements of the Appraiser shall be paid by the Company. Within
30 days after being retained by the Company, the Appraiser shall issue a report
setting forth the value of the Shares and a reasonably detailed explanation of
the methods used to determine such value.
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6.4 Voting of Shares. Notwithstanding anything to the contrary
contained in this Agreement, in the event of a Stockholder's death, Disability
or termination of employment with the Company (for any reason), such Stockholder
and such Stockholder's Permitted Transferees, if any, shall be required to vote
all Shares held by such Stockholder and such Permitted Transferees (including,
without limitation, abstaining from voting) as directed by the Board.
70 Registration Rights.
7.1 Registration of the Gomez Shares in the IPO. (a) Holders of the
Gomez Shares have the right to request that such Gomez Shares be registered in
the registration statement (other than a registration statement on Form S-4, S-8
or similar form) (the "IPO Registration Statement") that the Company files with
the Securities and Exchange Commission (the "Commission") for the purpose of
effecting the IPO; provided, however, that the maximum number of Gomez Shares to
be included in the IPO Registration Statement shall equal 10% of the total
number of shares of Common Stock offered in the IPO (exclusive of any
overallotment). The inclusion of such Gomez Shares in the IPO Registration
Statement is subject to any restrictions, cutbacks, lockups or other conditions
imposed by the managing underwriter of the Company's IPO (the "Underwriter")
which the Underwriter determines in its sole discretion are necessary to effect
the IPO.
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(b) If the Underwriter informs the Company in writing that in the
Underwriter's opinion the total number of shares of the Common Stock which the
Company, the holders of the Gomez Shares and any other holders of shares of the
Common Stock entitled to participate in the IPO Registration Statement request
to include in the IPO Registration Statement is an amount which would adversely
affect the success of the IPO including, without limitation, the price at which
the Common Stock can be offered, then the Company will be required to include in
the IPO Registration Statement only the amount of shares of Common Stock which
it is so advised by the Underwriter. In such event, the shares shall be included
on the IPO Registration Statement pursuant to the following priority: first, the
shares of the Common Stock to be sold for the account of the Company (including
any shares to be sold pursuant to any overallotment); second, the Gomez Shares;
and third, the shares of Common Stock to be sold for the account of such holders
who in the future may be granted incidental registration rights in the IPO
Registration Statement. In the event that the Underwriter determines that some,
but less than all, of the Gomez Shares requested for inclusion can be included
in the IPO Registration Statement, then a pro rata amount of the Gomez Shares
requested by each holder shall be included in the IPO Registration Statement
(subject to the rights of the Company to include all of its shares in the IPO
Registration Statement as provided above). The Underwriter may determine in its
sole discretion that none of the Gomez Shares should be included in the IPO
Registration Statement.
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(c) Other than pursuant to Section 7.3, the Gomez Principals shall
not have any additional registration rights with respect to the Gomez Shares if
all or any portion of the Gomez Shares are cutback or not otherwise permitted to
be included in the IPO Registration Statement in accordance with this Agreement.
(d) If requested by the Underwriter, each holder of the Gomez Shares
participating in the IPO Registration Statement will enter into an underwriting
agreement with the Underwriter and the Company. Each holder of the Gomez Shares
will be required to make such representations and warranties to, and agreements
with, the Company and the Underwriter as are customarily contained in an
underwriting agreement of this type including, without limitation,
representations, warranties and agreements, including indemnities, regarding the
holders of the Gomez Shares, the Gomez Shares and the holders' of the Gomez
Shares intended method of distribution and any other representations required by
law.
(e) Each holder of the Gomez Shares hereby agrees that it/he will
not sell or otherwise dispose of any of the Gomez Shares during the period
beginning seven days prior to the effective date of the IPO Registration
Statement and ending 180 days after the effective date of the IPO Registration
Statement; provided, however, this Section 7.1(e) shall not apply to any of the
Gomez Shares which are included in the IPO Registration Statement.
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(f) The Company shall notify each holder of the Gomez Shares
appearing on the Company's records as a record holder of the Gomez Shares as of
the date 10 business days prior to the filing of the preliminary IPO
Registration Statement with the Commission of their right to request
registration of their Gomez Shares in the IPO Registration Statement pursuant to
the terms and conditions of this Agreement within 10 business days prior to the
filing of such preliminary IPO Registration Statement. In order to exercise its
registration rights under this Section 7.1, holders of the Gomez Shares must
notify the Company in writing of its request to include its Gomez Shares in the
IPO Registration Statement within 10 business days after the Company has
delivered such notice.
7.2 Registration Rights of the Ashton Shares. (a) Commencing 180
days following the consummation of the IPO, holders of the Ashton Shares shall
have the right to require the Company (subject to (x) the shares of the Common
Stock to be sold for the account of such holders who in the future may be
granted demand registration rights expressly senior to those of the holders of
the Ashton Shares and (y) the conditions set forth in Section 7.4) on four
separate occasions, to exercise its reasonable best efforts to (i) cause a
registration statement (each, a "Demand Registration Statement") to be declared
effective for the public sale under the Securities Act of the Ashton Shares, and
(ii) maintain the effectiveness of each such Demand Registration Statement for
at least 180 days.
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(b) The Company shall include in each Demand Registration Statement
at least 25% of the total number of Ashton Shares outstanding as of the date of
this Agreement; provided, however, if market conditions allow, the Board may by
written resolution permit more than 25% of the total number of such shares to be
included in a Demand Registration Statement.
(c) Unless Ashton and each Ashton Executive otherwise unanimously
agree in writing:
(i) the first Demand Registration Statement shall contain (A) at
least 50% of the Ashton Executive Shares, if so requested, and (B) a number of
ATG Shares which, when added to the Ashton Executive Shares equals at least 25%
of the total number of Ashton Shares outstanding as of the date of this
Agreement;
(ii) the second Demand Registration Statement shall contain (A) the
remaining Ashton Executive Shares, if so requested, and (B) a number of ATG
Shares which, when added to the remaining Ashton Executive Shares, equals at
least 25% of the total number of Ashton Shares outstanding as of the date of
this Agreement;
(iii) the third Demand Registration Statement shall contain a number
of ATG Shares equal to at least 25% of the total number of Ashton Shares
outstanding as of the date of this Agreement; and
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(iv) the fourth Demand Registration Statement shall contain all
remaining ATG Shares.
Unless otherwise unanimously agreed to in writing by each Ashton Executive, the
number of Ashton Executive Shares to be included in a Demand Registration
Statement for the account of each Ashton Executive shall be proportionate to the
total number of Ashton Executive Shares outstanding.
(d) The first demand registration right granted hereunder may be
exercised no earlier than 180 days after the consummation of the IPO, and each
successive demand registration right may be exercised no earlier than one year
after the effective date of the preceding Demand Registration Statement.
(e) Ashton and the Ashton Executives shall be entitled to use an
underwriter to effect the offering of the Ashton Shares pursuant to the Demand
Registration Statements. Ashton shall select the underwriters, if any, to use in
connection therewith, subject to the approval of the Board, which shall not be
unreasonably withheld. Ashton shall be entitled to select the form of the Demand
Registration Statement for the Company to use in connection with the offering of
the Ashton Shares.
(f) Gomez, Robb and Stein agree not to sell any shares of Common
Stock for their respective accounts for a period beginning seven days prior to
the effective date of each Demand
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Registration Statement and ending on the earlier of (i) 180 days after each such
effective date, or (ii) the date that all shares included in the Demand
Registration Statement are sold.
(g) In order for the registration rights set forth in this Section
7.2 to be exercised, a written request with the signatures of holders of at
least 67% of the Ashton Shares then outstanding must be delivered to the
Company. Upon the Company's receipt of such written request, which must include
the intended method of distribution of the Ashton Shares to be sold pursuant to
such registration statement, the Company within 20 business days shall give
notice of the exercise of this registration right to each holder (the
"Non-Participating Ashton Holders") of the Ashton Shares (other than those
included in such request) appearing on the Company's records as a record holder
of Ashton Shares as of the date the Company receives such request. In order to
exercise registration rights under this Section 7.2, each Non-Participating
Ashton Holder must notify the Company in writing of its/his intention to be
included in the registration request within 10 business days after the Company
has delivered such notice.
7.3 Piggyback Registration. If, after one year following the
consummation of the IPO, the Company proposes to register Common Stock under the
Securities Act (otherwise than (i) in connection with the registration of
securities issuable pursuant to an employee stock option, stock purchase or
similar plan, (ii) pursuant to a merger, exchange offer or a transaction
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of the type specified in Rule 145(a) under the Securities Act, or (iii) in
connection with the first Demand Registration Statement requested by the holders
of the Ashton Shares pursuant to Section 7.2), the Company shall give each
holder of Ashton Shares and Gomez Shares notice of such proposed registration at
least 30 days prior to the filing of a registration statement. At the written
request of any such holder within 15 days after the receipt of the notice from
the Company, any such request stating the number of Ashton Shares or Gomez
Shares that such holder wishes to sell or distribute publicly under the
registration statement proposed to be filed by the Company, the Company shall
use its reasonable best efforts to register under the Securities Act the sale of
such Ashton Shares and/or Gomez Shares (which, in the aggregate, shall not
exceed 25% of the shares being registered), and to cause such registration
statement (the "Piggyback Registration") to become and remain effective for 180
days; provided, however, that the holders of the Gomez Shares shall not have the
right to include any such Gomez Shares in the first Demand Registration
Statement requested by the holders of the Ashton Shares pursuant to Section 7.2;
and provided, further, that the holders of the Ashton Shares shall not have the
right to include any such Ashton Shares in the first registration statement
filed by the Company following the IPO which does not involve an underwritten
offering of the securities so being registered. The Company may at any time
withdraw or cease proceeding with the Piggyback Registration if it shall at the
same time withdraw or cease proceeding with the registration of all the
securities originally proposed to be registered.
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If the Piggyback Registration involves an underwritten offering of
the securities so being registered and the managing underwriters advise the
Company in writing that in their opinion the number of securities requested to
be included in such registration exceeds the number which can be sold in such
offering, then the shares to be included in the registration and underwriting
shall be allocated (i) if the Piggyback Registration is also a Demand
Registration Statement (other than the first Demand Registration Statement)
initiated by the holders of the Ashton Shares pursuant to Section 7.2, first, to
the minimum number of Ashton Shares required to be included in such Demand
Registration Statement pursuant to Section 7.2(c), second, to the Company for
shares being sold for its own account, and third, in the ratio of one Ashton
Share for every Gomez Share requested by the holders thereof to be included in
such registration statement, or (ii) if the Piggyback Registration is not also a
Demand Registration Statement, first, to the Company for shares being sold for
its own account, second, to shares of Common Stock to be sold for the account of
such holders who in the future may be granted registration rights expressly
senior to those of the holders of the Ashton Shares and the Gomez Shares
hereunder, and third, in the ratio of one Ashton Share for every Gomez Share
requested by the holders thereof to be included in such registration statement.
7.4 General Registration Rights Provisions. The following
provisions, unless otherwise stated, shall be
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applicable to any registration to be effected pursuant to the rights exercised
under Section 7.1, 7.2 or 7.3 hereof.
(a) The holders whose Ashton Shares or Gomez Shares are to be
included in any registration statement as provided in Section 7.1 or 7.2 (the
"Sellers") agree to furnish the Company with such information regarding the
Sellers and the distribution of the Ashton Shares or Gomez Shares, as the case
may be, as the Company shall from time to time reasonably request in writing and
as shall be required by applicable federal or state law or the Commission in
connection therewith.
(b) Following the effective date of the applicable registration
statement, the Company shall upon the request of any Seller supply a reasonable
number of prospectuses meeting the requirements of the Securities Act as shall
be requested by such Seller to permit such Seller to make a public offering of
the securities of such Seller included therein.
(c) The Company shall use reasonable efforts (i) to qualify the
securities included in an applicable registration statement for sale in such
states as the Sellers shall reasonably designate, provided that no such
qualification shall be required in any jurisdiction where, as a result thereof,
the Company would be subject to service of general process or to taxation as a
foreign corporation doing business in such jurisdiction to which it is not then
subject and (ii) to qualify such offering with the National Association of
Securities Dealers, Inc., if applicable.
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(d) The Company's obligations under Section 7.2 to exercise
reasonable best efforts to cause a registration statement to be declared
effective by the Commission for the public sale of Ashton Shares under the
Securities Act are limited to the following:
(i) The Company will prepare and file with the Commission the
form of registration statement selected by Ashton pursuant to Section 7.2(e) to
effect such registration and thereafter use reasonable best efforts in good
faith to cause such registration statement to become effective; provided,
however, that the Company may discontinue any registration of securities or
suspend the effectiveness of any registration statement in accordance with
Section 7.4(i); and
(ii) The Company will prepare and file with the Commission
such amendments and supplements to the applicable registration statement and the
prospectus used in connection therewith as may be necessary to keep such
registration statement effective and to comply with the provisions of the
Securities Act with respect to the disposition of all Ashton Shares covered by
such registration statement for 180 days or such earlier time as all of such
Ashton Shares included in such registration statement have been disposed of in
accordance with the intended methods of disposition by the Sellers set forth in
such registration statement; provided, however, that the Company may discontinue
any registration of securities or suspend the effectiveness of any registration
statement in accordance with Section 7.4(i).
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(e) The Company shall indemnify and hold harmless each Seller and
each underwriter (if applicable), within the meaning of the Securities Act, who
may purchase from or sell for any Seller any Gomez Shares or Ashton Shares, as
the case may be, from and against any and all loss, liability, claim, damage and
expense whatsoever (including, but not limited to, any and all expenses
reasonably incurred in investigating, preparing or defending against any
litigation, commenced or threatened, or any claim whatsoever) arising out of any
untrue statement or alleged untrue statement of a material fact contained in the
applicable registration statement or any prospectus included therein required to
be filed or furnished by reason of this Section 7 or any amendment or supplement
thereto, or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, except insofar as such loss, liability, claim, damage or expense is
caused by any such untrue statement or alleged untrue statement or omission or
alleged omission based upon written information furnished to the Company by a
Seller or underwriter expressly for use therein. This indemnification shall
include each person, if any, who controls a Seller or underwriter within the
meaning of the Securities Act; provided, however, that the indemnity agreement
set forth in this Section 7 with respect to any registration statement or
prospectus which shall be subsequently amended prior to the written confirmation
of the sale of any Ashton Shares or Gomez Shares, as the case may
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be, pursuant thereto, shall not inure to the benefit of any Seller or
underwriter from whom the person asserting any such loss, liability, claim,
damage or expense purchased the Ashton Shares or Gomez Shares, as the case may
be, which are the subject thereof (or to the benefit of any person controlling
such Seller or underwriter), if such Seller or underwriter failed to send or
give a copy of the prospectus as so amended to such person at or prior to the
written confirmation of the sale of such Ashton Shares or Gomez Shares, as the
case may be, and if the amended prospectus did not contain any untrue statement
or alleged untrue statement or omission or alleged omission giving rise to such
loss, liability, claim, damage or expense.
(f) Each Seller and underwriter (if applicable) shall at the same
time indemnify the Company, its directors, its executive officers, each officer
signing the applicable registration statement and each person who controls the
Company, within the meaning of the Securities Act, from and against any and all
loss, liability, claim, damage and expense whatsoever (including, but not
limited to, any and all expenses reasonably incurred in investigating, preparing
or defending against any litigation, commenced or threatened, or any claim
whatsoever) arising out of any untrue statement of a material fact contained in
the applicable registration statement or any prospectus included therein
required to be filed or furnished by reason of this Section 7 or any amendment
or supplement thereto, or caused by any omission or alleged omission to state
therein a material fact to be stated therein or necessary to make the statements
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therein, in light of the circumstances under which they were made, not
misleading, insofar as such loss, liability, claim, damage or expense is caused
by any untrue statement or alleged untrue statement or omission or alleged
omission based upon written information furnished to the Company by any such
Seller or underwriter expressly for use therein.
(g) If for any reason the foregoing indemnity is unavailable under
either Section 7.4(e) or 7.4(f), then the indemnifying party shall contribute to
the amount paid or payable by the indemnified party as a result of such losses,
liabilities, claims, damages or expenses (i) in such proportion as is
appropriate to reflect the relative benefits received by the indemnifying party
on the one hand and the indemnified party on the other, or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law or
provides a lesser sum to the indemnified party than is appropriate to reflect
not only the relative benefits received by the indemnifying party on the one
hand and the indemnified party on the other but also the relative fault of the
indemnifying party and the indemnified party as well as any other relevant
equitable considerations, then in such proportion as is appropriate to reflect
the relative fault of the indemnifying party and the indemnified party as well
as any other equitable considerations. Notwithstanding the foregoing, neither
party shall be required to contribute any amount in excess of the amount the
indemnifying party would have been required to pay to an indemnified party if
the indemnity under this Section 7.4(e) or 7.4(f) was available. No person
guilty of fraudulent
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misrepresentation (within the meaning of the Securities Act) shall be entitled
to contribution from any person who was not guilty of such fraudulent
misrepresentation.
(h) In their applicable request for registration of their Ashton
Shares or Gomez Shares, the Sellers must inform the Company of their intended
method of distribution of the Ashton Shares or Gomez Shares, as the case may be.
In the event that Ashton and/or the Ashton Executives request pursuant to
Section 7.2 an underwritten offering of the Ashton Shares, each Seller selling
Ashton Shares pursuant to such underwritten offering hereby agrees to enter into
an underwriting agreement with the underwriter and the Company whereby such
Seller will be required to make such representations and warranties to, and
agreements with, the Company and the underwriter as are customarily contained in
an underwriting agreement of this type, including without limitation,
representations, warranties and agreements, including indemnities, regarding the
Sellers, the Ashton Shares and the Seller's intended method of distribution and
any other representations required by law.
(i) Subject to the next sentence of this paragraph, the Company
shall be entitled to postpone, for a reasonable period of time, the filing or
effectiveness of, or suspend the rights of any Sellers to make sales pursuant
to, any registration statement otherwise required to be prepared, filed and kept
effective by it under this Section 7; provided, however, that the duration of
such postponement or suspension may not exceed the
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earlier to occur of (A) 15 business days after the cessation of the
circumstances described in the next sentence of this paragraph on which such
postponement or suspension is based or (B) 180 days after the date of the
determination of the Board referred to in the next sentence, or if the Company
is filing a registration statement under the Securities Act for the purpose of
raising capital, 180 days after the effective date of such registration
statement. Such postponement or suspension may only be effected if the Board
determines in good faith that the filing or effectiveness of, or sales pursuant
to, the applicable registration statement would materially impede, delay or
interfere with any financing, offer or sale of securities, acquisition,
corporate reorganization or other significant transaction involving the Company
or any of its affiliates (whether or not planned, proposed or authorized prior
to an exercise of registration rights hereunder or any other registration rights
agreement) or require disclosure of material information which the Company has a
bona fide business purpose for preserving as confidential. If (i) the Company
shall postpone the filing or effectiveness of a Demand Registration Statement or
suspend the rights of Sellers to make sales thereunder, (ii) a Demand
Registration Statement does not continue in effect for at least 180 days or
until the sale of all Ashton Shares included thereunder, or (iii) a Demand
Registration Statement is interfered with by a stop order, injunction or other
order or requirement of the SEC or other governmental agency or court for any
reason not the fault of Ashton or the Ashton Executives, the Company shall as
promptly as practicable notify
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any participating Sellers of such determination, and the holders of the Ashton
Shares shall have the right, upon the affirmative vote of such holders holding
not less than 51% of the Ashton Shares to be included in such registration
statement which are not sold, to withdraw the request for registration by giving
written notice to the Company within 10 business days after receipt of such
notice. Any registration right as to which the withdrawal election referred to
in the preceding sentence has been effected shall not be counted for purposes of
the registration rights which Ashton and the Ashton Executives have been granted
pursuant to Section 7.2.
(j) The registration rights set forth in Section 7.1 and 7.2 shall
terminate with respect to any holder of Ashton Shares and/or Gomez Shares at
such time as the Company receives a written opinion (the "Rule 144 Opinion")
from counsel to the Company that all of the Ashton Shares and/or Gomez Shares
owned by such holder will be eligible to be sold pursuant to Rule 144
promulgated under the Securities Act ("Rule 144") by the end of the calendar
quarter in which it receives such Rule 144 Opinion.
(k) The Company shall pay all expenses incurred in complying with
Section 7.1 and 7.2 including, without limitation, all registration and filing
fees, printing expenses, expenses of complying with securities or blue sky laws
(including fees and disbursements of counsel for the Company and counsel for any
underwriters of such offerings, but excluding fees and disbursements of counsel
representing the Sellers), all fees and
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disbursements of counsel for the Company and accountants' fees and expenses
incident to the applicable registration statement; provided, however, that the
Sellers shall pay for all underwriting fees and commissions, all fees and
disbursements of counsel for any Seller and any transfer and similar taxes to be
incurred by any Seller (collectively, the "Selling Expenses"). Unless the
Sellers otherwise unanimously agree in writing, the Sellers shall bear the
Selling Expenses in direct proportion to the number of Ashton Shares or Gomez
Shares, as the case may be, that they are seeking to register.
80 Amendments to Employment Agreements.
8.1 Section 5 and Section 6 of the Employment Agreement between the
Company and Gomez, dated as of May 15, 1997, are hereby deleted.
8.2 Section 5 and Section 6 of the Employment Agreement between the
Company and Robb, dated as of May 15, 1997, are hereby deleted.
8.3 Section 5 and Section 6 of the Employment Agreement between the
Company and Stein, dated as of May 15, 1997, are hereby deleted.
90 Representations and Warranties by the Company. the Company hereby
represents and warrants to the Stockholders as follows:
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(a) the Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware.
(b) the Company has the full right, power and authority to enter
into this Agreement and to carry out the transactions contemplated hereby. The
execution and delivery of this Agreement by the Company and the consummation by
the Company of the transactions contemplated hereby have been duly authorized by
all requisite action on the part of the Company. This Agreement has been duly
executed and delivered by the Company and is a legal, valid and binding
obligation of the Company, enforceable in accordance with its terms, except as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws and general principles of equity.
(c) There is no material claim, and no legal action, suit,
arbitration, governmental investigation or other legal or administrative
proceeding pending or threatened against, or relating to the Company or any of
its respective material properties or businesses, which would if adversely
determined prevent or impede the consummation of, or have a material adverse
effect on, any of the transactions contemplated by this Agreement nor is there
any basis known to the Company for any such action, investigation or proceeding.
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100 Term and Termination.
10.1 Term. This Agreement is effective as of the date hereof and,
unless earlier terminated, shall continue in force until the dissolution or
liquidation of the Company.
10.2 Effect of Termination. Termination of this Agreement shall not
affect or impair any rights or obligations that arise prior to or at the time of
the termination of this Agreement, or which may arise by reason of an event
causing the termination of this Agreement, and all such rights and obligations,
including the rights and obligations under any provision of this Agreement,
which by their terms are to survive termination, shall also survive. The rights
and remedies provided in this Agreement and in such other agreements shall be
cumulative and not exclusive and shall be in addition to any other rights and
remedies which the Stockholders may have under this Agreement or otherwise.
110 Miscellaneous.
11.1 Entire Agreement. This Agreement supersedes all prior oral and
written agreements between the parties with respect to the subject matter
hereof, and this Agreement and the other documents and agreements between the
parties which are referred to herein or executed contemporaneously herewith set
forth the entire agreement among the parties with respect to the transactions
contemplated hereby.
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11.2 Amendment. Any term of this Agreement may be amended and the
observance of any such term may be waived (either generally or in a particular
instance and either retroactively or prospectively) only with the written
consent of (i) the Board and (ii) Stockholders holding at least 67% of the
outstanding Shares held by Stockholders and their Permitted Transferees (after
notice to all Stockholders of the proposal to adopt such amendment). Anything in
this Section 11.2 to the contrary notwithstanding, (i) none of the terms of this
Agreement may be amended in a manner that would adversely affect the rights
hereunder of the Gomez Principals under Sections 2 and 7 without their prior
written consent and (ii) none of the terms of this Agreement may be amended in a
manner that would adversely affect the rights hereunder of the Ashton Executives
and Ashton under Sections 2 and 7 without their prior written consent, as the
case may be. Any amendment so adopted shall become effective upon the giving of
notice of such adoption to all of the Stockholders. Each Stockholder shall be
bound by any amendment or waiver adopted in accordance with this Section 11.2,
whether or not such Stockholder shall have consented thereto.
11.3 Binding Effect. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective heirs and permitted
successors and assigns. Except as otherwise expressly provided herein, neither
this Agreement nor any rights or obligations hereunder shall be assignable or
otherwise transferable by any party, voluntarily or by operation
39
<PAGE>
of law, without the prior written consent of the other parties hereto, and any
assignment or transfer without such consent shall be null and void.
11.4 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original and all of which
taken together shall constitute a single agreement.
11.5 Governing Law. This Agreement is made under and shall be
governed by and construed in accordance with the laws of the State of Delaware
(without regard to the conflict of laws principles thereof).
11.6 Further Assurances. Each party shall, at any time and from time
to time after the date hereof, do, execute, acknowledge and deliver, or cause to
be done, executed, acknowledged and delivered, all such further acts, deeds,
assignments, transfers, conveyances, powers of attorney, receipts,
acknowledgments, acceptances and assurances as may be reasonably required to
procure for any party, his, her or its successors and assigns, the benefits
intended to be conferred upon such party under this Agreement.
11.7 Severability. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by reason of any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless
40
<PAGE>
remain in full force and effect so long as the economic or legal substance of
the transactions or agreements of the parties contemplated hereby are not
affected in any manner materially adverse to any party. Upon the determination
that any term or other provision is invalid, illegal or incapable of being
enforced, the parties hereto shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as closely as
possible in a mutually acceptable manner.
11.8 Negotiation and Arbitration. (a) The parties shall attempt in
good faith to resolve any dispute arising out of or relating to this Agreement
promptly by negotiation. If a matter in dispute has not been resolved within 60
days of a party's request for negotiation, any of the parties to the dispute may
initiate arbitration as provided hereinafter. Any dispute arising out of or
relating to this Agreement or the breach, termination or validity thereof,
including, without limitation, the determination of the scope or applicability
of this agreement to arbitrate, which has not been resolved by negotiation
within 60 days after a party's request for negotiation shall be settled by
arbitration before a panel of three arbitrators in the State of Massachusetts.
The arbitration shall be governed by the Federal Arbitration Act and
administered by the American Arbitration Association under its Commercial
Arbitration Rules, provided that persons eligible to be selected as arbitrators
shall be limited to persons who are either (i) retired judges of the state or
Federal courts in New York or Massachusetts or (ii) attorneys-at-law who have
engaged in the
41
<PAGE>
private practice of law in the Borough of Manhattan or the city of Boston for at
least 10 years concentrating either in general commercial litigation or general
corporate and commercial matters. To assure the parties that disputes and
controversies subject to arbitration will be resolved expeditiously, the
arbitration hearing shall occur within 60 days after the arbitration is
initiated and any discovery prior to the arbitration hearing shall be limited
(including no more than two depositions per party). The arbitrators shall not
have authority to award punitive or exemplary damages. Each of the parties
shall, subject to the award of the arbitrators, pay an equal share of the
arbitrators' fees. The arbitrators shall have the power to award recovery of all
costs (including attorneys' fees, administrative fees, arbitrators' fees and
court costs) to the prevailing party. Judgment upon the award rendered may be
entered in any court having jurisdiction.
(b) No provision of, nor the exercise of any rights under, this
Section 11.8 shall limit the right of any party to request and obtain from a
court of competent jurisdiction before, during or after the pendency of any
arbitration, provisional or ancillary remedies and relief including, but not
limited to, the remedies provided for in Section 11.9. The institution and
maintenance of an action or judicial proceeding for, or pursuit of, provisional
or ancillary remedies shall not constitute a waiver of the right of any party,
even if it is the plaintiff, to submit the dispute to arbitration if such party
would otherwise have such right. Each of the parties hereby, for purposes of
42
<PAGE>
this provision, submits unconditionally to the non-exclusive jurisdiction of the
state and federal courts located in the State of New York, Borough of Manhattan,
waives objection to the venue of any proceeding in any such court or that any
such court provides an inconvenient forum and consents to the service of process
upon it in connection with any proceeding instituted under this Section 11.8 in
the same manner as provided for the giving of notice hereunder.
11.9 Equitable Relief. Since a party may sustain irreparable harm in
the event there is a breach of any of the covenants contained in this Agreement,
in addition to any other rights or remedies which a party may have under this
Agreement or otherwise (including the rights to require negotiation and
arbitration in accordance with Section 11.8), a party shall be entitled to
obtain specific performance or injunctive relief against any other party in any
court of competent jurisdiction for the purposes of restraining the other party
from any actual or threatened breach of any of such covenants or to compel such
other party to perform any of such covenants, without the necessity of proving
irreparable injury or the inadequacy of remedies at law or posting bond or other
security.
11.10 Notices. Any and all notices, requests, demands, consents and
other communications required or permitted under this Agreement shall be in
writing, signed by or on behalf of the party by which given, and shall be
considered to have been duly given when (i) delivered by hand, (ii) sent by
telecopier
43
<PAGE>
(with receipt confirmed), provided that a copy is mailed (on the same date) by
first class mail, postage prepaid, or (iii) received by the addressee, if sent
by Express Mail, Federal Express or other reputable express delivery service
(receipt requested), or by first class certified or registered mail, return
receipt requested, postage prepaid, in each case to the appropriate addresses
and telecopier numbers set forth below (or to such other addresses and
telecopier numbers as a party may from time to time designate as to itself by
notice similarly given to the other parties in accordance herewith). A notice of
change of address shall not be deemed given until received by the addressee.
Notice shall be given:
(1) to the Company at:
Gomez Advisors, Inc.
97 Lowell Road, Suite 13
Concord, MA 01742
Attn: President
Telecopier: (978) 287-0086
(2) to Ashton at:
The Ashton Technology Group, Inc.
1900 Market Street, Suite 701
Philadelphia, PA 19103
Attn: President
Telecopier: (215) 636-3560
(3) to the Ashton Executives at:
c/o The Ashton Technology Group, Inc.
1900 Market Street, Suite 701
Philadelphia, PA 19103
Attn: President
Telecopier: (215) 636-3560
44
<PAGE>
(4) to the Gomez Principals at:
c/o Gomez Advisors, Inc.
97 Lowell Road, Suite 13
Concord, MA 01742
Attn: President
Telecopier: (978) 287-0086
11.11 Additional Stockholders. Notwithstanding anything to the
contrary contained herein, in connection with the issuance of Common Stock to an
employee of Ashton pursuant to Section 6.3 of the Exchange Agreement, the
parties agree to permit such person to become a party to this Agreement and
succeed to all of the rights and obligations of a "Stockholder" and "Ashton
Executive" under this Agreement by obtaining an executed counterpart signature
page to this Agreement, and, upon such execution, such person shall for all
purposes be a "Stockholder" and "Ashton Executive" party to this Agreement.
45
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed, and the Stockholders have executed this Agreement, as of the date
first above written.
GOMEZ ADVISORS, INC.
By: /s/ Julio Gomez
----------------------------------------------
Name: Julio Gomez
Title: CEO
THE ASHTON TECHNOLOGY GROUP, INC.
By: /s/ Fredric W. Rittereiser
----------------------------------------------
Name: Fredric W. Rittereiser
Title: President & CEO
/s/ Julio Gomez
--------------------------------------------------
JULIO GOMEZ
/s/ John M. Robb
--------------------------------------------------
JOHN M. ROBB
/s/ Alexander D. Stein
--------------------------------------------------
ALEXANDER STEIN
/s/ Fredric W. Rittereiser
--------------------------------------------------
FREDRIC W. RITTEREISER
46
<PAGE>
/s/ K. Ivan F. Gothner
--------------------------------------------------
K. IVAN F. GOTHNER
/s/ Arthur J. Bacci
--------------------------------------------------
ARTHUR J. BACCI
47
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed, and the Stockholders have executed this Agreement, as of the date
first above written.
/s/ William Uchimoto
--------------------------------------------------
WILLIAM UCHIMOTO
/s/ John Blohm
--------------------------------------------------
John Blohm
/s/ Richard Butler
--------------------------------------------------
Richard Butler
/s/ Fred Weingard
--------------------------------------------------
Fred Weingard
48
<PAGE>
Exhibit 10.3
SUBSCRIPTION AGREEMENT
THE SECURITIES BEING OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS OR THE
RULES AND REGULATIONS PROMULGATED THEREUNDER NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE REGULATORY AUTHORITY PASSED UPON OR ENDORSED THE MERITS
OF THIS OFFERING. THE SECURITIES ARE BEING OFFERED AND SOLD PURSUANT TO AN
EXEMPTION PROVIDED BY SECTION 4(2), 4(6) AND/OR REGULATION D OF THE SECURITIES
ACT AND EXEMPTIONS UNDER CERTAIN STATE SECURITIES LAWS OR CERTAIN RULES AND
REGULATIONS PROMULGATED THEREUNDER. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL AND MAY BE A CRIMINAL OFFENSE. THE SECURITIES MAY NOT BE SUBSEQUENTLY
TRANSFERRED BY INVESTORS IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF
COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
Gomez Advisors, Inc.
c/o The Ashton Technology Group, Inc.
1900 Market Street, Suite 701
Philadelphia, Pennsylvania 19103
Attn: Arthur J. Bacci
Gentlemen:
1. SUBSCRIPTION
SUBSCRIPTION FOR THE SHARES. Subject to the terms and conditions of this
Subscription Agreement and the terms of the Offering described in the
Confidential Private Placement Memorandum, dated February 8, 1999, as
supplemented and amended through the date hereof (the "Memorandum"), the
undersigned hereby subscribes for and agrees to purchase from Gomez Advisors,
Inc., a Delaware corporation (the "Company"), shares (the "Shares") of
-----------
the Company's Series B Convertible Preferred Stock, par value $.01 per share
(the "Preferred Stock"), at a purchase price of $5.00 per Share. Unless
previously redeemed, each Share is automatically convertible into one share of
the Company's Class A Common Stock, par value $.0001 per share (the "Common
Stock"), subject to certain adjustments, concurrently with the consummation of
an initial underwritten public offering pursuant to an effective registration
statement (the "IPO Registration Statement") filed with the Securities and
Exchange Commission (the "Commission") covering the offer and sale of the Common
Stock to the public (the "IPO").
If this Subscription Agreement is being executed prior to the Initial Closing
(as defined in the Memorandum), then the undersigned herewith shall deliver a
check to the Company at the address stated above payable to "Continental Stock
Transfer & Trust Company, as Escrow
<PAGE>
Agent, f/b/o Gomez Advisors, Inc." in the
amount of $ , which amount represents the aggregate purchase price of the
-------
Shares to which the undersigned is subscribing. If this Subscription Agreement
is being executed after the Initial Closing, then the undersigned herewith shall
deliver a check to the Company at the address stated above payable to "Gomez
Advisors, Inc." or effect a wire transfer in immediately available funds to the
Company in the amount of $ , which amount represents the aggregate purchase
-----
price of the Shares to which the undersigned is subscribing.
ACCEPTANCE OF SUBSCRIPTION. The undersigned understands that the first
200,000 Shares are being offered by the Company on a "best efforts, all-or-none"
basis and the remaining 400,000 Shares on a "best efforts" basis. If
subscriptions for at least 200,000 Shares are not received and accepted by the
Company during the Offering Period (as defined in the Memorandum), the Offering
(as defined in the Memorandum) will terminate and subscriptions will be returned
to investors without interest or deduction. The Offering will continue for a
period of 60 days from the date of the Memorandum, subject to extension in the
sole discretion of the Company for an additional period of up to 60 days. The
Offering Period may also be extended for up to an additional 10 business days
for bank collection purposes. All subscriptions for the Shares are being offered
through the Company when, as and if received and accepted by the Company, and
are subject to prior sale, allotment and withdrawal. Subscriptions are also
subject to the right of the Company in its sole discretion to reject any
subscription in whole or in part, to approval of certain legal matters by the
Company's counsel and to certain further conditions. The undersigned further
understands that if and to the extent that this subscription is not accepted, in
whole or in part, any amount received by the Company from the undersigned as a
purchase price for a rejected subscription will be returned without interest or
deduction.
2. ACCESS TO INFORMATION. By executing this Subscription Agreement, the
undersigned acknowledges receipt of a copy of the Memorandum and represents that
the undersigned has read, understood and carefully reviewed the Memorandum,
including the Risk Factors and the Exhibits contained therein. The undersigned
acknowledges that the Company has made available to the undersigned, or the
undersigned's personal advisors, the opportunity to obtain additional
information to verify the accuracy of the information contained in the
Memorandum and to evaluate the merits and risks of the undersigned's investment
in the Shares.
3. REPRESENTATIONS AND WARRANTIES. The undersigned hereby represents
and warrants to the Company and to each other purchaser of the Shares:
(a) The Company has answered all inquiries that the undersigned has made of
it concerning the Company, its business and financial condition or any other
matter relating to the operation of the Company and the offer and sale of the
Shares. No oral or written statement or inducement which is contrary to the
information set forth in the Memorandum has been made by or on behalf of the
Company to the undersigned.
(b) The undersigned has such knowledge and experience in financial and
business matters in general, and financial and business matters of the type in
which the Company engages in particular, that the undersigned is capable of
evaluating the merits and risks of an investment in the Shares and in the
Company.
2
<PAGE>
(c) The undersigned is familiar with the nature of and risks attendant to
an investment of this type, is financially capable of bearing the economic risk
of this investment and can afford the loss of the total amount of his, her or
its investment in the Shares.
(d) The undersigned qualifies as an "Accredited Investor" as defined in
Regulation D ("Regulation D") under the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder (the "Securities Act").
(e) The undersigned is aware that the purchase of the Shares is a
speculative investment involving a high degree of risk, that there is no
guarantee that the undersigned will realize any gain from this investment and
that the undersigned could lose the entire amount of this investment.
(f) If the undersigned is a corporation, partnership, limited liability
company, trust or entity other than an individual person (an "Organization"), it
is duly organized and validly existing under the laws of the state and country
of its incorporation or formation, has full right and power to perform its
obligations under this Subscription Agreement and was not formed for the purpose
of acquiring the Shares. The person executing this Subscription Agreement in a
representative or fiduciary capacity has full power and authority to execute and
deliver this Subscription Agreement in such capacity and on behalf of the
subscribing Organization.
(g) The undersigned hereby acknowledges that this Subscription Agreement is
a valid and binding obligation of the undersigned, enforceable against the
undersigned in accordance with its terms.
(h) The undersigned (X) if an individual (i) is a citizen of the United
States and at least 21 years of age, and (ii) is a bona fide permanent resident
of, and is domiciled in, the state set forth on the signature page hereof and
has no present intention of becoming a resident or domicile of any other state
or jurisdiction, or (Y) if an Organization, has a principal place of business
and is domiciled in the state set forth on the signature page hereof and has no
present intention of changing its principal place of business or its domicile to
any other state or jurisdiction.
(i) The undersigned represents that the funds provided for this investment
are either separate property of the undersigned, community property over which
the undersigned has the right of control or are otherwise funds as to which the
undersigned has the sole right of management.
4. AUTHORITY. If the undersigned is an Organization, please provide the
name(s) of the officer(s), trustee(s), partner(s) or other representative(s) of
the Organization who is (are) authorized to subscribe for the purchase of the
Shares and who will be effecting the purchase:
- --------------------------------------------------------------------------------
3
<PAGE>
5. ACCREDITED INVESTOR STATUS (TO BE COMPLETED BY INDIVIDUALS ONLY)
(a) Did your individual annual income(1) during EACH of the last two years
exceed $200,000, and do you expect your annual income during the current year to
exceed $200,000; or did your joint annual income (together with your spouse)
during EACH of the last two years exceed $300,000, and do you expect your joint
annual income during the current year to exceed $300,000?
|_| YES |_| NO
(b) If the answer to the preceding questions was no, does your individual
or joint net worth (together with your spouse) exceed $1,000,000?
|_| YES |_| NO
(c) If your answers to questions 5(a) and 5(b) were no, are you an
executive officer or director of the Company?
|_| YES |_| NO
6. ACCREDITED INVESTOR STATUS (TO BE COMPLETED BY ORGANIZATIONS ONLY)
(a) Does the Organization qualify as: (i) a bank as defined in section
3(a)(2) of the Securities Act or a savings and loan association or other
institution as defined in Section 3(a)(5)(A) of the Securities Act, whether
acting in its individual or fiduciary capacity; a broker dealer registered
pursuant to Section 15 of the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder; an insurance company as
defined in section 2(13) of the Securities Act; an investment company registered
under the Investment Company Act of 1940, as amended, and the rules and
regulations promulgated thereunder (the "Investment Company Act"), or a business
development company as defined in section 2(a)(48) of the Investment Company
Act; a Small Business Investment Company licensed by the U.S. Small Business
Administration under Section 301(c) or (d) of the Small Business Investment Act
of 1958, as amended, and the rules and regulations promulgated thereunder; a
plan established and maintained by a state, its political subdivisions, or any
agency or instrumentality of a state or its political subdivisions, for the
benefit of its employees, and such plan has total assets in excess of
$5,000,000; an employee benefit plan within the meaning of the Employee
Retirement Income Security Act of 1974, as amended, and the rules and
regulations promulgated thereunder (the "Employee Retirement Income Act") and
the investment decision is made by a plan fiduciary, as defined in section 3(21)
of Employee Retirement Income Act, which is either a bank, savings
- --------------------------------------
1 For this purpose, a person's income is the amount of his or her individual
adjusted gross income (as reported on a federal income tax return), increased by
the following amounts: (a) any deduction for depletion (Sections 611 ET SEC. of
the Internal Revenue Code of 1986, as amended, and the rules and regulations
promulgated thereunder (the "Code"); (b) any exclusion for interest on tax
exempt municipal obligations (Section 103 of the Code); and (c) any losses of a
partnership allocated to the individual (Schedule E of Form 1040).
4
<PAGE>
and loan association, insurance company, or registered investment adviser, or
the employee benefit plan has total assets in excess of $5,000,000 or, a
self-directed plan with investment decisions made solely by persons that are
accredited investors; (ii) a private business development company as defined in
Section 202(a)(22) of the Investment Advisers Act of 1940, as amended, and the
rules and regulations promulgated thereunder; or (iii) an organization described
in Section 501(c)(3) of the Code, a corporation, a Massachusetts or similar
business trust, or a partnership not formed for the specific purpose of
acquiring the securities offered hereby, with total assets in excess of
$5,000,000?
|_| YES |_| NO
(b) If this Subscription Agreement is completed on behalf of a trust, does
the trust have total assets in excess of $5,000,000, was the trust not formed
for the specific purpose of acquiring the securities offered hereby and is the
trust's purchase directed by a "sophisticated person" (as defined in Rule
506(b)(2) under the Securities Act)? If the answer to the question is yes,
further confirmation regarding such "sophisticated person" may be required.
|_| YES |_| NO
(c) If this Subscription Agreement is completed on behalf of a corporation,
partnership, limited liability company or similar entity, does each shareholder,
partner (including general and limited partners), member or similar holder of
such interests either: (i) have an individual or joint net worth (together with
his or her spouse) in excess of $1,000,000; or (ii) expect to have an annual
income during the current year, and represent that he or she had an annual
income during EACH of the last two years, in excess of $200,000 (or joint annual
income together with his or her spouse in excess of $300,000)?
|_| YES |_| NO
7. ADEQUATE NET WORTH. The undersigned represents and warrants to the
Company and to each other purchaser of the Shares that the undersigned: (a) has
sufficient liquid assets to pay the full purchase price of the Shares to which
the undersigned is subscribing; (b) does not have an overall commitment to
investments which are not readily marketable that is disproportionate to the
undersigned's net worth, and that the undersigned's investment in the Shares
will not cause such overall commitment to become excessive; and (c) has adequate
net worth and means or providing for the undersigned's current needs and
personal contingencies to sustain a complete loss of the undersigned's
investment in the Shares and has no need for liquidity in the undersigned's
investment in the Shares.
8. INVESTMENT REPRESENTATIONS. The undersigned hereby represents and
warrants to the Company and to each other purchaser of the Shares:
(a) The undersigned understands that the Shares, any Preferred Stock issued
as dividends on the Shares (the "Dividend Shares") and the shares of Common
Stock issuable upon the conversion of the Shares and the Dividend Shares (the
"Conversion Shares" and; together with the Shares and the Conversion Shares, the
"Securities") have not been registered under the
5
<PAGE>
Securities Act or the securities laws of any state and that the undersigned is
purchasing the Shares for investment only. The undersigned agrees and represents
that the undersigned will not sell, assign, pledge or otherwise dispose of any
of the Securities or any portion thereof unless (i) the Securities shall have
been registered or qualified under applicable federal and state securities laws
and an appropriate registration statement shall then be in effect or (ii) the
Company receives an opinion of counsel satisfactory to the Company that the same
may be legally sold or disposed of without registration or qualification under
the applicable state or federal securities laws. The undersigned understands
that the undersigned must bear the economic risk of this investment for an
indefinite period of time.
(b) The undersigned is fully aware that the Shares are being issued and
sold in reliance upon the exemption provided for in Section 4(2) and/ or 4(6) of
the Securities Act and Regulation D promulgated thereunder and similar
exemptions provided under state securities laws on the grounds that the Shares
are being offered to a limited number of "accredited investors" (as defined in
Regulation D) and that no public offering is involved. The undersigned also
understands that the representations, warranties and agreements of the
undersigned set forth in this Subscription Agreement are essential to the
claiming of such exemptions.
(c) The undersigned is purchasing the Shares with the undersigned's
personal funds and not with the funds of any other person, firm or entity, and
is acquiring the Shares for the undersigned's personal account for investment
purposes only, without any intention of selling or distributing all or any part
thereof. The undersigned has no reason to anticipate any change in personal
circumstances, financial or otherwise, which would cause the undersigned to
sell, distribute or necessitate or require any sale or distribution of the
Shares. If the undersigned is an individual, corporation, partnership, limited
liability company or similar entity, then no person other than the undersigned
will have any beneficial interest in the Shares purchased by the undersigned.
The undersigned has no present intention to hold the Shares for a fixed period
of time or until the occurrence of a certain event.
(d) The undersigned hereby accepts and acknowledges the following legend
which will be placed on the Securities:
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR THE RULES AND REGULATIONS PROMULGATED THEREUNDER
(THE "SECURITIES ACT") OR ANY STATE OR OTHER SECURITIES LAWS. NEITHER THIS
SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS THE TRANSACTION IS EXEMPT FROM, OR NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE
STATE LAWS. THE HOLDER OF THIS SECURITY BY HIS, HER OR ITS ACCEPTANCE HEREOF (1)
REPRESENTS THAT HE, SHE OR IT IS AN "ACCREDITED INVESTOR" (AS DEFINED IN RULE
501 UNDER THE SECURITIES ACT), (2) AGREES THAT HE, SHE OR IT WILL NOT OFFER,
SELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE COMPANY OR ANY
SUBSIDIARY THEREOF, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN
DECLARED
6
<PAGE>
EFFECTIVE UNDER THE SECURITIES ACT OR (C) PURSUANT TO ANOTHER AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND
APPLICABLE STATE LAWS PROVIDED THAT THE HOLDER PROVIDES THE COMPANY WITH AN
OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY STATING THAT REGISTRATION OF THE
SECURITIES IS NOT REQUIRED FOR SUCH TRANSFER AND (3) AGREES THAT HE, SHE OR IT
WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.
9. INDEMNIFICATION. The undersigned shall indemnify and hold harmless the
Company, its officers, directors, employees, stockholders and affiliates, and
any person acting on behalf of the Company, from and against any and all damage,
loss, liability, cost and expense (including attorneys' fees) which any of them
may incur by reason of the failure by the undersigned to fulfill any of the
terms and conditions of this Subscription Agreement or by reason of any breach
of the representations and warranties made by the undersigned herein, in the
Confidential Subscriber Questionnaire or in any other document provided by the
undersigned to the Company in connection with the Offering. All representations,
warranties and covenants contained in this Subscription Agreement, and the
indemnification contained in this Section 9, shall survive the acceptance by the
Company of this Subscription Agreement.
10. REGISTRATION RIGHTS. The undersigned hereby acknowledges and accepts
the following registration rights in respect of the Shares, and agrees to the
following restrictions and conditions in connection with such registration
rights.
(A) INCIDENTAL REGISTRATION OF THE CONVERSION SHARES UPON THE IPO OF THE
COMMON STOCK.
(i) Holders of the Shares will have the right to request that their
Conversion Shares be registered on the IPO Registration Statement that the
Company files with the Commission for the purpose of effecting the IPO. However,
the inclusion of such Conversion Shares on the IPO Registration Statement is
subject to any restrictions, cutbacks, lockups or other conditions imposed by
the managing underwriter of the Company's IPO (the "Underwriter") which the
Underwriter determines in its sole discretion are necessary to effect the IPO.
(ii) If the Underwriter informs the Company in writing that in the
Underwriter's opinion the total number of shares of the Common Stock which the
Company, the holders of the Conversion Shares and any other holders of shares of
the Common Stock entitled to participate in the IPO Registration Statement
request to include in the IPO Registration Statement is an amount which would
adversely affect the success of the IPO, including without limitation the price
at which the Common Stock can be offered, then the Company will be required to
include in the IPO Registration Statement only the amount of shares of Common
Stock which it is so advised by the Underwriter. In such event, shares of Common
Stock shall be included on the IPO Registration Statement pursuant to the
following priority: FIRST, the shares of the Common Stock to be sold for the
account of the Company (including any shares to be sold pursuant to any
overallotment); SECOND, shares of Common Stock owned by Julio Gomez, John M.
Robb and Alexander Stein (collectively, the "Gomez Principals") or any issue,
spouse or
7
<PAGE>
family trust of the Gomez Principals, to whom such shares of Common Stock
were duly transferred, not to exceed 10% of the total number of shares of Common
Stock offered in the IPO (exclusive of any overallotment); THIRD, the shares of
the Common Stock to be sold for the account of such holders who in the future
may be granted registration rights in connection with the IPO senior to those of
the holders of the Conversion Shares (the "Senior Holders"); and FOURTH, the
Conversion Shares to be sold for the account of the holders of the Conversion
Shares. In the event that the Underwriter determines that some, but less than
all, of the Conversion Shares requested for inclusion can be included in the IPO
Registration Statement, then a pro rata amount of the Conversion Shares
requested by each holder shall be included in the IPO Registration Statement
(subject to the rights of the Company, the Gomez Principals and the Senior
Holders to include all of their shares in the IPO Registration Statement as
provided above). The Underwriter may determine in its sole discretion that none
of the Conversion Shares should be included in the IPO Registration Statement.
(iii) If requested by the Underwriter, each holder of the Conversion
Shares participating in the IPO Registration Statement will enter into an
underwriting agreement with the Underwriter and the Company. Each holder of the
Conversion Shares will be required to make such representations and warranties
to, and agreements with, the Company and the Underwriter as are customarily
contained in an underwriting agreement of this type, including without
limitation, representations, warranties and agreements, including indemnities,
regarding the holders of the Conversion Shares, the Conversion Shares and the
holders' of the Conversion Shares intended method of distribution and any other
representations required by law.
(iv) Each holder of the Conversion Shares hereby agrees that it will
not sell or otherwise dispose of any of the Conversion Shares during the period
beginning seven days prior to the effective date of the IPO Registration
Statement and ending 180 days after the effective date of the IPO Registration
Statement; PROVIDED, HOWEVER, this paragraph 10(a)(iv) shall not apply to any of
the Conversion Shares which are included in the IPO Registration Statement.
(v) The Company shall notify each holder of the Shares appearing on
the Company's records as a record holder of the Shares as of the date of the
filing of the preliminary IPO Registration Statement with the Commission of
their right to request registration of their Conversion Shares in the IPO
pursuant to the terms and conditions of this Subscription Agreement within 20
business days after the filing of such preliminary IPO Registration Statement.
In order to exercise its registration rights under this Section 10, holders of
the Shares must notify the Company in writing of its request to include its
Conversion Shares in the IPO Registration Statement within 10 business days
after the Company has delivered such notice.
(b) REGISTRATION RIGHT OF THE CONVERSION SHARES. (i) In the event that (1)
any of the Conversion Shares which are validly and timely requested to be
included in the IPO Registration Statement pursuant to Section 10(a) are cutback
or otherwise not permitted to be included in the IPO Registration Statement
(other than as a result of the holder's refusal to comply with the provisions of
Section 10(a)(iii) or 10(d)) or (2) the IPO Registration Statement is not filed
with the Commission within one year after date that the Shares are issued, then,
subject to the limitations set forth in this Section 10, holders of 67% of
the Conversion Shares then outstanding (the "Demand Stockholders") can
require the Company (subject to the conditions set forth in
8
<PAGE>
Section 10(d)), on one occasion, to exercise reasonable efforts to
cause a registration statement to be declared effective by the Commission for
the public sale of such Conversion Shares under the Securities Act ("Demand
Registration Rights"). The Demand Registration Rights shall be senior to and
have priority over any demand registration rights granted under that certain
Stockholders Agreement, effective as of January 22, 1999, by and among the
Company, The Ashton Technology Group, Inc. and certain other stockholders of the
Company, to holders of the Ashton Shares (as defined therein).
(ii) In order for the registration right set forth in this Section
10(b) to be exercised, a written request with the signatures of Demand
Stockholders holding 67% of the Conversion Shares then outstanding must be
delivered to the Company. Upon the Company's receipt of such written request,
which must include the intended means of distribution of each requesting Demand
Stockholder's Conversion Shares, the Company within 20 business days shall give
notice of the exercise of this registration right to each Demand Stockholder
appearing on the Company's records as a record holder of the Shares and/or
Conversion Shares as of the date the Company receives such request who are not
included in such request (the "Non-Participating Stockholders"). In order to
exercise registration rights under this Section 10(b), each Non-Participating
Stockholder must notify the Company in writing of its intention to be included
in the registration request within 10 business days after the Company has
delivered such notice.
(iii) The registration right set forth in this Section 10(b) may be
exercised only once by the class of Demand Stockholders, and, if the IPO
Registration Statement has been filed with the Commission, cannot be exercised
until at least 270 days after the consummation of the IPO.
(c) GENERAL REGISTRATION RIGHTS PROVISIONS. The following provisions,
unless otherwise stated, shall be applicable to any registration to be effected
pursuant to the rights exercised under Section 10(a) or 10(b) hereof.
(i) The holders whose Conversion Shares are to be included in any
registration statement as provided in Section 10(a) or 10(b) (the "SELLERS")
agree to furnish the Company with such information regarding the Sellers and the
distribution of the Conversion Shares, as the case may be, as the Company shall
from time to time reasonably request in writing and as shall be required by
applicable federal or state law or the Commission in connection therewith.
(ii) Following the effective date of the applicable registration
statement, the Company shall upon the request of any Seller supply a reasonable
number of prospectuses meeting the requirements of the Securities Act as shall
be requested by such Seller to permit such Seller to make a public offering of
the securities of such Seller included therein.
(iii) The Company shall use reasonable efforts (A) to qualify the
securities included in an applicable registration statement for sale in such
states as the Sellers shall reasonably designate, provided that no such
qualification shall be required in any jurisdiction where, as a result thereof,
the Company would be subject to service of general process or to
9
<PAGE>
taxation as a foreign corporation doing business in such jurisdiction to which
it is not then subject and (B) to qualify such offering with the National
Association of Securities Dealers, Inc., if applicable.
(iv) The Company's obligations under Section 10(b) to exercise
reasonable efforts to cause a registration statement to be declared effective by
the Commission for the public sale of Conversion Shares, as the case may be,
under the Securities Act are limited to the following:
(A) The Company will prepare and file with the Commission the
requisite registration statement to effect such registration and thereafter use
reasonable efforts in good faith to cause such registration statement to become
effective; provided that the Company may discontinue any registration of
securities or suspend the effectiveness of any registration statement in
accordance with Section 10(d)(ix); and
(B) The Company will prepare and file with the Commission such
amendments and supplements to the applicable registration statement and the
prospectus used in connection therewith as may be necessary to keep such
registration statement effective and to comply with the provisions of the
Securities Act with respect to the disposition of all Conversion Shares, as the
case may be, covered by such registration statement for 60 days or such earlier
time as all of such Conversion Shares, as the case may be, have been disposed of
in accordance with the intended methods of disposition by the Sellers set forth
in such registration statement; provided that the Company may discontinue any
registration of securities or suspend the effectiveness of any registration
statement in accordance with Section 10(d)(ix).
(v) The Company shall indemnify and hold harmless each Seller and
each underwriter (if applicable), within the meaning of the Securities Act, who
may purchase from or sell for any Seller any Conversion Shares, from and against
any and all loss, liability, claim, damage and expense whatsoever (including,
but not limited to, any and all expenses reasonably incurred in investigating,
preparing or defending against any litigation, commenced or threatened, or any
claim whatsoever) arising out of any untrue statement or alleged untrue
statement of a material fact contained in the applicable registration statement
or any prospectus included therein required to be filed or furnished by reason
of this Section 10 or any amendment or supplement thereto, or caused by any
omission or alleged omission to state therein a material fact requiring to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, except insofar as such
loss, liability, claim, damage or expense is caused by any such untrue statement
or alleged untrue statement or omission or alleged omission based upon
information furnished to the Company by a Seller or underwriter expressly for
use therein. This indemnification shall include each person, if any, who
controls a Seller or underwriter within the meaning of the Securities Act;
provided, however, that the indemnity agreement set forth in this Section 10
with respect to any registration statement or prospectus which shall be
subsequently amended prior to the written confirmation of the sale of any
Conversion Shares pursuant thereto, shall not inure to the benefit of any Seller
or underwriter from whom the person asserting any such loss, liability, claim,
damage or expense purchased the Conversion Shares which are the subject thereof
(or to the benefit of any person controlling such Seller or underwriter), if
such Seller or underwriter failed
10
<PAGE>
to send or give a copy of the prospectus as so amended to such person at or
prior to the written confirmation of the sale of such Conversion Shares, and if
the amended prospectus did not contain any untrue statement or alleged untrue
statement or omission or alleged omission giving rise to such loss, liability,
claim, damage or expense.
(vi) Each Seller and underwriter (if applicable) shall at the
same time indemnify the Company, its directors, its executive officers, each
officer signing the applicable registration statement and each person who
controls the Company, within the meaning of the Securities Act, from and against
any and all loss, liability, claim, damage and expense whatsoever (including,
but not limited to, any and all expenses reasonably incurred in investigating,
preparing or defending against any litigation, commenced or threatened, or any
claim whatsoever) arising out of any untrue statement of a material fact
contained in the applicable registration statement or any prospectus included
therein required to be filed or furnished by reason of this Section 10 or any
amendment or supplement thereto, or caused by any omission or alleged omission
to state therein a material fact to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, insofar as such loss, liability, claim, damage or expense is
caused by any untrue statement or alleged untrue statement or omission or
alleged omission based upon information furnished to the Company by any such
Seller or underwriter expressly for use therein.
(vii) If for any reason the foregoing indemnity is unavailable
under either Section 10(d)(v) or 10(d)(vi), then the indemnifying party shall
contribute to the amount paid or payable by the indemnified party as a result of
such losses, liabilities, claims, damages or expenses (A) in such proportion as
is appropriate to reflect the relative benefits received by the indemnifying
party on the one hand and the indemnified party on the other, or (B) if the
allocation PROVIDED BY subdivision (A) above is not permitted by applicable law
or provides a lesser sum to the indemnified party than is appropriate to reflect
not only the relative benefits received by the indemnifying party on the one
hand and the indemnified party on the other but also the relative fault of the
indemnifying party and the indemnified party as well as any other relevant
equitable considerations, then in such proportion as is appropriate to reflect
the relative fault of the indemnifying party and the indemnified party as well
as any other equitable considerations. Notwithstanding the foregoing, neither
party shall be required to contribute any amount in excess of the amount the
indemnifying party would have been required to pay to an indemnified party if
the indemnity under this Section 10(d)(v) or 10(d)(vi) was available. No person
guilty of fraudulent misrepresentation (within the meaning of the Securities
Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation.
(viii) In their applicable request for registration of their
Conversion Shares, the Sellers must inform the Company of their intended method
of distribution of the Conversion Shares. In the event that the Sellers request
pursuant to Section 10(b) an underwritten offering of the Conversion Shares, the
Company shall have the right in its sole discretion to select the underwriter
for such offerings. Each Seller selling Conversion Shares pursuant to such
underwritten offering hereby agrees to enter into an underwriting agreement with
the underwriter and the Company whereby such Seller will be required to make
such representations and warranties to, and agreements with, the Company and the
underwriter as are customarily contained in an underwriting agreement of this
type, including without limitation,
11
<PAGE>
representations, warranties and agreements, including indemnities, regarding the
Sellers, the Conversion Shares and the Seller's intended method of distribution
and any other representations required by law. The Company shall have the right
in its sole discretion to select the form of the applicable registration
statement.
(ix) Subject to the next sentence of this paragraph, the Company
shall be entitled to postpone, for a reasonable period of time, the filing or
effectiveness of, or suspend the rights of any Sellers to make sales pursuant
to, any registration statement otherwise required to be prepared, filed and kept
effective by it under this Section 10; PROVIDED, HOWEVER, that the duration of
such postponement or suspension may not exceed the earlier to occur of (A) 15
business days after the cessation of the circumstances described in the next
sentence of this paragraph on which such postponement or suspension is based or
(B) 180 days after the date of the determination of the Board of Directors of
the Company referred to in the next sentence, or if the Company is filing a
registration statement under the Securities Act for the purpose of raising
capital, 180 days after the effective date of such registration statement. Such
postponement or suspension may only be effected if the Board of Directors of the
Company determines in good faith that the filing or effectiveness of, or sales
pursuant to, the applicable registration statement would materially impede,
delay or interfere with any financing, offer or sale of securities, acquisition,
corporate reorganization or other significant transaction involving the Company
or any of its affiliates (whether or not planned, proposed or authorized prior
to an exercise of registration rights hereunder or any other registration rights
agreement) or require disclosure of material information which the Company has a
bona fide business purpose for preserving as confidential. If the Company shall
postpone the filing or effectiveness of a registration statement or suspend the
rights of Sellers to make sales thereunder, it shall as promptly as practicable
notify any participating Sellers of such determination, and the Sellers shall
have the right, upon the affirmative vote of Sellers holding not less than 67%
of the Conversion Shares to be included in such registration statement, as the
case may be, to withdraw the request for registration by giving written notice
to the Company within 10 business days after receipt of such notice. Any
registration right as to which the withdrawal election referred to in the
preceding sentence has been effected shall not be counted for purposes of the
registration rights which the Sellers have been granted pursuant to Section
10(b) hereof.
(x) The registration rights set forth in Section 10(a) and 10(b)
shall terminate with respect to all holders of the Conversion Shares at such
time as the Company receives a written opinion (the "Rule 144 Opinion") from
counsel to the Company that all of the Conversion Shares owned by holders of the
Conversion Shares that acquired Shares in the Offering and are not "affiliates"
of the Company (as defined in the Securities Act) will be eligible to be sold
pursuant to Rule 144 promulgated under the Securities Act ("Rule 144") by the
end of the calendar quarter that it receives such Rule 144 Opinion.
(xi) The Company shall pay all expenses incurred in complying
with Section 10(a), and 10(b) including, without limitation, all registration
and filing fees, printing expenses, expenses of complying with securities or
blue sky laws (including fees and disbursements of counsel for the Company and
counsel for any underwriters of such offerings, but excluding fees and
disbursements of counsel representing the Sellers), all fees and disbursements
of counsel for the Company and accountants' fees and expenses incident to the
12
<PAGE>
applicable registration statement; PROVIDED, HOWEVER, that the Sellers shall pay
for all underwriting fees and commissions, all fees and disbursements of counsel
for any Seller and any transfer and similar taxes to be incurred by any Seller
(collectively, the "Selling Expenses"). Unless the Sellers otherwise unanimously
agree in writing, the Sellers shall bear the Selling Expenses in direct
proportion to the number of Conversion Shares that they are seeking to register.
11. TRANSFERABILITY: BINDING EFFECT. The undersigned hereby agrees that
this Subscription Agreement may not be sold, assigned, pledged, transferred or
otherwise disposed of, except as otherwise provided for herein, in any manner by
the undersigned, without the prior written consent of the Company. This
Subscription Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns and the undersigned and the undersigned's
heirs, personal representatives, successors and permitted assigns.
12. ACCEPTANCE OF SUBSCRIPTION. The Company shall have the right in its
sole discretion to accept or reject this Subscription Agreement, in whole or in
part, and this Subscription Agreement shall be deemed to be accepted only when
the acceptance attached hereto is signed by the Company. The undersigned
acknowledges that the completion date of this Offering may be extended.
13. NO WAIVER. Except as otherwise specifically provided for hereunder, no
party shall be deemed to have waived any of his, hers or its rights hereunder
unless such waiver is in writing and signed by the party waiving said right.
Except as otherwise specifically provided for hereunder, no delay or omission by
any party in exercising any right with respect to the subject matter hereof
shall operate as a waiver of such right. A waiver on any one occasion with
respect to the subject matter hereof shall not be construed as a bar to, or
waiver of, any right or remedy on any future occasion. All rights and remedies
with respect to the subject matter hereof, whether evidenced hereby or by any
other agreement, instrument or document, will be cumulative, and may be
exercised separately or concurrently. Notwithstanding any of the
representations, warranties, acknowledgements or agreements made herein by the
undersigned, the undersigned has not waived any of the rights granted to the
undersigned under federal or state securities laws.
14. ENTIRE AGREEMENT. The parties have not made any representations or
warranties with respect to the subject matter hereof that are not set forth in
this Subscription Agreement or in the Memorandum. This Subscription Agreement
and the Memorandum constitute the entire agreement between the parties with
respect to the subject matter hereof. All prior understandings and agreements
between the parties with respect to the subject matter hereof are merged in this
Subscription Agreement and the Memorandum, which fully and completely expresses
their agreement.
15. AMENDMENTS. This Subscription Agreement may only be amended, changed,
modified, extended, terminated or discharged by an agreement in writing which is
signed by all of the parties to this Subscription Agreement.
13
<PAGE>
16. FURTHER ASSURANCES. The parties agree to execute any and all such
other and further instruments and documents, and to take any and all such
further actions reasonably required to effectuate this Subscription Agreement
and the intent and purposes hereof.
17. GOVERNING LAW. This Subscription Agreement shall be construed and
enforced in accordance with the internal laws of the State of New York, without
giving effect to the principles of conflicts of law.
18. NOTICES. All notices, requests, claims, demands, consents and other
communications hereunder shall be in writing and shall be deemed given if
delivered personally or by fax or deemed delivered three business days after
mailing if mailed by U.S. Postal Service registered or certified mail (return
receipt requested) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
To the Purchaser: At the Address listed on the last page of this
Subscription Agreement
To the Company: Gomez Advisers, Inc.
co The Ashton Technology Group, Inc.
1900 Market Street, Suite 701
Philadelphia, PA 19103
Telecopy: (215) 970-3481
with a copy to: Kronish Lieb Weiner & Hellman LLP
1114 Avenue of the Americas
New York, NY 10036
Attention: Herbert Kronish, Esq. or Eric Simonson, Esq.
Telecopy: (212) 479-6275
14
<PAGE>
FOR INDIVIDUALS:
IN WITNESS WHEREOF, the undersigned has executed this Subscription
Agreement this ___ day of __________,19___.
Amount of Shares Subscribed For: _________________________
Purchase Price of Shares Subscribed For: $___________________
Name: Age:
------------------------------ ----------------------------
Residence Address (including Zip Code):
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Business Address (including Zip Code):
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Telephone: Daytime: Evening:
--------------------- -------------------
Preferred Mailing Address: Residence Business
----------------- ---------------
Subscriber's Social Security Number:
-------------------------------------------
SIGNATURE:
- -----------------------------------------
Amount of Shares accepted by the Company:
Accepted and Agreed to this ___ day of ___________, 19
GOMEZ ADVISORS, INC.
By:
--------------------------------------
Title:
------------------------------------
15
<PAGE>
FOR ORGANIZATIONS:
IN WITNESS WHEREOF, the undersigned has executed this Subscription
Agreement this ___ day of ________________, ______.
Amount of Shares Subscribed For: _________________________
Purchase Price of Shares Subscribed For: $___________________
Name of Organization:
---------------------------------------------------------
Address of Principal Office (including Zip Code):
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Telephone No.:
----------------------------------------------------------------
Type of Organization (e.g., corporation, trust, limited partnership, general
partnership):
-----------------------------------------------------------------
- ------------------------------------------------------------------------------
Date of Formation or Incorporation:
-------------------------------------------
State of Formation or Incorporation:
------------------------------------------
Purchaser's Taxpayer Identification Number:
-----------------------------------
SIGNATURE:
- ---------------------------------------------
Name of Entity:
By:
------------------------------------------
Name:
Title:
Amount of Shares accepted by the Company:
Accepted and Agreed to this _____ day of ____________, 19__
GOMEZ ADVISORS, INC.
By:
--------------------------------------
Title:
------------------------------------
16
<PAGE>
EXHIBIT 10.4
PREFERRED STOCK PURCHASE AGREEMENT
GOMEZ ADVISORS, INC.
Series C Convertible Preferred Stock
Dated as of November 2, 1999 and
Amended as of December 30, 1999
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS
- --------
<S> <C>
EXHIBIT A Purchasers
EXHIBIT B Certificate of Designation of Series C Convertible Preferred Stock
EXHIBIT C Form of Employee Confidentiality Agreement
EXHIBIT D Form of Opinion of Company Counsel
EXHIBIT E Form of Investor Rights Agreement
EXHIBIT F Form of Certificate of Amendment to Restated Certificate of Incorporation
</TABLE>
<TABLE>
<CAPTION>
SCHEDULES
- ---------
<S> <C>
SCHEDULE 2.1 Foreign Qualifications
SCHEDULE 2.7 Material Agreements
SCHEDULE 2.12 Title to Assets
SCHEDULE 2.13 Intellectual Property Rights
SCHEDULE 2.14 Financial Information
SCHEDULE 2.15 Capitalization
SCHEDULE 2.18 Registration Rights
SCHEDULE 2.20 Transactions with Affiliates
SCHEDULE 2.21 Employees
</TABLE>
<PAGE>
PREFERRED STOCK PURCHASE AGREEMENT
THIS PREFERRED STOCK PURCHASE AGREEMENT (this "Agreement") is made as
of November 2, 1999 and amended as of December 30, 1999 by and among Gomez
Advisors, Inc., a corporation organized under the laws of Delaware (the
"Company"), and the Persons listed on EXHIBIT A hereto (individually, a
"Purchaser" and collectively, the "Purchasers").
WHEREAS the Company desires to issue and sell to the Purchasers and the
Purchasers desire to acquire on the terms and subject to the conditions set
forth in this Agreement up to an aggregate amount of Five Million Eight Hundred
Eighty-Two Thousand Three Hundred Fifty-Three (5,882,353) shares of the
Company's Series C Convertible Preferred Stock, par value $.01 per share (the
"Series C Preferred Stock");
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained in this Agreement the parties hereto agree as follows:
ARTICLE 1 PURCHASE AND SALE OF SERIES C PREFERRED STOCK
1.1 AUTHORIZATION OF SERIES C PREFERRED STOCK. The Company has, or
before the Initial Closing (as hereinafter defined) will have, authorized the
issuance and sale of up to Five Million Eight Hundred Eighty-Two Thousand Three
Hundred Fifty-Three (5,882,353) shares (the "Shares") of its Series C Preferred
Stock, having the rights, restrictions, privileges and preferences as set forth
in the Certificate of Designation attached to this Agreement as EXHIBIT B, as
amended pursuant to a Certificate of Amendment to Restated Certificate of
Incorporation in substantially the form of EXHIBIT F attached hereto.
1.2 INITIAL CLOSING. Subject to the terms and conditions set forth in
this Agreement, and in reliance on the representations and warranties set forth
in this Agreement, the Company agrees to issue and sell to the Purchasers at the
Initial Closing (as hereinafter defined) and the Purchasers, severally but not
jointly, agree to purchase from the Company, that number of Shares set forth
opposite their respective names on EXHIBIT A under the caption "Number of Series
C Preferred Shares" at a purchase price per Share of Five Dollars and Ten Cents
($5.10). The purchase price of the Shares being acquired by each Purchaser is
set forth opposite such Purchaser's name on EXHIBIT A. The closing of the
purchase and sale of the Shares (the "Initial Closing") shall take place at the
offices of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. at 10:00 a.m. on
November 2, 1999 (the "Initial Closing Date") or at such time and date
thereafter as the Purchasers and the Company may agree. At the Initial Closing,
the Company will deliver to each Purchaser certificates for the number of Shares
being purchased by such Purchaser registered in such Purchaser's name (or its
nominee), against delivery of a certified or bank check or checks payable to the
order of the Company, or a transfer of funds to the account of the Company by
wire transfer, representing the purchase price set forth opposite each such
Purchaser's name on EXHIBIT A.
1.3 SUBSEQUENT CLOSINGS. At any time and from time to time, on or prior
to January 7, 2000, the Company may sell up to Four Million Eight Hundred
Thirty-Four Thousand One Hundred Seventy Five (4,834,175) Shares ("such Shares
being referred to as the "Additional Shares") to such
<PAGE>
Persons as may be approved by the Company's Board of Directors (the "Additional
Purchasers"), at a purchase price per Additional Share of Five Dollars and Ten
Cents ($5.10). All such sales shall be made subject to the terms and conditions
set forth in this Agreement and in reliance on the representations and
warranties set forth in this Agreement. The closing or closings of the purchase
and sale of Additional Shares (a "Subsequent Closing"), if any, shall take place
at the offices of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. at such
time and date (a "Subsequent Closing Date") as such Additional Purchasers and
the Company may agree. At each Subsequent Closing, the Company shall issue and
sell to each such Additional Purchaser, and each such Additional Purchaser,
severally but not jointly, shall purchase from the Company, that number of
Additional Shares being purchased by such Additional Purchaser. At each
Subsequent Closing, the Company will deliver to each Additional Purchaser
certificates for the number of Additional Shares being purchased by such
Additional Purchaser registered in such Additional Purchaser's name (or its
nominee), against delivery of a certified or bank check or checks payable to the
order of the Company, or a transfer of funds to the account of the Company by
wire transfer, representing the purchase price for such Additional Shares. The
Initial Closing and the Subsequent Closings, if any, shall hereinafter be
referred to individually as a "Closing" and collectively as the "Closings". The
date of each Closing is hereinafter referred to as the Closing Date.
In connection with the sale of Additional Shares to Additional
Purchasers, each such Additional Purchaser shall execute and deliver a
counterpart signature page hereto. In addition, each such Additional Purchaser
shall, if requested by the Company, execute a counterpart signature to the
Investor Rights Agreement to which the Purchasers are party, pursuant to which
such Additional Purchaser agrees to become a party to and be bound by the
provisions of this Agreement and the Investor Rights Agreement. Thereupon,
EXHIBIT A hereto shall be automatically amended without further action on the
part of any of the parties hereto to reflect the sale of Additional Shares to
each such Additional Purchaser. Upon each such Subsequent Closing, the Company
shall provide to each Purchaser a copy of EXHIBIT A as so amended. Upon the sale
of any Additional Shares to Additional Purchasers in accordance with this
Agreement, each such Additional Purchaser shall be deemed a Purchaser for all
purposes hereunder and under the Investor Rights Agreement.
In connection with the sale of Additional Shares to any Additional
Purchaser, in the event that the Company agrees with any such Additional
Purchaser to terms or conditions that are more favorable than the terms and
conditions then contained herein or in the Investor Rights Agreement, the terms
and conditions herein and in the Investor Rights Agreement shall be amended or
modified to make such more favorable terms and conditions applicable to all
Purchasers.
1.4 USE OF PROCEEDS. The Company agrees to use the net proceeds from
the sale of the Shares (i) to upgrade and market its products and services, (ii)
to develop and market new products and services, (iii) to add personnel, (iv) to
expand its facilities, and (v) for working capital and general corporate
purposes, including possible acquisitions of or investments in complementary
businesses, products or technologies.
2
<PAGE>
ARTICLE 2. THE COMPANY'S REPRESENTATIONS AND WARRANTIES
In order to induce the Purchasers to enter into this Agreement and to
consummate the transactions contemplated hereby, the Company hereby represents
and warrants to the Purchasers, as of the date hereof and as of the date of each
Closing, as follows (and, for purposes of this Article 2 the "Company" shall
refer to the Company and its Subsidiary and, where applicable, to the Company
and its Subsidiary on a consolidated basis):
2.1 INCORPORATION, STANDING AND QUALIFICATION OF THE COMPANY. The
Company is a corporation duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of organization. The Company has
requisite power and authority to own, lease and operate its properties and to
carry on its business as now being conducted and as proposed to be conducted.
The Company is qualified as a foreign corporation and in good standing in the
states listed on SCHEDULE 2.1. Except as set forth on SCHEDULE 2.1, the nature
of the Company's business and the ownership or lease of its property do not
require it to become qualified as a foreign corporation in any other state or
jurisdiction.
2.2 SUBSIDIARIES. Other than Concord Bowling, Inc., a Delaware
corporation ("Concord"), the Company does not (i) own of record or beneficially,
directly or indirectly, (A) any shares of capital stock of any other corporation
or (B) any participating interest in any partnership, joint venture or other
non-corporate business enterprise, or (ii) control, directly or indirectly, any
other entity. All the outstanding shares of capital stock of Concord have been
duly authorized, are validly issued and are fully paid and non-assessable and
are owned of record by the Company, free and clear of any Lien.
2.3 CORPORATE POWER AND AUTHORITY. The Company has the requisite power
and authority to execute and deliver this Agreement, the Shares, and the other
agreements and certificates contemplated hereby to which it is a party
(collectively, the "Related Agreements"), to perform its obligations hereunder
and thereunder and to engage in the transactions contemplated hereby and
thereby. The Company has taken all requisite corporate action to make all the
provisions of this Agreement, the Shares and the Related Agreements the valid
and enforceable obligations they purport to be. This Agreement is and, upon the
execution and delivery thereof, each of the Related Agreements will be, legal,
valid and binding obligations of the Company, enforceable in accordance with
their terms, subject to laws of general application from time to time in effect
affecting creditors' rights and the exercise of judicial discretion in
accordance with general equitable principles.
2.4 CHARTER AND BY-LAWS; ASHTON STOCKHOLDERS AGREEMENT. The Company has
made available to each of the Purchasers true, correct and complete copies of
its Certificate of Incorporation and By-Laws, and all amendments to and
restatements of each as of the date hereof. Prior to the Closing, the Company
shall have properly filed amendments to the Certificate of Incorporation to
permit the Company to fulfill its obligations under this Agreement. The Company
has made available to each of the Purchasers a true, correct and complete copy
of the Stockholders Agreement (the "Original Ashton Stockholders Agreement")
dated as of January 22, 1999 by and among the Company, The Ashton Technology
Group, Inc. ("Ashton"), the Gomez Principals (as defined therein) and the Ashton
Executives (as defined therein), and the form of amended Ashton Stockholders
Agreement to be entered into by the parties thereto contemporaneously with the
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amendment of this Agreement (the Original Ashton Stockholders Agreement, as so
amended, being the "Ashton Stockholders Agreement").
2.5 LITIGATION; COMPLIANCE WITH LAWS; BANKRUPTCY.
(a) LITIGATION. There is no action, suit, claim, litigation,
proceeding, investigation, arbitration or governmental inquiry, at law
or in equity, or before or by any Federal, state, municipal or other
governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, or arbitration involving private
parties (collectively, a "Proceeding") pending or, to the knowledge of
the Company, threatened against the Company or affecting any of its
properties or assets. There are no Proceedings pending or, or to the
Company's knowledge, threatened which might call into question the
validity of this Agreement, any of the Shares, any of the Related
Agreements or any action taken or to be taken pursuant hereto or
thereto. There is no Proceeding by the Company pending or threatened
against others.
(b) COMPLIANCE WITH LAWS. The Company has complied in all
material respects with, and is not in violation of or in default (with
due notice or lapse of time or both) with respect to, all laws,
governmental rules, governmental regulations, governmental orders,
judgments, decrees, writs, injunctions and awards of any arbitration,
court or governmental authority applicable to it and its business,
which violation or default would have a material adverse impact on the
Company, and the Company has all material permits, licenses and other
authorizations required to conduct its business. There is no existing
law, governmental rule, governmental regulation or governmental order
applicable to or binding upon the Company, and the Company is not aware
of any proposed law, governmental rule, governmental regulation or
governmental order, whether Federal or state, which would prohibit or
materially restrict the Company from, or otherwise materially adversely
affect the Company in, conducting its business in any jurisdiction in
which it is now conducting business.
(c) BANKRUPTCY. The Company has not admitted in writing its
inability to pay its debts generally as they become due, filed or
consented to the filing against it of a petition in bankruptcy or a
petition to take advantage of any insolvency act, made an assignment
for the benefit of creditors, consented to the appointment of a
receiver for itself or for the whole or any substantial part of its
property, or had a petition in bankruptcy filed against it, been
adjudicated a bankrupt, or filed a petition or answer seeking
reorganization or arrangement under the Federal bankruptcy laws or any
other law or statute of the United States of America or any other
jurisdiction.
2.6 CONFLICTING AGREEMENTS; VIOLATIONS OF CHARTER PROVISIONS. The
Company is not bound by any agreement or instrument or subject to any charter or
other corporate restriction which materially and adversely affects the business,
properties, operations, condition, prospects or affairs, financial or otherwise,
of the Company. The Company is not in violation or default (with due notice or
lapse of time or both) of its charter, By-laws or other corporate restriction,
or of any agreement or instrument to which it is a party or by which it or any
of its assets is bound, except for violations or defaults of any agreement or
instrument other than the charter or By-laws which, individually or in the
aggregate, would not materially adversely affect the business, properties,
operations or
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condition, financial or otherwise, of the Company. Neither the authorization,
execution, delivery and performance of this Agreement or the Related Agreements,
nor the sale, issuance and delivery of the Shares, nor the consummation of the
transactions herein and therein contemplated, nor the fulfillment of or
compliance with the terms hereof and thereof, will conflict with or result in a
breach or default (with due notice or lapse of time or both) of any of the terms
of the charter or By-laws or any other corporate restriction, or of any statute,
law, rule or regulation, or of any judgment, decree, writ, injunction, order or
award of any arbitrator, court or governmental authority, or of any agreement or
instrument, which is applicable to the Company or by which the Company or any of
its assets is bound, or constitute a default (with due notice or lapse of time
or both) thereunder, or result in the creation or imposition of any Lien upon
any of the assets of the Company.
2.7 MATERIAL AGREEMENTS. Except as set forth in SCHEDULE 2.7, the
Company is not a party to any written or oral contract, instrument, agreement,
commitment, obligation, plan or arrangement (x) between the Company and any
Affiliate of the Company, (y) requiring the Company to pay, or entitling the
Company to receive, more than $250,000 in any consecutive twelve (12) month
period or (z) not entered into in the ordinary course of business, consistent
with past practice (collectively, the "Material Agreements"). Each of the
Material Agreements is in full force and effect with no default (without regard
to notice or lapse of time or both) by the Company or, to the knowledge of the
Company, by any other party thereto. There is no anticipated or threatened
default or material failure of performance or observance of any obligations or
conditions contained in the Material Agreements by the Company or, to the
knowledge of the Company, by any other party thereto, and none of the foregoing
parties nor the Company has provided any notice of default or of its intention
to terminate these agreements.
2.8 GOVERNMENTAL APPROVALS. Subject to the accuracy of the
representations and warranties of the Purchasers set forth in Article 3, no
registration or filing with, or consent or approval of or other action by, any
Federal, state or other governmental agency or instrumentality, domestic or
foreign, under laws and regulations thereof as now in effect is or will be
necessary for the valid execution, delivery and performance by the Company of
this Agreement, or any of the Related Agreements, the issuance, sale and
delivery of the Shares and the Conversion Shares, other than (i) filings
pursuant to state securities laws (all of which filings have been made by the
Company or will be made within the period of time required by such state
securities laws) in connection with the sale of the Shares and (ii) with respect
to the Investor Rights Agreement, the registration of the shares covered thereby
with the Commission and filings pursuant to state securities laws, and any other
registration or filing, or consent or approval or other action as a result of or
associated with any purchase or sale of securities in accordance therewith.
2.9 TAX RETURNS AND PAYMENTS. The Company has accurately prepared and
timely filed all required tax returns and reports (other than those not required
to be filed by applicable law or regulation) and has paid, or adequately
provided for the payment of, all taxes, assessments and other governmental
charges imposed upon it or upon any of its assets, income or franchises, other
than any such charges that are currently payable without penalty or interest,
including, without limitation, all taxes which the Company is obligated to
withhold from amounts owing to employees, creditors and third parties. Adequate
reserves have been established for all taxes accrued but not yet payable. The
Federal income tax returns of the Company have never been audited by the
Internal Revenue Service or other taxing authority, domestic or foreign. No
deficiency assessment with
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respect to, or proposed adjustment of, the Company's Federal, state, county or
local taxes, domestic or foreign, is pending or threatened. There is no tax
lien, whether imposed by any Federal, state, county or local taxing authority,
outstanding against the assets, properties or business of the Company.
2.10 ISSUANCE TAXES. All taxes imposed by law in connection with the
issuance, sale and delivery of the Shares have been fully paid, and all laws
imposing such taxes have been fully complied with.
2.11 ERISA. The Company does not make nor has it any present intention
of making any contributions to any employee pension benefit plans for its
employees which are or would be subject to the Employee Retirement Income
Security Act of 1974, as amended.
2.12 TITLE TO ASSETS. The Company has good and marketable title in fee
to its real property and good and merchantable title to all of its assets free
of any Liens except (i) Liens not material to the Company or any property to
which such Liens relate or Liens for current taxes not yet due and payable, and
(ii) those encumbrances listed on SCHEDULE 2.12 hereto. The Company enjoys
peaceful and undisturbed possession under all leases (both capital and operating
leases) under which it is operating, and all said leases are valid and
subsisting and in full force and effect.
2.13 INTELLECTUAL PROPERTY RIGHTS. The Company owns or has a valid
right to use the Intellectual Property Rights being used and proposed to be used
to conduct its business as now conducted and as now proposed to be conducted. To
the Company's knowledge, the conduct of the Company's business as now operated
and as now proposed to be operated does not and is not expected to conflict with
or infringe upon the Intellectual Property Rights of others. Except as specified
on SCHEDULE 2.13, the Company has no obligation to compensate any Person for the
use of any such Intellectual Property Rights, and the Company has not granted to
or assigned to any Person any license or other right to use any of the
Intellectual Property Rights of the Company or otherwise licensed from others
the Intellectual Property Rights of third parties, whether requiring the payment
of royalties or not.
The Company has taken all reasonable measures to protect and preserve
the security, confidentiality and value of its Intellectual Property Rights,
including its trade secrets and other confidential information. All employees of
the Company have executed the Company's standard form of Confidentiality
Agreement in the form attached hereto as EXHIBIT C. To the Company's knowledge,
all trade secrets and other confidential information of the Company are
presently valid and protectable and are not part of the public domain or
knowledge, nor have they been used, divulged or appropriated for the benefit of
any Person other than the Company or otherwise to the detriment of the Company.
The Company is the exclusive owner of all right, title and interest in the
Intellectual Property Rights purported to be owned by the Company, and such
Intellectual Property Rights are valid and in full force and effect. There is no
litigation pending or, to the Company's knowledge, threatened that the
Intellectual Property Rights owned or licensed by the Company or the use or
ownership thereof by the Company infringes, violates or conflicts with any such
right of any third party or are invalid or unenforceable.
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2.14 FINANCIAL INFORMATION. The Company has furnished the Purchasers
with the Company's audited financial statements as of and for the year ended
March 31, 1999 and Company's unaudited financial statements for the quarters
ended June 30, 1999 and September 30, 1999 (collectively, the "Financial
Statements"). The Financial Statements have been prepared in accordance with
generally accepted accounting principles consistently applied, except for the
absence of footnotes and any year-end adjustments, and fairly present the
financial position of the Company as of such dates and the results of its
operations for the periods stated. Except as set forth in SCHEDULE 2.14 or as
reflected in the Financial Statements, the Company has not incurred any
indebtedness for money borrowed or any other liabilities except in the ordinary
course of business.
2.15 CAPITALIZATION; STATUS OF CAPITAL STOCK. The Company has a total
authorized capitalization consisting of Fifty Million (50,000,000) shares of
Common Stock, of which 3,684,000 shares were issued and outstanding on November
2, 1999 and 3,695,666 shares were issued and outstanding on December 30, 1999,
and Ten Million (10,000,000) shares of preferred stock, $.01 par value per
share, of which (a) 10,000 shares are designated as Series A Convertible Voting
Preferred Stock, of which 4,905 shares are issued and outstanding, (b) 1,300,000
shares are designated as Series B Convertible Preferred Stock, of which
1,100,000 shares are issued and outstanding and (c) 6,000,000 shares are
designated as Series C Convertible Preferred Stock, of which 1,067,782 shares
were issued and outstanding as of December [30], 1999. Set forth on SCHEDULE
2.15 is a list of all such shares owned by Ashton, the Ashton Executives, the
Gomez Founders as of December 30, 1999, as well as the number of stock options
reserved and outstanding under the stock plans referred to below. All the
outstanding shares of capital stock of the Company have been duly authorized,
are validly issued and are fully paid and non-assessable. As of immediately
prior to the Closing, the designations, powers, preferences, rights,
qualifications, limitations and restrictions in respect of the authorized
capital stock of the Company will be as set forth in the Company's charter, and
all such designations, powers, preferences, rights, qualifications, limitations
and restrictions will be valid, binding and enforceable and in accordance with
all applicable laws. The Shares, when issued and delivered in accordance with
the terms hereof, and the shares of Common Stock when issued and delivered upon
the conversion of the Shares (as adjusted from time to time in accordance the
Certificate of Incorporation, as amended, the "Conversion Shares"), will be duly
authorized, validly issued, fully paid and non-assessable and will be free and
clear of all Liens or restrictions imposed by or through the Company except as
set forth in this Agreement and the Investor Rights Agreement. The Conversion
Shares have been duly reserved for issuance.
Except for the Shares and as set forth on SCHEDULE 2.15, there are no
subscriptions, options, warrants or other rights (contingent or otherwise) to
purchase or otherwise acquire shares of capital stock or other securities of the
Company authorized, issued or outstanding, nor is the Company obligated in any
other manner to issue shares of its capital stock, subscriptions, warrants,
options, convertible securities, or other such rights or to distribute to
holders of any of its equity securities any evidence of Indebtedness or asset.
As of the date hereof, 600, 000 shares of Common Stock remain reserved for
issuance pursuant to the Company's 1998 Stock Plan (the "1998 Stock Plan"),
567,000 of which are subject to stock options outstanding as of December 30,
1999. As of the date hereof, 3,003,000 shares of Common Stock are reserved for
issuance pursuant to the Company's 1999 Long Term Incentive Stock Plan (the
"1999 LTI Plan"), all of which are subject to stock options outstanding as of
December 30,1999. As of the date hereof, 3,000,000 shares of Common
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Stock are reserved for issuance pursuant to the Company's 1999 Stock Plan (the
"1999 Stock Plan"), 855,000 of which are subject to stock options outstanding as
of December 30, 1999. Except as set forth in SCHEDULE 2.15 or contemplated by
this Agreement or the Ashton Stockholders Agreement, (i) there are no
restrictions on the transfer of shares of capital stock of the Company other
than those imposed by relevant state and Federal securities laws and (ii) there
are no agreements, understandings, proxies, trusts or other collaborative
arrangements concerning the voting, pledge or purchase and sale of the capital
stock of the Company. Except as set forth in SCHEDULE 2.15 or the Investor
Rights Agreement, no holder of any security of the Company is entitled to
preemptive, first refusal or similar statutory or contractual rights, either
arising pursuant to any agreement or instrument to which the Company is a party,
or which are otherwise binding upon the Company, or to the best of the Company's
knowledge, to which any other Person is a party. Except as provided for in the
Certificate of Incorporation, as amended, or as contemplated by the Ashton
Stockholders Agreement, or as set forth in the attached SCHEDULE 2.15, the
Company has no obligation (contingent or otherwise) to purchase, redeem or
otherwise acquire any of its equity securities or any interest therein or to pay
any dividend or make any other distribution in respect thereof. Assuming the
representations and warranties of the purchasers thereof were true when made,
the offer and sale of all capital stock and other securities of the Company
issued before the Closing complied with or were exempt from all applicable
Federal and state securities laws and no stockholder has a right of rescission
or damages with respect thereto. Assuming the representations and warranties of
the Purchasers contained in Article 3 of this Agreement are true when made, the
offer and sale of the Shares will comply with or be exempt from all applicable
Federal and state securities laws and no Purchaser will have a right of
rescission or damages with respect thereto.
2.16 SECURITIES LAWS. The Company has complied and will comply with all
applicable Federal and state securities laws in connection with the offer,
issuance and sale of the Shares and Conversion Shares hereunder. Neither the
Company nor anyone authorized to act on its behalf has or will sell, offer to
sell or solicit offers to buy the Shares or Conversion Shares or similar
securities thereto, or solicit offers with respect thereto from, or enter into
any preliminary conversations or negotiations relating thereto with, any Person,
so as to bring the issuance and sale of the Shares or Conversion Shares under
the registration provisions of the Securities Act and applicable state
securities laws (including, without limitation, any offer, other issuance or
sale of any security of the Company under circumstances that might require the
integration of the offering of such security with the offering of the Shares or
Conversion Shares under the Securities Act or the rules and regulations
thereunder).
2.17 INSURANCE. The Company carries insurance with financially sound
and reputable insurance companies or associations in such amounts and covering
such risks as are adequate and customary for the type and scope of its property
and business, but in any event in amounts sufficient to prevent the Company from
becoming a co-insurer.
2.18 REGISTRATION RIGHTS. Other than pursuant to the terms of the
Investor Rights Agreement and the Ashton Stockholders Agreement, and other than
as set forth on SCHEDULE 2.18 attached hereto, no Person has demand or similar
rights to cause the Company to file any registration statement under the
Securities Act relating to any securities of the Company or any right to
participate in any such registration.
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2.19 NO BROKER. Except with respect to BancBoston Robertson Stephens,
the Company has no contract, arrangement or understanding with any broker,
finder, agent, financial advisor or other intermediary with respect to the
transactions contemplated by this Agreement.
2.20 TRANSACTIONS WITH AFFILIATES. Except as set forth in SCHEDULE
2.20, neither the Company nor, to the Company's knowledge, any of the customers
and suppliers of the Company, is a party to or bound by any agreement with any
Affiliate of the Company. All of the agreements identified on SCHEDULE 2.20
hereto were entered into by the Company in good faith and are on terms no less
favorable to the Company than those which the Company could have obtained from
non-Affiliates.
2.21 EMPLOYEES. Except as set forth in SCHEDULE 2.21, no employee of
the Company has an employment agreement or understanding, whether oral or
written, with the Company which is not terminable on notice by the Company
without cost or other liability to the Company. Except as set forth in SCHEDULE
2.21, no employee of the Company has advised the Company (orally or in writing)
that he or she intends to terminate employment with the Company. The Company has
complied in all material respects with all applicable laws, domestic and
foreign, relating to the employment of labor, including provisions relating to
wages, hours, equal opportunity, collective bargaining and the payment of Social
Security and other taxes, and with ERISA.
2.22 LABOR RELATIONS. No labor union or any representative thereof has
made any attempt to organize or represent employees of the Company. There are no
unfair labor practice charges, pending trials with respect to unfair labor
practice charges, pending grievance proceedings or adverse decisions of any
labor relations board against the Company or relating to the Company's employees
or consultants. The Company is not in violation in any material respect of any
applicable statute, law or regulation relating to occupational safety and
health. Furthermore, to the knowledge of the Company, relations with employees
and consultants of the Company are good and there is no reason to believe that
any labor difficulties will arise in the foreseeable future.
2.23 ASSUMPTIONS OR GUARANTIES OF INDEBTEDNESS OF OTHER PERSONS. The
Company has not assumed, guaranteed, endorsed or otherwise become directly or
contingently liable on (including, without limitation, liability by way of
agreement, contingent or otherwise, to purchase, to provide funds for payment,
to supply funds to or otherwise invest in any debtor or otherwise to assure any
creditor against loss) any Indebtedness of any other Person.
2.24 LOANS AND ADVANCES. The Company has not made any loan or advance
to any Person nor is the Company obligated or committed to make any such loan or
advance.
2.25 BOOKS AND RECORDS. The books of account, ledgers, order books,
records and documents of the Company accurately and completely reflect all
material information relating to the business of the Company, the nature,
acquisition, maintenance, location and collection of the assets of the Company,
and all transactions giving rise to the obligations or accounts receivable of
the Company.
2.26 FOREIGN CORRUPT PRACTICES ACT. The Company is not engaged, nor has
any officer, director, employee or agent of the Company engaged, in any act or
practice which would constitute a violation of the Foreign Corrupt Practices Act
of 1977, or any rules or regulations promulgated
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thereunder. There is not now, and there never has been, any employment by the
Company of, or any beneficial ownership in the Company by, any governmental or
political official in any country in the world.
2.27 U.S. REAL PROPERTY HOLDING CORPORATION. The Company is not now nor
has it ever been a "United States real property holding corporation", as defined
in Section 897(c)(2) of the Internal Revenue Code of 1986, as amended and
Section 1.897-2(b) of the Regulations promulgated by the Internal Revenue
Service.
2.28 ENVIRONMENTAL MATTERS. The Company is not in violation of any
applicable statute, law or regulation relating to the environment or
occupational safety and health, which violation would have a material adverse
effect on the Company and, to the knowledge of the Company, no material
expenditures will be required in order to comply with any such statute, law or
regulation.
2.29 YEAR 2000 COMPLIANCE. The hardware, software and software products
(the "Systems") used by the Company are, and will be, able to accurately (i)
process any date rollover, (ii) process calculations or computations regardless
of the dates used in such calculations whether before, on or after January 1,
2000, (iii) accept and respond to two digit year date input in a manner which
resolves any ambiguities as to the century in an appropriate manner and (iv)
store and display date data in a manner which is unambiguous as to the century,
provided in all such cases, (1) third party hardware and software used in
conjunction with the Systems (a) can accurately perform in accordance with
clauses (i) through (iv) above and (b) do not affect the performance of the
Systems and (2) the Systems have not been modified without the active
involvement of the Company. This representation is subject to the Year 2000
Information and Readiness Disclosure Act (Public Law 105-271).
2.30 SMALL BUSINESS CONCERN. The Company together with its "affiliates"
(as that term is defined in Section 121.103 of Title 13 of the Code of Federal
Regulations) is a "small business concern" within the meaning of the Small
Business Act of 1958, as amended ("SBIA"), and the regulations thereunder (the
"SBIC Regulations"), including Title 13, C.F.R. ss. 121.301(c). The information
pertaining to the Company set forth in Small Business Administration Forms 480,
652 and 1031 delivered to each Purchaser that is a Small Business Investment
Company ("SBIC") licensed by the United States Small Business Administration
(each an "SBIC Purchaser") is accurate and complete. Neither the Company nor any
subsidiary of the Company presently engages in, or shall hereafter engage in,
any activities, nor shall the Company or any subsidiary of the Company use the
proceeds of the sale of the Shares directly or indirectly for any purpose for
which an SBIC is prohibited from providing funds by the regulations under the
SBIC Regulations (including, without limitation, 13 C.F.R. ss. 107.720). To the
best knowledge of the Company, each SBIC that owns any securities issued by the
Company, together with a description of the kinds and amounts of securities
held, are listed on SCHEDULE 2.30 hereto.
2.31 ASHTON EXECUTIVES AND ASHTON SHARES. SCHEDULE 2.15 sets forth all shares of
Common Stock owned by the Ashton Executives as of December 30, 1999. Each of
such Ashton Executives is a party to, and bound by the provisions of, the Ashton
Stockholders Agreement, and each of such shares of Common Stock constitute
"Ashton Executive Shares" as defined in and for purposes of
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the Ashton Stockholders Agreement. The Ashton Stockholders Agreement constitutes
the legal, valid and binding obligations of each Ashton Executive, enforceable
in accordance with its terms, subject to laws of general application from time
to time in effect affecting creditors' rights and the exercise of judicial
discretion in accordance with general equitable principles.
ARTICLE 3. THE PURCHASERS' REPRESENTATIONS AND WARRANTIES
Each Purchaser severally, but not jointly, represents and warrants to
the Company solely as to itself as follows:
3.1 INVESTMENT REPRESENTATIONS. The Purchaser's present intention is to
acquire the Shares to be acquired by it for its own account and the Shares are
being and will be acquired by it for the purpose of investment and not with a
view to distribution or resale thereof. The acquisition by the Purchaser of the
Shares acquired by it shall constitute a confirmation of this representation by
such Purchaser. The Purchaser further represents that it understands and agrees
that, except as otherwise provided in the Investor Rights Agreement, all
certificates evidencing any of the Shares or Conversion Shares, whether upon
initial issuance or upon any transfer thereof, shall bear a legend, prominently
stamped or printed thereon, reading substantially as follows:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933 or any other securities
laws. These securities have been acquired for investment and not with a
view to distribution or resale. Such securities may not be offered for
sale, sold, delivered after sale, transferred, pledged or hypothecated
in the absence of an effective registration statement covering such
securities under the Securities Act of 1933 and any other applicable
securities laws, unless the holder shall have obtained an opinion of
counsel reasonably satisfactory to the corporation that such
registration is not required or the transferee is an Affiliate of the
holder."
3.2 ACCESS TO INFORMATION. The Purchaser acknowledges that such
Purchaser, during the course of this transaction and prior to the purchase of
any Shares, has had the opportunity to ask questions of and receive answers from
representatives of the Company concerning the terms and conditions of the
offering of the Shares and to obtain additional information, documents, records
and books relative to the Company, its business and an investment in the
Company.
3.3 ACCREDITED INVESTOR STATUS. The Purchaser is an "accredited
investor" as that term is defined in Rule 501 of Regulation D promulgated under
the Securities Act.
3.4 TRANSFER RESTRICTIONS IMPOSED BY SECURITIES LAWS. The Purchaser
understands that none of the Shares and Conversion Shares have been registered
under the Securities Act or any other applicable securities laws and, therefore,
cannot be resold unless they are subsequently registered under the Securities
Act and other applicable securities laws or unless an exemption from such
registration is available. The Purchaser agrees not to resell or otherwise
dispose of all or any part of the Shares purchased by it or the Conversion
Shares, except as permitted by law, including, without limitation, any
regulations under the Securities Act and other applicable securities laws; the
Company does not have any present intention and is under no obligation to
register the Shares or
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Conversion Shares under the Securities Act and other applicable securities laws,
except as provided in the Investor Rights Agreement.
ARTICLE 4. CLOSING CONDITIONS
4.1 CONDITIONS TO THE PURCHASERS' OBLIGATIONS. Each Purchaser's
obligation to purchase and pay for the Shares to be purchased by it at the
Closing is subject to the complete satisfaction by the Company, on or before
such Closing, of the following conditions:
(a) OPINION OF COMPANY'S COUNSEL. Each Purchaser shall each
have received from Mintz Levin Cohn Ferris Glovsky and Popeo, P.C.,
counsel for the Company, an opinion, dated the date of the Closing
Date, in the form set forth in EXHIBIT D hereto with respect to the
Closing.
(b) REPRESENTATIONS AND WARRANTIES; OFFICER'S CERTIFICATE. The
Company's representations and warranties contained in Article 2 shall
be true and correct on and as of the date of the Closing with the same
effect as if made on and as of the date of the Closing. All agreements
and conditions to be performed or satisfied by the Company hereunder on
or before the date of the Closing shall have been duly performed or
satisfied. The Company shall have delivered to each Purchaser a
certificate, dated the date of the Closing and signed by the President
of the Company, to such effect.
(c) CONSENTS AND APPROVALS. The Company shall have delivered
to each Purchaser a certificate, dated the date of the Closing and
signed by the President of the Company, listing any consents, waivers,
approvals, authorizations, registrations, filings and notifications of
the character referred to in Section 2.6 or 2.8 which are necessary, to
which shall be attached evidence, satisfactory to each Purchaser, that
the same have been obtained or made and are in full force and effect,
or stating that none is necessary.
(d) CHARTER OF THE COMPANY. The Purchasers and their counsel
shall have received a copy of the charter documents of the Company
thereof, amended as necessary to permit the Company to fulfill its
obligations under this Agreement and certified as of a recent date by
the Delaware Secretary of State.
(e) CLOSING DOCUMENTS. The Purchasers and their counsel shall
have received such certificates as to the good standing of the Company
and certificates of officers of the Company as counsel to the
Purchasers may reasonably request.
(f) PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings and all documents incident to the transactions contemplated
by this Agreement and the other agreements contemplated hereby shall be
satisfactory in form and substance to each Purchaser and its counsel,
and each Purchaser and its counsel shall have received copies of all
documents and records relating thereto.
(g) INVESTOR RIGHTS AGREEMENT. Each of the Purchasers and the
Company shall have entered into Investor Rights Agreement in the form
attached as EXHIBIT E hereto.
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<PAGE>
4.2 CONDITIONS TO THE COMPANY'S OBLIGATIONS. The Company's obligation
to issue the Shares to the Purchasers at the Closing is subject to the
satisfaction of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of each Purchaser contained in Article 3 shall be true,
correct and complete in all material respects on and as of the date of
the Closing with the same force and effect as if they had been made on
and as of the date of the Closing.
(b) PAYMENT OF PURCHASE PRICE. Each Purchaser shall have
delivered to the Company and the Company shall have received payment in
full of the purchase price relating to the number of Shares to be
purchased by such Purchaser at the Closing.
ARTICLE 5. DEFINITIONS
5.1 DEFINITIONS. Except as otherwise defined in this Agreement or as
the context may otherwise require, the following terms shall have the respective
meanings set forth below whenever used in this Agreement:
"AFFILIATE" has the meaning ascribed to that term in Rule
12b-2 under the Exchange Act or any successor rule.
"CLOSING" shall have the meaning assigned to that term in
Section 1.3 of this Agreement.
"CLOSING DATE" shall have the meaning assigned to that term in
Section 1.3 of this Agreement.
"COMMISSION" shall mean the Securities and Exchange Commission
and any successor agency of the Federal government administering the
Securities Act and the Exchange Act.
"CONVERSION SHARES" shall have the meaning assigned to that
term in Section 2.15 of this Agreement.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934,
as amended, and any similar or successor Federal statute, and the rules
and regulations of the Commission thereunder, all as the same shall be
in effect from time to time.
"GUARANTEE" shall mean any obligation, contingent or
otherwise, of any Person guaranteeing or having the economic effect of
guaranteeing any Indebtedness of any other Person in any manner,
whether directly or indirectly, and including, without limitation, any
obligation of such Person, direct or indirect, (i) to purchase or pay
(or advance or supply funds for the purchase or payment of) such
Indebtedness or to purchase (or to advance or supply funds for the
purchase of) any security for the payment of such Indebtedness, (ii) to
purchase property, securities or services for the purpose of assuring
the owner of such Indebtedness of the payment of such Indebtedness, or
(iii) to maintain working capital, equity capital or other financial
statement condition of the primary obligor so as to enable
13
<PAGE>
the primary obligor to pay such Indebtedness; provided, however, that
the term "Guarantee" shall not include endorsements for collection or
deposit, in either case, in the ordinary course of business.
"INDEBTEDNESS" shall mean, with respect to any Person, (i) all
obligations of such Person for borrowed money, or with respect to
deposits or advances of any kind (other than deposits, advances or
excess payments accepted in connection with the sale by such Person of
products or services in the ordinary course of business), (ii) all
obligations of such Person evidenced by bonds, debentures, notes or
similar instruments, (iii) all obligations of such Person upon which
interest charges are customarily paid (other than obligations accepted
in connection with the purchase by such Person of products or services
in the ordinary course of business), (iv) all obligations of such
Person under conditional sale or other title retention agreements
relating to property purchased by such Person, (v) all obligations of
such Person issued or assumed as the deferred purchase price of
property or services (other than accounts payable to suppliers incurred
in the ordinary course of business and paid when due), (vi) all
Indebtedness of others secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be
secured by) any Lien or security interest on property owned or acquired
by such Person whether or not the obligations secured thereby have been
assumed, (vii) all obligations of such Person under leases required to
be accounted for as capital leases under generally accepted accounting
principles, and (viii) all Guarantees of such Person.
"INTELLECTUAL PROPERTY RIGHTS" shall mean any and all, whether
domestic or foreign, patents, patent applications, patent rights, trade
secrets, confidential business information, algorithms, copyrights,
mask works, claims of infringement against third parties, licenses,
permits, license rights to or of technologies, contract rights with
employees, consultants or third parties, tradenames, trademarks,
trademark applications, trademark rights, inventions and discoveries,
and other such rights generally classified as intangible, intellectual
property assets in accordance with generally accepted accounting
principles.
"INVESTMENT" shall mean, with respect to any Person, any loan,
advance or extension of credit (other than in connection with the sale
by such Person of products or services in the ordinary course of
business) by such Person to, and any Guarantee or other contingent
liability with respect to the capital stock, Indebtedness or other
obligations of, and any contributions to the capital of, any other
Person, as well as any ownership, purchase or other acquisition by such
Person of any interest in any capital stock or other securities of any
such other Person as well as any transfer or sale (other than in
connection with the sale by such Person of products or services in the
ordinary course of business) of property by such Person to any other
Person other than upon full payment, in cash, of not less than the
agreed sale price or the fair value of such property, whichever is
higher.
"LIEN" shall mean: (i) any interest in property (whether real,
personal or mixed and whether tangible or intangible) which secures an
obligation owed to, or a claim by, a Person other than the owner of
such property, whether such interest is based on the common law,
statute or contract, including, without limitation, any such interest
arising from a lease, mortgage, charge, pledge, security agreement,
conditional sale, trust receipt or deposit in trust, or arising from a
consignment of bailment given for security purposes (other than a
14
<PAGE>
trust receipt or deposit given in the ordinary course of business
which does not secure any obligation for borrowed money), (ii) any
encumbrance upon such property which does not secure such an
obligation, and (iii) any exception to or defect in the title to or
ownership interest in such property, including, without limitation,
reservations, rights of entry, possibilities of reverter,
encroachments, easements, rights of way, restrictive covenants and
licenses. For purposes of this Agreement, any Person shall be deemed
to be the owner of the leasehold or other interest in any property
which it has acquired or holds subject to a lease and the owner of any
property which it has acquired or holds subject to a conditional sale
agreement or other similar arrangement pursuant to which title to the
property has been retained by or vested in some other Person for
security purposes.
"PERSON" shall include any individual, a corporation, an
association, a partnership, a trust or estate, a government and any
agency or political subdivision thereof, or any other entity.
"SECURITIES ACT" shall mean the Securities Act of 1933, as
amended, and any similar or successor Federal statute, and the rules
and regulations of the Commission thereunder, all as the same shall be
in effect from time to time.
"STOCK PLAN" shall have the meaning assigned to that term in
Section 2.15 of this Agreement.
"SUBSIDIARY" or "SUBSIDIARIES" shall mean any corporation,
partnership, trust or other entity of which the Company and/or any of
its other Subsidiaries directly or indirectly owns at the time a
majority of the outstanding shares of any class of equity security of
such corporation, partnership, trust or other entity.
5.2 ACCOUNTING PRINCIPLES. The character or amount of any asset,
liability, capital account or reserve and of any item of income or expense
required to be determined pursuant to this Agreement, and any consolidation or
other accounting computation required to be made pursuant to this Agreement, and
the construction of any definition in this Agreement containing a financial
term, shall be determined or made, as the case may be, in accordance with
generally accepted accounting principles, to the extent applicable, unless such
principles are inconsistent with the express requirements of this Agreement.
ARTICLE 6. MISCELLANEOUS
6.1 NOTICES. All notices, requests, consents and other communications
hereunder shall be in writing, shall be addressed to the receiving party's
address set forth below or to such other address as a party may designate by
notice hereunder, and shall be either (i) delivered by hand, (ii) made by
telecopy or facsimile transmission, (iii) sent by overnight courier, or (iv)
sent by certified mail, return receipt requested, postage prepaid.
If to a Purchaser: To its address set forth on EXHIBIT A:
If to the Company: Gomez Advisors, Inc
55 Old Bedford Road
15
<PAGE>
Lincoln, MA 01773
Tel: (781) 257-2000
Fax: (781) 257-2550
Attn: General Counsel
With a copy to: Mintz Levin Cohn Ferris Glovsky and Popeo. P.C.
One Financial Center
Boston, MA 02111
Tel: (617) 542-6000
Fax: (617) 542-2241
Attn: Lewis J. Geffen, Esq.
All notices, requests, consents and other communications hereunder
shall be deemed to have been given (i) if by hand, at the time of the delivery
thereof to the receiving party at the address of such party set forth above,
(ii) if made by telecopy or facsimile transmission, at the time that receipt
thereof has been acknowledged by electronic confirmation or otherwise, (iii) if
sent by overnight courier, on the next business day (or if sent overseas, on the
second business day) following the day such notice is delivered to the courier
service, or (iv) if sent by registered or certified mail, on the 5th business
day (or if sent overseas, on the 10th business day) following the day such
mailing is made.
6.2 ENTIRE AGREEMENT. This Agreement, together with the Exhibits and
Schedules hereto, and the other agreements executed and delivered herewith
embody the entire agreement and understanding between the Purchasers and the
Company, and supersede all prior oral or written agreements and understandings
relating to the subject matter hereof. No statement, representation, warranty,
covenant or agreement of any kind not set forth in this Agreement, including the
Exhibits and Schedules hereto, shall affect, or be used to interpret, change or
restrict, the express terms and provisions of this Agreement.
6.3 MODIFICATIONS AND AMENDMENTS. This Agreement may not be amended or
modified, and no provision hereof may be waived, without the written consent of
the Company and the holders of at least a majority of the outstanding Series C
Preferred Stock. Any waiver or consent hereunder shall be effective only in the
specific instance and for the purpose for which it was given, and shall not
constitute a continuing waiver or consent.
6.4 WAIVERS AND CONSENTS. Any waiver or consent hereunder shall be
effective only in the specific instance and for the purpose for which it was
given, and shall not constitute a continuing waiver or consent. Notwithstanding
the consummation of the transactions contemplated hereby, no Purchaser waives or
relinquishes any right it may have or may acquire against the Company or any of
its Affiliates or agents in connection with the acquisition of Series C
Preferred Stock by such Purchaser, or the ownership thereof. All such rights
shall remain unimpaired by the execution of this Agreement and the consummation
of the transactions contemplated hereby.
6.5 BINDING EFFECT, ASSIGNMENT. This Agreement shall be binding upon
and inure to the benefit of the Company, and the Purchasers and their respective
heirs, successors (including, without limitation, by sale or transfer of all or
substantially all assets, merger or consolidation) and assigns, except that the
Company shall not have the right to delegate its obligations hereunder or to
16
<PAGE>
assign its rights hereunder or any interest herein except by a consent complying
with Section 6.3 above.
6.6 GOVERNING LAW. This Agreement and the rights and obligations of the
parties hereunder shall be construed in accordance with and governed by the law
of The Commonwealth of Massachusetts without giving effect to the conflict of
law principles thereof.
6.7 SEVERABILITY. In the event that any court of competent jurisdiction
shall determine that any provision, or any portion thereof, contained in this
Agreement shall be unenforceable in any respect, then such provision shall be
deemed limited to the extent that such court deems it enforceable, and as so
limited shall remain in full force and effect. In the event that such court
shall deem any such provision, or portion thereof, wholly unenforceable, the
remaining provisions of this Agreement shall nevertheless remain in full force
and effect.
6.8 INTERPRETATION. The parties hereto acknowledge and agree that (i)
each party and its counsel, if so represented, reviewed and negotiated the terms
and provisions of this Agreement excluding Schedules and Exhibits and have
contributed to its revision and (ii) the rule of construction to the effect that
any ambiguities are resolved against the drafting party shall not be employed in
the interpretation of this Agreement.
6.9 HEADINGS AND CAPTIONS. The headings and captions of the various
subdivisions of this Agreement are for convenience of reference only and shall
in no way modify or affect the meaning or construction of any of the terms or
provisions hereof.
6.10 NO WAIVER OF RIGHTS, POWERS AND REMEDIES. No failure or delay by a
party hereto in exercising any right, power or remedy under this Agreement, and
no course of dealing between the parties hereto, shall operate as a waiver of
any such right, power or remedy of the party. No single or partial exercise of
any right, power or remedy under this Agreement by a party hereto, nor any
abandonment or discontinuance of steps to enforce any such right, power or
remedy, shall preclude such party from any other or further exercise thereof or
the exercise of any other right, power or remedy hereunder. The election of any
remedy by a party hereto shall not constitute a waiver of the right of such
party to pursue other available remedies. No notice to or demand on a party not
expressly required under this Agreement shall entitle the party receiving such
notice or demand to any other or further notice or demand in similar or other
circumstances or constitute a waiver of the rights of the party giving such
notice or demand to any other or further action in any circumstances without
such notice or demand.
6.11 RELIANCE. The parties hereto agree that, notwithstanding any
access to information by any party or any right of a party to this Agreement to
investigate the affairs of any other party to this Agreement, the party having
such access and right to investigate shall have the right to rely fully upon the
representations and warranties of the other party expressly contained in this
Agreement and on the accuracy of any Schedule, Exhibit or other document
attached hereto or referred to herein or delivered by such other party or
pursuant to this Agreement. Each of the Purchasers acknowledges that, based on
information provided by the Company, it has made its own analysis and decisions
regarding the transactions contemplated hereby and that it is not relying on any
of the other Purchasers in executing this Agreement or consummating the
transactions contemplated hereby.
17
<PAGE>
6.12 CONFIDENTIALITY. Each Purchaser agrees that it will keep
confidential and will not disclose or divulge any confidential, proprietary or
secret information that such Purchaser may obtain from financial statements,
reports and other materials submitted by the Company to such Purchaser pursuant
to this Agreement, or pursuant to visitation or inspection rights granted
hereunder. Notwithstanding the foregoing, a Purchaser may disclose such
information (i) as has become generally available to the public, (ii) as may be
required in any report, statement or testimony submitted to any municipal, state
or Federal regulatory body having or claiming to have jurisdiction over such
Purchaser, (iii) as may be required in response to any summons or subpoena or in
connection with any litigation, (iv) in order to comply with any law, order,
regulation or ruling applicable to such Purchaser; (v) to the extent that such
Purchaser in connection with litigation reasonably deems it necessary to enforce
its rights under this Agreement, (vi) on a confidential basis to its attorneys,
accountants, employees, consultants and other professionals to the extent
necessary to obtain their services in connection with its investment in the
Company, (vii) with the consent of the Company, to any prospective purchaser of
any of the Shares or Conversion Shares from such Purchaser as long as such
prospective purchaser agrees in writing to be bound by the provisions of this
Section 6.12 and (viii) to any Affiliate or partner of such Purchaser; provided,
that, prior to any disclosure to be made in accordance with clause (ii), (iii)
or (iv), the Purchaser proposing to make such disclosure gives the Company
written notice thereof and an opportunity to obtain a protective order or
similar order of confidential treatment. Each Purchaser acknowledges that its
breach of this Section 6.12 could cause the Company irreparable damages and
consents to the entering of a restraining order or other equitable relief for
specific performance of its obligations hereunder.
6.13 FURTHER ASSURANCES. From and after the date of this Agreement,
upon the request of any Purchaser or the Company, the Company and the Purchasers
shall execute and deliver such instruments, documents and other writings as may
be reasonably necessary or desirable to confirm and carry out and to effectuate
fully the intent and purposes of this Agreement.
6.14 COSTS, EXPENSES AND TAXES. As a condition precedent to the
Closing, the Company agrees to pay at the Closing in connection with the
preparation, execution and delivery of this Agreement, the reasonable legal fees
and other expenses, all appropriately documented, of one counsel for the
Purchasers, if any, not to exceed $20,000. In addition, the Company shall pay
any and all stamp, or other similar taxes payable or determined to be payable in
connection with the execution and delivery of this Agreement, the issuance of
the Shares and the other instruments and documents to be delivered hereunder or
thereunder, and agrees to save the Purchasers harmless from and against any and
all liabilities with respect to or resulting from any delay in paying or
omission to pay such taxes.
6.15 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, and by different parties hereto on separate counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
6.16 USE OF DEFINITIONS; GENDER. Any definitions used herein defined in
the plural shall be deemed to include the singular as the context may require
and any definitions used herein defined in the singular shall be deemed to
include the plural as the context may require. Wherever reference is made herein
to the male, female or neuter genders, such reference shall be deemed to include
any of the other genders as the context may require.
18
<PAGE>
6.17 JURISDICTION AND SERVICE OF PROCESS. Any legal action or
proceeding with respect to this Agreement may be brought in the courts of The
Commonwealth of Massachusetts or of the United States of America for the
District of Massachusetts. By execution and delivery of this Agreement, each of
the parties hereto accepts for itself and in respect of its property, generally
and unconditionally, the jurisdiction of the aforesaid courts. Each of the
parties hereto irrevocably consents to the service of process of any of the
aforementioned courts in any such action or proceeding by the mailing of copies
thereof by certified mail, postage prepaid, to the party at its address set
forth in Section 6.1 hereof.
6.18 PUBLICITY. No party shall issue any press releases or otherwise
make any public statement with respect to the transactions contemplated by this
Agreement without the prior written consent of the other party, except as may be
required by law.
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
19
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement or
caused this Agreement to be executed by their duly authorized representatives,
as of the date first written above.
GOMEZ ADVISORS, INC.
By: /s/ Julio Gomez
___________________________________
Name Julio Gomez
Title CEO
[Counterpart Signature Pages Begin on Next Page]
20
<PAGE>
COUNTERPART SIGNATURE PAGE FOR PURCHASERS
The undersigned hereby agrees to become a party to that certain
Preferred Stock Purchase Agreement dated as of November 2, 1999 and amended as
of December 30, 1999 (the "Agreement") among Gomez Advisors, Inc. (the
"Company") and others. From and after the undersigned's execution and delivery
and the Company's acceptance of this Counterpart Signature Page, the undersigned
shall be a party to the Agreement and the shares of Series C Preferred Stock
purchased by the undersigned shall be deemed to be "Shares" for all purposes of
the Agreement.
_________________________________
Printed Name of Purchaser
_________________________________
Signature of Purchaser
Investment Amount:
____________________
Number of Shares:
____________________
By:
___________________________________
Title:
________________________________
Address:
______________________________
______________________________________
______________________________________
Date:
_________________________________
Agreed and accepted to as to
_________ shares at $______ per share:
GOMEZ ADVISORS, INC.
By:
____________________________________
Title:
_________________________________
Date:
__________________________________
21
<PAGE>
SCHEDULE 2.1
Foreign Qualifications
The Commonwealth of Massachusetts
22
<PAGE>
SCHEDULE 2.7
Material Agreements
Stockholders Agreement dated as of January 22, 1999 among the Company, The
Ashton Technology Group, Inc., Julio Gomez, Alexander Stein, John M. Robb,
Fredric W. Rittereiser, K. Ivan F. Gothner and Arthur J. Bacci, as amended as of
December 30, 1999.
Secured Credit Line Agreement dated as of October 27, 1999 between The Ashton
Technology Group, Inc. and the Company
Option Agreement dated as of January 22, 1999 between the Company and Julio
Gomez.
Option Agreement dated as of January 22, 1999 between the Company and John M.
Robb.
Option Agreement dated as of January 22, 1999 between the Company and Alexander
Stein
Employment Agreement dated as of August 4, 1998 between Julio Gomez and The
Ashton Technology Group, Inc.
Employment Agreement dated as of August 4, 1998 among Alexander Stein, Gomez
Advisors, Inc. and The Ashton Technology Group, Inc.
Employment Agreement dated as of August 4, 1998 among John M. Robb, Gomez
Advisors, Inc. and The Ashton Technology Group, Inc.
Sublease Agreement dated as of June 15, 1999 by and between FASTech Integration,
Inc., and the Company, relating to premises at 55 Old Bedford Road, Lincoln, MA
GomezPro Research License dated as of May 22, 1999 between the Company and The
Ashton Technology Group, Inc.
Letter agreement between the Company and an entity relating to the Company's
services in finding a buyer for the entity's technology
Asset Purchase Agreement dated as of April 8, 1999 between the Company and THT,
Inc. (relating to account management software)
License Agreement dated as of April 8, 1999 between the Company and THT, Inc.
(relating to account management software)
Strategic Alliance Agreement dated as of April 15, 1999 between the Company and
Harris Black International, Inc.
23
<PAGE>
SCHEDULE 2.12
Title to Assets
Security interest in equipment and receivables granted pursuant to the Secured
Credit Line Agreement dated as of October 27, 1999 between The Ashton Technology
Group, Inc. and the Company.
24
<PAGE>
SCHEDULE 2.13
Intellectual Property Rights
Asset Purchase Agreement dated as of April 8, 1999 between the Company and THT,
Inc. License Agreement dated as of April 8, 1999 between the Company and THT,
Inc.
25
<PAGE>
SCHEDULE 2.14
Financial Information
Indebtedness to The Ashton Technology Group, Inc. in the principal amount of
$400,000 (which amount was repaid in full on or about November 3, 1999)
26
<PAGE>
SCHEDULE 2.15
Capitalization
<TABLE>
<CAPTION>
SHARES OPTIONS Fully- Stock Voting
(on as- AVAILABLE diluted owner- owner-
converted FOR GRANT ownership ship ship
basis)
SERIES A CONVERTIBLE -VOTING
<S> <C> <C> <C> <C> <C>
Ashton Technology Group, Inc. 4,905,000 32.1% 45.5% 50.7%
SERIES B CONVERTIBLE (Private 1,100,000 7.2% 10.2% 0.0%
Placement) - Class only voting
SERIES C CONVERTIBLE (First 1,067,782 7.0% 9.9% 11.0%
Closing) - Voting
COMMON STOCK
Ashton Executives - subject to
shareholder agreement
Fred Rittereiser 531,000 3.5% 4.9% 5.5%
Van Gothner 300,000 2.0% 2.8% 3.1%
ArtBacci 200,000 1.3% 1.9% 2.1%
Other Ashton Executives 550,000 3.5% 5.1% 5.7%
Gomez Founders
Julio Gomez 1,051,000 6.9% 9.8% 10.9%
John Robb 526,000 3.4% 4.9% 5.4%
Alex Stein 526,000 3.4% 4.9% 5.4%
Ex-employees 11,666 0.1% 0.1% 0.1%
----------------
Outstanding stock 10,768,448
Outstanding options
1999 LTI Plan 3,003,000 0
1998 Stock Plan 567,000 0
1999 Stock Plan 855,000 2,145,000
Meyerson Option Grant 100,000
---------------------------------
Total options and warrants 4,525,000 2,145,000 29.6%
=================================
Total stock and options 15,293,448 2,145,000 100.0% 100.0% 100.0%
=================================
</TABLE>
27
<PAGE>
Warrants pursuant to the engagement letter dated as of August 26, 1999 between
the Company and BancBoston Robertson Stephens, Inc.
Right of First Refusal granted to Julio Gomez pursuant to the Employment
Agreement dated as of August 4, 1998 between Julio Gomez and The Ashton
Technology Group, Inc.
28
<PAGE>
SCHEDULE 2.18
Registration Rights
Stockholders Agreement dated as of January 22, 1999 among the Company, The
Ashton Technology Group, Inc., Julio Gomez, Alexander Stein, John M. Robb,
Fredric W. Rittereiser, K. Ivan F. Gothner and Arthur J. Bacci, as amended as of
December 30, 1999.
Registration Rights of the holders of Series B Convertible Preferred Stock,
pursuant to the Subscription Agreements relating to the sale of such Series B
Convertible Preferred Stock.
29
<PAGE>
SCHEDULE 2.20
Transactions with Affiliates
Stockholders Agreement dated as of January 22, 1999 among the Company, The
Ashton Technology Group, Inc., Julio Gomez, Alexander Stein, John M. Robb,
Fredric W. Rittereiser, K. Ivan F. Gothner and Arthur J. Bacci, as amended as of
December 30, 1999.
Option Agreement dated as of January 22, 1999 between the Company and Julio
Gomez.
Option Agreement dated as of January 22, 1999 between the Company and John M.
Robb.
Option Agreement dated as of January 22, 1999 between the Company and Alexander
Stein
Employment Agreement dated as of August 4, 1998 between Julio Gomez and The
Ashton Technology Group, Inc.
Employment Agreement dated as of August 4, 1998 among Alexander Stein, Gomez
Advisors, Inc. and The Ashton Technology Group, Inc.
Employment Agreement dated as of August 4, 1998 among John M. Robb, Gomez
Advisors, Inc. and The Ashton Technology Group, Inc.
GomezPro Research License dated as of May 22, 1999 between the Company and The
Ashton Technology Group, Inc.
Secured Credit Line Agreement dated as of October 27, 1999 between The Ashton
Technology Group, Inc. and the Company
30
<PAGE>
SCHEDULE 2.21
Employees
Employment Agreement dated as of August 4, 1998 between Julio Gomez and The
Ashton Technology Group, Inc.
Employment Agreement dated as of August 4, 1998 among Alexander Stein, Gomez
Advisors, Inc. and The Ashton Technology Group, Inc.
Employment Agreement dated as of August 4, 1998 among John M. Robb, Gomez
Advisors, Inc. and The Ashton Technology Group, Inc.
31
<PAGE>
SCHEDULE 2.30
Small Business Investment Companies
[IDENTIFY PURCHASERS THAT ARE SBIC'S, IF ANY]
32
<PAGE>
Exhibit 10.5
INVESTOR RIGHTS AGREEMENT
INVESTOR RIGHTS AGREEMENT made as of November 2, 1999 and amended as of
December 30, 1999 by and among (i) Gomez Advisors, Inc., a Delaware corporation
(the "Company"), (ii) the Purchasers listed on Exhibit A hereto (the
"Purchasers"), (iii) The Ashton Technology Group, Inc. a Delaware corporation
("Ashton"), (iv) the Ashton Executives listed on Exhibit B hereto (the "Ashton
Executives") and (v) each of Julio Gomez, John Robb and Alexander Stein
(individually a "Founder and collectively the "Founders"). The Purchasers may be
referred to herein individually as an "Investor" and collectively as the
"Investors". The Investors, Ashton and the Ashton Executives may be referred to
herein individually as a "Preferred Stockholder" and collectively as the
"Preferred Stockholders".
WHEREAS, the Company proposes to issue and sell an aggregate of up to Five
Million Eight Hundred Eighty-Two Thousand Three Hundred Fifty-Three shares of
Series C Convertible Preferred Stock, par value $.01 per share (the "Series C
Stock"), to the Investors pursuant to that certain Preferred Stock Purchase
Agreement of even date herewith (the "Purchase Agreement");
WHEREAS, the Investors may become party to the Purchase Agreement from
time to time upon one or more Subsequent Closings (as defined in the Purchase
Agreement);
WHEREAS, as a condition to entering into the Purchase Agreement, the
Investors have requested that the Company extend to them registration rights and
certain other rights and covenants as set forth herein;
WHEREAS, the Company has previously granted registration rights to Ashton,
the Ashton Executives and the Founders pursuant to the Ashton Stockholders
Agreement (as defined herein); and
WHEREAS, the Board of Directors of the Company has determined that it is
in the best interests of the Company that the Company enter into this Agreement;
NOW, THEREFORE, in consideration of the covenants and agreements set forth
herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby mutually acknowledged, the parties hereto
covenant and agree as follows:
1. GENERAL PROVISIONS
1.1 Shares Subject to this Agreement. The Investors expressly agree that the
terms and restrictions of this Agreement shall apply to all shares of capital
stock which any of them now owns or hereafter acquires by any means, including
without limitation by purchase, assignment, conversion of convertible securities
or operation of law, or as a result of any stock dividend, stock split,
reorganization, reclassification, whether voluntary or involuntary, or other
similar transaction, and to any shares of capital stock of any successor in
interest of the Company, whether by sale, merger, consolidation or other similar
transaction (the "Shares").
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1.2 No Partnership Relationship. Notwithstanding, but not in limitation of, any
other provision of this Agreement, the parties understand and agree that the
creation, management and operation of the Company shall not create or imply a
general partnership between or among the Investors and shall not make any
Investor the agent or partner of any other Investor for any purpose.
1.3 Additional Investors. Upon the sale of any Additional Shares (as defined in
the Purchase Agreement) to Additional Purchasers (as defined in the Purchase
Agreement) in accordance with the Purchase Agreement, each such Additional
Purchaser shall become a party hereto, be deemed an Investor for all purposes
hereunder and be bound by the provisions of this Agreement, without any further
action by the Company or such Additional Purchaser. Each Additional Purchaser
(as defined in the Purchase Agreement) shall, if requested by the Company,
execute and deliver a counterpart signature page hereto, to further evidence
such agreement.
1.4 Registration of Transfer. The Company shall maintain a register of the
Shares and of their transfer and exchange. When certificates representing Shares
(or an affidavit as to loss thereof, as the case may be) are presented to the
Company with a request (x) to register the transfer of such Shares in accordance
with the terms and conditions of this Agreement or (y) to exchange one or more
certificates for one or more other certificates representing an equal aggregate
number of shares, the Company shall register the transfer or make the exchange
as requested if the Company's reasonable requirements for such transaction are
met; provided that the certificates surrendered for transfer or exchange shall
be duly endorsed or accompanied by a written instrument of transfer in form
reasonably satisfactory to the Company, duly executed by the holder thereof or
his attorney duly authorized in writing.
1.5 Certain Definitions. As used in this Agreement, the following terms shall
have the following respective meanings:
"Affiliate" has the meaning ascribed to that term in Rule 12b-2 under the
Exchange Act, or any successor rule.
"Ashton Stockholders Agreement" shall mean the Stockholders Agreement
dated as of January 22, 1999 and as amended as of December 30, 1999 by and among
the Company, Ashton, the Gomez Principals (as defined therein) and the Ashton
Executives (as defined therein).
"Commission" shall mean the Securities and Exchange Commission and any
successor agency of the Federal government administering the Securities Act and
the Exchange Act.
"Common Stock" shall mean (i) the common stock, $.0001 par value per
share, of the Company; (ii) any other capital stock of the Company, however
designated, authorized on or after the date hereof, which shall neither be
limited to a fixed sum or percentage of par value in respect of the rights of
the holders thereof to participate in dividends nor entitled to a preference in
the distribution of assets upon the voluntary or involuntary liquidation,
dissolution or winding up of the Company; and (iii) any other securities into
which or for which any of the securities described in (i) or (ii) may be
converted or exchanged pursuant to a plan of recapitalization, reorganization,
merger, consolidation, sale of assets or other similar transaction.
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"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
and any similar or successor Federal statute, and the rules and regulations of
the Commission thereunder, all as the same shall be in effect from time to time.
"Initial Public Offering" shall mean the first underwritten public
offering of Common Stock of the Company, offered on a firm commitment basis
pursuant to a registration statement filed with the Commission under the
Securities Act on Form S-1 or its then equivalent, in which (i) the aggregate
net proceeds to the Company equals or exceeds $20,000,000 and (ii) the initial
public offering price per share equals or exceeds an amount equal to $10.20
(subject to appropriate adjustment for stock splits, stock dividends,
combinations and other similar recapitalization events).
"Person" shall include any individual, a corporation, an association, a
partnership, a trust or estate, a government and any agency or political
subdivision thereof, or any other entity
The terms "register", "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement, or, as the context may require, under the Exchange Act
or applicable state securities laws.
"Registrable Securities" shall mean (i) shares of Common Stock or other
securities issued or issuable pursuant to the conversion of the Series C Stock;
and (ii) any shares of Common Stock or other securities issued or issuable
pursuant to the conversion of the Series C Stock upon any stock split, stock
dividend, recapitalization, reorganization, merger, consolidation, sale of
assets or similar event, excluding in any event securities which have been (a)
registered under the Securities Act pursuant to an effective registration
statement filed thereunder and disposed of in accordance with the registration
statement covering them or (b) publicly sold pursuant to Rule 144 under the
Securities Act; provided that such shares of Common Stock or other securities
shall cease to be Registrable Securities at such time when such Common Stock or
other securities (other than Common Stock or other securities held by Persons
who are Affiliates of the Company) are eligible for sale pursuant to Rule 144
under the Securities Act. Wherever reference is made in this Agreement to a
request or consent of holders of a certain percentage of Registrable Securities,
the determination of such percentage shall be calculated on the basis of shares
of Common Stock issued or issuable upon conversion of the Series C Stock even if
such exercise has not been effected.
"Registration Expenses" shall mean the expenses so described in Section
4.7.
"Securities Act" shall mean the Securities Act of 1933, as amended, and
any similar or successor Federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect from time to time.
"Selling Expenses" shall mean the expenses so described in Section 4.7.
"Subsidiary" or "Subsidiaries" shall mean any corporation, partnership,
trust or other entity of which the Company and/or any of its other Subsidiaries
directly or indirectly owns at the time a majority of the outstanding shares of
any class of equity security of such corporation, partnership, trust or other
entity.
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2. PREEMPTIVE RIGHTS
2.1 Notice of New Issuance. Except with respect to "Exempt Issuances" as defined
in Section 2.3, in the event that the Company plans to issue any (i) shares of
Common Stock, (ii) warrants, options or other rights to purchase Common Stock
(collectively, "Rights"), or (iii) any debentures or other securities
convertible into or exchangeable for shares of Common Stock (collectively,
"Convertible Securities"), the Company will deliver to the Investors a notice
(the "Offer Notice"), stating the price and other terms and conditions thereof.
2.2 Right to Purchase Shares, Rights or Convertible Securities. The Company
shall not issue or sell, agree or obligate itself to issue or sell, or reserve
or set aside for issuance or sale any shares of Common Stock, Rights or
Convertible Securities (collectively, "New Issuances"), other than an Exempt
Issuance, unless in the case of each New Issuance, the Company shall have first
offered to sell such securities (the "Offered Securities") to Investors as
follows: the Company shall offer to sell to each Investor that portion of the
Offered Securities as the number of shares of capital stock of the Company then
held by such Investor bears to the total number of shares of capital stock of
the Company held by all Investors, treating each Investor, for the purpose of
such computation, as the holder of the number of shares of Common Stock which
would be issuable to it upon conversion, exercise and exchange of all Rights and
Convertible Securities held by it on the date immediately preceding the New
Issuance and assuming the like conversion, exercise and exchange of all such
securities held by other persons. The rights set forth in this Article 2 shall
be exercised by the Investors, if at all, by written notice to the Company
delivered not later than ten (10) days after the receipt by the Investors of the
Offer Notice in accordance with the terms and conditions stated therein, and
such right shall expire at the end of the tenth day after the day of the receipt
by the Investors of the Offer Notice.
2.3 Exempt Issuances. The issuances referred to in Section 2.1 which will not
give the Investors the rights described in Section 2.2 (the "Exempt Issuances")
are issuances in which shares of Common Stock or Rights or Convertible
Securities of the Company are issued or deemed issued (i) as a dividend or
distribution payable pro rata to all holders of Common Stock or other securities
of the Company; (ii) to employees, consultants, officers and directors of the
Company in the form of options to purchase shares of Common Stock pursuant to
the Company's 1998 Stock Plan, the Company's 1999 Long Term Incentive Plan, the
Company's 1999 Stock Plan or any other equity plan or arrangement approved by
the Company's Board of Directors (a "Stock Plan Issuance"); (iii) in connection
with the conversion or exercise of any options, warrants or other rights to
purchase Common Stock (A) existing on the date hereof or issued to the Investors
pursuant hereto (including any warrants, the Series A Stock and the Company's
Series B Convertible Preferred Stock) or (B) issued in accordance with the
foregoing clause (ii); or (iv) issued pursuant to the acquisition of another
corporation by the Company by merger (where the Company owns no less than 51% of
the voting power of such corporation) or by purchase of substantially all of its
stock or assets.
2.4 Termination. The respective rights and obligations of the parties under this
Article 2 shall terminate immediately prior to the consummation of the Company's
Initial Public Offering.
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3. RESTRICTIONS ON TRANSFER; INVESTOR PARTICIPATION IN SALES
3.1 Restrictions on Transfer by Founders. The Founders hereby agree to the
following provisions with respect to any sale, transfer or other disposition of
Shares, in the event such sale, transfer or disposition is allowed pursuant to
Article 4 hereof:
(a) Non-Complying Transfers Prohibited. Each Founder understands
that he may not sell, assign, transfer, exchange, gift, devise, pledge,
hypothecate, encumber or otherwise alienate or dispose of any Shares, or
any right or interest therein, whether voluntarily or involuntarily, by
operation of law or otherwise, except in accordance with this Agreement.
Any such purported transfer in violation of any provision of this
Agreement and all actions by the purported transferor and transferee in
connection therewith shall be of no force or effect. The Company shall not
be required to recognize such purported transfer for any purpose,
including without limitation for purposes of dividend and voting rights.
If any transfer of Shares is made or attempted contrary to the provisions
of this Agreement or if any Shares are not offered as required by this
Agreement, the Company or the other holders of Shares of the Company shall
have the right to purchase such Shares from each such transferring Founder
or each such transferee at any time before or after each such purported
transfer, as hereinafter provided. In addition to any other legal or
equitable remedies the Company or such other holders may have, the Company
and such other holders may enforce this right by actions for specific
performance, to the extent permitted by law.
(b) Right of First Offer on Voluntary Transfers.
(i) In the event that a Founder (hereafter the "Selling
Founder") desires to sell, assign, transfer or otherwise voluntarily
alienate or dispose of any Shares ("Offered Shares"), other than
transfers to Permitted Transferees (as defined in Section 3.3), the
Selling Founder shall, prior to any such transfer to a third party,
give written notice (the "Selling Founder's Notice") of such desire
to the Company and the Preferred Stockholders. The Company shall
have a right of first offer (the "Company's Right of First Offer")
to purchase, all but not less than all, of the Offered Shares, as
are proposed to be sold in the Selling Founder's Notice, at the
monetary price per share designated in the Selling Founder's Notice,
payable as provided in Section 3.1(b)(iii) hereof, if the Company
gives written notice of the exercise of such right to such Selling
Founder within thirty (30) days (the "Company's Offer Period") after
the date of the Selling Founder's Notice to the Company. If the
Company does not intend to exercise the Company's Right of First
Offer in full or if the Company is not lawfully able to repurchase
the Offered Shares, the Company will send written notice thereof
(the "Company's Expiration Notice") to the Selling Founder and the
Preferred Stockholders at least fifteen (15) days before the
expiration of the Company's Offer Period. The Company's Expiration
Notice will specify the Offered Shares subject to the Preferred
Stockholders' Right of Second Offer described below.
(ii) Preferred Stockholders' Right of Second Offer. If the
Company does not exercise its right of first offer in full, the
Preferred Stockholders will
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have a right of second offer (the "Preferred Stockholders' Right of
Second Offer") to purchase all of the Offered Shares not purchased
by the Company as are proposed to be sold in the Selling Founder's
Notice at the monetary price per share designated in the Selling
Founder's Notice, payable as provided in Section 3.1(b)(iii) hereof.
Not later than thirty (30) days after receipt of the Selling
Founder's Notice (the "Preferred Stockholder Offer Period"), each
Preferred Stockholder shall deliver written notice (such "Preferred
Stockholder's Notice") to the Selling Founder stating whether the
Preferred Stockholder has accepted the offer for its pro rata share
of the Offered Shares stated in the Selling Founder's Notice. Each
Preferred Stockholder may only accept the offer of the Selling
Founder for its pro rata share in whole and may not accept such
offer in part. The Preferred Stockholders shall also have a right of
oversubscription such that if any Preferred Stockholder fails to
accept the offer of the Selling Founder as to its full pro rata
fraction (calculated on an as-converted basis), the remaining
Preferred Stockholders shall, among them, have the right to purchase
up to the balance, of such Offered Shares not so purchased. The
Preferred Stockholders may exercise such right of oversubscription
by accepting the offer of the Selling Founder as to more than their
pro rata share. If, as a result thereof, such oversubscriptions
exceed the total number of the Offered Shares available in respect
of such oversubscription privilege, the oversubscribing Preferred
Stockholders shall be cut back with respect to over subscriptions on
a pro rata basis in accordance with their respective pro rata shares
or as they may otherwise agree among themselves. If any Preferred
Stockholder accepts the offer of the Selling Founder, such Preferred
Stockholder's Notice shall fix a time, location and date for the
closing of such purchase, which date shall be not less than ten (10)
nor more than thirty (30) days after delivery of the Preferred
Stockholder's Notice.
(iii) Closing. The place for the closing of any purchase and
sale described in Section 3.1(b)(i) or Section 3.1(b)(ii) shall be
the principal office of the Company or at such other place as the
parties shall agree. At the closing, the Selling Founder shall
accept payment on the monetary terms contained in the Selling
Founder's Notice. At the closing, the Selling Founder shall deliver
to the Company or the Preferred Stockholder(s), as the case may be,
in exchange for Shares purchased and sold at the closing,
certificates for the number of Shares stated in the Selling
Founder's Notice, accompanied by duly executed instruments of
transfer.
(iv) Transfers to Third Parties. If the Company and the
Preferred Stockholders fail to accept the offer stated in the
Selling Founder's Notice, or if such offer is accepted but the
Company and/or the Preferred Stockholder(s) fails to consummate the
purchase at a closing as hereinabove provided, then the Selling
Founder shall be free, subject to the provisions of Sections 3.1(c)
and 4.2 hereof, to sell all, but not less than all, of the Offered
Shares to any third party (the "Third Party Purchaser") at a price
and on terms no less favorable to the Selling Founder than described
in the Selling Founder's Notice, provided, however, that such sale
is consummated within ninety (90) days after the giving of the
Selling Founder's
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Notice to the Company and the Preferred Stockholders. As a condition
precedent to the effectiveness of a transfer pursuant to this
Section 3.1(b)(iv), the Third Party Purchaser shall agree in writing
prior to such transfer to become a party to this Agreement as a
Founder and bound by the terms of this Agreement as a Founder and
shall thereafter be permitted to transfer Shares only in accordance
with this Agreement.
(c) Right of Co-Sale.
(i) Eligible Preferred Stockholder Co-Sale Right. If any
Preferred Stockholder (each, an "Eligible Preferred Stockholder")
has waived or otherwise failed to timely exercise its respective
rights of first offer to purchase all or any portion of the Offered
Shares as provided under Section 3.1(b), then such Eligible
Preferred Stockholder will have a right to participate in the sale
of the remaining Offered Shares ("Remaining Offered Shares") to the
Third Party Purchaser in a manner set forth herein ("Right of
Co-Sale"). Each Eligible Preferred Stockholder shall have the right
to sell to the Third Party Purchaser, at the same price per Share
and on the same terms and conditions as the Selling Founder is
selling to the Third Party Purchaser (the "Co-Sale Terms"), such
number of Shares (the "Co-Sale Shares") as is equal to the number of
Remaining Offered Shares multiplied by the Co-Sale Pro Rata Fraction
(as defined below), if such Eligible Preferred Stockholder gives
written notice of the exercise of such right to such Selling Founder
within forty-five (45) days (the "Co-Sale Refusal Period") after the
date of such Eligible Preferred Stockholder's receipt of the Selling
Founder's Notice. For purposes of this Section 3.1(c), the "Co-Sale
Pro Rata Fraction" shall be defined as a fraction, the numerator of
which is the number of Shares on an as-converted basis then owned by
such Eligible Preferred Stockholder and the denominator of which is
the number of Shares on an as-converted basis then owned by the
Founders plus the number of Shares on an as-converted basis then
owned by all of the Eligible Preferred Stockholders who have elected
to exercise the Right of Co-Sale.
(ii) Notices of Offer and Intent to Participate. If an
Eligible Preferred Stockholder wishes to participate in any sale
pursuant to this Section 3.1(c), the Eligible Preferred Stockholder
shall notify the Selling Founder in writing of such intention as
soon as practicable after such Eligible Preferred Stockholder's
receipt of the notice from the Selling Founder and in any event
within the Preferred Stockholder Offer Period. If the Selling
Founder does not receive such notice from an Eligible Preferred
Stockholder within the Preferred Stockholder Offer Period, the
Selling Founder shall be free to consummate the proposed transaction
without any obligation to include such Eligible Preferred
Stockholder's Shares in such transaction.
(iii) Sale of Co-Sale Shares. The Selling Founder and, if
participating, the Eligible Preferred Stockholder(s), shall sell,
subject to the provisions of Section 4.2 hereof, to the Third Party
Purchaser all, or at the option of the Third Party Purchaser, any
part of the shares proposed to be sold by them at not less
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than the price and upon other terms and conditions, if any, not less
favorable to the Eligible Preferred Stockholder(s) than the Co-Sale
Terms; provided that any purchase of less than all of such shares by
the Third Party Purchaser shall be made from the Selling Founder and
the Eligible Preferred Stockholders pro rata based upon the relative
amount of the shares that the Selling Founder and the Eligible
Preferred Stockholders are otherwise entitled to sell pursuant to
Section 3.1(c). If Co-Sale Shares are transferred under this Section
3.1 to any Third Party Purchaser who is not a party to this
Agreement, as a condition precedent to the effectiveness of such
transfer pursuant to this Section 3.1(c)(iii), such Third Party
Purchaser shall agree in writing prior to such transfer to become a
"Founder" party to and bound by the terms of this Agreement as a
Founder and shall thereafter be permitted to transfer Shares only in
accordance with this Agreement.
3.2 Restrictions on Transfer by Preferred Stockholders. The Preferred
Stockholders hereby agree to the following provisions with respect to any sale,
transfer or other disposition of Shares, in the event such sale, transfer or
disposition is allowed pursuant to Article 4 hereof:
(a) Non-Complying Transfers Prohibited. Each Preferred Stockholder
understands that it may not sell, assign, transfer, exchange, gift,
devise, pledge, hypothecate, encumber or otherwise alienate or dispose of
any Shares, or any right or interest therein, whether voluntarily or
involuntarily, by operation of law or otherwise, except in accordance with
this Agreement. Any such purported transfer in violation of any provision
of this Agreement and all actions by the purported transferor and
transferee in connection therewith shall be of no force or effect. The
Company shall not be required to recognize such purported transfer for any
purpose, including without limitation for purposes of dividend and voting
rights. If any transfer of Shares is made or attempted contrary to the
provisions of this Agreement or if any Shares are not offered as required
by this Agreement, the Company or the other holders of Shares of the
Company shall have the right to purchase such Shares from each such
transferring Preferred Stockholder or each such transferee at any time
before or after each such purported transfer, as hereinafter provided. In
addition to any other legal or equitable remedies the Company or such
other holders may have, the Company and such other holders may enforce
this right by actions for specific performance, to the extent permitted by
law.
(b) Rights of First Offer on Voluntary Transfers.
(i) Rights of First Offer. In the event that a Preferred
Stockholder (hereafter the "Selling Stockholder") desires to sell,
assign, transfer or otherwise voluntarily alienate or dispose of any
Shares, other than transfers to Permitted Transferees, the Selling
Stockholder shall, prior to any such transfer, give written notice
(the "Selling Stockholder's Notice") of such desire to the Company
and to each Preferred Stockholder. The Selling Stockholder's Notice
shall include a proposed purchase price per share and proposed terms
of payment of such purchase price. The Selling Stockholder's Notice
shall constitute a binding offer by the Selling Stockholder to sell
pro rata to the Preferred Stockholders such number of Shares (the
"Preferred Offered Shares") then owned by the Selling
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Stockholder as are proposed to be sold in the Selling Stockholder's
Notice at the monetary price per share designated in the Selling
Stockholder's Notice, payable as provided in Section 3.2(b)(ii)
hereof. Not later than thirty (30) days after receipt of the Selling
Stockholder's Notice, each Preferred Stockholder may elect to
purchase its pro rata share of the Preferred Offered Shares by
delivering written notice (the "Preferred Stockholder's Notice") to
the Selling Stockholder (with a copy to the Company). The Preferred
Stockholders shall also have a right of oversubscription such that
if any Preferred Stockholder fails to accept the offer of the
Selling Stockholder as to its full pro rata fraction, the remaining
Preferred Stockholders shall, among them, have the right to purchase
up to the balance of such Preferred Offered Shares not so purchased.
The Preferred Stockholders may exercise such right of
oversubscription by accepting the offer of the Selling Stockholder
as to more than their pro rata share. If, as a result thereof, such
oversubscriptions exceed the total number of the Preferred Offered
Shares available in respect of such oversubscription privilege, the
oversubscribing Preferred Stockholders shall be cut back with
respect to over subscriptions on a pro rata basis in accordance with
their respective pro rata shares or as they may otherwise agree
among themselves. If any Preferred Stockholder accepts the offer of
the Selling Stockholder, the Preferred Stockholder's Notice shall
fix a time, location and date for the closing of such purchase,
which date shall be not less than ten (10) nor more than thirty (30)
days after delivery of such notice.
(ii) Closing. The place for the closing of any purchase and
sale described in Section 3.2(b)(i) shall be the principal office of
the Company or at such other place as the parties shall agree. At
the closing, the Selling Stockholder shall accept payment on the
terms contained in the Selling Stockholder's Notice. At the closing,
the Selling Stockholder shall deliver to the accepting Preferred
Stockholder(s), in exchange for Shares purchased and sold at the
closing, certificates for the number of Shares stated in the Selling
Stockholder's Notice, accompanied by duly executed instruments of
transfer.
(iii) Transfers to Third Parties. If the Preferred
Stockholders fail to accept the offer stated in the Selling
Stockholder's Notice, or if such offer is accepted but the accepting
Preferred Stockholder(s) fail to consummate the purchase at a
closing as hereinabove provided, then the Selling Stockholder shall
be free, subject to the provisions of Sections 3.2(c) and 4.2
hereof, to sell all, but not less than all, of the Preferred Offered
Shares to a third party (the "Preferred Third Party Purchaser") at a
price and on terms no less favorable to the Selling Stockholder than
described in the Selling Stockholder's Notice; provided, however,
that such sale is consummated within ninety (90) days after the
giving of the Selling Stockholder's Notice to the Company and the
Preferred Stockholders. Notwithstanding anything to the contrary
contained in this Section 3.2(b), in the event Ashton is the Selling
Stockholder and the Preferred Stockholders do not elect to purchase
all of the Preferred Offered Shares desired to be sold by Ashton,
then Ashton shall be free, subject to the provisions of Sections
3.2(c) and 4.2 hereof, to sell all, but not less than all, of the
Preferred
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Offered Shares to a Preferred Third Party Purchaser only if such
Preferred Third Party Purchaser is a reputable institutional
investor approved by holders of at least a majority of outstanding
Shares held by the Investors, which approval shall not be
unreasonably withheld at, a price and on terms no less favorable to
Ashton than described in Ashton's Selling Stockholder's Notice;
provided, however, that such sale is consummated within ninety (90)
days after the giving of the Selling Stockholder's Notice by Ashton
to the Company and the Preferred Stockholders. As a condition
precedent to the effectiveness of a transfer pursuant to this
Section 3.2(b)(iii), the Preferred Third Party Purchaser shall agree
in writing prior to such transfer to become a party to and bound by
the terms of this Agreement as an Investor or as a Preferred
Stockholder, as the case may be, and shall thereafter be permitted
to transfer Shares only in accordance with this Agreement.
(c) Right of Co-Sale.
(i) Preferred Stockholder Co-Sale Right. If any Preferred
Stockholders (the "Declining Preferred Stockholders") have waived or
otherwise failed to timely exercise their respective rights of first
offer to purchase all or any portion of the Preferred Offered Shares
as provided under Section 3.2(b), such Declining Preferred
Stockholders will have a right to participate in the sale of any
remaining Preferred Offered Shares (the "Remaining Prefered Offered
Shares") to the Preferred Third Party Purchaser in a manner set
forth herein ("Preferred Right of Co-Sale"). Each Declining
Preferred Stockholder shall have the right to sell to the Preferred
Third Party Purchaser, at the same price per Share and on the same
terms and conditions as the Selling Stockholder is selling to the
Preferred Third Party Purchaser (the "Preferred Co-Sale Terms"),
such number of Shares (the "Preferred Co-Sale Shares") as is equal
to the number of Remaining Preferred Offered Shares multiplied by
the Co-Sale Pro Rata Fraction (as defined below), if such Declining
Preferred Stockholder gives written notice of the exercise of such
right to such Selling Stockholder within forty-five (45) days (the
"Co-Sale Offer Period") after the date of such Declining Preferred
Stockholder's receipt of the Selling Stockholder's Notice. For
purposes of this Section 3.2(c), the "Co-Sale Pro Rata Fraction"
shall be defined as a fraction, the numerator of which is the number
of Shares on an as-converted basis then owned by such Declining
Preferred Stockholder and the denominator of which is the number of
Shares on an as-converted basis then owned by the Founders plus the
number of Shares on an as-converted basis then owned by all of the
Declining Preferred Stockholders who have elected to exercise the
Preferred Right of Co-Sale.
(ii) Notices of Offer and Intent to Participate. If a
Declining Preferred Stockholder wishes to participate in any sale
pursuant to this Section 3.2(c), the Declining Preferred Stockholder
shall notify the Selling Stockholder in writing of such intention as
soon as practicable after such Declining Preferred Stockholder's
receipt of the notice from the Selling Stockholder and in any event
within the Co-Sale Offer Period. If the Selling Stockholder does not
receive such notice from a Declining Preferred Stockholder within
the Co-Sale Offer Period, the Selling Stockholder shall be free to
consummate the proposed transaction without any
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obligation to include such Declining Preferred Stockholder's Shares
in such transaction.
(iii) Sale of Preferred Co-Sale Shares. The Selling
Stockholder and, if participating, the Declining Preferred
Stockholder(s), shall sell, subject to the provisions of Section 4.2
hereof, to the Preferred Third Party Purchaser all, or at the option
of the Preferred Third Party Purchaser, any part of the shares
proposed to be sold by them at not less than the price and upon
other terms and conditions, if any, not less favorable to the
Declining Preferred Stockholder(s) than the Co-Sale Terms; provided,
however, that any purchase of less than all of such shares by the
Preferred Third Party Purchaser shall be made from the Selling
Stockholder and the Declining Preferred Stockholders pro rata based
upon the relative amount of the shares that the Selling Stockholder
and the Declining Preferred Stockholders are otherwise entitled to
sell pursuant to Section 3.2(c). If Preferred Co-Sale Shares are
transferred under this Section 3.2 to any Preferred Third Party
Purchaser who is not a party to this Agreement, as a condition
precedent to the effectiveness of such transfer pursuant to this
Section 3.2(c)(iii), such Preferred Third Party Purchaser shall
agree in writing prior to such transfer to become party to and bound
by the terms of this Agreement as an Investor, Ashton or as Ashton
Executive as the case may be, and shall thereafter be permitted to
transfer Shares only in accordance with this Agreement.
3.3 Transfers to Permitted Transferees. The restrictions on transfer contained
in this Article 3 shall not apply to (a) transfers by a Preferred Stockholder to
an Affiliate of such Preferred Stockholder, (b) if such Preferred Stockholder is
a partnership, transfers to a partner or retired partner of such partnership,
(c) if such Preferred Stockholder is a corporation, transfers to the
stockholders of such corporation pursuant to a duly declared dividend, (d)
transfers to any nominee of such Preferred Stockholder made solely for internal
administrative purposes, (e) transfers by a Founder or an Ashton Executive to
such person's spouse, children or other member of such person's immediate
family, or to a trust for the benefit of such persons, (f) transfers by a
Founder or an Ashton Executive to the trustee or trustees of a trust revocable
solely by such person, (g) transfers by a Founder or an Ashton Executive to such
person's guardian or conservator or (h) transfers by a Founder or an Ashton
Executive in the event of such person's death to such person's executor(s) or
administrator(s) or to trustee(s) under such person's will (collectively,
"Permitted Transferees"); provided, however, that in any such event the Shares
so transferred in the hands of each such Permitted Transferee shall remain
subject to the provisions of this Article 3, and each such Permitted Transferee
shall so acknowledge in writing as a condition precedent to the effectiveness of
such transfer.
3.4 Termination. The respective rights and obligations of the parties under this
Article 3 shall terminate upon the consummation of the Company's Initial Public
Offering.
4. TRANSFER OF REGISTRABLE SECURITIES; REGISTRATION
4.1 Restrictive Legend. Each certificate representing Registrable Securities
shall, except as otherwise provided in this Section 4.1 or in Section 4.2, be
stamped or otherwise imprinted with a
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legend substantially in the following form (in addition to any legend required
under applicable state securities laws):
"The securities represented by this certificate have not been registered
under the Securities Act of 1933 or any other securities laws. These
securities have been acquired for investment and not with a view to
distribution or resale. Such securities may not be offered for sale, sold,
delivered after sale, transferred, pledged or hypothecated in the absence
of an effective registration statement covering such securities under the
Securities Act of 1933 and any other applicable securities laws, unless
the holder shall have obtained an opinion of counsel reasonably
satisfactory to the corporation that such registration is not required or
the transferee is an Affiliate of the holder."
Upon request of a holder of such a certificate, the Company shall remove
the foregoing legend from the certificate or issue to such holder a new
certificate therefor free of any transfer legend, if there is an effective
registration statement covering the securities represented by such certificate
or, with such request, the Company shall have received either the opinion
referred to in Section 4.2(i) or the "no-action" letter referred to in Section
4.2(ii).
4.2 Notice of Proposed Transfer. Subject to the provisions of Article 3, prior
to any proposed sale, pledge, hypothecation or other transfer of any Registrable
Securities (other than under the circumstances described in Section 4.3, 4.4 or
4.5), the holder thereof shall give written notice to the Company of its
intention to effect such sale, pledge, hypothecation or other transfer. Each
such notice shall describe the manner of the proposed sale, pledge,
hypothecation or other transfer and, if requested by the Company shall be
accompanied by either (i) an opinion of counsel reasonably satisfactory to the
Company to the effect that the proposed sale, pledge, hypothecation or other
transfer may be effected without registration under the Securities Act or (ii) a
"no action" letter from the Commission to the effect that the distribution of
such securities without registration will not result in a recommendation by the
staff of the Commission that action be taken with respect thereto, whereupon the
holder of such stock shall be entitled to transfer such stock in accordance with
the terms of its notice; provided, however, that no such opinion of counsel
shall be required for a distribution to one or more partners of the transferor
(in the case of a transferor that is a partnership) or to a stockholder (in the
case of a transferor that is a corporation) in each case in respect of the
beneficial interest of such partner or stockholder. Each certificate for
Registrable Securities transferred as above provided shall bear the appropriate
restrictive legend set forth in Section 4.1, except that such certificate shall
not bear such legend if (i) such transfer is in accordance with the provisions
of Rule 144 (or any other rule permitting public sale without registration under
the Securities Act) or (ii) the opinion of counsel or "no-action" letter
referred to above is to the further effect that the transferee and any
subsequent transferee (other than an affiliate of the Company) would be entitled
to transfer such securities in a public sale without registration under the
Securities Act or that such legend is not required to establish compliance with
any provisions of the Securities Act. Notwithstanding any other provision
hereof, the restrictions provided for in this Section 4.2 shall not apply to
securities which are not required to bear the legend prescribed by Section 4.1
in accordance with the provisions of that Section.
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4.3 Required Registration.
(a) Upon the earlier to occur of (i) 180 days after consummation of the
Initial Public Offering and (ii) December 30, 2001, one or more of the holders
of Registrable Securities constituting at least a majority of the total shares
of Registrable Securities then outstanding may request the Company to register
for sale under the Securities Act all or any portion of the shares of
Registrable Securities held by such requesting holder or holders for sale in the
manner specified in such notice.
(b) Following receipt of any notice under this Section 4.3, the Company
shall immediately notify all holders of Registrable Securities from whom notice
has not been received and such holders shall then be entitled within thirty (30)
days after receipt of such notice from the Company to request the Company to
include in the requested registration all or any portion of their shares of
Registrable Securities. The Company shall use reasonable best efforts to
register under the Securities Act, for public sale in accordance with the method
of disposition specified in the notice from requesting holders described in
paragraph (a) above, the number of shares of Registrable Securities specified in
such notice (and in all notices received by the Company from other holders
within thirty (30) days after the receipt of such notice by such holders). The
Company shall be obligated to register the Registrable Securities pursuant to
this Section 4.3 on two (2) occasions only, provided, however, that such
obligation shall be deemed satisfied only when a registration statement covering
all shares of Registrable Securities specified in notices received as aforesaid
(except to the extent reduced (but not by more than 25%) by the managing
underwriter, if any, pursuant to Section 4.3(d)), for sale in accordance with
the method of disposition specified by the requesting holders, shall have become
effective and, if such method of disposition is a firm commitment underwritten
public offering, all such shares shall have been sold pursuant thereto.
Notwithstanding anything to the contrary contained herein, no request may be
made under this Section 4.3 after the effective date of a registration statement
filed by the Company covering a firm commitment underwritten public offering and
prior to the later to occur of the completion of the period of distribution for
such offering or 180 days after the effective date of such registration
statement.
(c) If the holders requesting such registration intend to distribute the
Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request made pursuant to
this Section 4.3 and the Company shall include such information in the written
notice referred to in paragraph (b) above. The right of any holder to
registration pursuant to this Section 4.3 shall be conditioned upon such
holder's agreeing to participate in such underwriting and to permit inclusion of
such holder's Registrable Securities in the underwriting. If such method of
disposition is an underwritten public offering, the Company shall designate the
managing underwriter of such offering, which managing underwriter shall be
reasonably acceptable to holders of at least a majority in interest of the
shares of Registrable Securities to be sold in such offering. A holder may elect
to include in such underwriting all or a part of the Registrable Securities it
holds.
(d) A registration statement filed pursuant to this Section 4.3 may,
subject to the following provisions, include (i) shares of Common Stock for sale
by the Company for its own account, (ii) shares of Common Stock held by officers
or directors of the Company and (iii) shares of Common Stock held by persons who
are entitled to include such shares in such registration (the
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"Other Shareholders"), in each case for sale in accordance with the method of
disposition specified by the requesting holders. If such registration shall be
underwritten, the Company, such officers and directors and Other Shareholders
proposing to distribute their shares through such underwriting shall enter into
an underwriting agreement in customary form with the representative of the
underwriter or underwriters selected for such underwriting on terms no less
favorable to such officers, directors or Other Shareholders than the terms
afforded the holders of Registrable Securities. If and to the extent that the
managing underwriter determines that marketing factors require a limitation on
the number of shares to be included in such registration, then the shares of
Common Stock held by officers or directors or by Other Shareholders (other than
Registrable Securities) and shares of Common Stock to be sold by the Company for
its own account shall be excluded from such registration to the extent so
required by such managing underwriter, and unless the holders of such shares and
the Company have otherwise agreed in writing, such exclusion shall be applied
first to the shares held by the directors and officers of the Company and the
Other Shareholders to the extent required by the managing underwriter, then to
the shares of Common Stock of the Company to be included for its own account to
the extent required by the managing underwriter. If the managing underwriter
determines that marketing factors require a limitation of the number of
Registrable Securities to be registered under this Section 4.3, then Registrable
Securities shall be excluded in such manner that the securities to be sold shall
be allocated pro rata among the selling holders pro rata based on their
ownership of Registrable Securities. In any event all securities to be sold
other than Registrable Securities will be excluded prior to any exclusion of
Registrable Securities. No Registrable Securities or any other security excluded
from the underwriting by reason of the underwriter's marketing limitation shall
be included in such registration. If any holder of Registrable Securities,
officer, director or Other Shareholder who has requested inclusion in such
registration as provided above, disapproves of the terms of the underwriting,
such holder of securities may elect to withdraw therefrom by written notice to
the Company and the managing underwriter. The securities so withdrawn shall also
be withdrawn from registration. Except for registration statements on Form S-4,
S-8 or any comparable form or successor thereto, the Company will not file with
the Commission any other registration statement with respect to its Common
Stock, whether for its own account or that of other stockholders, from the date
of receipt of a notice from requesting holders pursuant to this Section 4.3
until the completion of the period of distribution of the registration
contemplated thereby or 180 days after the effective date of such registration,
whichever is later.
(e) If at the time of any request to register Registrable Shares by
holders pursuant to this Section 4.3, the Company is engaged or has plans to
engage in a registered public offering or is engaged in any other activity
which, in the good faith determination of the Company's Board of Directors,
would be adversely affected by the requested registration, then the Company may
at its option direct that such request be delayed for a period not in excess of
90 days from the date of such request, such right to delay a request to be
exercised by the Company not more than twice in any 12-month period.
4.4 Incidental Registration. If the Company at any time (other than pursuant to
Section 4.3) proposes to register any of its securities under the Securities Act
for sale to the public, whether for its own account or for the account of other
security holders or both (except with respect to registration statements on
Forms S-4, S-8 or any successor to such forms or another form not available for
registering the Registrable Securities for sale to the public), each such time
it will promptly give written notice to all holders of the Registrable
Securities of its intention so to do.
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Upon the written request of any such holder, received by the Company within
thirty (30) days after the giving of any such notice by the Company, to register
any or all of its Registrable Securities, the Company will use reasonable best
efforts to cause the Registrable Securities as to which registration shall have
been so requested to be included in the securities to be covered by the
registration statement proposed to be filed by the Company, all to the extent
requisite to permit the sale or other disposition by the holder (in accordance
with its written request) of such Registrable Securities so registered. If the
registration of which the Company gives notice is for a registered public
offering involving an underwriting, the Company shall so advise the holders of
Registrable Securities as a part of the written notice given pursuant to this
Section 4.4. In such event the right of any holder of Registrable Securities to
registration pursuant to this Section 4.4 shall be conditioned upon such
holder's participation in such underwriting to the extent provided herein. All
holders of Registrable Securities proposing to distribute their securities
through such underwriting shall (together with the Company and the Other
Shareholders distributing their securities through such underwriting) enter into
an underwriting agreement in customary form with the underwriter or underwriters
selected for underwriting by the Company. Notwithstanding any other provision of
this Section 4.4, if the underwriter determines that marketing factors require a
limitation on the number of shares to be underwritten, the Company shall so
advise all holders of securities requesting registration of any limitations on
the number of shares to be underwritten, and the number of shares of securities
that are entitled to be included in the registration and underwriting shall be
allocated (i) first to the Company with respect to shares of Common Stock being
sold for its own account and (ii) second, to holders of Registrable Securities
and to Other Stockholders requesting registration in proportion, as nearly as
practicable, to the respective amounts of securities owned by them.
Notwithstanding the foregoing provisions, the Company may withdraw any
registration statement referred to in this Section 4.4 without thereby incurring
any liability to the holders of Registrable Securities. If any holder of
Registrable Securities disapproves of the terms of any such underwriting, it may
elect to withdraw therefrom by written notice to the Company and the
underwriter. Any Registrable Securities or other securities excluded or
withdrawn from such underwriting shall be withdrawn from such registration.
4.5 Registration on Form S-3.
(a) In addition to the rights provided in Sections 4.3 and 4.4, subject to
a limit of one (1) registration hereunder in any twelve (12) month period, if at
any time (i) any holder or holders of the Registrable Securities request that
the Company file a registration statement on Form S-3 or any comparable or
successor form thereto for a public offering of all or any portion of the shares
of Registrable Securities held by such requesting holder or holders, the
reasonably anticipated aggregate price to the public of which would be at least
$2,000,000, and (ii) the Company is a registrant entitled to use Form S-3 or any
comparable or successor form thereto to register such shares, then the Company
shall use reasonable best efforts to register under the Securities Act on Form
S- 3 or any comparable or successor form thereto, for public sale in accordance
with the method of disposition specified in such request, the number of shares
of Registrable Securities specified in such request. Whenever the Company is
required by this Section 4.5 to use reasonable best efforts to effect the
registration of Registrable Securities, each of the procedures and requirements
of Section 4.3, including but not limited to the requirement that the Company
notify all holders of Registrable Securities from whom notice has not been
received and provide them with the opportunity to participate in the offering,
shall apply to such registration, provided, however, that except as provided
above, there shall be no limitation on the number of registrations on Form S-
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3 which may be requested and obtained under this Section 4.5. Notwithstanding
any other provision of this Section 4.5, if the underwriter determines that
marketing factors require a limitation on the number of shares to be
underwritten, such limitation will be imposed pro rata with respect to all
Registrable Securities whose holders have requested inclusion in such
registration pursuant to this Section 4.5.
(b) The Company shall use reasonable best efforts to qualify for
registration on Form S-3 or any comparable or successor form or forms; and to
that end the Company shall register (whether or not required by law to do so)
the Common Stock under the Exchange Act in accordance with the provisions of
that Act following the effective date of the first registration of any
securities of the Company on Form S-1 or any comparable or successor form.
4.6 Registration Procedures. If and whenever the Company is required by the
provisions of Section 4.3, 4.4 or 4.5 to use reasonable best efforts to effect
the registration of any Registrable Securities under the Securities Act, the
Company will, as expeditiously as possible:
(a) prepare and file with the Commission a registration statement (which,
in the case of an underwritten public offering pursuant to Section 4.3, shall be
on Form S-1 or other form of general applicability satisfactory to the managing
underwriter selected as therein provided) with respect to such securities
including executing an undertaking to file post-effective amendments and use
reasonable best efforts to cause such registration statement to become and
remain effective for the period of the distribution contemplated thereby;
(b) prepare and file with the Commission such amendments and supplements
to such registration statement and the prospectus used in connection therewith
as may be necessary to keep such registration statement effective for the period
specified herein and comply with the provisions of the Securities Act with
respect to the disposition of all Registrable Securities covered by such
registration statement in accordance with the sellers' intended method of
disposition set forth in such registration statement for such period;
(c) furnish to each seller of Registrable Securities and to each
underwriter such number of copies of the registration statement and each such
amendment and supplement thereto (in each case including all exhibits) and the
prospectus included therein (including each preliminary prospectus) as such
persons reasonably may request in order to facilitate the public sale or other
disposition of the Registrable Securities covered by such registration
statement;
(d) use reasonable best efforts to register or qualify the Registrable
Securities covered by such registration statement under the securities or "blue
sky" laws of such jurisdictions as the sellers of Registrable Securities or, in
the case of an underwritten public offering, the managing underwriter reasonably
shall request, provided, however, that the Company shall not for any such
purpose be required to qualify generally to transact business as a foreign
corporation in any jurisdiction where it is not so qualified or to consent to
general service of process in any such jurisdiction, unless the Company is
already subject to service in such jurisdiction;
(e) use reasonable best efforts to list the Registrable Securities covered
by such registration statement with any securities exchange on which the Common
Stock of the Company is then listed;
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(f) comply with all applicable rules and regulations under the Securities
Act and Exchange Act;
(g) immediately notify each seller of Registrable Securities and each
underwriter under such registration statement, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, of the
happening of any event of which the Company has knowledge as a result of which
the prospectus contained in such 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 light of the circumstances then existing, and promptly prepare
and furnish to such seller a reasonable number of copies of a prospectus
supplemented or amended so that, as thereafter delivered to the purchasers of
such Registrable Securities, such prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing;
(h) if the offering is underwritten and at the request of any seller of
Registrable Securities, use reasonable best efforts to furnish on the date that
Registrable Securities are delivered to the underwriters for sale pursuant to
such registration: (i) an opinion dated such date of counsel representing the
Company for the purposes of such registration, addressed to the underwriters to
such effects as reasonably may be requested by counsel for the underwriters, and
(ii) a letter dated such date from the independent public accountants retained
by the Company, addressed to the underwriters stating that they are independent
public accountants within the meaning of the Securities Act and that, in the
opinion of such accountants, the financial statements of the Company included in
the registration statement or the prospectus, or any amendment or supplement
thereof, comply as to form in all material respects with the applicable
accounting requirements of the Securities Act, and such letter shall
additionally cover such other financial matters (including information as to the
period ending no more than five (5) business days prior to the date of such
letter) with respect to such registration as such underwriters reasonably may
request;
(i) make available for inspection by each seller of Registrable
Securities, any underwriter participating in any distribution pursuant to such
registration statement, and any attorney, accountant or other agent retained by
such seller or underwriter, reasonable access to all financial and other
records, pertinent corporate documents and properties of the Company, as such
parties may reasonably request, and cause the Company's officers, directors and
employees to supply all information reasonably requested by any such seller,
underwriter, attorney, accountant or agent in connection with such registration
statement;
(j) cooperate with the selling holders of Registrable Securities and the
managing underwriter, if any, to facilitate the timely preparation and delivery
of certificates representing Registrable Securities to be sold, such
certificates to be in such denominations and registered in such names as such
holders or the managing underwriter may request at least two business days prior
to any sale of Registrable Securities; and
(k) permit any holder of Registrable Securities which holder, in the sole
and exclusive judgment, exercised in good faith, of such holder, might be deemed
to be a controlling person of the Company, to participate in good faith in the
preparation of such registration or comparable
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statement and to require the insertion therein of material, furnished to the
Company in writing, which in the reasonable judgment of such holder and its
counsel should be included.
For purposes of this Agreement, the period of distribution of Registrable
Securities in a firm commitment underwritten public offering shall be deemed to
extend until each underwriter has completed the distribution of all securities
purchased by it, and the period of distribution of Registrable Securities in any
other registration shall be deemed to extend until the earlier of the sale of
all Registrable Securities covered thereby or 180 days after the effective date
thereof, provided, however, in the case of any registration of Registrable
Securities on Form S-3 or a comparable or successor form which are intended to
be offered on a continuous or delayed basis, such 180 day-period shall be
extended, if necessary, to keep the registration statement effective until all
such Registrable Securities are sold, provided that Rule 415, or any successor
rule under the Securities Act, permits an offering on a continuous or delayed
basis, and provided further that applicable rules under the Securities Act
governing the obligation to file a post-effective amendment, permit, in lieu of
filing a post-effective amendment which (y) includes any prospectus required by
Section 10(a)(3) of the Securities Act or (z) reflects facts or events
representing a material or fundamental change in the information set forth in
the registration statement, the incorporation by reference of information
required to be included in (y) and (z) above contained in periodic reports filed
pursuant to Section 13 or 15(d) of the Exchange Act in the registration
statement.
In connection with each registration hereunder, the sellers of Registrable
Securities will furnish to the Company in writing such information requested by
the Company with respect to themselves and the proposed distribution by them as
shall be reasonably necessary in order to assure compliance with Federal and
applicable state securities laws.
4.7 Expenses.
(a) All expenses incurred by the Company in complying with Sections 4.3,
4.4 and 4.5, including, without limitation, all registration and filing fees,
printing expenses, fees and disbursements of counsel and independent public
accountants for the Company, fees and expenses (including counsel fees) incurred
in connection with complying with state securities or "blue sky" laws, fees of
the National Association of Securities Dealers, Inc., transfer taxes, fees of
transfer agents and registrars, costs of any insurance which might be obtained
by the Company with respect to the offering by the Company, and fees and
disbursements (not to exceed $35,000) of one counsel selected by a majority in
interest of the sellers of Registrable Securities, but excluding any Selling
Expenses (defined below), are called "Registration Expenses". All underwriting
discounts and selling commissions applicable to the sale of Registrable
Securities are called "Selling Expenses".
(b) The Company will pay all Registration Expenses in connection with each
registration statement under Section 4.3, 4.4 or 4.5; provided, that, in the
event of a registration pursuant to Section 4.3 hereof which is withdrawn at the
request of the Investors other than as a result of the Company's failure to
perform its obligations hereunder and other than as a result of a cutback by the
underwriter of such registration in the amount of Registrable Securities which
may be included in such registration by more than 25%, the Investors shall pay
the Registration Expenses with respect to such registration. All Selling
Expenses in connection with each registration statement under Section 4.3, 4.4
or 4.5 shall be borne by the participating sellers in
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proportion to the number of shares registered by each, or by such participating
sellers other than the Company (except to the extent the Company shall be a
seller) as they may agree.
4.8 Indemnification and Contribution.
(a) In the event of a registration of any of the Registrable Securities
under the Securities Act pursuant to Section 4.3, 4.4 or 4.5, the Company will
indemnify and hold harmless each holder of Registrable Securities, its officers,
directors and partners, each underwriter of such Registrable Securities
thereunder and each other person, if any, who controls such holder or
underwriter within the meaning of the Securities Act, against any losses,
claims, damages or liabilities, joint or several, to which such holder, officer,
director, partner, underwriter or controlling person may become subject under
the Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon (i)
any untrue statement or alleged untrue statement of any material fact contained
in any prospectus, offering circular or other document incident to such
registration (including any related notification, registration statement under
which such Registrable Securities were registered under the Securities Act
pursuant to Section 4.3, 4.4 or 4.5, any preliminary prospectus or final
prospectus contained therein, or any amendment or supplement thereof), (ii) any
blue sky application or other document executed by the Company specifically for
that purpose or based upon written information furnished by the Company filed in
any state or other jurisdiction in order to qualify any or all of the
Registrable Securities under the securities laws thereof (any such application,
document or information herein called a "Blue Sky Application"), (iii) any
omission or alleged omission to state in any such registration statement,
prospectus, amendment or supplement or in any Blue Sky Applications executed or
filed by the Company, a material fact required to be stated therein or necessary
to make the statements therein not misleading, (iv) any violation by the Company
or its agents of the Securities Act or any rule or regulation promulgated under
the Securities Act applicable to the Company or its agents and relating to
action or inaction required of the Company in connection with such registration,
or (v) any failure to register or qualify the Registrable Securities in any
state where the Company or its agents has affirmatively undertaken or agreed in
writing that the Company (the undertaking of any underwriter chosen by the
Company being attributed to the Company) will undertake such registration or
qualification (provided that in such instance the Company shall not be so liable
if it has used reasonable best efforts to so register or qualify the Registrable
Securities) and will reimburse each such seller, and such officer, director and
partner, each such underwriter and each such controlling person for any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action, promptly after
being so incurred, provided, however, that the Company will not be liable in any
such case if and to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission so made in conformity with written information
furnished by any such holder, any such underwriter or any such controlling
person in writing specifically for use in such registration statement or
prospectus.
(b) In the event of a registration of any of the Registrable Securities
under the Securities Act pursuant to Section 4.3, 4.4 or 4.5, each seller of
such Registrable Securities thereunder, severally and not jointly, will
indemnify and hold harmless the Company, each person, if any, who controls the
Company within the meaning of the Securities Act, each officer of the Company
who signs the registration statement, each director of the Company, each other
seller of Registrable Securities, each underwriter and each person who controls
any underwriter within the meaning of
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the Securities Act, against all losses, claims, damages or liabilities, joint or
several, to which the Company or such officer, director, other seller,
underwriter or controlling person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any prospectus, offering
circular or other document incident to such registration (including any related
notification, registration statement under which such Registrable Securities
were registered under the Securities Act pursuant to Section 4.3, 4.4 or 4.5,
any preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereof), or any Blue Sky Application or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse the Company and each such officer, director,
other seller, underwriter and controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action, promptly after being so incurred,
provided, however, that such seller will be liable hereunder in any such case if
and only to the extent that any such loss, claim, damage or liability arises out
of or is based upon an untrue statement or alleged untrue statement or omission
or alleged omission made in reliance upon and in conformity with information
pertaining to such seller, as such, furnished in writing to the Company by such
seller specifically for use in such registration statement or prospectus; and
provided, further, however, that the liability of each seller hereunder shall be
limited to the proportion of any such loss, claim, damage, liability or expense
which is equal to the proportion that the public offering price of the
securities sold by such seller under such registration statement bears to the
total public offering price of all securities sold thereunder, but not in any
event to exceed the net proceeds received by such seller from the sale of
Registrable Securities covered by such registration statement. Not in limitation
of the foregoing, it is understood and agreed that the indemnification
obligations of any seller hereunder pursuant to any underwriting agreement
entered into in connection herewith shall be limited to the obligations
contained in this subparagraph (b).
(c) Promptly after receipt by an indemnified party hereunder of notice of
the commencement of any action, such indemnified party shall, if a claim in
respect thereof is to be made against the indemnifying party hereunder, notify
the indemnifying party in writing thereof, but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
such indemnified party other than under this Section 4.8 and shall only relieve
it from any liability which it may have to such indemnified party under this
Section 4.8 if and to the extent the indemnifying party is prejudiced by such
omission. In case any such action shall be brought against any indemnified party
and it shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate in and, to the extent it
shall wish, to assume and undertake the defense thereof with counsel
satisfactory to such indemnified party, and, after notice from the indemnifying
party to such indemnified party of its election so to assume and undertake the
defense thereof, the indemnifying party shall not be liable to such indemnified
party under this Section 4.8 for any legal expenses subsequently incurred by
such indemnified party in connection with the defense thereof other than
reasonable costs of investigation and of liaison with counsel so selected,
provided, however, that, if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be reasonable defenses available to it
which are different from or additional to those available to the indemnifying
party or that the interests of the indemnified party reasonably may be deemed to
conflict with the interests of the indemnifying party, the indemnified party
shall have the
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<PAGE>
right to select a separate counsel and to assume such legal defenses and
otherwise to participate in the defense of such action, with the expenses and
fees of such separate counsel and other expenses related to such participation
to be reimbursed by the indemnifying party as incurred. No indemnifying party,
in the defense of any such claim or action, shall, except with the consent of
each indemnified party, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such indemnified party of a release from all
liability in respect to such claim or action. Each indemnified party shall
furnish such information regarding itself or the claim in question as an
indemnifying party may reasonably request in writing and as shall be reasonably
required in connection with defense of such claim and litigation resulting
therefrom.
(d) In order to provide for just and equitable contribution to joint
liability under the Securities Act in any case in which either (i) any holder of
Registrable Securities exercising rights under this Agreement, or any
controlling person of any such holder, makes a claim for indemnification
pursuant to this Section 4.8 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
this Section 4.8 provides for indemnification in such case, or (ii) contribution
under the Securities Act may be required on the part of any such selling holder
or any such controlling person in circumstances for which indemnification is
provided under this Section 4.8, then, and in each such case, the Company and
such holder will contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after contribution from others) in
such proportion so that such holder is responsible for the portion represented
by the percentage that the public offering price of its Registrable Securities
offered by the registration statement bears to the public offering price of all
securities offered by such registration statement, and the Company is
responsible for the remaining portion; provided, however, that, in any such
case, (A) no such holder of Registrable Securities will be required to
contribute any amount in excess of the proceeds received from the sale of all
such Registrable Securities offered by it pursuant to such registration
statement; and (B) no person or entity guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) will be entitled to
contribution from any person or entity who was not guilty of such fraudulent
misrepresentation.
(e) The indemnities and obligations provided in this Section 4.8 shall
survive the transfer of any Registrable Securities by such holder.
4.9 Changes in Common Stock. If, and as often as, there is any change in the
Common Stock by way of a stock split, stock dividend, combination or
reclassification, or through a merger, consolidation, reorganization or
recapitalization, or by any other means, appropriate adjustment shall be made in
the provisions hereof so that the rights and privileges granted hereby shall
continue with respect to the Common Stock as so changed.
4.10 Rule 144 Reporting. With a view to making available the benefits of certain
rules and regulations of the Commission which may at any time permit the sale of
the Registrable Securities to the public without registration, except as
provided in paragraph (c) below, at all times after ninety (90) days after any
registration statement covering a public offering of securities of the Company
under the Securities Act shall have become effective, the Company agrees to:
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(a) make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act (or any successor
rule);
(b) use reasonable best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act; and
(c) furnish to each holder of Registrable Securities forthwith upon
request a written statement by the Company as to its compliance with the
reporting requirements of such Rule 144 (or any successor rule) and, at any time
after it has become subject to such reporting requirements, of the Securities
Act and the Exchange Act, a copy of the most recent annual or quarterly report
of the Company, and such other reports and documents so filed by the Company as
such holder may reasonably request in availing itself of any rule or regulation
of the Commission allowing such holder to sell any Registrable Securities
without registration.
4.11 "Market Stand-Off" Agreement. Each of the Investors agrees, severally and
not jointly, if requested by the Company and an underwriter of Common Stock (or
other securities) of the Company, not to sell or otherwise transfer or dispose
of any Common Stock (or other securities) of the Company held by such Purchaser
during a period not to exceed one hundred and eighty (180) days following the
effective date of the first registration statement of the Company filed under
the Securities Act, and to enter into an agreement to such effect; provided that
(A) all officers and directors of the Company, and all Persons known by the
Company to own 1% or more of the Company's outstanding capital stock, shall
enter into similar agreements and (B) this restriction shall not apply to shares
of Common Stock being sold by any Investor under any such registration
statement.
The Company may impose stop-transfer instructions with respect to the
shares (or securities) subject to the foregoing restriction until the end of
said period.
4.12 Assignment of Registration Rights. The rights to cause the Company to
register Registrable Securities pursuant to this Section 4 may be assigned (but
only with all related obligations under this Agreement) by a holder of
Registrable Securities to a transferee or assignee of such securities (y) who is
not engaged in a business activity competitive with the Company (as reasonably
determined by the Company's Board of Directors) and who after such assignment or
transfer, holds at least 50,000 shares of Registrable Securities (subject to
appropriate adjustment for stock splits, stock dividends, combinations and
similar recapitalization events) or (z) who is an Affiliate or a constituent
partner of such holder; provided the Company is, within a reasonable time after
such transfer, furnished with written notice of the name and address of such
transferee or assignee and the securities with respect to which such
registration rights are being assigned; and provided, further, that such
assignment shall be effective only if (i) immediately following such transfer
the further disposition of such securities by the transferee or assignee is
restricted under the Act and (ii) the transferee or assignee shall acknowledge
in writing that the transferred or assigned Registrable Securities shall remain
subject to this Agreement. For the purposes of determining the number of shares
of Registrable Securities held by a transferee or assignee, the holdings of
transferees and assignees of a partnership who are partners or retired partners
of such partnership (including spouses and ancestors, lineal descendants and
siblings of such partners or spouses who acquire Registrable Securities by gift,
will or intestate succession) shall be aggregated together and with the
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partnership; provided that all assignees and transferees who would not qualify
individually for assignment of registration rights shall have a single
attorney-in-fact for the purpose of exercising any rights, receiving notices or
taking any action under this Section 4.
5. BOARD OF DIRECTORS
5.1 Election of Directors. Each Preferred Stockholder and each Founder shall
take or cause to be taken such actions as may be required from time to time to
establish and maintain the number of persons comprising the Board of Directors
of the Company at seven (7) or at such other number as the Board of Directors
may determine from time to time, and to elect as directors (i) two
representatives of the Series C Stock designated for election by holders of at
least a majority of the Series C Stock issued and outstanding (the "Series C
Directors"), (ii) one representative of the Company's Series A Convertible
Voting Preferred Stock, par value $.01 per share (the "Series A Stock")
designated for election by holders of at least a majority of the Series A Stock
issued and outstanding (the "Class A Director"), (iii) two representatives of
the Founders designated for election by the Founders (the "Founder Directors")
and (iv) two independent directors designated for election by both (A) at least
a majority of the Series C Stock issued and outstanding, voting as a separate
class, and (B) at least a majority of the Series A Stock issued and outstanding,
voting as a separate class; provided that each such independent director shall
be a person that is not a director, officer, employee, agent, representative or
Affiliate of any Investor or of Ashton. Without limiting the generality of the
foregoing, at each annual meeting of the stockholders and at each special
meeting of the stockholders called for the purpose of electing directors of the
Company, and at any time at which the stockholders have the right to, or shall,
elect directors of the Company, then, and in each event, the Preferred
Stockholders and the Founders shall vote all Shares owned by them (or shall
consent in writing in lieu of a meeting of stockholders, as the case may be) to
set the number of, and to elect persons as, directors of the Company in
accordance with the preceding sentence.
5.2 Removal of Directors; Filling of Vacancies. Each Preferred Stockholder and
each Founder shall take all action necessary to remove forthwith any director
when such removal is requested for any reason, with or without cause, by the
Persons that designated such director for election. In the case of the death,
resignation or removal as herein provided of a director, each Preferred
Stockholder and each Founder shall vote all Shares owned by him, her or it to
elect another person designated by the Persons that designated the deceased,
resigning or removed director if, at the time such vacancy occurs, such Persons
shall have the right to have a person designated by him elected as a director
pursuant to Section 5.1.
5.3 Board Committees. The Board of Directors shall have a Compensation Committee
and an Audit Committee, and at least one Series C Director shall be a member of
each such committee. In addition, a Series C Director shall serve as Chairman of
the Compensation Committee of the Board of Directors.
5.4 Board Observer Rights. The Company shall permit one (1) authorized
representative of Ashton to attend all, but not vote at any, meetings of the
Board of Directors of the Company, and shall provide such notice of and other
information to Ashton with respect to such meetings as are delivered to the
Directors of the Company; provided that such representative may be excluded from
any "executive session" of the Board of Directors at which, in the reasonable
opinion of the
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<PAGE>
Board of Directors, such exclusion is necessary to preserve or protect the
proper functioning of the Board of Directors and the exercise of its fiduciary
duties. Such representative shall be strictly an observer at each meeting of the
Board of Directors and nothing in this paragraph shall be construed as to confer
any other function, position or title on such representative. The Company shall
promptly reimburse in full each observer of the Company for all of his or her
reasonable out-of-pocket expenses incurred in attending each meeting of the
Board of Directors of the Company.
5.5 Termination of Article. The provisions of this Article 5 shall be of no
further force or effect upon the consummation of the Company's Initial Public
Offering.
6. AFFIRMATIVE COVENANTS OF THE COMPANY
The Company covenants and agrees that, from the date of the Closing under the
Purchase Agreement and thereafter so long as any Investor owns Registrable
Securities, it will perform and observe the following covenants and provisions,
and will cause each Subsidiary, if and when such Subsidiary exists, to perform
and observe the following covenants and provisions as applicable to such
Subsidiary.
6.1 Financial Statements; Other Reports. The Company and each Subsidiary will
maintain proper books of account and records in accordance with generally
accepted accounting principles applied on a consistent basis, and will deliver
to each Investor and its Affiliates jointly owning at least fifty thousand
(50,000) shares of the Company's capital stock, treating all preferred stock on
an as converted basis but excluding any unexercised options, warrants or
purchase rights (each, a "Rights Holder"):
(a) as soon as available and in any event within forty-five (45) days
after the end of each of the first three quarters of each fiscal year of the
Company, a consolidated balance sheet of the Company and its Subsidiaries as of
the end of such quarter and the related statements of income and stockholders'
equity and of cash flows of the Company for the period commencing at the end of
the previous fiscal year and ending with the end of such quarter, setting forth
in each case in comparative form the corresponding figures for the corresponding
period of the preceding fiscal year and the budget for such current year, all in
reasonable detail and prepared in accordance with generally accepted accounting
principles consistently applied, and duly certified (subject to year-end audit
adjustments) by the chief financial officer of the Company;
(b) as soon as available and in any event within ninety (90) days after
the end of each fiscal year of the Company, a copy of the annual audit report
for such year for the Company, including therein a consolidated balance sheet of
the Company and its Subsidiaries as of the end of such fiscal year and
statements of income and stockholders' equity and of cash flows of the Company
for such fiscal year, setting forth in each case in comparative form the
corresponding figures for the preceding fiscal year, all duly certified by
independent public accountants of recognized standing acceptable to the Rights
Holders;
(c) as soon as available and, in any event, within twenty (20) days after
the last day of each month, financial statements, including a balance sheet as
of the last date of such month, a statement of income (or monthly operating
expenses) for such month, together with a cumulative
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<PAGE>
statement of income from the first day of the current year to the last day of
such month, and a cash flow analysis, together with cumulative cash flow
analyses from the first day of the current year to the last day of such month;
(d) as soon as available and, in any event at least prior to the start of
each fiscal year, a copy of the business plan for such year, including operating
budgets, operating expenses and profit and loss projections, cash flow
projections and capital expenditure budgets, as prepared for the Board of
Directors and as approved by the Board of Directors; and
(e) promptly after sending, making available, or filing the same, such
reports and financial statements as the Company shall send or make available to
the stockholders of the Company.
Neither the foregoing provisions of this Section nor any other provision
of this Agreement shall be in limitation of any rights which an Investor may
have with respect to the books and records of the Company and its Subsidiaries,
or to inspect their properties or discuss their affairs, finances and accounts,
under the laws of the jurisdictions in which they are incorporated.
6.2 Inspection and Other Information. Each Rights Holder and such agents,
advisors and counsel as such Rights Holder may designate, may, at its expense,
visit and inspect any of the properties of the Company and each Subsidiary,
examine the books of account of the Company and each Subsidiary, take extracts
therefrom and discuss the affairs, finances and accounts of the Company and each
Subsidiary with its officers and employees and public accountants (and by this
provision the Company and each Subsidiary hereby authorizes said accountants to
discuss with such Rights Holder and such persons its finances and accounts), at
reasonable times and with reasonable prior notice during normal business hours.
All such visits and inspections shall be conducted in a manner which will not
unreasonably interfere with the normal business operations of the Company and
each Subsidiary. The Company and each Subsidiary will furnish to each such
Rights Holder such other information as it from time to time may reasonably
request.
6.3 Independent Accountants. The Company will retain independent public
accountants approved by the Company's Board of Directors who shall certify the
Company's consolidated financial statements at the end of each fiscal year.
6.4 Preservation of Corporate Existence. The Company and each Subsidiary will
preserve and maintain its corporate existence, rights, franchises and privileges
in the jurisdiction of its incorporation and qualify and remain qualified as a
foreign corporation in each jurisdiction in which such qualification is
necessary or desirable in view of its business and operations or the ownership
of its properties.
6.5 Availability of Common Stock. The Company will, from time to time, in
accordance with the laws of the State of Delaware, increase the authorized
amount of Common Stock if at any time the number of shares of Common Stock
remaining unissued and available for issuance shall be insufficient to permit
conversion of all then outstanding shares of convertible securities and exercise
of all then outstanding options, warrants and similar purchase rights.
6.6 Termination of Affirmative Covenants. The covenants set forth in this
Article shall be of no further force or effect upon the consummation of the
Company's Initial Public Offering.
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7. Small Business Investment Company Covenants.
7.1 SBIC Covenants.
(a) Without the consent of each Investor that is a Small Business
Investment Company ("SBIC") licensed by the United States Small Business
Administration (each an "SBIC Investor"), the Company will not issue securities
to any SBIC in the future if such issuance would cause such SBIC Investor to be
deemed to be a member of an "Investor Group" in "Control" of the Company (as
such terms are defined in 13 CFR ss. 107.865).
(b) The Company shall permit representatives of the Small Business
Administration and each SBIC Investor access to the Company's records. Upon the
request of an SBIC Investor or any of its affiliates, the Company will furnish
to such person all information reasonably requested by it in order for it to
comply with its recordkeeping, reporting and other obligations under the SBIA or
any SBIC Regulation.
(c) For a period of one year following the last Closing hereunder, neither
the Company nor any of its Subsidiaries (if any) will change its business
activity if such change would render the Company ineligible to receive financial
assistance from an SBIC under the SBIA and the regulations thereunder (within
the meanings of 13 CFR ss.ss. 107.720 and 107.760(b)).
(d) The Company will at all times comply with the non-discrimination
requirements of 13 C.F.R., Parts 112, 113 and 117.
7.2 Regulatory Compliance Cooperation.
(a) In the event that an SBIC Investor determines that it has a Regulatory
Problem (as defined below), such SBIC Investor shall have the right to transfer
its shares of Series C Stock without regard to any restriction on transfer
hereunder, and the Company shall (i) take all such actions as are reasonably
requested by such SBIC Investor in order to effectuate and facilitate any
transfer by such SBIC Investor of any securities of the Company then held by
such SBIC Investor to any Person designated by such SBIC Investor or (ii) use
its best efforts to take all actions reasonably necessary to address and cure
such Regulatory Problem.
(b) For purposes of this Agreement, a "Regulatory Problem" means any set
of facts or circumstances wherein it has been asserted by any governmental
regulatory agency (or an SBIC Investor believes that there is a substantial risk
of such assertion) that such SBIC Investor is not entitled to hold, or exercise
any significant right with respect to, the underlying Common Sock of the
Company.
7.3 Termination of Covenants. The covenants set forth in this Article 7 shall be
of no further force or effect upon the consummation of the Initial Public
Offering.
8. MISCELLANEOUS
8.1 Notices. All notices, requests, consents and other communications hereunder
shall be in writing, shall be addressed to the receiving party's address set
forth below or to such other
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address as a party may designate by notice hereunder, and shall be either (i)
delivered by hand, (ii) made by telecopy or facsimile transmission, (iii) sent
by overnight courier, or (iv) sent by registered or certified mail, return
receipt requested, postage prepaid.
If to an Investor: To its address set forth on Exhibit A:
If to the Company: Gomez Advisors, Inc
55 Old Bedford Road
Lincoln, MA 01773
Tel: (781) 257-2000
Fax: (781) 257-2550
Attn: General Counsel
With a copy to: Mintz Levin Cohn Ferris Glovsky and Popeo. P.C.
One Financial Center
Boston, MA 02111
Tel: (617) 542-6000
Fax: (617) 542-2241
Attn: Lewis J. Geffen, Esq.
All notices, requests, consents and other communications hereunder shall be
deemed to have been given either (i) if by hand, at the time of the delivery
thereof to the receiving party at the address of such party set forth above,
(ii) if made by telecopy or facsimile transmission, at the time that receipt
thereof has been acknowledged by electronic confirmation or otherwise, (iii) if
sent by overnight courier, on the next business day following the day such
notice is delivered to the courier service, or (iv) if sent by registered or
certified mail, on the fifth business day following the day such mailing is
made.
8.2 Entire Agreement. This Agreement embodies the entire agreement and
understanding between the parties hereto with respect to the subject matter
hereof and supersedes all prior oral or written agreements and understandings
relating to the subject matter hereof. No statement, representation, warranty,
covenant or agreement of any kind not expressly set forth in this Agreement
shall affect, or be used to interpret, change or restrict, the express terms and
provisions of this Agreement.
8.3 Modifications and Amendments. This Agreement may not be amended or modified,
and no provision hereof may be waived, without the written consent of the
Company and the holders of at least a majority of the outstanding shares of
Series C Stock. Any waiver or consent hereunder shall be effective only in the
specific instance and for the purpose for which it was given, and shall not
constitute a continuing waiver or consent.
8.4 Assignment. The rights and obligations under this Agreement may not be
assigned by the Company without the prior written consent of at least a majority
of the holders of Registrable Securities, unless specifically permitted by the
terms hereof, except that the Company may assign this Agreement and its rights
and obligations hereunder to any purchaser of all or substantially all of its
assets or to any successor corporation resulting from any merger or
consolidation of the Company.
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8.5 Benefit. All statements, representations, warranties, covenants and
agreements in this Agreement shall be binding on the parties hereto and shall
inure to the benefit of the respective successors and permitted assigns of each
party hereto. Nothing in this Agreement shall be construed to create any rights
or obligations except among the parties hereto, and no person or entity shall be
regarded as a third-party beneficiary of this Agreement.
8.6 Governing Law. This Agreement and the rights and obligations of the parties
hereunder shall be construed in accordance with and governed by the law of The
Commonwealth of Massachusetts, without giving effect to the conflict of law
principles thereof.
8.7 Jurisdiction and Service of Process. Any legal action or proceeding with
respect to this Agreement shall be brought in the courts of The Commonwealth of
Massachusetts or of the United States of America for the District of
Massachusetts. By execution and delivery of this Agreement, each of the parties
hereto accepts for itself and in respect of its property, generally and
unconditionally, the jurisdiction of the aforesaid courts. Each of the parties
hereto irrevocably consents to the service of process of any of the
aforementioned courts in any such action or proceeding by the mailing of copies
thereof by certified mail, postage prepaid, to the party at its address set
forth in Section 8.1 hereof.
8.8 Severability. In the event that any court of competent jurisdiction shall
determine that any provision, or any portion thereof, contained in this
Agreement shall be unenforceable in any respect, then such provision shall be
deemed limited to the extent that such court deems it enforceable, and as so
limited shall remain in full force and effect. In the event that such court
shall deem any such provision, or portion thereof, wholly unenforceable, the
remaining provisions of this Agreement shall nevertheless remain in full force
and effect.
8.9 Interpretation. The parties hereto acknowledge and agree that: (i) each
party and its counsel reviewed and negotiated the terms and provisions of this
Agreement and have contributed to its revision; (ii) the rule of construction to
the effect that any ambiguities are resolved against the drafting party shall
not be employed in the interpretation of this Agreement; and (iii) the terms and
provisions of this Agreement shall be construed fairly as to all parties hereto
and not in favor of or against any party, regardless of which party was
generally responsible for the preparation of this Agreement.
8.10 Headings and Captions. The headings and captions of the various
subdivisions of this Agreement are for convenience of reference only and shall
in no way modify or affect the meaning or construction of any of the terms or
provisions hereof.
8.11 Enforcement. Each of the parties hereto acknowledges and agrees that the
rights acquired by each party hereunder are unique and that irreparable damage
would occur in the event that any of the provisions of this Agreement to be
performed by the other parties were not performed in accordance with their
specific terms or were otherwise breached. Accordingly, in addition to any other
remedy to which the parties hereto are entitled at law or in equity, each party
hereto shall be entitled to an injunction or injunctions to prevent breaches of
this Agreement by any other party and to enforce specifically the terms and
provisions hereof in any federal or state court to which the parties have agreed
hereunder to submit to jurisdiction.
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8.12 No Waiver of Rights, Powers and Remedies. No failure or delay by a party
hereto in exercising any right, power or remedy under this Agreement, and no
course of dealing among the parties hereto, shall operate as a waiver of any
such right, power or remedy of the party. No single or partial exercise of any
right, power or remedy under this Agreement by a party hereto, nor any
abandonment or discontinuance of steps to enforce any such right, power or
remedy, shall preclude such party from any other or further exercise thereof or
the exercise of any other right, power or remedy hereunder. The election of any
remedy by a party hereto shall not constitute a waiver of the right of such
party to pursue other available remedies. No notice to or demand on a party not
expressly required under this Agreement shall entitle the party receiving such
notice or demand to any other or further notice or demand in similar or other
circumstances or constitute a waiver of the rights of the party giving such
notice or demand to any other or further action in any circumstances without
such notice or demand.
8.13 Counterparts. This Agreement may be executed in one or more counterparts,
and by different parties hereto on separate counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement or
caused this Agreement to be executed by their duly authorized representatives,
as of the date first written above.
GOMEZ ADVISORS, INC.
By: /s/ Julio Gomez
------------------------
Name: Julio Gomez
Title: CEO
THE ASHTON TECHNOLOGY GROUP, INC.
By: /s/ Fredric Rittereiser
--------------------------
Name: Fredric Rittereiser
Title: President & CEO
/s/ Julio Gomez
-------------------------------
JULIO GOMEZ
/s/ John M. Robb
-------------------------------
JOHN M. ROBB
/s/ Alexander D. Stein
-------------------------------
ALEXANDER D. STEIN
/s/ Fredric W. Rittereiser
------------------------------
FREDRIC W. RITTEREISER
/s/ K. Ivan F. Gothner
------------------------------
K. IVAN F. GOTHNER
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<PAGE>
/s/ Arthur J. Bacci
------------------------------
ARTHUR J. BACCI
/s/ William Uchimoto
------------------------------
WILLIAM UCHIMOTO
/s/ Richard Butler
------------------------------
RICHARD BUTLER
/s/ Fred Weingard
------------------------------
FRED WEINGARD
Counterpart Signature Pages Begin on Next Page
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Counterpart Signature Page For Investors
The undersigned hereby agrees to become a party to that certain Investor
Rights Agreement dated as of November 2, 1999 and amended as of December 30,
1999 (the "Agreement") among Gomez Advisors, Inc. (the "Company") and others.
From and after the undersigned's execution and delivery of this Counterpart
Signature Page, the undersigned shall be a party to the Agreement and the shares
of Series C Stock purchased by the undersigned shall be deemed to be "Shares"
for all purposes of the Agreement.
______________________________________
Printed Name of Purchaser
______________________________________
Signature of Purchaser
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EXHIBIT A
PURCHASERS
INITIAL CLOSING:
Paul Palandjian
c/o Intercontinental Developers, Inc.
1270 Soldiers Field Road
Boston, MA 02185
Peter Palandjian
c/o Intercontinental Developers, Inc.
1270 Soldiers Field Road
Boston, MA 02185
Leon Palandjian
c/o Intercontinental Developers, Inc.
1270 Soldiers Field
Boston, MA 02185
Marie-Louise Palandjian
c/o Intercontinental Developers, Inc.
1270 Soldiers Field Road
Boston, MA 02185
Edward G. Nardi
c/o Intercontinental Developers, Inc.
1270 Soldiers Field Road
Boston, MA 02185
Jacques DeGruyter
17 Les Chenes du Parc Ducup
66000 Perpignon, France
West End Venture Partners, LLC
1 World Trade Center, Suite 4563
New York, NY 10048
Attn: Mark Nordlicht
John Hancock Global Technology Fund
101 Huntington Avenue, 7th Floor
Boston, MA 02199
Attn: Al Ouellette
Sakura Holdings Limited
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<PAGE>
The Tropic Isle Building
Wickams Cay, Tortola
British Virgin Islands
Attn: Theodore Pun
SUBSEQUENT CLOSING (12/30/99):
BancBoston Ventures, Inc.
100 Federal Street
Boston, MA 02110
Attn: Peter Roberts
With a copy to: Bingham Dana LLP
150 Federal Street
Boston, MA 02110
Attn: Roger Feldman, Esq.
Private Equity Portfolio Fund II, LP
c/o BancBoston Ventures, Inc.
100 Federal Street
Boston, MA 02110
Attn: Peter Roberts
SOFTVEN No. 2 Investment
Enterprise Partnership
3-23 Kanda-Nishikcho
Chiyoda-ku, Tokyo 101-0054
JAPAN
Phone - (813) 5259-2712
Fax - (813) 5259-2762
Attn: Hidetoshi Sasaki
With a copy to: Sullivan & Cromwell
125 Broad Street
New York, NY 10004
Attn: Stephen Grant, Esq.
Jacqueline A. O'Neil
One Exeter Street
Boston, MA 02116
Lee Einbinder
c/o Lehman Brothers
3 World Financial Center
New York, NY 10285
Tel: 212/526-1616
34
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Fax: 212/526-4986
Mark Burton
c/o Lehman Brothers
3 World Financial Center
New York, NY 10285
Tel: 212/526-4131
Fax: 212/526-4986
Dave Sherwood
c/o Lehman Brothers
3 World Financial Center
New York, NY 10285
Tel: 212/526-8866
Fax: 212/526-4986
Nir Yarden
c/o Lehman Brothers
3 World Financial Center
New York, NY 10285
Tel: 212/526-2658
Fax: 212/526-4986
Lewis Geffen
28 Fuller Brook Road
Wellesley, MA 02482
Eric Gleacher
1133 Fifth Avenue
New York, NY 10128
Charles Phillips
775 Park Avenue
New York, NY 10021
Thomas Maniatis
187 Marsh Street
Belmont, MA 02478-1732
SUBSEQUENT CLOSING (2/15/00)
HarbourVest Partners VI --
Direct Fund, L.P.
One Financial Center
Boston, MA 02111
Attn: Steven Hermsdorf
35
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BancBoston Ventures, Inc.
100 Federal Street
Boston, MA 02110
Attn: Peter Roberts
Phone - 617-434-5398
Fax: - 617- 434-1153
With a copy to: Bingham Dana LLP
150 Federal Street
Boston, MA 02110
Attn: Roger Feldman, Esq.
Phone: (617) 951-8000
Fax: (617) 951-8736
Dolphin Communications Fund, L.P.
750 Lexington Avenue, Suite 1600
New York, NY 10022
Attention: Kenneth Kharbanda.
Dolphin Communications Parallel Fund, L.P.
750 Lexington Avenue, Suite 1600
New York, NY 10022
Attention: Kenneth Kharbanda.
With a copy to: Kirkland & Ellis
153 E. 53rd Street
New York, NY 10022
Attn: John Kuehn
Phone: (212) 446-4800
Fax: (212) 446-4900
36
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EXHIBIT B
ASHTON EXECUTIVES
Fredric W. Rittereiser
Arthur J. Bacci
K. Ivan F. Gothner
William Uchimoto
Richard Butler
Fred Weingard
Each:
c/o The Ashton Technology Group
1900 Market Street, Suite 701
Philadelphia, PA 19013
Fax: (215) 636-3560
With a copy to: Kronish Lieb Weiner &
Hellmen, LLP
114 Avenue of the Americas
New York, NY 10036
Attention: Herbert Kronish, Esq.
37
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Exhibit 10.6
AMENDMENT TO SERIES C DOCUMENTS
This Amendment to Series C Documents (hereinafter referred to as this
"Amendment") is entered into as of February 15, 2000 by and among Gomez
Advisors, Inc., a Delaware corporation (the "Company") and the other parties
hereto.
WITNESSETH
WHEREAS, the Company entered into a Preferred Stock Purchase Agreement
(the "Purchase Agreement") dated as of November 2, 1999 and amended as of
December 30, 1999 with the other parties thereto;
WHEREAS, the Company entered into an Investor rights Agreement (the
"Investor Rights Agreement") dated as of November 2, 1999 and amended as of
December 30, 1999 with the other parties thereto; and
WHEREAS, in connection with the issuance of Additional Shares (as defined
in the Purchase Agreement), the parties hereto desire to amend the Purchase
Agreement and the Investor Rights Agreement;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by the parties hereto, and intending to be legally bound, the
parties hereto hereby agree as follows:
Section 1. Amendment to Section 1.3 of the Purchase Agreement. Section 1.3
of the Purchase Agreement is hereby amended by deleting the reference to
"January 7, 2000" contained in the first sentence of such Section and inserting
in lieu thereof the date "February 29, 2000".
Section 2. Amendment to Section 1.4 of the Purchase Agreement. Section 1.4
of the Purchase Agreement is hereby amended by deleting such Section in its
entirety and inserting in lieu thereof the following new Section 1.4:
"1.4 Use of Proceeds. The Company agrees to use the net proceeds
from the sale of the Shares (i) to upgrade and market its products and
services, (ii) to develop and market new products and services, (iii) to
add personnel, (iv) to expand its facilities, and (v) for working capital
and general corporate purposes, including possible acquisitions of or
investments in complementary businesses, products or technologies;
provided that up to $3,500,000 of such net proceeds may be used to (A)
redeem or repurchase up to 500 shares of the Company's Series A
Convertible Preferred Stock from The Ashton Technology Group, Inc. and/or
(B) redeem or repurchase up to an aggregate of $500,000 worth of Common
Stock from one or more of Julio Gomez, John M. Robb and Alexander Stein."
<PAGE>
Section 3. Amendment to Investor Rights Agreement. Section 5.1 of the
Investor Rights Agreement is hereby amended by deleting such Section in its
entirety and inserting in lieu thereof the following new Section 5.1:
"5.1 Election of Directors. Each Preferred Stockholder and each
Founder shall take or cause to be taken such actions as may be required
from time to time to establish and maintain the number of persons
comprising the Board of Directors of the Company at seven (7) or at such
other number as the Board of Directors may determine from time to time,
and to elect as directors (i) one representative designated by HarbourVest
Partners, LLC ("HVP"), (ii) one representative designated by BancBoston
Ventures, Inc. (together, with the representative elected pursuant to the
foregoing clause (i), the "Series C Directors"), (iii) one representative
of the Company's Series A Convertible Voting Preferred Stock, par value
$.01 per share (the "Series A Stock") designated for election by holders
of at least a majority of the Series A Stock issued and outstanding (the
"Class A Director"), (iii) two representatives of the Founders designated
for election by the Founders (the "Founder Directors") and (iv) two
independent directors designated for election by both (A) at least a
majority of the Series C Stock issued and outstanding, voting as a
separate class, and (B) at least a majority of the Series A Stock issued
and outstanding, voting as a separate class; provided that each such
independent director shall be a person that is not a director, officer,
employee, agent, representative or Affiliate of any Investor or of Ashton.
Without limiting the generality of the foregoing, at each annual meeting
of the stockholders and at each special meeting of the stockholders called
for the purpose of electing directors of the Company, and at any time at
which the stockholders have the right to, or shall, elect directors of the
Company, then, and in each event, the Preferred Stockholders and the
Founders shall vote all Shares owned by them (or shall consent in writing
in lieu of a meeting of stockholders, as the case may be) to set the
number of, and to elect persons as, directors of the Company in accordance
with the preceding sentence."
Section 4. Further Assurances. Each party hereby agrees, at any time and
from time to time after the date hereof, at the reasonable request of the other
party, to execute and deliver such other agreements, certificates or instruments
as may be reasonably requested in order to more effectively amend the Purchase
Agreement and/or the Investor Rights Agreement as set forth above or to evidence
or confirm this Amendment.
Section 5. Effect of Amendment. The parties hereby ratify and confirm all
of the provisions of the Purchase Agreement and the Investor Rights Agreement,
as amended hereby, and agree and acknowledge that the same as so amended remains
in full force and effect.
Section 6. Governing Law. This Amendment shall be governed by and
construed in accordance with the laws of The Commonwealth of Massachusetts,
without giving effect to its conflicts of law provisions.
2
<PAGE>
Section 7. Counterparts. This Amendment may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers, thereunto duly authorized, as of the date
first above written.
GOMEZ ADVISORS, INC.
By: /s/ Julio Gomez
---------------------------------
Name: Julio Gomez
Title: CEO
/s/ Julio Gomez
-------------------------------------
Julio Gomez
/s/ John M. Robb
-------------------------------------
John M. Robb
/s/ Alexander Stein
-------------------------------------
Alexander Stein
WEST END VENTURE PARTNERS, LLC
By: /s/ Daniel Saks
----------------------------------
Name: Daniel Saks
Title: Managing Director
JOHN HANCOCK GLOBAL TECHNOLOGY FUND
By:
---------------------------------
Name:
Title:
BANCBOSTON VENTURES, INC.
By: /s/ Peter R. Roberts
---------------------------------
Name: Peter R. Roberts
Title: V.P.
4
<PAGE>
PRIVATE EQUITY PORTFOLIO FUND II, LLC
By: BankBoston, N.A., its Manager
By: /s/ Glen M. Holland
---------------------------------
Name: Glen M. Holland
Title: Director
SOFTVEN NO. 2 INVESTMENT ENTERPRISE
PARTNERSHIP
By: /s/ Yoshitaka Kitao
---------------------------------
Name: Yoshitaka Kitao
Title: President
5
<PAGE>
Exhibit 10.7
GOMEZ ADVISORS, INC.
1998 STOCK PLAN
1. DEFINITIONS.
Unless otherwise specified or unless the context otherwise requires, the
following terms, as used in this Gomez Advisors, Inc. 1998 Stock Plan,
have the following meanings:
Administrator means the Board of Directors, unless it has delegated
power to act on its behalf to the Committee, in which case the
Administrator means the Committee.
Affiliate means a corporation which, for purposes of Section 424 of
the Code, is a parent or subsidiary of the Company, direct or
indirect.
Board of Directors means the Board of Directors of the Company.
Code means the United States Internal Revenue Code of 1986, as
amended.
Committee means the committee of the Board of Directors to which the
Board of Directors has delegated power to act under or pursuant to
the provisions of the Plan.
Common Stock means shares of the Company's common stock, no par
value per share.
Company means Gomez Advisors, Inc., a Delaware corporation.
Designated Period means a period of ten years or such shorter period
as may be determined by the Administrator. The Designated Period may
vary as among Participants and as among SAR Awards to Participants.
Disability or Disabled means permanent and total disability as
defined in Section 22(e)(3) of the Code.
Fair Market Value of a Share of Common Stock means:
(1) If the Common Stock is listed on a national securities exchange
or traded in the over-the-counter market and sales prices are
regularly reported for the Common Stock, the closing or last price
of the Common Stock on the Composite Tape or other comparable
reporting system for the trading day immediately preceding the
applicable date;
<PAGE>
(2) If the Common Stock is not traded on a national securities
exchange but is traded on the over-the-counter market, if sales
prices are not regularly reported for the Common Stock for the
trading day referred to in clause (1), and if bid and asked prices
for the Common Stock are regularly reported, the mean between the
bid and the asked price for the Common Stock at the close of trading
in the over-the-counter market for the trading day on which Common
Stock was traded immediately preceding the applicable date; and
(3) If the Common Stock is neither listed on a national securities
exchange nor traded in the over-the-counter market, such value as
the Administrator, in good faith, shall determine.
ISO means an option meant to qualify as an incentive stock option
under Section 422 of the Code or such other applicable successor
statute.
Key Employee means an employee of the Company or of an Affiliate
(including, without limitation, an employee who is also serving as
an officer or director of the Company or of an Affiliate),
designated by the Administrator to be eligible to be granted one or
more Stock Rights under the Plan.
Non-Qualified Option means an option which is not intended to
qualify as an ISO.
Option means an ISO or Non-Qualified Option granted under the Plan.
Option Agreement means an agreement between the Company and a
Participant delivered pursuant to the Plan, in such form as the
Administrator shall approve.
Participant means a Key Employee, director or consultant to whom one
or more Stock Rights are granted under the Plan. As used herein,
"Participant" shall include "Participant's Survivors" where the
context requires.
Plan means this Gomez Advisors, Inc. 1998 Stock Plan.
Shares means shares of the Common Stock as to which Stock Rights
have been or may be granted under the Plan or any shares of capital
stock into which the Shares are changed or for which they are
exchanged within the provisions of Paragraph 3 of the Plan. The
Shares issued under the Plan may be authorized and unissued shares
or shares held by the Company in its treasury, or both.
Stock Appreciation Rights or SARs means an award in the form of a
right to receive, upon exercise of the Stock Appreciation Right
during the Designated Period, but without other payment, an amount
based on appreciation in the value of Common Stock over a base price
established in the SAR Agreement.
2
<PAGE>
SAR Agreement means an agreement between the Company and a
Participant delivered pursuant to the Plan, in such form as the
Administrator shall approve.
Stock Grant means a grant by the Company of shares of Common Stock
under the Plan.
Stock Grant Agreement means an agreement between the Company and a
Participant delivered pursuant to the Plan, in such form as the
Administrator shall approve.
Stock Right means a right to Shares of the Company granted pursuant
to the Plan (e.g. an ISO, a Non-Qualified Option, SARs or a
restricted stock grant).
Stock Value means, with respect to SARs, the underlying value of the
Common Stock.
Survivors means a deceased Participant's legal representatives
and/or any person or persons who acquired the Participant's rights
to a Stock Right by will or by the laws of descent and distribution.
2. PURPOSES OF THE PLAN.
The Plan is intended to encourage ownership of Shares by Key Employees and
directors of and certain consultants to the Company in order to attract such
people, to induce them to work for the benefit of the Company or of an Affiliate
and to provide additional incentive for them to promote the success of the
Company or of an Affiliate. The Plan provides for the granting of ISOs,
Non-Qualified Options, Stock Grants and SARs.
3. SHARES SUBJECT TO THE PLAN.
The number of Shares which may be issued from time to time pursuant to
this Plan shall be 600,000, or the equivalent of such number of Shares after the
Administrator, in its sole discretion, has interpreted the effect of any stock
split, stock dividend, combination, recapitalization or similar transaction in
accordance with Paragraph 23 of the Plan.
If an Option or SAR ceases to be "outstanding", in whole or in part, or if
the Company shall reacquire any Shares issued pursuant to a Stock Grant, the
Shares which were subject to such Option and any Shares so reacquired by the
Company shall be available for the granting of other Stock Rights under the
Plan. Any Option shall be treated as "outstanding" until such Option is
exercised in full, or terminates or expires under the provisions of the Plan, or
by agreement of the parties to the pertinent Option Agreement.
3
<PAGE>
4. ADMINISTRATION OF THE PLAN.
The Administrator of the Plan will be the Board of Directors, except to
the extent the Board of Directors delegates its authority to the Committee, in
which case the Committee shall be the Administrator. Subject to the provisions
of the Plan, the Administrator is authorized to:
a. Interpret the provisions of the Plan or of any Option, Stock Grant
or SAR and to make all rules and determinations which it deems
necessary or advisable for the administration of the Plan;
b. Determine which employees of the Company or of an Affiliate shall be
designated as Key Employees and which of the Key Employees,
directors and consultants shall be granted Stock Rights;
c. Determine the number of Shares for which a Stock Right or Stock
Rights shall be granted, provided, however, that in no event shall
Stock Rights with respect to more than 300,000 shares be granted to
any Participant in any fiscal year; and
d. Specify the terms and conditions upon which a Stock Right or Stock
Rights may be granted;
provided, however, that all such interpretations, rules, determinations, terms
and conditions shall be made and prescribed in the context of preserving the tax
status under Section 422 of the Code of those Options which are designated as
ISOs. Subject to the foregoing, the interpretation and construction by the
Administrator of any provisions of the Plan or of any Stock Right granted under
it shall be final, unless otherwise determined by the Board of Directors, if the
Administrator is the Committee.
5. ELIGIBILITY FOR PARTICIPATION.
The Administrator will, in its sole discretion, name the Participants in
the Plan, provided, however, that each Participant must be a Key Employee,
director or consultant of the Company or of an Affiliate at the time a Stock
Right is granted. Notwithstanding the foregoing, the Administrator may authorize
the grant of a Stock Right to a person not then an employee, director or
consultant of the Company or of an Affiliate; provided, however, that the actual
grant of such Stock Right shall be conditioned upon such person becoming
eligible to become a Participant at or prior to the time of the delivery of the
Agreement evidencing such Stock Right. ISOs may be granted only to Key
Employees. Non-Qualified Options and Stock Grants may be granted to any Key
Employee, director or consultant of the Company or an Affiliate. The granting of
any Stock Right to any individual shall neither entitle that individual to, nor
disqualify him or her from, participation in any other grant of Stock Rights.
4
<PAGE>
6. TERMS AND CONDITIONS OF OPTIONS.
Each Option shall be set forth in writing in an Option Agreement, duly
executed by the Company and, to the extent required by law or requested by the
Company, by the Participant. The Administrator may provide that Options be
granted subject to such terms and conditions, consistent with the terms and
conditions specifically required under this Plan, as the Administrator may deem
appropriate including, without limitation, subsequent approval by the
shareholders of the Company of this Plan or any amendments thereto.
A. Non-Qualified Options: Each Option intended to be a Non-Qualified
Option shall be subject to the terms and conditions which the
Administrator determines to be appropriate and in the best interest
of the Company, subject to the following minimum standards for any
such Non-Qualified Option:
a. Option Price: Each Option Agreement shall state the option
price (per share) of the Shares covered by each Option, which
option price shall be determined by the Administrator but
shall not be less than the par value per share of Common
Stock.
b. Each Option Agreement shall state the number of Shares to
which it pertains;
c. Each Option Agreement shall state the date or dates on which
it first is exercisable and the date after which it may no
longer be exercised, and may provide that the Option rights
accrue or become exercisable in installments over a period of
months or years, or upon the occurrence of certain conditions
or the attainment of stated goals or events; and
d. Exercise of any Option may be conditioned upon the
Participant's execution of a Share purchase agreement in form
satisfactory to the Administrator providing for certain
protections for the Company and its other shareholders,
including requirements that:
i. The Participant's or the Participant's Survivors' right
to sell or transfer the Shares may be restricted; and
ii. The Participant or the Participant's Survivors may be
required to execute letters of investment intent and
must also acknowledge that the Shares will bear legends
noting any applicable restrictions.
B. ISOs: Each Option intended to be an ISO shall be issued only to a
Key Employee and be subject to the following terms and conditions,
with such additional restrictions or changes as the Administrator
determines are appropriate but not in
5
<PAGE>
conflict with Section 422 of the Code and relevant regulations and
rulings of the Internal Revenue Service:
a. Minimum standards: The ISO shall meet the minimum standards
required of Non-Qualified Options, as described in Paragraph
6(A) above, except clause (a) thereunder.
b. Option Price: Immediately before the Option is granted, if the
Participant owns, directly or by reason of the applicable
attribution rules in Section 424(d) of the Code:
i. Ten percent (10%) or less of the total combined voting
power of all classes of stock of the Company or an
Affiliate, the Option price per share of the Shares
covered by each Option shall not be less than one
hundred percent (100%) of the Fair Market Value per
share of the Shares on the date of the grant of the
Option.
ii. More than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or an
Affiliate, the Option price per share of the Shares
covered by each Option shall not be less than one
hundred ten percent (110%) of the said Fair Market Value
on the date of grant.
c. Term of Option: For Participants who own
i. Ten percent (10%) or less of the total combined voting
power of all classes of stock of the Company or an
Affiliate, each Option shall terminate not more than ten
(10) years from the date of the grant or at such earlier
time as the Option Agreement may provide.
ii. More than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or an
Affiliate, each Option shall terminate not more than
five (5) years from the date of the grant or at such
earlier time as the Option Agreement may provide.
d. Limitation on Yearly Exercise: The Option Agreements shall
restrict the amount of Options which may be exercisable in any
calendar year (under this or any other ISO plan of the Company
or an Affiliate) so that the aggregate Fair Market Value
(determined at the time each ISO is granted) of the stock with
respect to which ISOs are exercisable for the first time by
the Participant in any calendar year does not exceed one
hundred thousand dollars ($100,000), provided that this
subparagraph (d) shall have no force or effect if its
inclusion in the Plan is not necessary for Options issued as
ISOs to qualify as ISOs pursuant to Section 422(d) of the
Code.
6
<PAGE>
7. TERMS AND CONDITIONS OF STOCK GRANTS.
Each offer of a Stock Grant to a Participant shall state the date prior to
which the Stock Grant must be accepted by the Participant, and the principal
terms of each Stock Grant shall be set forth in a Stock Grant Agreement, duly
executed by the Company and, to the extent required by law or requested by the
Company, by the Participant. The Stock Grant Agreement shall be in a form
approved by the Administrator and shall contain terms and conditions which the
Administrator determines to be appropriate and in the best interest of the
Company, subject to the following minimum standards:
(a) Each Stock Grant Agreement shall state the purchase price (per
share), if any, of the Shares covered by each Stock Grant, which
purchase price shall be determined by the Administrator but shall
not be less than the minimum consideration required by the Delaware
General Corporation Law on the date of the grant of the Stock Grant;
(b) Each Stock Grant Agreement shall state the number of Shares to which
the Stock Grant pertains; and
(c) Each Stock Grant Agreement shall include the terms of any right of
the Company to reacquire the Shares subject to the Stock Grant,
including the time and events upon which such rights shall accrue
and the purchase price therefor, if any.
8. TERMS AND CONDITIONS OF STOCK APPRECIATION RIGHTS
Each award of a SAR under this Plan shall be evidenced by a SAR Agreement
in a form approved by the Administrator setting forth the number of SARs,
vesting schedule, if any, the Stock Value of Common Stock upon which the SAR is
based and the term of the SAR. The SAR Agreement shall also set forth (or
incorporate by reference) other material terms and conditions applicable to the
SAR as determined by the Administrator consistent with the limitations of this
Plan.
Each award of a SAR shall be subject to the following conditions:
(a) Unless the Administrator provides otherwise, and such provision is
reflected in the SAR Agreement, the minimum base price of a SAR
granted under this Plan shall be not less than the Fair Market Value
of the underlying Common Stock on the date the SAR is granted;
(b) The Administrator may, in its sole discretion (but is not obligated
to) provide for the acceleration of vesting of SARs upon the
occurrence of certain enumerated events, including, but not limited
to, the death, disability or retirement of the Participant or a
change in control of the Company; and
7
<PAGE>
(c) The SARs shall be used solely as a device for the measurement and
determination of the amount to be paid to Participants as provided
in the Plan. The SARs shall not constitute or be treated as property
or as a trust fund of any kind. All amounts at any time attributable
to the SARs shall be and remain the sole property of the Company and
all Participants' rights hereunder are limited to the rights to
receive cash or shares of Common Stock as provided in this Plan.
9. EXERCISE OF OPTIONS AND ISSUE OF SHARES.
An Option (or any part or installment thereof) shall be exercised by
giving written notice to the Company at its principal executive office address,
together with provision for payment of the full purchase price in accordance
with this Paragraph for the Shares as to which the Option is being exercised,
and upon compliance with any other condition(s) set forth in the Option
Agreement. Such written notice shall be signed by the person exercising the
Option, shall state the number of Shares with respect to which the Option is
being exercised and shall contain any representation required by the Plan or the
Option Agreement. Payment of the purchase price for the Shares as to which such
Option is being exercised shall be made (a) in United States dollars in cash or
by check, or (b) at the discretion of the Administrator, through delivery of
shares of Common Stock having a Fair Market Value equal as of the date of the
exercise to the cash exercise price of the Option, or (c) at the discretion of
the Administrator, by having the Company retain from the shares otherwise
issuable upon exercise of the Option, a number of shares having a Fair Market
Value equal as of the date of exercise to the exercise price of the Option, or
(d) at the discretion of the Administrator, by delivery of the grantee's
personal recourse note bearing interest payable not less than annually at no
less than 100% of the applicable Federal rate, as defined in Section 1274(d) of
the Code, or (e) at the discretion of the Administrator, in accordance with a
cashless exercise program established with a securities brokerage firm, and
approved by the Administrator, or (f) at the discretion of the Administrator, by
any combination of (a), (b), (c), (d) and (e) above. Notwithstanding the
foregoing, the Administrator shall accept only such payment on exercise of an
ISO as is permitted by Section 422 of the Code.
The Company shall then reasonably promptly deliver the Shares as to which
such Option was exercised to the Participant (or to the Participant's Survivors,
as the case may be). In determining what constitutes "reasonably promptly," it
is expressly understood that the issuance and delivery of the Shares may be
delayed by the Company in order to comply with any law or regulation (including,
without limitation, state securities or "blue sky" laws) which requires the
Company to take any action with respect to the Shares prior to their issuance.
The Shares shall, upon delivery, be evidenced by an appropriate certificate or
certificates for fully paid, non-assessable Shares.
The Administrator shall have the right to accelerate the date of exercise
of any installment of any Option; provided that the Administrator shall not
accelerate the exercise date of any installment of any Option granted to any Key
Employee as an ISO (and not previously converted into a Non-Qualified Option
pursuant to Paragraph 26) if such acceleration would violate the
8
<PAGE>
annual vesting limitation contained in Section 422(d) of the Code or such
applicable successor statute, as described in Paragraph 6.B.d herein.
The Administrator may, in its discretion, amend any term or condition of
an outstanding Option provided (i) such term or condition as amended is
permitted by the Plan, (ii) any such amendment shall be made only with the
consent of the Participant to whom the Option was granted, or in the event of
the death of the Participant, the Participant's Survivors, if the amendment is
adverse to the Participant, and (iii) any such amendment of any ISO shall be
made only after the Administrator, after consulting the counsel for the Company,
determines whether such amendment would constitute a "modification" of any
Option which is an ISO (as that term is defined in Section 424(h) of the Code)
or would cause any adverse tax consequences for the holder of such ISO.
10. ACCEPTANCE OF STOCK GRANT AND ISSUE OF SHARES.
A Stock Grant (or any part or installment thereof) shall be accepted by
executing the Stock Grant Agreement and delivering it to the Company at its
principal office address, together with provision for payment of the full
purchase price, if any, in accordance with this Paragraph for the Shares as to
which such Stock Grant is being accepted, and upon compliance with any other
conditions set forth in the Stock Grant Agreement. Payment of the purchase price
for the Shares as to which such Stock Grant is being accepted shall be made (a)
in United States dollars in cash or by check, or (b) at the discretion of the
Administrator, through delivery of shares of Common Stock having a fair market
value equal as of the date of acceptance of the Stock Grant to the purchase
price of the Stock Grant determined in good faith by the Administrator, or (c)
at the discretion of the Administrator, by delivery of the grantee's personal
recourse note bearing interest payable not less than annually at no less than
100% of the applicable Federal rate, as defined in Section 1274(d) of the Code,
or (d) at the discretion of the Administrator, by any combination of (a), (b)
and (c) above.
The Company shall then reasonably promptly deliver the Shares as to which
such Stock Grant was accepted to the Participant (or to the Participant's
Survivors, as the case may be), subject to any escrow provision set forth in the
Stock Grant Agreement. In determining what constitutes "reasonably promptly," it
is expressly understood that the issuance and delivery of the Shares may be
delayed by the Company in order to comply with any law or regulation (including,
without limitation, state securities or "blue sky" laws) which requires the
Company to take any action with respect to the Shares prior to their issuance.
The Administrator may, in its discretion, amend any term or condition of
an outstanding Stock Grant or Stock Grant Agreement provided (i) such term or
condition as amended is permitted by the Plan, and (ii) any such amendment shall
be made only with the consent of the Participant to whom the Stock Grant was
made, if the amendment is adverse to the Participant.
9
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11. EXERCISE OF STOCK APPRECIATION RIGHTS AND ISSUE OF SHARES
On the date on which the SAR is exercised, the Participant shall receive
an amount equal to the appreciation in market value of his or her SARs as
determined in this Section 11 of the Plan. That amount shall be payable in cash,
shares of Common Stock, or some combination of both, as set forth in the SAR
Agreement. No fractional shares shall be issued but a Participant shall be
entitled to a cash adjustment for a fractional share that would otherwise be
issued. SARs will be canceled upon the Participant's exercise of such SARs, and
no further payment shall be made as to SARs exercised by a Participant.
The Stock Value on both the date the SAR is awarded and the date the SAR
is exercised shall be stated in each SAR Agreement and shall be determined by
either (i) the Administrator in its sole discretion, or (ii) a formula based on
the Fair Market Value of the Common Stock on a particular day or the average of
the Fair Market Values of the Common Stock over a series of days. The
appreciation in the Stock Value of SARs for purposes of determining payments to
be made to a Participant shall be measured by determining the Stock Value of
SARs held by that Participant on the date the SAR is exercised and subtracting
from that the Stock Value of the same SARs on the date such SARs were awarded.
The measurement of appreciation shall be made separately with respect to each
separate award of SARs.
12. RIGHTS AS A SHAREHOLDER.
No Participant to whom a Stock Right has been granted shall have rights as
a shareholder with respect to any Shares covered by such Stock Right, except
after due exercise of the Option or acceptance of the Stock Grant and tender of
the full purchase price, if any, for the Shares being purchased pursuant to such
exercise or acceptance and registration of the Shares in the Company's share
register in the name of the Participant.
13. ASSIGNABILITY AND TRANSFERABILITY OF STOCK RIGHTS.
By its terms, a Stock Right granted to a Participant shall not be
transferable by the Participant other than (i) by will or by the laws of descent
and distribution, or (ii) as otherwise determined by the Administrator and set
forth in the applicable Option Agreement, Stock Grant Agreement or SAR
Agreement. The designation of a beneficiary of a Stock Right by a Participant
shall not be deemed a transfer prohibited by this Paragraph. Except as provided
above, a Stock Right shall only be exercisable or may only be accepted, during
the Participant's lifetime, by such Participant (or by his or her legal
representative) and shall not be assigned, pledged or hypothecated in any way
(whether by operation of law or otherwise) and shall not be subject to
execution, attachment or similar process. Any attempted transfer, assignment,
pledge, hypothecation or other disposition of any Stock Right or of any rights
granted thereunder contrary to the provisions of this Plan, or the levy of any
attachment or similar process upon a Stock Right, shall be null and void.
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14. EFFECT ON OPTIONS OF TERMINATION OF SERVICE OTHER THAN "FOR CAUSE" OR DEATH
OR DISABILITY.
Except as otherwise provided in the pertinent Option Agreement in the
event of a termination of service (whether as an employee, director or
consultant) with the Company or an Affiliate before the Participant has
exercised an Option, the following rules apply:
a. A Participant who ceases to be an employee, director or consultant
of the Company or of an Affiliate (for any reason other than
termination "for cause", Disability, or death for which events there
are special rules in Paragraphs 13, 14, and 15, respectively), may
exercise any Option granted to him or her to the extent that the
Option is exercisable on the date of such termination of service,
but only within such term as the Administrator has designated in the
pertinent Option Agreement.
b. Except as provided in Subparagraph (c) below, or Paragraph 14 or 15,
in no event may an Option Agreement provide, if an Option is
intended to be an ISO, that the time for exercise be later than
three (3) months after the Participant's termination of employment.
c. The provisions of this Paragraph, and not the provisions of
Paragraph 14 or 15, shall apply to a Participant who subsequently
becomes Disabled or dies after the termination of employment,
director status or consultancy, provided, however, in the case of a
Participant's Disability or death within three (3) months after the
termination of employment, director status or consultancy, the
Participant or the Participant's Survivors may exercise the Option
within one (1) year after the date of the Participant's termination
of employment, but in no event after the date of expiration of the
term of the Option.
d. Notwithstanding anything herein to the contrary, if subsequent to a
Participant's termination of employment, termination of director
status or termination of consultancy, but prior to the exercise of
an Option, the Board of Directors determines that, either prior or
subsequent to the Participant's termination, the Participant engaged
in conduct which would constitute "cause", then such Participant
shall forthwith cease to have any right to exercise any Option.
e. A Participant to whom an Option has been granted under the Plan who
is absent from work with the Company or with an Affiliate because of
temporary disability (any disability other than a permanent and
total Disability as defined in Paragraph 1 hereof), or who is on a
bona fide leave of absence (as approved by the Administrator)
any period during which such Participant's right to reemployment is
guaranteed by statute, shall not, during the period of any such
absence, be deemed, by virtue of such absence alone, to have
terminated such
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Participant's employment, director status or consultancy with the
Company or with an Affiliate, except as the Administrator may
otherwise expressly provide.
f. Except as required by law or as set forth in the pertinent Option
Agreement, Options granted under the Plan shall not be affected by
any change of a Participant's status within or among the Company and
any Affiliates, so long as the Participant continues to be an
employee, director or consultant of the Company or any Affiliate.
15. EFFECT ON OPTIONS OF TERMINATION OF SERVICE "FOR CAUSE".
Except as otherwise provided in the pertinent Option Agreement, at the
discretion of the Administrator the following rules apply if the Participant's
service (whether as an employee, director or consultant) with the Company or an
Affiliate is terminated "for cause" prior to the time that all his or her
outstanding Options have been exercised:
a. All outstanding and unexercised Options as of the time the
Participant's service is terminated "for cause" will immediately be
forfeited.
b. For purposes of this Plan, "cause" shall include (and is not limited
to) dishonesty with respect to the Company or any Affiliate,
insubordination, substantial malfeasance or non-feasance of duty,
unauthorized disclosure of confidential information, and conduct
substantially prejudicial to the business of the Company or any
Affiliate. The determination of the Administrator as to the
existence of "cause" will be conclusive on the Participant and the
Company.
c. "Cause" is not limited to events which have occurred prior to a
Participant's termination of service, nor is it necessary that the
Administrator's finding of "cause" occur prior to termination. If
the Administrator determines, subsequent to a Participant's
termination of service but prior to the exercise of an Option, that
either prior or subsequent to the Participant's termination the
Participant engaged in conduct which would constitute "cause", then
the right to exercise any Option is forfeited.
d. Any definition in an agreement between the Participant and the
Company or an Affiliate, which contains a conflicting definition of
"cause" for termination and which is in effect at the time of such
termination, shall supersede the definition in this Plan with
respect to such Participant.
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16. EFFECT ON OPTIONS OF TERMINATION OF SERVICE FOR DISABILITY.
Except as otherwise provided in the pertinent Option Agreement, a
Participant who ceases to be an employee, director or consultant of the Company
or of an Affiliate by reason of Disability may exercise any Option granted to
such Participant:
a. To the extent exercisable but not exercised on the date of
Disability; and
b. In the event rights to exercise the Option accrue periodically, to
the extent of a pro rata portion of any additional rights as would
have accrued had the Participant not become Disabled prior to the
end of the accrual period which next ends following the date of
Disability. The proration shall be based upon the number of days of
such accrual period prior to the date of Disability.
A Disabled Participant may exercise such rights only within the period
ending one (1) year after the date of the Participant's termination of
employment, directorship or consultancy, as the case may be, notwithstanding
that the Participant might have been able to exercise the Option as to some or
all of the Shares on a later date if the Participant had not become disabled and
had continued to be an employee, director or consultant or, if earlier, within
the originally prescribed term of the Option.
The Administrator shall make the determination both of whether Disability
has occurred and the date of its occurrence (unless a procedure for such
determination is set forth in another agreement between the Company and such
Participant, in which case such procedure shall be used for such determination).
If requested, the Participant shall be examined by a physician selected or
approved by the Administrator, the cost of which examination shall be paid for
by the Company.
17. EFFECT ON OPTIONS OF DEATH WHILE AN EMPLOYEE, DIRECTOR OR CONSULTANT.
Except as otherwise provided in the pertinent Option Agreement, in the
event of the death of a Participant while the Participant is an employee,
director or consultant of the Company or of an Affiliate, such Option may be
exercised by the Participant's Survivors:
a. To the extent exercisable but not exercised on the date of death;
and
b. In the event rights to exercise the Option accrue periodically, to
the extent of a pro rata portion of any additional rights which
would have accrued had the Participant not died prior to the end of
the accrual period which next ends following the date of death. The
proration shall be based upon the number of days of such accrual
period prior to the Participant's death.
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If the Participant's Survivors wish to exercise the Option, they must take
all necessary steps to exercise the Option within one (1) year after the date of
death of such Participant, notwithstanding that the decedent might have been
able to exercise the Option as to some or all of the Shares on a later date if
he or she had not died and had continued to be an employee, director or
consultant or, if earlier, within the originally prescribed term of the Option.
18. EFFECT OF TERMINATION OF SERVICE ON STOCK GRANTS.
In the event of a termination of service (whether as an employee, director
or consultant) with the Company or an Affiliate for any reason before the
Participant has accepted a Stock Grant, such offer shall terminate.
For purposes of this Paragraph 16 and Paragraph 17 below, a Participant to
whom a Stock Grant has been offered under the Plan who is absent from work with
the Company or with an Affiliate because of temporary disability (any disability
other than a permanent and total Disability as defined in Paragraph 1 hereof),
or who is on leave of absence for any purpose, shall not, during the period of
any such absence, be deemed, by virtue of such absence alone, to have terminated
such Participant's employment, director status or consultancy with the Company
or with an Affiliate, except as the Administrator may otherwise expressly
provide.
In addition, for purposes of this Paragraph 16 and Paragraph 17 below, any
change of employment or other service within or among the Company and any
Affiliates shall not be treated as a termination of employment, director status
or consultancy so long as the Participant continues to be an employee, director
or consultant of the Company or any Affiliate.
19. EFFECT ON STOCK GRANTS OF TERMINATION OF SERVICE OTHER THAN "FOR CAUSE" OR
DEATH OR DISABILITY.
Except as otherwise provided in the pertinent Stock Grant Agreement, in
the event of a termination of service (whether as an employee, director or
consultant), other than termination "for cause," Disability, or death for which
events there are special rules in Paragraphs 18, 19, and 20, respectively,
before all Company rights of repurchase shall have lapsed, then the Company
shall have the right to repurchase that number of Shares subject to a Stock
Grant as to which the Company's repurchase rights have not lapsed.
20. EFFECT ON STOCK GRANTS OF TERMINATION OF SERVICE "FOR CAUSE".
Except as otherwise provided in the pertinent Stock Grant Agreement, at
the discretion of the Administrator the following rules apply if the
Participant's service (whether as an employee, director or consultant) with the
Company or an Affiliate is terminated "for cause":
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a. All Shares subject to any Stock Grant shall be immediately subject
to repurchase by the Company at the purchase price, if any, thereof.
b. For purposes of this Plan, "cause" shall include (and is not limited
to) dishonesty with respect to the employer, insubordination,
substantial malfeasance or non-feasance of duty, unauthorized
disclosure of confidential information, and conduct substantially
prejudicial to the business of the Company or any Affiliate. The
determination of the Administrator as to the existence of "cause"
will be conclusive on the Participant and the Company.
c. "Cause" is not limited to events which have occurred prior to a
Participant's termination of service, nor is it necessary that the
Administrator's finding of "cause" occur prior to termination. If
the Administrator determines, subsequent to a Participant's
termination of service, that either prior or subsequent to the
Participant's termination the Participant engaged in conduct which
would constitute "cause," then the Company's right to repurchase all
of such Participant's Shares shall apply.
d. Any definition in an agreement between the Participant and the
Company or an Affiliate, which contains a conflicting definition of
"cause" for termination and which is in effect at the time of such
termination, shall supersede the definition in this Plan with
respect to such Participant.
21. EFFECT ON STOCK GRANTS OF TERMINATION OF SERVICE FOR DISABILITY.
Except as otherwise provided in the pertinent Stock Grant Agreement, the
following rules apply if a Participant ceases to be an employee, director or
consultant of the Company or of an Affiliate by reason of Disability: to the
extent the Company's rights of repurchase have not lapsed on the date of
Disability, they shall be exercisable; provided, however, that in the event such
rights of repurchase lapse periodically, such rights shall lapse to the extent
of a pro rata portion of the Shares subject to such Stock Grant as would have
lapsed had the Participant not become Disabled prior to the end of the vesting
period which next ends following the date of Disability. The proration shall be
based upon the number of days of such vesting period prior to the date of
Disability.
The Administrator shall make the determination both of whether Disability
has occurred and the date of its occurrence (unless a procedure for such
determination is set forth in another agreement between the Company and such
Participant, in which case such procedure shall be used for such determination).
If requested, the Participant shall be examined by a physician selected or
approved by the Administrator, the cost of which examination shall be paid for
by the Company.
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22. EFFECT ON STOCK GRANTS OF DEATH WHILE AN EMPLOYEE, DIRECTOR OR CONSULTANT.
Except as otherwise provided in the pertinent Stock Grant Agreement, the
following rules apply in the event of the death of a Participant while the
Participant is an employee, director or consultant of the Company or of an
Affiliate: to the extent the Company's rights of repurchase have not lapsed on
the date of death, they shall be exercisable; provided, however, that in the
event such rights of repurchase lapse periodically, such rights shall lapse to
the extent of a pro rata portion of the Shares subject to such Stock Grant as
would have lapsed had the Participant not died prior to the end of the vesting
period which next ends following the date of death. The proration shall be based
upon the number of days of such vesting period prior to the Participant's death.
23. EFFECT ON STOCK APPRECIATION RIGHTS OF TERMINATION OF SERVICE OTHER THAN FOR
CAUSE
Except as otherwise provided in the pertinent SAR Agreement, if the
Participant is no longer an employee, a Director or consultant for any reason
(including death or Disability) other than termination "for cause", the
Participant shall have, or the Participant's beneficiaries shall have three
months from such termination date to exercise any exercisable unexercised SAR in
accordance with the terms of the applicable SAR Agreement and the Plan.
Immediately after the expiration of such three-month period, all SARs which have
not been exercised shall be forfeited, and the Participant (and his
beneficiaries, if applicable) shall thereafter have no rights or entitlement
with respect to such forfeited SARs.
24. EFFECT ON STOCK APPRECIATION RIGHTS OF TERMINATION OF SERVICE FOR CAUSE
Except as otherwise provided in the pertinent SAR Agreement, if the
Participant is terminated for cause, then the following rules will apply:
a. Any SAR that has not been exercised shall be immediately forfeited,
and the Participant shall thereafter have no rights or entitlement
with respect to such forfeited SARs.
b. For purposes of this Plan, "cause" shall include (and is not limited
to) dishonesty with respect to the employer, insubordination,
substantial malfeasance or non-feasance of duty, unauthorized
disclosure of confidential information, and conduct substantially
prejudicial to the business of the Company or any Affiliate. The
determination of the Administrator as to the existence of "cause"
will be conclusive on the Participant and the Company.
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c. "Cause" is not limited to events which have occurred prior to a
Participant's termination of service, nor is it necessary that the
Administrator's finding of "cause" occur prior to termination. If
the Administrator determines, subsequent to a Participant's
termination of service, that either prior or subsequent to the
Participant's termination the Participant engaged in conduct which
would constitute "cause," then the Company's right to repurchase all
of such Participant's Shares shall apply.
d. Any definition in an agreement between the Participant and the
Company or an Affiliate, which contains a conflicting definition of
"cause" for termination and which is in effect at the time of such
termination, shall supersede the definition in this Plan with
respect to such Participant.
25. PURCHASE FOR INVESTMENT.
Unless the offering and sale of the Shares to be issued upon the
particular exercise or acceptance of a Stock Right shall have been effectively
registered under the Securities Act of 1933, as now in force or hereafter
amended (the "1933 Act"), the Company shall be under no obligation to issue the
Shares covered by such exercise unless and until the following conditions have
been fulfilled:
a. The person(s) who exercise(s) or accept(s) such Stock Right shall
warrant to the Company, prior to the receipt of such Shares, that
such person(s) are acquiring such Shares for their own respective
accounts, for investment, and not with a view to, or for sale in
connection with, the distribution of any such Shares, in which event
the person(s) acquiring such Shares shall be bound by the provisions
of the following legend which shall be endorsed upon the
certificate(s) evidencing their Shares issued pursuant to such
exercise or such grant:
"The shares represented by this certificate have been taken
for investment and they may not be sold or otherwise
transferred by any person, including a pledgee, unless (1)
either (a) a Registration Statement with respect to such
shares shall be effective under the Securities Act of 1933, as
amended, or (b) the Company shall have received an opinion of
counsel satisfactory to it that an exemption from registration
under such Act is then available, and (2) there shall have
been compliance with all applicable state securities laws."
b. At the discretion of the Administrator, the Company shall have
received an opinion of its counsel that the Shares may be issued
upon such particular exercise or acceptance in compliance with the
1933 Act without registration thereunder.
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26. DISSOLUTION OR LIQUIDATION OF THE COMPANY.
Upon the dissolution or liquidation of the Company, all Options granted
and SARs awarded under this Plan which as of such date shall not have been
exercised and all Stock Grants which have not been accepted will terminate and
become null and void; provided, however, that if the rights of a Participant or
a Participant's Survivors have not otherwise terminated and expired, the
Participant or the Participant's Survivors will have the right immediately prior
to such dissolution or liquidation to exercise or accept any Stock Right to the
extent that the Stock Right is exercisable or subject to acceptance as of the
date immediately prior to such dissolution or liquidation.
27. ADJUSTMENTS.
Upon the occurrence of any of the following events, a Participant's rights
with respect to any Stock Right granted to him or her hereunder shall be
adjusted as hereinafter provided, unless otherwise specifically provided in the
pertinent Option Agreement, Stock Grant Agreement or SAR Agreement:
A. Stock Dividends and Stock Splits. If (i) the shares of Common Stock
shall be subdivided or combined into a greater or smaller number of shares or if
the Company shall issue any shares of Common Stock as a stock dividend on its
outstanding Common Stock, or (ii) additional shares or new or different shares
or other securities of the Company or other non-cash assets are distributed with
respect to such shares of Common Stock, the number of shares of Common Stock
deliverable upon the exercise or acceptance of such Stock Right may be
appropriately increased or decreased proportionately, and appropriate
adjustments may be made in the purchase price per share to reflect such events.
The number of Shares subject to options to be granted to directors and the
number of Shares subject to the limitation in Paragraph 4(c) shall also be
proportionately adjusted upon the occurrence of such events.
B. Consolidations or Mergers. If the Company is to be consolidated with or
acquired by another entity in a merger, sale of all or substantially all of the
Company's assets or otherwise (an "Acquisition"), the Administrator or the board
of directors of any entity assuming the obligations of the Company hereunder
(the "Successor Board"), shall, as to outstanding Options, either (i) make
appropriate provision for the continuation of such Options by substituting on an
equitable basis for the Shares then subject to such Options either the
consideration payable with respect to the outstanding shares of Common Stock in
connection with the Acquisition or securities of any successor or acquiring
entity; or (ii) upon written notice to the Participants, provide that all
Options must be exercised (either to the extent then exercisable or, at the
discretion of the Administrator, all Options being made fully exercisable for
purposes of this Subparagraph) at the end of which period the Options shall
terminate; or (iii) terminate all Options in exchange for a cash payment equal
to the excess of the Fair Market Value of the Shares subject to such Options
(either to the extent then exercisable or, at the discretion of the
Administrator, all Options being made fully exercisable for purposes of this
Subparagraph) over the exercise price thereof.
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With respect to outstanding Stock Grants, the Administrator or the
Successor Board, shall either (i) make appropriate provisions for the
continuation of such Stock Grants by substituting on an equitable basis for the
Shares then subject to such Stock Grants either the consideration payable with
respect to the outstanding Shares of Common Stock in connection with the
Acquisition or securities of any successor or acquiring entity; or (ii) upon
written notice to the Participants, provide that all Stock Grants must be
accepted (to the extent then subject to acceptance) within a specified number of
days of the date of such notice, at the end of which period the offer of the
Stock Grants shall terminate; or (iii) terminate all Stock Grants in exchange
for a cash payment equal to the excess of the Fair Market Value of the Shares
subject to such Stock Grants over the purchase price thereof, if any. In
addition, in the event of an Acquisition, the Administrator may waive any or all
Company repurchase rights with respect to outstanding Stock Grants.
With respect to outstanding SARs, the Administrator or Successor Board,
shall either (i) make appropriate provision for the continuation of such SARs by
substituting on an equitable basis for the Shares then subject to such SARs
either the consideration payable with respect to the outstanding Shares of
Common Stock in connection with the Acquisition or securities of any successor
or acquiring entity; or (ii) upon written notice to the Participant, provide
that all SARs must be exercised (either to the extent then exercisable or, at
the discretion of the Administrator, all SARs being made fully exercisable for
purposes of this Subsection), within a specified number of days of the date of
such notice, at the end of which period the SARs shall terminate; or (iii)
terminate all SARs in exchange for a cash payment equal to the excess of the
Fair Market Value of the Shares subject to such SARs, as determined in good
faith by the Administrator or the Successor Board (either to the extent then
exercisable or, at the discretion of the Administrator, all SARs being made
fully exercisable for purposes of this Subparagraph), over the Stock Value of
the stock at the close of business on the business day preceding the date such
SARs were awarded.
C. Recapitalization or Reorganization. In the event of a recapitalization
or reorganization of the Company (other than a transaction described in
Subparagraph B above) pursuant to which securities of the Company or of another
corporation are issued with respect to the outstanding shares of Common Stock, a
Participant upon exercising or accepting a Stock Right shall be entitled to
receive for the purchase price, if any, paid upon such exercise or acceptance
the securities which would have been received if such Stock Right had been
exercised or accepted prior to such recapitalization or reorganization.
D. Modification of ISOs. Notwithstanding the foregoing, any adjustments
made pursuant to Subparagraph A, B or C with respect to ISOs shall be made only
after the Administrator, after consulting with counsel for the Company,
determines whether such adjustments would constitute a "modification" of such
ISOs (as that term is defined in Section 424(h) of the Code) or would cause any
adverse tax consequences for the holders of such ISOs. If the Administrator
determines that such adjustments made with respect to ISOs would constitute a
modification of such ISOs, it may refrain from making such adjustments, unless
the holder of an ISO specifically requests in writing that such adjustment be
made and such writing
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indicates that the holder has full knowledge of the consequences of such
"modification" on his or her income tax treatment with respect to the ISO.
28. ISSUANCES OF SECURITIES.
Except as expressly provided herein, no issuance by the Company of shares
of stock of any class, or securities convertible into shares of stock of any
class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares subject to Stock Rights. Except as
expressly provided herein, no adjustments shall be made for dividends paid in
cash or in property (including without limitation, securities) of the Company
prior to any issuance of Shares pursuant to a Stock Right.
29. FRACTIONAL SHARES.
No fractional shares shall be issued under the Plan and the person
exercising a Stock Right shall receive from the Company cash in lieu of such
fractional shares equal to the Fair Market Value thereof.
30. CONVERSION OF ISOs INTO NON-QUALIFIED OPTIONS; TERMINATION OF ISOs.
The Administrator, at the written request of any Participant, may in its
discretion take such actions as may be necessary to convert such Participant's
ISOs (or any portions thereof) that have not been exercised on the date of
conversion into Non-Qualified Options at any time prior to the expiration of
such ISOs, regardless of whether the Participant is an employee of the Company
or an Affiliate at the time of such conversion. Such actions may include, but
not be limited to, extending the exercise period or reducing the exercise price
of the appropriate installments of such Options. At the time of such conversion,
the Administrator (with the consent of the Participant) may impose such
conditions on the exercise of the resulting Non-Qualified Options as the
Administrator in its discretion may determine, provided that such conditions
shall not be inconsistent with this Plan. Nothing in the Plan shall be deemed to
give any Participant the right to have such Participant's ISOs converted into
Non-Qualified Options, and no such conversion shall occur until and unless the
Administrator takes appropriate action. The Administrator, with the consent of
the Participant, may also terminate any portion of any ISO that has not been
exercised at the time of such conversion.
31. WITHHOLDING.
In the event that any federal, state, or local income taxes, employment
taxes, Federal Insurance Contributions Act ("F.I.C.A.") withholdings or other
amounts are required by applicable law or governmental regulation to be withheld
from the Participant's salary, wages or
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other remuneration in connection with the exercise or acceptance of a Stock
Right or in connection with a Disqualifying Disposition (as defined in Paragraph
28) or upon the lapsing of any right of repurchase, the Company may withhold
from the Participant's compensation, if any, or may require that the Participant
advance in cash to the Company, or to any Affiliate of the Company which employs
or employed the Participant, the amount of such withholdings unless a different
withholding arrangement, including the use of shares of the Company's Common
Stock or a promissory note, is authorized by the Administrator (and permitted by
law). For purposes hereof, the fair market value of the shares withheld for
purposes of payroll withholding shall be determined in the manner provided in
Paragraph 1 above, as of the most recent practicable date prior to the date of
exercise. If the fair market value of the shares withheld is less than the
amount of payroll withholdings required, the Participant may be required to
advance the difference in cash to the Company or the Affiliate employer. The
Administrator in its discretion may condition the exercise of an Option for less
than the then Fair Market Value on the Participant's payment of such additional
withholding.
32. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION.
Each Key Employee who receives an ISO must agree to notify the Company in
writing immediately after the Key Employee makes a Disqualifying Disposition of
any shares acquired pursuant to the exercise of an ISO. A Disqualifying
Disposition is any disposition (including any sale) of such shares before the
later of (a) two years after the date the Key Employee was granted the ISO, or
(b) one year after the date the Key Employee acquired Shares by exercising the
ISO. If the Key Employee has died before such stock is sold, these holding
period requirements do not apply and no Disqualifying Disposition can occur
thereafter.
33. TERMINATION OF THE PLAN.
The Plan will terminate on the date which is ten (10) years from the
earlier of the date of its adoption and the date of its approval by the
shareholders of the Company. The Plan may be terminated at an earlier date by
vote of the shareholders of the Company; provided, however, that any such
earlier termination shall not affect any Option Agreements, Stock Grant
Agreements or SAR Agreements executed prior to the effective date of such
termination.
34. AMENDMENT OF THE PLAN AND AGREEMENTS.
The Plan may be amended by the shareholders of the Company. The Plan may
also be amended by the Administrator, including, without limitation, to the
extent necessary to qualify any or all outstanding Stock Rights granted under
the Plan or Stock Rights to be granted under the Plan for favorable federal
income tax treatment (including deferral of taxation upon exercise) as may be
afforded incentive stock options under Section 422 of the Code, and to the
extent necessary to qualify the shares issuable upon exercise or acceptance of
any outstanding Stock Rights granted, or Stock Rights to be granted, under the
Plan for listing on any national securities
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exchange or quotation in any national automated quotation system of securities
dealers. Any amendment approved by the Administrator which the Administrator
determines is of a scope that requires shareholder approval shall be subject to
obtaining such shareholder approval. Any modification or amendment of the Plan
shall not, without the consent of a Participant, adversely affect his or her
rights under a Stock Right previously granted to him or her. With the consent of
the Participant affected, the Administrator may amend outstanding Option
Agreements, Stock Grant Agreements or SAR Agreements in a manner which may be
adverse to the Participant but which is not inconsistent with the Plan. In the
discretion of the Administrator, outstanding Option Agreements, Stock Grant
Agreements or SAR Agreements may be amended by the Administrator in a manner
which is not adverse to the Participant.
35. EMPLOYMENT OR OTHER RELATIONSHIP.
Nothing in this Plan or any Option Agreement, Stock Grant Agreement or SAR
Agreements shall be deemed to prevent the Company or an Affiliate from
terminating the employment, consultancy or director status of a Participant, nor
to prevent a Participant from terminating his or her own employment, consultancy
or director status or to give any Participant a right to be retained in
employment or other service by the Company or any Affiliate for any period of
time.
36. GOVERNING LAW.
This Plan shall be construed and enforced in accordance with the law of
the State of Delaware.
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Exhibit 10.8
AS AMENDED
GOMEZ ADVISORS, INC.
1999 LONG-TERM INCENTIVE STOCK PLAN
I. Purpose
This 1999 Long-Term Incentive Stock Plan (the "Plan") is intended to
attract, retain and provide incentives to senior executives and key employees
and consultants of the Corporation and Subsidiaries and key employees of the
Parent who have a significant impact on the success of the Corporation, and to
thereby increase overall shareholders' value. The Plan generally provides for
the granting of stock, stock options, stock appreciation rights, restricted
shares, performance based awards, other stock-based awards or any combination of
the foregoing to the eligible participants.
II. Definitions
(a) "Award" includes, without limitation, stock options (including
incentive stock options within the meaning of Section 422(b) of the Code), stock
appreciation rights, stock awards, restricted share awards, dividend equivalent
rights, performance based awards or other awards that are valued in whole or in
part by reference to, or are otherwise based on, the Common Stock ("other Common
Stock-based Awards"), all on a stand alone, combination or tandem basis, as
described in or granted under this Plan.
(b) "Award Agreement" means a written agreement setting forth the terms
and conditions of each Award made under this Plan.
(c) "Board" means the Board of Directors of the Corporation.
(d) "Code" means the Internal Revenue Code of 1986, as amended from time
to time.
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(e) "Committee" means the Compensation Committee of the Board or such
other committee of the Board as may be designated by the Board from time to time
to administer this Plan.
(f) "Common Stock" means the $.0001 par value Class A Common Stock of the
Corporation.
(g) "Corporation" means Gomez Advisors, Inc., a Delaware corporation.
(h) "Director" means a member of the Board.
(i) "Employee" means any key executive or other key employee of the
Corporation, the Parent or a Subsidiary.
(j) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(k) "Fair Market Value" means the value determined by the Committee or the
Board; provided, however, if shares of Common Stock are listed on a national
securities exchange or traded on the over-the-counter market, the Fair Market
Value shall be the mean of the highest and lowest trading prices or of the high
bid and low asked prices of shares of Common Stock on such exchange, or on the
over-the-counter market as reported by the NASDAQ system of the National
Quotation Bureau, Inc., as the case may be, on the relevant date, and if there
is no trading or bid or asked price on that day, the mean of the highest and
lowest trading or high bid and low asked prices on the most recent day for which
such prices are available preceding such relevant date.
(l) "Parent" means any corporation or other entity, whether domestic or
foreign, which has or obtains, directly or indirectly, a proprietary interest in
the Corporation of more than 50% by reason of stock ownership or otherwise.
(m) "Participant" means an Employee, Director, or consultant who has been
granted an Award under the Plan.
(n) "Plan Year" means the fiscal year of the Corporation commencing April
1 and ending March 31.
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(o) "Subsidiary" means any corporation or other entity, whether domestic
or foreign, in which the Corporation has or obtains, directly or indirectly, a
proprietary interest of more than 50% by reason of stock ownership or otherwise.
III. Eligibility
Any Employee, Director or consultant of the Corporation selected by
the Committee is eligible to receive an Award pursuant to Section VI hereof.
IV. Plan Administration
(a) The Plan shall be administered by the Committee. The Committee shall
periodically make determinations with respect to the participation of Employees,
Directors and consultants in the Plan and, except as otherwise required by law
or this Plan, the terms of Awards granted, including performance objective,
vesting or exercisability schedules, price, restriction, option or performance
period, dividend rights, post-retirement and termination rights, payment
alternatives such as cash, stock, contingent awards or other means of payment
consistent with the purposes of this Plan, and such other terms and conditions
as the Committee deems appropriate which shall be contained in an Award
Agreement with respect to a Participant.
(b) The Committee shall have authority to interpret and construe the
provisions of the Plan and any Award Agreement and make determinations pursuant
to any Plan provision or Award Agreement which shall be final and binding on all
persons. No member of the Committee shall be liable for any action or
determination made in good faith, and the members shall be entitled to
indemnification and reimbursement in the manner provided in the Corporation's
Certificate of Incorporation, as it may be amended from time to time.
(c) The Committee shall have the authority at any time to provide for the
conditions and circumstances under which Awards shall be forfeited. The
Committee shall have the authority to accelerate the vesting of any Award and
the time at which any Award becomes exercisable.
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V. Capital Stock Subject to the Provisions of this Plan
(a) The capital stock subject to the provisions of this Plan shall be
shares of authorized but unissued Common Stock and shares of Common Stock held
as treasury stock. Subject to adjustment in accordance with the provisions of
Section X, and subject to Section V(c) below, the maximum number of shares of
Common Stock that shall be available for grants of Awards under this Plan shall
be 3,003.
(b) The grant of a restricted share or performance based Award shall be
deemed to be equal to the maximum number of shares which may be issued under the
Award. Awards payable only in cash will not reduce the number of shares
available for Awards granted under the Plan.
(c) There shall be carried forward and be available for Awards under the
Plan, all of the following: (i) any unused portion of the limit set forth in
paragraph (a) of this Section V; (ii) shares represented by Awards which are
canceled, forfeited, surrendered, terminated, paid in cash or expire
unexercised; and (iii) the excess amount of variable Awards which become fixed
at less than their maximum limitations.
VI. Awards Under This Plan
As the Committee may determine, the following types of Awards and other
Common Stock-based Awards may be granted under this Plan on a stand alone,
combination or tandem basis:
(a) Stock Option. An Award which provides a right to buy a specified
number of shares of Common Stock at a fixed exercise price during a specified
time. Unless otherwise specifically provided in an Award Agreement, (i) the
exercise price of each share of Common Stock covered by a stock option shall not
be less than the Fair Market Value of the Common Stock on the date of the grant
of such stock option and (ii) 33.33% of the shares covered by the stock option
shall become exercisable on the __ anniversary of its grant and an additional
33.33% of such shares shall become exercisable on each of the second and third
anniversary of its grant.
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(b) Incentive Stock Option. An Award in the form of a stock option
granted to an Employee which shall comply with the requirements of Code Section
422 or any successor section as it may be amended from time to time. The
exercise price of any incentive stock option shall not be less than 100% of the
Fair Market Value of the Common Stock on the date of grant of the incentive
stock option Award. Unless otherwise specifically provided in the Award
Agreement, 33.33% of the shares covered by the incentive stock option shall
become exercisable on the first anniversary of its grant, and an additional
33.33% of such shares shall become exercisable on each of the second and third
anniversary of its grant. An Employee who owns stock representing 10% of the
voting power or value of all classes of stock of the Corporation, the Parent or
a Subsidiary shall only be granted an incentive stock option (i) with an
exercise price of at least a 110% of the Fair Market Value of the Common Stock
on the date of the grant of such option and (ii) that expires no more than five
years from the date of its grant. To the extent that Code Section 422 requires
certain provisions to be set forth in a written plan, said provisions are
incorporated herein by this reference.
(c) Stock Option in lieu of Compensation Election. A right given
with respect to a year to an Employee, Director, or consultant to elect to
exchange annual fees, compensation or bonuses for stock options.
(d) Stock Appreciation Right. A right which may or may not be
contained in the grant of a stock option or incentive stock option to receive
the excess of the Fair Market Value of a share of Common Stock on the date the
option is surrendered over the option exercise price or other specified amount
contained in the Award Agreement.
(e) Restricted Shares. A transfer of Common Stock to a Participant
subject to forfeiture until such restrictions, terms and conditions as the
Committee may determine are fulfilled.
(f) Dividend Equivalent Right. A right to receive dividends or their
equivalent in value in Common Stock, cash or
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in a combination of both with respect to any new or previously existing Award.
(g) Stock Award. An unrestricted transfer of ownership of Common
Stock.
(h) Performance Base Awards. An Award payable after specified
performance goals have been satisfied. The performance period for a performance
based Award shall be established prior to the time such Award is granted and may
overlap with performance periods relating to other Awards granted hereunder to
the same Participant. Each Award shall be contingent upon future performance and
achievement of objectives described either in terms of Corporation-wide
performance or in terms that are related to the performance of the Participant
or of the division, subsidiary, department or function within the Corporation in
which the Participant is employed or has responsibility for. Such objectives
shall be based on increases in share prices, operating income, net income or
cash flow thresholds, sales results, return on common equity or any combination
of the foregoing. Following the end of each performance period, the holder of
each Award shall be entitled to receive payment of an amount, not exceeding the
maximum value of the Award, based on the achievement of the performance measures
for such performance period, as determined by the Committee. Unless the Award
specifies otherwise, including restrictions in order to satisfy the conditions
under Section 162(m) of the Code, the Committee may adjust the payment of Awards
or the performance objectives if events occur or circumstances arise which would
cause a particular payment or set of performance objectives to be inappropriate,
as determined by the Committee.
(i) Other Stock-Based Awards. Other Common Stock-based Awards which
are related to or serve a similar function to those Awards set forth in this
Section VI.
VII. Award Agreements
Each Award under the Plan shall be evidenced by an Award Agreement setting
forth the terms and conditions of the Award and executed by the Corporation and
Participant.
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VIII. Other Terms and Conditions
(a) Assignability. Unless provided to the contrary in any Award, no Award
shall be assignable or transferable except by will, by the laws of descent and
distribution and during the lifetime of a Participant, the Award shall be
exercisable only by such Participant. No Award granted under the Plan shall be
subject to execution, attachment or process.
(b) Termination of Employment or Other Relationship. The Committee shall
determine the disposition of the grant of each Award in the event of the
retirement, disability, death or other termination of a Participant's employment
or other relationship with the Corporation, the Parent or a Subsidiary.
(c) Rights as a Stockholder. A Participant shall have no rights as a
stockholder with respect to shares covered by an Award until the date the
Participant is the holder of record. No adjustment will be made for dividends or
other rights for which the record date is prior to such date.
(d) No Obligation to Exercise. The grant of an Award shall impose no
obligation upon the Participant to exercise the Award.
(e) Payments by Participants. The Committee may determine that Awards for
which a payment is due from a Participant may be payable: (i) in U.S. dollars by
personal check, bank draft or money order payable to the order of the
Corporation, by money transfers or direct account debits; (ii) through the
delivery or deemed delivery based on attestation to the ownership of shares of
Common Stock with a Fair Market Value equal to the total payment due from the
Participant; (iii) pursuant to a broker-assisted "cashless exercise" program if
established by the Corporation; (iv) by a combination of the methods described
in (i) through (iii) above; or (v) by such other methods as the Committee may
deem appropriate.
(f) Withholding. Except as otherwise provided by the Committee, (i) the
deduction of withholding and any other taxes required by law will be made from
all amounts paid in cash and
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(ii) in the case of payments of Awards in shares of Common Stock, the
Participant shall be required to pay the amount of any taxes required to be
withheld prior to receipt of such stock, or alternatively, a number of shares
the Fair Market Value of which equals the amount required to be withheld may be
deducted from the payment.
(g) Restrictions on Sale and Exercise. With respect to officers and
directors for purposes of Section 16 of the Exchange Act, and if required to
comply with rules promulgated thereunder, (i) no Award providing for exercise, a
vesting period, a restriction period or the attainment of performance standards
shall permit unrestricted ownership of Common Stock by the Participant for at
least six months from the date of grant, and (ii) Common Stock acquired pursuant
to this Plan (other than Common Stock acquired as a result of the granting of a
"derivative security") may not be sold for at least six months after
acquisition.
(h) Maximum Awards. Subject to adjustment in accordance with the
provisions of Section X, the maximum number of shares of Common Stock that may
be issued to any single Participant pursuant to options over the life of this
Plan is 2,000. The maximum number of shares of Common Stock, that may be issued,
and the maximum amount of cash that may be received by any single Participant
pursuant to a performance based Award in any one year is 2,000 shares of Common
Stock and $2,000,000, respectively.
(i) Additional Restrictions. The Committee may include provisions in an
Award Agreement which would limit the right of a Participant with respect to an
Award in the event that the Participant conducts himself in a manner adversely
affecting the Company or engages in other activities proscribed in the Award
Agreement.
IX. Termination, Modification and Amendments
(a) The Plan may from time to time be terminated, modified or amended by
the affirmative vote of the holders of a majority of the outstanding shares of
the capital stock of the Corporation present or represented and entitled to vote
at a duly held stockholders meeting.
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(b) The Board may at any time terminate the Plan or from time to time make
such modifications or amendments of the Plan as it may deem advisable; provided,
however, that the Board shall not make any material amendments to the Plan which
require stockholder approval under applicable law, rule or regulation unless the
same shall be approved by the requisite vote of the Corporation's stockholders.
(c) No termination, modification or amendment of the Plan may adversely
affect the rights conferred by an Award without the consent of the recipient
thereof.
X. Recapitalization
The aggregate number of shares of Common Stock as to which Awards may be
granted to Participants, the number of shares thereof covered by each
outstanding Award, and the price per share thereof in each such Award, shall all
be proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a subdivision or consolidation of shares
or other capital adjustment, or the payment of a stock dividend or other
increase or decrease in such shares, effected without receipt of consideration
by the Corporation, or other change in corporate or capital structure; provided,
however, that any fractional shares resulting from any such adjustment shall be
eliminated. The Committee shall also make the foregoing changes and any other
changes, including changes in the classes of securities available, to the extent
it is deemed necessary or desirable to preserve the intended benefits of the
Plan for the Corporation and the Participants in the event of any other
reorganization, recapitalization, merger, consolidation, spin-off, extraordinary
dividend or other distribution or similar transaction.
XI. No Right to Employment
No person shall have any claim or right to be granted an Award, and the
grant of an Award shall not be construed as giving a Participant the right to be
retained in the employ of, or in the other relationship with, the Corporation,
the Parent or a
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Subsidiary. Further, the Corporation, the Parent and each Subsidiary expressly
reserve the right at any time to dismiss a Participant free from any liability,
or any claim under the Plan, except as provided herein or in any Award Agreement
issued hereunder.
XII. Governing Law
To the extent that federal laws do not otherwise control, the Plan shall
be construed in accordance with and governed by the laws of the State of
Delaware.
XIII. Savings Clause
This Plan is intended to comply in all aspects with applicable laws and
regulations, including, with respect to those Participant"s who are officers or
directors for purposes of Section 16 of the Exchange Act, Rule 16b-3 under the
Exchange Act. In case any one more of the provisions of this Plan shall be held
invalid, illegal or unenforceable in any respect under applicable law and
regulation (including Rule 16b-3), the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby
and the invalid, illegal or unenforceable provision shall be deemed null and
void; however, to the extent permissible by law, any provision which could be
deemed null and void shall first be construed, interpreted or revised
retroactively to permit this Plan to be construed in compliance with all
applicable laws (including Rule 16b-3) so as to foster the intent of this Plan.
XIV. Effective Date and Term
The Plan shall become effective upon adoption by the Board of Directors,
subject to the approval of the Plan by the affirmative vote of the holders of a
majority of the outstanding shares of the capital stock of the Corporation
entitled to vote thereon within one year following adoption of the Plan by the
Board. All Awards granted prior to such approval by the stockholders shall be
subject to such approval and shall not be
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exercisable and/or transferable prior thereto. In the event such approval is not
obtained, the Plan and all Awards granted thereunder shall be null and void.
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Exhibit 10.9
GOMEZ ADVISORS, INC.
1999 STOCK PLAN
1. DEFINITIONS.
Unless otherwise specified or unless the context otherwise requires, the
following terms, as used in this Gomez Advisors, Inc. 1999 Stock Plan,
have the following meanings:
Administrator means the Board of Directors, unless it has delegated
power to act on its behalf to the Committee, in which case the
Administrator means the Committee.
Affiliate means a corporation which, for purposes of Section 424 of
the Code, is a parent or subsidiary of the Company, direct or
indirect.
Board of Directors means the Board of Directors of the Company.
Code means the United States Internal Revenue Code of 1986, as
amended.
Committee means the committee of the Board of Directors to which the
Board of Directors has delegated power to act under or pursuant to
the provisions of the Plan.
Common Stock means shares of the Company's Class A common stock,
$.0001 par value per share.
Company means Gomez Advisors, Inc., a Delaware corporation.
Designated Period means a period of ten years or such shorter period
as may be determined by the Administrator. The Designated Period may
vary as among Participants and as among SAR Awards to Participants.
Disability or Disabled means permanent and total disability as
defined in Section 22(e)(3) of the Code.
Fair Market Value of a Share of Common Stock means:
(1) If the Common Stock is listed on a national securities exchange
or traded in the over-the-counter market and sales prices are
regularly reported for the Common Stock, the closing or last price
of the Common Stock on the Composite Tape or other comparable
reporting system for the trading day immediately preceding the
applicable date;
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(2) If the Common Stock is not traded on a national securities
exchange but is traded on the over-the-counter market, if sales
prices are not regularly reported for the Common Stock for the
trading day referred to in clause (1), and if bid and asked prices
for the Common Stock are regularly reported, the mean between the
bid and the asked price for the Common Stock at the close of trading
in the over-the-counter market for the trading day on which Common
Stock was traded immediately preceding the applicable date; and
(3) If the Common Stock is neither listed on a national securities
exchange nor traded in the over-the-counter market, such value as
the Administrator, in good faith, shall determine.
ISO means an option meant to qualify as an incentive stock option
under Section 422 of the Code or such other applicable successor
statute.
Key Employee means an employee of the Company or of an Affiliate
(including, without limitation, an employee who is also serving as
an officer or director of the Company or of an Affiliate),
designated by the Administrator to be eligible to be granted one or
more Stock Rights under the Plan.
Non-Qualified Option means an option which is not intended to
qualify as an ISO.
Option means an ISO or Non-Qualified Option granted under the Plan.
Option Agreement means an agreement between the Company and a
Participant delivered pursuant to the Plan, in such form as the
Administrator shall approve.
Participant means a Key Employee, director or consultant to whom one
or more Stock Rights are granted under the Plan. As used herein,
"Participant" shall include "Participant's Survivors" where the
context requires.
Plan means this Gomez Advisors, Inc. 1999 Stock Plan.
Shares means shares of the Common Stock as to which Stock Rights
have been or may be granted under the Plan or any shares of capital
stock into which the Shares are changed or for which they are
exchanged within the provisions of Paragraph 3 of the Plan. The
Shares issued under the Plan may be authorized and unissued shares
or shares held by the Company in its treasury, or both.
Stock Appreciation Rights or SARs means an award in the form of a
right to receive, upon exercise of the Stock Appreciation Right
during the Designated Period, but without other payment, an amount
based on appreciation in the value of Common Stock over a base price
established in the SAR Agreement.
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SAR Agreement means an agreement between the Company and a
Participant delivered pursuant to the Plan, in such form as the
Administrator shall approve.
Stock Grant means a grant by the Company of shares of Common Stock
under the Plan.
Stock Grant Agreement means an agreement between the Company and a
Participant delivered pursuant to the Plan, in such form as the
Administrator shall approve.
Stock Right means a right to Shares of the Company granted pursuant
to the Plan (e.g. an ISO, a Non-Qualified Option, SARs or a
restricted stock grant).
Stock Value means, with respect to SARs, the underlying value of the
Common Stock.
Survivors means a deceased Participant's legal representatives
and/or any person or persons who acquired the Participant's rights
to a Stock Right by will or by the laws of descent and distribution.
2. PURPOSES OF THE PLAN.
The Plan is intended to encourage ownership of Shares by Key Employees and
directors of and certain consultants to the Company in order to attract such
people, to induce them to work for the benefit of the Company or of an Affiliate
and to provide additional incentive for them to promote the success of the
Company or of an Affiliate. The Plan provides for the granting of ISOs,
Non-Qualified Options, Stock Grants and SARs.
3. SHARES SUBJECT TO THE PLAN.
The number of Shares which may be issued from time to time pursuant to
this Plan shall be 3,000,000, or the equivalent of such number of Shares
after the Administrator, in its sole discretion, has interpreted the effect
of any stock split, stock dividend, combination, recapitalization or similar
transaction in accordance with Paragraph 23 of the Plan.
If an Option or SAR ceases to be "outstanding", in whole or in part, or if
the Company shall reacquire any Shares issued pursuant to a Stock Grant, the
Shares which were subject to such Option and any Shares so reacquired by the
Company shall be available for the granting of other Stock Rights under the
Plan. Any Option shall be treated as "outstanding" until such Option is
exercised in full, or terminates or expires under the provisions of the Plan, or
by agreement of the parties to the pertinent Option Agreement.
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4. ADMINISTRATION OF THE PLAN.
The Administrator of the Plan will be the Board of Directors, except to
the extent the Board of Directors delegates its authority to the Committee, in
which case the Committee shall be the Administrator. Subject to the provisions
of the Plan, the Administrator is authorized to:
a. Interpret the provisions of the Plan or of any Option, Stock Grant
or SAR and to make all rules and determinations which it deems
necessary or advisable for the administration of the Plan;
b. Determine which employees of the Company or of an Affiliate shall be
designated as Key Employees and which of the Key Employees,
directors and consultants shall be granted Stock Rights;
c. Determine the number of Shares for which a Stock Right or Stock
Rights shall be granted, provided, however, that in no event shall
Stock Rights with respect to more than 1,000,000 shares be granted
to any Participant in any fiscal year; and
d. Specify the terms and conditions upon which a Stock Right or Stock
Rights may be granted;
provided, however, that all such interpretations, rules, determinations, terms
and conditions shall be made and prescribed in the context of preserving the tax
status under Section 422 of the Code of those Options which are designated as
ISOs. Subject to the foregoing, the interpretation and construction by the
Administrator of any provisions of the Plan or of any Stock Right granted under
it shall be final, unless otherwise determined by the Board of Directors, if the
Administrator is the Committee.
5. ELIGIBILITY FOR PARTICIPATION.
The Administrator will, in its sole discretion, name the Participants in
the Plan, provided, however, that each Participant must be a Key Employee,
director or consultant of the Company or of an Affiliate at the time a Stock
Right is granted. Notwithstanding the foregoing, the Administrator may authorize
the grant of a Stock Right to a person not then an employee, director or
consultant of the Company or of an Affiliate; provided, however, that the actual
grant of such Stock Right shall be conditioned upon such person becoming
eligible to become a Participant at or prior to the time of the delivery of the
Agreement evidencing such Stock Right. ISOs may be granted only to Key
Employees. Non-Qualified Options and Stock Grants may be granted to any Key
Employee, director or consultant of the Company or an Affiliate. The granting of
any Stock Right to any individual shall neither entitle that individual to, nor
disqualify him or her from, participation in any other grant of Stock Rights.
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6. TERMS AND CONDITIONS OF OPTIONS.
Each Option shall be set forth in writing in an Option Agreement, duly
executed by the Company and, to the extent required by law or requested by the
Company, by the Participant. The Administrator may provide that Options be
granted subject to such terms and conditions, consistent with the terms and
conditions specifically required under this Plan, as the Administrator may deem
appropriate including, without limitation, subsequent approval by the
shareholders of the Company of this Plan or any amendments thereto.
A. Non-Qualified Options: Each Option intended to be a Non-Qualified
Option shall be subject to the terms and conditions which the
Administrator determines to be appropriate and in the best interest
of the Company, subject to the following minimum standards for any
such Non-Qualified Option:
a. Option Price: Each Option Agreement shall state the option
price (per share) of the Shares covered by each Option, which
option price shall be determined by the Administrator but
shall not be less than the par value per share of Common
Stock.
b. Each Option Agreement shall state the number of Shares to
which it pertains;
c. Each Option Agreement shall state the date or dates on which
it first is exercisable and the date after which it may no
longer be exercised, and may provide that the Option rights
accrue or become exercisable in installments over a period of
months or years, or upon the occurrence of certain conditions
or the attainment of stated goals or events; and
d. Exercise of any Option may be conditioned upon the
Participant's execution of a Share purchase agreement in form
satisfactory to the Administrator providing for certain
protections for the Company and its other shareholders,
including requirements that:
i. The Participant's or the Participant's Survivors' right
to sell or transfer the Shares may be restricted; and
ii. The Participant or the Participant's Survivors may be
required to execute letters of investment intent and
must also acknowledge that the Shares will bear legends
noting any applicable restrictions.
B. ISOs: Each Option intended to be an ISO shall be issued only to a
Key Employee and be subject to the following terms and conditions,
with such additional restrictions or changes as the Administrator
determines are appropriate but not in
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conflict with Section 422 of the Code and relevant regulations and
rulings of the Internal Revenue Service:
a. Minimum standards: The ISO shall meet the minimum standards
required of Non-Qualified Options, as described in Paragraph
6(A) above, except clause (a) thereunder.
b. Option Price: Immediately before the Option is granted, if the
Participant owns, directly or by reason of the applicable
attribution rules in Section 424(d) of the Code:
i. Ten percent (10%) or less of the total combined voting
power of all classes of stock of the Company or an
Affiliate, the Option price per share of the Shares
covered by each Option shall not be less than one
hundred percent (100%) of the Fair Market Value per
share of the Shares on the date of the grant of the
Option.
ii. More than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or an
Affiliate, the Option price per share of the Shares
covered by each Option shall not be less than one
hundred ten percent (110%) of the said Fair Market Value
on the date of grant.
c. Term of Option: For Participants who own
i. Ten percent (10%) or less of the total combined voting
power of all classes of stock of the Company or an
Affiliate, each Option shall terminate not more than ten
(10) years from the date of the grant or at such earlier
time as the Option Agreement may provide.
ii. More than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or an
Affiliate, each Option shall terminate not more than
five (5) years from the date of the grant or at such
earlier time as the Option Agreement may provide.
d. Limitation on Yearly Exercise: The Option Agreements shall
restrict the amount of Options which may be exercisable in any
calendar year (under this or any other ISO plan of the Company
or an Affiliate) so that the aggregate Fair Market Value
(determined at the time each ISO is granted) of the stock with
respect to which ISOs are exercisable for the first time by
the Participant in any calendar year does not exceed one
hundred thousand dollars ($100,000), provided that this
subparagraph (d) shall have no force or effect if its
inclusion in the Plan is not necessary for Options issued as
ISOs to qualify as ISOs pursuant to Section 422(d) of the
Code.
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7. TERMS AND CONDITIONS OF STOCK GRANTS.
Each offer of a Stock Grant to a Participant shall state the date prior to
which the Stock Grant must be accepted by the Participant, and the principal
terms of each Stock Grant shall be set forth in a Stock Grant Agreement, duly
executed by the Company and, to the extent required by law or requested by the
Company, by the Participant. The Stock Grant Agreement shall be in a form
approved by the Administrator and shall contain terms and conditions which the
Administrator determines to be appropriate and in the best interest of the
Company, subject to the following minimum standards:
(a) Each Stock Grant Agreement shall state the purchase price (per
share), if any, of the Shares covered by each Stock Grant, which
purchase price shall be determined by the Administrator but shall
not be less than the minimum consideration required by the Delaware
General Corporation Law on the date of the grant of the Stock Grant;
(b) Each Stock Grant Agreement shall state the number of Shares to which
the Stock Grant pertains; and
(c) Each Stock Grant Agreement shall include the terms of any right of
the Company to reacquire the Shares subject to the Stock Grant,
including the time and events upon which such rights shall accrue
and the purchase price therefor, if any.
8. TERMS AND CONDITIONS OF STOCK APPRECIATION RIGHTS
Each award of a SAR under this Plan shall be evidenced by a SAR Agreement
in a form approved by the Administrator setting forth the number of SARs,
vesting schedule, if any, the Stock Value of Common Stock upon which the SAR is
based and the term of the SAR. The SAR Agreement shall also set forth (or
incorporate by reference) other material terms and conditions applicable to the
SAR as determined by the Administrator consistent with the limitations of this
Plan.
Each award of a SAR shall be subject to the following conditions:
(a) Unless the Administrator provides otherwise, and such provision is
reflected in the SAR Agreement, the minimum base price of a SAR
granted under this Plan shall be not less than the Fair Market Value
of the underlying Common Stock on the date the SAR is granted;
(b) The Administrator may, in its sole discretion (but is not obligated
to) provide for the acceleration of vesting of SARs upon the
occurrence of certain enumerated events, including, but not limited
to, the death, disability or retirement of the Participant or a
change in control of the Company; and
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(c) The SARs shall be used solely as a device for the measurement and
determination of the amount to be paid to Participants as provided
in the Plan. The SARs shall not constitute or be treated as property
or as a trust fund of any kind. All amounts at any time attributable
to the SARs shall be and remain the sole property of the Company and
all Participants' rights hereunder are limited to the rights to
receive cash or shares of Common Stock as provided in this Plan.
9. EXERCISE OF OPTIONS AND ISSUE OF SHARES.
An Option (or any part or installment thereof) shall be exercised by
giving written notice to the Company at its principal executive office address,
together with provision for payment of the full purchase price in accordance
with this Paragraph for the Shares as to which the Option is being exercised,
and upon compliance with any other condition(s) set forth in the Option
Agreement. Such written notice shall be signed by the person exercising the
Option, shall state the number of Shares with respect to which the Option is
being exercised and shall contain any representation required by the Plan or the
Option Agreement. Payment of the purchase price for the Shares as to which such
Option is being exercised shall be made (a) in United States dollars in cash or
by check, or (b) at the discretion of the Administrator, through delivery of
shares of Common Stock having a Fair Market Value equal as of the date of the
exercise to the cash exercise price of the Option, or (c) at the discretion of
the Administrator, by having the Company retain from the shares otherwise
issuable upon exercise of the Option, a number of shares having a Fair Market
Value equal as of the date of exercise to the exercise price of the Option, or
(d) at the discretion of the Administrator, by delivery of the grantee's
personal recourse note bearing interest payable not less than annually at no
less than 100% of the applicable Federal rate, as defined in Section 1274(d) of
the Code, or (e) at the discretion of the Administrator, in accordance with a
cashless exercise program established with a securities brokerage firm, and
approved by the Administrator, or (f) at the discretion of the Administrator, by
any combination of (a), (b), (c), (d) and (e) above. Notwithstanding the
foregoing, the Administrator shall accept only such payment on exercise of an
ISO as is permitted by Section 422 of the Code.
The Company shall then reasonably promptly deliver the Shares as to which
such Option was exercised to the Participant (or to the Participant's Survivors,
as the case may be). In determining what constitutes "reasonably promptly," it
is expressly understood that the issuance and delivery of the Shares may be
delayed by the Company in order to comply with any law or regulation (including,
without limitation, state securities or "blue sky" laws) which requires the
Company to take any action with respect to the Shares prior to their issuance.
The Shares shall, upon delivery, be evidenced by an appropriate certificate or
certificates for fully paid, non-assessable Shares.
The Administrator shall have the right to accelerate the date of exercise
of any installment of any Option; provided that the Administrator shall not
accelerate the exercise date of any installment of any Option granted to any Key
Employee as an ISO (and not previously converted into a Non-Qualified Option
pursuant to Paragraph 26) if such acceleration would violate the
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<PAGE>
annual vesting limitation contained in Section 422(d) of the Code or such
applicable successor statute, as described in Paragraph 6.B.d herein.
The Administrator may, in its discretion, amend any term or condition of
an outstanding Option provided (i) such term or condition as amended is
permitted by the Plan, (ii) any such amendment shall be made only with the
consent of the Participant to whom the Option was granted, or in the event of
the death of the Participant, the Participant's Survivors, if the amendment is
adverse to the Participant, and (iii) any such amendment of any ISO shall be
made only after the Administrator, after consulting the counsel for the Company,
determines whether such amendment would constitute a "modification" of any
Option which is an ISO (as that term is defined in Section 424(h) of the Code)
or would cause any adverse tax consequences for the holder of such ISO.
10. ACCEPTANCE OF STOCK GRANT AND ISSUE OF SHARES.
A Stock Grant (or any part or installment thereof) shall be accepted by
executing the Stock Grant Agreement and delivering it to the Company at its
principal office address, together with provision for payment of the full
purchase price, if any, in accordance with this Paragraph for the Shares as to
which such Stock Grant is being accepted, and upon compliance with any other
conditions set forth in the Stock Grant Agreement. Payment of the purchase price
for the Shares as to which such Stock Grant is being accepted shall be made (a)
in United States dollars in cash or by check, or (b) at the discretion of the
Administrator, through delivery of shares of Common Stock having a fair market
value equal as of the date of acceptance of the Stock Grant to the purchase
price of the Stock Grant determined in good faith by the Administrator, or (c)
at the discretion of the Administrator, by delivery of the grantee's personal
recourse note bearing interest payable not less than annually at no less than
100% of the applicable Federal rate, as defined in Section 1274(d) of the Code,
or (d) at the discretion of the Administrator, by any combination of (a), (b)
and (c) above.
The Company shall then reasonably promptly deliver the Shares as to which
such Stock Grant was accepted to the Participant (or to the Participant's
Survivors, as the case may be), subject to any escrow provision set forth in the
Stock Grant Agreement. In determining what constitutes "reasonably promptly," it
is expressly understood that the issuance and delivery of the Shares may be
delayed by the Company in order to comply with any law or regulation (including,
without limitation, state securities or "blue sky" laws) which requires the
Company to take any action with respect to the Shares prior to their issuance.
The Administrator may, in its discretion, amend any term or condition of
an outstanding Stock Grant or Stock Grant Agreement provided (i) such term or
condition as amended is permitted by the Plan, and (ii) any such amendment shall
be made only with the consent of the Participant to whom the Stock Grant was
made, if the amendment is adverse to the Participant.
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11. EXERCISE OF STOCK APPRECIATION RIGHTS AND ISSUE OF SHARES
On the date on which the SAR is exercised, the Participant shall receive
an amount equal to the appreciation in market value of his or her SARs as
determined in this Section 11 of the Plan. That amount shall be payable in cash,
shares of Common Stock, or some combination of both, as set forth in the SAR
Agreement. No fractional shares shall be issued but a Participant shall be
entitled to a cash adjustment for a fractional share that would otherwise be
issued. SARs will be canceled upon the Participant's exercise of such SARs, and
no further payment shall be made as to SARs exercised by a Participant.
The Stock Value on both the date the SAR is awarded and the date the SAR
is exercised shall be stated in each SAR Agreement and shall be determined by
either (i) the Administrator in its sole discretion, or (ii) a formula based on
the Fair Market Value of the Common Stock on a particular day or the average of
the Fair Market Values of the Common Stock over a series of days. The
appreciation in the Stock Value of SARs for purposes of determining payments to
be made to a Participant shall be measured by determining the Stock Value of
SARs held by that Participant on the date the SAR is exercised and subtracting
from that the Stock Value of the same SARs on the date such SARs were awarded.
The measurement of appreciation shall be made separately with respect to each
separate award of SARs.
12. RIGHTS AS A SHAREHOLDER.
No Participant to whom a Stock Right has been granted shall have rights as
a shareholder with respect to any Shares covered by such Stock Right, except
after due exercise of the Option or acceptance of the Stock Grant and tender of
the full purchase price, if any, for the Shares being purchased pursuant to such
exercise or acceptance and registration of the Shares in the Company's share
register in the name of the Participant.
13. ASSIGNABILITY AND TRANSFERABILITY OF STOCK RIGHTS.
By its terms, a Stock Right granted to a Participant shall not be
transferable by the Participant other than (i) by will or by the laws of descent
and distribution, or (ii) as otherwise determined by the Administrator and set
forth in the applicable Option Agreement, Stock Grant Agreement or SAR
Agreement. The designation of a beneficiary of a Stock Right by a Participant
shall not be deemed a transfer prohibited by this Paragraph. Except as provided
above, a Stock Right shall only be exercisable or may only be accepted, during
the Participant's lifetime, by such Participant (or by his or her legal
representative) and shall not be assigned, pledged or hypothecated in any way
(whether by operation of law or otherwise) and shall not be subject to
execution, attachment or similar process. Any attempted transfer, assignment,
pledge, hypothecation or other disposition of any Stock Right or of any rights
granted thereunder contrary to the provisions of this Plan, or the levy of any
attachment or similar process upon a Stock Right, shall be null and void.
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<PAGE>
14. EFFECT ON OPTIONS OF TERMINATION OF SERVICE OTHER THAN "FOR CAUSE" OR
DEATH OR DISABILITY.
Except as otherwise provided in the pertinent Option Agreement in the
event of a termination of service (whether as an employee, director or
consultant) with the Company or an Affiliate before the Participant has
exercised an Option, the following rules apply:
a. A Participant who ceases to be an employee, director or consultant
of the Company or of an Affiliate (for any reason other than
termination "for cause", Disability, or death for which events there
are special rules in Paragraphs 13, 14, and 15, respectively), may
exercise any Option granted to him or her to the extent that the
Option is exercisable on the date of such termination of service,
but only within such term as the Administrator has designated in the
pertinent Option Agreement.
b. Except as provided in Subparagraph (c) below, or Paragraph 14 or 15,
in no event may an Option Agreement provide, if an Option is
intended to be an ISO, that the time for exercise be later than
three (3) months after the Participant's termination of employment.
c. The provisions of this Paragraph, and not the provisions of
Paragraph 14 or 15, shall apply to a Participant who subsequently
becomes Disabled or dies after the termination of employment,
director status or consultancy, provided, however, in the case of a
Participant's Disability or death within three (3) months after the
termination of employment, director status or consultancy, the
Participant or the Participant's Survivors may exercise the Option
within one (1) year after the date of the Participant's termination
of employment, but in no event after the date of expiration of the
term of the Option.
d. Notwithstanding anything herein to the contrary, if subsequent to a
Participant's termination of employment, termination of director
status or termination of consultancy, but prior to the exercise of
an Option, the Board of Directors determines that, either prior or
subsequent to the Participant's termination, the Participant engaged
in conduct which would constitute "cause", then such Participant
shall forthwith cease to have any right to exercise any Option.
e. A Participant to whom an Option has been granted under the Plan who
is absent from work with the Company or with an Affiliate because
of temporary disability (any disability other than a permanent and
total Disability as defined in Paragraph 1 hereof), or who is on a
bona fide leave of absence (as approved by the Administrator)
shall not, during the period of any such absence, be deemed, by
virtue of such absence alone, to have terminated such
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<PAGE>
Participant's employment, director status or consultancy with the
Company or with an Affiliate, except as the Administrator may
otherwise expressly provide.
f. Except as required by law or as set forth in the pertinent Option
Agreement, Options granted under the Plan shall not be affected by
any change of a Participant's status within or among the Company and
any Affiliates, so long as the Participant continues to be an
employee, director or consultant of the Company or any Affiliate.
15. EFFECT ON OPTIONS OF TERMINATION OF SERVICE "FOR CAUSE".
Except as otherwise provided in the pertinent Option Agreement, at the
discretion of the Administrator the following rules apply if the Participant's
service (whether as an employee, director or consultant) with the Company or an
Affiliate is terminated "for cause" prior to the time that all his or her
outstanding Options have been exercised:
a. All outstanding and unexercised Options as of the time the
Participant's service is terminated "for cause" will immediately be
forfeited.
b. For purposes of this Plan, "cause" shall include (and is not limited
to) dishonesty with respect to the Company or any Affiliate,
insubordination, substantial malfeasance or non-feasance of duty,
unauthorized disclosure of confidential information, and conduct
substantially prejudicial to the business of the Company or any
Affiliate. The determination of the Administrator as to the
existence of "cause" will be conclusive on the Participant and the
Company.
c. "Cause" is not limited to events which have occurred prior to a
Participant's termination of service, nor is it necessary that the
Administrator's finding of "cause" occur prior to termination. If
the Administrator determines, subsequent to a Participant's
termination of service but prior to the exercise of an Option, that
either prior or subsequent to the Participant's termination the
Participant engaged in conduct which would constitute "cause", then
the right to exercise any Option is forfeited.
d. Any definition in an agreement between the Participant and the
Company or an Affiliate, which contains a conflicting definition of
"cause" for termination and which is in effect at the time of such
termination, shall supersede the definition in this Plan with
respect to such Participant.
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16. EFFECT ON OPTIONS OF TERMINATION OF SERVICE FOR DISABILITY.
Except as otherwise provided in the pertinent Option Agreement, a
Participant who ceases to be an employee, director or consultant of the Company
or of an Affiliate by reason of Disability may exercise any Option granted to
such Participant:
a. To the extent exercisable but not exercised on the date of
Disability; and
b. In the event rights to exercise the Option accrue periodically, to
the extent of a pro rata portion of any additional rights as would
have accrued had the Participant not become Disabled prior to the
end of the accrual period which next ends following the date of
Disability. The proration shall be based upon the number of days of
such accrual period prior to the date of Disability.
A Disabled Participant may exercise such rights only within the period
ending one (1) year after the date of the Participant's termination of
employment, directorship or consultancy, as the case may be, notwithstanding
that the Participant might have been able to exercise the Option as to some or
all of the Shares on a later date if the Participant had not become disabled and
had continued to be an employee, director or consultant or, if earlier, within
the originally prescribed term of the Option.
The Administrator shall make the determination both of whether Disability
has occurred and the date of its occurrence (unless a procedure for such
determination is set forth in another agreement between the Company and such
Participant, in which case such procedure shall be used for such determination).
If requested, the Participant shall be examined by a physician selected or
approved by the Administrator, the cost of which examination shall be paid for
by the Company.
17. EFFECT ON OPTIONS OF DEATH WHILE AN EMPLOYEE, DIRECTOR OR CONSULTANT.
Except as otherwise provided in the pertinent Option Agreement, in the
event of the death of a Participant while the Participant is an employee,
director or consultant of the Company or of an Affiliate, such Option may be
exercised by the Participant's Survivors:
a. To the extent exercisable but not exercised on the date of death;
and
b. In the event rights to exercise the Option accrue periodically, to
the extent of a pro rata portion of any additional rights which
would have accrued had the Participant not died prior to the end of
the accrual period which next ends following the date of death. The
proration shall be based upon the number of days of such accrual
period prior to the Participant's death.
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<PAGE>
If the Participant's Survivors wish to exercise the Option, they must take
all necessary steps to exercise the Option within one (1) year after the date of
death of such Participant, notwithstanding that the decedent might have been
able to exercise the Option as to some or all of the Shares on a later date if
he or she had not died and had continued to be an employee, director or
consultant or, if earlier, within the originally prescribed term of the Option.
18. EFFECT OF TERMINATION OF SERVICE ON STOCK GRANTS.
In the event of a termination of service (whether as an employee, director
or consultant) with the Company or an Affiliate for any reason before the
Participant has accepted a Stock Grant, such offer shall terminate.
For purposes of this Paragraph 16 and Paragraph 17 below, a Participant to
whom a Stock Grant has been offered under the Plan who is absent from work with
the Company or with an Affiliate because of temporary disability (any disability
other than a permanent and total Disability as defined in Paragraph 1 hereof),
or who is on leave of absence for any purpose, shall not, during the period of
any such absence, be deemed, by virtue of such absence alone, to have terminated
such Participant's employment, director status or consultancy with the Company
or with an Affiliate, except as the Administrator may otherwise expressly
provide.
In addition, for purposes of this Paragraph 16 and Paragraph 17 below, any
change of employment or other service within or among the Company and any
Affiliates shall not be treated as a termination of employment, director status
or consultancy so long as the Participant continues to be an employee, director
or consultant of the Company or any Affiliate.
19. EFFECT ON STOCK GRANTS OF TERMINATION OF SERVICE OTHER THAN "FOR CAUSE" OR
DEATH OR DISABILITY.
Except as otherwise provided in the pertinent Stock Grant Agreement, in
the event of a termination of service (whether as an employee, director or
consultant), other than termination "for cause," Disability, or death for which
events there are special rules in Paragraphs 18, 19, and 20, respectively,
before all Company rights of repurchase shall have lapsed, then the Company
shall have the right to repurchase that number of Shares subject to a Stock
Grant as to which the Company's repurchase rights have not lapsed.
20. EFFECT ON STOCK GRANTS OF TERMINATION OF SERVICE "FOR CAUSE".
Except as otherwise provided in the pertinent Stock Grant Agreement, at
the discretion of the Administrator the following rules apply if the
Participant's service (whether as an employee, director or consultant) with the
Company or an Affiliate is terminated "for cause":
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a. All Shares subject to any Stock Grant shall be immediately subject
to repurchase by the Company at the purchase price, if any, thereof.
b. For purposes of this Plan, "cause" shall include (and is not limited
to) dishonesty with respect to the employer, insubordination,
substantial malfeasance or non-feasance of duty, unauthorized
disclosure of confidential information, and conduct substantially
prejudicial to the business of the Company or any Affiliate. The
determination of the Administrator as to the existence of "cause"
will be conclusive on the Participant and the Company.
c. "Cause" is not limited to events which have occurred prior to a
Participant's termination of service, nor is it necessary that the
Administrator's finding of "cause" occur prior to termination. If
the Administrator determines, subsequent to a Participant's
termination of service, that either prior or subsequent to the
Participant's termination the Participant engaged in conduct which
would constitute "cause," then the Company's right to repurchase all
of such Participant's Shares shall apply.
d. Any definition in an agreement between the Participant and the
Company or an Affiliate, which contains a conflicting definition of
"cause" for termination and which is in effect at the time of such
termination, shall supersede the definition in this Plan with
respect to such Participant.
21. EFFECT ON STOCK GRANTS OF TERMINATION OF SERVICE FOR DISABILITY.
Except as otherwise provided in the pertinent Stock Grant Agreement, the
following rules apply if a Participant ceases to be an employee, director or
consultant of the Company or of an Affiliate by reason of Disability: to the
extent the Company's rights of repurchase have not lapsed on the date of
Disability, they shall be exercisable; provided, however, that in the event such
rights of repurchase lapse periodically, such rights shall lapse to the extent
of a pro rata portion of the Shares subject to such Stock Grant as would have
lapsed had the Participant not become Disabled prior to the end of the vesting
period which next ends following the date of Disability. The proration shall be
based upon the number of days of such vesting period prior to the date of
Disability.
The Administrator shall make the determination both of whether Disability
has occurred and the date of its occurrence (unless a procedure for such
determination is set forth in another agreement between the Company and such
Participant, in which case such procedure shall be used for such determination).
If requested, the Participant shall be examined by a physician selected or
approved by the Administrator, the cost of which examination shall be paid for
by the Company.
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22. EFFECT ON STOCK GRANTS OF DEATH WHILE AN EMPLOYEE, DIRECTOR OR CONSULTANT.
Except as otherwise provided in the pertinent Stock Grant Agreement, the
following rules apply in the event of the death of a Participant while the
Participant is an employee, director or consultant of the Company or of an
Affiliate: to the extent the Company's rights of repurchase have not lapsed on
the date of death, they shall be exercisable; provided, however, that in the
event such rights of repurchase lapse periodically, such rights shall lapse to
the extent of a pro rata portion of the Shares subject to such Stock Grant as
would have lapsed had the Participant not died prior to the end of the vesting
period which next ends following the date of death. The proration shall be based
upon the number of days of such vesting period prior to the Participant's death.
23. EFFECT ON STOCK APPRECIATION RIGHTS OF TERMINATION OF SERVICE OTHER THAN
FOR CAUSE
Except as otherwise provided in the pertinent SAR Agreement, if the
Participant is no longer an employee, a Director or consultant for any reason
(including death or Disability) other than termination "for cause", the
Participant shall have, or the Participant's beneficiaries shall have three
months from such termination date to exercise any exercisable unexercised SAR in
accordance with the terms of the applicable SAR Agreement and the Plan.
Immediately after the expiration of such three-month period, all SARs which have
not been exercised shall be forfeited, and the Participant (and his
beneficiaries, if applicable) shall thereafter have no rights or entitlement
with respect to such forfeited SARs.
24. EFFECT ON STOCK APPRECIATION RIGHTS OF TERMINATION OF SERVICE FOR CAUSE
Except as otherwise provided in the pertinent SAR Agreement, if the
Participant is terminated for cause, then the following rules will apply:
a. Any SAR that has not been exercised shall be immediately forfeited,
and the Participant shall thereafter have no rights or entitlement
with respect to such forfeited SARs.
b. For purposes of this Plan, "cause" shall include (and is not limited
to) dishonesty with respect to the employer, insubordination,
substantial malfeasance or non-feasance of duty, unauthorized
disclosure of confidential information, and conduct substantially
prejudicial to the business of the Company or any Affiliate. The
determination of the Administrator as to the existence of "cause"
will be conclusive on the Participant and the Company.
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c. "Cause" is not limited to events which have occurred prior to a
Participant's termination of service, nor is it necessary that the
Administrator's finding of "cause" occur prior to termination. If
the Administrator determines, subsequent to a Participant's
termination of service, that either prior or subsequent to the
Participant's termination the Participant engaged in conduct which
would constitute "cause," then the Company's right to repurchase all
of such Participant's Shares shall apply.
d. Any definition in an agreement between the Participant and the
Company or an Affiliate, which contains a conflicting definition of
"cause" for termination and which is in effect at the time of such
termination, shall supersede the definition in this Plan with
respect to such Participant.
25. PURCHASE FOR INVESTMENT.
Unless the offering and sale of the Shares to be issued upon the
particular exercise or acceptance of a Stock Right shall have been effectively
registered under the Securities Act of 1933, as now in force or hereafter
amended (the "1933 Act"), the Company shall be under no obligation to issue the
Shares covered by such exercise unless and until the following conditions have
been fulfilled:
a. The person(s) who exercise(s) or accept(s) such Stock Right shall
warrant to the Company, prior to the receipt of such Shares, that
such person(s) are acquiring such Shares for their own respective
accounts, for investment, and not with a view to, or for sale in
connection with, the distribution of any such Shares, in which event
the person(s) acquiring such Shares shall be bound by the provisions
of the following legend which shall be endorsed upon the
certificate(s) evidencing their Shares issued pursuant to such
exercise or such grant:
"The shares represented by this certificate have been taken
for investment and they may not be sold or otherwise
transferred by any person, including a pledgee, unless (1)
either (a) a Registration Statement with respect to such
shares shall be effective under the Securities Act of 1933, as
amended, or (b) the Company shall have received an opinion of
counsel satisfactory to it that an exemption from registration
under such Act is then available, and (2) there shall have
been compliance with all applicable state securities laws."
b. At the discretion of the Administrator, the Company shall have
received an opinion of its counsel that the Shares may be issued
upon such particular exercise or acceptance in compliance with the
1933 Act without registration thereunder.
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26. DISSOLUTION OR LIQUIDATION OF THE COMPANY.
Upon the dissolution or liquidation of the Company, all Options granted
and SARs awarded under this Plan which as of such date shall not have been
exercised and all Stock Grants which have not been accepted will terminate and
become null and void; provided, however, that if the rights of a Participant or
a Participant's Survivors have not otherwise terminated and expired, the
Participant or the Participant's Survivors will have the right immediately prior
to such dissolution or liquidation to exercise or accept any Stock Right to the
extent that the Stock Right is exercisable or subject to acceptance as of the
date immediately prior to such dissolution or liquidation.
27. ADJUSTMENTS.
Upon the occurrence of any of the following events, a Participant's rights
with respect to any Stock Right granted to him or her hereunder shall be
adjusted as hereinafter provided, unless otherwise specifically provided in the
pertinent Option Agreement, Stock Grant Agreement or SAR Agreement:
A. Stock Dividends and Stock Splits. If (i) the shares of Common Stock
shall be subdivided or combined into a greater or smaller number of shares or if
the Company shall issue any shares of Common Stock as a stock dividend on its
outstanding Common Stock, or (ii) additional shares or new or different shares
or other securities of the Company or other non-cash assets are distributed with
respect to such shares of Common Stock, the number of shares of Common Stock
deliverable upon the exercise or acceptance of such Stock Right may be
appropriately increased or decreased proportionately, and appropriate
adjustments may be made in the purchase price per share to reflect such events.
The number of Shares subject to options to be granted to directors and the
number of Shares subject to the limitation in Paragraph 4(c) shall also be
proportionately adjusted upon the occurrence of such events.
B. Consolidations or Mergers. If the Company is to be consolidated with or
acquired by another entity in a merger, sale of all or substantially all of the
Company's assets or otherwise (an "Acquisition"), the Administrator or the board
of directors of any entity assuming the obligations of the Company hereunder
(the "Successor Board"), shall, as to outstanding Options, either (i) make
appropriate provision for the continuation of such Options by substituting on an
equitable basis for the Shares then subject to such Options either the
consideration payable with respect to the outstanding shares of Common Stock in
connection with the Acquisition or securities of any successor or acquiring
entity; or (ii) upon written notice to the Participants, provide that all
Options must be exercised (either to the extent then exercisable or, at the
discretion of the Administrator, all Options being made fully exercisable for
purposes of this Subparagraph) at the end of which period the Options shall
terminate; or (iii) terminate all Options in exchange for a cash payment equal
to the excess of the Fair Market Value of the Shares subject to such Options
(either to the extent then exercisable or, at the discretion of the
Administrator, all Options being made fully exercisable for purposes of this
Subparagraph) over the exercise price thereof.
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With respect to outstanding Stock Grants, the Administrator or the
Successor Board, shall either (i) make appropriate provisions for the
continuation of such Stock Grants by substituting on an equitable basis for the
Shares then subject to such Stock Grants either the consideration payable with
respect to the outstanding Shares of Common Stock in connection with the
Acquisition or securities of any successor or acquiring entity; or (ii) upon
written notice to the Participants, provide that all Stock Grants must be
accepted (to the extent then subject to acceptance) within a specified number of
days of the date of such notice, at the end of which period the offer of the
Stock Grants shall terminate; or (iii) terminate all Stock Grants in exchange
for a cash payment equal to the excess of the Fair Market Value of the Shares
subject to such Stock Grants over the purchase price thereof, if any. In
addition, in the event of an Acquisition, the Administrator may waive any or all
Company repurchase rights with respect to outstanding Stock Grants.
With respect to outstanding SARs, the Administrator or Successor Board,
shall either (i) make appropriate provision for the continuation of such SARs by
substituting on an equitable basis for the Shares then subject to such SARs
either the consideration payable with respect to the outstanding Shares of
Common Stock in connection with the Acquisition or securities of any successor
or acquiring entity; or (ii) upon written notice to the Participant, provide
that all SARs must be exercised (either to the extent then exercisable or, at
the discretion of the Administrator, all SARs being made fully exercisable for
purposes of this Subsection), within a specified number of days of the date of
such notice, at the end of which period the SARs shall terminate; or (iii)
terminate all SARs in exchange for a cash payment equal to the excess of the
Fair Market Value of the Shares subject to such SARs, as determined in good
faith by the Administrator or the Successor Board (either to the extent then
exercisable or, at the discretion of the Administrator, all SARs being made
fully exercisable for purposes of this Subparagraph), over the Stock Value of
the stock at the close of business on the business day preceding the date such
SARs were awarded.
C. Recapitalization or Reorganization. In the event of a recapitalization
or reorganization of the Company (other than a transaction described in
Subparagraph B above) pursuant to which securities of the Company or of another
corporation are issued with respect to the outstanding shares of Common Stock, a
Participant upon exercising or accepting a Stock Right shall be entitled to
receive for the purchase price, if any, paid upon such exercise or acceptance
the securities which would have been received if such Stock Right had been
exercised or accepted prior to such recapitalization or reorganization.
D. Modification of ISOs. Notwithstanding the foregoing, any adjustments
made pursuant to Subparagraph A, B or C with respect to ISOs shall be made only
after the Administrator, after consulting with counsel for the Company,
determines whether such adjustments would constitute a "modification" of such
ISOs (as that term is defined in Section 424(h) of the Code) or would cause any
adverse tax consequences for the holders of such ISOs. If the Administrator
determines that such adjustments made with respect to ISOs would constitute a
modification of such ISOs, it may refrain from making such adjustments, unless
the holder of an ISO specifically requests in writing that such adjustment be
made and such writing
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indicates that the holder has full knowledge of the consequences of such
"modification" on his or her income tax treatment with respect to the ISO.
28. ISSUANCES OF SECURITIES.
Except as expressly provided herein, no issuance by the Company of shares
of stock of any class, or securities convertible into shares of stock of any
class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares subject to Stock Rights. Except as
expressly provided herein, no adjustments shall be made for dividends paid in
cash or in property (including without limitation, securities) of the Company
prior to any issuance of Shares pursuant to a Stock Right.
29. FRACTIONAL SHARES.
No fractional shares shall be issued under the Plan and the person
exercising a Stock Right shall receive from the Company cash in lieu of such
fractional shares equal to the Fair Market Value thereof.
30. CONVERSION OF ISOs INTO NON-QUALIFIED OPTIONS; TERMINATION OF ISOs.
The Administrator, at the written request of any Participant, may in its
discretion take such actions as may be necessary to convert such Participant's
ISOs (or any portions thereof) that have not been exercised on the date of
conversion into Non-Qualified Options at any time prior to the expiration of
such ISOs, regardless of whether the Participant is an employee of the Company
or an Affiliate at the time of such conversion. Such actions may include, but
not be limited to, extending the exercise period or reducing the exercise price
of the appropriate installments of such Options. At the time of such conversion,
the Administrator (with the consent of the Participant) may impose such
conditions on the exercise of the resulting Non-Qualified Options as the
Administrator in its discretion may determine, provided that such conditions
shall not be inconsistent with this Plan. Nothing in the Plan shall be deemed to
give any Participant the right to have such Participant's ISOs converted into
Non-Qualified Options, and no such conversion shall occur until and unless the
Administrator takes appropriate action. The Administrator, with the consent of
the Participant, may also terminate any portion of any ISO that has not been
exercised at the time of such conversion.
31. WITHHOLDING.
In the event that any federal, state, or local income taxes, employment
taxes, Federal Insurance Contributions Act ("F.I.C.A.") withholdings or other
amounts are required by applicable law or governmental regulation to be withheld
from the Participant's salary, wages or
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other remuneration in connection with the exercise or acceptance of a Stock
Right or in connection with a Disqualifying Disposition (as defined in Paragraph
28) or upon the lapsing of any right of repurchase, the Company may withhold
from the Participant's compensation, if any, or may require that the Participant
advance in cash to the Company, or to any Affiliate of the Company which employs
or employed the Participant, the amount of such withholdings unless a different
withholding arrangement, including the use of shares of the Company's Common
Stock or a promissory note, is authorized by the Administrator (and permitted by
law). For purposes hereof, the fair market value of the shares withheld for
purposes of payroll withholding shall be determined in the manner provided in
Paragraph 1 above, as of the most recent practicable date prior to the date of
exercise. If the fair market value of the shares withheld is less than the
amount of payroll withholdings required, the Participant may be required to
advance the difference in cash to the Company or the Affiliate employer. The
Administrator in its discretion may condition the exercise of an Option for less
than the then Fair Market Value on the Participant's payment of such additional
withholding.
32. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION.
Each Key Employee who receives an ISO must agree to notify the Company in
writing immediately after the Key Employee makes a Disqualifying Disposition of
any shares acquired pursuant to the exercise of an ISO. A Disqualifying
Disposition is any disposition (including any sale) of such shares before the
later of (a) two years after the date the Key Employee was granted the ISO, or
(b) one year after the date the Key Employee acquired Shares by exercising the
ISO. If the Key Employee has died before such stock is sold, these holding
period requirements do not apply and no Disqualifying Disposition can occur
thereafter.
33. TERMINATION OF THE PLAN.
The Plan will terminate on the date which is ten (10) years from the
earlier of the date of its adoption and the date of its approval by the
shareholders of the Company. The Plan may be terminated at an earlier date by
vote of the shareholders of the Company; provided, however, that any such
earlier termination shall not affect any Option Agreements, Stock Grant
Agreements or SAR Agreements executed prior to the effective date of such
termination.
34. AMENDMENT OF THE PLAN AND AGREEMENTS.
The Plan may be amended by the shareholders of the Company. The Plan may
also be amended by the Administrator, including, without limitation, to the
extent necessary to qualify any or all outstanding Stock Rights granted under
the Plan or Stock Rights to be granted under the Plan for favorable federal
income tax treatment (including deferral of taxation upon exercise) as may be
afforded incentive stock options under Section 422 of the Code, and to the
extent necessary to qualify the shares issuable upon exercise or acceptance of
any outstanding Stock Rights granted, or Stock Rights to be granted, under the
Plan for listing on any national securities
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exchange or quotation in any national automated quotation system of securities
dealers. Any amendment approved by the Administrator which the Administrator
determines is of a scope that requires shareholder approval shall be subject to
obtaining such shareholder approval. Any modification or amendment of the Plan
shall not, without the consent of a Participant, adversely affect his or her
rights under a Stock Right previously granted to him or her. With the consent of
the Participant affected, the Administrator may amend outstanding Option
Agreements, Stock Grant Agreements or SAR Agreements in a manner which may be
adverse to the Participant but which is not inconsistent with the Plan. In the
discretion of the Administrator, outstanding Option Agreements, Stock Grant
Agreements or SAR Agreements may be amended by the Administrator in a manner
which is not adverse to the Participant.
35. EMPLOYMENT OR OTHER RELATIONSHIP.
Nothing in this Plan or any Option Agreement, Stock Grant Agreement or SAR
Agreements shall be deemed to prevent the Company or an Affiliate from
terminating the employment, consultancy or director status of a Participant, nor
to prevent a Participant from terminating his or her own employment, consultancy
or director status or to give any Participant a right to be retained in
employment or other service by the Company or any Affiliate for any period of
time.
36. GOVERNING LAW.
This Plan shall be construed and enforced in accordance with the law of
the State of Delaware.
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Exhibit 10.11
LEASE
1. PARTIES. USTrust, LESSOR, which expression shall include its successors and
assigns, where the context so admits, does hereby lease to Gomez Advisors, Inc.,
a Delaware corporation, LESSEE, which expression shall include its successors
and assigns, where the context so admits, and the LESSEE hereby leases the
following described premises:
2. PREMISES. Unit A-13 (the "Unit") in the Millbrook Tarry Condominium (the
"Condominium") located at 97 Lowell Road, Concord Massachusetts, and created
pursuant to a Master Deed dated January 14, 1982 recorded in the Middlesex South
Registry of Deeds at Book 14517, Page 185, as amended ("Master Deed"), together
with the right to use, in common with others entitled thereto, the hallways,
stairways and elevators necessary for access to said Unit, the lavatories
nearest thereto, and the common parking areas, sidewalks and access driveways.
3. TERM. The term of this lease shall be for thirty-nine (39) months, commencing
on January 1, 1998, and ending on March 31, 2001.
4. RENT. The LESSEE shall pay to the LESSOR rent (commencing April 1, 1998) at
the rate of $71,847.50 dollars per year, payable in advance in monthly
installments of $5,987.29. The LESSEE expressly covenants and agrees that the
payment of rent hereunder, including additional rent as hereinafter provided,
shall constitute an independent covenant of this Lease, and agrees that LESSEE
shall not withhold the payment thereof in the event of any dispute with the
LESSOR or the association of unit owners of the Condominium. The LESSEE shall
pay to the LESSOR, as additional rent (a) 5% of any monthly installment of rent
which is not paid when due; and (b) the sum of $100 for each occasion of any
check representing payment hereunder being returned as unpaid by LESSEE'S bank.
5. SECURITY DEPOSIT. Upon the execution of this lease, the LESSEE shall pay to
the LESSOR an amount equal to the first month's rent hereunder, which shall he
held as a security for the LESSEE's performance as herein provided and refunded
to the LESSEE at the end of this lease, subject to the LESSEE's satisfactory
compliance with the conditions hereof.
6. RENT ADJUSTMENT. The rent payable hereunder shall be adjusted upward by a
factor of five (5%) percent on each of the annual anniversaries of the
commencement hereof. In addition, the LESSEE shall pay to the LESSOR, as
additional rent one hundred (100%) percent of any increase in real estate taxes
levied against the Unit over those incurred or levied during the fiscal year
ending June 30, 1997. This increase shall be pro-rated should this lease
terminate before the end of any fiscal year. The LESSEE shall make payment
within THIRTY DAYS of written notice from the LESSOR than such increased taxes
are payable by the LESSOR.
7. UTILITIES. The LESSOR shall provide and pay for, LESSEE's reasonable needs
for electricity, water and sewer use, all in the manner and custom as currently
available within the Condominium, and LESSOR agrees to furnish reasonable heat
and air-conditioning to the Unit during reasonable business hours of the heating
and cooling season of each year, all subject to interruption due to any
accident; to the making of repairs, alterations or improvements; to labor
<PAGE>
difficulties; to trouble in obtaining fuel, electricity, service or supplies
from the sources from which they are usually obtained for said building, or to
any cause beyond the LESSOR's control.
8. USE OF UNIT. The LESSEE shall use the Unit only for the purpose of office
space. LESSEE agrees to keep the Unit in a clean, safe, and sanitary Condition,
to observe all municipal, state, and federal laws, ordinances, rules, and
regulations, and to abide by the Master Deed and by-laws, rules and regulations
of the Condominium, as the same may be amended ("Condominium Documents"), and
any agreements or decisions made pursuant thereto by the association of unit
owners. The LESSEE acknowledges that LESSEE has been provided with copies of the
Condominium Documents, and expressly covenants and agrees to perform all
obligations set forth therein with respect to the operation and maintenance of
the Unit and otherwise applicable to the owner thereof, and not to do or permit
to be done any act or thing in violation of thereof, nor require LESSOR to do or
perform any act or thing not authorized or permitted by the terms thereof.
9. COMPLIANCE WITH LAWS. The LESSEE acknowledges that no trade or occupation
shall be conducted in the Unit or use made thereof which will be unlawful,
improper, noisy or offensive, or contrary to any law or any municipal by-law or
ordinance in force in the city or town in which the Unit is situated.
10. FIRE INSURANCE. The LESSEE shall not permit any use of the Unit which will
make voidable any insurance on the property of which the Unit is a part, or on
the contents of said property or which shall be contrary to any law or
regulation from time to time established by the New England Fire Insurance
Rating Association, or any similar body succeeding to its powers. The LESSEE
shall, on demand, reimburse the LESSOR and all other tenants all extra insurance
premiums caused by the LESSEE's use of the premises.
11. MAINTENANCE OF UNIT. The LESSEE agrees to maintain the Unit in the same
condition as it is at the commencement of the term or as they may be put in
during the term of this lease, reasonable wear and tear, damage by fire and
other casualty only excepted, and whenever necessary, to replace plate glass and
other glass therein, acknowledging that the leased premises are now in good
order and the glass whole. The LESSEE shall not permit the Unit to be
overloaded, damaged, stripped or defaced, or suffer any waste.
12. MAINTENANCE OF COMMON AREAS. The LESSEE acknowledges that maintenance of the
Common Areas of the Condominium is the responsibility of the Unit Owners'
Association and not that of the LESSOR. However, LESSOR agrees to take all
reasonable steps in its capacity as a Unit Owner to influence the Unit Owners
Association to make all necessary repairs to the roofs, floor slabs, exterior
walls (but not glass, doors or windows which are part of the Unit) and other
portions of the Common Areas, unless such repairs are required because of the
act, neglect or default of LESSEE or anyone claiming by, through or under LESSEE
or for whom LESSEE is responsible, in which case LESSEE shall pay the entire
cost of such repair.
13. SIGNS. LESSOR shall provide tenant signage in the atrium of the Condominium
in the style currently in use. LESSEE shall not affix any sign in or on the Unit
without LESSOR'S written consent, which consent shall not unreasonably be
withheld. All such signs shall comply
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with all applicable provisions of the Condominium Documents and all applicable
local and state governmental rules regulations and by-laws. The LESSEE shall pay
all required fees and costs incurred in connection with any necessary approvals.
14. ALTERATIONS/ADDITIONS. The LESSEE shall not make structural alterations or
additions to the Unit, but may make non-structural alterations, provided that
LESSOR consents thereto in writing, which consent shall not be unreasonably
withheld or delayed, and provided that all appropriate actions and consents are
taken and obtained by and from the association of unit owners of the
Condominium. All such allowed alterations shall be at LESSEE's expense, and
shall be in quality an least equal to the present construction. LESSEE shall not
permit any mechanics' liens or similar liens to remain upon the Unit for labor
and material furnished to LESSEE or claimed to have been furnished to LESSEE, in
connection with work of any character performed or claimed to have been
performed at the direction of LESSEE and shall cause any such lien to be
released of record forthwith, without cost to LESSOR. Any alterations or
improvements made by the LESSEE shall become the property of LESSOR at the
termination of occupancy, as provided herein.
15. ASSIGNMENT/SUBLEASING. The LESSEE shall not assign or sublet the whole or
any part of the Unit without LESSOR's prior written consent, which consent shall
not be unreasonably withheld. Notwithstanding such consent, LESSEE shall remain
liable to LESSOR for the payment of all rent and for the full performance of the
covenants and conditions of this lease. The LESSOR may freely assign its rights
and obligations under the terms of this lease.
16. SUBORDINATION. This lease shall be subject and subordinate to any and all
mortgages and other instruments in the nature of a mortgage now or at any time
hereafter a lien or liens on the Unit, and to any future amendments to the
Condominium Documents, and the LESSEE shall, when requested, promptly execute
and deliver such written instruments as shall be necessary to show the
subordination of this lease to said mortgages, other such instruments in the
nature of a mortgage, or such amendments to the Condominium Documents.
17. LESSOR'S ACCESS. The LESSOR or agents of the LESSOR, may, at reasonable
times, and after 24 hour advance notice, enter to view the Unit and may remove
placards and signs not approved and affixed as herein provided, and make repair
and alterations as LESSOR should elect to do, without being required to do, and
may show the Unit to others, and, at any time within THREE months before the
expiration of the term, may affix to any suitable part of the Unit a notice for
letting or selling the Unit or property of which the Unit is a part and keep the
same so affixed without hindrance or molestation.
18. INDEMNIFICATION. LESSEE agrees to indemnify and hold LESSOR (including
LESSOR's officers, directors, agents, employees, contractors and attorneys)
harmless from and against any and all claims, demands, costs (including
reasonable attorney fees), liabilities or judgments arising out of or in anyway
connected with or occasioned by (a) LESSOR's enforcement of any provision hereof
or with LESSEE's use or occupancy of the Unit or of any of the common areas of
the Condominium, or any furniture, fixtures, equipment, machinery, or other
property located in or comprising the Unit or the Condominium; (b) the use or
escape of water or by the bursting of pipes; (c) neglect in not removing snow
and ice from the roof of the Condominium or from the sidewalks bordering upon
the Condominium, or by any nuisance
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made or suffered on the Unit, unless such loss is caused by the neglect of the
LESSOR; and (d) the presence or release of any hazardous substance arising out
of LESSEE's operation of or at the Unit, whether such presence or release is
discovered during the term hereof or after such term has expired, or the
activities or other action or inaction of LESSEE and LESSEE's agents, servants,
licensees, employees and invitees in violation of any federal, state or local
environmental law, regulation or by-law.
19. ENVIRONMENTAL. LESSEE acknowledges that LESSEE has been advised of the
presence and/or release of hazardous substances on and from the premises upon
which the Condominium is located, and that the LESSEE has been advised that such
premises may, but not necessarily will be, the site of an environmental cleanup
project which could result in temporary business disruptions and unpleasant
sights, sounds and odors. LESSEE shall save LESSOR (including LESSOR's officers,
directors, agents, employees, contractors and attorneys) and the Unit Owners'
Association harmless from any and all claims, demands, costs and liabilities
arising out of or in anyway connected with or occasioned by the presence of such
hazardous substances, their release into the environment, or any such cleanup
project, including but not limited to claims, demands and liabilities concerning
personal injury, property damage or business interruption.
20. LESSEE'S LIABILITY INSURANCE. The LESSEE shall maintain with respect to the
Unit comprehensive public liability insurance in the amount of $1,000,000 with
property damage insurance in limits of $500,000, in responsible companies
qualified to do business in Massachusetts and in good standing therein insuring
the LESSOR as well as LESSEE against injury to persons or damage to property as
provided. The LESSEE, on request, shall deposit with the LESSOR certificates for
such insurance at or prior to the commencement of the term, and thereafter
within THIRTY days prior to the expiration of any such policies. All such
insurance certificates shall provide that such policies shall not be canceled
without at least THIRTY days prior written notice to each insured named therein.
21. FIRE, CASUALTY, EMINENT DOMAIN. Should a substantial portion of the Unit, or
of the Condominium be substantially damaged by fire or other casualty or be
taken by eminent domain, the LESSOR may elect to terminate this lease. When such
fire, casualty or taking renders the Unit substantially unsuitable for its
intended use, a just and proportionate abatement of rent shall be made, and the
LESSEE may elect to terminate the lease if:
(a) The LESSOR fails to give written notice within THIRTY days of
intention to restore Unit, or
(b) The LESSOR fails to restore the Unit to a condition substantially
suitable for their intended use within NINETY days of said fire,
casualty or taking.
The LESSOR reserves, and the LESSEE grants to the LESSOR, all rights which
the LESSEE may have for damages or injury to the Unit for any taking by eminent
domain, except for damage to the LESSEE's fixtures, property or equipment.
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22. DEFAULT AND BANKRUPTCY. In the event that:
(a) The LESSEE shall default in the payment of any installment of rent
or other sum herein specified and such default shall continue for
FIVE days after written notice thereof; or
(b) The LESSEE shall default in the observance or performance of any
other of the LESSEE's covenants, agreements, or obligations
hereunder and such default shall not be corrected within THIRTY days
after written notice thereof; or
(c) The LESSEE shall be declared bankrupt or insolvent according to law
or if any assignment shall be made of LESSEE's property for the
benefit of creditors;
then the LESSOR shall have the right thereafter, while such default continues,
to re-enter and take complete possession of the Unit, to declare the term of
this lease ended and to remove the LESSEE's effects, without prejudice to any
remedies which might be otherwise used for arrears of rent or other default. The
LESSEE shall indemnify the LESSOR against all loss of rent and other payments
which the LESSOR may incur by reason of such termination, during the remainder
of the term. If the LESSEE shall default, after reasonable notice thereof, in
the observance or performance of any conditions or covenants on LESSEE's part to
be observed or performed under or by virtue of any of the provisions in any
article of this lease, the LESSOR, without being under any obligation to do so
and without thereby waiving such default, may remedy such default for the
account and at the expense of the LESSEE. If the LESSOR makes any expenditures
or incurs any obligations for the payment of money in connection therewith or in
connection with any such termination, including, but not limited to, reasonable
attorney's fees in instituting, prosecuting or defending any action or
proceeding, such sums paid or obligations incurred, with interest at the rate of
eighteen (l8%) percent per annum, and costs shall be paid to the LESSOR by the
LESSEE as additional rent.
23. NOTICE. Any notice from the LESSOR to the LESSEE relating to the Unit or to
the occupancy thereof, shall be deemed duly served if left at the Unit addressed
to the LESSEE, or if mailed to the Unit, registered or certified mail, return
receipt requested, postage prepaid, addressed to the LESSEE. Any notice from the
LESSEE to the LESSOR relating to the Unit or to the occupancy thereof, shall be
deemed duly served if mailed to the LESSOR by registered or certified mail,
return receipt requested, postage prepaid, addressed to the LESSOR at such
address as the LESSOR may, from time to time, advise in writing. All rent and
notices shall be paid and sent to the LESSOR at 40 Court Street, Boston,
Massachusetts 02108 marked to the attention of the Real Estate Office.
24. SURRENDER. The LESSEE shall, at the expiration or other termination of this
lease, remove all LESSEE's goods and effects from the Unit. LESSEE shall deliver
to the LESSOR the Unit and all keys, locks thereto and other fixtures connected
therewith and all alternations and additions made to or upon the Unit, in the
same condition as they were at the commencement of the term, or as they were put
in during the term thereof, reasonable wear and tear and damage by fire or other
casualty only excepted. In the event of the LESSEE's failure to remove any of
LESSEE's property from the premises, LESSOR is hereby authorized, without
liability to LESSEE for loss or damage thereto and at the sole risk of LESSEE,
to remove and store any of
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the property at LESSEE's expense, or to retain same under LESSOR's control, or
to sell at public or private sale, without notice any or all of the property not
so removed, and to apply the next proceeds of such sale to the payment of any
sum due hereunder, or to destroy such property.
25. LIENS. LESSEE shall not do anything or fail to do any act which results in
the Unit becoming subject to a lien or encumbrance other than such mortgage
liens as are herein authorized, and LESSEE agrees to indemnify LESSOR from and
against any and all liability, loss, cost, and expense, including reasonable
attorney fees, LESSOR may sustain or incur by reason of any such lien or
encumbrance.
26. QUIET ENJOYMENT. Subject to any mortgages to which this lease may become
subordinate, upon paying the rent and other charges herein provided for and
performing and complying with all covenants, agreements, terms and conditions of
this lease on LESSEE's part to be performed or complied with, LESSEE shall not
be prevented from lawfully and quietly holding, occupying and enjoying the Unit
during the term of this lease, except as herein provided. Nothing contained in
paragraph 19 hereof shall be construed so as to limit LESSEE's right of quiet
enjoyment as set forth in this paragraph.
27. RIGHT OF FIRST REFUSAL. During the term of this lease, and so long as LESSEE
is not in default hereunder, LESSEE shall have the first right to lease any
other unit, or portion thereof, in the Condominium which adjoins the Unit.
LESSOR agrees that before any such space is leased to any other party, LESSOR
shall first notify LESSEE, in writing, of its intention to lease such space, and
in the notice shall identify the proposed demised premises, and the proposed
terms and conditions of the lease agreement. LESSEE shall for a period of ten
(10) days from and after the receipt of the notice have the exclusive right and
option to lease the premises upon the terms and conditions as stated by LESSOR.
After LESSEE has notified LESSOR in writing of its decision not to exercise its
first right to lease such space, or only after the time stated above for LESSEE
to exercise its option has expired, may LESSOR lease such space to any other
party.
IN WITNESS WHEREOF, the LESSOR and LESSEE have hereunto set their hands
and common seals this ____ day of ________________, 1997.
USTrust
By: /s/ [Signature Illegible]
---------------------------------
Title: Exec. V.P.
Gomez Advisors, Inc.
By: /s/ Julio Gomez
---------------------------------
Julio Gomez, President
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Exhibit 10.12
SUBLEASE AGREEMENT
This Sublease Agreement ("Sublease") is made as of the 15th day of June,
1999 by and between FASTech Integration, Inc., a Delaware corporation, having an
address at 15 Elizabeth Drive, Chelmsford, Massachusetts 01824 ("Sublandlord")
and Gomez Advisors, Inc., a Delaware corporation, having an address at 97 Lowell
Road, Concord, MA 01742 ("Subtenant").
WHEREAS, FASTech Integration Inc., as tenant, and Lawrence P. Smith and
David P. Norton, as Trustees of Old Bedford Road Realty Trust (together, with
its successor-in-interest, LadyLin Properties Limited Partnership, "Prime
Landlord") entered into an Office Lease dated May 14, 1991, as amended by
Amendment No. 1 of Lease dated as of May 21, 1992, as further amended by Second
Amendment to Lease dated as of August 22, 1994, as further amended by Third
Amendment to Lease dated as of May 4, 1995, as further amended by Fourth
Amendment to Lease dated as of August 28, 1995, as further amended by Fifth
Amendment to Lease dated as of June 1, 1996 (together, the "Prime Lease")
pursuant to which Sublandlord leased from Prime Landlord certain space more
particularly described in the Prime Lease (herein referred to as the "Premises")
in the building known as 55 Old Bedford Road, Lincoln, Massachusetts (the
"Building"), a copy of which Prime Lease is attached as Exhibit A hereto; and
WHEREAS, Sublandlord desires to sublease to Subtenant and Subtenant
desires to hire from Sublandlord a portion of the Premises on the first floor of
the Building consisting of approximately twenty-two thousand five hundred
(22,500) rentable square feet, as cross-hatched on the floor plan attached
hereto as Exhibit B (the "Sublease Premises") upon all the terms and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual agreements herein
contained, Sublandlord and Subtenant, for themselves, their successors and
assigns, hereby agree as follows:
1. Sublease. Upon the terms and conditions hereinafter set forth,
Sublandlord hereby subleases to Subtenant and Subtenant hereby hires from
Sublandlord the Sublease Premises. Subtenant shall also have (i) the exclusive
right to use twenty-two (22) parking spaces in the parking areas on the Lot (as
defined in the Prime Lease) which are designated for Sublandlord's exclusive use
as Tenant under the Prime Lease, and (ii) the nonexclusive right to use other
parking spaces in the parking areas on the Lot which are available for
Sublessor's use as Tenant under the Prime Lease, subject to the terms of the
Prime Lease and Prime Landlord's rights thereunder. Notwithstanding anything to
the contrary contained herein, Subtenant shall have no right to use any portion
of the Storage Space (as defined in the Prime Lease).
2. Term. The term of this Lease ("Term") shall commence on July 1, 1999
(the "Commencement Date"), and, unless earlier terminated as herein provided,
shall end on September 30, 2000. Notwithstanding the foregoing, Subtenant may,
at its sole risk, occupy the Sublease Premises or any part thereof, prior to the
Commencement Date, for the purposes of installing wiring, or fixturing or
otherwise readying the Sublease Premises for Subtenant's use, in which event
Subtenant's occupancy shall be subject to all of the terms, covenants and
conditions set forth herein, except that Subtenant shall not be obliged to pay
Fixed Rent, or
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additional rent for electricity during any such period of pre-term occupancy.
Such pre-term occupancy shall be conditioned upon Subtenant and Subtenant's
agents, contractors, workmen, mechanics, suppliers and invitees, working in
harmony with Sublandlord and Sublandlord's agents and with other tenants and
occupants of the Building. If at any time such entry shall cause or threaten to
cause disharmony or interference therewith, Sublandlord shall have the right to
withdraw such right of entry upon twenty-four (24) hours written notice to
Subtenant.
3. Rent. During the Term, Subtenant shall pay to Sublandlord on the
Commencement Date and on the first day of each month thereafter fixed rent
("Fixed Rent") at the rate of Three Hundred Ninety-Seven Thousand Five Hundred
Dollars($397,500.00) per annum, payable in equal installments of Thirty-Three
Thousand One Hundred Twenty Five Dollars ($33,125.00) per calendar month, and
proportionately at such rate for any partial month.
Subtenant shall also pay Sublandlord on the Commencement Date and on the
first day of each month thereafter during the Term, additional rent on account
of electricity for the Sublease Premises not separately metered at the rate of
Twenty-Two Thousand Five Hundred and 00/100 Dollars ($22,500.00) per annum,
payable in equal installments of One Thousand Eight Hundred Seventy-Five and
00/100 Dollars ($1,875.00) per calendar month, and proportionately at such rate
for any partial month. In addition, Subtenant shall reimburse Sublandlord for
its pro rata share of any charges in excess of the foregoing that Sublandlord is
required to pay in connection with the Premises pursuant to Section 7.2 of the
Prime Lease.
4. Payment of Fixed Rent and Additional Rent. Fixed Rent and additional
rent for electricity, and all other charges, costs, and expenses payable by
Subtenant under this Sublease shall be paid to Sublandlord at the office of
Sublandlord set forth above or at such other place as Sublandlord may designate,
as and when the same become due and payable, without notice or demand therefor
and without any deduction, credit, set-off, counterclaim, or abatement
whatsoever. In every case in which Subtenant is required to pay to Sublandlord a
sum of money and said sum (or portion thereof) is not paid on or prior to the
fifth day following the due date thereof, Subtenant shall pay a late fee of Two
Hundred Dollars ($200.00), plus interest at an annual rate of fifteen percent
(15%) shall be payable from the date said sum becomes due and payable until the
date the amount is paid.
Within three (3) business days of full execution and Prime Landlord's
approval of this Sublease, Subtenant agrees to pay to Sublandlord $140,000.00
representing payment of the first three (3) months' Fixed Rent and additional
rent due under Sections 4 and 5 above, together with one (1) month's security
deposit as security for Subtenant's faithful performance of Subtenant's
obligations hereunder. If Subtenant fails to pay Fixed Rent, additional rent, or
any other charges due hereunder, or otherwise defaults with respect to any
provision of this Sublease, Sublandlord may use all or any portion of said
security deposit for the payment of any Fixed Rent, additional rent, or any
other charge due hereunder, to pay any other sum to which Sublandlord may become
obligated by reason of Subtenant's default, or to compensate Sublandlord for any
loss or damage which Sublandlord may suffer hereunder. If Sublandlord so uses or
applies all or any portion of said security deposit, Subtenant shall, within ten
(10) days after written demand therefor, deposit cash with Sublandlord in an
amount sufficient to restore said security deposit to its full amount.
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Sublandlord shall not be required to keep said security deposit separate from
its general accounts. If Subtenant performs all of Subtenant's obligations
hereunder, said security deposit, or so much thereof as has not heretofore been
applied by Sublandlord, shall be returned, without payment of interest or other
amount for its use, to Subtenant at the expiration of the Term, provided
Subtenant has vacated the Sublease Premises in accordance with the terms hereof.
No trust relationship is created herein between Sublandlord and Subtenant with
respect to said security deposit. Subtenant acknowledges that the security
deposit is not an advance payment of any kind or a measure of Sublandlord's
damages in the event of Subtenant's default. Subtenant will look solely to
Sublandlord for recovery of the security deposit.
5. Construction. Subtenant hereby accepts delivery of the Sublease
Premises in their "as-is" condition, as of the date hereof, free and clear of
Sublandlord's furniture and equipment, except for those items mutually agreed by
Sublandlord and Subtenant which are to remain in the Sublease Premises.
Subtenant acknowledges that no representations with respect to the condition of
the Sublease Premises and the fixtures therein have been made to Subtenant.
Alterations, additions and improvements shall conform to and be governed by the
provisions of the Prime Lease and as provided in the Prime Lease shall be part
of the Building. All such work shall be performed in accordance with plans and
specifications therefor which shall have first been submitted to and approved by
Prime Landlord and Sublandlord. Subtenant agrees to pay promptly when due the
entire cost of any work done on the Sublease Premises by Subtenant, its agents,
employees or independent contractors and not to cause or permit any liens for
labor or materials performed or furnished in connection therewith to attach to
the Sublease Premises or the Building and immediately to discharge any such
liens which may so attach. All alterations, installations and renovations to the
Sublease Premise other than those set forth on Exhibit C shall be subject to the
prior written consent of Sublandlord and Prime Landlord.
6. Use. The Sublease Premises may be used only for first class office
space, research and design, testing of computer-related equipment, and for no
other use whatsoever.
7. Utilities. Subtenant shall pay for all utilities consumed by it in the
Sublease Premises directly to the utility companies furnishing the same if the
utility is metered separately to the Sublease Premises. Neither Sublandlord nor
Prime Landlord shall in any way be liable or responsible to Subtenant for any
loss, damage or expense which Subtenant may sustain or incur if, during the
Term, either the quantity or the character of the utilities servicing the
Sublease Premises is changed or is no longer available or suitable for
Subtenant's requirements.
8. Sublease. This Sublease is subject to and subordinate in all respects
to the Prime Lease, and Subtenant shall not do or permit to be done anything, or
omit to do anything, or permit to be omitted to be done, anything which is, or
with the giving of notice or the passage of time or both would be, a default
under the Prime Lease or could cause such a default.
Not in limitation of the foregoing, there is attached to this Sublease as
Exhibit A, a copy of the Prime Lease which Sublandlord hereby warrants and
represents is a true and correct copy. Sublandlord hereby warrants and
represents that except as set forth in Exhibit A, the Prime Lease has not been
amended or modified in any way. Sublandlord further warrants and represents to
Subtenant that the Prime Lease is in full force and effect without default on
the part of
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Sublandlord (as Tenant thereunder) or, to the best of Sublandlord's knowledge,
Prime Landlord. Sublandlord agrees that it will not terminate the Prime Lease
without the prior written consent of Subtenant and that it will not enter into
an agreement with the Prime Landlord to terminate this Sublease. Sublandlord
further agrees that it will not amend the Prime Lease in any manner that will
materially and adversely affect the rights or obligations of Subtenant under
this Sublease without in each instance obtaining the prior written consent of
Subtenant, which consent may be withheld or conditioned at Subtenant's sole
discretion; provided, however, Subtenant agrees to consent or reject any such
amendment promptly after receipt of Sublandlord's written request for
Subtenant's consent to any such amendment.
Sublandlord agrees to perform all of its obligations as Tenant under the
Prime Lease, except to the extent that the same have been assumed by Subtenant
under this Sublease. Sublandlord agrees to request Prime Landlord to perform its
obligations under the Prime Lease, to the extent the same apply to the Sublease
Premises. Sublandlord further agrees to deliver to Subtenant copies of any
notice of default given by Sublandlord to Prime Landlord or given from Prime
Landlord to Sublandlord, promptly following the giving or receiving of any such
notice, as the case may be, with respect to alleged defaults under the Prime
Lease, to the extent the same apply to the Sublease Premises. If Sublandlord
defaults under the Prime Lease beyond the expiration of any applicable grace
period, to the extent Sublandlord elects not to cure such default, Sublandlord
agrees to assign to Subtenant any rights it may have to cure such default and
Sublandlord agrees to reasonably cooperate with Subtenant to the extent
necessary to cure such default, provided Sublandlord shall incur no costs
incident to such assignment.
Subtenant agrees to abide by all of the covenants and conditions of the
Prime Lease (including all rules and regulations promulgated by Prime Landlord)
as if the same were fully set forth herein to the extent that said covenants and
conditions pertain to the Sublease Premises and the occupancy and use thereof by
Subtenant and Subtenant agrees to be bound by and to perform and to comply with
the provisions of the Prime Lease as if it were the "Tenant" as that term is
used in the Prime Lease and as if the term "Premises" as that term is used
therein were the Sublease Premises demised under this Sublease, except to the
extent this Sublease expressly provides terms and conditions different from
those set forth in the Prime Lease. Subtenant shall not be bound by any
provisions of the Prime Lease requiring the payment of money, it being agreed
that the only payment obligations of Subtenant are as set forth in this Lease.
If the Prime Lease shall terminate for any reason prior to the termination or
expiration of this Sublease, Subtenant shall attorn to and become the Subtenant
of Prime Landlord, and as such Subtenant, shall pay directly to Prime Landlord
Fixed Rent, additional rent and all other payments required to be made by
Subtenant under the provisions of this Sublease and shall observe all the
covenants, terms and conditions of this Sublease and all the covenants, terms
and conditions of the Prime Lease to the extent required under this Sublease.
9. Assignment and Subletting. Except as provided herein, Subtenant shall
not assign, mortgage, pledge, encumber or otherwise transfer, whether by
operation of law or otherwise, this Sublease or the term and estate hereby
granted or any interest herein or therein, and neither the Sublease Premises nor
any part thereof will be encumbered in any manner by reason of any act or
omission on the part of Subtenant or used or occupied or permitted to be used or
occupied by anyone other than Subtenant or for any use or purpose other than a
use
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which is permitted hereunder to be sublet (which term without limitation will
include granting of concessions, licenses and the like) in whole or in part or
be offered or advertised for assignment or subletting without, in each instance,
having first received the prior written consent of Sublandlord, which
Sublandlord may in its sole discretion withhold. The provisions of the foregoing
sentence shall apply to a transfer by one or more shareholders of Subtenant's
stock (or a series of transfers) of the majority of the stock of Subtenant as if
such transfer of the majority of Subtenant's stock were an assignment of this
Sublease. As additional rent, Subtenant shall reimburse Sublandlord and Prime
Landlord promptly for reasonable legal and other expenses incurred by
Sublandlord and Prime Landlord in connection with any requests by Subtenant for
consent to an assignment or subletting. The provisions of Article V of the Prime
Lease are hereby made expressly applicable to Subtenant so that Prime Landlord
shall have against Subtenant all the rights with respect to any assignment or
subletting which are set forth in said Article V (provided, however, that
Subtenant shall not have the benefit of any additional rights granted to
Sublandlord, as Tenant, under said Article V).
10. Repairs. It is understood that Prime Landlord has certain obligations
to make repairs as set forth in Section 6.2 of the Prime Lease. Sublandlord
shall have no obligation or liability to Subtenant in the event that Prime
Landlord does not make such repairs except that Sublandlord shall request that
Prime Landlord make any such repairs. Subtenant agrees that it will keep the
Sublease Premises neat and clean and maintain the Sublease Premises in good
order, condition and repair excepting only for ordinary wear and tear, those
repairs for which Prime Landlord is responsible under the terms of the Prime
Lease, damage by fire and other casualty, and as a consequence of the exercise
of the power of eminent domain, or where the repairs are caused by any act or
neglect of Sublandlord or any contractor of Sublandlord; and Subtenant shall
surrender the Sublease Premises and all alterations, improvements, and additions
thereto at the end of the Term in such condition, first removing all goods and
effects of Subtenant and repairing any damage caused by such removal and
restoring the Sublease Premises and leaving them clean and neat. Subtenant shall
not permit or commit any waste, and Subtenant shall be responsible for the cost
of repairs that may be necessary by reason of damage to any portions of the
Building caused by Subtenant, Subtenant's contractors or Subtenant's invitees.
11. Self-Help. If Subtenant shall at any time default in the performance
of any obligations under this Sublease, Sublandlord shall have the right, but
shall not be obligated, to enter upon the Sublease Premises and to perform such
obligation notwithstanding the fact that no specific provision for such
substituted performance by Sublandlord is made in this Sublease with respect to
such default. In performing any such obligations, Sublandlord may make any
payment of money or perform any other act. All sums so paid by Sublandlord
(together with interest at the higher of (i) an annual rate of 18%, or (ii) the
maximum rate permitted by law) and all necessary incidental costs and expenses
in connection with the performance of any such act by Sublandlord, shall be
deemed to be additional rent under this Sublease and shall be payable to
Sublandlord immediately on demand. Sublandlord may exercise the foregoing rights
without waiving any other of its rights or releasing Subtenant from any of its
obligations under this Sublease.
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12. No Damage. Except as otherwise expressly provided in this Sublease,
Sublandlord shall not be liable to Subtenant for any compensation or reduction
of rent by reason of inconvenience or annoyance or for loss of business arising
from the necessity of Prime Landlord, Sublandlord or their respective agents
entering the Sublease Premises for any purpose in this Sublease authorized, or
for repairing the Sublease Premises or any portion of the Building however the
necessity may occur. In case Sublandlord is prevented or delayed from making any
repairs, alterations or improvements, or furnishing any services or performing
any other covenant or duty to be performed on Sublandlord's part, by reason of
any cause reasonably beyond Sublandlord's control, including, without
limitation, strike, lockout, breakdown, accident, order or regulation of or by
any governmental authority, or failure of supply, or inability by the exercise
of reasonable diligence to obtain supplies, parts or employees necessary to
furnish such services, or because of war or other emergency, or for any cause
due to any act or neglect of Subtenant or Subtenant's servants, agent,
employees, licensees or any person claiming by, through or under Subtenant,
Sublandlord shall not be liable to Subtenant therefor, nor, except as expressly
otherwise provided in this Sublease, shall Subtenant be entitled to any
abatement or reduction of Fixed Rent or additional rent by reason thereof, nor
shall the same give rise to a claim in Subtenant's favor that such failure
constitutes actual or constructive, total or partial, eviction from the Sublease
Premises.
13. Indemnity and Insurance.
13.1. To the maximum extent this agreement may be made effective according
to law, Subtenant agrees to indemnify and save harmless Sublandlord from and
against all claims of whatever nature arising from any act, omission or
negligence of Subtenant, or Subtenant's contractors, licensees, invitees,
agents, servants or employees, or arising from any accident, injury or damage
whatsoever caused to any person, or to the property of any person, occurring
after the date that possession of the Sublease Premises is first delivered to
Subtenant and until the end of the Term and thereafter so long as Subtenant is
in occupancy of any part of the Sublease Premises, in or about the Sublease
Premises or arising from any accident, injury or damage occurring outside the
Sublease Premises but within the Building, where such accident, injury or damage
results, or is claimed to have resulted, from an act or omission on the part of
Subtenant or Subtenant's agents or employees, licensees, invitees or
contractors, except to the extent caused by Sublandlord's gross negligence.
This indemnity and hold harmless agreement shall include indemnity against
all costs, expenses and liabilities incurred in or in connection with any such
claim or proceeding brought thereon, and the defense thereof with counsel
acceptable to Sublandlord.
13.2. Subtenant agrees to maintain in full force and effect from the date
upon which Subtenant first enters the Sublease Premises for any reason,
throughout the Term, and thereafter, so long as Subtenant is in occupancy of any
part of the Sublease Premises, the policies of general liability and property
damage insurance of the type and in the amounts and subject to the conditions
which are required of Sublandlord as Tenant under Section 9.2 of the Prime
Lease, which policies shall name Sublandlord and Prime Landlord as insured
parties.
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Subtenant agrees that, as a condition to first entering upon the Sublease
Premises, Sublandlord and Prime Landlord shall be furnished with a duplicate
original(s) or certificate(s) of the insurance required to be maintained by
Subtenant under this Section 15.2.
13.3. To the maximum extent that this agreement may be made effective
according to law, Subtenant agrees to use and occupy the Sublease Premises and
to use such other portions of the Building and the common areas thereof as
Subtenant is herein given the right to use at Subtenant's own risk; and
Sublandlord shall have no responsibility or liability for any loss of or damage
to fixtures or other personal property of Subtenant, except for loss of or
damage to such fixtures or such personal property to the extent caused by the
gross negligence of Sublandlord. The provisions of this Section 15.3 shall be
applicable from and after the execution of this Sublease and until the end of
the Term, and during such further period as Subtenant may use or be in occupancy
of any part of the Sublease Premises or of the Building.
13.4. To the maximum extent that this agreement may be made effective
according to law, Subtenant agrees that Sublandlord shall not be responsible or
liable to Subtenant, or to those claiming by, through or under Subtenant, for
any loss or damage that may be occasioned by or through the acts or omissions of
persons occupying adjoining premises or any part of premises adjacent to or
connecting with the Sublease Premises or any part of the Building, or otherwise,
or for any loss or damage resulting to Subtenant or those claiming by, through
or under Subtenant, or its or their property, from the breaking, bursting,
stopping or leaking of electric cables and wires, and water, gas, sewer or steam
pipes.
14. Fire, Damage, and Taking. If during the Term the Sublease Premises or
the Building shall be wholly or substantially damaged or destroyed by fire or
other casualty or taken by eminent domain, then Sublandlord may terminate this
Sublease by giving notice thereof to Subtenant and thereupon this Sublease shall
terminate as if the date of termination were originally stated as the date of
expiration hereof. If, as a result of any damage by fire or other casualty or
taking by eminent domain, the Sublease Premises are rendered unusable in whole
or in substantial part, then Sublandlord shall have the right to terminate this
Sublease and if Sublandlord does not exercise said right, Fixed Rent and other
charges hereunder shall be equitably and proportionately abated to the extent
the Sublease Premises are not usable by Subtenant, it being understood that
Sublandlord has no obligation to make any effort to restore the Sublease
Premises or any other portion of the Building, except to request Prime Landlord
to perform its obligations, if any, under the Prime Lease. All taking awards in
respect of any eminent domain taking shall be Sublandlord's property.
15. Default. If:
(a) Subtenant shall fail to pay Fixed Rent, additional rent or any other
charges for which provisions are made herein on or before the date
on which the same become due and payable, and the same continues for
three (3) days after written notice from Sublandlord thereof; or
(b) Sublandlord having rightfully given the written notice specified in
subdivision (a) above more than twice in a period of 365 days,
Subtenant shall thereafter in the
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same 365-day period fail to pay Fixed Rent, additional rent or any
other charges on or before the date on which the same becomes due
and payable; or
(c) Subtenant shall cause a default by Sublandlord, as Tenant, under the
Prime Lease continuing beyond the expiration of any applicable grace
period; or
(d) Subtenant shall fail to perform or observe any other term or
condition contained in this Sublease and Subtenant shall not
commence to cure such failure within fifteen (15) days after written
notice from Sublandlord to Subtenant thereof and promptly and
diligently complete the curing of the same; or
(e) Sublandlord having rightfully given the written notice specified in
subdivision (d) above more than twice in a period of 365 days,
Subtenant shall thereafter in the same 365-day period fail to
perform or observe any other term or condition contained in this
Sublease; or
(f) The estate hereby created shall be taken on execution or by other
process of law and such taking shall not be discharged within twenty
(20) days, or if Subtenant shall be judicially declared bankrupt or
insolvent according to law, or if any assignment or trust mortgage
arrangement shall be made of the property of Subtenant for the
benefit of creditors, or if a receiver, guardian, conservator,
trustee in involuntary bankruptcy or other similar officer shall be
appointed to take charge of all or any substantial part of
Subtenant's property by a court of competent jurisdiction and such
proceeding is not dismissed within sixty (60) days after such
appointment, or if a petition shall be filed for the reorganization
of Subtenant under any provisions of the Bankruptcy Act now or
hereafter enacted and such proceeding is not dismissed within sixty
(60) days after it is begun, or if Subtenant shall file a petition
for such reorganization, or for arrangements under any provisions of
the Bankruptcy Act now or hereafter enacted and providing a plan for
a debtor to settle, satisfy or extend the time for payment of debts;
then, and in any of said cases (notwithstanding any license of a former breach
of covenant or waiver of the benefit hereof or consent in a former instance),
Sublandlord lawfully may, immediately or at any time thereafter, and without
demand or notice, enter into and upon the Sublease Premises or any part thereof
in the name of the whole and repossess the same as Sublandlord's former estate,
and expel Subtenant and those claiming through or under Subtenant and remove its
or their effects (forcibly, if necessary) without being 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, and, upon entry as
aforesaid, Sublandlord shall have the right, by notice to Subtenant, forthwith
to terminate this Sublease; and Subtenant covenants and agrees, notwithstanding
any entry or re-entry by Sublandlord, whether by summary proceedings,
termination, or otherwise, to pay and be liable for, on the days identified in
Section 3 above for the payment thereof, amounts equal to the several
installments of Fixed Rent, additional rent and all other charges reserved as
would, under the terms of this Sublease, become due if this Sublease had not
been terminated or if Sublandlord had not entered or re-entered, as aforesaid,
and whether the Sublease Premises be relet or remain vacant, in whole or in
part, and for a period
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less than the remainder of the Term or for the whole thereof, but, in the event
the Sublease Premises be relet by Sublandlord, Subtenant shall be entitled to a
credit in the net amount of rent and other charges received by Sublandlord in
reletting, after deduction of all expenses incurred in reletting the Sublease
Premises (including, without limitation, remodeling costs, brokerage fees and
the like), and in collecting the rent in connection therewith, in the following
manner:
Amounts received by Sublandlord after reletting shall first be applied
against such Sublandlord's expenses, until the same are recovered, and until
such recovery, Subtenant shall pay, as of the day when a payment would fall due
under this Sublease, the amount which Subtenant is obligated to pay under the
terms of this Sublease (Subtenant's liability prior to any such reletting and
such recovery not in any way to be diminished as a result of the fact that such
reletting might be for a rent higher than the rent provided for in this
Sublease); when and if such expenses have been completely recovered, the amounts
received from reletting by Sublandlord as have not previously been applied shall
be credited against Subtenant's obligations as of each day when a payment would
fall due under this Sublease, and only the net amount thereof shall be payable
by Subtenant. Further, amounts receivable by Sublandlord from such reletting for
any period shall be credited only against obligations of Subtenant allocable to
such period, and shall not be credited against obligations of Subtenant
hereunder accruing subsequent or prior to such period; nor shall any credit of
any kind be due for any period after the date when the Term of this Sublease is
scheduled to expire according to its terms.
Nothing contained in this Sublease shall limit or prejudice the right of
Sublandlord to prove for and obtain in proceedings for bankruptcy or insolvency
by reason of the termination of this Sublease, an amount equal to the maximum
allowed by any statute or rule of law in effect at the time when, and governing
the proceedings in which, the damages are to be proved, whether or not the
amount be greater, equal to, or less than the amount of the loss or damages
referred to above.
16. Miscellaneous.
16.1. Failure on the part of either party to complain of any action or
non-action on the part of the other party no matter how long the same may
continue, shall never be a waiver by such party of any of its rights hereunder.
Further, no waiver at any time of any of the provisions hereof by either party
shall be construed as waiver of any of the other provisions hereof and a waiver
at any time of any of the provisions hereof shall not be construed as a waiver
at any subsequent time of the same provisions. The consent or approval of either
party to or of any action by the other party requiring such consent or approval
shall not be construed to waive or render unnecessary such party's consent or
approval to or of any subsequent similar act by the other party. No payment by
either party or acceptance by the other party of a lesser amount than shall be
due from such party to the other party shall be treated otherwise than as a
payment on account. Acceptance by Sublandlord of a check for a lesser amount
with endorsement or statement thereon, or upon any letter accompanying such
check, that such lesser amount is payment in full, shall be given no effect, and
Sublandlord may accept such check without prejudice of any other rights or
remedies which Sublandlord may have against Subtenant.
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16.2. No act or thing done by Sublandlord during the term of this Sublease
shall be deemed an acceptance of a surrender of the Sublease Premises and no
agreement to accept such surrender shall be valid, unless in writing signed by
Sublandlord. No employee of Sublandlord or of Sublandlord's agent shall have any
power to accept the keys to the Sublease Premises prior to termination of this
Sublease and delivery of keys to any employee or agent shall not operate as
termination of this Sublease or a surrender of the Sublease Premises.
16.3. The parties hereto agree that Cliff Hurley of CRESA Partners, Mark
Roth of Cushman & Wakefield of Massachusetts, Inc., Patrick Cavanaugh of Lynch
Murphy Walsh & Partners and Jim Boudrot of Hunneman & Company (collectively, the
"Agents") were the only brokers, finders or agents responsible for procuring
this Sublease. By separate agreement, Sublandlord agrees to compensate Agents
for their services as Agents. Each party hereto warrants and represents that the
services of no other broker, finder or agent were involved in the procurement of
this Sublease, and each party agrees to indemnify and hold harmless the other
from any and all loss or damage caused by the breach of this warranty and
representation.
16.4. If any term or provision of this Sublease or the application thereof
to any person or circumstance shall be invalid or unenforceable to any extent,
the remainder of this Sublease or the application of such term or provision to
persons or circumstances other than those as to which it is held invalid or
unenforceable shall not be affected thereby and each term and provision of this
Sublease shall be valid and be in force to the fullest extent permitted by law.
16.5. Subtenant, subject to the terms and provisions of this Sublease and
to Subtenant's timely paying Fixed Rent and all additional rent and observing
and keeping and performing all of the terms and provision of this Sublease on
Subtenant's part to be observed, kept and performed, shall lawfully, peaceably
and quietly have, hold, occupy and enjoy the Sublease Premises during the term
of this Sublease without hindrance or objection by any persons claiming under
Sublandlord to have title to the Sublease Premises superior to Subtenant and
Subtenant shall have access to the Sublease Premises twenty-four (24) hours per
day, seven (7) days per week (subject to Prime Landlord's card key access system
as provided in the Prime Lease). It is understood and agreed that this covenant
and any and all other covenants of Sublandlord contained in this Sublease shall
be binding upon Sublandlord only with respect to breaches occurring during the
period Sublandlord has an interest herein. In no event shall Sublandlord or
Prime Landlord ever be liable to Subtenant for any loss of business or any other
direct, indirect, special, punitive, incidental, or consequential damages,
including without limitation lost profits or revenues, suffered by Subtenant for
or by whatever cause, even if Sublandlord and/or Prime Landlord are informed of
their possibility.
16.6. The obligations of this Sublease shall inure to the benefit of and
be binding upon the successors and assigns, respectively, of Sublandlord and
Subtenant.
16.7. Whenever by the terms of this Sublease notice, demand or other
communications shall or may be given, the same shall be in writing and shall be
sent by registered or certified mail, postage prepaid, hand delivered, or sent
by recognized private express carrier to the Sublandlord and Subtenant at the
respective addresses set forth on page 1 above. All such notices shall be
10
<PAGE>
effective when received. Either party may change the address to which notices
are to be sent to it by notice to the other party given in accordance with this
Section 18.7.
16.8. Each party will promptly furnish to the other party, or to anyone
whom such party designates, a statement in writing of the status of any matter
pertaining to this Sublease, including without limitation, acknowledgment of the
extent to which each party is in compliance with its obligations under the terms
of this Sublease.
16.9. Casualty insurance carried by either party with respect to the
Sublease Premises or property therein or thereon shall, if it can be so written
without additional premium or with additional premium which the other party
agrees to pay, include a clause or endorsement denying to the insurer rights of
subrogation against the other-party to the extent rights have been waived by the
insured prior to occurrence of loss. Each party, notwithstanding any provisions
of this Sublease to the contrary, hereby waives any rights of recovery against
the other for loss due to assets covered by such insurance.
16.10. This Sublease shall be governed exclusively by the provisions
hereof and by the laws of the Commonwealth of Massachusetts, as the same may
from time to time exist.
16.11. Any holding over by Subtenant at the expiration of the term of this
Sublease shall be treated as a tenancy at sufferance at twice the Fixed Rent and
other charges herein (pro-rated on a daily basis), and shall otherwise be on the
terms and conditions set forth in this Sublease as far as applicable.
16.12. Employees or agents of Sublandlord and Subtenant have no authority
to make or agree to make a lease or any other agreement or undertaking in
connection herewith. The submission of this document for examination and
negotiation does not constitute an offer to Sublease, reservation of, or option
for the Sublease Premises. This document shall become effective and binding only
upon both (i) the execution and delivery hereof by both Sublandlord and
Subtenant, and (ii) upon the written approval of Prime Landlord.
16.13. Subtenant shall have the right, at Subtenant's sole cost and
expense, to erect an antenna dish on the roof of the Building, provided that
Subtenant first obtains the prior written consent of Prime Landlord. In the
event Prime Landlord so consents, such antenna dish (which shall be of a size
approved by Prime Landlord) shall be installed at the location on the roof
designated by Prime Landlord, in accordance with plans approved by Prime
Landlord and otherwise in compliance with all applicable laws, rules,
regulations and orders. In the event of such installation, Subtenant shall
indemnify and save harmless Sublandlord and Prime Landlord from and against all
claims of whatever nature arising from or related to the installation, use
and/or removal of such antenna dish by Subtenant, its agents, contractors and/or
invitees.
16.14. Subtenant acknowledges and agrees that it shall be solely
responsible for providing security to the Sublease Premises.
11
<PAGE>
16.15. Sublandlord shall use reasonable efforts to assist Sublessee's
efforts to obtain Prime Landlord's permission for installation of an emergency
generator on the Sublease Premises.
16.16. Notwithstanding anything contained herein to the contrary,
Sublandlord may elect to lease the Premises other than the Sublease Premises
(the "Expansion Space") to a third party, it being understood that if
Sublandlord and a third party enter into a letter of intent for the Expansion
Space ("Letter of Intent"), then, provided a Default has not occurred, (a)
Sublandlord or Sublandlord's broker shall verbally notify Subtenant of its
election to enter into said Letter of Intent, (b) no more than five (5) days
after such verbal notification, Sublandlord shall notify Subtenant in writing,
which notice shall set forth the material terms and provisions of such Letter of
Intent, and (c) Subtenant shall have the right to accept the terms of said
Letter of Intent, provided that if Subtenant fails to (i) notify Sublandlord
within two (2) business days after receipt of such notice or (ii) execute and
deliver an amendment to the Sublease within five (5) business days after receipt
thereof, time being of the essence, then Subtenant's rights to the Expansion
Space shall be deemed null and void.
16.17. Sublandlord shall provide Subtenant with pass cards providing
access to the Sublease Premises, the Building and all other areas of the Lot,
including, without limitation, the parking areas allocated to Subtenant, as set
forth in Section 2.2 of the Prime Lease.
WITNESS the execution under seal as of this 15th day of June, 1999.
SUBTENANT SUBLANDLORD
GOMEZ ADVISORS, INC. FASTECH INTEGRATION, INC.
By: /s/ Frederic G. Hammond By: /s/ Steven Herbert
------------------------------- ------------------------------
Its Vice President Its Corporate Controller
Hereunto duly authorized Hereunto duly authorized
12
<PAGE>
Exhibit 10.13
FIRST LEASE AMENDMENT
Being successor Lessor and original Lessee under a lease ("Lease") dated in
December, 1997, covering space in Millbrook Tarry Condominium, Lowell Road,
Concord, MA, the undersigned hereby amend the Lease as follows:
1. As of June 1, 1999, the Premises under the Lease shall be increased by adding
thereto the space ("Added Space") in condominium Unit A-12, which space is
located on the second floor of the building and is approximately shown on
Exhibit A attached hereto. The Added Space, which the parties agree is 800
rentable square feet, is only that internal office space currently occupied by
Mykrowaters and does not include the adjacent corridor. As used in the Lease,
"Unit" shall refer to both Unit A-12 and Unit A-13. The Added Space is delivered
"as is" and Lessor shall have no obligation to make any improvements or do any
work thereto.
2. Commencing June 1, 1999, the rent shall be increased by $20,000 per year, or
a total rent for the Premises (as hereby increased by the Added Space) of
$95,439.88 per year, payable in equal monthly installments of $7,953.32. Such
total rent shall increase on January 1, 2000 and January 1, 2001, by five
percent (5%).
3. With the execution hereof, Lessee shall pay a further security deposit of
$1,666.67.
4. Lessee's right of first refusal is subject to any prior rights of first
refusal.
5. Lessee is aware that the Added Space is: a) subject to a right of first
refusal to lease held by Maximum Image, and b) now occupied by Mykrowaters.
Lessor agrees promptly after this Amendment is signed to request a waiver from
Maximum Image of its right of first refusal and, if that waiver is obtained, to
give notice to quit to Mykrowaters. This Amendment shall be null and void if
Maximum Image exercises its right of first refusal. If Maximum Image waives its
right of first refusal and Mykrowaters does not vacate the Added Space by June
1, 1999, the commencement of the rent increase referred to in Section 2 hereof
shall take place on the date Mykrowaters shall vacate the Added Space. If
Mykrowaters does not vacate the Added Space by September 1, 1999, either party
may thereafter terminate this Amendment by notice to the other. Notwithstanding
the foregoing, if Mykrowaters shall vacate the Added Space prior to June 1,
1999, then the Added Space shall be added to the Premises, and the rent shall
increase, as of the date Mykrowaters vacates.
As hereby amended, the Lease shall remain in full force and effect.
This instrument is executed under seal as of April , 1999.
LANDLORD TENANT
Military Retail Registered LLP Gomez Advisors, Inc.
by: ELAW Corporation, Managing Partner
by by /s/ Julio Gomez
------------------------------------- -----------------------------
James B. White, President Julio Gomez, President
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, dated as of ______, 2000 is by and between
______________________, residing at _________________________ (the "Executive")
and Gomez Advisors, Inc., a Delaware corporation (the "Company").
WHEREAS, the Executive is presently employed at the Company;
WHEREAS the Company wishes to continue to employ the services of the Executive
for the period and upon the terms and conditions hereinafter set forth, and
Executive desires to serve in such capacities upon the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the covenants and agreements herein
contained, the Company and Executive hereby agree as follows:
1. EMPLOYMENT.
(a) The Company will employ the Executive, and the Executive agrees to
be employed by the Company, as ___________________________________ of the
Company. Executive will have the responsibilities, duties and authority
commensurate with his position as ________________________.
(b) Executive shall devote his full business time and energies to the
business and affairs of the Company; provided, however, that nothing contained
in this Paragraph 1(b) shall be deemed to prevent or limit his right to: (i) own
not more than one percent (1%) of the securities of a company that is publicly
traded on a securities exchange or over-the-counter market ( a "Public
Company"); (ii) make passive investments in any entity that is not a Public
Company and is not engaged in a competing business with the Company and with
respect to which he is not obligated or required to, and which he does not in
fact, devote any substantial efforts which interfere with his fulfillment of his
duties hereunder; and (iii) serve as a member on the Board of Directors, Board
of Trustees or other similar body of other corporations, trade associations,
professional associations or entities.
2. TERM OF EMPLOYMENT.
(a) Executive's employment hereunder shall commence on the date of this
letter agreement (the "Commencement Date") and continue until the second
anniversary thereof, subject to extension in accordance with the provisions of
the following paragraph, unless terminated earlier in accordance with the terms
hereof (the "Employment Term").
(b) On each two-year anniversary of the Commencement Date, Executive's
employment hereunder shall be automatically extended for a period ending on the
second anniversary of such date, unless earlier terminated in accordance with
the terms hereof, and unless either Executive or the Company shall have given
written notice to the other of a desire
<PAGE>
that such automatic extension not occur, which notice was given no later than
thirty (30) days prior to the relevant anniversary of the Commencement Date. If
either party gives such notice and absent earlier termination in accordance with
the terms hereof, the Termination Date (as defined below) shall be the last day
of the Employment Term.
As used herein, "Termination Date" shall mean the last date of
Executive's employment, as determined in accordance with the terms of this
Agreement.
3. COMPENSATION.
(a) BASE SALARY. In consideration of Executive's services under this
Agreement, Executive will be paid (i) during the period commencing on the
Commencement Date and ending on the first anniversary thereof, salary at an
annual salary rate of $180,000 and (ii) during the twelve (12) month period
commencing on the first anniversary of the Commencement Date and each twelve
(12) month period commencing on each anniversary of the Commencement Date
thereafter during the Employment Term, at an annual salary rate as determined by
the Board of Directors of the Company (the "Board") or its Compensation
Committee, but in any event at least equal to the annual salary rate in effect
immediately preceding the commencement of the twelve (12) month period in
question. Executive's annual salary rate in effect from time to time is referred
to herein as the "Base Salary." Executive's Base Salary shall be paid in
periodic installments at such times as salaries are generally paid to other
senior executives of the Company.
(b) BONUS PLANS. In addition to Executive's Base Salary, Executive
shall be entitled to participate in any bonus and other plans which the Company
provides or may establish for the benefit of its senior executives.
4. BENEFITS AND REIMBURSEMENT OF EXPENSES.
(a) VACATION. Executive shall be entitled to four (4) weeks of vacation
in the twelve (12) month period commencing on the Commencement Date and ending
on the first anniversary thereof and each twelve (12) month period thereafter
during the Employment Term (an "Employment Year"). If Executive does not use his
vacation leave in any Employment Year, he may carry the unused days over from
year to year on a cumulative basis.
(b) EMPLOYEE BENEFIT PLANS AND OTHER BENEFITS. Executive shall also be
entitled to participate in any employee benefit plans which the Company provides
or may establish for the benefit of its senior executives (including, without
limitation, group life, medical, dental and other insurance, retirement,
pension, profit-sharing and similar plans).
(c) REIMBURSEMENT OF EXPENSES. Executive shall be entitled to
reimbursement for all ordinary and reasonable out-of-pocket business expenses
which are reasonably incurred by him in furtherance of the Company's business in
accordance with reasonable policies adopted from time to time by the Company.
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<PAGE>
5. TERMINATION UPON DEATH OR DISABILITY.
(a) Executive's employment by the Company shall terminate upon his
death, or upon 60 days prior written notice by the Company if, by virtue of
total and permanent disability (as hereinafter defined), Executive is unable to
perform his duties hereunder.
(b) Executive shall be considered to be totally and permanently
disabled hereunder if for reasons involving mental or physical illness or
physical injury Executive is unable to or fails to perform a substantial portion
of his duties hereunder for a period of one hundred twenty (120) consecutive
calendar days or more. The determination that, by virtue of total and permanent
disability, Executive is unable to perform a substantial portion of his duties
hereunder shall be made by a physician chosen by the Executive (or his legal
representative) and reasonably satisfactory to the Company. The cost of any such
examination shall be borne by the Company.
(c) For purposes of this Paragraph 5, the Termination Date in the event
of death shall be the date of death and in the event of total and permanent
disability shall be the date fifteen (15) days after the Company's written
notice to Executive that the physician referenced to above in Paragraph 5(b) has
made a determination of Executive's total and permanent disability in accordance
with Paragraph 5(b) above.
6. TERMINATION BY THE EXECUTIVE. Executive's employment may be
terminated by him, by giving a Notice of Termination, as follows: (a) at any
time by written notice of at least sixty (60) days to the Company and; (b) at
any time by written notice for Good Reason. The Termination Date in the event of
any such termination shall be the date set forth in the Notice of Termination.
As used herein, Good Reason shall mean: (i) a failure of the Company to
comply with any provision of this Agreement which failure, if capable of remedy,
has not been cured within thirty (30) days after notice of such noncompliance
has been given by the Executive to the Company, provided that any notice of
termination hereunder shall be given within ninety (90) days after the end of
such thirty (30) day period; or (ii) a material dimunition in Executive's
authority, functions, duties or responsibilities.
7. TERMINATION BY THE COMPANY.
(a) TERMINATION EVENTS. Executive's employment may be terminated at any
time by the Company (i) with Cause (in accordance with Paragraph (b) below) by a
Notice of Termination to Executive, effective immediately unless a later date is
otherwise stated in such notice, which date shall be the Termination Date
therefor, (ii) without Cause at any time, by a Notice of Termination to
Executive, effective sixty (60) days after the date given, except as Executive
and the Company may otherwise agree, which date of effectiveness shall be the
Termination Date therefor, or (iii) for total and permanent disability in
accordance with Paragraph 5.
(b) DEFINITION OF "CAUSE". For purposes of this Agreement, "Cause"
means (i) a willful engaging in gross misconduct materially and demonstrably
injurious to the Company or (ii) the willful and continued failure by the
Executive substantially to perform his duties with the Company (other than any
such failure resulting from incapacity due to physical or mental
-3-
<PAGE>
illness) after a written demand for substantial performance is delivered by the
Board of Directors which specifically identifies the manner in which the Board
believes that the Executive has not substantially performed his duties.
"Willful" means an act or omission in bad faith and without reasonable belief
that such act or omission was in or not opposed to the best interests of the
Company. Executive shall not be deemed to have been terminated for Cause unless
(1) reasonable notice has been delivered to him setting forth the reasons for
the Company's intention to terminate for Cause, and (2) a period of 60 days has
elapsed since delivery of such notice during which Executive was afforded an
opportunity to cure, if capable of remedy, the reasons for the Company's
intention to terminate for Cause.
8. NOTICE OF TERMINATION. Any termination of Executive's employment by
the Company or by Executive (other than as a result of death) shall be
communicated by written notice of termination to the other party hereto in
accordance with Paragraph 15(a) (a "Notice of Termination").
9. PAYMENTS OF COMPENSATION UPON TERMINATION OR EXPIRATION.
(a) WITHOUT CAUSE OR FOR GOOD REASON. In the event Executive's
employment hereunder is terminated by the Company without Cause as defined in
Paragraph 7(b)(i) or if Executive terminates his employment for Good Reason
under Paragraph 6, Executive shall be entitled to (i) severance pay for a
period beginning on the Termination Date and ending 12 months from such date
(the "Severance Period") equal to Executive's then current monthly Base
Salary to be paid on the Company's normal payroll cycle during the Severance
Period (ii) Executive's target bonus award, if any, for the Severance Period,
payable in 12 equal monthly installments; (iii) the acceleration of such
number of options as would have vested during the Severance Period had the
Executive remained employed during such period; and (iv) payment by the
Company of the cost of executive outplacement assistance with a firm
reasonably satisfactory to Executive.
(b) FOR CAUSE, BY EXECUTIVE NOT FOR GOOD REASON, OR UPON DEATH OR TOTAL
AND PERMANENT DISABILITY. In the event (i) the Company shall terminate
Executive's employment for Cause as defined in clause (i) of paragraph 7(b)
above, or (ii) Executive shall voluntarily terminate his employment for other
than Good Reason, or (iii) in the event of the death or total and permanent
disability of Executive pursuant to Paragraph 5, then Executive shall be
entitled as of the Termination Date to no compensation under this Agreement,
except as provided in Paragraph 11.
(c) TERMINATION FOLLOWING A CHANGE OF CONTROL. In the event that,
following a Change of Control (as defined below) of the
Company, (i) Executive's employment hereunder is terminated by
the Company for any reason other than for Cause as defined in
clause (i) or (ii) of paragraph 7(b) above, or (ii)
Executive's employment is terminated by Executive for Good
Reason, or (iii) if the Company gives Executive written notice
under Paragraph 2(b) above that the Employment Term shall not
be extended, Executive shall be entitled to (i) a
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<PAGE>
lump-sum payment payable within thirty (30) days of cessation
of employment equal to two and one-half times the annual Base
Salary rate and target annual bonus award in effect
immediately prior to such Termination Date, (ii) acceleration
in full of all then unvested options; and (iv) payment by the
Company of the cost of executive outplacement assistance with
a firm reasonably satisfactory to Executive for the
twelve-month period immediately following termination of
employment. Furthermore, in such event, Executive shall be
entitled to the continuation of benefits set forth in
Paragraph 10 below until the later of (A) twelve (12) months
following the Termination Date or (B) the date which would
have been the next two-year anniversary of the Commencement
Date.
(d) As used herein, a "Change of Control" shall be deemed to have occurred
upon the occurrence of any of the following:
(i) any sale, lease, exchange or other transfer (in one transaction or
a series of transactions) of all or substantially all of the assets of
the Company;
(ii) individuals who, as of the date hereof, constitute the entire
Board of Directors of the Company (the "Incumbent Directors") cease for
any reason to constitute at least a majority of the Board of Directors
(hereinafter referred to as a "Board Change"), provided that any
individual becoming a director subsequent to the date hereof whose
election or nomination for election was approved by a vote of at least
a majority of the then Incumbent Directors shall be, for purposes of
this provision, considered as though such individual were an Incumbent
Director; or
(iii) any consolidation or merger of the Company (including, without
limitation, a triangular merger) where the shareholders of the Company,
immediately prior to the consolidation or merger, would not,
immediately after the consolidation or merger, beneficially own,
directly or indirectly, shares representing in the aggregate more than
fifty percent (50%) of the combined voting power of all the outstanding
securities of the corporation issuing cash or securities in the
consolidation or merger (or of its ultimate parent corporation, if
any); or
(iv) any "person," as such term is used in Section 13(d) of the
Securities Exchange Act of 1934, as amended (or any successor
provision) (the "Exchange Act") (other than the Company, any employee
benefit plan of the Company or any entity organized, appointed or
established by the Company for or pursuant to the terms of any such
plan), together with all "affiliates" and "associates" (as such terms
are defined in Rule 12b-2 under the Exchange Act or any successor
provision) of such person, shall become the "beneficial owner" or
"beneficial owners" (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act or any successor provision), directly or indirectly, of
securities of the Company representing in the aggregate (A) in the
event the Company is not a "Reporting Company" (meaning a Company that
is subject to the reporting requirements of the
-5-
<PAGE>
Exchange Act and has registered shares of a class of equity securities
pursuant to Section 12(g) or 12(b) of the Exchange Act), fifty percent
(50%) or more or (B) in the event the Company is a Reporting Company,
twenty-five percent (25%) or more of either (1) the then outstanding
shares of Common Stock of the Company or (2) the combined voting power
of all then outstanding securities of the Company having the right
under ordinary circumstances to vote in an election of the Board of
Directors of the Company.
10. CONTINUATION OF BENEFITS. In the event Executive's employment
hereunder is terminated by Executive for Good Reason or by the Company without
Cause, then Executive shall continue to be entitled during the Severance Period
to the benefits to which he was entitled, pursuant to Paragraph 4(b) hereof, as
of immediately preceding the applicable Termination Date at the Company's.
11. ACCRUED COMPENSATION. In the event of any termination of
Executive's employment for any reason, Executive (or his estate) shall be paid
such portion of Executive's Base Salary as has accrued by virtue of his
employment during the period prior to termination and has not yet been paid,
together with any amounts for accrued but unused vacation time and for expense
reimbursement and similar items which have been properly incurred in accordance
with the provisions hereof prior to termination and have not yet been paid. Such
amounts shall be paid within thirty (30) days of the Termination Date.
12. INTENTIONALLY OMITTED
13. CONFIDENTIALITY, NON-SOLICITATION, NON-COMPETITION AND DEVELOPMENTS
AGREEMENT. Executive agrees to enter into the Confidentiality, Non-Solicitation,
Non-Competition and Developments Agreement in the form attached hereto
contemporaneously with this Agreement.
14. INDEMNIFICATION; INSURANCE. During the period of Executive's
employment hereunder and thereafter, the Company agrees to indemnify Executive
in his capacity as an officer of the Company to the maximum extent permitted
under applicable state law, and, without limiting the foregoing, the Company
will pay all expenses incurred by Executive in accordance with Section 145(e) of
the Delaware General Corporation Law; this provision will survive the
termination of this Agreement. Further, the Company will secure standard
Director and Officer Liability Insurance covering Executive in his capacity as
an officer of the Company to the extent such insurance is secured for other
senior executives of the Company.
15. GENERAL.
(a) NOTICES. All notices, requests, consents and other communications
hereunder shall be in writing, shall be addressed to the receiving party's
address set forth below or to such other address as a party may designate by
notice hereunder, and shall be either (i) delivered by hand, (ii) made by
telecopy, (iii) sent by overnight courier, or (iv) sent by registered or
certified mail, return receipt requested, postage prepaid.
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<PAGE>
If to the Company: Gomez Advisors, Inc.
55 Old Bedford Road
Attn: Secretary
If to Executive: [Executive]
[Address]
All notices, requests, consents and other communications hereunder
shall be deemed to have been given either (i) if by hand, at the time of the
delivery thereof to the receiving party at the address of such party set forth
above, (ii) if made by telecopy, at the time that receipt thereof has been
acknowledged by electronic confirmation or otherwise, (iii) if sent by overnight
courier, on the next business day following the day such notice is delivered to
the courier service, or (iv) if sent by registered or certified mail, on the
fifth business day following the day such mailing is made.
(b) ENTIRE AGREEMENT. This Agreement embodies the entire agreement and
understanding between the parties hereto with respect to the subject matter
hereof and supersedes all prior oral or written agreements and understandings
relating to the subject matter hereof, including without limitation, the [Former
Employment Agreement]. No statement, representation, warranty, covenant or
agreement of any kind not expressly set forth in this Agreement shall affect, or
be used to interpret, change or restrict, the express terms and provisions of
this Agreement.
(c) MODIFICATIONS AND AMENDMENTS. The terms and provisions of this
Agreement may be modified or amended only by written agreement executed by the
parties hereto.
(d) WAIVERS AND CONSENTS. The terms and provisions of this Agreement
may be waived, or consent for the departure therefrom granted, only by written
document executed by the party entitled to the benefits of such terms or
provisions. No such waiver or consent shall be deemed to be or shall constitute
a waiver or consent with respect to any other terms or provisions of this
Agreement, whether or not similar. Each such waiver or consent shall be
effective only in the specific instance and for the purpose for which it was
given, and shall not constitute a continuing waiver or consent.
(e) PARTIES. This Agreement is personal and shall in no way be subject
to assignment by Executive. This Agreement shall be binding upon and shall inure
to the benefit of the Company and its successors and assigns either by merger,
operation of law, consolidation, assignment, purchase or other acquisition of a
controlling interest in the business of the Company, and shall be binding upon
and shall inure to the benefit of Executive, his heirs, executors,
administrators, personal and legal representatives, distributees, devisees,
legatees, successors and permitted assigns. As used in this Agreement, "the
Company" shall mean the Company as hereinbefore defined and any successor as
aforesaid.
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<PAGE>
(f) GOVERNING LAW. This Agreement and the rights and obligations of the
parties hereunder shall be construed in accordance with and governed by the law
of the State of Delaware, without giving effect to the conflict of law
principles thereof.
(g) JURISDICTION AND SERVICE OF PROCESS. Any legal action or proceeding
with respect to this Agreement shall be brought in the courts of the
Commonwealth of Massachusetts or of the United States of America for the Eastern
District of Massachusetts. By execution and delivery of this Agreement, each of
the parties hereto accepts for itself and in respect of its property, generally
and unconditionally, the jurisdiction of the aforesaid courts. Each of the
parties hereto irrevocably consents to the service of process of any of the
aforementioned courts in any such action or proceeding by the mailing of copies
thereof by certified mail, postage prepaid, to the party at its address set
forth in Paragraph 15(a) hereof.
(h) SEVERABILITY. The parties intend this Agreement to be enforced as
written. However, if any portion or provision of this Agreement shall to any
extent be declared illegal or unenforceable by a duly authorized court having
jurisdiction, then the remainder of this Agreement, or the application of such
portion or provision in circumstances other than those as to which it is so
declared illegal or unenforceable, shall not be affected thereby, and each
portion and provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law.
(i) HEADINGS AND CAPTIONS. The headings and captions of the various
subdivisions of this Agreement are for convenience of reference only and shall
in no way modify, or affect the meaning or construction of any of the terms or
provisions hereof.
(j) NO WAIVER OF RIGHTS, POWERS AND REMEDIES. No failure or delay by a
party hereto in exercising any right, power or remedy under this Agreement, and
no course of dealing between the parties hereto, shall operate as a waiver of
any such right, power or remedy of the party. No single or partial exercise of
any right, power or remedy under this Agreement by a party hereto, nor any
abandonment or discontinuance of steps to enforce any such right, power or
remedy, shall preclude such party from any other or further exercise thereof or
the exercise of any other right, power or remedy hereunder. The election of any
remedy by a party hereto shall not constitute a waiver of the right of such
party to pursue other available remedies. No notice to or demand on a party not
expressly required under this Agreement shall entitle the party receiving such
notice or demand to any other or further notice or demand in similar or other
circumstances or constitute a waiver of the rights of the party giving such
notice or demand to any other or further action in any circumstances without
such notice or demand.
(k) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, and by different parties hereto on separate counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Employment Agreement
as of the day and year first above written.
GOMEZ ADVISORS, INC.
By:
------------------------------
[ ]
[President/CEO]
------------------------------
[Executive]
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<PAGE>
GOMEZ ADVISORS, INC.
CONFIDENTIALITY, NON-SOLICITATION, NON-COMPETITION AND
DEVELOPMENTS AGREEMENT
_________, 2000
Name and Address
Dear _____________-:
In order to accept your offer of employment with Gomez Advisors, Inc.
(the "Company")(1), and/or as a condition of any continued employment of you by
the Company, you must sign and return this Confidentiality, Non-Solicitation,
Non-Competition and Developments Agreement (the "Agreement").
In consideration of the employment currently offered to you by the
Company (and/or any continued employment of you by the Company) and other good
and valuable consideration the receipt and sufficiency of which hereby is
acknowledged, you agree to the following:
1. CONFIDENTIALITY, NON-SOLICITATION AND NON-COMPETITION
A. CONFIDENTIALITY:
The Company has developed, uses and maintains trade secrets(2) and
other confidential and proprietary information that is unique to the Company
including, without limitation, its research, tools, systems, software,
protocols, pricing and analysis which it utilizes to rate or rank the
performance and quality of the on-line service offerings of brokerage firms,
banks, travel agents, booksellers and other e-commerce businesses, the
Company's training materials, business plans, product information, personnel
information relating to Company employees, operating procedures, marketing
information, profit and loss information, inventory strategy, product costs,
- ---------------------------
(1) The term "Company" shall include Gomez Advisors, Inc. and all other
companies currently or which in the future are or become affiliated with or
related to Gomez Advisors, Inc. (collectively, "Company Affiliates"). The
Company shall have the right to assign this Agreement to its successors and
assigns, and all covenants and agreements hereunder shall inure to the benefit
of and be enforceable by said successors or assigns.
(1) The term "trade secrets" shall be given its broadest interpretation
under Massachusetts law and shall include, but not be limited to, information,
including a formula, pattern, compilation, program, device, method, technique or
process, that: (i) derives independent economic value, actual or potential, from
not being generally known to, and not being readily ascertainable by proper
means by, other persons who can obtain economic value from its disclosure or
use, and (ii) is the subject of efforts that are reasonable under the
circumstances to maintain its secrecy.
-10-
<PAGE>
gross profit margins, selling strategies, supplier information, and customer
information (the "Confidential Information"), and the Company has taken and
shall continue to take all reasonable measures to protect the confidentiality of
such Confidential information.
You acknowledge that during your employment with the Company you will
have direct access to and knowledge of the Confidential Information. You
covenant and agree that all such Confidential Information is and shall remain
the sole property of the Company and that you will hold it in strictest
confidence, and will not both during and after the termination of your
employment (except as required in the course of your employment with the
Company) disclose to any business, firm, entity or person, either directly or
indirectly, any of the Confidential Information. You further agree that you will
return all such Confidential Information (regardless of how it is maintained)
and any copies thereof, to the Company upon termination of your employment. The
terms of this paragraph are in addition to, and not in lieu of any legal or
other contractual obligations that you may have relating to the protection of
the Confidential Information. The terms of this paragraph shall survive
indefinitely the termination of this Agreement and/or your employment with the
Company.
B. NON-SOLICITATION:
You agree that for a period of twelve (12) months commencing on the
termination of your employment, you shall not, directly or indirectly, entice,
solicit or encourage any Company employee to leave the employ of the Company,
nor shall you, directly or indirectly, be involved in the recruitment or hiring
of any Company employee.
C. NON-COMPETITION:
During the period commencing on the date hereof and ending on the first
year anniversary of the date on which your employment with the Company
terminates, you will not, without the Company's prior written consent, directly
or indirectly, alone or as an employee, agent, servant, owner, partner, officer,
director, consultant, independent contractor, representative, joint venturer, or
stockholder of any company or business, engage (in the states or territories of
the United States) for anyone other than the Company in any Competitive
Enterprise. For the purpose hereof, "Competitive Enterprise" is defined as any
business which competes with the business conducted by the Company or the
products or services offered or marketed by the Company at any time during the
twelve (12) month period immediately prior to the date of your termination from
the Company, including without limitation, any business that analyzes, rates or
ranks the performance or quality of the on-line service offerings of brokerage
firms, banks, travel agents, booksellers or other e-commerce businesses. The
ownership by you of not more than three percent of the shares of stock of any
corporation having a class of equity securities actively traded on a national
securities exchange or on the Nasdaq National Market shall not be deemed, in and
of itself, to violate the prohibitions of this paragraph.
-11-
<PAGE>
2. DEVELOPMENTS AGREEMENT
You agree that during your employment by the Company, you shall not
make, use or permit to be used any notes, memoranda, reports, lists, records,
drawings, sketches, specifications, software programs, data, documentation or
other files or materials of any nature relating to any matter within the scope
of the business of the Company or concerning any of its dealings or affairs
otherwise than for the benefit of the Company. You further agree that you shall
not, after the termination of your employment, use or permit to be used any such
notes, memoranda, reports, lists, records, drawings, sketches, specifications,
software and/or hardware programs, data, documentation or other materials, it
being agreed that all of the foregoing shall be and remain the sole and
exclusive property of the Company and that immediately upon the termination of
your employment, you shall deliver all of the foregoing, and all copies thereof,
to the Company, at its Main Office (as defined below).
If at any time during your employment, you (either alone or with
others) make, conceive, discover or reduce to practice any invention,
modification, discovery, design, development, improvement, process, business
strategy or practice, software program, work of authorship, documentation,
formula, methodology, data, technique, know-how, secret or intellectual property
right whatsoever or any interest therein (whether or not patentable or
registrable under copyright or similar statutes or subject to analogous
protection) (hereinafter called "Developments") that (a) relates to the business
of the Company or any of the products or services being developed, manufactured
or sold by the Company or which may be sold in relation therewith, (b) results
from tasks assigned you by the Company or (c) results from the use of the
premises or personal property (whether tangible or intangible) owned, leased or
contracted for by the Company, such Developments and the benefits thereof shall
immediately become the sole and absolute property of the Company and its
assigns, and you shall promptly disclose to the Company (or any persons
designated by it) each such Development and hereby assign any rights you may
have or acquire in the Developments and benefits and/or rights resulting
therefrom to the Company and its assigns without further compensation and shall
communicate, without cost or delay, and without publishing the same, all
available information relating thereof (with all necessary plans and models) to
the Company. This section includes all rights of integrity, disclosure and
withdrawal and any other rights that may be known or referred to as "moral
rights", "artist's rights", "droit moral", or the like (collectively "Moral
Rights"). To the extent you retain any such Moral Rights under applicable law,
you hereby ratify and consent to any action that may be taken with respect to
such Moral Rights by or authorized by the Company and agree not to assert any
Moral Rights with respect thereto.
Upon disclosure of each Development to the Company, you will, during
your employment and at any time thereafter, at the request and cost of the
Company, sign, execute, make and do all such deeds, documents, acts and things
as the Company and its duly authorized agents may reasonable require:
(a) to apply for, obtain and vest in the name of the Company alone
(unless the Company otherwise directs) letters patent, copyrights, trademarks or
other analogous protection
-12-
<PAGE>
in any country throughout the world and when so obtained or vested to renew and
restore the same; and
(b) to defend any opposition proceedings in respect of such
applications and any opposition proceedings or petitions or applications for
revocation of such letters patent, copyright, trademarks or other analogous
protection.
In the event the Company is unable, after reasonable effort, to secure
your signature on any letters patent, copyright, trademarks or other analogous
protection relating to a Development, whether because of your physical or mental
incapacity or for any other reason whatsoever, you hereby irrevocably designate
and appoint the Company and its duly authorized officers and agents as your
agent and attorney-in-fact, to act for and in your behalf and stead to execute
and file any such application or applications and to do all other lawfully
permitted acts and to further the prosecution and insurance of letters patent,
copyright, trademarks or other analogous protection thereon with the same legal
force and effect as if executed by you.
You represent that the Developments identified in the pages, if any,
attached hereto by you comprise all the Developments which you have made or
conceived prior to your employment by the Company, which Developments are
excluded from this Agreement. You understand that it is only necessary to list
the title and purpose of such Developments but not the details thereof.
You further represent that your performance of all of the terms of this
Agreement and as an employee of the Company does not and will not breach any
agreement to keep in confidence proprietary information acquired by you in
confidence or in trust prior to your employment by the Company. You have not
entered into and agree you will not enter into, any agreement either written or
oral in conflict herewith.
3. REASONABLE AND NECESSARY TERMS AND CONDITIONS
You agree that (i) the terms and conditions of Sections 1 and 2 are
necessary and reasonable to protect the Company's trade secrets, proprietary
information, Confidential Information and goodwill and (ii) in the event of your
breach of any of your agreements set forth in Sections 1 or 2, the Company would
suffer irreparable harm and that the Company would not have an adequate remedy
at law for such breach. In recognition of the foregoing, you agree that in the
event of a breach or threatened breach of any of these covenants, in addition to
such other remedies as the Company may have at law, without posting any bond or
security, the Company shall be entitled to seek and obtain equitable relief, in
the form of specific performance, or temporary, preliminary or permanent
injunctive relief, or any other equitable remedy which then may be available.
The seeking of such injunction or order shall not affect the Company's right to
seek and obtain damages or other equitable relief on account of any such actual
or threatened breach.
-13-
<PAGE>
4. CHOICE OF LAW; WAIVER OF JURY TRIAL
You acknowledge that a substantial portion of the Company's business is
based out of and directed from the Commonwealth of Massachusetts, where the
Company maintains its headquarters and administers all employee compensation and
benefits. You also acknowledge that during the course of your employment with
the Company you will have substantial contacts with Massachusetts.
This Agreement shall be deemed to have been made in the Commonwealth of
Massachusetts, shall take effect as an instrument under seal within
Massachusetts, and the validity, interpretation and performance of this
Agreement shall be governed by, and construed in accordance with, the internal
law of Massachusetts, without giving effect to conflict of law principles. Both
parties agree that any action, demand, claim or counterclaim relating to the
terms and provisions of this Agreement, or to its breach, shall be commenced in
Massachusetts in a court of competent jurisdiction. Both parties further
acknowledge that venue shall exclusively lie in Massachusetts and that material
witnesses and documents would be located in Massachusetts. Both parties further
agree that any action, demand, claim or counterclaim shall be resolved by a
judge alone, and both parties hereby waive and forever renounce the right to a
trial before a civil jury.
5. MISCELLANEOUS
(a) You acknowledge and agree that should you transfer within the
Company, wherever situated, or otherwise become employed by any other Company
Affiliate, or be promoted or reassigned to functions other than your present
functions, the terms of this Agreement shall continue to apply with full force.
(b) The Company shall have the right to assign this Agreement to its
successors and assigns, and all covenants and agreements hereunder shall inure
to the benefit of and be enforceable by said successors or assigns.
(c) You hereby agree that each provision herein shall be treated as a
separate and independent clause, and the unenforceability of any one clause
shall in no way impair the enforceability of any of the other clauses herein.
Moreover, if one or more of the provisions contained in this Agreement shall for
any reason be held to be excessively broad as to scope, activity or subject so
as to be unenforceable at law, such provision or provisions shall be construed
by the appropriate judicial body by limiting and reducing it or them, so as to
be enforceable to the maximum extent compatible with the applicable law as it
shall then appear.
(d) No amendment, waiver or revocation of this Agreement of any kind
shall be effective unless supported by a written instrument executed by you and
an authorized officer of the Company and this Agreement supersedes any and all
prior oral or written agreements between the Company and you.
-14-
<PAGE>
(e) For the purposes hereof, the Main Office of the Company shall be
where the Chief Executive Officer maintains his/her office.
(f) You hereby acknowledge that you have had adequate opportunity to
review these terms and conditions and to reflect upon and consider the terms and
conditions of this Agreement. You further acknowledge that you fully understand
its terms and have voluntarily executed this Agreement.
IT WITNESS WHEREOF, the undersigned has executed this Agreement as a
sealed instrument as of the date identified below.
GOMEZ ADVISORS, INC.
By: ___________________________
- ----------------------------------
(Employee) ________________________
(Please sign here if you HAVE NOT attached any pages hereto identifying prior
Developments)
- ----------------------------------
(Employee) ________________________
(Please sign here if you HAVE attached any pages hereto identifying prior
Developments)
Date: ______, 2000
EXECUTIVERETENTIONAGTFORM.DOC
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<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF GOMEZ ADVISORS, INC.
1. Gomez Japan K.K. (Japan)
2. Gomez Advisors, Ltd. (U.K.)
3. Gomez Advisors International, Inc. (Delaware)
4. Concord Bowling, Inc. (Delaware)
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated March 30, 1999 except for the matters discussed in Note 12(b) and (c),
for which the date is April 5, 2000 (and to all references to our Firm)
included in or made a part of this registration statement.
/s/ Arthur Andersen
-------------------
April 20, 2000
Boston, MA
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