<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 22, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
--------------------------
DIRECT HIT TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7375 04-3417999
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
--------------------------
DIRECT HIT TECHNOLOGIES, INC.
888 WORCESTER STREET, SUITE 340
WELLESLEY, MASSACHUSETTS 02482
(781) 235-7570
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
--------------------------
MICHAEL CASSIDY, PRESIDENT AND CHIEF EXECUTIVE OFFICER
DIRECT HIT TECHNOLOGIES, INC.
888 WORCESTER STREET, SUITE 340
WELLESLEY, MASSACHUSETTS 02482
(781) 235-7570
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
--------------------------
COPIES TO:
<TABLE>
<S> <C>
MARK J. MACENKA, ESQ. MARK L. JOHNSON, ESQ.
JOHN M. MUTKOSKI, ESQ. RICHARD G. COSTELLO, ESQ.
DANIEL L. FURMAN, ESQ. FOLEY, HOAG & ELIOT LLP
TESTA, HURWITZ & THIBEAULT, LLP ONE POST OFFICE SQUARE
125 HIGH STREET BOSTON, MASSACHUSETTS 02109
BOSTON, MASSACHUSETTS 02110 (617) 832-1000
(617) 248-7000
</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 to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / / __________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / __________
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / __________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE (1) REGISTRATION FEE
<S> <C> <C>
Common Stock, $.001 par value............................... $57,500,000.00 $15,180.00
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(o) under the Securities Act of 1933, as amended.
Includes the offering price attributable to shares that the underwriters
have the option to purchase from the registrant solely to cover
over-allotments, if any.
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
This registration statement contains two forms of prospectus: (a) one
prospectus to be used in connection with an offering in the United States and
Canada and (b) one prospectus to be used in connection with a concurrent
offering outside of the United States and Canada. The U.S. prospectus and the
international prospectus are identical in all respects except for the front
cover page and the "Underwriting" section. The front cover page and the
"Underwriting" section of the international prospectus are included immediately
before Part II of this registration statement.
2
<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 WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES, IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
SUBJECT TO COMPLETION, DATED DECEMBER 22, 1999
[DIRECT HIT TECHNOLOGIES, INC. LOGO]
SHARES
COMMON STOCK
Direct Hit Technologies, Inc. is offering shares of its common stock.
This is our initial public offering and no public market currently exists for
our shares. We have applied to have our common stock approved for quotation on
the Nasdaq National Market under the symbol "DHIT." We anticipate that the
initial public offering price will be between $ and $ per share.
------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 5.
---------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- ---------
<S> <C> <C>
Public Offering Price....................................... $ $
Underwriting Discounts and Commissions...................... $ $
Proceeds to Direct Hit...................................... $ $
</TABLE>
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS
IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
We have granted the underwriters a 30-day option to purchase up to an
additional shares of common stock to cover over-allotments.
------------------------
ROBERTSON STEPHENS
THOMAS WEISEL PARTNERS LLC
SOUNDVIEW TECHNOLOGY GROUP
WIT CAPITAL CORPORATION
The date of this prospectus is , 2000
<PAGE>
[DESCRIPTION OF ARTWORK]
[Inside front cover of prospectus:
The inside front cover includes a graphic representing our OEM
customers. Our logo appears in the center of the graphic. Emanating from our
logo are the logos of our OEM customers.]
[Inside gatefold:
The inside gatefold includes a graphic representing our technology and
its application. The graphic is comprised of a symbol depicting our
Popularity Engine with symbols for our three product categories layered
above the Popularity Engine. These three product categories are our
Popularity-based Search product, our Popularity-based Shopping product, and
other products. Within our Popularity-based Search product are depicted our
Internet Search Engine, Related Searches, Personalized Search, and
Directory-based Search. A graphic of the Web and Web users is depicted above
the product categories. We show a continuous circle of popularity data
emanating from the Web and feeding back to our Popularity Engine.
One statement appears with the graphic as follows:
Our Popularity Engine, which is the core of our solution, anonymously
compiles and automatically captures and processes the activity of online
users. We use our popularity-based technology to aggregate and organize
online content to enable users to quickly find relevant and accurate
information. We have targeted Internet search as the first application of
our Popularity Engine. We have launched a Popularity-based Search product,
including our Internet Search Engine, Related Searches, Personalized Search
and Directory-based Search components, and a Popularity-based Shopping
product. Our content-independent technology is well suited to provide
accurate and relevant information to users of large, dynamic collections of
information, such as the World Wide Web, and we intend to deploy our
technology across other applications as well.]
<PAGE>
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR OF ANY SALE OF OUR COMMON STOCK. IN THIS PROSPECTUS, "DIRECT HIT,"
"WE," "US" AND "OUR" REFER TO DIRECT HIT TECHNOLOGIES, INC.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Summary..................................................... 1
Risk Factors................................................ 5
Use of Proceeds............................................. 14
Dividend Policy............................................. 14
Capitalization.............................................. 15
Dilution.................................................... 16
Selected Financial Data..................................... 17
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 18
Business.................................................... 24
Management.................................................. 36
Certain Transactions........................................ 42
Principal Stockholders...................................... 44
Description of Capital Stock................................ 46
Shares Eligible for Future Sale............................. 49
Underwriting................................................ 51
Legal Matters............................................... 53
Experts..................................................... 53
Additional Information...................................... 54
Index to Financial Statements............................... F-1
</TABLE>
------------------------
Direct Hit, Personalized Search, Popularity-based Search, Popularity-based
Shopping, Popularity Engine, Related Searches, our slogan "One Search Engine.
Millions of Minds." and our logo are our trademarks. All other trademarks, trade
names and service marks appearing in this prospectus are the property of their
respective owners.
i
<PAGE>
SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, INCLUDING "RISK FACTORS" AND
OUR FINANCIAL STATEMENTS AND THE NOTES TO THOSE STATEMENTS. UNLESS OTHERWISE
INDICATED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES THE UNDERWRITERS WILL NOT
EXERCISE THEIR OVER-ALLOTMENT OPTION AND REFLECTS THE CONVERSION OF ALL OF OUR
OUTSTANDING PREFERRED STOCK INTO COMMON STOCK, WHICH WILL OCCUR UPON THE CLOSING
OF THIS OFFERING.
DIRECT HIT TECHNOLOGIES
OUR BUSINESS
Founded on April 27, 1998, Direct Hit is a leading provider of technology
that aggregates and organizes online content to enable users to quickly find
relevant and accurate information, products and services. The core of our
solution, which we call our Popularity Engine, anonymously compiles information
collected from the online activity of users. By automatically capturing the
experience of online users and applying our popularity-based technology, our
solution provides users with a list of information, products or services ranked
according to the preferences of previous users. From online product catalogs to
the World Wide Web, our proprietary technologies can be applied to a variety of
online data sets either as stand-alone solutions or as core complements to
existing technology. We have targeted Internet search as our first application
for the Popularity Engine and we have launched an e-commerce product based on
the Popularity Engine. We intend to expand the application of our
popularity-based technology into such areas as corporate online databases, news
feeds and yellow pages.
OUR MARKET
While the Internet is attracting new users at a rapid pace, the volume and
diversity of information, products and services available over the Internet is
also increasing dramatically. International Data Corporation predicts that the
number of Web pages will grow from 925 million in 1998 to 13 billion by 2003,
including separate Web pages within individual Web sites. At the same time,
Internet users are increasingly seeking information from multiple online sources
such as e-commerce sites, news sites, corporate sites, archives and specialty
vertical sites. As a result, users are now spending more time at Web search
sites than at almost any other Web site category. According to Media Metrix, the
average Internet user spent approximately 90 minutes at search engine sites in
October 1999, second to 110 minutes at news, information and entertainment
sites.
Traditional methods for aggregating and organizing online information for
user navigation often fail to meet users' needs. Word-matching techniques, which
generally compare the keywords in the search request with words found in a
database, often yield an overwhelming volume of irrelevant search results and
are subject to manipulation by Web site authors. Editor-based methods, which
require a staff of editors to manually review and categorize online content in a
database, often result in incomplete and outdated information covering only a
small portion of the content available online. Even when used in tandem, these
methods often generate an unmanageably large set of irrelevant results or
incomplete and outdated information.
1
<PAGE>
OUR PRODUCTS
We provide a popularity-based solution that enables users of online content
to find more relevant information, products and services more easily across a
wide variety of sources. Each of our products is powered by our proprietary
Popularity Engine to determine the relevancy ranking of online content. Our
Popularity Engine is:
- extremely responsive to new and changing information, keeping listings
current based on changing user preferences;
- content independent, enabling our products to organize many types of data,
including multiple languages, still images, video and music;
- scalable to accommodate large collections of online information and
millions of users;
- capable of reflecting user preferences based on age, gender and geographic
location; and
- easy to use, since it does not require users to acquire any new skills or
employ complex query techniques.
Our Popularity-based Search product was selected as FORBES' Favorite Search
Engine in September 1999. Our products have also earned recognition in industry
awards received by our OEM customers, including CNET 1999 Editors' Choice
awarded to HotBot in April 1999 and PC MAGAZINE 1999 Editors' Choice awarded to
HotBot in September 1999.
OUR CUSTOMERS
Our popularity-based solution may be found on our OEM customers' Web sites
and on our Web site. The following is a list of our 22 OEM customers as of
November 30, 1999:
About.com
Apple Computer
AT&T WorldNet
Catcha.com
GeneralSearch.com
Go2Net
HotBot (Wired Digital/Lycos)
ICQ (AOL)
Infoseek
InfoSpace.com
LookSmart
Lycos
mainCampus.com
Microsoft (MSN)
Pinault-Printemps-Redoute
Punto (Portal Srl)
SavvySearch
Scandinavia Online
SimpleSearch
UKMax.com (Hollinger Digital)
Zap
ZDNet
OUR ADDRESS
Our executive offices are located at 888 Worcester Street, Suite 340,
Wellesley, Massachusetts 02482, and our telephone number is (781) 235-7570. Our
Web site is located at WWW.DIRECTHIT.COM. The information on our Web site is not
part of this prospectus.
2
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by Direct Hit........ shares
Common stock to be outstanding after the
offering................................ shares
Use of proceeds........................... For sales and marketing and research and
development expenditures, and for working
capital and other general corporate
purposes.
Proposed Nasdaq National Market symbol.... DHIT
</TABLE>
The number of shares of common stock outstanding after this offering is
based on shares of common stock outstanding as of November 30, 1999. This
calculation:
- includes 10,942,676 shares of common stock to be issued upon the
conversion of our shares of preferred stock outstanding as of
November 30, 1999; and
- excludes 1,252,646 shares of common stock issuable upon exercise of all
options outstanding under our 1998-A Stock Option Plan as of November 30,
1999 with a weighted average exercise price of $1.60 per share.
3
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following tables set forth summary financial data for our company. The
summary balance sheet data as of September 30, 1999 are presented on:
- an actual basis,
- on a pro forma basis to give effect to the conversion of our preferred
stock upon completion of this offering, and
- on a pro forma as adjusted basis to give effect to our sale of
shares of common stock in this offering at an assumed initial public
offering price of $ per share, after deducting the estimated
underwriting discounts and commissions and offering expenses payable by
us.
You should read this information together with the financial statements and
the notes to those statements appearing elsewhere in this prospectus and the
information under "Selected Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(APRIL 27, 1998) NINE MONTHS
THROUGH ENDED
DECEMBER 31, 1998 SEPTEMBER 30, 1999
----------------- ------------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
OEM....................................................... $ 175 $ 805
Advertising............................................... -- 57
Total revenues........................................ 175 862
Gross profit.............................................. 124 501
Operating loss............................................ (820) (3,189)
Net loss.................................................. (792) (2,930)
Basic and diluted net loss per common share............... $(0.45) $ (0.88)
Shares used to compute basic and diluted net loss per
common share............................................ 1,773 3,330
Pro forma basic and diluted net loss per common share..... $(0.12) $ (0.26)
Shares used to compute pro forma basic and diluted net
loss per common share................................... 6,705 11,092
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $16,427 $16,427
Working capital............................................. 25,869 25,869
Total assets................................................ 28,049 28,049
Total convertible preferred stock........................... 29,651 --
Total stockholders' equity.................................. 27,037 27,037
</TABLE>
4
<PAGE>
RISK FACTORS
AN INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD
CAREFULLY CONSIDER THE FOLLOWING INFORMATION ABOUT THESE RISKS, TOGETHER WITH
THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, BEFORE YOU DECIDE WHETHER TO
BUY OUR COMMON STOCK. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR
BUSINESS, OPERATING RESULTS AND FINANCIAL CONDITION WOULD LIKELY SUFFER. THIS
COULD CAUSE THE MARKET PRICE OF OUR COMMON STOCK TO DECLINE, AND COULD CAUSE YOU
TO LOSE ALL OR PART OF THE MONEY YOU PAID TO BUY OUR COMMON STOCK.
RISKS RELATED TO OUR BUSINESS
OUR BUSINESS IS DIFFICULT TO EVALUATE BECAUSE WE HAVE A LIMITED OPERATING
HISTORY AND FACE DIFFICULTIES ENCOUNTERED BY EARLY STAGE COMPANIES.
We were organized in April 1998 and first sold our products in August 1998.
Our limited operating history makes it difficult for investors to evaluate our
future prospects. Additionally, investors must consider the challenges, risks
and uncertainties frequently encountered by early-stage companies using new and
unproven business models in new and rapidly evolving markets. These challenges
include our ability to:
- generate sufficient revenues to achieve and maintain profitability;
- manage growth in our operations;
- attract and retain customers cost-effectively;
- attract and retain key personnel;
- develop and renew strategic relationships;
- access additional capital when required; and
- increase brand recognition.
We cannot be certain that we will successfully address these and other
challenges, risks and uncertainties or that our business model will be
successful.
WE ANTICIPATE OUR HISTORY OF LOSSES WILL CONTINUE, WHICH MAY DECREASE THE VALUE
OF OUR COMMON STOCK.
Since we began operations, we have incurred substantial operating losses in
every fiscal period. We believe that we will continue to incur operating losses
for the foreseeable future and that the rate at which we will incur such losses
will increase significantly from current levels. As of September 30, 1999, we
had an accumulated deficit of $3.7 million. We incurred net losses of
$2.9 million for the nine months ended September 30, 1999. We intend to
substantially increase our costs and operating expenses related to:
- employing additional personnel as our business expands;
- researching and developing new products;
- developing new and expanding existing customer relationships; and
- intensifying our brand development efforts through advertising and other
marketing activities.
Because we will spend these amounts before we receive any incremental
revenues from these efforts, our losses will be greater than the losses we would
incur if we developed our business more slowly. In addition, we may find that
these efforts are more expensive or less effective than we currently anticipate,
which would further increase our losses.
5
<PAGE>
DISAPPOINTING QUARTERLY REVENUES OR OPERATING RESULTS COULD CAUSE OUR STOCK
PRICE TO FALL.
Our quarterly revenues and operating results are difficult to predict and
may fluctuate significantly from quarter to quarter. If our quarterly revenues
or operating results fall below the expectations of securities analysts or
investors, the price of our common stock could fall substantially. Our quarterly
revenues and operating results have fluctuated significantly in the past and may
fluctuate significantly in the future due to a variety of factors, including:
- fluctuations in the number of visitors to the Web sites of our customers
and our Web site;
- the uncertainty and timing of closing major new accounts;
- the timing and effectiveness of our advertising and promotions;
- the amount and timing of our operating costs and capital expenditures;
- introductions by our competitors of new or enhanced products, services or
Web sites; and
- changes in our management team and key personnel.
Most of our expenses, including employee salaries and rent, are relatively
fixed. In addition, our expense levels are based, in part, on our expectations
of future revenue increases. As a result, any shortfall in revenues in relation
to our expectations could cause a significant decline in our operating results
from quarter to quarter.
OUR CURRENT AND EXPECTED METHODS OF GENERATING REVENUES ARE RELATIVELY NEW AND
LARGELY UNTESTED.
Substantially all of our total revenues for the period from inception
(April 27, 1998) through December 31, 1998, and 93% of our total revenues for
the nine months ended September 30, 1999, were generated through revenues from
OEM customers, which include per-query fees and advertising revenue sharing
arrangements with OEM customers. In addition, although we have not generated any
revenues through the facilitation of e-commerce, we expect to generate a portion
of our future revenues through the facilitation of e-commerce. We facilitate
e-commerce by directing shoppers to e-commerce merchants, some of whom
compensate us for the referral. These methods of revenue generation are new and
untested.
Revenues from Internet advertising will make up a significant amount of our
revenues for the foreseeable future. Since the Internet advertising market is
new and rapidly evolving, we cannot yet gauge its effectiveness as compared to
traditional advertising media. Advertisers that have traditionally relied on
other advertising media may be reluctant to advertise on the Internet if they
believe that Internet advertising is less effective than traditional advertising
media for promoting their products and services. Consequently, they may allocate
only limited portions of their advertising budgets to Internet advertising. Our
business could be materially harmed if Internet advertising does not continue to
grow or if we are unsuccessful in increasing our advertising revenues.
WE MAY FAIL TO COMPETE EFFECTIVELY IN OUR MARKETS, WHICH COULD RESULT IN LOWER
REVENUES OR LOSS OF MARKET SHARE.
Our markets are new, rapidly evolving and intensely competitive, and we
expect competition to intensify in the future. If we fail to compete
effectively, our revenues could decline, we could lose market share and the
price of our stock could decline. Our ability to compete depends on many
factors, many of which are outside of our control. These factors include the
ease of use and performance of online services, the timing and market acceptance
of new and enhanced online services, and sales and marketing efforts by us and
our competitors.
Many of our existing competitors, as well as potential new competitors, have
longer operating histories, greater name recognition, larger customer bases and
significantly greater financial, technical and marketing resources than we do.
These competitors may engage in more extensive research and
6
<PAGE>
development, adopt more aggressive pricing policies and make more attractive
offers to existing and potential employees, customers, advertisers and
e-commerce merchants and consumers. A more detailed discussion regarding the
competition we face is included in this prospectus under the heading
"Business--Competition."
IF WE DO NOT MANAGE GROWTH EFFECTIVELY, OUR BUSINESS WILL BE MATERIALLY HARMED.
We have experienced and may continue to experience rapid growth, which has
placed, and could continue to place, a significant strain on our managerial,
financial and operational resources. If we do not manage growth effectively, our
business will be materially harmed. The number of our employees increased from 9
on December 31, 1998 to 51 on November 30, 1999. We expect that the number of
our employees will continue to increase for the foreseeable future. We must
continue to improve our operations, financial systems and managerial controls
and procedures, and we will need to continue to expand, train and manage our
workforce. We cannot assure you that our systems, procedures or controls will be
adequate to support our operations or that we will be able to manage any growth
effectively.
IF WE ARE UNABLE TO ADAPT TO RAPID TECHNOLOGICAL CHANGE, OUR CUSTOMERS MAY
FOREGO THE USE OF OUR PRODUCTS AND USE THOSE OF OUR COMPETITORS.
To remain competitive, we must continue to enhance and improve the
functionality and features of our products. If our competitors introduce new
products and services embodying new technologies, or if new industry standards
and practices emerge, our products that are based on our existing proprietary
technology may be rendered obsolete. Our future success will depend on our
ability to:
- enhance our existing products;
- internally develop or license from third parties new products, services
and technologies; and
- respond to technological advances and emerging industry standards and
practices on a cost-effective and timely basis.
OUR ABILITY TO INCREASE OUR CUSTOMER BASE AND OUR REVENUES DEPENDS ON THE
CONTINUING CONTRIBUTION OF OUR KEY PERSONNEL.
If we were to lose the services of any of our executive officers or key
employees, many of whom joined us in 1999, we might not be able to increase our
customer base and our revenues. Any executive officer can terminate his or her
relationship with us at any time. We also do not have "key person" life
insurance policies covering any of our employees.
OUR ABILITY TO INCREASE OUR CUSTOMER BASE AND OUR REVENUES DEPENDS ON OUR
ABILITY TO ATTRACT AND RETAIN OTHER QUALIFIED EMPLOYEES IN THE FUTURE.
Competition for personnel is intense, and qualified technical personnel are
likely to remain a limited resource for the foreseeable future. Locating
candidates with the appropriate qualifications, particularly in the desired
geographic location, can be costly and difficult. We may not be able to hire the
necessary personnel to implement our business strategy, or we may need to
provide higher compensation to such personnel than we currently anticipate. If
we fail to attract and retain sufficient numbers of highly skilled employees, we
may be unable to attract customers and increase our revenues.
OUR FAILURE TO EXPAND OUR SALES FORCE AND THE NUMBER OF OUR OEM CUSTOMERS WOULD
ADVERSELY AFFECT OUR REVENUE GROWTH AND FINANCIAL CONDITION.
To increase our revenues, we must increase the size of our sales force and
the number of our OEM customers. We may be unable to increase the number of our
OEM customers. In addition, there is intense competition for sales personnel in
our business, and we cannot assure you that we will be
7
<PAGE>
successful in attracting, integrating, motivating and retaining new sales
personnel. Moreover, we may need to resolve potential conflicts arising from
competition between our advertising sales force and those of our OEM customers.
If we fail to increase the size of our sales force or the number of our OEM
customers, or if we fail to adequately resolve conflicts between our advertising
sales force and those of our OEM customers, our revenues and our stock price
could decline.
THE LOSS OF OUR RELATIONSHIP WITH LYCOS OR ANY OTHER CUSTOMER THAT ACCOUNTS FOR
A SIGNIFICANT PORTION OF OUR REVENUES COULD ADVERSELY AFFECT OUR BUSINESS AND
CAUSE OUR STOCK PRICE TO DECLINE.
For the nine months ended September 30, 1999, Lycos, including its
subsidiary, HotBot, accounted for approximately 70% of our total revenues. In
addition, Lycos recently invested in Fast Search and Transfer, a provider of
Internet search technology. Our agreements with Lycos and our other OEM
customers are generally terminable upon short notice. A significant decline in
sales to Lycos or any other customer that accounts for a significant portion of
our revenues could adversely affect our business and cause our stock price to
decline.
IF OUR BRAND DOES NOT RAPIDLY ACHIEVE BROAD RECOGNITION, WE MAY LOSE THE
OPPORTUNITY TO BUILD A CRITICAL MASS OF INTERNET USERS NECESSARY TO ACHIEVE
INCREASED MARKET SHARE.
We believe that increasing the recognition of the Direct Hit brand is
important to our success. Accordingly, we have invested and intend to continue
to invest in our brand-enhancement strategy, which includes advertising,
promotional programs and public relations activities. Our brand promotion
efforts may not be successful or may not sufficiently increase our revenues to
cover our advertising and promotional expenses.
WE MAY EXPERIENCE LOST OR DELAYED SALES IF OUR SALES CYCLE LENGTHENS.
Our customers' purchasing decisions may be subject to delays over which we
may have little or no control, including budgeting constraints and internal
purchase approval review procedures. A longer sales cycle reduces our ability to
forecast revenue levels and may result in lost sales. Any delay or loss in sales
of our products could have a material adverse effect on our business, operating
results and financial condition, and could cause our operating results to vary
significantly from quarter to quarter.
EXPANSION OF OUR BUSINESS INTO INTERNATIONAL MARKETS COULD ADVERSELY AFFECT OUR
BUSINESS AND CAUSE OUR STOCK PRICE TO DECLINE.
As we continue to expand our business into international markets, we face
the risks associated with international operations, including unexpected changes
in regulatory requirements and tariffs, exchange rate fluctuations, difficulties
in staffing and managing foreign operations, potentially longer payment cycles
and problems in collecting accounts receivable. If we are unable to manage these
risks effectively, our revenues and our stock price could decline.
IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY ADEQUATELY, WE COULD LOSE
OUR COMPETITIVE ADVANTAGE.
Our trademarks, copyrights, trade secrets and similar intellectual property
are critical to our success. Our failure to protect our intellectual property
could materially harm our business. The infringement or misappropriation of our
trademarks or other intellectual property could diminish the value of our
proprietary rights or goodwill. We rely upon a combination of trademark, patent
and copyright law, trade secret protection and confidentiality or license
agreements with our employees, affiliates and others to protect our proprietary
rights. Effective patent, trademark, copyright and trade secret protection may
not be available, and the steps we have taken and may take in the future to
protect our proprietary rights may not be adequate. Gary Culliss, our co-founder
and Chief Technology Officer, owns the rights to one patent and three patent
applications relating to aspects of our core
8
<PAGE>
technology, as to each of which we have an exclusive license. We have also filed
applications to register our trademarks and logos. However, we cannot assure you
that the one issued patent, or any patents or registered trademarks, if any,
that are issued under our current or any future applications, will be of
sufficient scope and strength to provide meaningful protection of our technology
or any commercial advantage to us, or that any such patents or trademarks will
not be challenged, invalidated or circumvented by our competitors. In addition,
we license our trademarks and other intellectual property to third parties, and
we cannot be certain that such licensees will not take actions that harm the
value of our proprietary rights.
CLAIMS BY OTHER COMPANIES THAT WE INFRINGE THEIR PROPRIETARY TECHNOLOGY COULD
FORCE US TO REDESIGN OUR PRODUCTS OR OTHERWISE HURT OUR BUSINESS AND FINANCIAL
CONDITION.
If we were to discover that any of our products violated third-party
proprietary rights, we cannot assure you that we would be able to reengineer the
product or to obtain a license on commercially reasonable terms, if at all, to
continue offering the product. We do not conduct comprehensive patent searches
to determine whether the technology used in our products infringes patents held
by third parties. In addition, product development is inherently uncertain in a
rapidly developing technology environment in which there may be numerous patent
applications pending, many of which are confidential when filed, with regard to
similar technologies. Any claim of infringement could cause us to incur
substantial costs defending against the claim, even if the claim is invalid, and
could distract our management from running our business. Furthermore, a party
making such a claim could secure a judgment that requires us to pay substantial
damages. A judgment could also include an injunction or other court order that
could prevent us from selling our products or cause our customers to stop using
our products.
IF WE ARE UNABLE TO PREVENT THIRD PARTIES FROM ACQUIRING DOMAIN NAMES THAT ARE
SIMILAR TO, INFRINGE UPON OR OTHERWISE DECREASE THE VALUE OF OUR DOMAIN NAMES,
WE COULD LOSE OUR COMPETITIVE ADVANTAGE.
We currently hold several Web domain names relating to our brand, including
DIRECTHIT.COM. The acquisition and maintenance of domain names generally is
regulated by governmental agencies and their designees. The regulation of domain
names in the United States and abroad is expected to change in the near future.
Governing bodies may establish additional top-level domains, appoint additional
domain name registrars or modify the requirements for holding domain names. As a
result, we may be unable to acquire or maintain relevant domain names in all
countries in which we conduct business and other parties may use domain names
similar to ours.
IF OUR EXISTING TECHNICAL AND OPERATIONAL SYSTEMS FAIL, WE COULD EXPERIENCE
INTERRUPTIONS OR DELAYS IN OUR SERVICE OR DATA LOSS.
We have experienced periodic systems interruptions which we believe may
continue to occur. Our systems and operations are vulnerable to damage or
interruption from telecommunications failure, power loss, break-ins, vandalism,
fire, flood, earthquakes and similar events. Substantially all of our
information management systems are in leased facilities in Massachusetts. In
addition, substantially all of our computer and communications hardware systems
are located at third-party facilities in California, Massachusetts, New York,
Virginia and the United Kingdom. We have no formal disaster recovery plans, and
our insurance may not adequately compensate us for losses that may occur. The
occurrence of a natural disaster or other unanticipated problems at our
facilities in Massachusetts, or at the third-party facilities described above,
could cause interruptions or delays in the service provided by our products or
data loss. In addition, any failure by the third-party facilities to provide the
data communications capacity we require could result in interruptions in the
service provided by our products.
9
<PAGE>
WE FACE RISKS ASSOCIATED WITH POTENTIAL ACQUISITIONS OF COMPLEMENTARY COMPANIES,
PRODUCTS OR TECHNOLOGIES.
We may make investments in or acquire complementary companies, products or
technologies. We may not realize the anticipated benefits of these investments
or acquisitions, and these transactions could be detrimental to our business. If
we buy a business, we could have difficulty assimilating its personnel and
operations, or the key personnel of the acquired business may decide not to work
for us. We could also have difficulty assimilating acquired technology or
products into our operations. These difficulties could disrupt our ongoing
business, distract our management and employees and increase our expenses.
Furthermore, to pay for any future acquisitions or investments, we may have to
incur debt or issue equity securities, the issuance of which could be dilutive
to our existing stockholders.
WE ARE LIKELY TO REQUIRE ADDITIONAL FINANCING AND MAY NOT BE ABLE TO RAISE
ADDITIONAL FINANCING ON FAVORABLE TERMS OR AT ALL.
We currently anticipate that the net proceeds of this offering, together
with current cash and cash equivalents, will be sufficient to meet our
anticipated needs through the next 12 months. However, we may need additional
financing sooner to execute on our business model if we need to respond to
business contingencies. Such contingencies may include the need to:
- fund additional advertising and marketing expenditures;
- hire additional sales personnel;
- develop new or enhance existing products, site features or services;
- enhance our operating infrastructure;
- respond to competitive pressures; or
- acquire complementary businesses or necessary technologies.
If we raise additional funds through the issuance of equity or convertible
debt securities, the percentage ownership of our stockholders will be reduced,
and these newly issued securities may have rights, preferences or privileges
senior to those of existing stockholders, including those acquiring shares in
this offering. We cannot assure you that additional financing will be available
on terms favorable to us, or at all. If adequate funds are not available or are
not available on acceptable terms, our ability to fund our operations, take
advantage of unanticipated opportunities, develop or enhance our products, site
features or services, or otherwise respond to competitive pressures would be
significantly limited.
MANY MEMBERS OF OUR CURRENT MANAGEMENT TEAM DO NOT HAVE EXPERIENCE MANAGING A
PUBLIC COMPANY.
Many members of our management team do not have experience managing a public
company. We cannot assure you that the management team as currently configured
will be able to successfully handle the additional burdens of public company
status. The failure of the management team to adequately handle this challenge
could materially harm our business and could cause the market price of our
common stock to decline.
WE DO NOT EXPECT TO PAY DIVIDENDS, AND INVESTORS SHOULD NOT BUY OUR COMMON STOCK
EXPECTING TO RECEIVE DIVIDENDS.
We have never declared or paid any cash dividends on our capital stock. We
presently intend to retain future earnings, if any, to finance the expansion of
our business and do not expect to pay any cash dividends in the foreseeable
future. Consequently, you only will realize an economic gain on your investment
in our common stock if the price appreciates. You should not purchase our common
stock with the expectation of receiving cash dividends.
10
<PAGE>
WE ARE SUBJECT TO ANTI-TAKEOVER PROVISIONS IN OUR CHARTER, BYLAWS AND DELAWARE
LAW THAT COULD DELAY OR PREVENT AN ACQUISITION OF OUR COMPANY, EVEN IF THE
ACQUISITION WOULD BE BENEFICIAL TO OUR STOCKHOLDERS.
Certain provisions of our certificate of incorporation, our bylaws and
Delaware law could make it more difficult for a third party to acquire us, even
if doing so would be beneficial to our stockholders. Because of these
provisions, you might not be able to receive a premium on your investment. For
additional information on these anti-takeover provisions, please refer to the
information in this prospectus under the heading "Description of Capital Stock."
RISKS OF DOING BUSINESS OVER THE INTERNET
IF USE OF THE INTERNET AND GROWTH OF ONLINE SEARCH SERVICES AND ELECTRONIC
COMMERCE DO NOT CONTINUE TO INCREASE, WE MAY NOT ACHIEVE THE CRITICAL MASS OF
CUSTOMERS NECESSARY FOR SUSTAINING REVENUES AND ACHIEVING PROFITABLE OPERATIONS.
Our future revenues and profits, if any, substantially depend upon the
widespread acceptance and use of the Internet as an effective medium for
information retrieval, business and commerce. Rapid growth in the use of and
interest in the Internet has occurred only recently. As a result, acceptance and
use may not continue to develop at historical rates, and a sufficiently broad
base of consumers may not use the Internet and other communications networks. In
addition, the Internet may not be accepted as a viable long-term commercial
marketplace for a number of reasons, including inadequate development of
necessary network infrastructure or delayed development of enabling technologies
and performance improvements. Our continued growth will depend, in large part,
upon third parties maintaining and developing the Internet infrastructure to
provide a reliable network backbone with the speed, data capacity, security and
hardware necessary for reliable Internet access and services.
WE FACE POTENTIAL LIABILITY FOR INFORMATION RETRIEVED FROM THE INTERNET.
Because we link users to information which is downloaded, indexed and
distributed from Web pages published by content providers outside of our
control, we face potential claims on theories such as defamation, negligence,
copyright or trademark infringement, distribution of obscene, lascivious or
indecent communications or other theories of liability based on the nature and
content of such materials. Such claims have been brought, and sometimes
successfully pressed, against online services in the past. Additionally, claims
could be made against us for copyright infringement based on the improper
dissemination of information. Although we carry general liability insurance, our
insurance may not cover potential claims of this type, or may not be adequate to
indemnify us for all liability that may be imposed.
PRIVACY CONCERNS MAY LIMIT THE INFORMATION WE CAN GATHER, WHICH COULD LIMIT THE
EFFECTIVENESS OF OUR PRODUCTS AND CAUSE US TO INCUR SIGNIFICANT ADDITIONAL
EXPENSES.
Web sites typically place software files, called cookies, on a user's hard
drive without the user's knowledge or consent. Although some companies refuse to
use cookies, we use them for a variety of reasons, such as the storage of
anonymous demographic data. We use this demographic data for the Personalized
Search component of our Popularity-based Search product to provide more accurate
and relevant search results. Accordingly, any reduction or limitation in the use
of cookies could limit our ability to provide accurate and relevant search
results. Most currently available Web browsers allow users to remove cookies at
any time or to prevent cookies from being stored on their hard drives. In
addition, some commentators, privacy advocates and governmental bodies have
suggested limiting or eliminating the use of cookies. For example, the European
Union recently adopted a directive addressing data privacy that may limit the
collection and use of certain information regarding Internet users. This
directive may limit our ability to collect and use information in certain
European countries. In addition, the Federal Trade Commission and several state
governments have investigated the use by certain Internet companies of personal
information. We could lose significant market share or incur
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<PAGE>
significant additional expenses if new regulations regarding the use of personal
information are introduced or if our privacy practices are investigated.
OUR BUSINESS IS SUBJECT TO GOVERNMENT REGULATION OF THE INTERNET AND OTHER LEGAL
UNCERTAINTIES WHICH COULD PREVENT OUR BUSINESS FROM GROWING OR EXPOSE US TO
UNANTICIPATED LIABILITIES.
Existing or future legislation could limit growth in use of the Internet,
which would curtail our revenue growth. Statutes and regulations directly
applicable to Internet communications, commerce and advertising are becoming
more prevalent. Congress recently passed laws regarding children's online
privacy, copyrights and taxation. The law remains largely unsettled, even in
areas where there has been legislative action. It may take years to determine
whether and how existing laws governing intellectual property, privacy, libel
and taxation apply to the Internet, e-commerce and online advertising. 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 ASSOCIATED WITH THIS OFFERING
OUR MANAGEMENT HAS BROAD DISCRETION OVER THE USE OF PROCEEDS FROM THIS OFFERING.
Presently, we intend to use the proceeds from this offering for increased
sales and marketing and research and development expenditures, and for working
capital and other general corporate purposes. We also may use a portion of the
proceeds to expand our business through strategic alliances and acquisitions. We
have not yet determined the amount of net proceeds to be used specifically for
any of the foregoing purposes. As a result, investors in this offering will be
relying on management's judgment with only limited information about its
specific intentions regarding the use of proceeds. We cannot assure you that the
proceeds will be invested to yield a favorable return.
OUR OFFICERS AND DIRECTORS WILL CONTROL % OF OUR COMMON STOCK AND WILL BE ABLE
TO CONTROL CORPORATE ACTIONS.
After this offering, our executive officers, directors and entities
affiliated with them will control approximately % of our common stock. As a
result, these stockholders, acting together, will be able to control all matters
requiring approval by our stockholders, including the election of directors and
the approval of mergers or other business combination transactions. This
concentration of ownership may have the effect of delaying or preventing a
change of control of our company, and might hurt the market price of our common
stock.
THERE IS NO PRIOR PUBLIC MARKET FOR OUR COMMON STOCK, AND YOU MAY NOT BE ABLE TO
RESELL SHARES OF OUR COMMON STOCK FOR A PROFIT.
There has not been a public market for our common stock. We cannot predict
the extent to which investor interest in our company will lead to the
development of an active, liquid trading market. Active trading markets
generally result in a more efficient execution of buy and sell orders for
investors. The initial public offering price for the shares of common stock
offered by us will be determined by negotiations between us and the
representatives of the underwriters and may not be indicative of prices that
will prevail in the trading market. The market price of the common stock may
decline below the initial public offering price.
MARKET PRICES OF EMERGING INTERNET COMPANIES HAVE BEEN HIGHLY VOLATILE, AND THE
MARKET FOR OUR STOCK MAY EXHIBIT VOLATILITY AS WELL.
The stock market has experienced significant price and trading volume
fluctuations, and the market prices of technology companies, particularly
Internet companies, have been extremely volatile. Recent initial public
offerings by Internet companies have been accompanied by exceptional share price
and trading volume changes in the first days and weeks after the public
offering. Investors may not be
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<PAGE>
able to resell their shares at or above the initial public offering price. In
the past, following periods of volatility in the market price of a public
company's securities, securities class action litigation has often been
instituted against that company. Such litigation could result in substantial
costs and a diversion of management's attention and resources.
THE RELIABILITY OF THE MARKET DATA INCLUDED IN THIS PROSPECTUS IS UNCERTAIN.
Since we are a relatively new company and operate in a new and rapidly
changing market, we have included market data in this prospectus from industry
publications, including International Data Corporation and Media Metrix. These
data include projections that are based on a number of assumptions, including
increasing worldwide business use of the Internet, the growth in the number of
Web access devices per user, the absence of any failure of the Internet and the
continued improvement of security on the Internet. Industry publications
generally state that the information contained in these publications has been
obtained from sources believed to be reliable, but that its accuracy and
completeness is not guaranteed. Although we believe market data used in this
prospectus is reliable, it has not been independently verified and we cannot
assure you of its reliability.
The Internet related markets may not grow at rates projected by
International Data Corporation. The failure of these markets to grow at
projected rates may seriously harm our business and may cause the price of our
common stock to decline.
NEW INVESTORS WILL SUFFER IMMEDIATE AND SUBSTANTIAL DILUTION IN THE NET TANGIBLE
BOOK VALUE OF THEIR SHARES.
We expect the initial public offering price to be substantially higher than
the net tangible book value per share of the common stock. Therefore, you will
incur immediate dilution in net tangible book value of $ per share,
assuming an initial public offering price of $ per share. You may incur
additional dilution if holders of stock options exercise their options to
purchase common stock.
THE LARGE NUMBER OF SHARES ELIGIBLE FOR PUBLIC SALE AFTER THIS OFFERING COULD
CAUSE OUR STOCK PRICE TO DECLINE.
The market price of our common stock could decline as a result of market
sales by our existing stockholders of a large number of shares of our common
stock after this offering or the perception that such sales could occur. These
sales also might make it more difficult for us to sell equity securities in the
future at a time and price that we deem appropriate. Please see the information
in this prospectus under the heading "Shares Eligible for Future Sale" for a
description of sales that may occur in the future.
FORWARD-LOOKING STATEMENTS CONTAINED IN THIS PROSPECTUS MAY NOT BE REALIZED.
This prospectus contains forward-looking statements that involve risks and
uncertainties. These forward-looking statements are often accompanied by words
such as "anticipate," "believe," "could," "expect," "future," "intend," "plan"
and similar expressions. These statements include assertions about our business
strategy, competition and expected expense levels. You should consider any
forward-looking statements we make in this prospectus in light of the risk
factors described above. Our actual results could differ materially from those
expressed or implied by these forward-looking statements as a result of various
factors, including the risk factors described above and elsewhere in this
prospectus.
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<PAGE>
USE OF PROCEEDS
Our net proceeds from the sale of shares of common stock offered by us are
estimated to be $ million, assuming an initial public offering price
of $ per share, and after deducting estimated underwriting discounts and
commissions and offering expenses payable by us. If the underwriters'
over-allotment option is exercised in full, we estimate that our net proceeds
will be $ million.
We intend to use the proceeds from this offering for sales and marketing and
research and development expenditures, and for working capital and other general
corporate purposes.
We believe opportunities may exist from time to time to expand our current
business through strategic alliances or acquisitions with complementary
companies, products or technologies. We may use a portion of the proceeds for
these purposes.
We have not yet determined the amount of net proceeds to be used
specifically for any of the foregoing purposes. Accordingly, our management will
have significant flexibility in applying the net proceeds of the offering.
Pending any use, as described above, we intend to invest the net proceeds in
high-quality, short-term, interest-bearing securities.
DIVIDEND POLICY
We have not declared or paid any cash dividends on our capital stock since
inception (April 27, 1998) and do not expect to pay any cash dividends for the
foreseeable future. We intend to use future earnings, if any, to finance
expansion of our business for the foreseeable future. Investors should not
purchase our common stock with the expectation of receiving cash dividends.
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<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of September 30, 1999:
- on an actual basis;
- on a pro forma basis to give effect to the conversion of our preferred
stock upon completion of this offering; and
- on a pro forma as adjusted basis to give effect to our sale of
shares of common stock in this offering at an assumed initial public
offering price of $ per share, after deducting the estimated
underwriting discounts and commissions and offering expenses payable by
us.
This information should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operation" and our financial
statements and the notes to those statements appearing elsewhere in this
prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Preferred stock, $0.001 par value:
Series A--5,187,501 shares authorized; 5,187,501 shares
issued and outstanding actual; no shares issued and
outstanding pro forma and pro forma as adjusted........... $ 1,378 -- $
Series B--1,323,912 shares authorized; 1,323,912 shares
issued and outstanding actual; no shares issued and
outstanding pro forma and pro forma as adjusted........... 1,993 -- --
Series C--4,431,265 shares authorized; 4,431,263 shares
issued and outstanding actual; no shares issued and
outstanding pro forma and pro forma as adjusted........... 26,280 -- --
Common stock, $0.001 par value: 35,000,000 shares
authorized; 9,722,048 shares issued and outstanding
actual; 20,664,724 shares issued and outstanding pro
forma; and shares issued and outstanding pro forma
as adjusted............................................... 10 $ 21
Additional paid-in capital.................................. 5,602 35,242
Deferred compensation....................................... (4,504) (4,504)
Accumulated deficit......................................... (3,722) (3,722)
------- ------- ---------
Total capitalization.................................... $27,037 $27,037 $
======= ======= =========
</TABLE>
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<PAGE>
DILUTION
Our pro forma net tangible book value as of September 30, 1999 was $27.0
million, or $1.31 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, after giving effect
to the conversion of our preferred stock upon completion of this offering. After
giving effect to our sale of shares of common stock in this offering at an
assumed initial public offering price of $ per share, and after deducting
estimated underwriting discounts and commissions and offering expenses payable
by us, our pro forma net tangible book value as of September 30, 1999 would have
been $ , or $ per share. This represents an immediate increase in
pro forma net tangible book value of $ per share to existing stockholders
and an immediate dilution of $ per share to new investors purchasing
shares of common stock in this offering. The following table illustrates this
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share as of
September 30, 1999...................................... $1.31
Increase per share attributable to this offering..........
--------
Pro forma net tangible book value per share after this
offering..................................................
--------
Net tangible book value dilution per share to new investors
in this offering.......................................... $
========
</TABLE>
The following table summarizes, on a pro forma basis as of September 30,
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 to us by existing
stockholders and by new investors purchasing shares in this offering:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------------------------- ------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------------------------- -------- -------------- -------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.............. 20,664,724 % $29,734,912.55 % $1.44
New investors......................
--------------------------- ------ -------------- ------
Total.......................... 100.0% 100.0%
=========================== ====== ============== ======
</TABLE>
The foregoing tables and calculations are based on shares outstanding on
September 30, 1999 and:
- include 10,942,676 shares of common stock issuable upon the conversion of
all of our outstanding preferred stock as of September 30, 1999; and
- exclude 1,204,646 shares of common stock issuable upon exercise of all
options outstanding under our 1998-A Stock Option Plan as of
September 30, 1999 with a weighted average exercise price of $1.43 per
share.
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<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with our
financial statements and the notes to those satements and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this prospectus. The statement of operations data for the
period from inception (April 27, 1998) through December 31, 1998 and the balance
sheet data at December 31, 1998 are derived from our financial statements which
have been audited by Deloitte & Touche LLP, our independent auditors, and are
included in this prospectus. The statement of operations data for the nine
months ended September 30, 1999 and the balance sheet data at September 30, 1999
have been derived from our unaudited financial statements included elsewhere in
this prospectus that include, in the opinion of management, all adjustments,
consisting of normal recurring adjustments, that we consider necessary for the
fair presentation of our financial position and results of operations for that
period. The historical results are not necessarily indicative of the operating
results to be expected in the future.
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(APRIL 27, 1998) NINE MONTHS
THROUGH ENDED
DECEMBER 31, 1998 SEPTEMBER 30, 1999
----------------- ------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
OEM....................................................... $ 175 $ 805
Advertising............................................... -- 57
------- -------
Total revenues.......................................... 175 862
Cost of revenues............................................ 51 361
------- -------
Gross profit................................................ 124 501
------- -------
Operating expenses:
Sales and marketing....................................... 90 948
Research and development.................................. 472 1,502
General and administrative................................ 150 413
Equity-related compensation............................... 232 827
------- -------
Total operating expenses................................ 944 3,690
------- -------
Operating loss.............................................. (820) (3,189)
Interest income............................................. 28 259
------- -------
Net loss.................................................... $ (792) $(2,930)
======= =======
Pro forma basic and diluted net loss per share.............. $(0.12) $(0.26)
======= =======
Weighted average shares outstanding used in computing pro
forma basic and diluted net loss per common
share..................................................... 6,705 11,092
======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998 SEPTEMBER 30, 1999
----------------- ------------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $2,558 $16,427
Working capital............................................. 2,641 25,869
Total assets................................................ 2,924 28,049
Total convertible preferred stock........................... 3,371 29,651
Total stockholders' equity.................................. 2,823 27,037
</TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF OUR COMPANY SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL
STATEMENTS AND THE NOTES TO THOSE STATEMENTS APPEARING ELSEWHERE IN THIS
PROSPECTUS. THIS DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE
RISKS AND UNCERTAINTIES.
OVERVIEW
Direct Hit is a leading provider of solutions that aggregate and organize
online content to enable users to quickly find relevant and accurate
information, products and services. We were incorporated in April 1998, and sold
our Popularity-based Search product to our first customer in August 1998.
Revenues are comprised of OEM revenues and advertising revenues. Through
September 30, 1999, substantially all of our OEM revenues have been derived from
our Popularity-based Search product. OEM revenues are generated through a
variety of contractual arrangements, which include per-query fees and
advertising revenue sharing arrangements with OEM customers. Per-query fees are
recognized in the period earned, and revenues from advertising revenue sharing
arrangements are recognized in the period that the advertisement is displayed
through the OEM customer's Web site. When the OEM contract calls for payments
based on per-query fees, revenues are recognized based on the number of Web
pages accessed as reported by the OEM customer or as determined by us, depending
on the contract. When the OEM contract provides for minimum monthly fees, such
fees are recognized monthly as earned.
Advertising revenues are derived principally from arrangements with third
parties in which we provide advertising on our Web site. The advertising
contracts are primarily sold as: (1) "run-of-site" contracts in which a customer
purchases the right to advertise within rotation through our entire Web site and
some of our customers' sites for all categories and non-specific keywords;
(2) "run-of-category" contracts in which a customer purchases the right to
advertise in connection with a specific category (e.g., sports, music, news,
education, etc.); (3) "keyword" contracts in which a customer purchases the
right to advertise in connection with specified word searches; and (4) text
sponsorships in which a customer purchases link descriptions based on a bid
system and rotation is based on the highest bid.
We are still developing the business model for our Popularity-based Shopping
product and anticipate that revenues will be generated by revenue sharing
arrangements with online merchants, and by per-query fees and advertising fees
from Internet portals and other Web site customers. We also anticipate that we
will generate revenues at our Web site from our Popularity-based Shopping
product through advertising and revenue sharing arrangements with online
merchants. However, we cannot assure you that we will generate any revenues from
our Popularity-based Shopping product.
Cost of revenues consist primarily of expenses associated with the ongoing
maintenance and support of our products, including compensation and
employee-related expenses, consulting fees, equipment costs, networking,
bandwidth and other related indirect costs. Sales and marketing expenses consist
primarily of advertising and other marketing-related expenses, compensation and
employee-related expenses, sales commissions and travel costs. Research and
development expenses consist primarily of compensation and employee-related
expenses, equipment costs, and fees for professional services related to the
continued development and enhancement of our product offerings. General and
administrative expenses consist primarily of compensation and employee-related
expenses, fees for professional services and other general corporate overhead
costs. Interest income is derived primarily from interest earned on our cash
balances and short-term investments.
We will incur a non-cash expense over the vesting period of certain
outstanding options, generally four years, for the amortization of unearned
stock-based compensation resulting from granting stock options to employees
since the inception of our company. These deferred compensation costs represent
18
<PAGE>
the difference between the exercise price of the options and the deemed fair
market value of the underlying common stock at the time of grant of the options.
We have experienced substantial losses in each fiscal period since our
inception (April 27, 1998). As of September 30, 1999, we had an accumulated
deficit of $3.7 million. These losses and our accumulated deficit have resulted
from our lack of substantial revenues, as well as the significant costs incurred
in the development of our products and in the preliminary establishment of our
infrastructure. We expect to increase our expenditures in all areas in order to
execute our business plan, particularly in sales and marketing and research and
development. The planned increase in sales and marketing and research and
development expenses will result principally from the hiring of additional
personnel and from marketing programs. Accordingly, we expect to experience
additional losses for the foreseeable future. Although we have experienced
revenue growth in recent periods, our recent rate of revenue growth may not be
sustainable. We may not be able to continue to increase our revenues or to
attain profitability and, if we do achieve profitability, we may not be able to
sustain profitability for any period. We believe that period-to-period
comparisons of our historical operating results may not be meaningful, and you
should not rely upon them as an indication of our future financial performance.
Since inception, we have financed our operations primarily from the proceeds
of the sale of equity securities. Net proceeds from inception through
September 30, 1999 totaled approximately $29.7 million. In May 1998, Draper
Fisher Jurvetson and high net worth individuals provided us initial equity
capital of $1.4 million. In November 1998, an additional $2.0 million was
invested by Draper Fisher Jurvetson, Mosaic Venture Partners and a high net
worth individual. In July 1999, we received approximately $26.3 million in
financing from investors including Commonwealth Capital, Cornerstone Capital
Group, Draper Fisher Jurvetson, Hikari Tsushin, McCloskey, Mercury Investors,
Mosaic Venture Partners, TA Associates and Viventures Partners.
RESULTS OF OPERATIONS
The following table sets forth operating data expressed as a percentage of
total revenues for each period indicated. We were organized in April 1998 and
first sold our products in August 1998. Accordingly, comparisons with prior
periods are not meaningful.
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(APRIL 27, 1998)
THROUGH NINE MONTHS
DECEMBER 31, ENDED
1998 SEPTEMBER 30, 1999
---------------- ------------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
OEM....................................................... 100% 93%
Advertising............................................... -- 7
----- -----
Total revenues.......................................... 100 100
Cost of revenues............................................ 29 42
----- -----
Gross margin................................................ 71 58
----- -----
Operating expenses:
Sales and marketing....................................... 51 110
Research and development.................................. 269 174
General and administrative................................ 86 48
Equity-related compensation............................... 132 96
----- -----
Total operating expenses................................ 538 428
----- -----
Operating loss.............................................. (467) (370)
Interest income............................................. 16 30
----- -----
Net loss.................................................... (451)% (340)%
===== =====
</TABLE>
19
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1999
REVENUES
Total revenues for the nine months ended September 30, 1999 were $862,000.
OEM revenues were $805,000, or 93% of total revenues. Advertising revenues were
$57,000, or 7% of total revenues.
COST OF REVENUES. Cost of revenues for the nine months ended September 30,
1999 totaled $361,000, or 42% of total revenues.
SALES AND MARKETING. Sales and marketing expenses for the nine months ended
September 30, 1999 totaled $948,000, or 110% of total revenues.
RESEARCH AND DEVELOPMENT. Research and development expenses for the nine
months ended September 30, 1999 totaled $1.5 million, or 174% of total revenues.
GENERAL AND ADMINISTRATIVE. General and administrative expenses for the
nine months ended September 30, 1999 totaled $413,000, or 48% of total revenues.
EQUITY-RELATED COMPENSATION. Equity-related compensation expense for the
nine months ended September 30, 1999 totaled $827,000, including $602,000 of
amortization of deferred stock-based compensation relating primarily to stock
options and restricted stock issued to employees and independent consultants.
Deferred stock-based compensation is amortized on a straight-line basis over the
vesting period based on either the difference between the fair value of our
stock on the date of grant and the exercise price or the value of a particular
grant as determined by a Black-Scholes model. Also included in equity-related
compensation expense for the nine months ended September 30, 1999 is a $225,000
charge representing the fair value of the stock contributed to us by one of the
founders and then reissued by us to other employees. As of September 30, 1999,
we have recorded approximately $4.5 million in deferred compensation. As our
stock option plan has a four-year vesting requirement, the remaining deferred
compensation cost will be amortized ratably through the fourth quarter of 2003.
Stock-based compensation is a non-cash expense.
INTEREST INCOME. Interest income for the nine months ended September 30,
1999 totaled $259,000 and was derived primarily from interest earned on our cash
balances and short-term investments.
INCOME TAXES. We have not recorded an income tax expense or benefit because
we have incurred net operating losses since inception.
PERIOD FROM INCEPTION (APRIL 27, 1998) THROUGH DECEMBER 31, 1998
REVENUES
Total revenues for the period from inception (April 27, 1998) through
December 31, 1998 were $175,000. Revenues were derived solely from OEM revenues.
In August 1998, we recognized revenues from our first OEM customer contracts.
COST OF REVENUES. Cost of revenues for the period from inception
(April 27, 1998) through December 31, 1998 totaled $51,000, or 29% of total
revenues.
SALES AND MARKETING. Sales and marketing expenses for the period from
inception (April 27, 1998) through December 31, 1998 totaled $90,000, or 51% of
total revenues.
RESEARCH AND DEVELOPMENT. Research and development expenses for the period
from inception (April 27, 1998) through December 31, 1998 totaled $472,000, or
269% of total revenues.
GENERAL AND ADMINISTRATIVE. General and administrative expenses for the
period from inception (April 27, 1998) through December 31, 1998 totaled
$150,000, or 86% of total revenues.
20
<PAGE>
EQUITY-RELATED COMPENSATION. Equity-related compensation expense for the
period from inception (April 27, 1998) through December 31, 1998 totaled
$232,000 of amortization of deferred stock-based compensation relating primarily
to stock options and restricted stock issued to employees and independent
consultants.
INTEREST INCOME. Interest income for the period from inception (April 27,
1998) through December 31, 1998 totaled $28,000 and was derived primarily from
interest earned on our cash balances.
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth unaudited quarterly statements of operations
data in dollars for the period from inception (April 27, 1998) through June 30,
1998 and for each of the five quarters from July 1, 1998 through September 30,
1999, and as a percentage of total revenues for each of the four quarters ended
September 30, 1999. The percentage of revenues analysis for the period from
inception (April 27, 1998) through September 30, 1998 is not presented since
revenues during this period were insignificant. This unaudited quarterly
information has been derived from our unaudited financial statements but, in the
opinion of management, includes all adjustments necessary for a fair
presentation of such information. Results for any quarter are not necessarily
indicative of the operating results for any future period.
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(APRIL 27,
1998) THREE MONTHS ENDED
THROUGH ---------------------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1998 1998 1998 1999 1999 1999
----------- --------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
OEM............................ -- $ 7 $ 168 $ 224 $ 225 $ 356
Advertising.................... -- -- -- -- -- 57
----- ----- ----- ----- ----- -------
Total revenues............... -- 7 168 224 225 413
Cost of revenues................. -- 23 28 80 100 181
----- ----- ----- ----- ----- -------
Gross profit..................... -- (16) 140 144 125 232
----- ----- ----- ----- ----- -------
Operating expenses:
Sales and marketing............ $ 7 29 54 176 151 621
Research and development....... 94 184 194 340 453 709
General and administrative..... 32 47 71 83 72 258
Equity-related compensation.... 145 42 45 78 126 623
----- ----- ----- ----- ----- -------
Total operating expenses..... 278 302 364 677 802 2,211
----- ----- ----- ----- ----- -------
Operating loss................... (278) (318) (224) (533) (677) (1,979)
Interest income.................. -- 14 14 34 27 198
----- ----- ----- ----- ----- -------
Net loss......................... $(278) $(304) $(210) $(499) $(650) $(1,781)
===== ===== ===== ===== ===== =======
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------
DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1998 1999 1999 1999
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
AS A PERCENTAGE OF TOTAL REVENUES:
Revenues:
OEM..................................................... 100% 100% 100% 86%
Advertising............................................. -- -- -- 14
---- ---- ---- ----
Total revenues........................................ 100 100 100 100
Cost of revenues.......................................... 17 36 45 44
---- ---- ---- ----
Gross margin.............................................. 83 64 55 56
---- ---- ---- ----
Operating expenses:
Sales and marketing..................................... 32 78 67 150
Research and development................................ 115 152 201 172
General and administrative.............................. 42 37 32 62
Equity-related compensation............................. 27 35 56 151
---- ---- ---- ----
Total operating expenses.............................. 216 302 356 535
---- ---- ---- ----
Operating loss............................................ (133) (238) (301) (479)
Interest income........................................... 8 15 12 48
---- ---- ---- ----
Net loss.................................................. (125)% (223)% (289)% (431)%
==== ==== ==== ====
</TABLE>
We expect operating results to fluctuate significantly in the future as a
result of a variety of factors, many of which are outside of our control. See
"Risk Factors--Disappointing quarterly revenues or operating results could cause
our stock price to fall."
LIQUIDITY AND CAPITAL RESOURCES
Since our inception on April 27, 1998, we have financed our operations
primarily from the proceeds of the sale of equity securities. As of
September 30, 1999, cash and cash equivalents were $16.4 million.
For the nine months ended September 30, 1999, net cash used in operating
activities was $1.3 million, primarily attributable to net losses. Net cash used
in investing activities was $11.2 million, primarily related to the purchase of
short-term investments and other capital expenditures. Net cash provided by
financing activities was $26.3 million, resulting primarily from our sale of
series C preferred stock on July 16, 1999.
Our capital expenditures were $943,000 for the nine months ended
September 30, 1999. We anticipate that we will experience an increase in capital
expenditures consistent with future growth, if any, in operations,
infrastructure and personnel.
We currently anticipate that the net proceeds from this offering, together
with current cash and cash equivalents and marketable securities will be
sufficient to fund our working capital and capital expenditure requirements for
at least the next 12 months. However, we may need additional financing sooner to
execute our business plan if we need to respond to business contingencies such
as those identified in "Risk Factors--We are likely to require additional
financing and may not be able to raise additional financing on favorable terms
or at all." If we raise additional funds through the issuance of equity or
convertible debt securities, the percentage of ownership of our stockholders
would be diluted. We cannot assure you that we will be able to obtain additional
financing when needed on favorable terms or at all.
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<PAGE>
YEAR 2000 READINESS
We have evaluated the Year 2000 readiness of our hardware and software
products (including products currently under development), the information
technology systems used in our operations ("IT Systems"), and our non-IT
Systems, such as voice mail and other systems. Our evaluation covered the
following phases:
- identification of all products, IT Systems, and non-IT Systems;
- assessment of repair or replacement requirements;
- repair or replacement;
- testing; and
- contingency planning in the event of Year 2000 failures.
Based on our evaluation, we believe that all of our products (including
products currently under development) will record, store, process and calculate
and present calendar dates falling on and after January 1, 2000, and will
calculate any information dependent on or relating to such dates in the same
manner and with the same functionality, data integrity and performance as the
products record, store, process, calculate and present calendar dates on or
before December 31, 1999, or calculate any information dependent on or relating
to such dates. To our knowledge, none of our material products will lose
functionality with respect to the introduction of records containing dates
falling on or after January 1, 2000 and all of our internal computer systems are
Year 2000 compliant.
However, the assessment of whether a complete system or device in which our
product is embedded will operate correctly for an end-user depends in large part
on the Year 2000 compliance of the product's or system's other components, many
of which are supplied by parties other than us. The supplier of our current
financial and accounting software has informed us that such software is Year
2000 compliant. Further, we rely upon various vendors, utility companies,
telecommunications service companies and other service providers who are outside
of our control. There can be no assurance that such parties will not suffer a
Year 2000 business disruption, which could have a material adverse effect on our
financial condition and results of operations.
To date, we have not incurred any material expenditures in connection with
identifying or evaluating Year 2000 compliance issues. We have not developed a
Year 2000-specific contingency plan. If Year 2000 compliance issues are
discovered, we will at that time evaluate the need for contingency plans
relating to such issues.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. The Statement, as amended, is effective for fiscal years
beginning after June 15, 2000. The Company has evaluated the impact of adopting
SFAS No. 133 and, based on its current business activities, believes that it
will not have a material effect on its financial statements.
23
<PAGE>
BUSINESS
OVERVIEW
Direct Hit is a leading provider of technology that aggregates and organizes
online content to enable users to quickly find relevant and accurate
information, products and services. Our Popularity Engine, which is the core of
our solution, anonymously compiles information collected from the activity of
users, automatically capturing and processing the selections made by online
users to organize online information. Our technology is well suited to provide
accurate and relevant information to users of large, dynamic collections of
information such as the World Wide Web. We have targeted Internet search as the
first application of our Popularity Engine and we have launched an e-commerce
product based on the Popularity Engine. We intend to expand the application of
our popularity-based technology into such areas as corporate online databases,
news feeds and yellow pages. As of November 30, 1999, we had 22 OEM customers,
including AT&T WorldNet, HotBot, Lycos, Scandinavia Online and ZDNet.
INDUSTRY BACKGROUND
The emergence of the Internet has enabled millions of people worldwide to
obtain information, conduct commerce and communicate online. The number of
Internet users is expected to increase from approximately 142 million at the end
of 1998 to approximately 502 million by the end of 2002, according to
International Data Corporation.
While the Internet is attracting new users at a rapid pace, the volume and
diversity of information, products and services available over the Internet is
also increasing dramatically. IDC predicts that the number of Web pages will
grow from 925 million in 1998 to 13 billion by 2003, including separate Web
pages within individual Web sites.
The Internet's accessibility and growth make it an attractive resource to
users for a wide variety of information, products and services in areas as
diverse as e-commerce, complex corporate sites and special-interest
informational sites. For example, IDC estimates that business-to-business and
business-to-consumer e-commerce will collectively grow from approximately $51
billion in 1998 to $1.4 trillion by 2003.
Internet users are increasingly seeking specific information, products and
services from multiple sources such as e-commerce sites, news sites, corporate
sites, archives and specialty vertical sites. As a result, users are now
spending more time at Web search sites than at almost any other category of Web
sites. According to Media Metrix, the average Internet user spent approximately
90 minutes at search engine sites in October 1999, second to 110 minutes at
news, information and entertainment sites. Effective online navigation, however,
does not end with finding a desired Web site. Once a Web site is located, users
are still faced with the difficult task of locating relevant information within
a Web site which may contain thousands of pages.
The growing complexity of the Internet in terms of both the volume and the
diversity of information, products and services available, combined with users'
increasing reliance on these sources for their diverse needs, has heightened the
importance of effective solutions for aggregating and organizing online
information to aid users in identifying the best information, products and
services.
TRADITIONAL METHODS FOR AGGREGATING AND ORGANIZING ONLINE INFORMATION FOR USERS
Users have typically relied on products and services such as search engines
and directories to locate online information. Companies that provide these
navigation capabilities to users have traditionally used word-matching and
editor-based methods for aggregating and organizing online information.
Techniques which rely on word-matching methods search for keywords in a database
to
24
<PAGE>
locate potentially relevant information. Editor-based methods generally rely on
a staff of human editors to manually review and categorize online information.
WORD-MATCHING TECHNIQUES
Word-matching techniques generally compare the keywords in the search
request with words found in a database. For a collection of information as vast
as the World Wide Web, the word-matching techniques rely on computers to spider
Web sites from link to link, feeding information into a database. A user's
keywords are then matched to words found in the database to generate a list of
Web sites on which those keywords appear. Typical word-matching search engines
prioritize results found in connection with a particular search according to the
number of times the search terms occur in each document, the position of the
search terms within the document or the number of links pointing to the document
and the text surrounding those links.
Although word-matching techniques may be used to aggregate and organize a
large amount of online information, such as that found on the Internet, they
often yield an overwhelming volume of irrelevant search results. Many
collections of information, such as proprietary online databases, online product
catalogs and the World Wide Web, share similar words that confuse word-matching
search technology. Moreover, the word-matching method is not well suited to the
complexity of meaning and context in human language. A user who searches for the
word "bond" may be looking for information about corporate bonds, savings bonds
or James Bond. Word-matching techniques do not differentiate among these
different meanings.
In addition, word-matching search engines deployed on the Internet often
rely on invisible Web site descriptions, called meta-tags. Web site authors
place meta-tags on their sites, in some cases using misleading search terms to
attract user attention to the site. This problem is exacerbated when the user is
searching for types of online information which do not typically contain textual
elements, such as still images, video and music, because of the word-matching
method's increased reliance on meta-tags to locate relevant content.
EDITOR-BASED METHODS
Editor-based methods require a staff of editors to manually review and
categorize online content in a database. To facilitate accessibility to
particular content found within the database, an editor will typically assign
keywords which the editor believes are most relevant to that content. Ranking
algorithms will then utilize the assigned keywords to promote relevant content
to the top of a search results list, mitigating the efforts of content authors
to mislead searchers by placing hidden keywords within the content.
Because of their manual nature, editor-based directories often have
incomplete and outdated information covering only a small portion of the content
available online. Editor-based directories have generally catalogued less than
1% of Web pages, and the review process for submission of a site can take up to
several months. Moreover, the process of assembling a directory is
time-consuming and expensive. For a collection of information as vast as the
Web, some directory providers have assigned nearly 200 editors to the task. The
fundamental drawback of editor-based directories is that they are difficult to
scale to accommodate growing and dynamic collections of information like the Web
and large corporate and e-commerce databases.
Increasingly, due to the shortcomings of editor-based directories,
substantially all Internet directories rely upon word-matching search techniques
to provide users with the ability to search beyond the Web sites covered by the
directories. While this hybrid solution overcomes some of the failings of the
editor-based directory method, it brings with it the problems typically
associated with word-matching techniques. For example, while editor-based
directories by themselves may reduce the ability of content authors to mislead
users through meta-tagging, editor-based directories which are
25
<PAGE>
supplemented with word-matching techniques nevertheless often generate a large
number of irrelevant results.
THE NEED FOR A BETTER METHOD OF AGGREGATING AND ORGANIZING ONLINE INFORMATION
FOR USERS
Traditional methods for aggregating and organizing online information often
fail to meet users' needs. These methods, even when used in tandem, often
generate an unmanageably large set of irrelevant results or incomplete and
outdated information. As the amount and diversity of information available
online continues to expand, users continue to demand easier, more effective
access to more relevant content, products and services. In the rapidly evolving
and increasingly complex online environment, an effective solution must be
equipped to capture a high percentage of available content and prioritize
information in accordance with users' needs to enable users to quickly find
relevant and accurate information, products and services.
THE DIRECT HIT SOLUTION
Direct Hit provides a popularity-based solution that enables users of online
content to find more relevant information, products and services more easily
across a wide variety of sources. The core of our solution, which we call our
Popularity Engine, anonymously compiles and uses information collected from the
activity of users, automatically capturing and processing the selections made by
online users to organize online information. From online product catalogs to
live news feeds, and from proprietary corporate databases to the World Wide Web,
our proprietary technologies for organizing information according to its
popularity with users can be applied to a variety of online data sets.
We have targeted Internet search as our first application for the Popularity
Engine. In this context, our Popularity Engine is used to track the Web sites
that Internet searchers actually select from various lists of search results,
the amount of time searchers spend at these sites and a number of other user
activity-based metrics. The Popularity Engine uses this data and our proprietary
algorithms to rank search results according to the experiences of previous
Internet searchers. Our database of over one billion Internet user relevancy
records serves as the foundation of our Popularity-based Search product. The
database is currently growing at the rate of over 100 million user searches per
month, allowing our Popularity-based Search product to provide increasingly
accurate and relevant results.
The key benefits of our popularity-based solution are as follows:
MORE ACCURATE AND RELEVANT INFORMATION. By automatically capturing the
experience of Internet users and their satisfaction or dissatisfaction with
online content, our solution provides users with a list of information, products
or services ranked according to the preferences of previous users. As a result,
users can find what they want quickly and easily. The Popularity Engine is
extremely responsive to new and changing information, keeping listings current
based on changing user preferences.
CONTENT INDEPENDENCE AND FLEXIBILITY. The Popularity Engine can organize
many types of data, including still images, video and music. Today, the
Popularity Engine is organizing Internet search results in many different
languages, and is also organizing product and merchant databases through our
Popularity-based Shopping product. The Popularity Engine can be readily deployed
to work with other data, such as multi-media content and corporate site-specific
data. The Popularity Engine's modular architecture also simplifies deployment as
either a stand-alone solution or as a core complement to existing technology.
SCALABILITY. Through our robust proprietary architecture, the Popularity
Engine can scale to accommodate large and expanding collections of information
like the Internet and millions of users. For example, our Popularity-based
Search product is currently answering over 100 million Internet search requests
each month. As a result, the Popularity Engine is able to organize a greater
amount of online information than editor-based directories that are dependent
upon a staff of human editors.
26
<PAGE>
RESPONSIVENESS TO DEMOGRAPHIC PREFERENCES. The Popularity Engine can
collect and use anonymous, demographic information voluntarily submitted by
users to provide results that are based on information collected from users
sharing similar demographic traits. Today, our solution can reflect user
preferences based on age, gender and geographic location. The ability to reflect
demographic preferences enhances the ability of the Popularity Engine to provide
more accurate and relevant information.
EASE OF USE. Our solution does not require users to acquire any new skills
or employ complex search techniques such as Boolean queries to generate highly
relevant and accurate search results.
THE DIRECT HIT STRATEGY
Our objective is to be the leading provider of solutions that aggregate and
organize online content to enable users to quickly find relevant and accurate
information, products and services. Key elements of our strategy include the
following:
BECOME THE TECHNOLOGY STANDARD FOR INTERNET SEARCH. We believe that we can
leverage our Popularity Engine to establish our Popularity-based Search product
as the standard for Internet search. To date, we have 22 OEM customers,
including companies such as AT&T WorldNet, HotBot, Lycos and ZDNet, who have
elected to use our Popularity-based Search product, either as a stand-alone
solution or as a core complement to their current search engine. We intend to
continue to increase the number of Web sites which use our Popularity-based
Search product.
EXTEND OUR TECHNICAL LEADERSHIP. We intend to continue to devote
significant resources to the development of new and innovative products,
capitalizing on our extensive experience with popularity-based technology and
our understanding of customer needs. We believe that we are the first company to
introduce popularity-based technology for aggregating and organizing online
content, products and services. As use of online information continues to expand
and evolve, we intend to continue to develop new technologies to enable users to
find what they need online.
CONTINUE TO BUILD OUR E-COMMERCE SOLUTION. We believe that we can
capitalize on the growth of e-commerce by using our popularity-based technology
to better meet the needs of online merchants and shoppers. By applying our core
technology solution to e-commerce, we believe we will be able to improve users'
shopping experiences by providing access to more relevant product listings than
those achieved by traditional methods. We are currently supplying shopping
technology to AT&T WorldNet and are managing a growing online commerce database
spanning more than one million products from merchants across the Internet. We
intend to further leverage our Popularity Engine and integrate complementary
services and products into our shopping solution to establish it as a complete
resource for shopping online.
LEVERAGE CORE TECHNOLOGY TO DEVELOP ADDITIONAL APPLICATIONS. As the volume
and breadth of information available online grows, we continue to explore new
applications for our core technology. For example, we are currently supplying a
product based on our Popularity Engine to ZDNet to facilitate accurate searches
of its proprietary database of news and feature articles. Future potential
product applications incorporating our Popularity Engine may include products
for other corporate online databases, news feeds and yellow pages. The
content-independence and flexibility of our core technology allows us to
facilitate development of additional applications and promote rapid response to
marketplace changes. We intend to leverage our proprietary technology and
skilled personnel to develop dynamic, new products.
BUILD THE DIRECT HIT BRAND. We believe that establishing Direct Hit as the
best available technology will help us expand our market share in the Internet
search and e-commerce search markets and support the introduction of additional
applications based on our Popularity Engine. To foster
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<PAGE>
awareness and demand for our Popularity Engine among Internet users, merchants
and potential customer Web sites, we are pursuing a brand development campaign
through targeted advertising and marketing.
EXPAND OUR INTERNATIONAL PRESENCE. We intend to leverage our leadership
position in aggregation, organization and navigation solutions to further
penetrate the global marketplace. We believe that the scalable and flexible
features of our solution, including its ability to accommodate foreign
languages, will facilitate our global expansion. Having developed customer
relationships with international Internet portals such as Catcha.com (Asia),
UKMax.com (UK), Punto (Italy) and Scandinavia Online (Denmark, Norway and
Sweden), we intend to leverage the strength of our technology to widen our
presence in major international markets.
PRODUCTS
Our products today consist of our Popularity-based Search product and our
Popularity-based Shopping product. Our Popularity-based Search product is
comprised of separate components, including our Internet Search Engine, Related
Searches, Personalized Search and Directory-based Search. These products and
components are powered by our proprietary Popularity Engine to determine the
relevancy ranking of online content. Our Popularity-based Shopping product and
many of the components comprising our Popularity-based Search product may be
found deployed on the Internet on our OEM customers' Web sites, and all of our
products and components are available on our Web site. Our Popularity-based
Search product was selected as FORBES' Favorite Search Engine in
September 1999. In addition, our products have also earned recognition in
industry awards received by our OEM customers, including CNET 1999 Editors'
Choice awarded to HotBot in April 1999 and PC MAGAZINE 1999 Editors' Choice
awarded to HotBot in September 1999.
POPULARITY-BASED SEARCH PRODUCT
INTERNET SEARCH ENGINE
Our scalable Internet Search Engine, utilizing our core technology,
anonymously and transparently compiles information collected from the searching
activity of millions of Internet users, automatically capturing and processing
the selections made by previous Internet searchers to determine the ranking of
search results. To date, we have processed more than one billion relevancy
records from Internet searches.
The Internet Search Engine consists of a word-matching spider, our
Popularity Engine and search engine servers. The spider, which we can deploy
with the Popularity-based Search product as an option for customers, is capable
of spidering, indexing or refreshing millions of Web sites per day. The Internet
Search Engine runs our Popularity Engine across a database that is growing at
the rate of over 100 million Internet user relevancy records per month, allowing
our Popularity Engine to provide increasingly accurate and relevant results.
RELATED SEARCHES
Related Searches help users narrow or broaden their search by presenting a
list of relevant search terms related to the original search request. These
related terms are key words that previous searchers have found helpful in
refining or enlarging similar search requests. For example, a user who types
"California wine" may be presented with such related terms as "Wine,"
"California Red Wine" and "California Wine Tours." Users may easily explore a
related search topic by clicking on the related search term.
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<PAGE>
PERSONALIZED SEARCH
Personalized Search refines the ranking of search results by prioritizing
results according to their relevancy as determined by previous searchers who
share similar demographic traits. To enable Personalized Search, we solicit
anonymous demographic information such as the age, gender, and geographic
location of searchers. If the searcher elects to supply this information, it is
then used by our Popularity Engine to further improve upon the relevancy of
search results for that user and subsequent users who share similar demographic
traits. For example, a person located in the Boston area searching on the topic
of restaurants could receive popularity-based results selected by other
Boston-area users, while a person located in the San Francisco area could
receive popularity-based results selected by other Bay Area users. Personalized
Search is currently available for certain search topics on our Web site, and we
expect to continue to expand the breadth of its coverage.
DIRECTORY-BASED SEARCH
Directory-based Search leverages our Popularity Engine to provide a highly
scalable Internet directory that provides categorized listings of Web sites.
Unlike many editor-based directories, category listings generated by
Directory-based Search can be ranked according to their popularity with previous
users. In addition, Directory-based Search can also rank Web sites presented
within categories by their popularity with previous users in addition to
presenting the sites alphabetically.
Although currently deployed only for Internet applications, Directory-based
Search can be readily applied to any online directory data set. As a default
data set for our Internet application of the product, we use the open-source Web
site data provided by Netscape Communications called Open Directory. Open
Directory is a publicly available database currently comprising over one million
sites, classified into over 140,000 categories and updated by over 15,000
volunteer editors.
POPULARITY-BASED SHOPPING PRODUCT
Popularity-based Shopping allows online consumers to leverage the experience
of previous shoppers looking for similar products. Powered by our Popularity
Engine, our Popularity-based Shopping product automatically captures and
processes the selections made by previous shoppers to prioritize products
according to user demand.
Our Popularity-based Shopping product, now in an early stage of release,
currently aggregates over one million products from online merchants across the
Web to facilitate comparison shopping. Online shoppers utilizing
Popularity-based Shopping are able to organize product listings in the manner
best suited to their needs, by relevancy, category, price or merchant.
The Popularity-based Shopping product's scalable architecture easily
accommodates new products and category listings. We update our database of
products by spidering and indexing merchant sites or by receiving periodic
updates of product listings directly from the merchants. Regular product updates
ensure that such information as pricing, product descriptions and availability
remains current.
In addition to providing more relevant and accurate product listings,
popularity-based rankings for products may also:
- IDENTIFY CONSUMER TRENDS. For similar products, those experiencing the
greatest consumer demand are prioritized higher.
- ACT AS IMPLIED PRODUCT RECOMMENDATIONS. Shoppers may view popularity-based
rankings as implicit recommendations from fellow shoppers and may feel
more comfortable with their buying decision.
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- REFLECT CONSUMER SATISFACTION WITH THE ONLINE MERCHANT. An important
factor for consumers in buying over the Internet is the reputation of the
merchant. For similar products from different merchants, the merchants
experiencing the greatest consumer demand are prioritized higher.
TECHNOLOGY
Our Popularity Engine technology and proprietary software, which we call our
Bifurcated-Systems architecture, have been designed to serve as the foundation
for a variety of scalable information organization and aggregation applications.
The Popularity Engine can be readily deployed to work with various data, such as
multi-media content and corporate site-specific data. Our Popularity-based
Search product anonymously monitors the activity of millions of daily Internet
users to systematically organize large volumes of information according to user
demand. Our Bifurcated-Systems architecture enables large volumes of data to be
processed in the background on a cluster of dedicated processing servers. The
data is then compressed into highly scalable applications supported on separate
and geographically dispersed clusters of distribution servers available to users
via the Internet. The Popularity Engine's modularity simplifies deployment as
either a stand-alone solution or as a core complement to existing technology.
Our Popularity Engine technology provides a foundation for building
applications that leverage the activity of users to systematically organize
large volumes of data according to user demand. The Popularity Engine captures
and processes the anonymous activity of users as they locate and access
information, products or services. To deploy the service, our OEM customers
utilize a software utility provided by us which tags universal resource
locators, or URLs, with a special redirect code. The redirect code operates to
create a data file of relevancy records identifying the information, products or
services that users found useful in satisfying their requests for information.
Our systems process these relevancy records and use our proprietary mathematical
algorithms to rank the information, products or services according to user
demand. These rankings are then incorporated into the Popularity Engine and
utilized in satisfying requests of subsequent users.
Our Bifurcated-Systems architecture is a two-part system employing a
dedicated cluster of "processing servers" that utilize sophisticated data mining
techniques to analyze the millions of relevancy records we process each day.
This cluster of processing servers applies our proprietary mathematical
algorithms and compresses the data into highly scalable data files. These files
are then propagated to geographically-dispersed clusters of "distribution
servers" that operate to resolve customer requests. The distribution server
clusters comprise redundant arrays of inexpensive servers that cooperate to
provide incrementally scalable support for OEM customer traffic loads. By adding
servers to each cluster, we can quickly and efficiently increase capacity for
our own Web site and our OEM customer sites.
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CUSTOMERS
Our popularity-based solution may be found at our Web site and at our OEM
customers' Web sites. The following is a list of our 22 OEM customers as of
November 30, 1999:
<TABLE>
<S> <C>
About.com Lycos
Apple Computer mainCampus.com
AT&T WorldNet Microsoft (MSN)
Catcha.com Pinault-Printemps-Redoute
GeneralSearch.com Punto (Portal Srl)
Go2Net SavvySearch
HotBot (Wired Digital/Lycos) Scandinavia Online
ICQ (AOL) SimpleSearch
Infoseek UKMax.com (Hollinger Digital)
InfoSpace.com Zap
LookSmart ZDNet
</TABLE>
For the nine months ended September 30, 1999, Lycos, including its
subsidiary HotBot, accounted for approximately 70% of our total revenues. A
significant decline in sales to Lycos or any other customer that accounts for a
significant portion of our revenues could adversely affect our business and
cause our stock price to decline.
CASE STUDIES
The following are customer case studies that describe the various ways in
which our OEM customers use our products.
AT&T WORLDNET
AT&T WorldNet is an Internet service provider that delivers reliable, easy
Internet access, email addresses, chat, free Web space, online communities and
games. The AT&T WorldNet Web site, located at WWW.ATT.NET, is the default page
for nearly 1.7 million AT&T WorldNet customers and is the 47th most visited Web
site on the Internet with more than four million unique visitors in October
1999, according to Media Metrix. AT&T WorldNet required a new, user-friendly
search technology which would enable customers to navigate more effectively from
the AT&T WorldNet site to find the information they were looking for. AT&T
WorldNet saw this as a crucial step in order to increase customer satisfaction
and loyalty, as well as to reduce customer help desk costs for the users on the
site who could not easily find information. At the same time, AT&T WorldNet was
also looking for an integrated technology solution that could be applied across
its many applications within its Web site, including corporate information,
Internet search and e-commerce.
In October 1999, AT&T WorldNet launched our Popularity-based Search product
as its default search technology, and subsequently added our Popularity-based
Shopping product as a complement to its existing e-commerce offerings. Our
technology is deployed across the portal site and AT&T WorldNet's various
applications to provide accurate and relevant information for AT&T WorldNet
customers and employees.
ZDNET
ZDNet is a leading technology content network and source for computing and
Internet content and commerce. ZDNet combines interactive technology and its own
editorial team with Ziff-Davis' worldwide network of journalists to produce
original content and create communities of common interests in computing. ZDNet
sought a technology that could organize search results of its proprietary
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data and online content according to previous user preferences, as well as
provide relevant and accurate search results from across the entire Web.
ZDNet began using our Popularity-based Search product in April 1999,
including our Internet Search Engine. A link to our popularity-based search
results appears at the top of every ZDNet search results page, allowing visitors
to view the top 10 most visited pages for the search term they have requested.
The ZDNet search service provides visitors with relevant and accurate results
from across ZDNet and the entire Web.
PUNTO
Punto is a new Italian Web portal which features a local Italian
perspective, with a focus on lifestyle, ease-of-use and quality content. It
provides multiple services to its users including directories, chat and online
merchants' special offers, as well as daily news and weather reports for 360
Italian cities. Punto seeks to make the Internet experience easier and more
useful for the millions of users connecting to the Internet in Italy, and was
looking for a search product that could accommodate multiple languages.
Punto launched its portal site in October 1999 featuring components of our
Popularity-based Search product, including our Internet Search Engine and
Related Searches. Punto features both our general results as well as results
tailored to the Italian market. We are also collecting relevancy-results data
for the Italian market.
SALES AND MARKETING
Our Popularity-based Search product is accessible at our OEM customers' Web
sites and at our Web site. Popularity-based search results that we provide at
our OEM customers' Web sites generally have the look and feel of the host site,
but include results ranked by our Popularity Engine. We deploy our
Popularity-based Search product on customer sites usually through either our
default model, where we usually provide the first page view or first set of
search results for the user's request, or our button model, where we provide a
hyperlinked option by which users can select the ten most popular results for
their search query. Our default model may be found at a number of sites
including AT&T WorldNet, HotBot, Lycos, SimpleSearch and Zap. Our button model
can be found at such Web sites as AOL's ICQ, LookSmart and MSN.
We have a sales team dedicated to marketing our products to OEM customers.
Our OEM sales team targets highly trafficked Web sites including portals and
destination sites. The sales cycle for OEM sales usually takes approximately one
to three months. Our OEM sales team also participates in sales support and
account management for our OEM customers. We have one OEM sales person, located
in Paris, who is dedicated to the international market. In addition, we have
personnel targeting online merchant acquisition for our Popularity-based
Shopping product.
We also have a direct sales force that sells advertising. Our internal
advertising sales force generates the majority of advertising sales on our own
Web site. We also offer self-service text sponsorship advertising on our Web
site that allows advertisers to create keyword targeted text ads using our
automated auction-based system. This advertising initiative targets small to
medium advertisers since sponsorship accounts can be created for as little as
$25. Advertisements, which appear next to search results, are sold on an
impression basis. Our self-service text sponsorship product leverages our
popularity data to help with better ad placement, making it easy for vendors to
advertise on search results pages for exact keywords that best fit their target
audience.
We believe that a brand promotion campaign will increase usage of our
products. All of our current OEM customer relationships allow us to co-brand our
products with the our OEM customer.
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To further build the Direct Hit brand, we currently focus on reaching Internet
users through advertising media, as well as through an active public relations
campaign.
Our sales and marketing organization consisted of 13 individuals as of
November 30, 1999.
RESEARCH AND DEVELOPMENT
We believe that strong research and development capabilities are essential
to maintaining the competitiveness of our product offerings, enhancing our core
technology and developing additional applications incorporating that technology.
We have actively recruited key engineers and software developers with expertise
in the areas of information retrieval and massively scalable databases. In
addition, we strive to create and maintain an environment of rapid innovation
and product release.
Since inception, we have focused our research and development efforts on
developing and enhancing our core technologies, and on applying these
technologies to our Internet Search Engine and our Popularity-based Shopping
product. We are currently working to add features and new functionality to our
existing products and to develop new products and services. Our research and
development expenses totaled $1.5 million for the nine months ended
September 30, 1999 and $472,000 for the period from inception (April 27, 1998)
through December 31, 1998. As of November 30, 1999, we had 24 individuals
engaged in research and development.
BOARD OF ADVISORS
We have assembled a Board of Advisors comprised of experts in the fields of
information retrieval and networking technology. Members of our Board of
Advisors provide guidance to our management about technology developments and
marketplace needs to assist us with our business strategy. Periodically, we seek
feedback and guidance on technology applications and business market focus. The
members of the Board of Advisors are:
- Louis Monier, former Chief Technology Officer of AltaVista and the creator
of its technology;
- Mark Nitzberg, a co-founder of Viaweb and current managing director of
Twine, a venture capital firm;
- David Douglas, the former Director of Advanced Hardware of Thinking
Machines and currently Chief Technologist of the Network Service Provider
division at Sun Microsystems; and
- Ilene Lang, former Chief Executive Officer of AltaVista and current Chief
Executive Officer of Individual.com.
COMPETITION
The markets we compete in are new, rapidly evolving and intensely
competitive, and we expect competition to intensify in the future. Many of our
current and potential competitors have significantly greater financial,
technical, marketing and other resources than we do.
In the market for private-labeled search engine solutions, we compete on the
basis of results relevancy, performance, scalability, speed of deployment,
ease-of-use and price. We believe we compete favorably on these factors. We
compete primarily against companies such as Inktomi. We also are aware of
smaller companies that are focusing resources on developing and marketing
products and services that may compete with our Popularity-based Search product.
In the market for consumer-direct search services, we compete on the basis of
results relevancy, performance and ease-of-use. We believe we compete favorably
on these factors. We compete primarily with companies offering search-specific
Internet sites directly to consumers.
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In the market for providing shopping engine solutions, we expect to compete
on the basis of results relevancy, number of merchants, number of products,
performance, scalability, speed of deployment, ease-of-use and price. We expect
to compete favorably on these factors. We compete with a number of companies to
provide product shopping engine services, many of whom have operated services in
the market for a longer period, have greater financial resources, have
established marketing relationships with leading on-line services and
advertisers, and have secured greater presence in distribution channels.
Competitors who offer shopping engine services include Inktomi and mySimon. We
also are aware of smaller companies that are focusing resources on developing
and marketing products and services that may compete with our Popularity-based
Shopping product.
We cannot assure you that we will be able to compete successfully against
current and future competitors. Any inability to compete successfully could have
a material adverse effect on our business, financial condition and results of
operations.
INTELLECTUAL PROPERTY
Our success and ability to compete are dependent on our ability to develop
and maintain the proprietary aspects of our technology and operate without
infringing the proprietary rights of others. We rely on a combination of patent,
copyright, trademark, and trade secret laws and confidentiality and license
agreements with our employees, customers, partners and third parties to protect
our proprietary rights. These legal protections afford only limited protection
for our technology. We have applied for the registration of certain of our
trademarks and service marks in the United States and internationally. We cannot
predict whether any registered trademarks or service marks will issue from these
applications, or, if issued, whether such registered trademarks or service marks
will provide any meaningful protection.
Gary Culliss, our co-founder, Chief Technology Officer and Chairman, is the
owner of one patent covering certain of our technology. Mr. Culliss also has
filed, and is the owner of, three U.S. patent applications covering certain of
our technology. To date, Mr. Culliss has received notices of allowance on two of
these patent applications. We have entered into a patent license agreement with
Mr. Culliss pursuant to which we have been given exclusive and fully paid-up
rights to all of the technology covered by Mr. Culliss' patent and patent
applications. Other parties to the agreement include entities affiliated with
our directors Rob Chandra, Jonathan Goldstein, Vernon Lobo and Warren Packard;
such entities have no current rights in the patent or patent applications, but
will be granted certain rights by Mr. Culliss if we file for bankruptcy or cease
to do business for sixty days. We cannot predict whether any patents will issue
from Mr. Culliss' patent applications. In addition, we cannot predict whether
the issued patent or any subsequently issued patents will provide any meaningful
protection.
We have licensed in the past, and expect that we may license in the future,
certain of our proprietary rights, such as trademarks, technology or copyrighted
material, to third parties. Due to rapid technological change, we believe that
factors such as the technological and creative skills of our personnel, new
product developments and enhancements to existing products are more important
than the various legal protections of our technology to establishing and
maintaining a technology leadership position.
Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our products or to obtain and use information
that we regard as proprietary. The laws of many countries do not protect our
proprietary rights to as great an extent as do the laws of the United States.
Litigation may be necessary in the future to enforce our intellectual property
rights, to protect our rights under Mr. Culliss' patent and any subsequently
issued patents, and our copyrights, trademarks and trade secrets, to determine
the validity and scope of the proprietary rights of others or to defend against
claims of infringement or invalidity. Any such litigation could result in
substantial costs and diversion of resources and could have a material adverse
effect on our business, operating
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results and financial condition. There can be no assurance that our means of
protecting our proprietary rights will be adequate or that our competitors will
not independently develop similar technology. Any failure by us to meaningfully
protect our property could have a material adverse effect on our business,
operating results and financial condition.
EMPLOYEES
As of November 30, 1999, we had a total of 51 full-time employees. We also
employ independent contractors to support our operations.
Our future success will depend, in part, on our ability to continue to
attract, integrate, retain and motivate highly qualified technical and
managerial personnel, for whom competition is intense. We have never had a work
stoppage and our employees are not represented by any collective bargaining
unit. We consider our relations with our employees to be good.
FACILITIES
Our headquarters are currently located in approximately 10,000 square feet
of leased office space in Wellesley, Massachusetts. The lease expires on
December 31, 2001.
We have entered into a lease for approximately 22,000 square feet of space
located in Natick, Massachusetts. We plan to relocate our entire office and
operations to the new location. The lease commenced in November 1999 and expires
on October 31, 2002. We have begun efforts to sublease the Wellesley office
space.
LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth the names, ages and positions of our
executive officers and directors as of November 30, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- -------------------------------------------------------
<S> <C> <C>
Michael Cassidy............. 36 Chief Executive Officer, President and Director
Gary Culliss................ 29 Chief Technology Officer, Secretary and Chairman
John McDonough.............. 39 Executive Vice President, Chief Operating Officer,
Chief
Financial Officer and Treasurer
David Andre................. 39 Vice President of Engineering
Maurice Casey............... 42 Vice President of Sales
Tom Harrison................ 37 Vice President of Product Development
Meredith McPherron.......... 32 Vice President of Marketing
David Parker................ 36 Vice President of Business Development
Rob Chandra................. 33 Director
Jonathan Goldstein(1)(2).... 38 Director
Vernon Lobo(1).............. 34 Director
Warren Packard(2)........... 32 Director
Michael Santullo(2)......... 38 Director
</TABLE>
- ------------------------
(1) Member of the audit committee.
(2) Member of the compensation committee.
MICHAEL CASSIDY, a co-founder of our company, has served as our Chief
Executive Officer, President and a member of the board of directors since
April 1998. From May 1997 to December 1997, Mr. Cassidy studied at the Berklee
College of Music. From 1991 to February 1996, Mr. Cassidy was Chief Executive
Officer of Stylus Innovation, a telephony software company he co-founded. Stylus
was acquired by Artisoft, a computer telephony and communications software
company, in February 1996. After Stylus' acquisition by Artisoft, Mr. Cassidy
served as a Senior Vice President at Artisoft from February 1996 to December
1996. Mr. Cassidy holds a B.S. and M.S. in aerospace engineering from MIT and an
M.B.A. from Harvard University.
GARY CULLISS, a co-founder of our company, has served as our Chief
Technology Officer, Secretary and Chairman of our board of directors since
April 1998. Before co-founding Direct Hit, Mr. Culliss attended Harvard Law
School, graduating in May 1998. During law school Mr. Culliss worked with the
law firms Sullivan & Cromwell and Kaye, Scholer, Fierman, Hays & Handler, LLP.
From 1993 to September 1995, Mr. Culliss was a registered Patent Agent and
worked with the Law Office of Michael J. Colitz, Jr. Mr. Culliss holds his B.S.
in mechanical engineering from the University of South Florida and received his
J.D. from Harvard University. Mr. Culliss has been registered to practice before
the United States Patent and Trademark Office since 1993.
JOHN MCDONOUGH has served as our Executive Vice President, Chief Operating
Officer, Chief Financial Officer and Treasurer since September 1999. From June
1997 to September 1999, Mr. McDonough was President and Chief Executive Officer
of Workgroup Technology Corporation, a software development company. From June
1995 to June 1997, Mr. McDonough was a consultant to several start-up technology
companies. From 1985 to June 1995, Mr. McDonough held several positions with
Easel Corporation, a client/server software tools company, where he served as
Chief Financial Officer and Senior Vice President, Operations from 1986 to 1992,
Chief Operating Officer from 1992 to 1994, and Chief Executive Officer from 1994
to June 1995. Mr. McDonough holds his B.S. in business administration, MAGNA CUM
LAUDE, from Stonehill College and is a CPA.
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DAVID ANDRE has served as our Vice President of Engineering since October
1999. From March 1997 to October 1999, Mr. Andre was first Director of Product
Development, then Vice President of Engineering, at Lycos. From November 1995 to
March 1997, Mr. Andre was Director of Internet Development at SQA, a test
automation software company. From 1990 to November 1995, Mr. Andre was Product
Line Manager at Object Design, an object-oriented database software company.
Mr. Andre holds his B.S.E.E. from MIT and his M.S.C.S. from the University of
Maryland.
MAURICE CASEY has served as our Vice President of Sales since September
1999. From July 1997 to September 1999, Mr. Casey was first a Vice President,
Eastern Sales Director, then Vice President, National Sales Director, at
Switchboard.com, a yellow pages and white pages directory on the Web. From
October 1996 to July 1997, Mr. Casey was New York Regional Manager with the
NewsPage division of Individual, an information services company. From 1989 to
October 1996, Mr. Casey held sales and sales management positions with the
Smithsonian Institution for its Smithsonian Magazine and its Air and Space
Magazine.
TOM HARRISON has served as our Vice President of Product Development since
May 1998. From May 1997 to May 1998, Mr. Harrison was the Director of Software
Development at Cambridge Systematics, a planning, policy and management
solutions consulting company. From 1993 to May 1997, Mr. Harrison was President
of Sublime Software, a consulting firm specializing in large-scale client server
architecture, distributed database design and early Internet applications
development. Mr. Harrison holds his B.A. in economics from Princeton University.
MEREDITH MCPHERRON has served as our Vice President of Marketing since
August 1999. From July 1997 to August 1999, Ms. McPherron served as a senior
marketing manager and then a director for Guinness Import Company. From January
1997 through June 1997, Ms. McPherron worked as a private consultant. From 1993
to December 1996, Ms. McPherron held a variety of brand management positions at
General Mills within the cereal and yogurt categories. Ms. McPherron holds her
B.A. and M.B.A. from Harvard University.
DAVID PARKER has served as our Vice President of Business Development since
August 1998. From July 1997 to August 1998, Mr. Parker was the General Manager
of the New Media Group at Viaweb, a company providing software and reporting
tools for building and operating online commerce Web sites. From October 1995 to
July 1997, Mr. Parker was Vice President, Marketing for Delphi Inc./Knowledge
Factory, a business information company. From 1993 to October 1995, Mr. Parker
was Vice President, Circulation for Community Newspaper Company, an owner and
operator of regional newspapers. Mr. Parker holds his B.A. and M.B.A. from
Harvard University.
ROB CHANDRA joined our board of directors in July 1999. Mr. Chandra is a
General Partner with Commonwealth Capital, a venture capital firm that he joined
in January 1996. From 1993 to December 1995, Mr. Chandra was a consultant with
McKinsey. Mr. Chandra holds his B.A. from University of California at Berkeley
and his M.B.A. from Harvard University.
JONATHAN GOLDSTEIN joined our board of directors in July 1999.
Mr. Goldstein has been with TA Associates, a venture capital firm, since 1986,
serving as Vice President from September 1990 to December 1996 and as a
Principal since January 1997. Mr. Goldstein currently serves on the board of
directors of Andover.net. Mr. Goldstein holds his B.S. in biology, his B.S. in
chemical engineering and his M.S. in biochemical engineering from MIT, and his
M.B.A. from Harvard University.
VERNON LOBO joined our board of directors in November 1998. Since October
1997, Mr. Lobo has been a Managing Director of Mosaic Venture Partners, a
venture capital firm he co-founded. Mr. Lobo is also currently Chairman of
CYBERplex, a professional service organization focused on developing electronic
commerce solutions for the Internet. From September 1995 to September 1997,
Mr. Lobo was a partner with Quorum Growth, a venture capital firm. From 1991 to
August 1995, Mr. Lobo was a
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consultant with McKinsey. Mr. Lobo holds his B.A.Sc. in engineering from the
University of Waterloo, and his M.B.A. from Harvard University, where he was a
Baker Scholar.
WARREN PACKARD joined our board of directors in May 1998. Since June 1997,
Mr. Packard has been with Draper Fisher Jurvetson, a venture capital firm, most
recently serving as Director. From January 1996 until June 1997, Mr. Packard was
Vice President of Business Development of Angara Database Systems, a main-memory
database technology company which he co-founded. From June 1996 to January 1997,
Mr. Packard was an Associate at Institutional Venture Partners, a venture
capital firm. From 1991 to August 1995, Mr. Packard served as a Senior Principal
Engineer in the New Business and Advanced Product Development Group at Baxter
International. He currently serves as a director of Digital Impact and FogDog
Sports. Mr. Packard is a Phi Beta Kappa graduate of Stanford University and
holds a B.S. and M.S. in mechanical engineering. He also holds his M.B.A. from
Stanford University, where he was an Arjay Miller Scholar.
MICHAEL SANTULLO joined our board of directors in November 1998. Since April
1998, Mr. Santullo has been an active investor with and advisor to early stage
Internet companies. From 1994 to October 1997, Mr. Santullo was the Chief
Executive Officer of Four11, an email and white pages directory on the Web which
he co-founded. Four11 was acquired by Yahoo! in October 1997. After Four11's
acquisition by Yahoo!, Mr. Santullo served as Vice President at Yahoo! from
October 1997 to April 1998. Mr. Santullo holds his B.S. in electrical
engineering from MIT.
BOARD COMMITTEES
The board of directors has established an audit committee and a compensation
committee. The audit committee reviews, acts on and reports to the board of
directors with respect to various auditing and accounting matters, including the
selection and performance of our independent auditors, the scope of the annual
audits, fees to be paid to the independent auditors, and our internal accounting
and financial control policies and procedures. The members of the audit
committee are presently Messrs. Goldstein and Lobo.
The compensation committee has the power to create our executive
compensation policy and determines the salaries and benefits for our employees,
consultants, directors and other individuals compensated by us. The committee
also administers our stock option and stock purchase plans. The members of the
compensation committee are presently Messrs. Goldstein, Packard and Santullo.
DIRECTOR COMPENSATION
Directors are reimbursed for reasonable out-of-pocket expenses incurred in
attending meetings of the board of directors and for meetings of any committees
of the board of directors on which they serve. No director employed by us will
receive separate compensation for services rendered as a director. Directors are
also eligible for participation in our 2000 Stock Option and Incentive Plan. See
the description of that plan under the section of this prospectus called
"Management--Stock Plans."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No interlocking relationship exists between the board of directors or
compensation committee and the board of directors or compensation committee of
any other company, nor has any interlocking relationship existed in the past.
EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to, earned by or
paid to our Chief Executive Officer for services rendered in all capacities from
inception (April 27, 1998) through December 31, 1998. We may refer to this
officer as our named executive officer in other parts of this
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prospectus. No other executive officer or employee had compensation in excess of
$100,000 during 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION NUMBER OF
----------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY ($) BONUS ($) COMPENSATION ($) OPTIONS (#) COMPENSATION ($)
- --------------------------- ---------- --------- ---------------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
Michael Cassidy,
Chief Executive Officer and
President.................. $ 51,173 $ 10,000 -- -- --
</TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth specified information regarding options
granted to the named executive officer during 1998. We have not granted any
stock appreciation rights. The options listed were granted under our 1998-A
Stock Option Plan. In general, options granted under the plan vest over four
years, with 25% of the option shares granted vesting on the one-year anniversary
of the grant date and the remainder vesting in 36 equal monthly installments,
and expire on the tenth anniversary of the date of grant, subject to earlier
termination in certain situations related to resignation or termination of
employment. The percentage of total options granted to employees in 1998 shown
in the table below is based on options to purchase an aggregate of 1,824,696
shares of common stock granted during 1998. Potential realizable values are net
of exercise prices and before taxes, and are based on an assumed initial public
offering price of $ per share and the assumption that our common stock
appreciates at the annual rate shown, compounded annually, from the date of
grant until the expiration of the option term. These numbers are calculated
based on Securities and Exchange Commission requirements and do not reflect our
projection or estimate of future stock price growth. The amounts shown in this
table represent hypothetical gains that could be achieved for the respective
options if exercised at the end of the option term. Actual gains, if any, on
stock option exercises will depend on the future performance of the common
stock, the optionholders' continued employment through the option period and the
date on which the options are exercised.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
---------------------------- ANNUAL RATES OF
NUMBER OF STOCK
SECURITIES % OF TOTAL PRICE APPRECIATION FOR
UNDERLYING OPTIONS GRANTED EXERCISE OPTION TERM
OPTIONS TO EMPLOYEES IN PRICE PER EXPIRATION -----------------------
NAME GRANTED 1998 SHARE DATE 5% 10%
- ---- ---------- --------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Michael Cassidy...................... -- -- -- -- -- --
</TABLE>
1998 OPTION EXERCISES AND YEAR-END OPTION VALUES
The following table sets forth certain information concerning the number and
value of options exercised by the named executive officer as of December 31,
1998 and the number and value of any unexercised options held by the named
executive officer at December 31, 1998. The value of unexercised in-the-money
options represents the total gain which would be realized if all in-the-money
options held at December 31, 1998 were exercised, determined by multiplying the
number of shares underlying the options by the difference between an assumed
initial public offering price of $
39
<PAGE>
per share and the per share option exercise price. An option is in-the-money if
the fair market value of the underlying shares exceeds the exercise price of the
option.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT DECEMBER 31, 1998 AT DECEMBER 31, 1998
NUMBER OF ----------------------------- ---------------------------
SHARES ACQUIRED VALUE
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- --------------- -------- ------------ -------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Michael Cassidy............ -- -- -- -- -- --
</TABLE>
STOCK PLANS
1998-A STOCK PLAN. Our board of directors and stockholders adopted the
Direct Hit Technologies, Inc. 1998-A Stock Plan in June 1998. The aggregate
number of shares of common stock which may be issued under the 1998-A plan is
2,462,815. Under the 1998-A plan, we are authorized to grant incentive stock
options and non-qualified stock options, as well as awards of common stock and
opportunities to make direct purchases of common stock to employees,
consultants, directors and officers. The 1998-A plan is administered by the
board of directors and the compensation committee. The 1998-A plan provides that
the board of directors and the compensation committee has the authority to
select the participants and determine the terms of the stock options granted
under the plan. An incentive stock option is not transferable by the recipient
except by will or by the laws of descent and distribution. Non-qualified stock
options and other awards are transferable only to the extent provided in the
agreement relating to such option or award or in response to a valid domestic
relations order. Generally, no incentive stock options may be exercised more
than thirty days following termination of employment. However, in the event that
termination is due to death or disability, the stock option is exercisable for a
maximum of six months after such termination. As of November 30, 1999, we had
outstanding under the 1998-A plan incentive stock options exercisable for
1,166,146 shares of common stock and non-qualified stock options exercisable for
86,500 shares of common stock.
2000 STOCK OPTION AND INCENTIVE PLAN. Our 2000 Stock Option and Incentive
Plan was adopted by our board of directors in December 1999 and has not yet been
approved by our stockholders. The 2000 plan provides for the grant of
stock-based awards to employees, officers and directors of, and consultants or
advisors to our company and our subsidiaries, including incentive stock options
and non-qualified stock options and other equity-based awards. Incentive stock
options may be granted only to our employees. A total of 2,000,000 shares of
common stock may be issued upon the exercise of options or other awards granted
under the 2000 plan. The maximum number of shares that may be granted to any
employee under the 2000 plan shall not exceed 1,000,000 shares of common stock
during any calendar year.
The 2000 plan is administered by the board of directors and the compensation
committee. The 2000 plan provides that the board of directors and the
compensation committee have the authority to select the persons to whom awards
are granted and determine the terms of each award, including the number of
shares of common stock to be granted. Payment of the exercise price of an award
may be made in cash, shares of common stock, a combination of cash or stock or
by any other method approved by the board or compensation committee, consistent
with Section 422 of the Internal Revenue Code and Rule 16b-3 under the
Securities Exchange Act of 1934, as amended. Unless otherwise permitted by us,
awards are not assignable or transferable except by will or the laws of descent
and distribution.
The board of directors or the compensation committee may amend, modify or
terminate any award granted or made under the 2000 plan, so long as such
amendment, modification or termination would not materially and adversely affect
the participant. The board of directors or the compensation committee may also
accelerate or extend the date or dates on which all or any particular option or
40
<PAGE>
options granted under the 2000 plan may be exercised. No options or other
equity-based awards have been granted to date under the 2000 plan.
2000 EMPLOYEE STOCK PURCHASE PLAN. The 2000 Employee Stock Purchase Plan
was adopted by our board of directors in December 1999 and has not yet been
approved by our stockholders. The 2000 purchase plan provides for the issuance
of a maximum of 500,000 shares of common stock.
The 2000 purchase plan is administered by the board of directors and the
compensation committee. All of our employees whose customary employment is for
more than 20 hours per week and for more than three months in any calendar year
and who have completed more than 90 days of employment with us on or before the
first day of any six-month payment period are eligible to participate in the
2000 purchase plan. Outside directors and employees who would own 5% or more of
the total combined voting power or value of our stock immediately after the
grant may not participate in the 2000 purchase plan. To participate in the 2000
purchase plan, an employee must authorize us to deduct an amount not less than
one percent nor more than 10 percent of a participant's total cash compensation
from his or her pay during each six-month payment period. The first payment
period will commence on a date to be determined by the board of directors and
end on December 31, 2000. Thereafter, the payment periods will commence on the
first day of January and July and end on the last day of the following June and
December, respectively, of each year, but in no case shall an employee be
entitled to purchase more than 500 shares in any one payment period. The
exercise price for the option granted in each payment period is 85% of the
lesser of the average market price of the common stock on the first or last
business day of the payment period, in either event rounded up to the nearest
cent. If an employee is not a participant on the last day of the payment period,
such employee is not entitled to exercise his or her option, and the amount of
his or her accumulated payroll deductions will be refunded. Options granted
under the 2000 purchase plan may not be transferred or assigned. An employee's
rights under the 2000 purchase plan terminate upon his or her voluntary
withdrawal from the plan at any time or upon termination of employment. No
options have been granted to date under the 2000 purchase plan.
41
<PAGE>
CERTAIN TRANSACTIONS
We believe that all of the transactions set forth below were made on terms
no less favorable to us than could have been obtained from unaffiliated third
parties. We intend that all future transactions between us and our officers,
directors, principal stockholders and their affiliates will be approved by a
majority of the board of directors, including a majority of the independent and
disinterested members of the board of directors, and be on terms no less
favorable to us than those that could be obtained from unaffiliated third
parties.
SALES OF STOCK
SERIES A PREFERRED STOCK FINANCING.
In May 1998, we issued and sold an aggregate of 5,187,501 shares of
series A preferred stock at a price of $0.2667 per share. Investors who
participated in this transaction include:
<TABLE>
<CAPTION>
INVESTOR NUMBER OF SHARES
- -------- ----------------
<S> <C>
Draper Fisher Associates Fund IV, L.P....................... 4,475,625
Draper Fisher Partners IV, LLC.............................. 336,876
Michael Santullo............................................ 187,500
</TABLE>
Warren Packard, one of our directors, is a director of Draper Fisher
Associates Fund IV, L.P. and Draper Fisher Partners IV, LLC. Michael Santullo is
one of our directors.
SERIES B PREFERRED STOCK FINANCING.
In November 1998, we issued and sold an aggregate of 1,323,912 shares of
series B preferred stock at a price of $1.51067 per share. Investors who
participated in this transaction include:
<TABLE>
<CAPTION>
INVESTOR NUMBER OF SHARES
- -------- ----------------
<S> <C>
Mosaic Venture Partners, LP I............................... 866,061
Draper Fisher Associates Fund IV, L.P....................... 395,022
Draper Fisher Partners IV, LLC.............................. 29,733
Michael Santullo............................................ 16,548
</TABLE>
Vernon Lobo, one of our directors, is a managing director of Mosaic Venture
Partners, LP I.
SERIES C PREFERRED STOCK FINANCING.
In July 1999, we issued and sold an aggregate of 4,431,263 shares of
series C preferred stock at a price of $5.9351 per share. Investors who
participated in this transaction include:
<TABLE>
<CAPTION>
INVESTOR NUMBER OF SHARES
- -------- ----------------
<S> <C>
Entities associated with TA Associates...................... 1,684,892
Draper Fisher Associates Fund IV, L.P....................... 313,389
Draper Fisher Partners IV, LLC.............................. 23,588
Entities associated with Commonwealth Capital Ventures...... 336,979
Mosaic Venture Partners, LP I............................... 168,488
</TABLE>
Jonathan Goldstein, one of our directors, is a principal of each of the
entities associated with TA Associates. Rob Chandra, one of our directors, is a
general partner of each of the entities associated with Commonwealth Capital
Ventures.
In connection with the sale of the series C preferred stock, we entered into
a voting agreement with the holders of our preferred stock and our founders
which requires these stockholders and our
42
<PAGE>
founders to elect the following directors: the President or Chief Executive
Officer; a nominee designated by the common stockholders, initially Michael
Santullo; a nominee designated by TA Associates, initially Jonathan Goldstein; a
nominee designated by Gary Culliss, initially Gary Culliss; a nominee designated
by Draper Fisher Jurvetson, initially Warren Packard; and a nominee designated
by Mosaic Venture Partners, initially Vernon Lobo. The voting agreement will
terminate upon the closing of this offering.
REGISTRATION RIGHTS. In connection with the preferred stock financings, we
granted registration rights to the preferred stockholders. For a description of
these registration rights, see "Description of Capital Stock--Registration
Rights."
NON-COMPETITION AGREEMENTS
We have entered into noncompetition agreements with each of Michael Cassidy,
Gary Culliss and David Parker. Each agreement imposes a prohibition on competing
with us for 12 months following termination of employment.
PATENT LICENSE
We have entered into an exclusive patent license agreement with Gary
Culliss. Other parties to the agreement include entities affiliated with our
directors Rob Chandra, Jonathan Goldstein, Vernon Lobo and Warren Packard. Under
the license agreement, we have been given rights to all technology covered by
one patent and three patent applications owned by Mr. Culliss. For a description
of this patent license, see "Business--Intellectual Property."
43
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding beneficial ownership of
our common stock as of November 30, 1999, and as adjusted to reflect the sale of
the shares of common stock offered in this prospectus, by:
- our named executive officer;
- each of our directors;
- each person known by us to be the beneficial owner of more than 5% of our
common stock; and
- all executive officers and directors as a group.
Unless otherwise noted below, the address of each beneficial owner listed on
the table is c/o Direct Hit Technologies, Inc., 888 Worcester Street, Suite 340,
Wellesley, Massachusetts 02482, and each beneficial owner has sole voting and
investment power over the shares shown as beneficially owned except to the
extent authority is shared by spouses under applicable law and except as set
forth in the footnotes to the table.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. Shares of common stock issuable by us to a
person or entity listed in the table pursuant to options that may be exercised
within 60 days after November 30, 1999 are deemed to be beneficially owned and
outstanding for purposes of calculating the number of shares and the percentage
beneficially owned by that person or entity. However, these shares are not
deemed to be outstanding for purposes of computing the percentage beneficially
owned by any other person or entity.
For purposes of calculating the percentage of common stock beneficially
owned by any person, the number of shares deemed outstanding before the offering
gives effect to the conversion of our outstanding preferred stock into
10,942,676 shares of common stock that will occur upon the closing of this
offering.
<TABLE>
<CAPTION>
PERCENTAGE OF COMMON
NUMBER OF STOCK OUTSTANDING
SHARES ---------------------------------
BENEFICIALLY BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED OFFERING OFFERING
- ------------------------------------ ------------ -------- -------------------
<S> <C> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS:
Gary Culliss............................................. 4,840,248 23.4%
Michael Cassidy.......................................... 2,943,750 14.2
Rob Chandra(1)........................................... 336,979 1.6
Vernon Lobo(2)........................................... 1,030,549 5.0
Jonathan Goldstein(3).................................... 1,684,892 8.2
Warren Packard(4)........................................ 5,574,233 27.0
Michael Santullo......................................... 204,048 *
All executive officers and directors as a group (13
persons)(5)............................................ 17,791,574 83.9
OTHER FIVE PERCENT STOCKHOLDERS:
Entities affiliated with Draper Fisher Jurvetson(6)...... 5,574,233 27.0
400 Seaport Court, Suite 250
Redwood City, CA 94063
Entities associated with TA Associates(7)................ 1,684,892 8.2
High Street Tower, Suite 2500
125 High Street
Boston, MA 02110
</TABLE>
- ------------------------
* Less than 1%
(1) Consists of 321,104 shares held by Commonwealth Capital Ventures II L.P. and
15,875 shares held by CCV II Associates L.P. Mr. Chandra is a General
Partner of Commonwealth Capital Ventures II L.P. and CCV II Associates L.P.
and may be deemed to share voting and investment power with respect to all
shares held by Commonwealth Capital Ventures II L.P. and by CCV II
Associates L.P. Mr. Chandra disclaims beneficial ownership of such shares.
44
<PAGE>
(2) Consists of 1,030,549 shares held by Mosaic Venture Partners, LP I.
Mr. Lobo is a Managing Director of Mosaic Venture Partners, LP I and may be
deemed to share voting and investment power with respect to all shares held
by Mosaic Venture Partners, LP I. Mr. Lobo disclaims beneficial ownership of
such shares.
(3) Consists of 1,123,318 shares held by TA/Advent VIII L.P., 22,409 shares held
by TA Investors LLC, 21,398 shares held by TA Executives Fund LLC and
517,767 shares held by Advent Atlantic and Pacific III Limited Partners.
Mr. Goldstein is a Managing Director of TA/Advent VIII L.P., TA Investors
LLC, TA Executives Fund LLC and Advent Atlantic and Pacific III Limited
Partners and may be deemed to share voting and investment power with respect
to all shares held by those entities. Mr. Goldstein disclaims beneficial
ownership of such shares, except to the extent of 4,996 shares of preferred
stock which he owns through TA Investors LLC.
(4) Consists of 5,184,036 shares held by Draper Fisher Associates Fund IV, LP,
and 390,197 held by Draper Fisher Partners IV, LLC. Mr. Packard is a
Director for Draper Fisher Associates Fund IV, LP and Draper Fisher Partners
IV, LLC and may be deemed to share voting and investment power with respect
to all shares held by those entities. Mr. Packard disclaims beneficial
ownership of such shares.
(5) Includes 535,000 shares subject to options exercisable within 60 days of
November 30, 1999. Also includes 8,621,657 shares deemed to be beneficially
owned by certain of our directors, and as to which such directors disclaim
beneficial ownership. See notes 1, 2, 3 and 4 above.
(6) Consists of 5,184,036 shares held by Draper Fisher Associates Fund IV, LP,
and 390,197 shares held by Draper Fisher Partners IV, LLC.
(7) Consists of 1,123,318 shares held by TA/Advent VIII L.P., 517,767 shares
held by Advent Atlantic & Pacific III L.P., 22,409 shares held by TA
Investors LLC and 21,398 shares held by TA Executives Fund LLC.
45
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following description of our capital stock and certain provisions of our
restated certificate of incorporation and bylaws are summaries. Copies of these
documents have been filed with the Securities and Exchange Commission as
exhibits to our registration statement, of which this prospectus forms a part.
The descriptions of the common stock and preferred stock reflect changes to our
capital structure that will occur upon the closing of this offering.
Upon the closing of this offering, our authorized capital stock will consist
of 60,000,000 shares of common stock, par value $0.001 per share, and 1,000,000
shares of preferred stock, par value $0.001 per share.
COMMON STOCK
As of November 30, 1999, there were 20,796,568 shares of common stock
outstanding and held of record by 49 stockholders, assuming conversion of all
outstanding shares of preferred stock.
The holders of common stock are entitled to one vote for each share of
common stock held of record on our books for the election of directors and on
all matters submitted to a vote of stockholders. The holders of common stock are
entitled to receive ratably dividends, if any, when, as and if declared by the
board of directors out of assets legally available therefor, subject to any
preferential dividend rights of any outstanding preferred stock. Upon our
dissolution, liquidation or winding up, the holders of common stock are entitled
to receive ratably our net assets available after the payment of all debts and
other liabilities, subject to the preferential rights of any outstanding
preferred stock. Holders of the common stock have no preemptive, subscription,
redemption or conversion rights. The rights, preferences and privileges of
holders of common stock are subject to, and may be adversely affected by, the
rights of the holders of shares of any series of preferred stock that we may
designate and issue in the future.
PREFERRED STOCK
Upon the closing of this offering, the board of directors will be
authorized, without further vote or action by the stockholders, to issue from
time to time up to an aggregate of 1,000,000 shares of preferred stock in one or
more series and to fix or alter the designations, rights, preferences and
privileges and any qualifications, limitations or restrictions of the shares of
each such series of preferred stock, including the dividend rights, dividend
rates, conversion rights, voting rights, terms of redemption including sinking
fund provisions, redemption price or prices, liquidation preferences and the
number of shares constituting any series or designations of such series, any or
all of which may be greater than the rights of common stock. The issuance of
preferred stock could adversely affect the voting power of holders of common
stock and the likelihood that such holders will receive dividend payments and
payments upon liquidation and could have the effect of delaying, deferring or
preventing a change in control. We have no present plans to issue any shares of
preferred stock.
REGISTRATION RIGHTS
Pursuant to the terms of a rights agreement, after this offering, the
holders of approximately 18,726,674 shares of common stock, including 7,783,998
shares of common stock owned by our founders, will be entitled to certain rights
with respect to the registration of such shares under the Securities Act. Under
the terms of the rights agreement, if we propose to register any of our
securities under the Securities Act for our own account, the holders, including
the founders, are entitled to notice of such registration and are entitled to
include shares of their common stock therein. If we propose to register any of
our securities under the Securities Act for the account of our non-founder
security holders exercising registration rights, such holders are entitled to
notice of such registration and are entitled to include shares of their common
stock therein. Additionally, the non-founder holders are also
46
<PAGE>
entitled to certain demand registration rights pursuant to which they may
require us to file a registration statement under the Securities Act at our
expense with respect to their shares of common stock, and we are required to use
our best efforts to effect that registration. We are not required to effect more
than four of these demand registrations. In addition, the non-founder holders
are entitled to demand registration rights pursuant to which they may require us
to file a registration statement under the Securities Act on Form S-3 at our
expense with respect to their shares of common stock, and we are required to use
our best efforts to effect that registration. We are not required to effect more
than three of these Form S-3 demand registrations in any twelve-month period.
All of these registration rights are subject to conditions and limitations,
including the right of the underwriters of an offering to limit the number of
shares included in such registration and our right not to effect a requested
registration within six months following any offering of our securities,
including this offering. In addition, our obligation to register shares of
common stock terminates immediately with respect to any security holder,
provided that all shares held by the holder may be publicly sold within a
three-month period pursuant to the Securities Act. In any event, all
registration rights terminate five years from the date of this prospectus.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF DELAWARE LAW AND OUR CERTIFICATE OF
INCORPORATION AND BYLAWS
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law. Subject to certain exceptions, Section 203 prohibits a
publicly-held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder, unless the
interested stockholder attained such status with the approval of the board of
directors or unless the business combination is approved in a prescribed manner.
A "business combination" is defined as a merger, asset sale or other transaction
resulting in a financial benefit to the interested stockholder. Subject to
various exceptions, an "interested stockholder" is a person who, together with
affiliates and associates, owns, or within the past three years did own, 15% or
more of a corporation's voting stock. This statute could prohibit or delay the
accomplishment of mergers or other takeover or change in control attempts with
respect to us and, accordingly, may discourage attempts to acquire us.
In addition, some provisions of our restated certificate of incorporation
and restated bylaws may be deemed to have an anti-takeover effect and may delay,
defer or prevent a tender offer or takeover attempt that a stockholder might
deem to be in his or her best interest. The existence of these provisions could
limit the price that investors might be willing to pay in the future for shares
of our common stock. These provisions include:
STOCKHOLDER ACTION; SPECIAL MEETING OF STOCKHOLDERS. The restated
certificate of incorporation provides that stockholders may not take action by
written consent, but only at a duly called annual or special meeting of
stockholders. The certificate of incorporation further provides that special
meetings of our stockholders may be called only by the chairman of the board of
directors, and in no event may the stockholders call a special meeting. Thus,
without approval by the board of directors or chairman, stockholders may take no
action between meetings.
ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS. The restated bylaws provide that a stockholder seeking to bring
business before an annual meeting of stockholders, or to nominate candidates for
election as directors at an annual meeting of stockholders, must provide timely
notice of this intention in writing. To be timely, a stockholder's notice must
be delivered to or mailed and received at our principal executive offices not
less than 120 days prior to the first anniversary of the date of our notice of
annual meeting provided with respect to the previous year's annual meeting of
stockholders. However, if no annual meeting of stockholders was held in the
previous year or the date of the annual meeting of stockholders has been changed
to be more than 30 calendar days from the time contemplated at the time of the
previous year's proxy statement, then a proposal shall be received no later than
the close of business on the 10(th) day following the date on
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<PAGE>
which notice of the date of the meeting was mailed or a public announcement was
made, whichever first occurs. The restated bylaws also include a similar
requirement for making nominations at special meetings and specify requirements
as to the form and content of a stockholder's notice. These provisions may
preclude stockholders from bringing matters before an annual meeting of
stockholders or from making nominations for directors at an annual or special
meeting of stockholders.
AUTHORIZED BUT UNISSUED SHARES. The authorized but unissued shares of
common stock and preferred stock are available for future issuance without
stockholder approval, subject to certain limitations imposed by the Nasdaq
National Market. These additional shares may be utilized for a variety of
corporate acquisitions and employee benefit plans. The existence of authorized
but unissued and unreserved common stock and preferred stock could render more
difficult or discourage an attempt to obtain control of us by means of a proxy
contest, tender offer, merger or otherwise.
SUPER-MAJORITY VOTING. Delaware 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 bylaws, unless a
corporation's certificate of incorporation or bylaws, as the case may be,
require a greater percentage. We have provisions in our certificate of
incorporation and bylaws which require a super-majority vote of the stockholders
to amend, revise or repeal anti-takeover provisions.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Our restated certificate of incorporation provides that, to the extent
permitted by Delaware law, our directors shall not be personally liable to us or
our stockholders for monetary damages for any breach of fiduciary duty as a
director. Under Delaware law, the directors have a fiduciary duty to us that is
not eliminated by this provision of the certificate and, in appropriate
circumstances, equitable remedies such as injunctive or other forms of
nonmonetary relief will remain available. In addition, each director will
continue to be subject to liability under Delaware law for breach of the
director's duty of loyalty to us, for acts or omissions which are found by a
court of competent jurisdiction to be not in good faith or that involve
intentional misconduct or knowing violations of law, for action leading to
improper personal benefit to the director and for payment of dividends or
approval of stock repurchases or redemptions that are prohibited by Delaware
law. This provision also does not affect the directors' responsibilities under
any other laws, such as the federal securities laws.
Our restated certificate of incorporation further provides for the
indemnification of our directors and officers to the fullest extent permitted by
Section 145 of the Delaware General Corporation Law, provided that this
provision shall not eliminate or limit the liability of a director:
- for any breach of the director's duty of loyalty to the corporation or its
stockholders;
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- arising under Section 174 of the Delaware General Corporation Law; or
- for any transaction from which the director derived an improper personal
benefit.
TRANSFER AGENT AND REGISTRAR
Upon the closing of this offering, the transfer agent and registrar for our
common stock will be American Stock Transfer and Trust Company.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has not been any public market for our common
stock, and we make no prediction as to the effect, if any, that market sales of
shares of common stock or the availability of shares of common stock for sale
will have on the market price of the common stock prevailing from time to time.
Nevertheless, sales of substantial amounts of common stock in the public market,
or the perception that such sales could occur, could adversely affect the market
price of the common stock and could impair our future ability to raise capital
through the sale of equity securities.
Upon the closing of this offering, we will have an aggregate of shares of
common stock outstanding, assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options. Of the outstanding
shares, all of the shares sold in this offering will be freely tradable, except
that any shares purchased by "affiliates" (as that term is defined in Rule 144
under the Securities Act), may only be sold in compliance with the limitations
described below. The remaining 20,796,568 shares of common stock will be deemed
"restricted securities" as defined in Rule 144. Restricted securities may be
sold in the public market only if registered or if they qualify for an exemption
from registration under Rule 144, including Rule 144(k), or Rule 701 promulgated
under the Securities Act, which rules are summarized below. Giving effect to the
lock-up agreements described below and the provisions of Rule 144, including
Rule 144(k), and Rule 701, 20,796,568 shares will be available for sale in the
public market as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES DATE
---------------- ----
<S> <C>
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 to vesting provisions)
</TABLE>
In general, under Rule 144, as currently in effect, a person, or persons
whose shares are required to be aggregated, including an affiliate of ours, who
has beneficially owned shares for at least one year is entitled to sell, within
any three-month period commencing 90 days after the date of this prospectus, a
number of shares that does not exceed the greater of 1% of the then outstanding
shares of common stock, approximately shares immediately after this
offering, or 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 restrictions. In addition, a person who is not deemed to have been an
affiliate at any time during the 90 days preceding a sale and who has
beneficially owned the shares proposed to be sold for at least two years would
be entitled to sell such shares under Rule 144(k) without regard to the
requirements described above. To the extent that shares were acquired from an
affiliate of ours, such person's holding period for the purpose of effecting a
sale under Rule 144 commences on the date of transfer from the affiliate.
All of our directors, officers and stockholders have agreed that they will
not offer, sell or agree to sell, directly or indirectly, or otherwise dispose
of any shares of common stock without the prior written consent of FleetBoston
Robertson Stephens Inc. for a period of 180 days from the date of this
prospectus.
Any of our employees or consultants who purchased his or her shares pursuant
to a written compensatory plan or contract is entitled to rely on the resale
provisions of Rule 701, which permits nonaffiliates to sell their Rule 701
shares without having to comply with the public information, holding period,
volume limitation or notice provisions of Rule 144 and permits affiliates to
sell their Rule 701 shares without having to comply with the Rule 144 holding
period restrictions, in each case commencing 90 days after the date of this
prospectus. As of November 30, 1999, the holders of options exercisable for
approximately 1,318,646 shares of common stock, all of whom are bound by a
180-day
49
<PAGE>
lock-up obligation, will be eligible to sell their shares on the expiration of
the 180-day lock-up period, subject in some cases to vesting of the shares
underlying such options.
We intend to file one or more registration statements on Form S-8 under the
Securities Act to register all shares of common stock subject to outstanding
stock options and common stock issued or issuable under our stock plans. We
expect to file a registration statement covering shares offered pursuant to the
1998-A Stock Plan, the 2000 Stock Option and Incentive Plan and the 2000
Employee Stock Purchase Plan 180 days after the date of this prospectus,
permitting the resale of such shares by nonaffiliates in the public market
without restriction under the Securities Act.
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
that we may issue, and grant options to purchase, shares of common stock under
the 1998-A Stock Plan, the 2000 Stock Option and Incentive Plan and the 2000
Employee Stock Purchase Plan. In addition, we may issue shares of common stock
in connection with any acquisition of another company if the terms of issuance
provide that such common stock shall not be resold prior to the expiration of
the 180-day period referenced in the preceding sentence.
Following this offering, holders of 18,726,674 shares of outstanding common
stock will have demand registration rights with respect to their shares of
common stock, subject to the 180-day lock-up arrangement described above, to
require us to register their shares in any future registration of our
securities. See "Description of Capital Stock--Registration Rights."
50
<PAGE>
UNDERWRITING
UNDERWRITING AGREEMENT
The underwriters named below, acting through their representatives,
FleetBoston Robertson Stephens Inc., Thomas Weisel Partners LLC, SoundView
Technology Group, Inc. and Wit Capital Corporation, have severally agreed with
us, subject to the terms and conditions of the underwriting agreement, to
purchase from us the number of shares of common stock set forth below opposite
their respective names. The underwriters are committed to purchase and pay for
all shares if any are purchased.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- ----------- ---------
<S> <C>
FleetBoston Robertson Stephens Inc..........................
Thomas Weisel Partners LLC..................................
SoundView Technology Group, Inc.............................
Wit Capital Corporation.....................................
Total.....................................................
===
</TABLE>
The representatives have advised us that the underwriters propose to offer
the shares of common stock to the public at the public offering price set forth
on the cover page of this prospectus and to dealers at that price less a
concession of not in excess of $ per share, of which $ may be
reallowed to other dealers. After the initial offering, the public offering
price, concession and reallowance to dealers may be reduced by the
representatives. No reduction in the price will change the amount of proceeds to
be received by us as set forth on the cover page of this prospectus.
OVER-ALLOTMENT OPTION. We have granted to the underwriters an option,
exercisable during the 30-day period after the date of this prospectus, to
purchase up to additional shares of common stock at the same price per
share as we will receive for the shares that the underwriters have agreed
to purchase. To the extent that the underwriters exercise this option, each of
the underwriters will have a firm commitment to purchase approximately the same
percentage of additional shares that the number of shares of common stock to be
purchased by it shown in the above table represents as a percentage of the
shares offered by this prospectus. If purchased, the additional shares
will be sold by the underwriters on the same terms as those on which the
shares are being sold. We will be obligated, under this option, to sell
shares to the extent the option is exercised. The underwriters may exercise the
option only to cover over-allotments made in connection with the sale of the
shares of common stock offered by this prospectus.
UNDERWRITING DISCOUNTS AND COMMISSIONS. The following table shows the
estimated per share and total underwriting discounts and commissions to be paid
by us to the underwriters. This information is
51
<PAGE>
presented assuming either no exercise or full exercise by the underwriters of
their over-allotment option.
<TABLE>
<CAPTION>
WITHOUT WITH
PER OVER-ALLOTMENT OVER-ALLOTMENT
SHARE OPTION OPTION
-------- -------------- --------------
<S> <C> <C> <C>
Assumed public offering price.............
Estimated underwriting discounts and
commissions.............................
Estimated proceeds, before expenses, to
us......................................
</TABLE>
The expenses of the offering payable by us are estimated at $ .
FleetBoston Robertson Stephens Inc. expects to deliver the shares of common
stock to purchasers on , 2000.
NO PRIOR PUBLIC MARKET. Prior to this offering, there has been no public
market for the common stock. Consequently, the public offering price for the
common stock offered by this prospectus has been determined through negotiations
among the representatives and us. Among the factors considered in such
negotiations were prevailing market conditions, certain of our financial
information, market valuations of other companies that we and the
representatives believe to be comparable to us, estimates of our business
potential, the present state of our development and other factors deemed
relevant.
The underwriters have advised us that they do not expect sales to
discretionary accounts to exceed five percent of the total number of shares
offered.
INDEMNITY. The underwriting agreement contains covenants of indemnity among
the underwriters and us against civil liabilities, including liabilities under
the Securities Act, and liabilities arising from breaches of representations and
warranties contained in the underwriting agreement.
FUTURE SALES. All of our executive officers, directors and stockholders
have agreed, during the period of 180 days after the date of this prospectus,
subject to specified exceptions, not to offer to sell, contract to sell, or
otherwise sell, dispose of, loan, pledge or grant any rights with respect to any
shares of common stock or any options or warrants to purchase any shares of
common stock, or any securities convertible into or exchangeable for shares of
common stock owned as of the date of this prospectus or thereafter acquired
directly by those holders or with respect to which they have the power of
disposition, without the prior written consent of FleetBoston Robertson
Stephens Inc. However, FleetBoston Robertson Stephens Inc. may, in its sole
discretion and at any time or from time to time, without notice, release all or
any portion of the securities subject to lock-up agreement providing consent to
the sale of shares prior to the expiration of the lock-up period.
In addition, we have agreed that during the lock-up period we will not,
without the prior written consent of FleetBoston Robertson Stephens Inc.,
subject to certain exceptions, consent to the disposition of any shares held by
stockholders subject to lock-up agreements prior to the expiration of the
lock-up period, or issue, sell, contract to sell, or otherwise dispose of, any
shares of common stock, any options or warrants to purchase any shares of common
stock or any securities convertible into, exercisable for or exchangeable for
shares of common stock other than our sale of shares in this offering, the
issuance of our common stock upon the exercise of outstanding options or
warrants, and the issuance of options under existing stock option and incentive
plans. See "Shares Eligible for Future Sale."
LISTING. We have applied for approval for the quotation of our common stock
on the Nasdaq National Market under the symbol "DHIT."
DIRECTED SHARE PROGRAM. At our request, the underwriters have reserved up
to five percent of the common stock to be issued by us and offered for sale in
this offering, at the initial public offering price, to directors, officers,
employees, business associates and persons otherwise connected to us. The
52
<PAGE>
number of shares of common stock available for sale to the general public will
be reduced to the extent these individuals purchase reserved shares. Any
reserved shares which are not purchased will be offered by the underwriters to
the general public on the same basis as the other shares offered in this
offering.
STABILIZATION. The representatives have advised us that, pursuant to
Regulation M under the Securities Act of 1933, some persons participating in the
offering may engage in transactions, including stabilizing bids, syndicate
covering transactions or the imposition of penalty bids, that may have the
effect of stabilizing or maintaining the market price of the shares of common
stock at a level above that which might otherwise prevail in the open market. A
"stabilizing bid" is a bid for or the purchase of shares of common stock on
behalf of the underwriters for the purpose of fixing or maintaining the price of
the common stock. A "syndicate covering transaction" is the bid for or purchase
of common stock on behalf of the underwriters to reduce a short position
incurred by the underwriters in connection with the offering. A "penalty bid" is
an arrangement permitting the representatives to reclaim the selling concession
otherwise accruing to an underwriter or syndicate member in connection with the
offering if the common stock originally sold by such underwriter or syndicate
member is purchased by the representatives in a syndicate covering transaction
and has therefore not been effectively placed by such underwriter or syndicate
member. The representatives have advised us that such transactions may be
effected on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
SERIES C PREFERRED STOCK INVESTMENT. On July 16, 1999, two limited
partnerships affiliated with FleetBoston Robertson Stephens Inc. purchased an
aggregate of 84,245 shares of our series C preferred stock for aggregate
consideration of $500,003. Each share of series C preferred stock will convert
into one share of our common stock upon completion of this offering.
THOMAS WEISEL PARTNERS LLC. Thomas Weisel Partners LLC, one of the
representatives of the underwriters, was organized and registered as a
broker-dealer in December 1998. Since December 1998, Thomas Weisel Partners LLC
has been named as a lead-manager or co-manager on 100 filed public offerings of
equity securities, of which 79 have been completed, and has acted as a syndicate
member in an additional 54 public offerings of equity securities. Thomas Weisel
Partners LLC does not have any material relationship with us or any of our
officers, directors or controlling persons, except with respect to its
contractual relationship with us under the underwriting agreement entered into
in connection with this offering.
WIT CAPITAL CORPORATION. Wit Capital Corporation, a member of the National
Association of Securities Dealers, Inc., will participate in the offering as one
of the underwriters. The National Association of Securities Dealers, Inc.
approved the membership of Wit Capital on September 4, 1997. Since that time,
Wit Capital has acted as an underwriter, e-Manager or selected dealer in over
170 public offerings. Except for its participation as a manager in this
offering, Wit Capital has no relationship with us or any of our founders or
significant stockholders.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for us by Testa, Hurwitz & Thibeault, LLP, Boston, Massachusetts. Legal
matters in connection with this offering will be passed upon for the
underwriters by Foley, Hoag & Eliot LLP, Boston, Massachusetts.
EXPERTS
The financial statements as of December 31, 1998 and for the period from
inception (April 27, 1998) through December 31, 1998 included in this prospectus
and elsewhere in the registration statement have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report
53
<PAGE>
appearing herein and elsewhere in the registration statement, and have been so
included in reliance upon the report of such firm given upon their authority as
experts in accounting and auditing.
In February 1999 our board of directors approved a change in accountants and
our former accountants were dismissed. We subsequently engaged the independent
accounting firm of Deloitte & Touche LLP. The former accountants' review report
on our financial statements for the fiscal period ended December 31, 1998 did
not contain an adverse opinion or disclaimer opinion, and was not qualified or
modified as to uncertainty, audit scope or accounting principles. In addition,
we had no disagreements with our former accountants on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure during the fiscal period ended December 31, 1998 and subsequent
interim periods.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 (including the exhibits, schedules and amendments thereto)
under the Securities Act with respect to the shares of common stock to be sold
in this offering. As permitted by the Securities Exchange Commission's rules and
regulations, this prospectus does not contain all the information set forth in
the registration statement. For further information regarding our company and
the shares of common stock to be sold in this offering, please refer to the
registration statement and the contracts, agreements and other documents filed
as exhibits to the registration statement.
You may read and copy all or any portion of the registration statement or
any other information that we file at the Securities Exchange Commission's
public reference room at 450 Fifth Street, N.W., Washington D.C. 20549. You can
request copies of these documents, upon payment of a duplicating fee, by writing
to the Securities Exchange Commission. Please call the SEC at 1-800-732-0330 for
further information on the operation of the public reference rooms. Our SEC
filings, including the registration statement, are also available to you on the
Securities Exchange Commission's Web site WWW.SEC.GOV.
As a result of this offering, we will become subject to the information and
reporting requirements of the Exchange Act used above, and, in accordance
therewith, will file periodic reports, proxy statements and other information
with the Securities and Exchange Commission.
We intend to furnish to our stockholders annual reports containing financial
statements audited by an independent public accounting firm.
54
<PAGE>
DIRECT HIT TECHNOLOGIES, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Report of Independent Auditors.............................. F-2
Balance Sheets as of December 31, 1998 and September 30,
1999 (unaudited).......................................... F-3
Statements of Operations for the Period from Inception
(April 27, 1998) through December 31, 1998 and the Nine
Months Ended September 30, 1999 (unaudited)............... F-4
Statements of Stockholders' Equity for the Period from
Inception (April 27, 1998) through December 31, 1998 and
the Nine Months Ended September 30, 1999 (unaudited)...... F-5
Statements of Cash Flows for the Period from Inception
(April 27, 1998) through December 31, 1998 and the Nine
Months Ended September 30, 1999 (unaudited)............... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Direct Hit Technologies, Inc.
Wellesley, Massachusetts
We have audited the accompanying balance sheet of Direct Hit Technologies, Inc.
(the "Company") as of December 31, 1998 and the related statements of
operations, stockholders' equity, and cash flows for the period from inception
(April 27, 1998) to December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company at December 31, 1998, and the
results of its operations and its cash flows for the period from inception
(April 27, 1998) to December 31, 1998 in conformity with generally accepted
accounting principles.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Boston, Massachusetts
December 17, 1999
F-2
<PAGE>
DIRECT HIT TECHNOLOGIES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1998 1999 1999
------------ ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............................ $2,557,673 $16,427,389
Short term investments............................... -- 10,059,351
Accounts receivable, less allowances of $5,100 in
1998 and $44,100 in 1999........................... 162,846 357,238
Prepaid expenses and other current assets............ 20,830 37,311
---------- -----------
Total current assets............................. 2,741,349 26,881,289
---------- -----------
Property and equipment, Net............................ 170,046 991,475
Restricted cash........................................ -- 150,000
Other assets........................................... 12,535 26,610
---------- -----------
Total Assets........................................... $2,923,930 $28,049,374
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable..................................... $ 7,558 $ 150,377
Accrued expenses..................................... -- 166,661
Accrued professional fees............................ 31,805 55,907
Accrued compensation................................. 28,646 357,176
Other liabilities.................................... -- 37,445
Deferred revenue..................................... 32,500 245,135
---------- -----------
Total current liabilities........................ 100,509 1,012,701
---------- -----------
Commitments (Note 3)
Stockholders' Equity:
Convertible Preferred Stock:
Series C $.001 par value, 4,431,265 shares
authorized, 4,431,263 shares issued and outstanding
(liquidation preference, $26,299,980).............. -- 26,279,468 --
Series B $.001 par value, 1,323,912 shares
authorized, issued and outstanding (liquidation
preference, $2,000,000)............................ 1,993,110 1,993,110 --
Series A $.001 par value, 5,187,501 shares
authorized, issued and outstanding (liquidation
preference, $1,383,334)............................ 1,378,334 1,378,334 --
Common stock, $.001 par value, 35,000,000 shares
authorized, 9,624,684 and 9,722,048 shares issued
and outstanding; 20,664,724 pro forma.............. 9,625 9,722 20,665
Additional paid-in capital........................... 733,319 5,602,058 35,242,027
Deferred compensation................................ (498,727) (4,504,145) (4,504,145)
Accumulated deficit.................................. (792,240) (3,721,874) (3,721,874)
---------- ----------- -----------
Total stockholders' equity....................... 2,823,421 27,036,673 $27,036,673
---------- ----------- ===========
Total Liabilities and Stockholders' Equity............. $2,923,930 $28,049,374
========== ===========
</TABLE>
See notes to financial statements.
F-3
<PAGE>
DIRECT HIT TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(APRIL 27,
1998) NINE MONTHS
THROUGH ENDED
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -------------
(UNAUDITED)
<S> <C> <C>
Revenues:
OEM....................................................... $ 175,420 $ 805,044
Advertising............................................... -- 57,159
---------- -----------
Total revenues........................................ 175,420 862,203
Cost of revenues.......................................... 51,595 360,524
---------- -----------
Gross profit.............................................. 123,825 501,679
---------- -----------
Operating expenses:
Sales and marketing....................................... 90,332 948,123
Research and development.................................. 471,598 1,502,224
General and administrative................................ 150,260 412,855
Equity-related compensation............................... 231,775 826,927
---------- -----------
Total operating expenses................................ 943,965 3,690,129
---------- -----------
Operating loss.............................................. (820,140) (3,188,450)
Interest income............................................. 27,900 258,816
---------- -----------
Net loss.................................................... $ (792,240) $(2,929,634)
========== ===========
Net loss per share--basic and diluted....................... $ (0.45) $ (0.88)
========== ===========
Shares used in per share calculation--basic and diluted..... 1,772,864 3,330,290
========== ===========
Net loss per share--pro forma basic and diluted
(unaudited)............................................... $ (0.12) $ (0.26)
========== ===========
Shares used in per share calculation--pro forma basic and
diluted (unaudited)....................................... 6,705,378 11,091,546
========== ===========
</TABLE>
See notes to financial statements.
F-4
<PAGE>
DIRECT HIT TECHNOLOGIES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (APRIL 27, 1998) THROUGH DECEMBER 31, 1998 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
------------------------ ----------------------- PAID-IN DEFERRED ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION DEFICIT
---------- ----------- ---------- ---------- ---------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT INCEPTION (APRIL 27,
1998).............................. -- -- -- -- -- -- --
Issuance of common stock to
founders....................... -- -- 7,849,998 $7,850 $542,150 $(550,000) --
Issuance of Series A preferred
stock, net of issuance costs of
$5,000......................... 5,187,501 $1,378,334 -- -- -- -- --
Issuance of Series B preferred
stock, net of issuance costs of
$6,890......................... 1,323,912 1,993,110 -- -- -- -- --
Exercise of stock options........ -- -- 1,774,686 1,775 10,667 -- --
Deferred compensation related to
grant of stock options......... -- -- -- -- 180,502 (180,502) --
Amortization of deferred
compensation................... -- -- -- -- -- 231,775 --
Net loss......................... -- -- -- -- -- -- $(792,240)
---------- ----------- ---------- ---------- ---------- ------------ -----------
BALANCE, DECEMBER 31, 1998......... 6,511,413 3,371,444 9,624,684 9,625 733,319 (498,727) (792,240)
UNAUDITED:
Repurchase and retirement of
common stock, net.............. -- -- (22,500) (23) (577) -- --
Exercise of stock options........ -- -- 119,864 120 36,971 -- --
Issuance of Series C preferred
stock, net of issuance costs of
$20,512........................ 4,431,263 26,279,468 -- -- -- -- --
Deferred compensation related to
grant of stock options......... -- -- -- -- 4,607,345 (4,607,345) --
Transfer of shares to
employees...................... -- -- -- -- 225,000 -- --
Amortization of deferred
compensation................... -- -- -- -- -- 601,927 --
Net loss......................... -- -- -- -- -- -- (2,929,634)
---------- ----------- ---------- ---------- ---------- ------------ -----------
BALANCE, SEPTEMBER 30, 1999
(Unaudited)........................ 10,942,676 $29,650,912 9,722,048 $9,722 $5,602,058 $(4,504,145) $(3,721,874)
========== =========== ========== ========== ========== ============ ===========
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
-------------
<S> <C>
BALANCE AT INCEPTION (APRIL 27,
1998).............................. --
Issuance of common stock to
founders....................... --
Issuance of Series A preferred
stock, net of issuance costs of
$5,000......................... $1,378,334
Issuance of Series B preferred
stock, net of issuance costs of
$6,890......................... 1,993,110
Exercise of stock options........ 12,442
Deferred compensation related to
grant of stock options......... --
Amortization of deferred
compensation................... 231,775
Net loss......................... (792,240)
-----------
BALANCE, DECEMBER 31, 1998......... 2,823,421
UNAUDITED:
Repurchase and retirement of
common stock, net.............. (600)
Exercise of stock options........ 37,091
Issuance of Series C preferred
stock, net of issuance costs of
$20,512........................ 26,279,468
Deferred compensation related to
grant of stock options......... --
Transfer of shares to
employees...................... 225,000
Amortization of deferred
compensation................... 601,927
Net loss......................... (2,929,634)
-----------
BALANCE, SEPTEMBER 30, 1999
(Unaudited)........................ $27,036,673
===========
</TABLE>
See notes to financial statements.
F-5
<PAGE>
DIRECT HIT TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(APRIL 27, 1998) NINE MONTHS
THROUGH ENDED
DECEMBER 31, SEPTEMBER 30,
1998 1999
---------------- -------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $ (792,240) $ (2,929,634)
----------- ------------
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 21,665 121,390
Equity-related compensation............................. 231,775 826,927
Changes in operating assets and liabilities:
Accounts receivable................................... (162,846) (194,392)
Prepaid expenses and other current assets............. (20,830) (16,481)
Accounts payable and accrued expenses................. 68,009 699,557
Deferred revenue...................................... 32,500 212,635
----------- ------------
Total adjustments................................... 170,273 1,649,636
----------- ------------
Net cash used in operating activities............... (621,967) (1,279,998)
----------- ------------
Cash flows from investing activities:
Increase in other assets.................................. (12,535) (14,075)
Purchase of short term investments........................ -- (10,059,351)
Restricted cash deposits.................................. -- (150,000)
Purchases of property and equipment....................... (191,711) (942,819)
----------- ------------
Net cash used in investing activities............... (204,246) (11,166,245)
----------- ------------
Cash flows from financing activities:
Issuance of common stock upon exercise of stock options... 12,442 37,091
Repurchase and retirement of common stock................. -- (600)
Issuance of Series A preferred stock...................... 1,278,334 --
Issuance of Series B preferred stock...................... 1,993,110 --
Issuance of Series C preferred stock...................... -- 26,279,468
Proceeds from issuance of note payable.................... 100,000 --
----------- ------------
Net cash provided by financing activities........... 3,383,886 26,315,959
----------- ------------
Increase in cash and cash equivalents....................... 2,557,673 13,869,716
Cash and cash equivalents, beginning of period.............. -- 2,557,673
----------- ------------
Cash and cash equivalents, end of period.................... $ 2,557,673 $ 16,427,389
=========== ============
Supplemental cash flow information
Conversion of note payable to Series A preferred stock.... $ 100,000 $ --
=========== ============
</TABLE>
See notes to financial statements.
F-6
<PAGE>
DIRECT HIT TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 IS UNAUDITED.)
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS--Direct Hit Technologies, Inc. (the "Company") provides
technology that aggregates and organizes online content to enable users to
quickly find relevant and accurate information, products and services. The
Company was incorporated on April 27, 1998.
The Company has a single operating segment, aggregation and organization of
online content. The Company has no organizational structure dictated by product
lines, geography or customer type. Revenues have been primarily derived from
popularity-based search products.
The Company has experienced net losses since its inception and, as of
September 30, 1999, had an accumulated deficit of approximately $3.7 million.
Such losses and accumulated deficit resulted from both the Company's lack of
substantial revenue and costs incurred in the development of the Company's
service and in the establishment of the Company's Web site. For the foreseeable
future, the Company expects to continue to experience significant growth in its
operating expenses in order to execute its current business plan, particularly
those related to sales and marketing and research and development.
INTERIM FINANCIAL STATEMENTS (UNAUDITED)-- The financial statements as of
September 30, 1999 and for the nine months then ended are unaudited. In the
opinion of management, such unaudited interim financial statements include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation. The results of operations for interim periods are not
necessarily indicative of the results which may be expected for any other
interim period or for the full year.
PRO FORMA BALANCE SHEET (UNAUDITED)--Upon the closing of the Company's
public offering, all of the outstanding shares of convertible preferred stock as
of September 30, 1999, will automatically convert into approximately
10,942,676 shares of common stock. The unaudited pro forma presentation of the
balance sheet has been prepared assuming the conversion of all shares of
convertible preferred stock into common stock at September 30, 1999. All
references to pro forma information in the notes to the financial statements are
unaudited.
STOCK SPLIT--On July 9, 1999, prior to the Series C investment, the
Company's Board of Directors approved a three-for-one stock split of the
Company's common and preferred stock. Shareholders of record on July 14, 1999
(the record date) received two additional shares for every share held on that
date. All share and per share amounts in these financial statements and notes
hereto for all periods presented have been adjusted to reflect the three-for-one
stock split.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES--The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH, CASH EQUIVALENTS AND SHORT TERM INVESTMENTS--The Company invests its
cash in money market accounts and in debt securities of U.S. Government agencies
and commercial paper from high quality corporate issuers. All highly liquid
instruments with an original maturity of ninety days or less are considered cash
equivalents and those with original maturities greater than ninety days and less
than
F-7
<PAGE>
DIRECT HIT TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 IS UNAUDITED.)
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
one year are considered short term investments. The Company's short term
investments in marketable securities are classified as available-for-sale and
are reported at fair value, with unrealized gains and losses, if any, net of
tax, recorded in stockholders' equity. Such unrealized gains and losses to date
have been immaterial. Realized gains or losses and permanent declines in value,
if any, on available-for-sale securities will be reported in income as incurred.
At September 30, 1999, all of the Company's available-for-sale debt securities
mature within one year.
RESTRICTED CASH--The Company is required to maintain a $150,000 compensating
balance with a bank to support an outstanding letter of credit which is issued
in favor of the Company's landlord in lieu of a deposit on leased office space.
REVENUE RECOGNITION--Revenues are comprised of OEM revenues and advertising
revenues. OEM revenues are generated through a variety of contractual
arrangements, which include per-query fees and advertising revenue sharing
arrangements with OEM customers. Per-query fees are recognized in the period
earned, and revenues from advertising revenue sharing arrangements are
recognized in the period that the advertisement is displayed through the OEM
customer's Web site. When the OEM contract calls for payments based on per-query
fees, revenues are recognized based on the number of Web pages accessed as
reported by the OEM customer or as determined by the Company, depending on the
contract. When the OEM contract provides for minimum monthly fees, such fees are
recognized monthly as earned.
Advertising revenues are derived primarily from the sale of banner
advertisements on Web pages. Revenues are recognized over the term the
advertisements are displayed.
Deferred revenue is primarily comprised of payments and billings in excess
of recognized revenue relating to customer contracts.
CONCENTRATION OF CREDIT RISK. Financial instruments that potentially
subject the Company to significant concentration of credit risk consist
primarily of cash and cash equivalents, short term investments and accounts
receivable. Substantially all of the Company's cash and cash equivalents are
managed by two financial institutions. At December 31, 1998 and September 30,
1999, the Company had cash balances at certain financial institutions in excess
of federally insured limits. However, the Company does not believe that it is
subject to unusual credit risk beyond the normal credit risk associated with
commercial banking relationships.
Accounts receivable are typically unsecured and are derived from revenues
earned from customers primarily located in the United States. The Company
performs ongoing credit evaluations of its customers. The Company maintains an
allowance for potential credit losses. Accordingly, the Company has provided for
$5,100 and $39,000 for such allowances in 1998 and 1999, respectively. The
Company has not recorded any write-offs in 1998 or 1999.
For the period from inception (April 27, 1998) through December 31, 1998,
two customers accounted for 78% and 22% of total revenues and 82% and 18% of
total receivables, at December 31, 1998, respectively. One customer accounted
for 70% of total revenues for the nine months ended September 30, 1999. Three
customers accounted for 69%, 13% and 13% of total receivables at September 30,
1999, respectively.
F-8
<PAGE>
DIRECT HIT TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 IS UNAUDITED.)
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
DEPRECIATION AND AMORTIZATION--Property and equipment, including leasehold
improvements, are stated at cost and depreciated using the straight-line method
over the estimated useful lives of the assets. The Company periodically
evaluates the recoverability of its long-lived assets based on expected
undiscounted cash flows and recognizes impairments, if any, based on expected
discounted future cash flows.
INCOME TAXES--Deferred income tax assets and liabilities are determined
based on the differences between the financial reporting and tax bases of assets
and liabilities and are measured using the currently enacted tax rates and laws.
A valuation allowance is provided for the amount of deferred tax assets that,
based on currently available evidence, are not expected to be realized.
COST OF REVENUES--Cost of revenues consist primarily of expenses associated
with the ongoing maintenance and support of our products, including compensation
and employee-related expenses, consulting fees, equipment costs, networking,
bandwidth and other related indirect costs. The Company enters into contracts
for bandwidth with third-party network providers.
RESEARCH AND DEVELOPMENT--Research and development expenses consist
primarily of compensation and employee-related expenses, equipment costs, and
fees for professional services related to the continued development and
enhancement of our product offerings.
Costs incurred in the engineering and development of the Company's product
are expensed as incurred, except for certain software development costs. Costs
associated with the development of computer software are expensed prior to the
establishment of technological feasibility (as defined by SFAS No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise
Marketed") and capitalized thereafter.
The Company also has incurred expenditures on software used to both
facilitate internal processes and create and maintain its Web site. The Company
has adopted Statement of Position ("SOP") 98-1, which requires computer software
costs associated with internal use software to be charged to operations as
incurred until certain capitalization criteria are met. Costs eligible for, and
capitalized under SFAS No. 86 and SOP 98-1, have been insignificant to date.
ADVERTISING COSTS--Advertising costs are recorded as sales and marketing
expense as incurred. Advertising expenses for the period from inception
(April 27, 1998) through December 31, 1998 and for the nine months ended
September 30, 1999 were $0 and $183,696, respectively.
STOCK-BASED COMPENSATION--The Company accounts for stock-based employee
compensation arrangements in accordance with the provisions of Accounting
Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to
Employees," and complies with the disclosure provisions of Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation." Under APB No. 25, compensation cost is recognized on a straight
line basis over the vesting period based on the difference, if any, on the date
of grant between the fair value of the Company's stock and the exercise price.
EARNINGS PER SHARE--Basic net loss per share is computed using the weighted
average number of common shares outstanding during the period adjusted for those
restricted shares that are contingently returnable. Diluted net loss per share
is computed using the weighted average number of common
F-9
<PAGE>
DIRECT HIT TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 IS UNAUDITED.)
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
shares outstanding during the period, plus the dilutive effect of potential
common stock. Potential common stock consists of convertible preferred stock,
restricted common stock that is contingently returnable, and stock options. For
the period from inception (April 27, 1998) to December 31, 1998 and for the nine
months ended September 30, 1999, options to purchase 72,510 and 1,204,646 shares
of common stock, respectively, restricted common stock of 7,071,093 and
5,498,565 shares, respectively, that is contingently returnable and preferred
stock convertible into 6,511,413 and 10,942,676 shares of common stock,
respectively, were excluded from the calculation since their inclusion would be
antidilutive.
Pro forma basic and diluted net loss per share have been calculated assuming
the conversion of all outstanding shares of preferred stock into common stock,
as if the shares had converted immediately upon their issuance.
The following is a calculation of pro forma net loss per share (unaudited):
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION NINE MONTHS
(APRIL 27, 1998) ENDED
THROUGH DECEMBER 31, SEPTEMBER 30,
1998 1999
-------------------- -------------
<S> <C> <C>
Basic and diluted:
Net loss..................................... $ (792,240) $ (2,929,634)
========== ============
Weighted average number of common shares..... 1,772,864 3,330,290
Weighted average assumed number of common
shares upon conversion of preferred
stock...................................... 4,932,514 7,761,256
---------- ------------
Total weighted average number of shares used
in
computing pro forma net loss per share..... 6,705,378 11,091,546
========== ============
Basic and diluted pro forma net loss per
common share............................... $ (0.12) $ (0.26)
========== ============
</TABLE>
FINANCIAL INSTRUMENTS--The Company's financial instruments include cash,
accounts receivable, accounts payable and accrued expenses. At December 31, 1998
and September 30, 1999, the fair values of these instruments approximated their
financial statement carrying amounts.
COMPREHENSIVE INCOME--Comprehensive loss is the same as net loss for all
periods presented.
NEW ACCOUNTING PRONOUNCEMENTS--In June 1998, the Financial Accounting
Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," which establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. The Statement, as amended, is
effective for fiscal years beginning after June 15, 2000. The Company has
evaluated the impact of adopting SFAS No. 133 and, based on its current business
activities, believes that it will not have a material effect on its financial
statements.
F-10
<PAGE>
DIRECT HIT TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 IS UNAUDITED.)
2. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL DECEMBER 31, SEPTEMBER 30,
LIVES 1998 1999
---------- ------------ -------------
<S> <C> <C> <C>
Property and equipment:
Computer equipment and software....... 3 years $149,298 $1,010,172
Furniture and fixtures................ 7 years 39,788 82,907
Office equipment...................... 5 years 2,625 28,163
Leasehold improvements................ lease term -- 13,288
---------- -------- ----------
Total............................... 191,711 1,134,530
Less accumulated depreciation........... (21,665) (143,055)
-------- ----------
Property and equipment, net............. $170,046 $ 991,475
======== ==========
</TABLE>
3. COMMITMENTS
The Company leases office space under operating leases expiring through
October 2002. Certain of the leases contain renewal options. Some of the leases
provide for increasing rents over the terms of the leases; total rent under
these leases is being spread ratably over the lease terms. The Company has
sublet certain office space over the remainder of its lease term at an amount
that approximates the Company's obligation under the lease.
Total rent expense was $32,417 for the period from inception (April 27,
1998) through December 31, 1998, and $154,421 for the nine months ended
September 30, 1999. Rental income from the sublease amounted to $15,424 for the
nine months ended September 30, 1999 and is recorded, net of expense, in general
and administrative expense.
Future minimum annual lease payments under noncancelable operating leases,
net of sublease income, as of September 30, 1999 are as follows:
<TABLE>
<S> <C>
1999 (Remainder of year).................................... $119,986
2000........................................................ 747,173
2001........................................................ 752,846
2002........................................................ 406,195
</TABLE>
4. PREFERRED STOCK
CONVERTIBLE PREFERRED STOCK--The authorized preferred stock of the Company
consists of 10,942,678 shares of preferred stock with a par value of $0.001, of
which 5,187,501 shares are designated as Series A convertible preferred stock
("Series A preferred stock"), 1,323,912 shares are designated as Series B
convertible preferred stock ("Series B preferred stock"), and 4,431,265 shares
are designated as Series C convertible preferred stock ("Series C preferred
stock").
F-11
<PAGE>
DIRECT HIT TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 IS UNAUDITED.)
4. PREFERRED STOCK (CONTINUED)
SERIES A CONVERTIBLE PREFERRED STOCK--On May 22, 1998, the Company issued
5,187,501 shares of Series A preferred stock at $0.2667 per share to investors
for total consideration, including the conversion of two 8% promissory notes
amounting to $100,000, of $1,378,334 (net of offering costs of $5,000). The
Series A preferred stock is convertible into common stock, on a one-for-one
basis, at any time by the holders. The holders of the Series A preferred stock
have voting rights equivalent to the number of shares of common stock into which
their shares of Series A preferred stock convert. The Series A preferred stock
earns non-cumulative dividends when and if declared in the amount of $0.0213 per
share. Upon liquidation, after setting apart or paying in full the preferential
amounts due the holders of Series C preferred stock, holders of Series A
preferred stock are entitled to receive, out of funds then generally available,
in conjunction with holders of Series B preferred stock and prior to any payment
with respect to the holders of common stock, $0.2667 per share, plus any
declared and unpaid dividends thereon. Following payment to holders of all other
classes of preferred stock to which the Series A preferred stock is subordinate,
holders of Series A preferred stock are then entitled to share in remaining
available funds on an "as-if converted" basis with holders of common stock.
SERIES B CONVERTIBLE PREFERRED STOCK--On November 12, 1998, the Company
issued 1,323,912 shares of Series B preferred stock at $1.51067 per share to
investors for total consideration of $1,993,110 (net of offering costs of
$6,890). The Series B preferred stock is convertible into common stock, on a
one-for-one basis, at any time by the holders. The holders of the Series B
preferred stock have voting rights equivalent to the number of shares of common
stock into which their shares of Series B preferred stock convert. The Series B
preferred stock earns non-cumulative dividends when and if declared in the
amount of $0.121 per share. Upon liquidation, after setting apart or paying in
full the preferential amounts due the holders of Series C preferred stock,
holders of Series B preferred stock are entitled to receive, out of funds then
generally available, in conjunction with holders of Series A preferred stock and
prior to any payment with respect to the holders of common stock, $1.51067 per
share, plus any declared and unpaid dividends thereon. Following payment to
holders of all other classes of preferred stock to which the Series B preferred
stock is subordinate, holders of Series B preferred stock are then entitled to
share in remaining available funds on an "as-if converted" basis with holders of
common stock.
In addition, as long as any shares of Series B preferred stock are
outstanding, the Company shall not, without first obtaining approval by vote or
written consent of the holders of at least a majority of the total number of
shares of Series B preferred stock outstanding, voting together as a class,
undertake or effect any reorganization event (as defined) in which the value of
the consideration to be received per share of Series B preferred stock in such
transaction is less than 150% percent of the original Series B issue price of
$1.51067 per share.
SERIES C CONVERTIBLE PREFERRED STOCK--On July 16, 1999, the Company issued
4,431,263 shares of Series C preferred stock at $5.9351 per share to investors
for total consideration of $26,279,468 (net of offering costs of $20,512). The
Series C preferred stock is convertible into common stock, on a one-for-one
basis, at any time by the holders. The holders of the Series C preferred stock
have voting rights equivalent to the number of shares of common stock into which
their shares of Series C preferred stock convert. The Series C preferred stock
earns non-cumulative dividends when declared in the amount of $0.4748 per share.
Upon liquidation, holders of Series C preferred stock are entitled to receive,
out of funds then generally available, dividends previously declared or accrued
and a per share
F-12
<PAGE>
DIRECT HIT TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 IS UNAUDITED.)
4. PREFERRED STOCK (CONTINUED)
amount as follows: i) $8.90265 per share if the consideration received in a
liquidation is $2.99 per fully diluted share of common stock or less;
ii) $10.386425 per share if the consideration received in a liquidation is
between $3.00 and $8.96 per fully diluted share of common stock; iii) $11.8702
per share if the consideration received in a liquidation is between $8.97 and
$11.96 per fully diluted share of common stock or; iv) $5.9351 per share if the
consideration received in a liquidation is over $11.96 per fully diluted share
of common stock.
AUTOMATIC CONVERSION--The preferred stock will automatically be converted
into shares of common stock upon the closing of a public offering of common
stock at an offering price of at least $11.8702 per share that values the
Company at not less than $253 million and results in gross proceeds to the
Company of at least $20 million.
5. COMMON STOCK
The Company's Certificate of Incorporation was amended on July 14, 1999 to
increase the number of authorized shares of common stock from 10,000,000 to
35,000,000 shares.
The Company's Certificate of Incorporation precludes the payment of
dividends to shareholders of common stock so long as any shares of Series A, B
or C preferred stock are issued and outstanding.
FOUNDERS SHARES--On April 28, 1998, the Company issued to the two founders
of the Company 2,943,750 and 4,906,248 shares of restricted common stock (the
"Founders Shares"), respectively, at a per share price of $0.0003.
The Founder Stock Purchase Agreement relating to 2,943,750 shares of common
stock provided for vesting of 10% of the shares upon the issuance of the
Series A Preferred Stock and the remaining 90% vest ratably over four years.
The Founder Stock Purchase Agreement relating to 4,906,248 shares of common
stock were issued to a founder as part of the initial capitalization of the
Company including his contribution and development of certain technology
pursuant to the terms of an Exclusive Patent License Agreement. Upon issuance of
the Series A Preferred Stock 25% of his shares became immediately vested. The
remaining balance of these Founders Shares vest ratably over four years. On
July 6, 1999, the founder transferred 60,000 of his restricted Founders Shares
to two employees for past services rendered. The fair value of these shares,
approximating $225,000, was charged to expense.
The Company has determined that the measurement date for the Founders Shares
coincided with the issuance of the Series A preferred stock. The Company has
recognized deferred compensation of $550,000, based on the fair value of the
common shares on that day, to be amortized over the vesting period. Accordingly,
the Company has recorded compensation expense of approximately $174,000 and
$83,000 for the period from inception (April 27, 1998) through December 31, 1998
and the nine months ended September 30, 1999, respectively.
The Company has the right to repurchase unvested shares at the amount paid.
The Company's right to repurchase the unvested shares terminates if the founder
is terminated by the Company without cause, upon a change in control or upon the
effectiveness of the Company's initial public offering.
F-13
<PAGE>
DIRECT HIT TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 IS UNAUDITED.)
5. COMMON STOCK (CONTINUED)
Restricted shares include the Founders Shares and shares purchased pursuant
to the Company's 1998 and 1998-A Stock Option Plans (the "Option Plans").
Restricted shares activity since inception follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF PURCHASE
SHARES PRICE
---------- --------
<S> <C> <C>
Outstanding at inception (April 27, 1998).............. -- --
Issued for Founders Shares and stock option
exercises.......................................... 9,624,684 $0.001
Repurchased.......................................... -- --
Lapse of restriction due to vesting.................. (2,553,591) 0.001
----------
Outstanding at December 31, 1998....................... 7,071,093 0.001
Issued for stock option exercises.................... 119,864 0.291
Repurchased.......................................... (45,000) (0.027)
Issued from treasury shares.......................... 22,500 0.027
Lapse of restriction due to vesting.................. (1,669,892) 0.003
----------
Outstanding at September 30, 1999...................... 5,498,565 $0.005
========== ======
</TABLE>
STOCK OPTIONS--The Company's Option Plans initially provided for the
granting of stock options to purchase up to 1,962,501 shares of the Company's
common stock. In 1998, the Company's shareholders ratified and approved to
increase the number of shares available for grant by 225,000 to a total of
2,187,501 for the Option Plans. In 1999 the Company's shareholders ratified and
approved to increase the number of shares available for grant by 1,600,000, to a
total of 3,787,501 for the Option Plans. Options may be granted to employees,
officers, directors and consultants of the Company with terms of up to
10 years. The options can be granted at such prices and vesting schedules as the
Board of Directors (the "Board") may determine; however ISO's cannot be granted
at less than 100% and nonqualified options cannot be granted at less than 85% of
the stock's fair market value at the date of grant.
Options generally vest over 48 months as follows: (i) 25% 12 months from the
date of grant and (ii) the remaining 75% thereafter at 2.0833% per month. In the
event of a change of control of the Company (as defined in the Option Plan), the
vesting of 25% of the remaining unvested shares will automatically be
accelerated.
Generally, the Option Plans provide that the Option holders may exercise
their stock options immediately. Shares issued upon exercise of such options are
restricted and continue to vest under the terms of the option agreement.
F-14
<PAGE>
DIRECT HIT TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 IS UNAUDITED.)
5. COMMON STOCK (CONTINUED)
Stock option activity since inception is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
---------- --------
<S> <C> <C>
Outstanding at inception............................... -- --
Granted.............................................. 1,929,373 $0.02
Exercised............................................ (1,774,687) 0.01
Canceled, forfeited or expired....................... (82,176) 0.27
---------- -----
Outstanding and exercisable, December 31, 1998......... 72,510 0.10
Granted.............................................. 1,274,500 1.37
Exercised............................................ (142,364) 0.25
Canceled, forfeited or expired....................... -- --
---------- -----
Outstanding and exercisable, September 30, 1999........ 1,204,646 $1.43
========== =====
</TABLE>
Included in options granted for the period from inception (April 27, 1998)
through December 31, 1998, and the nine months ended September 30, 1999 are
109,062 and 86,000 options, respectively, granted to consultants. Compensation
expense is being recognized over the vesting period based on fair value pursuant
to SFAS No. 123 and EITF No. 96-18. Total expense for the period from inception
(April 27, 1998) through December 31, 1998, and the nine months ended
September 30, 1999 related to these options is approximately $36,000 and
$322,000, respectively.
For financial reporting purposes, the deemed fair value of the common stock
at the dates of stock option grants to employees resulted in deferred
compensation of approximately $122,000 for the period from inception (April 27,
1998) through December 31, 1998 and approximately $3,789,000 for the nine months
ended September 30, 1999. These charges are being recognized ratably over the
vesting period. Compensation expense for options to employees was approximately
$22,000 for the period from inception (April 27, 1998) through December 31, 1998
and approximately $197,000 for the nine months ended September 30, 1999.
The weighted average fair value of options granted for the period from
inception (April 27, 1998) through December 31, 1998 and the nine months ended
September 30, 1999 was $0.07 and $2.85, respectively.
F-15
<PAGE>
DIRECT HIT TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 IS UNAUDITED.)
5. COMMON STOCK (CONTINUED)
The following table summarized information about stock options outstanding
at September 30, 1999:
<TABLE>
<CAPTION>
VESTED
WEIGHTED -------------------------
AVERAGE WEIGHTED WEIGHTED
NUMBER REMAINING AVERAGE AVERAGE
EXERCISE OF OPTIONS CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE PRICE OF OPTIONS PRICE
----------------- ----------- ----------- -------- ---------- --------
<S> <C> <C> <C> <C> <C>
$0.03 3,000 8.76 $0.03 3,000 $0.03
0.17 229,500 9.36 0.17 4,835 0.17
0.30 112,500 9.59 0.30 -- --
0.45 108,000 9.76 0.45 -- --
1.78 325,646 9.85 1.78 8,135 1.78
2.30 338,000 9.92 2.30 -- --
2.82 88,000 9.96 2.82 -- --
----------------- --------- ------- ------- ------- -------
$0.03--2.82 1,204,646 9.75 $1.43 15,970 $0.96
================= ========= ======= ======= ======= =======
</TABLE>
The weighted average remaining contractual life of the options at
December 31, 1998 was 9.75 years.
Under SFAS No. 123, the fair value of stock-based awards to employees is
calculated through the use of option pricing models. For purposes of determining
the disclosure required by SFAS No. 123, the minimum value method was used with
the following assumptions: expected life, 5 years and a risk-free rate of return
of 5.5%. If the computed fair values of the 1999 and 1998 awards had been
amortized to expense over the vesting period, pro forma net loss would have been
as follows:
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(APRIL 27, 1998) NINE MONTHS
THROUGH ENDED
DECEMBER 31, SEPTEMBER 30,
1998 1999
---------------- -------------
<S> <C> <C>
Net loss as reported.............................. $(792,240) $(2,929,634)
Net loss pro forma................................ $(811,187) $(3,071,890)
</TABLE>
F-16
<PAGE>
DIRECT HIT TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 IS UNAUDITED.)
6. INCOME TAXES
The components of the Company's net deferred tax assets consisted of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
1998
------------
<S> <C>
Current assets:
Deferred compensation..................................... $ 95,028
Research and development credits.......................... 30,553
---------
125,581
---------
Long-term assets (liabilities):
Net operating loss carryforwards.......................... 319,035
Depreciation.............................................. (2,499)
---------
316,536
---------
Net deferred tax assets before valuation allowance.......... 442,117
Less: valuation allowance................................... (442,117)
---------
Net deferred tax assets..................................... $ --
=========
</TABLE>
A valuation allowance is established if it is more likely than not that all
or a portion of the deferred tax asset will not be realized. Accordingly,
because of the Company's limited operating history, management has provided a
valuation allowance for the full amount of the deferred tax asset due to the
uncertainty of realization.
The Company has available for future periods federal and state tax net
operating loss carryforwards and research and development credits of
approximately $792,000 and $31,000, respectively, as of December 31, 1998. The
net operating loss carryforwards expire beginning in 2013 and 2003 for federal
and state tax purposes, respectively. The federal research and development
credits begin to expire in 2013. The Company did not pay any income taxes in
1998.
Under the provisions of the Internal Revenue Code, certain substantial
changes in the Company's ownership may have limited, or may limit in the future,
the amount of net operating loss carryforwards which could be utilized annually
to offset future taxable income and income tax liabilities. The amount of any
annual limitation is determined based upon the Company's value prior to an
ownership change.
7. BENEFIT PLAN
The Company maintains a 401(k) Profit Sharing Plan (the "Plan") for its
full-time employees. Each participant in the Plan may elect to contribute from
1% to 20% of his or her annual compensation to the Plan. The Company does not
match employee contributions. Under the Plan, all participants are fully vested
and all benefits and accounts can not be forfeited for any reason.
* * * * *
F-17
<PAGE>
[DESCRIPTION OF ARTWORK]
[Inside back cover of Prospectus:
The inside back cover includes a number of screen shots depicting the
application of our products and services at our OEM customer Web sites and
at our own destination site at www.directhit.com.
Screen shot of default popularity-based search results at an OEM
customer Web site highlighting the default popularity-based, Direct
Hit-branded search results.
Screen shot of button-model popularity-based search results at an OEM
customer Web site highlighting the Direct Hit-branded "Top 10 Results" link.
Screen shot of Related Searches at an OEM customer Web site highlighting
the Direct Hit-branded Related Searches.
Screen shot of Personalized Search at our own destination site.
Screen shot of Directory-based Search at an OEM customer Web site
highlighting the Direct Hit-branded Directory-based Search.
Screen shot of our Popularity-based Shopping Product at an OEM customer
Web site highlighting the Direct Hit-branded Popularity-based Shopping
Product.]
[Logo outside back cover of prospectus: Company logo.]
<PAGE>
DIRECT HIT TECHNOLOGIES, INC.
(LOGO)
UNTIL (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
THAT BUY, SELL OR TRADE OUR COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS
OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS REQUIREMENT IS IN
ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<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 WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES, IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
SUBJECT TO COMPLETION, DATED DECEMBER 22, 1999
[DIRECT HIT TECHNOLOGIES, INC. LOGO]
SHARES
COMMON STOCK
Direct Hit Technologies, Inc. is offering shares of its common stock.
This is our initial public offering and no public market currently exists for
our shares. We have applied to have our common stock approved for quotation on
the Nasdaq National Market under the symbol "DHIT." We anticipate that the
initial public offering price will be between $ and $ per share.
------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 5.
---------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- ---------
<S> <C> <C>
Public Offering Price....................................... $ $
Underwriting Discounts and Commissions...................... $ $
Proceeds to Direct Hit...................................... $ $
</TABLE>
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS
IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
We have granted the underwriters a 30-day option to purchase up to an
additional shares of common stock to cover over-allotments.
------------------------
ROBERTSON STEPHENS INTERNATIONAL
THOMAS WEISEL PARTNERS LLC
SOUNDVIEW TECHNOLOGY GROUP
WIT CAPITAL CORPORATION
The date of this prospectus is , 2000
<PAGE>
UNDERWRITING
UNDERWRITING AGREEMENT
The underwriters named below, acting through their representatives,
FleetBoston Robertson Stephens Inc., Thomas Weisel Partners LLC, SoundView
Technology Group, Inc. and Wit Capital Corporation, have severally agreed with
us, subject to the terms and conditions of the underwriting agreement, to
purchase from us the number of shares of common stock set forth below opposite
their respective names. The underwriters are committed to purchase and pay for
all shares if any are purchased.
<TABLE>
<CAPTION>
NUMBER
U.S. UNDERWRITERS OF SHARES
- ----------------- ---------
<S> <C>
FleetBoston Robertson Stephens Inc..........................
Thomas Weisel Partners LLC..................................
SoundView Technology Group, Inc.............................
Wit Capital Corporation.....................................
INTERNATIONAL UNDERWRITERS
BancBoston Robertson Stephens International Limited.........
Thomas Weisel Partners LLC..................................
SoundView Technology Group, Inc.............................
Wit Capital Corporation.....................................
Total.....................................................
=======
</TABLE>
The representatives have advised us that the underwriters propose to offer
the shares of common stock to the public at the public offering price set forth
on the cover page of this prospectus and to dealers at that price less a
concession of not in excess of $ per share, of which $ may be
reallowed to other dealers. After the initial offering, the public offering
price, concession and reallowance to dealers may be reduced by the
representatives. No reduction in the price will change the amount of proceeds to
be received by us as set forth on the cover page of this prospectus.
OVER-ALLOTMENT OPTION. We have granted to the underwriters an option,
exercisable during the 30-day period after the date of this prospectus, to
purchase up to additional shares of common stock at the same price per
share as we will receive for the shares that the underwriters have agreed
to purchase. To the extent that the underwriters exercise this option, each of
the underwriters will have a firm commitment to purchase approximately the same
percentage of additional shares that the number of shares of common stock to be
purchased by it shown in the above table represents as a percentage of the
shares offered by this prospectus. If purchased, the additional shares
will be sold by the underwriters on the same terms as those on which the
shares are being sold. We will be obligated, under this option, to sell shares
to the extent the option is exercised. The
52
<PAGE>
underwriters may exercise the option only to cover over-allotments made in
connection with the sale of the shares of common stock offered by this
prospectus.
UNDERWRITING DISCOUNTS AND COMMISSIONS. The following table shows the
estimated per share and total underwriting discounts and commissions to be paid
by us to the underwriters. This information is presented assuming either no
exercise or full exercise by the underwriters of their over-allotment option.
<TABLE>
<CAPTION>
WITHOUT WITH
PER OVER-ALLOTMENT OVER-ALLOTMENT
SHARE OPTION OPTION
-------- -------------- --------------
<S> <C> <C> <C>
Assumed public offering price.............
Estimated underwriting discounts and
commissions.............................
Estimated proceeds, before expenses, to
us......................................
</TABLE>
The expenses of the offering payable by us are estimated at $ .
FleetBoston Robertson Stephens Inc. expects to deliver the shares of common
stock to purchasers on , 2000.
NO PRIOR PUBLIC MARKET. Prior to this offering, there has been no public
market for the common stock. Consequently, the public offering price for the
common stock offered by this prospectus has been determined through negotiations
among the representatives and us. Among the factors considered in such
negotiations were prevailing market conditions, certain of our financial
information, market valuations of other companies that we and the
representatives believe to be comparable to us, estimates of our business
potential, the present state of our development and other factors deemed
relevant.
The underwriters have advised us that they do not expect sales to
discretionary accounts to exceed five percent of the total number of shares
offered.
INDEMNITY. The underwriting agreement contains covenants of indemnity among
the underwriters and us against civil liabilities, including liabilities under
the Securities Act, and liabilities arising from breaches of representations and
warranties contained in the underwriting agreement.
FUTURE SALES. All of our executive officers, directors and stockholders
have agreed, during the period of 180 days after the date of this prospectus,
subject to specified exceptions, not to offer to sell, contract to sell, or
otherwise sell, dispose of, loan, pledge or grant any rights with respect to any
shares of common stock or any options or warrants to purchase any shares of
common stock, or any securities convertible into or exchangeable for shares of
common stock owned as of the date of this prospectus or thereafter acquired
directly by those holders or with respect to which they have the power of
disposition, without the prior written consent of FleetBoston Robertson
Stephens Inc. However, FleetBoston Robertson Stephens Inc. may, in its sole
discretion and at any time or from time to time, without notice, release all or
any portion of the securities subject to lock-up agreement providing consent to
the sale of shares prior to the expiration of the lock-up period.
In addition, we have agreed that during the lock-up period we will not,
without the prior written consent of FleetBoston Robertson Stephens Inc.,
subject to certain exceptions, consent to the disposition of any shares held by
stockholders subject to lock-up agreements prior to the expiration of the
lock-up period, or issue, sell, contract to sell, or otherwise dispose of, any
shares of common stock, any options or warrants to purchase any shares of common
stock or any securities convertible into, exercisable for or exchangeable for
shares of common stock other than our sale of shares in this offering, the
issuance of our common stock upon the exercise of outstanding options or
warrants, and the issuance of options under existing stock option and incentive
plans. See "Shares Eligible for Future Sale."
53
<PAGE>
LISTING. We have applied for approval for the quotation of our common stock
on the Nasdaq National Market under the symbol "DHIT."
DIRECTED SHARE PROGRAM. At our request, the underwriters have reserved up
to five percent of the common stock to be issued by us and offered for sale in
this offering, at the initial public offering price, to directors, officers,
employees, business associates and persons otherwise connected to Direct Hit.
The number of shares of common stock available for sale to the general public
will be reduced to the extent these individuals purchase reserved shares. Any
reserved shares which are not purchased will be offered by the underwriters to
the general public on the same basis as the other shares offered in this
offering.
STABILIZATION. The representatives have advised us that, pursuant to
Regulation M under the Securities Act of 1933, some persons participating in the
offering may engage in transactions, including stabilizing bids, syndicate
covering transactions or the imposition of penalty bids, that may have the
effect of stabilizing or maintaining the market price of the shares of common
stock at a level above that which might otherwise prevail in the open market. A
"stabilizing bid" is a bid for or the purchase of shares of common stock on
behalf of the underwriters for the purpose of fixing or maintaining the price of
the common stock. A "syndicate covering transaction" is the bid for or purchase
of common stock on behalf of the underwriters to reduce a short position
incurred by the underwriters in connection with the offering. A "penalty bid" is
an arrangement permitting the representatives to reclaim the selling concession
otherwise accruing to an underwriter or syndicate member in connection with the
offering if the common stock originally sold by such underwriter or syndicate
member is purchased by the representatives in a syndicate covering transaction
and has therefore not been effectively placed by such underwriter or syndicate
member. The representatives have advised us that such transactions may be
effected on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
SERIES C PREFERRED STOCK INVESTMENT. On July 16, 1998, two limited
partnerships affiliated with FleetBoston Robertson Stephens, Inc. purchased an
aggregate of 84,245 shares of our series C preferred stock for aggregate
consideration of $500,003. Each share of series C preferred stock will convert
into one share of our common stock upon completion of this offering.
THOMAS WEISEL PARTNERS LLC. Thomas Weisel Partners LLC, one of the
representatives of the underwriters, was organized and registered as a
broker-dealer in December 1998. Since December 1998, Thomas Weisel Partners LLC
has been named as a lead-manager or co-manager on 100 filed public offerings of
equity securities, of which 79 have been completed, and has acted as a syndicate
member in an additional 54 public offerings of equity securities. Thomas Weisel
Partners LLC does not have any material relationship with us or any of our
officers, directors or controlling persons, except with respect to its
contractual relationship with us under the underwriting agreement entered into
in connection with this offering.
WIT CAPITAL CORPORATION. Wit Capital Corporation, a member of the National
Association of Securities Dealers, Inc., will participate in the offering as one
of the underwriters. The National Association of Securities Dealers, Inc.
approved the membership of Wit Capital on September 4, 1997. Since that time,
Wit Capital has acted as an underwriter, e-Manager or selected dealer in over
170 public offerings. Except for its participation as a manager in this
offering, Wit Capital has no relationship with us or any of our founders or
significant stockholders.
54
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Estimated expenses, other than underwriting discounts and commissions,
payable by us in connection with the sale of the common stock being registered
under this registration statement are as follows:
<TABLE>
<S> <C>
SEC registration fee........................................ $ 15,180*
NASD filing fee............................................. 6,250*
Nasdaq National Market listing fee.......................... 75,000*
Printing and engraving expenses............................. 125,000*
Legal fees and expenses..................................... 400,000*
Accounting fees and expenses................................ 275,000*
Blue Sky fees and expenses (including legal fees)........... 10,000*
Transfer agent and registrar fees and expenses.............. 10,000*
Miscellaneous............................................... 83,570*
----------
Total................................................... $1,000,000*
----------
</TABLE>
- ------------------------
* Estimated
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Delaware General Corporation Law and our charter and bylaws provide for
indemnification of our directors and officers for liabilities and expenses that
they may incur in such capacities. In general directors and officers are
indemnified with respect to actions taken in good faith in a manner reasonably
believed to be in, or not opposed to, our best interests and, with respect to
any criminal action or proceeding, actions that the indemnitee had no reasonable
cause to believe were unlawful. Reference is made to our charter and bylaws
filed as Exhibits 3.1 through 3.4 to this registration statement.
The underwriting agreement provides that the underwriters are obligated,
under certain circumstances, to indemnify our directors, officers and
controlling persons against certain liabilities, including liabilities under the
Securities Act. Reference is made to the form of underwriting agreement filed as
Exhibit 1.1 to this registration statement.
In addition, we have an existing directors and officers liability insurance
policy.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since our inception on April 27, 1998, we have issued the following
securities that were not registered under the Securities Act:
(A) ISSUANCES OF CAPITAL STOCK.
In April 1998, we issued and sold 7,849,998 shares of common stock to two
investors for an aggregate purchase price of $2,617.
In May 1998, we issued and sold 5,187,501 shares of series A preferred stock
to four investors for an aggregate purchase price of $1,383,334.
In November 1998, we issued and sold 1,323,912 shares of series B preferred
stock to five investors for an aggregate purchase price of $1,999,997.
II-1
<PAGE>
In July 1999, we issued and sold 4,431,263 shares of series C preferred
stock to 20 investors for an aggregate purchase price of $26,299,981.
No underwriters were used in the foregoing transactions. All sales of
securities described above were made in reliance upon the exemption from
registration provided by Section 4(2) of the Securities Act (and/or
Regulation D promulgated thereunder) for transactions by an issuer not involving
a public offering.
(B) GRANTS AND EXERCISES OF STOCK OPTIONS.
Since the inception of our company on April 27, 1998, we have granted stock
options to purchase 3,345,696 shares of common stock with exercise prices
ranging from $0.001 to $3.34 per share, to employees, directors and consultants
pursuant to our 1998 Stock Option Plan and 1998-A Stock Option Plan. Of these
options, 1,996,894 have been exercised for an aggregate consideration of
$335,737.56 as of November 30, 1999. The issuance of common stock upon exercise
of the options was exempt either pursuant to Rule 701, as a transaction pursuant
to a compensatory benefit plan, or pursuant to Section 4(2), as a transaction by
an issuer not involving a public offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ------------------------------------------------------------
<S> <C>
1.1* Form of Underwriting Agreement.
3.1 Second Amended and Restated Certificate of Incorporation of
the Registrant (currently in effect).
3.2* Form of Third Amended and Restated Certificate of
Incorporation of the Registrant (to be filed upon the
closing of the offering).
3.3 Amended and Restated Bylaws of the Registrant (currently in
effect).
3.4 Form of Second Amended and Restated Bylaws of the Registrant
(to take effect as of the effective date of the registration
statement).
4.1* Specimen Certificate for shares of the Registrant's Common
Stock.
4.2 Description of Capital Stock (contained in the Certificate
of Incorporation filed as Exhibits 3.1 and 3.2).
5.1* Legal Opinion of Testa, Hurwitz & Thibeault, LLP.
10.1+ 1998-A Stock Option Plan.
10.2*+ 2000 Stock Option and Incentive Plan.
10.3*+ 2000 Employee Stock Purchase Plan.
10.4 Lease Agreement dated April 30, 1998 with Wellplay
Associates Limited Partnership or office space located at
386 Washington Street, 2(nd) Floor, Wellesley,
Massachusetts.
10.5 Lease Agreement dated October 3, 1998 with Wayne Realty
Trust for office space located at 888 Worcester Street,
Wellesley, Massachusetts.
10.6 Sublease Agreement with The Mathworks, Inc. dated November
5, 1999, for office space located at 24 Prime Parkway,
Natick, Massachusetts.
10.7 Second Amended and Restated Rights Agreement dated as of
July 16, 1999.
10.8 Exclusive Patent License Agreement with Gary Culliss and
Draper Fisher Associates Fund IV, LP dated May 22, 1998.
10.9 First Amendment, dated November 11, 1998, to the Exclusive
Patent License Agreement with Gary Culliss and Draper Fisher
Associates Fund IV, LP dated May 22, 1998.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ------------------------------------------------------------
<S> <C>
10.10 Second Amendment, dated July 16, 1999, to the Exclusive
Patent License Agreement with Gary Culliss and Draper Fisher
Associates Fund IV, LP dated May 22, 1998.
10.11 Noncompetition Agreement with Michael Cassidy dated as of
July 16, 1999.
10.12 Noncompetition Agreement with Gary Culliss dated as of July
16, 1999.
10.13 Noncompetition Agreement with David Parker dated as of July
16, 1999.
23.1* Consent of Testa, Hurwitz & Thibeault, LLP (contained in
Exhibit 5.1).
23.2 Consent of Deloitte & Touche LLP.
24.1 Power of Attorney (contained on page II-4).
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
* TO BE FILED BY AMENDMENT.
+ INDICATES A MANAGEMENT CONTRACT OR ANY COMPENSATORY PLAN, CONTRACT OR
ARRANGEMENT.
(B) FINANCIAL STATEMENT SCHEDULES.
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 14 above, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes (1) to provide to the
underwriters at the closing specified in the underwriting agreement,
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser; (2) that for
purposes of determining any liability under the Securities Act, the information
omitted from the form of prospectus filed as part of this registration statement
in reliance upon Rule 430A and contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this registration statement as of the time it was
declared effective; and (3) that for the purpose of determining any liability
under the Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Wellesley,
Massachusetts on December 22, 1999.
<TABLE>
<S> <C> <C>
DIRECT HIT TECHNOLOGIES, INC.
By: /s/ MICHAEL CASSIDY
-----------------------------------------
Michael Cassidy
PRESIDENT, CHIEF EXECUTIVE OFFICER AND
DIRECTOR
</TABLE>
POWER OF ATTORNEY
We, the undersigned officers and directors of Direct Hit Technologies, Inc.
(the "Company"), hereby severally constitute and appoint Michael Cassidy and
John McDonough, and each of them individually, with full powers of substitution
and resubstitution, our true and lawful attorneys, with full powers to them and
each of them to sign for us, in our names and in the capacities indicated below,
the registration statement on Form S-1 filed with the Securities and Exchange
Commission, and any and all amendments to said registration statement (including
post-effective amendments), and any registration statement filed pursuant to
Rule 462(b) under the Securities Act of 1933, as amended, in connection with the
registration under the Securities Act of 1933, as amended, of equity securities
of the Company, and to file or cause to be filed the same, with all exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as each of them might or could do in person, and hereby ratifying and
confirming all that said attorneys, and each of them, or their substitute or
substitutes, shall do or cause to be done by virtue of this Power of Attorney.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated below:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ MICHAEL CASSIDY President, Chief Executive Officer
- ------------------------------------ and Director December 22, 1999
Michael Cassidy
/s/ JOHN MCDONOUGH Executive Vice President, Chief
- ------------------------------------ Operating Officer, Chief December 22, 1999
John McDonough Financial Officer, and Treasurer
/s/ GARY CULLISS Chief Technology Officer,
- ------------------------------------ Secretary and Chairman December 22, 1999
Gary Culliss
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ ROB CHANDRA Director
- ------------------------------------ December 22, 1999
Rob Chandra
/s/ JONATHAN GOLDSTEIN Director
- ------------------------------------ December 22, 1999
Jonathan Goldstein
/s/ VERNON LOBO Director
- ------------------------------------ December 20, 1999
Vernon Lobo
/s/ WARREN PACKARD Director
- ------------------------------------ December 19, 1999
Warren Packard
/s/ MICHAEL SANTULLO Director
- ------------------------------------ December 20, 1999
Michael Santullo
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ------------------------------------------------------------
<S> <C>
1.1* Form of Underwriting Agreement.
3.1 Second Amended and Restated Certificate of Incorporation of
the Registrant (currently in effect).
3.2* Form of Third Amended and Restated Certificate of
Incorporation of the Registrant (to be filed upon the
closing of the offering).
3.3 Amended and Restated Bylaws of the Registrant (currently in
effect).
3.4 Form of Second Amended and Restated Bylaws of the Registrant
(to take effect as of the effective date of the registration
statement).
4.1* Specimen Certificate for shares of the Registrant's Common
Stock.
4.2 Description of Capital Stock (contained in the Certificate
of Incorporation filed as Exhibits 3.1 and 3.2).
5.1* Legal Opinion of Testa, Hurwitz & Thibeault, LLP.
10.1+ 1998-A Stock Option Plan.
10.2*+ 2000 Stock Option and Incentive Plan.
10.3*+ 2000 Employee Stock Purchase Plan.
10.4 Lease Agreement dated April 30, 1998 with Wellplay
Associates Limited Partnership or office space located at
386 Washington Street, 2(nd) Floor, Wellesley,
Massachusetts.
10.5 Lease Agreement dated October 3, 1998 with Wayne Realty
Trust for office space located at 888 Worcester Street,
Wellesley, Massachusetts.
10.6 Sublease Agreement with The Mathworks, Inc. dated November
5, 1999, for office space located at 24 Prime Parkway,
Natick, Massachusetts.
10.7 Second Amended and Restated Rights Agreement dated as of
July 16, 1999.
10.8 Exclusive Patent License Agreement with Gary Culliss and
Draper Fisher Associates Fund IV, LP dated May 22, 1998.
10.9 First Amendment, dated November 11, 1998, to the Exclusive
Patent License Agreement with Gary Culliss and Draper Fisher
Associates Fund IV, LP dated May 22, 1998.
10.10 Second Amendment, dated July 16, 1999, to the Exclusive
Patent License Agreement with Gary Culliss and Draper Fisher
Associates Fund IV, LP dated May 22, 1998.
10.11 Noncompetition Agreement with Michael Cassidy dated as of
July 16, 1999.
10.12 Noncompetition Agreement with Gary Culliss dated as of July
16, 1999.
10.13 Noncompetition Agreement with David Parker dated as of July
16, 1999.
23.1* Consent of Testa, Hurwitz & Thibeault, LLP (contained in
Exhibit 5.1).
23.2 Consent of Deloitte & Touche LLP.
24.1 Power of Attorney (contained on page II-4).
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
* TO BE FILED BY AMENDMENT.
+ INDICATES A MANAGEMENT CONTRACT OR ANY COMPENSATORY PLAN, CONTRACT OR
ARRANGEMENT.
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 07/14/1999
991287979 - 2889367
SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
DIRECT HIT TECHNOLOGIES, INC.
Direct Hit Technologies, Inc., a corporation organized and existing
under the laws of the State of Delaware, hereby certifies as follows:
1. The name of the corporation is Direct Hit Technologies, Inc.
2. The date of filing of its original Certificate of Incorporation with
the Secretary of State of the State of Delaware was April 27, 1998.
3. The date of filing of its First Amended and Restated Certificate of
Incorporation with the Secretary of State of the State of Delaware was
November 12, 1998.
4. This Second Amended and Restated Certificate of Incorporation restates
and integrates and further amends the Certificate of Incorporation of this
Corporation as herein set forth in full:
ARTICLE I
NAME
The name of the corporation (hereinafter called the "Corporation")
is Direct Hit Technologies, Inc.
ARTICLE II
REGISTERED OFFICE
The address of the registered office of the Corporation in the State
of Delaware is 15 East North Street, City of Dover, County of Kent, and the
name of the registered agent of the Corporation in the State of Delaware at
such address is the Incorporating Services, Ltd.
<PAGE>
ARTICLE III
PURPOSES
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be ordered under the General Corporation Law
of the State of Delaware.
ARTICLE IV
CAPITAL STOCK
1. AUTHORIZED STOCK. The Corporation is authorized to issue two classes
of shares to be designated respectively "Preferred Stock" par value $0.001
per share and "Common Stock," par value $0.001 per share. The total number of
shares of Preferred Stock authorized is 10,942,678. The total number of
shares of Common Stock authorized is 35,000,000. The shares of Preferred
Stock authorized by this Certificate of Incorporation may be issued from time
to time in one or more series.
Effective upon filing this Second Amended and Restated Certificate of
Incorporation, each outstanding share of Common Stock and each outstanding
share of Preferred Stock shall be split into three (3) shares of Common
Stock, $0.001 par value per share, and three (3) shares of Preferred Stock,
$0.001 par value per share, respectively. All references to the number of
shares of Common Stock and Preferred Stock herein shall be on a post-split
basis, unless otherwise indicated.
2. PREFERRED STOCK. The Preferred Stock may be divided into such number
of series as the Board of Directors may determine. The Board of Directors is
authorized to determine and alter the rights, preferences, privileges and
restrictions granted to and imposed upon any wholly unissued series of
Preferred Stock, and to fix the number of shares of any series of Preferred
Stock and the designation of any such series of Preferred Stock. The Board of
Directors, within the limits and restrictions stated in any resolution or
resolutions of the Board of Directors originally fixing the number of shares
constituting any series, may increase or decrease (but not below the number
of shares of such series then outstanding) the number of shares of any series
subsequent to the issue of shares of that series. The first series of
Preferred Stock shall be comprised of 5,187,501 shares designated as "Series
A Preferred Stock." The second series of Preferred Stock shall be comprised
of 1,323,912 shares designated as "Series B Preferred Stock." The third
series of Preferred Stock shall be comprised of 4,431,265 shares designated
as "Series C Preferred Stock." The relative rights, preferences, restrictions
and other matters relating to the Series A Preferred Stock, the Series B
Preferred Stock and the Series C Preferred Stock (collectively, the
"Preferred Stock") are as follows:
(a) DIVIDENDS. The holders of outstanding Preferred Stock shall be
entitled to receive in any fiscal year, when as and if declared by the Board
of Directors, out of any assets at the time legally available therefor,
non-cumulative dividends in cash at the rate equal to $0.0213, $0.121 and
$0.4748 per share of Series A Preferred Stock, Series B Preferred Stock and
Series C
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Preferred Stock, respectively, as adjusted for any consolidations,
combinations, stock distributions, stock dividends, stock splits or similar
events (collectively a "Recapitalization Event"), per annum. The right to
dividends on Preferred Stock shall not be cumulative, unless otherwise
declared to be cumulative by the Board of Directors, and no right shall
accrue to holders of Preferred Stock by reason of the fact that distributions
on said shares are not declared in any prior year, nor shall any undeclared
or unpaid distribution bear or accrue interest. No dividend will be paid on
the Common Stock, and no share of Common Stock will be repurchased by the
Corporation except for purchases of unvested shares repurchased from former
employees at their original purchase price.
(b) PREFERENCE ON LIQUIDATION.
(1) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the assets and funds of the
Corporation available for distribution to stockholders shall be distributed
as follows:
(i) The holders of Series C Preferred Stock shall be
entitled to receive out of the assets of the Corporation available for
distribution to its stockholders before any payment shall be made in respect
of the Corporation's Series A Preferred Stock, Series B Preferred Stock or
Common Stock, the amount of (A) $8.90265 per share of Series C Preferred
Stock (as adjusted for any Recapitalization Event) if the consideration
received in a liquidation is $2.99 per fully diluted share of Common Stock or
less, (B) $10.386425 per share of Series C Preferred Stock (as adjusted for
any Recapitalization Event) if the consideration received in a liquidation is
between $3.00 and $8.96 per fully diluted share of Common Stock, (C) $11.8702
per share of Series C Preferred Stock (as adjusted for any Recapitalization
Event) if the consideration received in a liquidation is between $8.97 and
$11.96 per fully diluted share of Common Stock, or (D) $5.9351 per share of
Series C Preferred Stock (as adjusted for any Recapitalization Event) if the
consideration received in a liquidation is over $11.96 per fully diluted
share of Common Stock, plus all declared or accrued and unpaid dividends
thereon to the date fixed for such distributions. If upon liquidation,
dissolution or winding up of the Corporation, the assets of the Corporation
available for distribution to its stockholders shall be insufficient to pay
the holders of the Series C Preferred Stock the full amounts to which they
respectively shall be entitled, the holders of the Series C Preferred Stock
shall share ratably in any distribution of assets according to the respective
amounts which would be payable in respect of the shares held by them upon
such distribution if all amounts payable on or with respect to said shares
were paid in full.
(ii) After setting apart or paying in full the
preferential amounts due to the holders of Series C Preferred Stock the
holders of Series B Preferred Stock and Series A Preferred Stock shall be
entitled to receive out of the assets of the Corporation available for
distribution to its stockholders, before any payment shall be made in respect
of the Corporation's Common Stock, the amount of (A) $0.2667 per share of
Series A Preferred Stock (the "Original Series A Issue Price") and $1.51067
per share of Series B Preferred Stock (the "Original Series B Issue Price")
(each as adjusted for any Recapitalization Event), and (B) all declared or
accrued and unpaid dividends thereon to the date fixed for such distribution.
If, after setting apart or
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paying in full the preferential amounts due the holders of Series C Preferred
Stock as set forth in Section 2(b)(1)(i) above, upon liquidation, dissolution
or winding up of the Corporation, the assets of the Corporation available for
distribution to its stockholders shall be insufficient to pay the holders of
the Series A and Series B Preferred Stock the full amounts to which they
respectively shall be entitled, the holders of the Series A and Series B
Preferred Stock shall share ratably in any distribution of assets according
to the respective amounts which would be payable in respect of the shares
held by them upon such distribution if all amounts payable on or with respect
to said shares were paid in full.
(iii) After setting apart or paying in full the
preferential amounts due the holders of Preferred Stock as set forth in
Sections 2(b)(1)(i) and (ii) above, the remaining assets of the Corporation
available for distribution to its stockholders, if any, shall be distributed
ratably to the holders of Common Stock, Series A Preferred Stock and Series B
Preferred Stock then held by them, with each share of Series A Preferred
Stock and Series B Preferred Stock treated as the number of shares of Common
Stock into which such shares of Series A Preferred Stock and Series B
Preferred Stock are then convertible (which includes amounts paid pursuant to
paragraph 2(b)(1)(ii) above and as adjusted for any Recapitalization Event
with respect to such shares), PROVIDED, THAT a holder of Series A Preferred
Stock or Series B Preferred Stock shall cease to participate from a
distribution pursuant to this paragraph 2(b)(1)(iii) after April 27, 2001.
The merger or consolidation of the Corporation into or with another
corporation, entity or person, or the issuance by the Corporation of voting
securities to another corporation, entity or person, in either case pursuant
to which the stockholders of this Corporation shall own less than fifty
percent (50%) of the voting securities of the surviving or other corporation,
entity or person, or the sale, transfer or other disposition (but not
including a transfer or disposition by pledge or mortgage to a bona fide
lender) of all or substantially all of the assets of the Corporation, shall
be deemed to be a liquidation, dissolution or winding up of the Corporation
as those terms are used in this Section 2(b). Any of the foregoing events
deemed to constitute a liquidation, dissolution or winding up of the
Corporation shall be deemed to so constitute such an event whether
accomplished in a single transaction or a series of transactions.
(2) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the Corporation shall, within
ten (10) days after the date the Board of Directors approves such action, or
twenty (20) days prior to any stockholders' meeting called to approve such
action, or twenty (20) days after the commencement of any involuntary
proceeding whichever is earlier, give each holder of shares of Preferred
Stock written notice of the proposed action. Such written notice shall
describe the material terms and conditions of such proposed action, including
a description of the stock, cash and property to be received by the holders
of shares of Preferred Stock upon consummation of the proposed action and the
date of delivery thereof If any material change in the facts set forth in the
initial notice shall occur, the Corporation shall promptly give written
notice to each holder of shares of Preferred Stock of such material change.
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(3) The Corporation shall not consummate any voluntary or
involuntary liquidation, dissolution or winding up of the Corporation before
the expiration of thirty (30) days after the mailing of the initial written
notice or ten (10) days after the mailing of any subsequent written notice,
whichever is later; PROVIDED, THAT any such thirty (30) day or ten (10) day
period may be shortened upon the written consent of the holders of a majority
of the outstanding shares of Preferred Stock.
(4) In the event of any voluntary or involuntary liquidation
dissolution or winding up of the Corporation which will involve the
distribution of assets other than cash, the Corporation shall promptly engage
competent independent appraisers to determine the value of the assets to be
distributed to the holders of shares of Preferred Stock and the holders of
shares of Common Stock (it being understood that with respect to the
valuation of securities, the Corporation shall engage such appraiser as shall
be approved by the holders of a majority of shares of the Corporation's
outstanding Preferred Stock). The Corporation shall, upon receipt of such
appraiser's valuation, give prompt written notice to each holder of shares of
Preferred Stock of the appraiser's valuation.
(c) VOTING. Except as otherwise required by law or as set forth
herein, the shares of Preferred Stock shall be voted on an equal basis with
the shares of the Corporation's Common Stock at any annual or special meeting
of stockholders of the Corporation, or may act by written consent in the same
manner as the Corporation's Common Stock, upon the following basis: each
holder of shares of Preferred Stock shall be entitled to such number of votes
for the Preferred Stock held by him on the record date fixed for such
meeting, or on the effective date of such written consent as shall be equal
to the number of shares of the Corporation's Common Stock into which all of
his shares of Preferred Stock are convertible immediately after the close of
business on the record date fixed for such meeting or the effective date of
such written consent.
(d) CONVERSION RIGHTS. The holders of Preferred Stock shall have
conversion rights as follows:
(1) OPTIONAL CONVERSION. Each share of Preferred Stock all be
convertible, 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 Preferred Stock, into such number of fully paid and
nonassessable shares of Common Stock of the Corporation as it is then
convertible in accordance with the terms hereof. The number of shares of
Common Stock into which each share of Preferred Stock may be converted shall
be determined by dividing $0.2667 for the Series A Preferred Stock, $1.51067
for the Series B Preferred Stock and $5.9351 per share of the Series C
Preferred Stock by the appropriate Conversion Price in effect at the time of
conversion. The Series A Conversion Price, Series B Conversion Price and
Series C Conversion Price initially shall be $0.2667, $1.51067 and $5.9351,
respectively, subject to adjustment as hereinafter provided.
(2) AUTOMATIC CONVERSION. Each share of Preferred Stock shall
automatically be converted into shares of Common Stock, at the then effective
Conversion Price,
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upon the earlier of (i) the time the written consent or agreement to such
conversion is obtained by both (A) the holders of at least seventy-five
percent (75%) of the then outstanding Series C Preferred Stock and (B) the
holders of at least fifty percent (50%) of the then outstanding Series A and
Series B Preferred Stock or (ii) the closing of a firm commitment
underwritten public offering pursuant to an effective registration statement
on Form S-1 (or a successor form) 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 offering price of at least $11.8702 per share
(as adjusted for any Recapitalization Event) that values the Corporation at
not less than $253 million and results in gross proceeds to the Corporation
of at least $20 million. In the event of such a public offering, the
person(s) entitled to receive the Common Stock issuable upon such conversion
of Preferred Stock shall not be deemed to have converted such Preferred Stock
until immediately prior to the closing of such public offering at which time
the Preferred Stock shall be converted automatically without any further
action by the holders of such shares and whether or not the certificates
representing such shares arc surrendered to the Corporation or its transfer
agent; PROVIDED, HOWEVER, that the Corporation shall not be obligated to
issue certificates evidencing the shares of Common Stock issuable upon such
conversion unless certificates evidencing such shares of Preferred Stock
being converted are either delivered to the Corporation or its transfer
agent, as hereinafter provided, or the holder notifies the Corporation or any
transfer agent, as hereinafter provided, that such certificates have been
lost. stolen or destroyed and executes an agreement satisfactory to the
Corporation to indemnify the Corporation from any loss incurred by it in
connection therewith.
(3) The holder of any shares of Preferred Stock may exercise the
conversion rights by delivering to the Corporation during regular business
hours, at the office of any transfer agent of the Corporation for the
Preferred Stock, or at the principal office of the Corporation or at such
other place as may be designated by the Corporation, the certificate or
certificates for the shares to be converted, duly endorsed for transfer to
the Corporation (if required by it), accompanied or preceded by written notice
stating that the holder elects to convert such shares into shares of Common
Stock. Conversion shall be deemed to have been effected on the date when such
delivery is made (the "Conversion Date"). As promptly as practicable
thereafter, the Corporation shall issue and deliver to or upon the written
order of such holder, at such office or other place designated by the
Corporation, a certificate or certificates for the number of full shares of
Common Stock to which such holder is entitled. The holder shall be deemed to
have become a stockholder of record of Conversion Stock on the applicable
Conversion Date unless the transfer books of the Corporation are closed on
the date, in which event it shall be deemed to have become a stockholder of
record on the next succeeding date on which the transfer books are open, but
the Conversion Price shall be that in effect on the Conversion Date. Upon
conversion of only a portion of the number of shares of Preferred Stock
represented by a certificate surrendered for conversion, the Corporation
shall issue and deliver to or upon the written order of the holder of the
certificate so surrendered for conversion, at the expense of the Corporation,
a new certificate covering the number of shares of Preferred Stock
representing the unconverted portion of the certificate so surrendered.
(4) The Corporation shall pay any and all issue and other taxes
that may be payable in respect of any issue or delivery of shares of Common
Stock on conversion of
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Preferred Stock pursuant hereto. The Corporation shall not, however, be
required to pay any tax which may be payable in respect of any transfer
involved in the issue and delivery of shares of Common Stock in a name other
than that in which the Preferred Stock so converted were registered, and no
such issue or delivery shall be made unless and until the person requesting
such issue has paid to the Corporation the amount of any such tax, or has
established, to the satisfaction of the Corporation that such tax has been
paid.
(5) The Corporation shall at all times reserve and keep available,
out of its authorized but unissued Common Stock, solely for the purpose of
effecting the conversion of the Preferred Stock, the full number of shares of
Common Stock deliverable upon the conversion of all Preferred Stock from time
to time outstanding. The Corporation shall from time to time (subject to
obtaining necessary board and stockholder approval), in accordance with the
laws of the State of Delaware, increase the authorized amount of its Common
Stock if at any time the authorized number of shares of its Common Stock
remaining unissued shall not be sufficient to permit the conversion of all of
the shares of Preferred Stock at the time outstanding.
(6) If any shares of Common Stock to be reserved for the purpose of
conversion of Shares of Preferred Stock require registration or listing with,
or approval of, any governmental authority, stock exchange or other
regulatory body under any federal or state law or regulation or otherwise,
before such shares may be validly issued or delivered upon conversion, the
Corporation will in good faith and as expeditiously as possible endeavor to
secure such registration, listing or approval, as the case may be.
(7) All shares of Common Stock which may be issued upon conversion
of the sales of Preferred Stock will upon issuance by the Corporation be
validly issued, fully paid and non-assessable and free from all taxes, liens
and charges with respect to the issuance thereof.
(8) In case:
(i) the Corporation shall take a record of the holders of its
capital stock for the purpose of entitling them to receive a dividend payable
in cash or otherwise, or any other distribution, payable in cash of
otherwise, or to subscribe for or purchase any shares of stock of any class
or to receive any other rights; or
(ii) of any capital reorganization of the Corporation,
reclassification of the capital stock of the Corporation (other than a
subdivision or combination of its outstanding shares of common stock),
consolidation or merger of the Corporation with or into another corporation,
the issuance of a controlling block of voting securities to a third party (or
a group of third parties acting in concert with respect thereto) or
conveyance of all or substantially all of the assets of the Corporation to
another corporation; or
(iii) of the voluntary or involuntary dissolution, liquidation
or winding up of the Corporation;
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then, and in any such case, the Corporation shall cause to be mailed to the
transfer agent for the Preferred Stock, and to the holders of record of the
outstanding Preferred Stock at the address of record of such stockholder as
set forth on the Corporation's books, at least thirty (30) days prior to the
date hereinafter specified, a notice stating the material terms of the
proposed transaction and the date on which (x) a record is to be taken for
the purpose of such dividend, distribution or rights, or (y) such
reclassification, reorganization, consolidation, merger, conveyance,
dissolution. liquidation or winding up is to take place and the date, if any
is to be fixed. as of which holders of capital stock of record shall be
entitled to exchange their shares of capital stock for securities or other
property deliverable upon such reclassification, reorganization,
consolidation, merger, conveyance, dissolution, liquidation or winding up.
(e) ADJUSTMENT OF CONVERSION PRICE. The Conversion Price for any
series of Preferred Stock from time to time in effect shall be subject to
adjustment from time to time as follows:
(1) In case the Corporation shall at any time subdivide the
outstanding shares of Common Stock, or shall issue a stock dividend on its
outstanding Common Stock. the Conversion Price in effect immediately prior to
such subdivision or the issuance of such dividend shall be proportionately
decreased, and in case the Corporation shall at any time combine the
outstanding shares of Common Stock, the Conversion Price in effect
immediately prior to such combination shall be proportionately increased,
effective, at the close of business on the date of such subdivision, dividend
or combination, as the case may be.
(2) Upon the issuance by the Corporation of Equity Securities
(as defined below) at a consideration per share less than the Conversion
Price of such series of Preferred Stock in effect immediately prior to the
time of such issue or sale other than an issuance of stock or securities
pursuant to Section 2(e)(1) above or the issuance of shoes of Common Stock
upon conversion of any shares of Preferred Stock, then forthwith upon such
issue or sale, such Conversion Price shall be reduced to a price (calculated
to the nearest hundredth of a cent) determined by dividing:
(i) an amount equal to the sum of (x) the number of
shares of Common Stock deemed outstanding immediately prior to such issue or
sale multiplied by the Conversion Price in effect immediately prior to such
adjustment, (y) the number of shares of Common Stock issuable upon conversion
or exchange of any obligations or of any securities of the Corporation deemed
outstanding immediately prior to such issue or sale multiplied by the
Conversion Price in effect immediately prior to such adjustment, and (z) an
amount equal to the aggregate "consideration actually received" by the
Corporation upon such issue or sale; by
(ii) the sum of the number of shares of Common Stock
deemed outstanding immediately after such issue or sale and the number of
shares of Common Stock issuable upon conversion or exchange of any
obligations or of any securities of the Corporation deemed outstanding
immediately after such issue or sale.
For purposes of this Section 2(e)(2), the following provisions shall
be applicable:
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(A) The term "Equity Securities" as used in this
Section 2(e)(2) shall mean any shares of Common Stock, or any obligation. any
share of stock or other security of the Corporation convertible into or
exchangeable for Common Stock except for (i) up to 2,487,501 shares of Common
Stock or options to purchase Common Stock in the aggregate (as adjusted for
any Recapitalization Event) issued or granted to officers, directors,
employees or consultants of the Corporation and its subsidiaries pursuant to
any stock plans heretofore approved by the Corporation's Board of Directors
or (ii) shares issued in conjunction with an equipment lease financing, debt
financing, licensing or acquisition transaction that is unanimously approved
by all members of the Board of Directors.
(B) In the case of an issue or sale for cash of
shares of Common Stock, the "consideration actually received" by the
Corporation therefor shall be deemed to be the amount of cash received,
before deducting therefrom any commissions or expenses paid by the
Corporation.
(C) In case of the issuance (otherwise than upon
conversion or exchange of obligations or shares of stock of the Corporation)
of additional shares of Common Stock for a consideration other than cash or a
consideration partly other dm cash, the amount of the consideration other
than cash received by the Corporation for such shares shall be deemed to be
the value of such consideration as determined in good faith by the Board of
Directors.
(D) In case of the issuance by the Corporation in
any manner of any rights to subscribe for or to purchase shares of Common
Stock. or any options for the purchase of shares of Common Stock or stock
convertible into Common Stock all shares of Common Stock or stock convertible
into Common Stock to which the holders of such rights or options shall be
entitled to subscribe for or purchase pursuant to such rights or options
shall be deemed "outstanding" as of the date of the offering of such rights
or the granting of such options, as the case may be, and the minimum
aggregate consideration named in such rights or options for the shares of
Common Stock or stock convertible into Common Stock covered thereby, plus the
consideration, if any, received by the Corporation for such rights or
options, shall be deemed to be the "consideration actually received" by the
Corporation (as of the date of the offering of such rights or the granting of
such options, as the case may be) for the issuance of such shares.
(E) In case of the issuance or issuances by the
Corporation in any manner of any obligations or of any shares of stock of the
Corporation that shall be convertible into or exchangeable for Common Stock,
all shares of Common Stock issuable upon the conversion or exchange of such
obligations or shares shall be deemed issued as of the date such obligations
or shares are issued, and the amount of the "consideration actually received"
by the Corporation for such additional shares of Common Stock shall be deemed
to be the total of (x) the amount of consideration received by the
Corporation upon the issuance of such obligations or shares. as the case may
be, plus (y) the minimum aggregate consideration, if any, other than such
obligations or shares, receivable by the Corporation upon such conversion or
exchange, except in adjustment of dividends.
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(F) The amount of the "consideration actually
received" by the Corporation upon the issuance of any rights or options
referred to in subsection (D) above or upon the issuance of any obligations
or shares which are convertible or exchangeable as described in subsection
(E) above, and the amount of the consideration, if any, other than such
obligations or shares so convertible or exchangeable, receivable by the
Corporation upon the exercise, conversion or exchange thereof shall be
determined in the same manner provided in subsections (B) and (c) above with
respect to the consideration received by the Corporation in case of the
issuance of additional shares of Common Stock, provided, however, that if
such obligations or shares of stock so convertible or exchangeable are issued
in payment or satisfaction of any dividend upon any stock of the Corporation
other than Common Stock, the amount of the "consideration actually received"
by the Corporation upon the original issuance of such obligations or shares
or stock so convertible or exchangeable shall be deemed to be the value of
such obligations or shares of stock, as of the date of the adoption of the
resolution deciding such dividend, as determined by the Board of Directors at
or as of that date. On the expiration of any rights or options referred to in
subsection (D), or the termination of any right of conversion or exchange
referred to in subsection (E), or any change in the number of shams of Common
Stock deliverable upon exercise of such options or rights or upon conversion
of or exchange of such convertible or exchangeable securities, the Conversion
Price then in effect shall forthwith be readjusted to such Conversion Price
as would have obtained had the adjustments made upon the issuance of such
option, right or convertible or exchangeable securities been made upon the
basis of the delivery of only the number of shares of Common Stock actually
delivered or to be delivered upon the exercise of such rights or options or
upon the conversion or exchange of such securities.
(G) In the event this Corporation shall declare a
distribution payable in securities of other persons, evidences of
indebtedness issued by this Corporation or other persons or options or rights
not referred to in this Section 2(e)(2), then, in each such case, the holders
of the Preferred Stock shall be entitled to the distributions provided for in
Section 2(a) above, and no adjustment to the Conversion Price provided for in
this Section 2(e) shall be applicable.
(3) Subject to the right of the Corporation to amend this
Certificate of Incorporation upon obtaining necessary approvals required by
this Certificate of Incorporation and applicable law, this Corporation will
not, by amendment of its Certificate of Incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid
the observance or performance of any of the terms to be observed or performed
hereunder by this Corporation, but will at all times in good faith assist in
the carrying out of all the provisions of this Section 2(e) 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 Preferred Stock against impairment.
(4) Upon the occurrence of each adjustment or
readjustment of any Conversion Price pursuant to this Section 2(e), this
Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the thereof, and shall prepare and
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furnish to each holder of Preferred Stock affected thereby a certificate
setting forth such adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment is based. This Corporation shall,
upon the written request at any time of any holder of any series of Preferred
Stock, furnish or cause to be furnished to such holder a like certificate
setting forth (A) such adjustment or readjustment, (B) the Conversion Price
of such series at the time in effect, and (C) the number of shares of Common
Stock and the amount, if any, of other property which at the time would be
received upon the conversion of his shares.
(f) STATUS OF CONVERTED STOCK. In the event any shares of
Preferred Stock shall be converted pursuant to Section 2(e) above or
otherwise acquired by the Corporation, the shares so converted shall be
cancelled and shall not be issuable by the Corporation, and the Certificate
of Incorporation of this Corporation shall be appropriately amended to effect
the corresponding reduction in the Corporation's authorized capital stock.
(g) PROTECTIVE PROVISIONS. So long as any shares of Preferred
Stock are outstanding, the Corporation shall not, without first obtaining the
approval by vote or written consent, in the manner provided by law, of (i)
the holders of at least a majority of the total number of shares of Series A
and Series B Preferred Stock outstanding. voting together as a class, and
(it) at least a majority of the total number of shares of Series C Preferred
Stock outstanding, voting separately as a class:
(1) amend the Articles of Incorporation or Bylaws in a
manner that would alter or change any of the powers, preferences, privileges
or rights of the Preferred Stock;
(2) increase or decrease the authorized number of shares
of Preferred Stock;
(3) amend the provisions of this Section 2(g);
(4) liquidate or wind up the Corporation;
(5) undertake or effect any consolidation or merger of
the Corporation with or into another corporation (except into or with a
wholly-owned subsidiary) or any acquisition by or the conveyance of all or
substantially all of the assets of the Corporation to another person or
effectuate any transaction or series of related transactions which results in
the Corporation's shareholders immediately prior to such transaction not
holding at least fifty percent (50%) of the voting power of the surviving or
continuing entity (a "Reorganization Event"); PROVIDED, HOWEVER, that the
consent of the holders of Preferred Stock shall not be required for the
Corporation to take any of the actions set forth in this Section 2(g)(5) if
the value of consideration to be received by a holder of any shares of Series
C Preferred Stock equals or exceeds $8.90265 per share (as adjusted for any
Recapitalization Event) pursuant to the consummation of such transaction; or
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(6) authorize or issue any other equity security senior
to or on a parity with the Preferred Stock as to dividend and redemption
rights or liquidation preferences.
(h) SERIES B PREFERRED STOCK PREFERENCE. So long as any shares
of Series B Preferred Stock are outstanding, the Corporation shall not,
without first obtaining the approval by vote or written consent, in the
manner provided by law, of the holders of at least a majority of the total
number of shares of Series B Preferred Stock outstanding, voting together as
a class, undertaken or effect any Reorganization Event in which the value of
the consideration to be received per share of Series B Preferred Stock in
such action is less than one hundred and fifty percent (150%) of the Original
Series B Issue Price.
(i) RESIDUAL RIGHTS. All rights accruing to the outstanding
shares of the Corporation not expressly provided for to the contrary herein
shall be vested in the Common Stock.
ARTICLE V
BYLAWS
In furtherance and not in limitation of the powers conferred by
statute and except as provided herein, the Board of Directors shall have the
power to adopt, amend, repeal or otherwise alter the bylaws without any
action on the part of the stockholders; PROVIDED, HOWEVER, that any bylaws
made by the Board of Directors and any and all powers conferred by any of
said bylaws may be amended, altered or repealed by the stockholders.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involved intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law or (iv) for any transaction from which the director derived
an improper personal benefits.
If the Delaware General Corporation Law is hereafter amended to
authorize the further elimination or limitation of the liability of a
director, then the liability of a director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the Delaware General
Corporation Law, as so amended.
Any repeal or modification of the foregoing provisions of this
Article SIXTH by the stockholders of the Corporation shall not adversely
affect any right or protection of a director of the Corporation existing at
the time of such repeal or modification.
12
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ARTICLE VII
ELECTION OF DIRECTORS
The election of directors need not be by written ballot unless the
bylaws of the Corporation shall so provide.
4. This Second Amended and Restated Certificate of Incorporation was
duly adopted by written consent of the stockholders in accordance with the
applicable provisions of Sections 242 and 245 of the General Corporation Law
of the State of Delaware.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, Direct Hit Technologies, Inc. has caused this
Certificate to be signed by Michael Cassidy, its President, this 13th day of
July, 1999.
DIRECT HIT TECHNOLOGIES, INC.
By: /s/ Michael Cassidy
-----------------------------
Michael Cassidy, President
14
<PAGE>
AMENDED AND RESTATED BYLAWS
OF
DIRECT HIT TECHNOLOGIES, INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
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ARTICLE I - STOCKHOLDERS..........................................................................................1
Section 1.1. Annual Meeting...................................................................................1
Section 1.2. Special Meetings.................................................................................1
Section 1.3. Notice of Meetings...............................................................................1
Section 1.4. Quorum...........................................................................................1
Section 1.5. Organization.....................................................................................2
Section 1.6. Conduct of Business..............................................................................2
Section 1.7. Proxies and Voting...............................................................................2
Section 1.8. Stock List.......................................................................................3
Section 1.9. Stockholder Action by Written Consent............................................................3
ARTICLE II - BOARD OF DIRECTORS...................................................................................3
Section 2.1. Number and Term of Office........................................................................3
Section 2.2. Vacancies and Newly Created Directorships........................................................3
Section 2.3. Removal..........................................................................................4
Section 2.4. Regular Meetings.................................................................................4
Section 2.5. Special Meetings.................................................................................4
Section 2.6. Quorum...........................................................................................4
Section 2.7. Participation in Meetings by Conference Telephone................................................4
Section 2.8. Conduct of Business..............................................................................4
Section 2.9. Powers...........................................................................................5
Section 2.10. Compensation of Directors.......................................................................5
Section 2.11. Nomination of Director Candidates...............................................................5
ARTICLE III - COMMITTEES..........................................................................................6
Section 3.1. Committees of the Board of Directors.............................................................6
Section 3.2. Conduct of Business..............................................................................6
ARTICLE IV - OFFICERS.............................................................................................6
Section 4.1. Generally........................................................................................6
Section 4.2. Chairman of the Board............................................................................7
Section 4.3. President........................................................................................7
Section 4.4. Vice President...................................................................................7
Section 4.5. Chief Financial Officer..........................................................................7
Section 4.6. Secretary........................................................................................7
Section 4.7. Delegation of Authority..........................................................................8
Section 4.8. Removal..........................................................................................8
Section 4.9. Action With Respect to Securities of Other Corporations..........................................8
ARTICLE V - STOCK.................................................................................................8
Section 5.l. Certificates of Stock............................................................................8
Section 5.2. Transfers of Stock...............................................................................8
Section 5.3. Record Date......................................................................................8
</TABLE>
<PAGE>
<TABLE>
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Section 5.4. Lost, Stolen or Destroyed Certificates...........................................................9
Section 5.5. Regulations......................................................................................9
ARTICLE VI - NOTICES..............................................................................................9
Section 6.1. Notices..........................................................................................9
Section 6.2. Waivers..........................................................................................9
ARTICLE VII - MISCELLANEOUS.......................................................................................9
Section 7.1. Facsimile Signatures.............................................................................9
Section 7.2. Corporate Seal..................................................................................10
Section 7.3. Reliance Upon Books, Reports and Records........................................................10
Section 7.4. Fiscal Year.....................................................................................10
Section 7.5. Time Periods....................................................................................10
ARTICLE VIII.....................................................................................................10
Section 8.1. Right to Indemnification........................................................................10
Section 8.2. Right of Claimant to Bring Suit.................................................................11
Section 8.3. Non-Exclusivity of Rights.......................................................................12
Section 8.4. Indemnification Contracts.......................................................................12
Section 8.5. Insurance.......................................................................................12
Section 8.6. Effect of Amendment.............................................................................12
ARTICLE IX - AMENDMENTS..........................................................................................12
</TABLE>
<PAGE>
AMENDED AND RESTATED BYLAWS
OF
DIRECT HIT TECHNOLOGIES, INC.
ARTICLE I
STOCKHOLDERS
Section 1.1. ANNUAL MEETING. An annual meeting of the stockholders of
Direct Hit Technologies, Inc. (the "Corporation"), for the election of directors
and for the transaction of such other business as may properly come before the
meeting, shall be held at such place, on such date, and at such time as the
Board of Directors shall each year fix, which date shall be within thirteen
months subsequent to the later of the date of incorporation or the last annual
meeting of stockholders.
Section 1.2. SPECIAL MEETINGS. Special meetings of the stockholders, for
any purpose or purposes prescribed in the notice of the meeting, may be called
by (1) the Board of Directors pursuant to a resolution adopted by a majority of
the total number of authorized directors (whether or not there exist any
vacancies in previously authorized directorships at the time any such resolution
is presented to the Board for adoption), (2) the President or (3) the holders of
shares entitled to cast not less than ten percent (10%) of the votes at the
meeting, and shall be held at such place, on such date, and at such time as they
shall fix. Business transacted at special meetings shall be confined to the
purpose or purposes stated in the notice.
Section 1.3. 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, any business may be transacted which might have been
transacted at the original meeting.
Section 1.4. 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
<PAGE>
number may be required by law or by the Certificate of Incorporation or Bylaws
of this Corporation.
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.
If a notice of any adjourned special meeting of stockholders is sent to all
stockholders entitled to vote thereat, stating that it will be held with those
present constituting a quorum, then except as otherwise required by law, those
present at such adjourned meeting shall constitute a quorum, and all matters
shall be determined by a majority of the votes cast at such meeting.
Section 1.5. ORGANIZATION. Such person as the Board of Directors may have
designated or, in the absence of such a person, the President of the Corporation
or, in his 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 appoints.
Section 1.6. CONDUCT OF BUSINESS. The chairman of any meeting of
stockholders shall determine the order of business and the procedure at the
meeting, including such regulation of the manner of voting and the conduct of
discussion as seem to him in order.
Section 1.7. 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 vote for every share of stock entitled to
vote which is registered in his name on the record date for the meeting, except
as otherwise provided herein or required by law.
All voting, except where otherwise required by law, may be by a voice vote;
provided, however, that upon demand therefor by a stockholder entitled to vote
or by his or her proxy, a stock vote shall be taken. Every stock vote shall be
taken by ballots, each of which shall state the name of the stockholder or proxy
voting and such other information as may be required under the procedure
established for the meeting. Every vote taken by ballots shall be counted by an
inspector or inspectors appointed by the chairman of the meeting.
All elections shall be determined by a plurality of the votes cast, and
except as otherwise required by law or these Bylaws, all other matters shall be
determined by a majority of the votes cast.
Section 1.8. 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
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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. This 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.
Section 1.9. STOCKHOLDER ACTION BY WRITTEN CONSENT. Any action which may be
taken at any annual or special meeting of stockholders may be taken without a
meeting and without prior notice, if a consent in writing, setting forth the
actions so taken, is signed by the holders of outstanding shares having not less
than the minimum number of votes which would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon were
present and voted. All such consents shall be filed with the secretary of the
Corporation and shall be maintained in the corporate records. Prompt notice of
the taking of a corporate action without a meeting by less than unanimous
written consent shall be given to those stockholders who have not consented in
writing.
ARTICLE II
BOARD OF DIRECTORS
Section 2.1. NUMBER AND TERM OF OFFICE. The authorized number of directors
shall be not less than three (3) nor more than seven (7) and the exact number of
directors initially set at five (5), and, thereafter, shall be fixed from time
to time exclusively by the Board of Directors pursuant to a resolution adopted
by a majority of the total number of authorized directors (whether or not there
exist any vacancies in previously authorized directorships at the time any such
resolution is presented to the Board for adoption). Each director shall hold
office until his successor is elected and qualified or until his earlier death,
resignation, retirement, disqualification or removal.
Section 2.2. VACANCIES AND NEWLY CREATED DIRECTORSHIPS. 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, or other cause (other then removal from office by
a vote of the stockholders) may be filled only by a majority vote of the
directors then in office, though less than a quorum, and directors so chosen
shall hold office for a term expiring at the next annual meeting of
stockholders. No decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
Section 2.3. REMOVAL. Subject to the limitations stated in the Certificate
of Incorporation, any director, or the entire Board of Directors, may be removed
from office at any time, with or without cause, but only by the affirmative vote
of the holders of at least a majority of the voting power of all of the then
outstanding shares of stock of the Corporation entitled to
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vote generally in the election of directors, voting together as a single class.
Vacancies in the Board of Directors resulting from such removal may be filled by
(i) a majority of the directors then in office, though less than a quorum, or
(ii) the stockholders at a special meeting of the stockholders properly called
for that purpose, by the vote of the holders of a majority of the shares
entitled to vote at such special meeting. Directors so chosen shall hold office
until the next annual meeting of stockholders.
Section 2.4. 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 notice of each regular meeting shall not be required.
Section 2.5. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by a majority of the directors then in office by the chairman of
the board or by the President and shall be held at such place, on such date, and
at such time as they or he 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 five (5) days before the meeting (one
(1) day before the meeting if delivered by an overnight courier service and two
(2) days before the meeting if by overseas courier service) or by telephoning,
telecopying, telegraphing or personally delivering the same 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 2.6. QUORUM. At any meeting of the Board of Directors, a majority
of the total number of authorized 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 2.7. PARTICIPATION IN MEETINGS BY CONFERENCE TELEPHONE. Members of
the Board of Directors, or of any committee of the Board of Directors, 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.
Section 2.8. 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. Action may be taken by the Board of Directors without a meeting if all
members thereof consent thereto in writing, and the writing or writings are
filed with the minutes of proceedings of the Board of Directors.
Section 2.9. 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;
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(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, 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 pass on 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 point,
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 Bylaws, for the management of the Corporation's business and affairs.
Section 2.10. COMPENSATION OF DIRECTORS. Directors, as such, may receive,
pursuant to 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.
Section 2.11. NOMINATION OF DIRECTOR CANDIDATES. Nominations for the
election of directors may be made by the Board of Directors or a proxy committee
appointed by the Board of Directors or by any stockholder entitled to vote in
the election of directors.
ARTICLE III
COMMITTEES
Section 3.1. COMMITTEES OF THE BOARD OF DIRECTORS. The Board of
Directors, by a vote of a majority of the whole Board, 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
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committee. 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 an agreement of merger or consolidation 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 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.
Section 3.2. 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 of the authorized members shall constitute a quorum unless the
committee shall consist of one or two members, in which event one member 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 4.1. GENERALLY. The officers of the Corporation shall consist of a
President, a Secretary and a Chief Financial Officer. The Corporation may also
have, at the discretion of the Board of Directors, a Chairman of the Board, one
or more Vice Presidents, and such other officers as may from time to time be
appointed by the Board of Directors. Officers shall be elected by the Board of
Directors, which shall consider that subject at its first meeting after every
annual meeting of stockholders. Each officer shall hold office until his or her
successor is elected and qualified or until his or her earlier resignation or
removal. Any number of offices may be held by the same person.
Section 4.2. CHAIRMAN OF THE BOARD. The Chairman of the Board, if there
shall be such an officer, shall, if present, preside at all meetings of the
Board of Directors, and exercise and perform such other powers and duties as may
be from time to time assigned to him by the Board of Directors or as provided by
these Bylaws.
Section 4.3. PRESIDENT. Subject to such supervisory powers, if any, as may
be given by the Board of Directors to the Chairman of the Board, if there be
such an officer, the President shall be the general manager and President of the
Corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction, and control of the business and officers of the
Corporation. He shall preside at all meetings of the stockholders. He shall be
ex officio a member of all the standing committees, including the executive
committee, if any, and shall have the general powers and duties of management
usually vested in the office of president
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of a Corporation; and shall have such other powers and duties as may be
prescribed by the Board of Directors or by these Bylaws.
Section 4.4. VICE PRESIDENT. In the absence or disability of the President,
the Vice Presidents in order of their rank as fixed by the Board of Directors,
or if not ranked, the Vice President designated by the Board of Director, shall
perform the duties of the President, and when so acting shall have all the
powers of, and be subject to all the restrictions upon, the President. The Vice
Presidents shall have such other powers and perform such other duties as from
time to time may be prescribed for them respectively by the Board of Directors
or these Bylaws.
Section 4.5. CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall
keep and maintain or cause to be kept and maintained, adequate and correct books
and records of account in written form or any other form capable of being
converted into written form.
The Chief Financial Officer shall deposit all monies and other valuables in
the name and to the credit of the Corporation with such depositories as may be
designated by the Board of Directors. He shall disburse all funds of the
Corporation as may be ordered by the Board of Directors, shall render to the
President and directors, whenever they request it, an account of all of his
transactions as Chief Financial Officer and of the financial condition of the
Corporation, and shall have such other powers and perform such other duties as
may be prescribed by the Board of Directors or by these Bylaws.
Section 4.6. SECRETARY. The Secretary shall keep, or cause to be kept, a
book of minutes in written form of the proceedings of the Board of Directors,
committees of the Board, and stockholders. Such minutes shall include all
waivers of notice, consents to the holding of meetings, or approvals of the
minutes of meetings executed pursuant to these Bylaws or the Delaware General
Corporation Law. The Secretary shall keep, or cause to be kept at the principal
executive office or at the office of the Corporation's transfer agent or
registrar, a record of its stockholders, giving the names and addresses of all
stockholders and the number and class of shares held by each.
The Secretary shall give or cause to be given, notice of all meetings of
the stockholders and of the Board of Directors required by these Bylaws or by
law to be given, and shall keep the seal of the Corporation in safe custody, and
shall have such other powers and perform such other duties as may be prescribed
by the Board of Directors or these Bylaws.
Section 4.7. DELEGATION OF AUTHORITY. The Board of Directors may from time
to time delegate the powers or duties of any officer to any other officers or
agents, notwithstanding any provision hereof.
Section 4.8. REMOVAL. Any officer of the Corporation may be removed at any
time, with or without cause, by the Board of Directors.
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Section 4.9. ACTION WITH RESPECT TO SECURITIES OF OTHER CORPORATIONS.
Unless otherwise directed by the Board of Directors, the President 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.
ARTICLE V
STOCK
Section 5.l. CERTIFICATES OF STOCK. Each stockholder shall be entitled to a
certificate signed by, or in the name of the Corporation by, the President or a
Vice President, and by the Secretary or an Assistant Secretary, or the Chief
Financial Officer, certifying the number of shares owned by him or her. Any of
or all the signatures on the certificate may be facsimile.
Section 5.2. 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 5.4 of these
Bylaws, an outstanding certificate for the number of shares involved shall be
surrendered for cancellation before a new certificate is issued therefor.
Section 5.3. RECORD DATE. The Board of Directors may fix a record date,
which shall not be more than sixty (60) nor fewer than ten (10) days before the
date of any meeting of stockholders, nor more than sixty (60) days prior to the
time for the other action hereinafter described, as of which there shall be
determined the stockholders who are entitled: to notice of or to vote at any
meeting of stockholders or any adjournment thereof; to receive payment of any
dividend or other distribution or allotment of any rights; or to exercise any
rights with respect to any change, conversion or exchange of stock or with
respect to any other lawful action.
Section 5.4. 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 5.5. 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.
ARTICLE VI
NOTICE
Section 6.1. 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
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be in writing and may in every instance be effectively given by hand delivery to
the recipient thereof, by depositing such notice in the mails, postage paid, or
by sending such notice by prepaid telegram, mailgram, telecopy or commercial
courier service. 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 shall be
deemed to be given shall be the time such notice is received by such
stockholder, director, officer, employee or agent, or by any person accepting
such notice on behalf of such person, if hand delivered, or the time such notice
is dispatched, if delivered through the mails or by telegram, courier or
mailgram.
Section 6.2. WAIVERS. 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 person at a meeting shall constitute a waiver
of notice for such meeting, except when the person attends a meeting for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
ARTICLE VII
MISCELLANEOUS
Section 7.1. FACSIMILE SIGNATURES. In addition to the provisions for use of
facsimile signatures elsewhere specifically authorized in these Bylaws,
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 7.2. 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 Chief
Financial Officer or by an Assistant Secretary or other officer designated by
the Board of Directors.
Section 7.3. 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 duties, be fully protected
in relying in good faith upon the books of account or other records of the
Corporation, including reports made to the Corporation by any of its officers,
by an independent certified public accountant, or by an appraiser.
Section 7.4. FISCAL YEAR. The fiscal year of the Corporation shall be as
fixed by the Board of Directors.
Section 7.5. TIME PERIODS. In applying any provision of these Bylaws which
require that an act be done or not done a specified number of days prior to an
event or that an act be done
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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.
ARTICLE VIII
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 8.1. RIGHT TO INDEMNIFICATION. Each person who was or is made a
party or is threatened to be made a party to or is involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative
("proceeding"), by reason of the fact that he or she or a person of whom he or
she is the legal representative, is or was a director, officer or employee of
the Corporation or is or was serving at the request of the Corporation as a
director, officer or employee of another corporation, or of a partnership, joint
venture, trust or other enterprise, including service with respect to employee
benefit plans, whether the basis of such proceeding is alleged action in an
official capacity as a director, officer or employee or in any other capacity
while serving as a director, officer or employee, shall be indemnified and held
harmless by the Corporation to the fullest extent authorized by the Delaware
General Corporation Law, as the same exists or may hereafter be amended (but, in
the case of any such amendment, only to the extent that such amendment permits
the Corporation to provide broader indemnification rights than said Law
permitted the Corporation to provide prior to such amendment) against all
expenses, liability and loss (including attorneys' fees, judgments, fines, ERISA
excise taxes or penalties, amounts paid or to be paid in settlement and amounts
expended in seeking indemnification granted to such person under applicable law,
this Bylaw or any agreement with the Corporation) reasonably incurred or
suffered by such person in connection therewith and such indemnification shall
continue as to a person who has ceased to be a director, officer or employee and
shall inure to the benefit of his or her heirs, executors and administrators;
PROVIDED, HOWEVER, that, except as provided in Section 8.2, the Corporation
shall indemnify any such person seeking indemnity in connection with an action,
suit or proceeding (or part thereof) initiated by such person only if (a) such
indemnification is expressly required to be made by law, (b) the action, suit or
proceeding (or part thereof) was authorized by the Board of Directors of the
Corporation, (c) such indemnification is provided by the Corporation, in its
sole discretion, pursuant to the powers vested in the Corporation under the
Delaware General Corporation Law, or (d) the action, suit or proceeding (or part
thereof) is brought to establish or enforce a right to indemnification under an
indemnity agreement or any other statute or law or otherwise as required under
Section 145 of the Delaware General Corporation Law. Such right shall be a
contract right and shall include the right to be paid by the Corporation
expenses incurred in defending any such proceeding in advance of its final
disposition; PROVIDED, HOWEVER, that, if the Delaware General Corporation Law
then so requires, the payment of such expenses incurred by a director or officer
of the Corporation in his or her capacity as a director or officer (and not in
any other capacity in which service was or is rendered by such person while a
director or officer, including, without limitation, service to an employee
benefit plan) in advance of the final disposition of such proceeding, shall be
made only upon delivery to the Corporation of an undertaking, by or on behalf of
such director or officer, to repay all amounts so advanced if it
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<PAGE>
should be determined ultimately that such director or officer is not entitled to
be indemnified under this Section or otherwise.
Section 8.2. RIGHT OF CLAIMANT TO BRING SUIT. If a claim under Section 8.1
is not paid in full by the Corporation within ninety (90) days after a written
claim has been received by the Corporation, the claimant may at any time
thereafter bring suit against the Corporation to recover the unpaid amount of
the claim and, if such suit is not frivolous or brought in bad faith, the
claimant shall be entitled to be paid also the expense of prosecuting such
claim. It shall be a defense to any such action (other than an action brought to
enforce a claim for expenses incurred in defending any proceeding in advance of
its final disposition where the required undertaking, if any, has been tendered
to this Corporation) that the claimant has not met the standards of conduct
which make it permissible under the Delaware General Corporation Law for the
Corporation to indemnify the claimant for the amount claimed, but the burden of
proving such defense shall be on the Corporation. Neither the failure of the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
Delaware General Corporation Law, nor an actual determination by the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) that the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that a claimant has not
met such applicable standard of conduct.
Section 8.3. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any person
by Sections 8.1 and 8.2 shall not be exclusive of any other right which such
persons may have or hereafter acquire under any statute, provision of the
Certificate of Incorporation, bylaw, agreement, vote of stockholders or
disinterested directors or otherwise.
Section 8.4. INDEMNIFICATION CONTRACTS. The Board of Directors is
authorized to enter into a contract with any director, officer, employee or
agent of the Corporation, or any person serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, including employee
benefit plans, providing for indemnification rights equivalent to or, if the
Board of Directors so determines, greater than, those provided for in this
Article VIII.
Section 8.5. INSURANCE. The Corporation may maintain insurance to the
extent reasonably available, at its expense, to protect itself and any such
director, officer, employee or agent of the Corporation or another corporation,
partnership, joint venture, trust or other enterprise against any such expense,
liability or loss, whether or not the Corporation would have the power to
indemnify such person against such expense, liability or loss under Delaware
General Corporation Law.
Section 8.6. EFFECT OF AMENDMENT. Any amendment, repeal or modification of
any provision of this Article VIII by the stockholders or the directors of the
Corporation shall not adversely affect any right or protection of a director or
officer of the Corporation existing at the time of such amendment, repeal or
modification.
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<PAGE>
ARTICLE IX
AMENDMENTS
The Board of Directors is expressly empowered to adopt, amend or repeal
Bylaws of the Corporation, subject to the right of the stockholders to adopt,
amend, alter or repeal the Bylaws of the Corporation. Any adoption, amendment or
repeal of Bylaws of the Corporation by the Board of Directors shall require the
approval of a majority of the total number of authorized directors (whether or
not there exist any vacancies in previously authorized directorships at the time
any resolution providing for adoption, amendment or repeal is presented to the
Board). The stockholders shall also have power to adopt, amend or repeal the
Bylaws of the Corporation.
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<PAGE>
----------------------------------------------------
SECOND
AMENDED AND RESTATED
BY-LAWS
OF
DIRECT HIT TECHNOLOGIES, INC.
----------------------------------------------------
<PAGE>
BY-LAWS
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE 1 - STOCKHOLDERS......................................................................................1
1.1 Place of Meetings....................................................................................1
1.2 Annual Meeting.......................................................................................1
1.3 Special Meetings.....................................................................................1
1.4 Notice of Meetings...................................................................................1
1.5 Voting List..........................................................................................1
1.6 Quorum...............................................................................................2
1.7 Adjournments.........................................................................................2
1.8 Voting and Proxies...................................................................................2
1.9 Action at Meeting....................................................................................3
1.10 Introduction of Business at Meetings.................................................................3
1.11 Action without Meeting...............................................................................5
ARTICLE 2 - DIRECTORS.........................................................................................6
2.1 General Powers.......................................................................................6
2.2 Number; Election and Qualification...................................................................6
2.3 Tenure...............................................................................................7
2.4 Vacancies............................................................................................7
2.5 Resignation..........................................................................................7
2.6 Regular Meetings.....................................................................................7
2.7 Special Meetings.....................................................................................7
2.8 Notice of Special Meetings...........................................................................7
2.9 Meetings by Telephone Conference Calls...............................................................8
2.10 Quorum...............................................................................................8
2.11 Action at Meeting....................................................................................8
2.12 Action by Written Consent............................................................................8
2.13 Removal..............................................................................................8
2.14 Committees...........................................................................................8
2.15 Compensation of Directors............................................................................9
2.16 Amendments to Article................................................................................9
ARTICLE 3 - OFFICERS..........................................................................................9
3.1 Enumeration..........................................................................................9
3.2 Election.............................................................................................9
3.3 Qualification........................................................................................9
3.4 Tenure...............................................................................................9
</TABLE>
<PAGE>
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<TABLE>
<S> <C> <C>
3.5 Resignation and Removal..............................................................................9
3.6 Vacancies............................................................................................10
3.7 Chairman of the Board and Vice-Chairman of the Board.................................................10
3.8 President............................................................................................10
3.9 Vice Presidents......................................................................................10
3.10 Secretary and Assistant Secretaries..................................................................10
3.11 Treasurer and Assistant Treasurers...................................................................11
3.12 Salaries.............................................................................................11
3.13 Action with Respect to Securities of Other Corporations..............................................11
ARTICLE 4 - CAPITAL STOCK.....................................................................................11
4.1 Issuance of Stock....................................................................................12
4.2 Certificates of Stock................................................................................12
4.3 Transfers............................................................................................12
4.4 Lost, Stolen or Destroyed Certificates...............................................................12
4.5 Record Date..........................................................................................12
ARTICLE 5 - GENERAL PROVISIONS................................................................................13
5.1 Fiscal Year..........................................................................................13
5.2 Corporate Seal.......................................................................................13
5.3 Notices..............................................................................................13
5.4 Waiver of Notice.....................................................................................13
5.5 Evidence of Authority................................................................................13
5.6 Facsimile Signatures.................................................................................14
5.7 Reliance upon Books, Reports and Records.............................................................14
5.8 Time Periods.........................................................................................14
5.9 Certificate of Incorporation.........................................................................14
5.10 Transactions with Interested Parties.................................................................14
5.11 Severability.........................................................................................15
5.12 Pronouns.............................................................................................15
ARTICLE 6 - AMENDMENTS........................................................................................15
6.1 By the Board of Directors............................................................................15
6.2 By the Stockholders..................................................................................15
ARTICLE 7 - INDEMNIFICATION...................................................................................15
7.1 Actions Other Than by or in the Right of the Corporation.............................................15
7.2 Actions by or in the Right of the Corporation........................................................16
7.3 Success on the Merits................................................................................16
7.4. Authorization........................................................................................16
7.5 Expense Advance......................................................................................16
</TABLE>
<PAGE>
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<TABLE>
<S> <C> <C>
7.6 Nonexclusivity.......................................................................................17
7.7 Insurance............................................................................................17
7.8 The Corporation......................................................................................17
7.9 Other Indemnification................................................................................17
7.10 Other Definitions....................................................................................17
7.11 Continuation of Indemnification......................................................................17
</TABLE>
<PAGE>
SECOND
AMENDED AND RESTATED
BY-LAWS
OF
DIRECT HIT TECHNOLOGIES, INC. (the "Corporation")
ARTICLE 1 - STOCKHOLDERS
1.1 PLACE OF MEETINGS. All meetings of stockholders shall be held at such
place within or without the State of Delaware as may be designated from time to
time by the Chairman of the Board (if any), the board of directors of the
Corporation (the "Board of Directors") or the President or, if not so
designated, at the registered office of the Corporation.
1.2 ANNUAL MEETING. The annual meeting of stockholders for the election of
directors and for the transaction of such other business as may properly be
brought before the meeting shall be held on a date to be fixed by the Chairman
of the Board (if any), Board of Directors or the President (which date shall not
be a legal holiday in the place where the meeting is to be held) at the time and
place to be fixed by the Chairman of the Board, the Board of Directors or the
President and stated in the notice of the meeting.
1.3 SPECIAL MEETINGS. Special meetings of stockholders may be called at
any time by the Chairman of the Board (if any), a majority of the Board of
Directors or the President and shall be held at such place, on such date and
at such time as shall be fixed by the Board of Directors or the person
calling the meeting. Business transacted at any special meeting of
stockholders shall be limited to matters relating to the purpose or purposes
stated in the notice of meeting.
1.4 NOTICE OF MEETINGS. Except as otherwise provided by law, written
notice of each meeting of stockholders, whether annual or special, shall be
given not less than 10 nor more than 60 days before the date of the meeting
to each stockholder entitled to vote at such meeting. The notices of all
meetings shall state the place, date and hour of the meeting. The notice of a
special meeting shall state, in addition, the purpose or purposes for which
the meeting is called. If mailed, notice is given when deposited in the
United States mail, postage prepaid, directed to the stockholder at his or
her address as it appears on the records of the Corporation.
1.5 VOTING LIST. The officer who has charge of the stock ledger of the
Corporation shall prepare, at least 10 days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business
<PAGE>
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hours, for a period of at least 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 list shall also be produced and kept at the
time and place of the meeting during the whole time of the meeting, and may be
inspected by any stockholder who is present. This 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.
1.6 QUORUM. Except as otherwise provided by law, the Certificate of
Incorporation or these By-Laws, the holders of a majority of the shares of the
capital stock of the Corporation issued and outstanding and entitled to vote at
the meeting, present in person or represented by proxy, shall constitute a
quorum for the transaction of business. Shares held by brokers which such
brokers are prohibited from voting (pursuant to their discretionary authority on
behalf of beneficial owners of such shares who have not submitted a proxy with
respect to such shares) on some or all of the matters before the stockholders,
but which shares would otherwise be entitled to vote at the meeting ("Broker
Non-Votes") shall be counted, for the purpose of determining the presence or
absence of a quorum, both (a) toward the total voting power of the shares of
capital stock of the Corporation and (b) as being represented by proxy. If a
quorum has been established for the purpose of conducting the meeting, a quorum
shall be deemed to be present for the purpose of all votes to be conducted at
such meeting, provided that where a separate vote by a class or classes, or
series thereof, is required, a majority of the voting power of the shares of
such class or classes, or series, 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 voting power 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.
1.7 ADJOURNMENTS. Any meeting of stockholders may be adjourned to any other
time and to any other place at which a meeting of stockholders may be held under
these By-Laws by the stockholders present or represented at the meeting and
entitled to vote, although less than a quorum, or, if no stockholder is present,
by any officer entitled to preside at or to act as Secretary of such meeting. It
shall not be necessary to notify any stockholder of any adjournment of less than
30 days if the time and place of the adjourned meeting are announced at the
meeting at which adjournment is taken, unless after the adjournment a new record
date is fixed for the adjourned meeting. At the adjourned meeting, the
Corporation may transact any business which might have been transacted at the
original meeting.
1.8 VOTING AND PROXIES. At any meeting of the stockholders, each
stockholder shall have one vote for each share of stock entitled to vote at such
meeting held of record by such stockholder and a proportionate vote for each
fractional share so held, unless otherwise provided in the Certificate of
Incorporation. Each stockholder of record entitled to vote at a meeting of
stockholders, or to express consent or dissent to corporate action in writing
without a meeting (to the extent not otherwise prohibited by the Certificate of
Incorporation or these By-laws), may vote or express such consent or dissent in
person or may authorize another person or persons to vote or act for such
stockholder by written proxy executed by such stockholder or his or her
authorized agent or by a transmission permitted by law and delivered to the
Secretary of the Corporation. No such proxy shall be voted or acted upon after
three years from the date of its execution, unless the proxy expressly provides
for a longer period. Any copy, facsimile telecommunication or other reliable
reproduction of the writing or transmission created pursuant to this Section 1.8
may be substituted or used in lieu of the original writing or transmission for
any and all purposes for which the original writing or transmission could be
used,
<PAGE>
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provided that such copy, facsimile telecommunication or reproduction shall
be a complete reproduction of the entire original writing or transmission.
In the election of directors, voting shall be by written ballot, and for
any other action, voting need not be by ballot.
The Corporation may, and to the extent required by law or the Certificate
of Incorporation, shall, in advance of any meeting of stockholders, appoint one
or more inspectors to act at such meeting and make a written report thereof. The
Corporation may designate one or more persons as alternate inspectors to replace
any inspector who fails to act. If no inspector or alternate is able to act at a
meeting of stockholders, the person presiding at such meeting may, and to the
extent required by law or the Certificate of Incorporation, shall, appoint one
or more inspectors to act at such meeting. Each inspector, before entering upon
the discharge of his duties, shall take and sign an oath faithfully to execute
the duties of inspector with strict impartiality and according to the best of
his or her ability.
1.9 ACTION AT MEETING. When a quorum is present at any meeting of
stockholders, the holders of a majority of the stock present or represented and
voting on a matter (or if there are two or more classes of stock entitled to
vote as separate classes, then in the case of each such class, the holders of a
majority of the stock of that class present or represented and voting on such
matter) shall decide any matter to be voted upon by the stockholders at such
meeting (other than the election of directors), except when a different vote is
required by express provision of law, the Certificate of Incorporation or these
By-Laws. Any election of directors by the stockholders shall be determined by a
plurality of the votes cast by the stockholders entitled to vote at such
election, except as otherwise provided by the Certificate of Incorporation. For
the purposes of this paragraph, Broker Non-Votes represented at the meeting but
not permitted to vote on a particular matter shall not be counted, with respect
to the vote on such matter, in the number of (a) votes cast, (b) votes cast
affirmatively, or (c) votes cast negatively.
1.10 INTRODUCTION OF BUSINESS AT MEETINGS.
A. ANNUAL MEETINGS OF STOCKHOLDERS.
(1) Nominations of persons for election to the Board of Directors
and the proposal of business to be considered by the stockholders may
be made at an annual meeting of stockholders (a) pursuant to the
Corporation's notice of meeting, (b) by or at the direction of the
Board of Directors or (c) by any stockholder of the Corporation who
was a stockholder of record at the time of giving of notice provided
for in this Section 1.10, who is entitled to vote at the meeting and
who complies with the notice procedures set forth in this Section
1.10.
(2) For nominations or other business to be properly brought
before an annual meeting by a stockholder pursuant to clause (c) of
paragraph (A)(1) of this Section 1.10, the stockholder must have given
timely notice thereof in writing to the Secretary of the Corporation
and such other business must otherwise be a proper matter for
stockholder action. To be timely, a stockholder's notice shall be
delivered to the Secretary at the principal executive offices of the
Corporation not later than the close of business on the one hundred
<PAGE>
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twentieth (120th) day nor earlier than the close of business on
the one hundred fiftieth (150th) day prior to the first anniversary of
the date of the proxy statement delivered to stockholders in
connection with the preceding year's annual meeting; provided,
however, that if either (i) the date of the annual meeting is more
than thirty (30) days before or more than sixty (60) days after such
an anniversary date or (ii) no proxy statement was delivered to
stockholders in connection with the preceding year's annual meeting,
notice by the stockholder to be timely must be so delivered not
earlier than the close of business on the ninetieth (90th) day prior
to such annual meeting and not later than the close of business on the
later of the sixtieth (60th) day prior to such annual meeting or the
close of business on the tenth (10th) day following the day on which
public announcement of the date of such meeting is first made by the
Corporation. Such stockholder's notice shall set forth (a) as to each
person whom the stockholder proposes to nominate for election or
reelection as a director, all information relating to such person that
is required to be disclosed in solicitations of proxies for election
of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended
(the "Exchange Act") (including such person's written consent to being
named in the proxy statement as a nominee and to serving as a director
if elected); (b) as to any other business that the stockholder
proposes to bring before the meeting, a brief description of the
business desired to be brought before the meeting, the reasons for
conducting such business at the meeting and any material interest in
such business of such stockholder and the beneficial owner, if any, on
whose behalf the proposal is made; and (c) as to the stockholder
giving the notice and the beneficial owner, if any, on whose behalf
the nomination or proposal is made (i) the name and address of such
stockholder, as they appear on the Corporation's books, and of such
beneficial owner and (ii) the class and number of shares of capital
stock of the Corporation that are owned beneficially and held of
record by such stockholder and such beneficial owner.
(3) Notwithstanding anything in the second sentence of paragraph
(A)(2) of this Section 1.10 to the contrary, in the event that the
number of directors to be elected to the Board of Directors of the
Corporation is increased and there is no public announcement by the
Corporation naming all of the nominees for director or specifying the
size of the increased Board of Directors at least seventy (70) days
prior to the first anniversary of the preceding year's annual meeting
(or, if the annual meeting is held more than thirty (30) days before
or sixty (60) days after such anniversary date, at least seventy (70)
days prior to such annual meeting), a stockholder's notice required by
this Section 1.10 shall also be considered timely, but only with
respect to nominees for any new positions created by such increase, if
it shall be delivered to the Secretary at the principal executive
office of the Corporation not later than the close of business on the
tenth (10th) day following the day on which such public announcement
is first made by the Corporation.
B. SPECIAL MEETINGS OF STOCKHOLDERS. Only such business shall be
conducted at a special meeting of stockholders as shall have been
brought before the meeting pursuant to the Corporation's notice of
meeting. Nominations of persons for election to the Board of Directors
may be made at a special meeting of stockholders at which directors
are to be elected pursuant to the Corporation's notice of meeting (a)
by or at the direction of the Board of Directors or (b) provided that
the Board of Directors has determined that directors shall be elected
at such meeting, by any stockholder of the Corporation who is a
stockholder of record at the time of giving of notice of the special
meeting, who shall be
<PAGE>
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entitled to vote at the meeting and who complies with the notice
procedures set forth in this Section 1.10. If the Corporation calls a
special meeting of stockholders for the purpose of electing one or
more directors to the Board of Directors, any such stockholder may
nominate a person or persons (as the case may be), for election to
such position(s) as specified in the Corporation's notice of meeting,
if the stockholder's notice required by paragraph (A)(2) of this
Section 1.10 shall be delivered to the Secretary at the principal
executive offices of the Corporation not earlier than the ninetieth
(90th) day prior to such special meeting nor later than the later of
(x) the close of business on the sixtieth (60th) day prior to such
special meeting or (y) the close of business on the tenth (10th) day
following the day on which public announcement is first made of the
date of such special meeting and of the nominees proposed by the Board
of Directors to be elected at such meeting.
C. GENERAL.
(1) Only such persons who are nominated in accordance with the
procedures set forth in this Section 1.10 shall be eligible to serve
as directors and only such business shall be conducted at a meeting of
stockholders as shall have been brought before the meeting in
accordance with the procedures set forth in this Section 1.10. Except
as otherwise provided by law, the Certificate of Incorporation or
these By-Laws, the chairman of the meeting shall have the power and
duty to determine whether a nomination or any business proposed to be
brought before the meeting was made or proposed, as the case may be,
in accordance with the procedures set forth in this Section 1.10 and,
if any proposed nomination or business is not in compliance herewith,
to declare that such defective proposal or nomination shall be
disregarded.
(2) For purposes of this Section 1.10, "public announcement"
shall mean disclosure in a press release reported by the Dow Jones
News Service, Associated Press or comparable national news service or
in a document publicly filed by the Corporation with the Securities
and Exchange Commission pursuant to Section 13, 14 or 15(d) of the
Exchange Act.
(3) Notwithstanding the foregoing provisions of this Section
1.10, a stockholder shall also comply with all applicable requirements
of the Exchange Act and the rules and regulations thereunder with
respect to the matters set forth herein. Nothing in this Section 1.10
shall be deemed to affect any rights (i) of stockholders to request
inclusion of proposals in the Corporation's proxy statement pursuant
to Rule 14a-8 under the Exchange Act or (ii) of the holders of any
series of Preferred Stock to elect directors under specified
circumstances.
1.11 ACTION WITHOUT MEETING. Stockholders of the Corporation may not take
any action by written consent in lieu of a meeting. Notwithstanding any other
provision of law, the Certificate of Incorporation or these By-Laws, and
notwithstanding the fact that a lesser percentage may be specified by law, the
affirmative vote of the holders of at least seventy-five percent (75%) of the
votes which all
<PAGE>
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the stockholders would be entitled to cast at any annual election of directors
or class of directors shall be required to amend or repeal, or to adopt any
provision inconsistent with, this Section 1.11.
ARTICLE 2 - DIRECTORS
2.1 GENERAL POWERS. The business and affairs of the Corporation shall be
managed by or under the direction of a Board of Directors, who may exercise all
of the powers of the Corporation except as otherwise provided by law or the
Certificate of Incorporation. In the event of a vacancy in the Board of
Directors, the remaining directors, except as otherwise provided by law or the
Certificate of Incorporation, may exercise the powers of the full Board of
Directors until the vacancy is filled. Without limiting the foregoing, the Board
of Directors may:
(a) declare dividends from time to time in accordance with law;
(b) purchase or otherwise acquire any property, rights or privileges
on such terms as it shall determine;
(c) 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;
(d) 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;
(e) confer upon any officer of the Corporation the power to appoint,
remove and suspend subordinate officers, employees and agents;
(f) adopt from time to time such stock option, stock purchase, bonus
or other compensation plans for directors, officers, employees, consultants
and agents of the Corporation and its subsidiaries as it may determine;
(g) adopt from time to time such insurance, retirement, and other
benefit plans for directors, officers, employees, consultants and agents of
the Corporation and its subsidiaries as it may determine; and
(h) adopt from time to time regulations, not inconsistent herewith,
for the management of the Corporation's business and affairs.
2.2 NUMBER; ELECTION AND QUALIFICATION. The number of directors which shall
constitute the whole Board of Directors shall be determined by resolution of the
Board of Directors, but in no event shall be less than three. The number of
directors may be decreased at any time and from time to time by a majority of
the directors then in office, but only to eliminate vacancies existing by reason
of the death, resignation, removal or expiration of the term of one or more
directors. The directors shall be elected at the annual meeting of stockholders
(or, if so determined by the Board of Directors pursuant to Section
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1.10 hereof, at a special meeting of stockholders), by such stockholders as have
the right to vote on such election. Directors need not be stockholders of the
Corporation.
2.3 TENURE. Notwithstanding any provisions to the contrary contained
herein, each director shall hold office until his or her successor is elected
and qualified, or until his or her earlier death, resignation or removal.
2.4 VACANCIES. Unless and until filled by the stockholders, any vacancy in
the Board of Directors, however occurring, including a vacancy resulting from an
enlargement thereof, may be filled by vote of a majority of the directors then
in office, although less than a quorum, or by a sole remaining director. A
director elected to fill a vacancy shall be elected for the unexpired term of
his or her predecessor in office, if any, and a director chosen to fill a
position resulting from an increase in the number of directors shall hold office
until the next election of directors and until his or her successor is elected
and qualified, or until his or her earlier death, resignation or removal.
2.5 RESIGNATION. Any director may resign by delivering his or her written
resignation to the Corporation at its principal office or to the President 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.
2.6 REGULAR MEETINGS. Regular meetings of the Board of Directors may be
held without notice at such time and place, either within or without the State
of Delaware, as shall be determined from time to time by the Board of Directors;
provided that any director who is absent when such a determination is made shall
be given notice of the determination. A regular meeting of the Board of
Directors may be held without notice immediately after and at the same place as
the annual meeting of stockholders. 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 notice of each regular meeting shall not be required.
2.7 SPECIAL MEETINGS. Special meetings of the Board of Directors may be
held at any time and place, within or without the State of Delaware, designated
in a call by the Chairman of the Board (if any), the President, two or more
directors, or by one director in the event that there is only a single director
in office.
2.8 NOTICE OF SPECIAL MEETINGS. Notice of any special meeting of directors
shall be given to each director by the Secretary or by the officer or one of the
directors calling the meeting. Notice shall be duly given to each director (i)
by giving notice to such director in person or by telephone at least 48 hours in
advance of the meeting, (ii) by sending a telegram or delivering written notice
by facsimile transmission or by hand, to his or her last known business or home
address at least 48 hours in advance of the meeting, or (iii) by mailing written
notice to his or her last known business or home address at least 72 hours in
advance of the meeting. A notice or waiver of notice of a meeting of the Board
of Directors need not specify the purposes of the meeting.
2.9 MEETINGS BY TELEPHONE CONFERENCE CALLS. Directors or any members of any
committee designated by the Board of Directors may participate in a meeting of
the Board of Directors or such
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committee by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and participation by such means shall be deemed to constitute presence in person
at such meeting.
2.10 QUORUM. A majority of the total number of the whole Board of Directors
shall constitute a quorum at all meetings of the Board of Directors. In the
event one or more of the directors shall be disqualified to vote at any meeting,
then the required quorum shall be reduced by one for each such director so
disqualified; provided, however, that in no case shall less than one-third (1/3)
of the total number of the whole Board of Directors constitute a quorum. In the
absence of a quorum at any such meeting, a majority of the directors present may
adjourn the meeting from time to time without further notice other than
announcement at the meeting, until a quorum shall be present.
2.11 ACTION AT MEETING. At any meeting of the Board of Directors at which a
quorum is present, the vote of a majority of those present shall be sufficient
to take any action, unless a different vote is specified by law, the Certificate
of Incorporation or these By-Laws.
2.12 ACTION BY WRITTEN CONSENT. Any action required or permitted to be
taken at any meeting of the Board of Directors or of any committee of the Board
of Directors may be taken without a meeting, if all members of the Board of
Directors or committee, as the case may be, consent to such action in writing,
and the written consents are filed with the minutes of proceedings of the Board
of Directors or committee.
2.13 REMOVAL. Unless otherwise provided in the Certificate of
Incorporation, any one or more or all of the directors may be removed, only for
cause, by the holders of at least seventy-five percent (75%) of the shares then
entitled to vote at an election of directors.
2.14 COMMITTEES. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the directors of the Corporation. The Board of
Directors may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
such committee. In the absence or disqualification of a member of a committee,
the member or members of such committee present at any meeting and not
disqualified from voting, whether or not such member or members constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at such meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors
and subject to the provisions of the General Corporation Law of the State of
Delaware, 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. Each such committee shall keep minutes and make such reports as
the Board of Directors may from time to time request. Except as the Board of
Directors may otherwise determine or as provided herein, any committee may make
rules for the conduct of its business, but unless otherwise provided by the
directors or in such rules, its business shall be conducted as nearly as
possible in the same manner as is provided in these By-Laws for the Board of
Directors. Adequate provisions shall be made for notice to members of all
meeting of committees. One-third (1/3) of the members of any committee shall
constitute a quorum unless the committee shall consist of one (1) or two (2)
members, in which event one (1)
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member 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.
2.15 COMPENSATION OF DIRECTORS. Directors may be paid such compensation for
their services and such reimbursement for expenses of attendance at meetings as
the Board of Directors may from time to time determine. No such payment shall
preclude any director from serving the Corporation or any of its parent or
subsidiary corporations in any other capacity and receiving compensation for
such service.
2.16 AMENDMENTS TO ARTICLE. Notwithstanding any other provisions of law,
the Certificate of Incorporation or these By-Laws, and notwithstanding the fact
that a lesser percentage may be specified by law, the affirmative vote of the
holders of a least seventy-five percent (75%) of the votes which all the
stockholders would be entitled to cast at any annual election of directors or
class of directors shall be required to amend or repeal, or to adopt any
provision inconsistent with, this Article 2.
ARTICLE 3 - OFFICERS
3.1 ENUMERATION. The officers of the Corporation shall consist of a
President, a Secretary, a Treasurer and such other officers with such other
titles as the Board of Directors shall determine, including, but not limited to,
a Chairman of the Board, a Vice-Chairman of the Board, and one or more Vice
Presidents, Assistant Treasurers and Assistant Secretaries. The Board of
Directors may appoint such other officers as it may deem appropriate.
3.2 ELECTION. The President, Treasurer and Secretary shall be elected
annually by the Board of Directors at its first meeting following the annual
meeting of stockholders. Other officers may be appointed by the Board of
Directors at such meeting or at any other meeting.
3.3 QUALIFICATION. No officer need be a stockholder. Any two or more
offices may be held by the same person.
3.4 TENURE. Except as otherwise provided by law, by the Certificate of
Incorporation or by these By-Laws, each officer shall hold office until his or
her successor is elected and qualified, unless a different term is specified in
the vote choosing or appointing such officer, or until his or her earlier death,
resignation or removal.
3.5 RESIGNATION AND REMOVAL. Any officer may resign by delivering his or
her written resignation to the Chairman of the Board (if any), to the Board of
Directors at a meeting thereof, to the Corporation at its principal office or to
the President 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 officer may be removed at any time, with or without
cause, by vote of a majority of the entire number of directors then in office.
Except as the Board of Directors may otherwise determine, no officer who resigns
or is removed shall have any right to any compensation as an officer for any
period
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following his or her resignation or removal, or any right to damages on account
of such removal, whether his or her compensation be by the month or by the year
or otherwise, unless such compensation is expressly provided in a duly
authorized written agreement with the Corporation.
3.6 VACANCIES. The Board of Directors may fill any vacancy occurring in any
office for any reason and may, in its discretion, leave unfilled for such period
as it may determine any offices other than those of President, Treasurer and
Secretary. Each such successor shall hold office for the unexpired term of his
predecessor and until his or her successor is elected and qualified, or until
his or her earlier death, resignation or removal.
3.7 CHAIRMAN OF THE BOARD AND VICE-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 perform such duties and
possess such powers as are designated by the Board of Directors. If the Board of
Directors appoints a Vice-Chairman of the Board, he or she shall, in the absence
or disability of the Chairman of the Board, perform the duties and exercise the
powers of the Chairman of the Board and shall perform such other duties and
possess such other powers as may from time to time be designated by the Board of
Directors.
3.8 PRESIDENT. The President shall, subject to the direction of the Board
of Directors, have general charge and supervision of the business of the
Corporation. Unless otherwise provided by the Board of Directors, and provided
that there is no Chairman of the Board or that the Chairman and Vice-Chairman,
if any, are not available, the President shall preside at all meetings of the
stockholders, and, if a director, at all meetings of the Board of Directors.
Unless the Board of Directors has designated another officer as the Chief
Executive Officer, the President shall be the Chief Executive Officer of the
Corporation. The President shall perform such other duties and shall have such
other powers as the Board of Directors may from time to time prescribe. The
President shall have the power to enter into contracts and otherwise bind the
Corporation in matters arising in the ordinary course of the Corporation's
business.
3.9 VICE PRESIDENTS. Any Vice President shall perform such duties and
possess such powers as the Board of Directors or the President may from time to
time prescribe. In the event of the absence, inability or refusal to act of the
President, the Vice President (or if there shall be more than one, the Vice
Presidents in the order determined by the Board of Directors) shall perform the
duties of the President and, when so performing, shall have all the powers of
and be subject to all the restrictions upon the President. The Board of
Directors may assign to any Vice President the title of Executive Vice
President, Senior Vice President or any other title selected by the Board of
Directors. Unless otherwise determined by the Board of Directors, any Vice
President shall have the power to enter into contracts and otherwise bind the
Corporation in matters arising in the ordinary course of the Corporation's
business.
3.10 SECRETARY AND ASSISTANT SECRETARIES. The Secretary shall perform such
duties and shall have such powers as the Board of Directors or the President may
from time to time prescribe. In addition, the Secretary shall perform such
duties and have such powers as are incident to the office of secretary,
including without limitation the duty and power to give notices of all meetings
of stockholders and special meetings of the Board of Directors, to attend all
meetings of stockholders and the Board of
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Directors and keep a record of the proceedings, to maintain a stock ledger and
prepare lists of stockholders and their addresses as required, to be custodian
of corporate records and the corporate seal and to affix and attest to the same
on documents.
Any Assistant Secretary shall perform such duties and possess such powers
as the Board of Directors, the President or the Secretary may from time to time
prescribe. In the event of the absence, inability or refusal to act of the
Secretary, the Assistant Secretary (or if there shall be more than one, the
Assistant Secretaries in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Secretary.
In the absence of the Secretary or any Assistant Secretary at any meeting
of stockholders or directors, the person presiding at the meeting shall
designate a temporary secretary to keep a record of the meeting.
3.11 TREASURER AND ASSISTANT TREASURERS. The Treasurer shall perform such
duties and shall have such powers as the Board of Directors or the President may
from time to time prescribe. In addition, the Treasurer shall perform such
duties and have such powers as are incident to the office of treasurer,
including without limitation the duty and power to keep and be responsible for
all funds and securities of the Corporation, to deposit funds of the Corporation
in depositories selected in accordance with these By-Laws, to disburse such
funds as ordered by the Board of Directors, to make proper accounts for such
funds, and to render as required by the Board of Directors statements of all
such transactions and of the financial condition of the Corporation.
The Assistant Treasurers shall perform such duties and possess such powers
as the Board of Directors, the President or the Treasurer may from time to time
prescribe. In the event of the absence, inability or refusal to act of the
Treasurer, the Assistant Treasurer (or if there shall be more than one, the
Assistant Treasurers in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Treasurer.
3.12 SALARIES. Officers of the Corporation shall be entitled to such
salaries, compensation or reimbursement as shall be fixed or allowed from time
to time by the Board of Directors.
3.13 ACTION WITH RESPECT TO SECURITIES OF OTHER CORPORATIONS. Unless
otherwise directed by the Board of Directors, the President 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 the 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.
ARTICLE 4 - CAPITAL STOCK
4.1 ISSUANCE OF STOCK. Unless otherwise voted by the stockholders and
subject to the provisions of the Certificate of Incorporation, the whole or any
part of any unissued balance of the authorized capital stock of the Corporation
or the whole or any part of any issued, authorized capital
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stock of the Corporation held in its treasury may be issued, sold, transferred
or otherwise disposed of by vote of the Board of Directors in such manner, for
such consideration and on such terms as the Board of Directors may determine.
4.2 CERTIFICATES OF STOCK. Every holder of stock of the Corporation shall
be entitled to have a certificate, in such form as may be prescribed by law and
by the Board of Directors, certifying the number and class of shares owned by
such stockholder in the Corporation. Each such certificate shall be signed by,
or in the name of the Corporation by, the Chairman or Vice-Chairman, if any, of
the Board of Directors, or the President or a Vice President, and the Treasurer
or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the
Corporation. Any or all of the signatures on such certificate may be a
facsimile.
Each certificate for shares of stock which are subject to any restriction
on transfer pursuant to the Certificate of Incorporation, the By-Laws,
applicable securities laws or any agreement among any number of shareholders or
among such holders and the Corporation shall have conspicuously noted on the
face or back of such certificate either the full text of such restriction or a
statement of the existence of such restriction.
4.3 TRANSFERS. Except as otherwise established by rules and regulations
adopted by the Board of Directors, and subject to applicable law, shares of
stock may be transferred on the books of the Corporation by the surrender to the
Corporation or its transfer agent of the certificate representing such shares,
properly endorsed or accompanied by a written assignment or power of attorney
properly executed, and with such proof of authority or the authenticity of
signature as the Corporation or its transfer agent may reasonably require.
Except as may be otherwise required by law, by the Certificate of Incorporation
or by these By-Laws, the Corporation shall be entitled to treat the record
holder of stock as shown on its books as the owner of such stock for all
purposes, including the payment of dividends and the right to vote with respect
to such stock, regardless of any transfer, pledge or other disposition of such
stock, until the shares have been transferred on the books of the Corporation in
accordance with the requirements of these By-Laws.
4.4 LOST, STOLEN OR DESTROYED CERTIFICATES. The Corporation may issue a new
certificate of stock in place of any previously issued certificate alleged to
have been lost, stolen, or destroyed, upon such terms and conditions as the
President may prescribe, including the presentation of reasonable evidence of
such loss, theft or destruction and the giving of such indemnity as the
President may require for the protection of the Corporation or any transfer
agent or registrar.
4.5 RECORD DATE. The Board of Directors may fix in advance a date as a
record date for the determination of the stockholders entitled to notice of or
to vote at any meeting of stockholders or, to the extent permitted by the
Certificate of Incorporation and these By-laws, to express consent (or dissent)
to corporate action in writing without a meeting, or entitled to receive payment
of any dividend or other distribution or allotment of any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action. Such record date shall not be more than 60 nor less than 10 days
before the date of such meeting, nor more than 60 days prior to any other action
to which such record date relates.
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If no record date is fixed, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day before the day on which notice is given, or, if
notice is waived, at the close of business on the day before the day on which
the meeting is held. The record date for determining stockholders entitled to
express consent to corporate action in writing without a meeting (to the extent
permitted by the Certificate of Incorporation and these By-laws) when no prior
action by the Board of Directors is necessary, shall be the day on which the
first written consent is expressed. The record date for determining stockholders
for any other purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating to such purpose.
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.
ARTICLE 5 - GENERAL PROVISIONS
5.1 FISCAL YEAR. The fiscal year of the Corporation shall be fixed by
resolution of the Board of Directors.
5.2 CORPORATE SEAL. The corporate seal shall be in such form as shall be
approved by the Board of Directors.
5.3 NOTICES. Except as otherwise specifically provided herein or required
by law or the Certificate of Incorporation, all notices required to be given to
any stockholder, director, officer, employee or agent of the Corporation 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 mails, postage paid, or
by sending such notice by prepaid telegram or facsimile transmission. 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 shall be deemed to be the
time of the giving of the notice.
5.4 WAIVER OF NOTICE. Whenever any notice whatsoever is required to be
given by law, by the Certificate of Incorporation or by these By-Laws, a waiver
of such notice either in writing signed by the person entitled to such notice or
such person's duly authorized attorney, or by telegraph, facsimile transmission
or any other available method, whether before, at or after the time stated in
such waiver, or the appearance of such person or persons at such meeting in
person or by proxy, shall be deemed equivalent to such notice.
5.5 EVIDENCE OF AUTHORITY. A certificate by the Secretary, or an Assistant
Secretary, or a temporary Secretary, as to any action taken by the stockholders,
directors, a committee or any officer or representative of the Corporation
shall, as to all persons who rely on the certificate in good faith, be
conclusive evidence of such action.
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5.6 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.
5.7 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.
5.8 TIME PERIODS. In applying any provision of these By-Laws that 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.
5.9 CERTIFICATE OF INCORPORATION. All references in these By-Laws to the
Certificate of Incorporation shall be deemed to refer to the Certificate of
Incorporation of the Corporation, as amended and in effect from time to time.
5.10 TRANSACTIONS WITH INTERESTED PARTIES. No contract or transaction
between the Corporation and one or more of the directors or officers, or between
the Corporation and any other corporation, partnership, association, or other
organization in which one or more of the directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because such director or officer is present at or
participates in the meeting of the Board of Directors or a committee of the
Board of Directors which authorizes the contract or transaction or solely
because his, her or their votes are counted for such purpose, if:
(1) 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 vote of a majority
of the disinterested directors, even though the disinterested directors be
less than a quorum;
(2) 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
(3) The contract or transaction is fair as to the Corporation as of the
time it is authorized, approved or ratified, by the Board of Directors, a
committee of the Board of Directors, or the stockholders.
Common or interested directors may be counted in determining the presence
of a quorum at a meeting of the Board of Directors or of a committee which
authorizes the contract or transaction.
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5.11 SEVERABILITY. Any determination that any provision of these By-Laws is
for any reason inapplicable, illegal or ineffective shall not affect or
invalidate any other provision of these By-Laws.
5.12 PRONOUNS. All pronouns used in these By-Laws shall be deemed to refer
to the masculine, feminine or neuter, singular or plural, as the identity of the
persons or persons so designated may require.
ARTICLE 6 - AMENDMENTS
6.1 BY THE BOARD OF DIRECTORS. Except as is otherwise set forth in these
By-Laws, these By-Laws may be altered, amended or repealed, or new by-laws may
be adopted, by the affirmative vote of a majority of the directors present at
any regular or special meeting of the Board of Directors at which a quorum is
present.
6.2 BY THE STOCKHOLDERS. Except as otherwise set forth in these By-Laws,
these By-Laws may be altered, amended or repealed or new by-laws may be adopted
by the affirmative vote of the holders of seventy-five percent (75%) of the
shares of the capital stock of the Corporation issued and outstanding and
entitled to vote at any regular meeting of stockholders, or at any special
meeting of stockholders, provided notice of such alteration, amendment, repeal
or adoption of new by-laws shall have been stated in the notice of such special
meeting.
ARTICLE 7 - INDEMNIFICATION
7.1 ACTIONS OTHER THAN BY OR IN THE RIGHT OF THE CORPORATION. The
Corporation shall indemnify and hold harmless, to the fullest extent permitted
by applicable law as it presently exists or may hereafter be amended, any person
who was or is a party or is threatened to be made a party or is otherwise
involved in 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 such person,
or a person for whom such person is the legal representative, is or was a
director, trustee, partner, 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 or non-profit entity, against all liability, losses, expenses
(including attorneys' fees), judgments, fines, and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding if such person acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interest of the
Corporation, and, with respect to any criminal action or proceeding, 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 such 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 interest 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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7.2 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, trustee, partner, 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 or non-profit entity 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 such person
acted in good faith and in a manner such person reasonably believed to be in or
not opposed to the best interests of the Corporation; 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 for negligence or
misconduct in the performance of his duty 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 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.
7.3 SUCCESS ON THE MERITS. To the extent that any person referred to in
Sections 7.1 or 7.2 has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to therein, 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.
7.4. AUTHORIZATION. Any indemnification under Sections 7.1, 7.2 or 7.3
(unless ordered by a court) shall be made by the Corporation only as authorized
in the specific case upon a determination that indemnification of the director,
trustee, partner, officer, employee or agent is proper in the circumstances
because he has met the applicable standard of conduct set forth in Sections 7.1
and 7.2. Such determination shall be made: (a) by the Board of Directors, by a
majority vote of directors who are not parties to such action, suit or
proceeding (whether or not a quorum), or (b) if there are no disinterested
directors or if a majority of disinterested directors so directs, by independent
legal counsel (who may be regular legal counsel to the corporation) in a written
opinion, or (c) by the stockholders.
7.5 EXPENSE ADVANCE. Expenses (including attorneys' fees) incurred by an
officer or director of the Corporation in defending any pending or threatened
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 as authorized by the Board of Directors in the manner
provided in Section 7.4 of this Article upon receipt of an undertaking by or on
behalf of such officer or director to repay such amount, if it shall ultimately
be determined that he is not entitled to be indemnified by the Corporation as
authorized in this Article. Such expenses (including attorneys' fees) incurred
by other employees or agents of the Corporation may be so paid upon such terms
and conditions, if any, as the Board of Directors deems appropriate.
7.6 NONEXCLUSIVITY. 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 any person seeking
indemnification or advancement of expenses may be entitled under any
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statute, by-law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his or her official capacity and as to action in
another capacity while holding such office, and 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.
7.7 INSURANCE. The Corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, trustee, partner, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise or non-profit
entity against any liability asserted against and incurred by such person 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 such person against such liability
under the provisions of this Article or Section 145 of the Delaware General
Corporation Law.
7.8 "THE CORPORATION". For the purposes of this Article, references to "the
Corporation" shall include the resulting corporation and, to the extent that the
Board of Directors of the resulting corporation so decides, all constituent
corporations (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers and employees
or agents so that any person who is or was a director, officer, employee or
agent of such a constituent corporation or is or was serving at the request of
such constituent corporation as director, trustee, partner, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise or non-profit entity shall stand in the same position under the
provisions of this Article with respect to the resulting or surviving
corporation as he or she would have with respect to such constituent corporation
if its separate existence had continued.
7.9 OTHER INDEMNIFICATION. The Corporation's obligation, if any, to
indemnify any person who was or is serving at its request as a director,
trustee, partner, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise or non-profit entity shall
be reduced by any amount such person may collect as indemnification from such
other corporation, partnership, joint venture, trust or other enterprise or
non-profit entity or from insurance.
7.10 OTHER DEFINITIONS. For purposes of this Article, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on a person with respect to an employee
benefit plan; and references to "serving at the request of the Corporation"
shall include any service as a director, trustee, officer, employee or agent of
the Corporation which imposes duties on, or involves services by, such director,
trustee, officer, employee, or agent with respect to an employee benefit plan,
its participants, or beneficiaries; and a person who acted in good faith and in
a manner he reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the Corporation" as referred to in
this Article.
7.11 CONTINUATION OF INDEMNIFICATION. The indemnification and advancement
of expenses provided by, or granted pursuant to, this Article shall, unless
otherwise provided when authorized or
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ratified, continue as a person who has ceased to be a director, trustee,
partner, officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
<PAGE>
Exhibit 10.1
DIRECT HIT TECHNOLOGIES, INC.
1998-A STOCK OPTION PLAN
1. ESTABLISHMENT, PURPOSE AND TERM OF PLAN.
1.1 ESTABLISHMENT. The Direct Hit Technologies, Inc. 1998-A Stock
Option Plan (the "PLAN") is hereby established effective as of June 24, 1998.
1.2 PURPOSE. The purpose of the Plan is to advance the interests of the
Participating Company Group and its stockholders by providing an incentive to
attract, retain and reward persons performing services for the Participating
Company Group and by motivating such persons to contribute to the growth and
profitability of the Participating Company Group.
1.3 TERM OF PLAN. The Plan shall continue in effect until the earlier
of its termination by the Board or the date on which all of the shares of Stock
available for issuance under the Plan have been issued and all restrictions on
such shares under the terms of the Plan and the agreements evidencing Options
granted under the Plan have lapsed. However, all Options shall be granted, if at
all, within ten (10) years from the earlier of the date the Plan is adopted by
the Board or the date the Plan is duly approved by the stockholders of the
Company.
2. DEFINITIONS AND CONSTRUCTION.
2.1 DEFINITIONS. Whenever used herein, the following terms shall have
their respective meanings set forth below:
(a) "BOARD" means the Board of Directors of the Company. If one or
more Committees have been appointed by the Board to administer the Plan, "BOARD"
also means such Committee(s).
(b) "CODE" means the Internal Revenue Code of 1986, as amended, and
any applicable regulations promulgated thereunder.
(c) "COMMITTEE" means the Compensation Committee or other committee
of the Board duly appointed to administer the Plan and having such powers as
shall be specified by the Board. Unless the powers of the Committee have been
specifically limited, the Committee shall have all of the powers of the Board
granted herein, including, without limitation, the power to amend or terminate
the Plan at any time, subject to the terms of the Plan and any applicable
limitations imposed by law.
(d) "COMPANY" means Direct Hit Technologies, Inc., a Delaware
corporation, or any successor corporation thereto.
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(e) "CONSULTANT" means any person, including an advisor, engaged by
a Participating Company to render services other than as an Employee or a
Director.
(f) "DIRECTOR" means a member of the Board or of the board of
directors of any other Participating Company.
(g) "DISABILITY" means the inability of the Optionee, in the
opinion of a qualified physician acceptable to the Company, to perform the major
duties of the Optionee's position with the Participating Company Group because
of the sickness or injury of the Optionee.
(h) "EMPLOYEE" means any person treated as an employee (including
an officer or a Director who is also treated as an employee) in the records of a
Participating Company and, with respect to any Incentive Stock Option granted to
such person, who is an employee for purposes of Section 422 of the Code;
provided, however, that neither service as a Director nor payment of a
director's fee shall be sufficient to constitute employment for purposes of the
Plan.
(i) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(j) "FAIR MARKET VALUE" means, as of any date, the value of a share
of Stock or other property as determined by the Board, in its discretion, or by
the Company, in its discretion, if such determination is expressly allocated to
the Company herein, subject to the following:
(i) If, on such date, the Stock is listed on a national or
regional securities exchange or market system, the Fair Market Value of a share
of Stock shall be the closing price of a share of Stock (or the mean of the
closing bid and asked prices of a share of Stock if the Stock is so quoted
instead) as quoted on the Nasdaq National Market, The Nasdaq SmallCap Market or
such other national or regional securities exchange or market system
constituting the primary market for the Stock, as reported in the WALL STREET
JOURNAL or such other source as the Company deems reliable. If the relevant date
does not fall on a day on which the Stock has traded on such securities exchange
or market system, the date on which the Fair Market Value shall be established
shall be the last day on which the Stock was so traded prior to the relevant
date, or such other appropriate day as shall be determined by the Board, in its
discretion.
(ii) If, on such date, there is no public market for the Stock,
the Fair Market Value of a share of Stock shall be as determined by the Board in
good faith without regard to any restriction other than a restriction which, by
its terms, will never lapse.
(k) "INCENTIVE STOCK OPTION" means an Option intended to be (as set
forth in the Option Agreement) and which qualifies as an incentive stock option
within the meaning of Section 422(b) of the Code.
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(l) "INSIDER" means an officer or a Director of the Company or any
other person whose transactions in Stock are subject to Section 16 of the
Exchange Act.
(m) "NONSTATUTORY STOCK OPTION" means an Option not intended to be
(as set forth in the Option Agreement) or which does not qualify as an Incentive
Stock Option.
(n) "OPTION" means a right to purchase Stock (subject to adjustment
as provided in Section 4.2) pursuant to the terms and conditions of the Plan. An
Option may be either an Incentive Stock Option or a Nonstatutory Stock Option.
(o) "OPTION AGREEMENT" means a written agreement between the
Company and an Optionee setting forth the terms, conditions and restrictions of
the Option granted to the Optionee and any shares acquired upon the exercise
thereof.
(p) "OPTIONEE" means a person who has been granted one or more
Options.
(q) "PARENT CORPORATION" means any present or future "parent
corporation" of the Company, as defined in Section 424(e) of the Code.
(r) "PARTICIPATING COMPANY" means the Company or any Parent
Corporation or Subsidiary Corporation.
(s) "PARTICIPATING COMPANY GROUP" means, at any point in time, all
corporations collectively which are then Participating Companies.
(t) "RULE 16B-3" means Rule 16b-3 under the Exchange Act, as
amended from time to time, or any successor rule or regulation.
(u) "SECURITIES ACT" means the Securities Act of 1933, as amended.
(v) "SERVICE" means an Optionee's employment or service with the
Participating Company Group, whether in the capacity of an Employee, a Director
or a Consultant. The Optionee's Service shall not be deemed to have terminated
merely because of a change in the capacity in which the Optionee renders Service
to the Participating Company Group or a change in the Participating Company for
which the Optionee renders such Service, provided that there is no interruption
or termination of the Optionee's Service. Furthermore, an Optionee's Service
with the Participating Company Group shall not be deemed to have terminated if
the Optionee takes any military leave, sick leave, or other bona fide leave of
absence approved by the Company; provided, however, that if any such leave
exceeds ninety (90) days, on the ninety-first (91st) day of such leave the
Optionee's Service shall be deemed to have terminated unless the Optionee's
right to return to Service with the Participating Company Group is guaranteed by
statute or contract. Notwithstanding the foregoing, unless otherwise
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<PAGE>
designated by the Company or required by law, a leave of absence shall not be
treated as Service for purposes of determining vesting under the Optionee's
Option Agreement. The Optionee's Service shall be deemed to have terminated
either upon an actual termination of Service or upon the corporation for which
the Optionee performs Service ceasing to be a Participating Company. Subject to
the foregoing, the Company, in its discretion, shall determine whether the
Optionee's Service has terminated and the effective date of such termination.
(w) "STOCK" means the common stock of the Company, as adjusted from
time to time in accordance with Section 4.2.
(x) "SUBSIDIARY CORPORATION" means any present or future
"subsidiary corporation" of the Company, as defined in Section 424(f) of the
Code.
(y) "TEN PERCENT OWNER OPTIONEE" means an Optionee who, at the time
an Option is granted to the Optionee, owns stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of a
Participating Company within the meaning of Section 422(b)(6) of the Code.
2.2 CONSTRUCTION. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of the Plan. Except when otherwise indicated by the context, the
singular shall include the plural and the plural shall include the singular. Use
of the term "or" is not intended to be exclusive, unless the context clearly
requires otherwise.
3. ADMINISTRATION.
3.1 ADMINISTRATION BY THE BOARD. The Plan shall be administered by the
Board. All questions of interpretation of the Plan or of any Option shall be
determined by the Board, and such determinations shall be final and binding upon
all persons having an interest in the Plan or such Option.
3.2 AUTHORITY OF OFFICERS. Any officer of a Participating Company shall
have the authority to act on behalf of the Company with respect to any matter,
right, obligation, determination or election which is the responsibility of or
which is allocated to the Company herein, provided the officer has apparent
authority with respect to such matter, right, obligation, determination or
election.
3.3 ADMINISTRATION WITH RESPECT TO INSIDERS. With respect to
participation by Insiders in the Plan, at any time that any class of equity
security of the Company is registered pursuant to Section 12 of the Exchange
Act, the Plan shall be administered in compliance with the requirements, if any,
of Rule 16b-3.
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3.4 POWERS OF THE BOARD. In addition to any other powers set forth in
the Plan and subject to the provisions of the Plan, the Board shall have the
full and final power and authority, in its discretion:
(a) to determine the persons to whom, and the time or times at
which, Options shall be granted and the number of shares of Stock to be subject
to each Option;
(b) to designate Options as Incentive Stock Options or Nonstatutory
Stock Options;
(c) to determine the Fair Market Value of shares of Stock or other
property;
(d) to determine the terms, conditions and restrictions applicable
to each Option (which need not be identical) and any shares acquired upon the
exercise thereof, including, without limitation, (i) the exercise price of the
Option, (ii) the method of payment for shares purchased upon the exercise of the
Option, (iii) the method for satisfaction of any tax withholding obligation
arising in connection with the Option or such shares, including by the
withholding or delivery of shares of stock, (iv) the timing, terms and
conditions of the exercisability of the Option or the vesting of any shares
acquired upon the exercise thereof, (v) the time of the expiration of the
Option, (vi) the effect of the Optionee's termination of Service with the
Participating Company Group on any of the foregoing, and (vii) all other terms,
conditions and restrictions applicable to the Option or such shares not
inconsistent with the terms of the Plan;
(e) to approve one or more forms of Option Agreement;
(f) to amend, modify, extend, cancel, renew, reprice or otherwise
adjust the exercise price of, or grant a new Option in substitution for, any
Option or to waive any restrictions or conditions applicable to any Option or
any shares acquired upon the exercise thereof;
(g) to accelerate, continue, extend or defer the exercisability of
any Option or the vesting of any shares acquired upon the exercise thereof,
including with respect to the period following an Optionee's termination of
Service with the Participating Company Group;
(h) to prescribe, amend or rescind rules, guidelines and policies
relating to the Plan, or to adopt supplements to, or alternative versions of,
the Plan, including, without limitation, as the Board deems necessary or
desirable to comply with the laws of, or to accommodate the tax policy or custom
of, foreign jurisdictions whose citizens may be granted Options; and
(i) to correct any defect, supply any omission or reconcile any
inconsistency in the Plan or any Option Agreement and to make all other
determinations and take
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such other actions with respect to the Plan or any Option as the Board may deem
advisable to the extent consistent with the Plan and applicable law.
4. SHARES SUBJECT TO PLAN.
4.1 MAXIMUM NUMBER OF SHARES ISSUABLE. Subject to adjustment as
provided in Section 4.2, the maximum aggregate number of shares of Stock that
may be issued under the Plan shall be two hundred twelve thousand six hundred
five (212,605) and shall consist of authorized but unissued or reacquired shares
of Stock or any combination thereof. If an outstanding Option for any reason
expires or is terminated or canceled or if shares of Stock are acquired upon the
exercise of an Option subject to a Company repurchase option and are repurchased
by the Company at the Optionee's exercise price, the shares of Stock allocable
to the unexercised portion of such Option or such repurchased shares of Stock
shall again be available for issuance under the Plan. Notwithstanding the
foregoing, at any such time as the offer and sale of securities pursuant to the
Plan is subject to compliance with Section 260.140.45 of Title 10 of the
California Code of Regulations ("SECTION 260.140.45"), the total number of
shares of Stock issuable upon the exercise of all outstanding Options (together
with options outstanding under any other stock option plan of the Company) and
the total number of shares provided for under any stock bonus or similar plan of
the Company shall not exceed thirty percent (30%) (or such other higher
percentage limitation as may be approved by the stockholders of the Company
pursuant to Section 260.140.45) of the then outstanding shares of the Company as
calculated in accordance with the conditions and exclusions of Section
260.140.45.
4.2 ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of any
stock dividend, stock split, reverse stock split, recapitalization, combination,
reclassification or similar change in the capital structure of the Company,
appropriate adjustments shall be made in the number and class of shares subject
to the Plan and to any outstanding Options and in the exercise price per share
of any outstanding Options. If a majority of the shares which are of the same
class as the shares that are subject to outstanding Options are exchanged for,
converted into, or otherwise become (whether or not pursuant to an Ownership
Change Event, as defined in Section 8.1) shares of another corporation (the "NEW
SHARES"), the Board may unilaterally amend the outstanding Options to provide
that such Options are exercisable for New Shares. In the event of any such
amendment, the number of shares subject to, and the exercise price per share of,
the outstanding Options shall be adjusted in a fair and equitable manner as
determined by the Board, in its discretion. Notwithstanding the foregoing, any
fractional share resulting from an adjustment pursuant to this Section 4.2 shall
be rounded down to the nearest whole number, and in no event may the exercise
price of any Option be decreased to an amount less than the par value, if any,
of the stock subject to the Option. The adjustments determined by the Board
pursuant to this Section 4.2 shall be final, binding and conclusive.
5. ELIGIBILITY AND OPTION LIMITATIONS.
5.1 PERSONS ELIGIBLE FOR OPTIONS. Options may be granted only to
Employees, Consultants, and Directors. For purposes of the foregoing sentence,
"Employees,"
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"Consultants" and "Directors" shall include prospective Employees, prospective
Consultants and prospective Directors to whom Options are granted in connection
with written offers of an employment or other service relationships with the
Participating Company Group. Eligible persons may be granted more than one (1)
Option.
5.2 OPTION GRANT RESTRICTIONS. Any person who is not an Employee on the
effective date of the grant of an Option to such person may be granted only a
Nonstatutory Stock Option. An Incentive Stock Option granted to a prospective
Employee upon the condition that such person become an Employee shall be deemed
granted effective on the date such person commences Service with a Participating
Company, with an exercise price determined as of such date in accordance with
Section 6.1.
5.3 FAIR MARKET VALUE LIMITATION. To the extent that options designated
as Incentive Stock Options (granted under all stock option plans of the
Participating Company Group, including the Plan) become exercisable by an
Optionee for the first time during any calendar year for stock having a Fair
Market Value greater than One Hundred Thousand Dollars ($100,000), the portions
of such options which exceed such amount shall be treated as Nonstatutory Stock
Options. For purposes of this Section 5.3, options designated as Incentive Stock
Options shall be taken into account in the order in which they were granted, and
the Fair Market Value of stock shall be determined as of the time the option
with respect to such stock is granted. If the Code is amended to provide for a
different limitation from that set forth in this Section 5.3, such different
limitation shall be deemed incorporated herein effective as of the date and with
respect to such Options as required or permitted by such amendment to the Code.
If an Option is treated as an Incentive Stock Option in part and as a
Nonstatutory Stock Option in part by reason of the limitation set forth in this
Section 5.3, the Optionee may designate which portion of such Option the
Optionee is exercising. In the absence of such designation, the Optionee shall
be deemed to have exercised the Incentive Stock Option portion of the Option
first. Separate certificates representing each such portion shall be issued upon
the exercise of the Option.
6. TERMS AND CONDITIONS OF OPTIONS.
Options shall be evidenced by Option Agreements specifying the number
of shares of Stock covered thereby, in such form as the Board shall from time to
time establish. No Option or purported Option shall be a valid and binding
obligation of the Company unless evidenced by a fully executed Option Agreement.
Option Agreements may incorporate all or any of the terms of the Plan by
reference and shall comply with and be subject to the following terms and
conditions:
6.1 EXERCISE PRICE. The exercise price for each Option shall be
established in the discretion of the Board; provided, however, that (a) the
exercise price per share for an Incentive Stock Option shall be not less than
the Fair Market Value of a share of Stock on the effective date of grant of the
Option, (b) the exercise price per share for a Nonstatutory Stock Option shall
be not less than eighty-five percent (85%) of the Fair Market Value of a share
of
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Stock on the effective date of grant of the Option, and (c) no Option granted to
a Ten Percent Owner Optionee shall have an exercise price per share less than
one hundred ten percent (110%) of the Fair Market Value of a share of Stock on
the effective date of grant of the Option. Notwithstanding the foregoing, an
Option (whether an Incentive Stock Option or a Nonstatutory Stock Option) may be
granted with an exercise price lower than the minimum exercise price set forth
above if such Option is granted pursuant to an assumption or substitution for
another option in a manner qualifying under the provisions of Section 424(a) of
the Code.
6.2 EXERCISE PERIOD. Options shall be exercisable at such time or
times, or upon such event or events, and subject to such terms, conditions,
performance criteria, and restrictions as shall be determined by the Board and
set forth in the Option Agreement evidencing such Option; provided, however,
that (a) no Option shall be exercisable after the expiration of ten (10) years
after the effective date of grant of such Option, (b) no Incentive Stock Option
granted to a Ten Percent Owner Optionee shall be exercisable after the
expiration of five (5) years after the effective date of grant of such Option,
(c) no Option granted to a prospective Employee, prospective Consultant or
prospective Director may become exercisable prior to the date on which such
person commences Service with a Participating Company, and (d) with the
exception of an Option granted to an officer, Director or Consultant, no Option
shall become exercisable at a rate less than twenty percent (20%) per year over
a period of five (5) years from the effective date of grant of such Option,
subject to the Optionee's continued Service. Subject to the foregoing, unless
otherwise specified by the Board in the grant of an Option, any Option granted
hereunder shall have a term of ten (10) years from the effective date of grant
of the Option.
6.3 PAYMENT OF EXERCISE PRICE.
(a) FORMS OF CONSIDERATION AUTHORIZED. Except as otherwise provided
below, payment of the exercise price for the number of shares of Stock being
purchased pursuant to any Option shall be made (i) in cash, by check or cash
equivalent, (ii) by tender to the Company, or attestation to the ownership, of
shares of Stock owned by the Optionee having a Fair Market Value (as determined
by the Company without regard to any restrictions on transferability applicable
to such stock by reason of federal or state securities laws or agreements with
an underwriter for the Company) not less than the exercise price, (iii) by the
assignment of the proceeds of a sale or loan with respect to some or all of the
shares being acquired upon the exercise of the Option (including, without
limitation, through an exercise complying with the provisions of Regulation T as
promulgated from time to time by the Board of Governors of the Federal Reserve
System) (a "CASHLESS EXERCISE"), (iv) by the Optionee's promissory note in a
form approved by the Company, (v) by such other consideration as may be approved
by the Board from time to time to the extent permitted by applicable law, or
(vi) by any combination thereof. The Board may at any time or from time to time,
by adoption of or by amendment to the standard forms of Option Agreement
described in Section 7, or by other means, grant Options which do not permit all
of the foregoing forms of consideration to be used in payment of the exercise
price or which otherwise restrict one or more forms of consideration.
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(b) LIMITATIONS ON FORMS OF CONSIDERATION.
(i) TENDER OF STOCK. Notwithstanding the foregoing, an Option may not
be exercised by tender to the Company, or attestation to the ownership, of
shares of Stock to the extent such tender or attestation would constitute a
violation of the provisions of any law, regulation or agreement restricting the
redemption of the Company's stock. Unless otherwise provided by the Board, an
Option may not be exercised by tender to the Company, or attestation to the
ownership, of shares of Stock unless such shares either have been owned by the
Optionee for more than six (6) months or were not acquired, directly or
indirectly, from the Company.
(ii) CASHLESS EXERCISE. The Company reserves, at any and all times, the
right, in the Company's sole and absolute discretion, to establish, decline to
approve or terminate any program or procedures for the exercise of Options by
means of a Cashless Exercise.
(iii) PAYMENT BY PROMISSORY NOTE. No promissory note shall be permitted
if the exercise of an Option using a promissory note would be a violation of any
law. Any permitted promissory note shall be on such terms as the Board shall
determine at the time the Option is granted. The Board shall have the authority
to permit or require the Optionee to secure any promissory note used to exercise
an Option with the shares of Stock acquired upon the exercise of the Option or
with other collateral acceptable to the Company. Unless otherwise provided by
the Board, if the Company at any time is subject to the regulations promulgated
by the Board of Governors of the Federal Reserve System or any other
governmental entity affecting the extension of credit in connection with the
Company's securities, any promissory note shall comply with such applicable
regulations, and the Optionee shall pay the unpaid principal and accrued
interest, if any, to the extent necessary to comply with such applicable
regulations.
6.4 TAX WITHHOLDING. The Company shall have the right, but not the
obligation, to deduct from the shares of Stock issuable upon the exercise of an
Option, or to accept from the Optionee the tender of, a number of whole shares
of Stock having a Fair Market Value, as determined by the Company, equal to all
or any part of the federal, state, local and foreign taxes, if any, required by
law to be withheld by the Participating Company Group with respect to such
Option or the shares acquired upon the exercise thereof. Alternatively or in
addition, in its discretion, the Company shall have the right to require the
Optionee, through payroll withholding, cash payment or otherwise, including by
means of a Cashless Exercise, to make adequate provision for any such tax
withholding obligations of the Participating Company Group arising in connection
with the Option or the shares acquired upon the exercise thereof. The Company
shall have no obligation to deliver shares of Stock or to release shares of
Stock from an escrow established pursuant to the Option Agreement until the
Participating Company Group's tax withholding obligations have been satisfied by
the Optionee.
6.5 REPURCHASE RIGHTS. Shares issued under the Plan may be subject to a
right of first refusal, one or more repurchase options, or other conditions and
restrictions as
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determined by the Board in its discretion at the time the Option is granted. The
Company shall have the right to assign at any time any repurchase right it may
have, whether or not such right is then exercisable, to one or more persons as
may be selected by the Company. Upon request by the Company, each Optionee shall
execute any agreement evidencing such transfer restrictions prior to the receipt
of shares of Stock hereunder and shall promptly present to the Company any and
all certificates representing shares of Stock acquired hereunder for the
placement on such certificates of appropriate legends evidencing any such
transfer restrictions.
6.6 EFFECT OF TERMINATION OF SERVICE.
(a) OPTION EXERCISABILITY. Subject to earlier termination of the Option
as otherwise provided herein, an Option shall be exercisable after an Optionee's
termination of Service as follows:
(i) DISABILITY. If the Optionee's Service with the Participating
Company Group is terminated because of the Disability of the Optionee, the
Option, to the extent unexercised and exercisable on the date on which the
Optionee's Service terminated, may be exercised by the Optionee (or the
Optionee's guardian or legal representative) at any time prior to the expiration
of six (6) months (or such longer period of time as determined by the Board, in
its discretion) after the date on which the Optionee's Service terminated, but
in any event no later than the date of expiration of the Option's term as set
forth in the Option Agreement evidencing such Option (the "OPTION EXPIRATION
DATE").
(ii) DEATH. If the Optionee's Service with the Participating
Company Group is terminated because of the death of the Optionee, the Option, to
the extent unexercised and exercisable on the date on which the Optionee's
Service terminated, may be exercised by the Optionee's legal representative or
other person who acquired the right to exercise the Option by reason of the
Optionee's death at any time prior to the expiration of six (6) months (or such
longer period of time as determined by the Board, in its discretion) after the
date on which the Optionee's Service terminated, but in any event no later than
the Option Expiration Date. The Optionee's Service shall be deemed to have
terminated on account of death if the Optionee dies within thirty (30) days (or
such longer period of time as determined by the Board, in its discretion) after
the Optionee's termination of Service (other than for Cause (as defined below)).
(iii) TERMINATION AFTER CHANGE IN CONTROL. If the Optionee's
Service with the Participating Company Group ceases as a result of Termination
After Change in Control (as defined below), then (1) the Option, to the extent
unexercised and exercisable on the date on which the Optionee's Service
terminated, may be exercised by the Optionee (or the Optionee's guardian or
legal representative) at any time prior to the expiration of six (6) months (or
such longer period of time as determined by the Board, in its sole discretion)
after the date on which the Optionee's Service terminated, but in any event no
later than the Option Expiration Date, and (2) the vesting of the Option shall
be accelerated as to a number of shares of equal to twenty-five percent (25%) of
the shares remaining unvested as of the date of the Optionee's
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termination of Service (or as otherwise determined by the Board and set forth in
the Option Agreement).
(iv) OTHER TERMINATION OF SERVICE. If the Optionee's Service with
the Participating Company Group terminates for any reason, except Disability,
death or Termination After Change in Control, the Option, to the extent
unexercised and exercisable by the Optionee on the date on which the Optionee's
Service terminated, may be exercised by the Optionee within thirty (30) days (or
such longer period of time as determined by the Board, in its discretion) after
the date on which the Optionee's Service terminated, but in any event no later
than the Option Expiration Date.
(b) EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding the
foregoing, if the exercise of an Option within the applicable time periods set
forth in Section 6.6(a) is prevented by the provisions of Section 11 below, the
Option shall remain exercisable until thirty (30) days (or such longer period of
time as determined by the Board, in its discretion) after the date the Optionee
is notified by the Company that the Option is exercisable, but in any event no
later than the Option Expiration Date.
(c) EXTENSION IF OPTIONEE SUBJECT TO SECTION 16(B). Notwithstanding the
foregoing, if a sale within the applicable time periods set forth in Section
6.6(a) of shares acquired upon the exercise of the Option would subject the
Optionee to suit under Section 16(b) of the Exchange Act, the Option shall
remain exercisable until the earliest to occur of (i) the tenth (10th) day
following the date on which a sale of such shares by the Optionee would no
longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day
after the Optionee's termination of Service, or (iii) the Option Expiration
Date.
(d) CERTAIN DEFINITIONS.
(i) "TERMINATION AFTER CHANGE IN CONTROL" shall mean either of the
following events:
(1) a termination by the Participating Company Group of the
Optionee's Service with the Participating Company Group for any reason other
than for Cause (as defined below), which termination occurs within twelve (12)
months after a Change in Control or immediately prior to such Change in Control;
or
(2) the Optionee's resignation for Good Reason (as defined
below) from Service with the Participating Company Group within twelve (12)
months after a Change in Control, which termination occurs within a reasonable
period of time following the event constituting Good Reason.
Notwithstanding any provision herein to the contrary, Termination After Change
in Control shall not include any termination of the Optionee's Service with the
Participating Company Group which (1) is for Cause (as defined below); (2) is a
result of the Optionee's death or Disability;
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(3) is a result of the Optionee's voluntary termination of Service other than
for Good Reason; or (4) occurs prior to the effectiveness of a Change in Control
(except as otherwise provided above).
(ii) "CAUSE" shall mean any of the following: (1) the Optionee's
theft, dishonesty, or falsification of any Participating Company documents or
records; (2) the Optionee's improper use or disclosure of a Participating
Company's confidential or proprietary information; (3) any action by the
Optionee which has a detrimental effect on a Participating Company's reputation
or business; (4) the Optionee's failure or inability to perform any reasonable
assigned duties after written notice from the Participating Company Group of,
and a reasonable opportunity to cure, such failure or inability; (5) any
material breach by the Optionee of any employment agreement between the Optionee
and the Participating Company Group, which breach is not cured pursuant to the
terms of such agreement; or (6) the Optionee's conviction (including any plea of
guilty or nolo contendere) of any criminal act which impairs the Optionee's
ability to perform his or her duties with the Participating Company Group.
(iii) "GOOD REASON" shall mean any one or more of the following:
(1) without the Optionee's express written consent, the
assignment to the Optionee of any duties, or any limitation of the Optionee's
responsibilities, substantially inconsistent with the Optionee's positions,
duties, responsibilities and status with the Participating Company Group
immediately prior to the date of the Change in Control;
(2) any failure by the Participating Company Group to pay, or
any material reduction by the Participating Company Group of, (A) the Optionee's
base salary in effect immediately prior to the date of the Change in Control
(unless reductions comparable in amount and duration are concurrently made for
all other employees of the Participating Company Group with responsibilities,
organizational level and title comparable to the Optionee's), or (B) the
Optionee's bonus compensation, if any, in effect immediately prior to the date
of the Change in Control (subject to applicable performance requirements with
respect to the actual amount of bonus compensation earned by the Optionee); or
(3) any failure by the Participating Company Group to (A)
continue to provide the Optionee with the opportunity to participate, on terms
no less favorable than those in effect for the benefit of any employee group
which customarily includes a person holding the employment position or a
comparable position with the Participating Company Group then held by the
Optionee, in any benefit or compensation plans and programs, including, but not
limited to, the Participating Company Group's life, disability, health, dental,
medical, savings, profit sharing, stock purchase and retirement plans, if any,
in which the Optionee was participating immediately prior to the date of the
Change in Control, or their equivalent, or (B) provide the Optionee with all
other fringe benefits (or their equivalent) from time to time in effect for the
benefit of any employee group which customarily includes a person holding the
employment position or a comparable position with the Participating Company
Group then held by the Optionee.
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7. STANDARD FORMS OF OPTION AGREEMENT.
7.1 INCENTIVE STOCK OPTIONS. Unless otherwise provided by the Board at
the time the Option is granted, an Option designated as an "Incentive Stock
Option" shall comply with and be subject to the terms and conditions set forth
in the form of Incentive Stock Option Agreement adopted by the Board
concurrently with its adoption of the Plan and as amended from time to time.
7.2 NONSTATUTORY STOCK OPTIONS. Unless otherwise provided by the Board
at the time the Option is granted, an Option designated as a "Nonstatutory Stock
Option" shall comply with and be subject to the terms and conditions set forth
in the form of Nonstatutory Stock Option Agreement adopted by the Board
concurrently with its adoption of the Plan and as amended from time to time.
7.3 AUTHORITY TO VARY TERMS. The Board shall have the authority from
time to time to vary the terms of any of the standard forms of Option Agreement
described in this Section 7 either in connection with the grant or amendment of
an individual Option or in connection with the authorization of a new standard
form or forms; provided, however, that the terms and conditions of any such new,
revised or amended standard form or forms of Option Agreement are not
inconsistent with the terms of the Plan.
8. CHANGE IN CONTROL.
8.1 DEFINITIONS.
(a) An "OWNERSHIP CHANGE EVENT" shall be deemed to have occurred if
any of the following occurs with respect to the Company: (i) the direct or
indirect sale or exchange in a single or series of related transactions by the
stockholders of the Company of more than fifty percent (50%) of the voting stock
of the Company; (ii) a merger or consolidation in which the Company is a party;
(iii) the sale, exchange, or transfer of all or substantially all of the assets
of the Company; or (iv) a liquidation or dissolution of the Company.
(b) A "CHANGE IN CONTROL" shall mean an Ownership Change Event or a
series of related Ownership Change Events (collectively, a "TRANSACTION")
wherein the stockholders of the Company immediately before the Transaction do
not retain immediately after the Transaction, in substantially the same
proportions as their ownership of shares of the Company's voting stock
immediately before the Transaction, direct or indirect beneficial ownership of
more than fifty percent (50%) of the total combined voting power of the
outstanding voting stock of the Company or the corporation or corporations to
which the assets of the Company were transferred (the "TRANSFEREE
CORPORATION(S)"), as the case may be. For purposes of the preceding sentence,
indirect beneficial ownership shall include, without limitation, an interest
resulting from ownership of the voting stock of one or more corporations which,
as a result of the Transaction, own the Company or the Transferee
Corporation(s), as the case may be, either directly or through one or more
subsidiary corporations. The Board shall
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have the right to determine whether multiple sales or exchanges of the voting
stock of the Company or multiple Ownership Change Events are related, and its
determination shall be final, binding and conclusive.
8.2 EFFECT OF CHANGE IN CONTROL ON OPTIONS. In the event of a Change in
Control, the surviving, continuing, successor, or purchasing corporation or
parent corporation thereof, as the case may be (the "ACQUIRING CORPORATION"),
may either assume the Company's rights and obligations under outstanding Options
or substitute for outstanding Options substantially equivalent options for the
Acquiring Corporation's stock. For purposes of this Section 8.2, an Option shall
be deemed assumed if, following the Change in Control, the Option confers the
right to purchase in accordance with its terms and conditions, for each share of
Stock subject to the Option immediately prior to the Change in Control, the
consideration (whether stock, cash or other securities or property) to which a
holder of a share of Stock on the effective date of the Change in Control was
entitled. Any Options which are neither assumed or substituted for by the
Acquiring Corporation in connection with the Change in Control nor exercised as
of the date of the Change in Control shall terminate and cease to be outstanding
effective as of the date of the Change in Control. Notwithstanding the
foregoing, shares acquired upon exercise of an Option prior to the Change in
Control and any consideration received pursuant to the Change in Control with
respect to such shares shall continue to be subject to all applicable provisions
of the Option Agreement evidencing such Option except as otherwise provided in
such Option Agreement. Furthermore, notwithstanding the foregoing, if the
corporation the stock of which is subject to the outstanding Options immediately
prior to an Ownership Change Event described in Section 8.1(a)(i) constituting a
Change in Control is the surviving or continuing corporation and immediately
after such Ownership Change Event less than fifty percent (50%) of the total
combined voting power of its voting stock is held by another corporation or by
other corporations that are members of an affiliated group within the meaning of
Section 1504(a) of the Code without regard to the provisions of Section 1504(b)
of the Code, the outstanding Options shall not terminate unless the Board
otherwise provides in its discretion.
8.3 ACCELERATION OF VESTING. If within twelve (12) months following a
Change in Control, the principal place of the Optionee's employment is relocated
to a location more than fifty (50) miles from the Optionee's principal place of
employment immediately prior to the Change in Control and the Optionee continues
to perform Service at such new location, the vesting of each Option held by such
Optionee shall be accelerated as to a number of shares equal to twenty-five
percent (25%) of the shares then remaining unvested and the remaining shares
will vest in equal monthly increments over the remaining portion of the original
vesting schedule.
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9. PROVISION OF INFORMATION.
At least annually, copies of the Company's balance sheet and income
statement for the just completed fiscal year shall be made available to each
Optionee and purchaser of shares of Stock upon the exercise of an Option. The
Company shall not be required to provide such information to key employees whose
duties in connection with the Company assure them access to equivalent
information.
10. NONTRANSFERABILITY OF OPTIONS.
During the lifetime of the Optionee, an Option shall be exercisable
only by the Optionee or the Optionee's guardian or legal representative. No
Option shall be assignable or transferable by the Optionee, except by will or by
the laws of descent and distribution.
11. COMPLIANCE WITH SECURITIES LAW.
The grant of Options and the issuance of shares of Stock upon exercise
of Options shall be subject to compliance with all applicable requirements of
federal, state and foreign law with respect to such securities. Options may not
be exercised if the issuance of shares of Stock upon exercise would constitute a
violation of any applicable federal, state or foreign securities laws or other
law or regulations or the requirements of any stock exchange or market system
upon which the Stock may then be listed. In addition, no Option may be exercised
unless (a) a registration statement under the Securities Act shall at the time
of exercise of the Option be in effect with respect to the shares issuable upon
exercise of the Option or (b) in the opinion of legal counsel to the Company,
the shares issuable upon exercise of the Option may be issued in accordance with
the terms of an applicable exemption from the registration requirements of the
Securities Act. The inability of the Company to obtain from any regulatory body
having jurisdiction the authority, if any, deemed by the Company's legal counsel
to be necessary to the lawful issuance and sale of any shares hereunder shall
relieve the Company of any liability in respect of the failure to issue or sell
such shares as to which such requisite authority shall not have been obtained.
As a condition to the exercise of any Option, the Company may require the
Optionee to satisfy any qualifications that may be necessary or appropriate, to
evidence compliance with any applicable law or regulation and to make any
representation or warranty with respect thereto as may be requested by the
Company.
12. INDEMNIFICATION.
In addition to such other rights of indemnification as they may have as
members of the Board or officers or employees of the Participating Company
Group, members of the Board and any officers or employees of the Participating
Company Group to whom authority to act for the Board or the Company is delegated
shall be indemnified by the Company against all reasonable expenses, including
attorneys' fees, actually and necessarily incurred in connection with the
defense of any action, suit or proceeding, or in connection with any appeal
therein, to which they or any of them may be a party by reason of any action
taken or failure to act under or in connection with the Plan, or any right
granted hereunder, and against all amounts paid by them
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in settlement thereof (provided such settlement is approved by independent legal
counsel selected by the Company) or paid by them in satisfaction of a judgment
in any such action, suit or proceeding, except in relation to matters as to
which it shall be adjudged in such action, suit or proceeding that such person
is liable for gross negligence, bad faith or intentional misconduct in duties;
provided, however, that within sixty (60) days after the institution of such
action, suit or proceeding, such person shall offer to the Company, in writing,
the opportunity at its own expense to handle and defend the same.
13. TERMINATION OR AMENDMENT OF PLAN.
The Board may terminate or amend the Plan at any time. However, subject
to changes in applicable law, regulations or rules that would permit otherwise,
without the approval of the Company's stockholders, there shall be (a) no
increase in the maximum aggregate number of shares of Stock that may be issued
under the Plan (except by operation of the provisions of Section 4.2), (b) no
change in the class of persons eligible to receive Incentive Stock Options, and
(c) no other amendment of the Plan that would require approval of the Company's
stockholders under any applicable law, regulation or rule. In any event, no
termination or amendment of the Plan may adversely affect any then outstanding
Option or any unexercised portion thereof, without the consent of the Optionee,
unless such termination or amendment is required to enable an Option designated
as an Incentive Stock Option to qualify as an Incentive Stock Option or is
necessary to comply with any applicable law, regulation or rule.
14. STOCKHOLDER APPROVAL.
The Plan or any increase in the maximum aggregate number of shares of
Stock issuable thereunder as provided in Section 4.1 (the "AUTHORIZED SHARES")
shall be approved by the stockholders of the Company within twelve (12) months
of the date of adoption thereof by the Board. Options granted prior to
stockholder approval of the Plan or in excess of the Authorized Shares
previously approved by the stockholders shall become exercisable no earlier than
the date of stockholder approval of the Plan or such increase in the Authorized
Shares, as the case may be.
<PAGE>
LEASE
This is a Lease in which Landlord and Tenant are the parties named below,
and which relates to office spare located at Playhouse Square, Wellesley,
Massachusetts as more fully described below.
The parties to this instrument hereby agree with each other as follows:
ARTICLE I
BASIC LEASE PROVISIONS AND EXHIBITS
1.1 INTRODUCTION. The following sections of this Article set forth
definitions and basic data, and list Exhibits. Each reference in this Lease to
any of the titles or terms contained in this Article I shall be construed to
incorporate the definitions or data stated under that title or term.
1.2 DEFINITIONS AND BASIC DATA.
Date of Lease: April 30, 1998.
Commencement Date: May 1, 1998.
Landlord: Wellplay Associates Limited Partnership,
which holds tide to the Center,
hereinafter defined, through Playhouse
Nominee Trust
Landlord's Mailing Address: c/o FIC Management Incorporated
380 Washington Street
Wellesley, MA 02181
Tenant: Direct Hit Technologies Inc.
Tenant's Mailing Address: Prior to Commencement Date:
58 Donizetti Street
Wellesley, MA 02181
After Commencement Date:
386 Washington Street
Wellesley, MA 02181
Rentable Area: Approximately 2,285 rentable square
feet which figure includes a common area
factor.
Leased Premises/Premises: The space known as 386 Washington Street,
Second Floor, Suite I
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shown as Office Space 1 on Exhibit B and
labeled the "LEASED PREMISES". The
building in which the Leased Premises is
located is called the "Building" and the
center in which it is located is called
the "Center". The street address of the
Leased Premises is 386 Washington Street,
Wellesley, Massachusetts 02181.
Lease Term: Forty -two (42) calendar months
following, the Commencement Date ending
on October 31, 2001.
Minimum Rent: $45,700.00 per year ($3,808.33 per
month).
Pro Rata Share: 7.7%
Additional Rent: Includes all sums (except Minimum
Rent) payable by Tenant to Landlord under
this Lease.
Security Deposit: Three months' Minimum Rent and
Additional Rent which amount initially
shall be $11,425.00 (based on only the
minimum Rent) and shall be adjusted from
time to time during, the Term to reflect
any increases in Minimum Rent and
Additional Rent.
Permitted Use: For general office use, and for no
other purpose.
Tenant's Required Liability $3,000,000 for injuries suffered in any
Insurance: (See Section 9.4.) one accident
$1,000,000 for injuries suffered by any
one person
$500,000 for injuries to property
Broker (See Section 18.6): Equity Partners, Inc.
Initial Payment: The first month's Minimum Rent of
$3,808.33 plus the Security Deposit of
$11,425.00, less $1,500.00 which has
already been received by Landlord such
that a total of $13,733.33 shall be
paid by Tenant at Lease signing.
1.3 EXHIBITS. The following Exhibits, which are attached to this Lease, are
a part of this Lease and are incorporated in it by this reference. Agreements or
undertakings contained in the Exhibits are binding as if set forth in this
Lease, and are subject to all the provisions (including, provisions regarding
default) of this Lease.
<TABLE>
<S> <C>
- ------------------------- --------------------------------------------------------------------------------------------
Exhibit A. Legal Description of the Center.
- ------------------------- --------------------------------------------------------------------------------------------
Exhibit B. A Plan Showing the Location of The Leased Premises and the Common Areas of the Center.
- ------------------------- --------------------------------------------------------------------------------------------
Exhibit C. Work by Landlord
- ------------------------- --------------------------------------------------------------------------------------------
</TABLE>
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<TABLE>
<S> <C>
- ------------------------- --------------------------------------------------------------------------------------------
Exhibit D. Description of Tenant's Work.
- ------------------------- --------------------------------------------------------------------------------------------
Exhibit E. Playhouse Square Design Criteria.
- ------------------------- --------------------------------------------------------------------------------------------
Exhibit F. Restrictions.
- ------------------------- --------------------------------------------------------------------------------------------
Exhibit G. Rules and Regulations.
- ------------------------- --------------------------------------------------------------------------------------------
Exhibit H. Use Restrictions.
- ------------------------- --------------------------------------------------------------------------------------------
</TABLE>
ARTICLE II
LEASE OF PREMISES AND APPURTENANT RIGHTS
2. 1 LEASE OF PREMISES. Landlord hereby leases to Tenant. and Tenant hereby
accepts from Landlord, the Leased Premises.
2.2 APPURTENANT RIGHTS IN COMMON AREAS. Tenant shall have the right, in
common with others, to use the parking areas, elevators, driveways, entrances,
exits, sidewalks, and passageways which Landlord may from time to time make
available to the tenants of the Center, as further described and subject to the
limitations set forth in Article VI.
2.3 EXCLUDED AREAS; RESERVATION OF RIGHTS. All perimeter walls (except the
inner surface thereon and the floor (except the inner surface thereon are
excluded from the Leased Premises, but the ceiling (which in the case of first
floor space shall be the underside of the floor above and in the case of second
floor space shall be the underside of the roof) is not so excluded and is a part
of the Leased Premises for all purposes. Landlord hereby reserves a right of
entry as more particularly set forth in Section 8.5.
ARTICLE III
COMMENCEMENT
3.1 COMMENCEMENT DATE AND TERM. This Lease shall be-in on the Commencement
Date specified in Section 1.2. and shall be for the Lease Term specified in
Section 1.2.
3.2 Intentionally Omitted.
3.3 Intentionally Omitted.
3.4 CONDITION OF THE PREMISES. The Premises shall be delivered "as is", and
Landlord shall not be required to make any repairs, alterations, or improvements
to the Premises.
3.5 TENANT'S WORK. Promptly after the Commencement Date, Tenant shall
perform at its own cost and expense, all of Tenant's Work (if any) set forth in
Exhibit D, and shall equip the Leased Premises with all trade fixtures and
personal property suitable or appropriate to the regular and normal operation of
the type of business in which Tenant is engaged. Tenant shall
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open for business as soon after the Commencement Date possible. Tenant's Work
and any other work permitted pursuant to Section 8.4 hereof shall be done in a
good and workmanlike manner using first-class new materials and equipment and in
accordance with the requirements of all applicable laws, ordinances, orders or
regulations of any public authority or of any insurer, Board of Fire
Underwriters, or similar insurance rating, bureau having jurisdiction over the
Leased Premises.
ARTICLE IV
MINIMUM RENT
4.1 MINIMUM RENT. Tenant agrees to pay to Landlord, at Landlord's Mailing
Address (or at such other place as Landlord shall from time to time designate by
notice) monthly, in advance, on the Commencement Date and on the first day of
each calendar month thereafter during the Lease Term, a sum equal to the Minimum
Rent specified in Section 1.2, or as adjusted pursuant to Section 4.2. Minimum
Rent for any partial month shall be pro rated based on the number of days in
such month and paid by Tenant to Landlord at such rate. Tenant shall pay upon
execution of this Lease the Initial Payment as set forth in Section 1.2.
4.2
4.8 Intentionally Omitted.
4.9 NO PARTNERSHIP. Notwithstanding any agreement herein, it is expressly
understood and agreed that Landlord shall not be construed or held to be a
partner or associate of Tenant in the conduct of Tenant's business. It is
understood and agreed that the relationship between the parties hereto is and
shall at all times remain that of landlord and tenant.
4.10 RENT TO BE NET TO LANDLORD. It is the intention of the parties that
the rent payable hereunder shall be net to Landlord, so that this Lease shall
yield to Landlord the net annual Minimum Rent herein during the Term of this
Lease, and that all costs. expenses and obligations of every kind and nature
whatsoever relating to the Leased Premises shall be paid by Tenant (except to
the extent Landlord is specifically required to pay for same under this Lease)
without any deduction or offset whatsoever unless expressly provided otherwise
herein.
ARTICLE V
TAX RENT AND OPERATING COSTS RENT
5.1 TAX RENT. Tenant shall pay to Landlord, as Tax Rent, Tenant's Pro Rata
Share of the amount by which taxes, assessments, sales or use taxes imposed with
respect to rent, sewer entrance fees, and other public charges (together called
"Taxes"), levied, assessed, or imposed at any time by any Governmental authority
upon or against the Center including the buildings therein, the associated land
and personalty or taxes in lieu thereof in any lease year or partial
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lease year during the Term exceed Taxes for the period from July 1, 1997 to June
30, 1998; provided, however, that Taxes shall not include franchises, estate,
inheritance, succession, transfer, income or excess profits taxes assessed on
Landlord.
Notwithstanding the foregoing, Tenant shall pay all real and personal
property taxes attributable to its signs or personal property and all of any
increase in Taxes on the Center which shall result from alteration, addition or
improvement which Tenant shall make to the Leased Premises.
5.2 TIME AND MANNER OF PAYMENT OF TAX RENT. Tax Rent shall be paid monthly
at the times and in the fashion provided herein for the payment of Minimum Rent.
The amount so to be paid shall be the amount which Landlord estimates will
represent Tenant's liability for Tax Rent when Taxes are finally determined.
Landlord may, from time to time, make such revisions in its estimate as may, in
the circumstances, be appropriate. Promptly after Landlord receives the bills
for Taxes, Landlord shall advise Tenant of the amount thereof, and shall compute
Tenant's Pro Rata Share for the tax period included within the Lease Year
covered by such bill. If payments previously made for such period by Tenant
exceed such Pro Rata Share, then Landlord shall refund to Tenant the amount of
such excess; but if such Pro Rata Share is greater than payments made on
account, Tenant shall pay to Landlord within fifteen (15) days of demand the
amount of such deficiency. Tenant's monthly installment on account of its Pro
Rata Share shall be adjusted promptly after receipt of each real estate tax
bill, so that installments on account for the succeeding tax year shall be equal
to one-twelfth (1/12) of Tenant's Pro Rata Share for the preceding, period. To
the extent that tax years do not coincide with any Lease Year or Partial Lease
Year, such taxes shall be pro rated on a per them basis.
5.3 DIFFERENT METHOD OF ASSESSMENT. If some method or type of taxation
shall replace the current method or type of real estate taxation in whole or in
part, or be added as a supplement thereto, the term "Taxes" shall be amended to
reflect such change. Tenant agrees that it shall pay its equitable share of any
such Taxes computed in a fashion consistent with the method of computation
herein provided, to the end that Tenant's cost on account thereof shall be, to
the maximum extent practicable, the same as Tenant would bear under the
foregoing Sections of this Article.
5.4 ABATEMENTS. Tenant's Pro Rata Share of all Taxes as aforesaid shall be
based upon such Taxes "as abated" or finally determined; out of any refund of
such Taxes, there shall first be deducted and paid to Landlord, the cost of
securing such refund (including but not limited to appraiser's fees and
attorneys' fees); and Tenant shall be entitled to its pro rata share of the
balance of such refund to the extent same is attributable to the excess Taxes
which Tenant is obligated to pay and, which shall be computed in the same manner
that Tenant's Pro Rata Share of Taxes for the year(s) to which such refund is
attributable was computed. Landlord shall have sole control of all tax abatement
proceedings. The pendency of an abatement proceeding or the withholding of any
tax payments by Landlord shall in no way affect Tenant's obligation to pay Taxes
as provided above, and Tenant shall only be entitled to its portion of the
proceeds or
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benefits of any abatement when such proceeds or benefits are finally determined
and actually received by Landlord.
5.5 OPERATING COST RENT. Tenant shall pay to Landlord, as Operating Cost
Rent, with respect to each Lease Year or Partial Lease Year, Tenant's Pro Rata
Share of the amount by which "OPERATING COSTS" of the Center in any calendar
year or partial calendar year exceed the Operating Costs for calendar year 1997.
"OPERATING COSTS" shall include:
(i) all costs and expenses of every kind and nature paid or incurred by
Landlord (including payments to reasonable and appropriate reserves)
in operating, managing, equipping, insuring, controlling traffic,
policing (if and to the extent provided by Landlord), lighting,
cleaning, maintaining, repairing, replacing, and restoring the Common
Areas of the Center, including (to the extent Landlord has obligations
with respect thereto) the parking, areas, the foundations, roofs,
gutters, downspouts, marquees, structural columns, beams and exterior
walls (excluding the interior surface thereof) of the buildings, all
utility lines, pipes and conduits, HVAC, and all drainage or sewage
systems which are not the responsibility of any tenant under a then
existing lease. Such costs and expenses shall include, without
limitation, payments or charges for all maintenance, repairs,
replacements, utilities, landscaping and gardening, security systems
and services, sweeping, snow plowing, sanding, refuse removal,
accounting wages, unemployment taxes, Social security taxes, workmen's
compensation insurance premiums, fees for required licenses and
permits, supplies, operation of loudspeakers and any other equipment
supplying music or public address to the Common Areas, reasonable
depreciation of equipment used in maintenance or operation of the
Common Areas (but there shall be excluded costs of equipment properly
chargeable to capital account and depreciation of the original cost of
construction of parking facilities and other Common Areas, buildings
and building, systems);
(ii) an allowance for depreciation over the useful life thereof of any
items or improvements properly chargeable to capital account,
(iii) all premiums for, or reasonable value of, comprehensive general
public liability, property damage, casualty, rent loss, and other
insurance maintained by Landlord with respect to all of the Center,
including, the Common Areas and all buildings and improvements; and
(iv) an administrative charge equal to fifteen percent (15%) of the
allowable charges under subsections (i), (ii) and (iii) above.
Any amounts payable with respect to less than a full calendar year shall be
equitably pro rated on a daily basis.
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<PAGE>
5.6. TIME AND MANNER OF PAYMENT OF OPERATING COST RENT. Tenant shall pay to
Landlord monthly in the same manner as Minimum Rent is payable Landlord's
estimate of Tenant's Operating Cost Rent. Within sixty (60) days after the end
of each calendar year during the Term, Landlord shall furnish to Tenant a
statement in reasonable detail setting forth the computation of such costs and
expenses incurred during the preceding calendar year; provided. however, that
the failure of Landlord to furnish a statement within the specified time frame
shall not affect Tenant's obligation to pay Operating Cost Rent at such time as
said statement is furnished. Thereupon, there shall be a prompt adjustment
between the parties, with payment to, or repayment by, the parties, as the case
may require, to the end that Tenant shall pay only its Pro Rata Share of the
total of Operating Costs. At Landlord's election, however, Landlord may submit
more frequent periodic statements with respect to said costs and expenses
(rather than annual statements), and in such case any deficiency in the payments
made by Tenant for any such period shall be paid to Landlord upon Tenant's
receipt of the statement in question. Any payment due from Tenant on account of
such annual or periodic statements shall be due within fifteen (15) days
Tenant's receipt of the statement.
5.7 TERMINATION. In case of the expiration or termination of this Lease
prior to the end of the Term by reason of Tenant's default, Tenant's obligation
to make payments of Tax Rent and Operating Cost Rent under this Lease shall
continue and shall cover all periods up to the natural expiration of the Term.
Landlord shall have a reciprocal obligation to refund to Tenant or give Tenant
credit for its portion of any tax abatement received after the expiration or
termination of the Lease.
ARTICLE VI
COMMON AREAS
Landlord shall maintain and keep reasonably free from snow and ice the
parking areas, sidewalks, entrances and exits and the like (herein called
"Common Areas") immediately adjacent to the Center as shown on Exhibit B.
Landlord may without the consent of Tenant from time to time make changes in the
location and nature of the Common Areas now or hereafter existing in the Center.
Landlord shall not be liable for any inconvenience or interruption of business
or other consequences resulting from the making of repairs, replacements,
improvements, or alterations, or the doing of any other work in, to or on the
Common Areas.
Landlord shall have the right to tow any employee's vehicle not parked in
the designated area, or terminate that employee's license to park in the Center,
or fine the employee or Tenant an amount equal to the local fine for illegal
parking.
ARTICLE VII
TENANT'S COVENANTS
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7. 1 AFFIRMATIVE COVENANTS OF TENANT. Tenant shall:
(i) pay the Minimum Rent and Additional Rent and all other sums due from
Tenant to Landlord at the time and in the manner provided for in this
Lease, without offset, setoff or deduction for any reason whatsoever;
(ii) procure all licenses and permits which may be required for any use
made of the Leased Premises;
(iii) comply with the Sign Requirements for Exterior Signs as set forth in
Exhibit E;
(iv) use one hundred percent (100%) of the Leased Premises solely for the
purpose set forth in Section 1.2, and for no other purpose; and under
no circumstance shall Tenant use or allow the Leased Premises to be
used in violation of the restrictions set forth in Exhibit F or
Exhibit H;
(v) abide by reasonable rules and regulations made from time to time by
Landlord for furthering the success of the Center after receipt of
notice thereof;
(vi) pay, as they become due and payable, all charges for utilities
furnished to, or consumed upon, the Leased Premises, including without
limitations charges for water, sewer, electricity, gas, and heating
fuel, all of which Tenant shall contract for in its name;
(vii) require its employees to park only in the area designated by Landlord
for employee parking, and advise Landlord of the license plate
registration numbers of Tenant's employee's cars in the Center;
(viii) take all action necessary to comply with all laws applicable to the
Leased Premises or the operation of Tenant's business including,
without limitation, all environmental related laws and the Americans
With Disabilities Act, and promptly provide Landlord with copies of
all notices received or sent by Tenant in connection with the
foregoing; and
(ix) lock the access to the elevator at the close of business each day.
7.2 NEGATIVE COVENANTS OF TENANT. Tenant shall not:
(i) use sidewalks outside the entrance to the Leased Premises to display
or sell merchandise or otherwise obstruct the same;
(ii) permit anything to be done about the Leased Premises which shall be
unlawful, improper or contrary to any law, ordinance, regulation, or
requirement of any
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public authority or insurance inspection rating bureau, or similar
organization, or which may be injurious to or adversely affect the
general character of the Leased Premises or the Center, or without
limiting the Generality of the foregoing, which would involve the
sale, rental or use of pornographic merchandise or services, adult
entertainment or any other use that would adversely impact the
reputation of the Center as a shopping center suitable for families
and children.
(iii) use in or about the Leased Premises any advertising media that may be
objectionable to Landlord or other tenants of the Center, such as but
not limited to, loud speakers, phonographs or radio broadcasts that
may be heard outside the Leased Premises;
(iv) construct, maintain, use or operate within the Leased Premises or
elsewhere in the Center (or on the outside of the Center) any
facility, equipment or machinery which produces light, music, sound,
noise, odor or vibration which is audible, visible or discernable
beyond the interior of the Leased Premises if in Landlord's reasonable
opinion same interferes with the operation of the Center or any
occupant's use of the Center; nor shall Tenant permit any act or thing
upon the Leased Premises, the effect of which shall be to disturb the
normal sensibilities and peaceful occupancy of other tenants or their
employees or invitees.
(v) deliver or remove any freight except over service roadways and in
accordance with such reasonable rules and regulations as may be made
by Landlord;
(vi) bum any trash on or near the Leased Premises, or permit any offensive
odors to be emitted from the Leased Premises;
(vii) overload, damage or deface the Leased Premises;
(viii) place or permit the placing of any signs, awnings, aerials,
flagpoles or the like on the exterior of the Leased Premises without
on each occasion obtaining the prior written consent of Landlord;
(ix) do, or suffer to be done, or keep, or suffer to be kept, or omit to do
anything in, upon or about the Leased Premises which may prevent the
obtaining of any insurance including but without limitation, fire,
extended coverage, and public liability insurance, on the Leased
Premises or any other premises in the Center or on any property
therein, or which may make void or voidable such insurance or which
may create any extra premiums for, or increase the rate of, any such
insurance. If anything shall be done or kept, or omitted to be done,
in, upon or about the Leased Premises which shall create any extra
premiums for, or increase the rate of, any such insurance, Tenant will
pay the increased cost of the same to Landlord upon demand;
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(x) do, or suffer to be done, or keep or suffer to be kept, or omit to do
anything, in, upon or about the Leased Premises which may prevent
Landlord from obtaining or cause the revocation of, any government
license, permit, certificate of right or authority, or other document,
necessary for Landlord to operate the Center including, but not
limited to, government requirements related to the capacity of the
septic system in the Center. If as a direct or indirect result of
Tenant's business, an addition to or change in the Center facilities
shall be required by law, ordinance, by-law or other governmental
regulation, the addition or chance shall be installed and paid for
entirely by Tenant;
(xi) cause any hazardous or toxic wastes, substances materials or oil, as
same or any related term may be defined in any federal or state law or
regulation (collectively. "HAZARDOUS MATERIALS") to be used,
generated, stored or disposed of on, under or about, or transported to
or from, the Premises (collectively, "HAZARDOUS MATERIALS ACTIVITIES")
without first receiving, Landlord's written consent, which may be
withheld for any reason, conditioned as Landlord deems appropriate,
and revoked at any time. In no event shall Landlord be liable to
Tenant in connection with any Hazardous Materials Activities by
Tenant, Tenant's employees, agents, contractors, licensees of
invitees, whether or not consented to by Landlord, nor shall Tenant be
relieved of liability as a result of any such consent. Tenant shall
indemnify, defend with counsel acceptable to Landlord and hold
Landlord harmless from and against any claims, damages, costs and
liabilities arising out of Tenant's Hazardous Materials Activities.
Tenant shall immediately notify Landlord both by telephone and in
writing, of any spill or unauthorized discharge of Hazardous Materials
or of any condition constituting, an "imminent hazard" under
applicable law.
ARTICLE VIII
MAINTENANCE AND REPAIRS
8. 1 LANDLORD'S OBLIGATIONS. Subject to the provisions of Sections 8.2,
10.1, 10.2 and 13.4, Landlord shall keep and maintain in good repair the
following portions of the Center: foundation, roof, gutters, downspouts,
marquee, structural columns and beams, and exterior walls (excluding the
interior surface thereof). Tenant shall reimburse Landlord, upon demand, for
repairs to any of the above described portions of the Center necessitated by
act, default or negligence of Tenant's officers, agents or employees,
sublessees, licensees, concessionaires or other occupants of the Leased
Premises, or those who come upon the Center for the purpose of visiting or
dealing with any of the foregoing. Landlord shall not be deemed to have
committed a breach of any obligations to make repairs unless it shall have made
such repairs negligent or unless it shall have received notice from Tenant in
writing designating the particular repairs needed and shall have failed to
commence such repairs within a reasonable time after the receipt
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of such notice; Landlord's liability in either such case shall be limited to the
cost of making the required repairs and in no event shall Landlord be liable for
indirect or consequential damages.
8.2 TENANT'S OBLIGATIONS.
(1) Tenant shall keep the Leased Premises in a neat, clean, sanitary
condition and shall keep in good repair, excepting only damage caused by fire or
other casualty or taking by eminent domain, the following portions of the Leased
Premises: the entire interior of the Leased Premises including walls and
ceilings; all plumbing, electrical, sewage, air conditioning, ventilating and
heating equipment and the wiring, pipes, motors and fixtures used in connection
therewith; the exterior and interior portions of all doors and windows, moldings
and frames; any automatic door opening equipment; floor coverings; all interior
and exterior signs; loading docks and loading areas, if any, used exclusively by
the Leased Premises; and all appliances, meters, fixtures and equipment
appurtenant to the Leased Premises. For purposes of this Section 8.2. repair
shall be deemed to include replacement where necessary. Tenant agrees that it
shall be responsible for providing cleaning services for the Leased Premises,
and that Landlord shall have no obligation with respect thereto.
(2) maintenance of the heating and air conditioning system serving the
Leased Premises in accordance with the manufacturer's recommended procedures,
including, at a minimum, the following: (1) quarterly inspections and cleaning
of entire system; (2) regular replacement of filters as necessary; (3) service
calls as needed; (4) repair and replacement of any part or component which
proves defective during the term of the contract, provided, however, that the
contract may exclude replacement of major parts or components, but in such
event, replacement of such parts or of the entire system, if necessary, shall be
the sole responsibility of Tenant. Said contract shall be assignable co Landlord
and at the expiration or earlier termination of the term hereof, Tenant, at
Landlord's request, shall assign said contract to Landlord. Upon request, Tenant
shall provide Landlord with a copy of the contract evidencing these terms.
(3) Tenant shall replace any glass which may be damaged or broken with
class of the same quality, provided, however that Landlord shall make available
to Tenant the benefit of any contractor's or manufacturer's guarantee which
Landlord may have from time to time.
(4) Tenant shall make alterations and repairs of whatever nature required
by applicable laws, ordinances, orders or regulations of any public authority or
of any insurer, Board of Fire Underwriters, or similar insurance rating bureau
having jurisdiction over the Leased Premises.
(5) Tenant shall pay for all maintenance, and repairs to and replacement of
the plumbing, and sewerage system in the Center which, in the judgment of
Landlord, are made necessary by Tenant's use of same. It shall be conclusively
presumed that such maintenance, repair and/or replacement are made necessary if
Tenant uses detrimental substances or non-biodegradable solid substances and
discharges same into the sewerage system.
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(6) Notwithstanding the above, Tenant shall not be required to make repairs
necessitated by the default or cross negligence of Landlord, its employees, or
contractors.
8.3 MANNER OF MAKING REPAIRS; INDEMNIFICATION. All repairs, alterations,
and maintenance work shall be done in a good and workmanlike manner using
first-class new materials and equipment and in accordance with the requirements
of all laws, ordinances, orders or regulations of any public authority or of any
insurer, Board of Fire Underwriters, or similar insurance rating bureau having
jurisdiction over the Leased Premises. Tenant agrees to pay promptly when due
all charges for labor and materials in connection with any work done by Tenant
or anyone claiming under Tenant on the Leased Premises. Tenant agrees to save
harmless from, and indemnify Landlord against, all claims for injury, loss or
damages to person or property caused by or resulting from the doing of any such
work.
8.4 ALTERATIONS AND ADDITIONS. Tenant shall make no structural alterations,
improvements or additions to the Leased Premises. Tenant shall make no
non-structural alterations, improvements or additions to the Leased Premises
without first obtaining, on each occasion the prior written consent of Landlord,
which shall not be unreasonably withheld. If Landlord consents, Tenant may make
such alterations, additions or improvements, provided that the same shall
neither injure the safety of the structure of the Leased Premises, nor diminish
their value, and provided further that at the expiration or other termination of
this Lease. Landlord may require Tenant either to restore (the Leased Premises
to their condition prior to the making of such alterations, improvements or
additions or to have the Leased Premises remain in their altered condition with
all improvements and additions becoming the property of Landlord.
8.5 RIGHT TO ENTER. Tenant hereby grants Landlord and its agents a right to
enter without charge or abatement of or reduction in rent or payment of damages
for the following purposes: (i) to examine the Leased Premises at reasonable
times and, from time to time, to show the Leased Premises to prospective
purchasers, lenders and tenants; (ii) to put up "For Sale" or "For Rent" signs,
which signs Tenant agrees not to move, remove, block or otherwise interfere
with; (iii) to make such repairs, improvements, alterations or additions as may
be required by this Lease or by any public authority having jurisdiction, or to
facilitate making repairs or improvements to any other part of the Center, or
(iv) to make repairs which Tenant may have failed promptly to make pursuant to
Tenant's covenants, hereunder; or (v) to construct, install, repair or replace
in the Leased Premises or the approaches thereto any utility or waste line or
pipe or any agency for the transmission through the Leased Premises of
electricity, heat, water, gas or power of any kind. Unless any such work is of
an emergency nature, Landlord shall only enter after reasonable notice and shall
use reasonable efforts to minimize interference with Tenant's operations.
8.6 FIXTURES. All signs, counters, shelving, equipment, and all other trade
fixtures installed by or at the expense of Tenant shall remain the property of
Tenant, and Tenant may remove the same at any time or times during the Lease
Term, and shall remove the same at the
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expiration or other termination of this Lease unless excused in writing by
Landlord. Tenant shall, at its cost and expense, make any and all repairs to the
Leased Premises and the floors and walls thereof as may become necessary by
reason of such removal, including painting and patching where necessary. Tenant
shall cap or otherwise suitably secure all utility lines left exposed or
unconnected after such removal. In the event day of the Lease Term, Landlord
shall have the right to effect such removal and to store Tenant's property in a
public warehouse at Tenant's expense, and to make such repairs, and Tenant shall
forthwith reimburse Landlord for its costs therefor as Additional Rent.
8.7 YIELD-UP: REMOVAL OF GOODS. Except as directed by Landlord in writing
or as otherwise provided in this Article, upon the termination of this Lease,
Tenant shall immediately remove its goods and effects and peaceably yield-up the
Leased Premises, broom-clean and in the same good order, repair and condition as
it is obligated to maintain the same under this Lease. Notwithstanding any
provision of the Lease to the contrary, provided Tenant is not in default at the
time Tenant yields-up the Premises and provided further that Tenant repairs all
the resulting damage, Tenant may remove all track lighting, alarm systems and
security doors installed by Tenant in the Leased Premises.
ARTICLE IX
INSURANCE
9.1 LANDLORD'S CASUALTY INSURANCE. Landlord shall keep the Leased Premises
insured against loss or damage by fire and other hazards included within usual
"all-risk" coverage, in such amounts and with such deductibles as Landlord deems
appropriate.
9.2 TENANT'S CASUALTY INSURANCE. Tenant shall keep all of Tenant's
fixtures, furniture, furnishings, equipment and stock in trade insured against
loss or damage by fire and other hazards included so-called "all-risk" insurance
in an amount not less than one hundred percent (100%) of the full insurable
replacement thereof, without deduction for depreciation, but in any event in an
amount sufficient to prevent Tenant from becoming a co-insurer under the
applicable policies. Any deductible shall be only in amounts approved in writing
by Landlord and Landlord hereby approves a $l,000.00 deductible.
9.3 WAIVER OF SUBROGATION. Landlord and Tenant hereby release each other
and each other's officers, directors, employees and agents, from liability or
responsibility for an loss or damage to their respective property covered by
valid and collectible all-risk insurance, or which would have been covered but
for a party's failure to comply with the provisions of Section 9.1 or 9.2 above.
This release shall apply not only to liability and responsibility of the parties
to each other, but shall also extend to liability and responsibility for any one
claiming through or under the parties by way of subrogation or otherwise. This
release shall apply even if the fire or other casualty shall have been caused by
the fault or negligence of a party or anyone for whom a party may be
responsible. However, this release shall apply only with respect to loss or
damage
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actually recovered from an insurance company, or which would have been
recovered but for a party's failure to comply with the provisions of Section 9.1
or 9.2 above. This release shall be applicable and in force and effect only with
respect to loss or damage occurring during such time as the releasor's policies
shall contain a clause or endorsement to the effect that any such release shall
not adversely affect or impair said policies or prejudice the right of the
releasor to recover thereunder. Landlord and Tenant each hereby agrees that its
policies will include such a clause or endorsement so long as the same shall be
obtainable without extra cost, or if extra cost shall be charged therefor, so
long as the other party pays such extra cost. If extra cost shall be charged
therefor, each party shall advise the other of the amount of the extra cost, and
the other party, at its election, may pay the same, but shall not be obligated
to do so.
9.4 INDEMNITY AND LIABILITY INSURANCE. Tenant shall save Landlord harmless
and indemnified, to the extent permitted by law, from and against any and all
claims, actions, loss, damages, liability and expense in connection with loss of
life, personal injury and/or damage to property arising out of or resulting from
any occurrence in, upon or at the Leased Premises or the occupancy or use of the
Leased Premises or any part thereof, or anywhere if caused wholly or in part by
any act, neglect, failure to perform the obligations imposed by this Lease or
any breach thereof, or omission of Tenant, its officers, agents, employees,
sublessees, licensees, concessionaires, others occupying space in the Leased
Premises or any customers and those doing business with Tenant. If Landlord
shall be threatened with or made a party to any litigation commenced by or
against Tenant or any of the aforementioned parties with respect to any matter
described above, then Tenant shall protect and hold Landlord harmless and
indemnified and shall defend Landlord with counsel reasonably acceptable to
Landlord or, at Landlord's option, shall advance all costs, expenses and
reasonable attorney's fees incurred or paid by Landlord in connection with such
litigation; and this indemnity shall be valid and binding except as required by
M.G.L Chapter 186, Section 15.
Tenant shall maintain with respect to the Leased Premises and the Center
comprehensive public liability insurance covering all of Tenant's obligations
under this Section, in the minimum amounts set forth in Section 1.2. Such
policies shall name Landlord and, if applicable, Landlord's mortgagee as named
insureds, and shall contain a contractual liability endorsement making specific
reference to this Lease.
9.5 NON-LIABILITY OF LANDLORD. Landlord shall not be responsible or liable
to Tenant for any loss or damage caused by other tenants of the Center, or by
their visitors, guests, invitees, employees, agents, contractors, or any other
persons occupying or visiting any portion of the Center. Except as required by
Chapter 186, Section 15 of the Massachusetts General Laws, or any successor
statute, neither Landlord, its agents, or employees shall be liable for any
injury or damage to persons or property resulting from leaks of steam, gas,
electricity, water, or any other substance from pipes, wires or other conduits,
or from the bursting or stoppage thereof; or from leaks of water, snow, or rain
from the plumbing, roof, other parts of the Building, or any other place; or for
wetness or dampness caused for any reason whatsoever. Tenant acknowledges that
it shall be Tenant's responsibility to obtain insurance to protect it from any
and all such hazards,
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and Tenant acknowledges that Tenant's agreement to fully insure Tenant's
property was, given the value of such property, a material inducement to
Landlord and that Landlord would not have entered into this Lease but for such
agreement.
9.6 THEFT LOSSES. Except as required in Chapter 186, Section 15 of the
Massachusetts General Laws, or any successor statute, Landlord shall not be
liable for any damage to, removal of, or loss of any property of Tenant
occasioned by any theft, burglary, robbery, larceny, or vandalism of any kind
(hereinafter called "Theft"). Tenant Shall carry sufficient insurance for its
own protection and for the protection of the Leased Premises and adjacent
portions of the Center in connection with damage or loss arising from any such
Theft. Tenant shall repair at its own cost and expense any damage or loss caused
to the Leased Premises and shall promptly reimburse Landlord for repairs to
adjacent portions of the Center required as a result of any such Theft. A report
of any such theft to police or other proper authorities shall be deemed
conclusive evidence that such an event occurred or an attempt was made.
9.7 Intentionally Omitted.
9.8 WORKER'S COMPENSATION. Tenant shall maintain worker's compensation,
disability and other similar insurance covering all persons employed in
connection with Tenant's Work or by Tenant with respect to whom death or bodily
injury claims could be asserted against Tenant or Landlord.
9.9 CERTIFICATES OF INSURANCE. Each policy of insurance which Tenant is
required to maintain under the provisions of this Article IX shall be with
companies qualified to do business in the Commonwealth of Massachusetts and
reasonably acceptable to Landlord, and shall name Landlord, and if Landlord so
requests, Landlord's mortgagee(s), as insured parties. Tenant shall deposit with
Landlord certificates of such insurance on or prior to the Commencement Date and
thereafter new certificates not later than thirty (30) days prior to the
expiration of the policies. The policies shall provide (and the certificates
shall evidence) that they shall not expire, be cancelled, or be materially
modified without at least thirty (30) days prior written notice to Landlord and,
if Landlord so requests, to Landlord's mortgagee(s).
ARTICLE X
FIRE AND OTHER CASUALTY
10.1 DAMAGE OR DESTRUCTION - TERMINATION RIGHTS. If the Leased Premises
become untenantable in whole or in part by reason of damage or destruction by
fire or other casualty covered by fire insurance policies required to be carried
by Landlord pursuant to the provisions of Article IX, Tenant shall immediately
give written notice thereof to Landlord and, unless this Lease be terminated as
hereinafter provided, Landlord at its own expense shall repair or rebuild the
same with reasonable dispatch so as to restore the Leased Premises to
substantially the same condition required in Exhibit C hereof (subject, however,
to rights of mortgagees, zoning, laws
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and building codes then in existence); provided, however, that Landlord shall
not be required to expend in such repair or rebuilding any amount in excess of
the net insurance proceeds received by Landlord with respect to such damage.
"Net insurance proceeds" shall mean the amount of the insurance proceeds less
all costs and expenses, including adjustors and attorney's fees, of obtaining,
the same. If Landlord repairs or rebuilds the Leased Premises to the extent
required herein, Tenant thereafter shall complete the repair of the Leased
Premises including the repair or replacement of Tenant's trade fixtures,
furniture, inventory and personal property, and reopen for business as soon as
possible.
10.2 DAMAGE OR DESTRUCTION - TERMINATION RIGHTS. If the Leased Premises or
the Buildings comprising, the Center shall be damaged or destroyed to the extent
of ten percent (10%) or more of its insurable value by any cause, or if the
Leased Premises or Buildings comprising the Center are damaged or destroyed by a
risk not covered by Landlord's insurance, or if any such damage or destruction
(regardless of amount) occurs during the last year of the Lease Term, Landlord
may elect by written notice to Tenant within thirty (30) days after the damage
or destruction has occurred, either to terminate this Lease immediately or to
repair or rebuild the Leased Premises (if the same shall have suffered any
damage). If Landlord elects to repair or rebuild the Leased Premises, Landlord's
obligation with respect to such repairing or rebuilding, shall in no event
exceed the scope or expenses of repairing or restoring the Leased Premises to
substantially the same condition as the Leased Premises were in on the
Commencement Date or the amount of the net insurance proceeds with respect to
the Leased Premises recovered by Landlord, whichever is less.
ARTICLE XI
EMINENT DOMAIN
11.1 DEFINITIONS. As used in this Lease, the following words have the
following meanings:
(a) "AWARD" means the award for or proceeds of any Taking less all expenses
in connection therewith, including, reasonable attorney's fees.
(b) "TAKING" means the taking of, or damage to, the Leased Premises or the
Center or any portion thereof, as the case may be, as the result of the exercise
of any power of eminent domain, condemnation, or purchase under threat thereof
or In lieu thereof.
(c) "TAKING DATE" means the date on which the condemning authority shall
have the right to possession of the Leased Premises or the Center or any portion
thereof, as the case may be.
11.2 TOTAL OR PARTIAL TAKING OF LEASED PREMISES. If all of the Leased
Premises shall be taken, except for a Taking for temporary use, this Lease shall
be cancelled automatically as of
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the Taking Date. If a part amounting to twenty-five percent (25%) or more of
either (i) the floor area of the Leased Premises or (ii) the floor area of the
buildings comprising the Center or (iii) the land on which the Center is
located, as described in Exhibit A, shall be taken, Landlord shall have the
option to cancel this Lease. The option to cancel may be exercised within six
months of the Taking Date by giving Tenant sixty days (60) written notice that
the option has been exercised and the Lease shall terminate as of the Taking
Date.
11.3 ABATEMENT AND RESTORATION. If a portion of the Leased Premises shall
be taken, except for a Taking for temporary use, and this Lease shall not be
cancelled under Section 11.2, the following shall apply: Minimum Rent and
Tenant's Pro Rata Share shall be reduced in the proportion that the area of the
Leased Premises so taken bears to the entire area of the Leased Premises.
Landlord shall restore the remaining portion of the Leased Premises to
substantially the same condition they were in on the Commencement Date, to the
extent practical, to render it reasonably suitable for Tenant's use, provided,
however, that Landlord shall not be obligated to expend an amount greater than
the Award for the restoration, and subject to zoning laws and building codes
then in existence.
11.4 TAKING FOR TEMPORARY USE. If there is a Taking of the Leased Premises
for temporary use, this Lease shall continue in full force and effect, and
Tenant shall continue to comply with Tenant's obligations under this Lease,
except to the extent compliance shall be rendered impossible or impracticable by
reason of the Taking.
11.5 DISPOSITION OF AWARDS. All Awards arising from a total or partial
Taking of the Leased Premises or of Tenant's leasehold interest awarded to
Landlord or Tenant shall belong to and be the property of Landlord without any
participation by Tenant. Tenant hereby assigns to Landlord any share of such
Award which may be awarded to Tenant, and hereby waives any rights it may have
with respect to the loss of its leasehold interest in the Lease and the Leased
Premises as a result of a Taking. Tenant agrees to execute such instruments as
may be necessary to effectuate the foregoing assignment, and agrees to turn over
to Landlord any Award which may be recovered by it. Notwithstanding the
foregoing, Tenant shall be entitled to any separate award for loss of movable
trade fixtures installed by it or for relocation expenses, but only if such
award is made in addition to the award for loss of leasehold and for interests
in the land and buildings.
ARTICLE XII
ASSIGNMENT AND SUBLETTING
12.1 PROHIBITION. Tenant shall not assign or encumber this Lease in whole
or in part, nor sublet all or any part of the Leased Premises, nor grant any
license, concessions or lease to operate any business or department in the
Leased Premises without Landlord's consent which consent shall not be
unreasonably withheld or delayed. In determining whether to grant its
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consent, Landlord may consider such factors as Landlord deems appropriate in its
sole discretion including, without limitation, the proposed transferee's
reputation, credit worthiness, and business experience, and the compatibility of
the business use of the Leased Premises by the proposed transferee with other
uses in the Center and other occupants thereof. Any purported sublet assignment
or other transfer without Landlord's prior written consent as set forth above
shall be void and shall confer no rights upon any third person. If this Lease
shall be assigned, or if the Leased Premises or any part thereof shall be
underlet or occupied by anybody other than Tenant, whether with or without
Landlord's consent. Landlord may collect rent from the assignee, subtenant or
occupant, and apply the net amount collected to the rent herein reserved, but no
such assignment, subletting, occupancy or collection shall be deemed a waiver of
the within covenant, or an acceptance of the assignee. subtenant or occupant as
tenant, or a release of Tenant from full performance hereunder.
12.2 SALE OF STOCK; MERGER. If Tenant or any direct or indirect owner of
Tenant is a corporation, then Tenant agrees that if there shall be a sale of
fifty percent (50%) or more of the stock in Tenant or any direct or indirect
owner of Tenant (whether such sale occurs at one time or at intervals so that,
in the aggregate, over the term of this Lease, such a transfer shall have
occurred), or a merger by Tenant or any direct or indirect owner of Tenant with
another corporation with the result that the controlling shareholders of Tenant
or any direct or indirect owner of Tenant do not control the surviving
corporation, the same shall be deemed an assignment and Landlord shall have the
right to cancel and terminate this Lease by giving thirty (30) days written
notice of Landlord's desire to do so at any time prior to the expiration of
sixty (60) days after written notice from Tenant to Landlord of any such
transfer, or within one (1) year after Landlord first learns of any transfer if
no notice is given. Upon the effective date of Landlord's notice, this Lease
shall terminate as if such date was the date originally set for the expiration
of the Lease Term. The term "sale" shall include any transfer other than a
transfer by operation of law upon the death of a stockholder and the devolution
of the stock held by such stockholder to his heirs or legatees.
12.3 OTHER TRANSFERS. If Tenant or any direct or indirect owner of Tenant
is a partnership, trust, or other entity, the provisions of Section 12.2
relative to transfer shall be applied if there is a transfer of fifty percent
(50%) or more of the beneficial interest in such entity, other than a transfer
by operation of law upon the death of an interest holder.
ARTICLE XIII
DEFAULTS AND REMEDIES
13.1 TENANT'S DEFAULT. The following conditions shall be considered a
"Default" by Tenant:
(a) failure to pay Minimum Rent, any item of Additional Rent, or any other
charge as and when due under this Lease;
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(b) if the estate hereby created shall be taken on execution by other
process of law; or
(c) if Tenant or any guarantor of Tenant's obligations hereunder shall be
liquidated or dissolved, commit an act of bankruptcy or be declared bankrupt or
insolvent according to law, or if any assignment shall be made of its property
for the benefit of creditors, or if any proceedings, including, without
limitation proceedings for reorganization or for an "arrangement," shall be
commenced by or against Tenant, or any guarantor of Tenant's obligations
hereunder, under any bankruptcy or insolvency law now or hereafter enacted and
the same shall not be dismissed within thirty (30) days from the time of their
commencement or if Tenant, or any guarantor of Tenant's obligations hereunder,
shall commencement or if Tenant, or any guarantor of Tenant's obligations
hereunder, shall admit in writing its inability to pay debts Generally as they
become due; or
(d) if a receiver, guardian, conservator, trustee or assignee, or any other
similar officer or person shall be appointed to take chore of all or any part of
Tenant's, property, or the property, of any Guarantor of Tenant's obligation
hereunder; or
(e) if any court shall enter an order with respect to Tenant, or any
guarantor of Tenant's obligations hereunder, providing for the modification or
alteration of the rights of creditors; or
(f) if Tenant shall not commence Tenant's Work within ten (10) days after
the receipt of the notice that the Leased Premises are available to Tenant; or
(g) if Tenant shall fail to take possession of the Leased Premises and open
for the conduct of business within sixty (60) days following the Commencement
Date; or
(h) if Tenant shall vacate the Leased Premises or close for business for an
aggregate period exceeding thirty (30) days; or
(i) if Tenant shall assign or sublet all or any part of the Leased Premises
without Landlord's prior written consent; or
(j) neglect or failure to perform or observe any of the other terms,
provisions, conditions, or covenants contained in this Lease on Tenant's part to
be performed or observed, for a period of thirty (30) days after the giving of
notice of such neglect or failure.
For purposes of this Section 13.1(a)-(j), all references to Tenant shall be
deemed to read "or Guarantor". In the event of a Default (notwithstanding any
license, or any former breach of covenant or waiver of the benefit thereof, or
consent in a former instance), Landlord shall have the right, at its election,
then or at any time thereafter during the continuance of the Default,
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either (1) to give Tenant written notice of Landlord's intention to terminate
this Lease on the date of such notice or on any later date specified therein,
and on the date specified in such notice, Tenant's right to possession of the
Leased Premises shall cease and this Lease shall thereupon be terminated, or (2)
without demand or notice, to re-enter and take possession of the Leased Premises
or any part thereof in the name of the whole and repossess the same as of
Landlord's former estate and expel Tenant and those claiming through or under
Tenant and remove the effects of both or either pursuant to an order from a
court of competent Jurisdiction without being deemed guilty of any manner of
trespass and without prejudice to any remedies for arrears of rent or preceding,
breach of covenants. Tenant hereby waives all statutory rights (including
without limitation rights of redemption, if any), to the extent such rights may
be lawfully waived. Landlord, without notice to Tenant but may store Tenant's
effects, and those of any person claiming through or under Tenant at the expense
and risk of Tenant, and, if Landlord so elects, pursuant to an order from a
court of competent jurisdiction, may sell such effects at public auction and
apply the net proceeds to the payment of all sums due to Landlord from Tenant,
if any, and pay over the balance, if any, to Tenant. Should Landlord elect to
re-enter as herein provided or should Landlord take possession pursuant to legal
proceedings or pursuant to any notice provided for herein or by law, Landlord
may either terminate this Lease or, without terminating this Lease, re-let the
Leased Premises or any part thereof from time to time for such term or terms,
which may be for a period extending beyond the term of this Lease and at such
rental or rentals and upon such other terms and conditions as Landlord may deem
advisable, with the right to make alterations and repairs to the Leased
Premises. No such re-entry or taking of possession of the Leased Premises by
Landlord shall be construed as an election on Landlord's part to terminate this
Lease unless a written notice of such intention be given to Tenant or unless the
termination thereof be decreed by a court of competent jurisdiction; nor shall
Landlord's right to re-let from time to time constitute any obligation to do so
or to otherwise mitigate damages. In addition, and notwithstanding any other
provision of this Lease to the contrary or the termination of the Lease in
connection with a default, Tenant shall reimburse Landlord for all expenses
incurred by Landlord in connection with Tenant's default including,, without
limitation, costs of collection, repossession costs, warehouse charges,
brokerage commission, reasonable attorneys' fees, alteration costs and expenses
in connection with reletting.
13.2 CURRENT DAMAGES. No termination or repossession provided for in this
Article shall relieve Tenant of its liability and obligations under this Lease,
all of which shall survive such termination or repossession. In the event of any
such termination or repossession, Tenant shall pay the Minimum Rent and all
Additional Rent and other sums as hereinbefore provided up to the time of such
termination; and thereafter Tenant, until the end of what would have been the
term of this Lease in the absence of such termination or repossession and
whether or not the Leased Premises shall have been re-let, shall be liable to
Landlord for and shall pay Landlord as liquidated current damages (i) an amount
equal to Landlord's reasonable attorneys' fees and costs relating in any manner
to Tenant's Default plus (ii) (a) the Minimum Rent and other charges which would
be payable hereunder if such termination or repossession had not occurred less
(b) the net proceeds, if any, of any reletting of the Leased Premises, after
deducting all Landlord's expenses in connection with such reletting, including
without implied limitation all repossession
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costs, warehouse charges, brokerage commissions, reasonable attorneys' fees,
salaries of employees, alteration costs, and expenses of preparation for such
reletting. Tenant shall pay such current damages to Landlord on the days on
which the Minimum Rent would have been payable hereunder if this Lease had not
been terminated; and Landlord shall be entitled to receive the same from Tenant
on each such day.
13.3 FINAL DAMAGES. At any time after any such termination or repossession,
whether or not Landlord shall have collected any current damages, Landlord shall
be entitled to recover from Tenant and Tenant shall pay to Landlord, on demand,
as liquidated final damages and in lieu of all current damages beyond the date
of payment of the final damages, a sum equal to (i) an amount equal to
Landlord's reasonable attorneys' fees and costs relating in any manner to
Tenant's Default plus (ii) the amount, if any, by which the rent and other
charges which would be payable hereunder from the date of such payment (or, If
it be earlier, the date to which Tenant shall have satisfied in full its
obligation under this Article to pay current damages) for what would be the then
unexpired term if the same has remained in effect shall exceed the then fair net
rental value of the Leased Premises for the same period. If any statute or rule
of law governing a proceeding in which such liquidated final damages are to be
proved shall validly limit the amount thereof to an amount less than the amount
above agreed upon, Landlord shall be entitled to the maximum amount allowable
under such statute or rule of law. For purposes of this Section, the rent
reserved hereunder shall be deemed to be an amount equal to the highest of the
total yearly Minimum and Additional Rentals paid by Tenant in any Lease Year
preceding such termination or repossession.
13.4 LANDLORD'S SELF HELP. If Tenant shall Default in the performance or
observance of any agreement or condition in this Lease other than an obligation
to pay money to Landlord, and shall not cure such Default within thirty (30)
days after notice from Landlord specifying the Default (or shall not within said
period commence to cure such Default and thereafter prosecute the curing of such
Default to completion with due diligence), Landlord may, at its option, without
waiving its right to terminate this Lease and without waiving any claim for
damages for breach of agreement, at any time thereafter, cure such Default for
the account of Tenant, and any amount paid or contractual liability incurred by
Landlord in so doing shall be deemed paid or incurred for the account of Tenant,
and Tenant agrees to reimburse Landlord therefor, or save Landlord harmless
therefrom; provided, however, Landlord may immediately cure any such Default if
the curing of the same is necessary to protect the real estate or Landlord's
interest therein, or to prevent injury or damages to persons or property. If
Tenant shall fail to reimburse Landlord upon demand for any amount paid for the
account of Tenant, such amount shall be added to and become a part of the next
payment of rent due without the necessity of any further notice.
13.5 LANDLORD'S DEFAULT. Landlord shall not be deemed to be in default
hereunder unless its default shall continue for thirty (30) days, or such
additional time as is reasonably required to correct its default, after written
notice thereof has been given by Tenant to Landlord specifying the nature of the
alleged default.
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The obligations of Landlord hereunder shall be binding upon Landlord and
each succeeding owner of Landlord's interest hereunder only during the period of
such ownership and Landlord and each succeeding owner shall have no liability
whatsoever except for their obligations during each such respective period.
Tenant hereby agrees for itself and each succeeding holder of Tenant's interest,
or any portion thereof, hereunder, that any judgment, decree or award obtained
against Landlord, or any succeeding owner of Landlord's interest, which is in
any manner related to this Lease, the Leased Premises, or Tenant's use or
occupancy of the Leased Premises or the Common Areas of the Center, whether at
law or in equity, shall be satisfied out of Landlord's equity in the land and
buildings then comprising the Center to the extent then owned by Landlord, or
such succeeding owner, and further so agrees to look only to such assets and to
no other assets of Landlord, or such succeeding owner, for satisfaction.
In no event shall Landlord ever be liable to Tenant for any indirect or
consequential damages for any reason whatsoever.
ARTICLE XIV
LANDLORD'S COVENANT OF QUIET ENJOYMENT
Landlord agrees that upon Tenant's paying the rent and performing and
observing the terms, provisions, conditions and covenants on its part to be
performed and observed, Tenant shall, and may, peaceably and quietly have, hold
and enjoy the Leased Premises and may use in common with others the common
facilities of the Center, as herein provided, without any manner of hindrance or
molestation from Landlord or anyone claiming under Landlord, subject, however,
to the terms of this Lease and any instruments having priority thereto.
ARTICLE XV
ARRANGEMENTS WITH MORTGAGEE
15.1 LEASE SUPERIOR OR SUBORDINATE TO MORTGAGE. It is agreed that the
rights and interests of Tenant under this Lease shall be (i) subject and
subordinate to any mortgages that may hereafter be placed upon the Center, and
to any and all advances to be made thereunder, and to the interest thereon, and
all modifications, renewals, replacements, and extensions thereof, if the
mortgagee named in said mortgages shall elect by written notice delivered to
Tenant to subject and subordinate the rights and interest of Tenant under this
Lease to the lien of its mortgage or (ii) prior to the lien of any present or
future mortgagee, if the holder of such mortgage shall elect, by written notice
to Tenant, to give the rights and interest of Tenant under this Lease priority
over the lien of its mortgage. In the event of either such election and upon
notification by such mortgagee to Tenant to that effect, the rights and interest
of Tenant under this Lease shall be deemed to be subordinate to, or to have
priority over, as the case may be, the
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lien of said mortgage, whether this Lease is dated prior to or subsequent to the
mortgage. Tenant further agrees to attorn to and recognize any successor
landlords, whether through foreclosure or otherwise, as if such successor
landlord were Landlord named herein. Tenant shall execute and deliver whatever
instruments may be reasonably required for all of the above purposes. Tenant
also agrees that if it shall fail at any time to execute, acknowledge, or
deliver any such instrument requested by Landlord, Landlord may, in addition to
any other remedies available to it, execute, acknowledge and deliver such
instrument as the attorney-in-fact of Tenant and in Tenant's name; and Tenant
hereby makes, constitutes and irrevocably appoints Landlord as its
attorney-in-fact for that purpose. The word "mortgage" as used herein includes
mortgages, deeds of trust, or other similar instruments, and modifications,
consolidations, extensions, renewals, replacements and substitutes thereof.
15.2 SUBORDINATION TO OVERLEASE. If at any time during, the Lease Term or
any extension thereof Landlord shall hold the Leased Premises and/or the Center
as lessee or tenant from an person, firm or corporation owning the fee thereof,
whether such leasehold or tenancy shall come or have come into existence before,
after or simultaneously with the Commencement Date of the Lease Term, then this
Lease and all of the terms, provisions and covenants herein contained shall be
subject and subordinate to such Lease (the "Overlease") whereby Landlord holds
the Leased Premises and/or Center; and Tenant covenants that it will not do or
permit to be done on or with respect to the Leased Premises and the Center any
act or thing whatsoever which may be a violation of the terms of the Overlease.
15.3 TENANT'S STATEMENT. Within ten (10) days after request therefor by
Landlord, Tenant shall deliver to Landlord or to any prospective mortgagee or
purchaser a certificate in recordable form stating (to the extent such is the
case) that this Lease as originally executed (unless otherwise noted) is in full
force and effect. Tenant is the tenant under this Lease, the Lease is
subordinate to specified mortgages and that Tenant has no claim against Landlord
or defense against any requirement under this Lease except those stated in the
certificate. The delivery of such statement shall constitute an irrevocable
waiver of all claims of whatever nature then known and accrued by Tenant against
Landlord arising out of or in any way connected with this Lease, other than
claims specified therein.
15.4 NOTICE TO MORTGAGEE. After receiving, written notice from any person,
firm or other entity, that it holds a mortgage which includes as a part of the
mortgaged premises the Leased Premises, Tenant shall, so long, as such mortgage
is outstanding and if so requested by Landlord or mortgagee, be required to give
such holder the same notice as is required to be given to Landlord under the
terms of this Lease, but such notice may be given by Tenant to Landlord and such
holder concurrently. It is further agreed that such holder shall have the same
opportunity to cure any default and the same time plus an additional period of
twenty (20) days within which to effect such curing as is available to Landlord,
and, if necessary to cure such default, such holder shall have access to the
Premises.
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15.5 REQUEST BY MORTGAGEE. In the event that the holder of any mortgage or
prospective mortgage on the property of which the Leased Premises are a part
shall request any modification of any of the provisions of this Lease not having
a material adverse effect on Tenant's rights, Tenant agrees Tenant will enter
into a written agreement in recordable form with such holder or prospective
holder, which shall effect such modification and shall provide that such
modification shall become effective and binding upon Tenant and shall have the
same force as an amendment to this Lease in the event of a foreclosure or other
similar action taken by such holder or prospective holder. A provision directly
relating to the rents payable hereunder, the duration of time hereof, or the
size, use, or location of the Leased Premises shall be deemed a provision having
a material adverse effect on Tenant's rights.
15.6 ASSIGNMENT OF RENTS. With respect to any assignment by Landlord of
Landlord's interest in this Lease, or the rents payable hereunder, conditional
in nature or otherwise, which assignment is made to the holder of any mortgage
on the Leased Premises. Tenant agrees that the execution thereof by Landlord,
and the acceptance thereof by the holder of such mortgage shall never be deemed
an assumption by such holder of any of the obligations of Landlord hereunder,
unless such holder shall, by written notice sent to Tenant, specifically elect,
or unless such holder shall foreclose the mortgage, take possession of the
Leased Premises, and agree in writing to so assume Landlord's obligations.
ARTICLE XVI
RESERVED
ARTICLE XVII
SECURITY DEPOSIT
Tenant agrees that the Security Deposit specified in Section 1.2 will be
paid upon execution and delivery of this Lease, and that Landlord shall hold the
same throughout the Lease Term as security for Tenant's performance of ail its
obligations under this Lease. Landlord shall have the right from time to time
without prejudice to any other remedy Landlord may have on account thereof, to
apply such deposit, or any part thereof, to Landlord's damages arising from any
default on the part of Tenant. If all or any part of the deposit is applied to
an obligation of Tenant hereunder, Tenant shall immediately upon request by
Landlord restore said deposit to its original amount. Landlord upon written
request shall return the Security Deposit, or so much thereof as shall not have
theretofore been applied in accordance with the team of this Article XVII, to
Tenant on the expiration or earlier termination of the Lease Term and Tenant's
surrender of possession of the Leased Premises to Landlord, so long as Tenant
shall not then be in default. While Landlord holds the Security Deposit, it
shall have no obligation to pay interest thereon (provided that at the end of
the Term, so long as Tenant has not been in Default, Landlord shall pay Tenant
interest on the Security Deposit calculated at the rate of 3% per annum simple
interest) and Landlord shall have the right to commingle the same with
Landlord's funds.
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If Landlord conveys its interest under the Lease, the deposit,
or any part thereof not previously applied may be turned over co the grantee,
and Tenant agrees to look solely to such grantee for proper application of the
deposit in accordance with the terms of this Article XVII, and the return
thereof in accordance herewith.
ARTICLE XVIII
MISCELLANEOUS PROVISIONS
18.1 ADDITIONAL DEFINITIONS AND INTERPRETATIONS.
(a) The words "LANDLORD" and "TENANT" and the pronouns referring thereto,
as used in this Lease, shall mean, where the context requires or admits, the
persons or entities named herein as Landlord and Tenant, respectively, and their
respective heirs, legal representatives, successors and assigns, irrespective of
whether singular or plural, masculine, feminine or neuter. Except as otherwise
provided herein, the agreements and conditions in this Lease contained on the
part of Landlord to be performed and observed shall be binding upon Landlord and
its heirs, legal representatives, successors and assigns and shall inure to the
benefit of Tenant and its heirs, legal representatives, successors and assigns;
and the agreements and conditions on the part of Tenant to be performed and
observed shall be binding upon Tenant and shall inure to the benefit of Landlord
and its heirs, legal representatives, successors and assigns.
(b) If Tenant shall consist of more than one person or entity, or if there
shall be a guarantor of Tenant's obligation, then the liability of all such
persons or entities, including the -guarantor, if any, shall be joint and
several and the word "Tenant," as used in this Lease, including without implied
limitations Sections 13.1 and 13.3, shall include such person or entities,
including any guarantors.
(c) It is understood that the word "Landlord" as used in this Lease means
only the owner, or the lessee, if this Lease becomes subject to an Overlease, or
the mortgagee in possession of the Leased Premises, for the time being, so that
in the event of any sale or sales of the Leased Premises or of any lease thereof
or if any mortgagee shall take possession of the Leased Premises, Landlord named
herein shall be and hereby is entirely relieved and freed of all covenants and
obligations of Landlord hereunder accruing thereafter.
(d) Each term and each provision of this Lease to be performed by Tenant
shall be construed to be both a covenant and a condition. The reference
contained to successors and assigns of Tenant is not intended to constitute a
consent to assignment by Tenant, but has reference only to those instances in
which Landlord may later give written consent to a particular assignment;
provided, however, that Tenant shall not have the right to assign this Lease or
sublease any portion of the Premises and that Landlord may unreasonably withhold
consent to an assignment or sublease for which Tenant requests Landlord's
consent. If the entity which holds Landord's interest in this Lease shall be a
trust, then the obligations of Landlord shall be binding
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upon the trustees of said trust, as trustees and not individually, and shall be
binding upon the trust estate.
18.2 ADDITIONAL RIGHTS OF LANDLORD. Landlord reserves the right at any time
or times during the term of this Lease to use the roof, foundation or exterior
walls, other than parts of the front of the Premises, for signs or in connection
with additional construction.
18.3 COSTS AND EXPENSES. Wherever in this Lease provision is made for the
doing of any act by Landlord or Tenant, it is understood and agreed that said
acts shall be done by the party designated at its own cost and expense unless a
contrary intent is expressed.
18.4 HOLDING OVER. If Tenant or anyone claiming under it shall remain in
possession of the Leased Premises or any part thereof after the expiration of
the Lease Term without written agreement between Landlord and Tenant, the party
remaining in possession shall, prior to acceptance of rent by the Landlord, be
deemed a tenant at sufferance, and, after acceptance of rent by Landlord, be
deemed a tenant at will subject to the provisions of this Lease insofar as the
same may be made applicable to a tenancy at will; provided, however, that the
Minimum Rent for the period of such tenancy shall be one and one-half of the
highest rate of Minimum Rent payable during the Lease Term and provided further
that Tenant shall be liable for all damages resulting from or related to such
holdover including delay damages payable to future tenants and damages resulting
from the loss of prospective tenants.
18.5 MECHANICS LIEN. Tenant agrees immediately to discharge (by payment, by
filing of any necessary bond or otherwise) any mechanic's, materialmen's or
other lien against the Leased Premises and/or Landlord's interest therein which
may arise out of any payment due for, or purported to be due for, any labor,
services, materials, supplies, or equipment alleged to have been furnished to or
for Tenant in, upon, or a bout the Leased Premises.
18.6 NO BROKERAGE. Landlord shall pay a commission In the amount of
$6,626.50 to the Broker identified in Section 1.2. Tenant warrants and
represents that it has dealt with no broker in connection with this Lease except
the Broker identified in Section 1.2. In the event of any brokerage claim
against Landlord predicated upon dealings with Tenant, except claims by the
Broker identified in Section 1.2, Tenant agrees to defend the same and indemnify
Landlord against any such claim.
18.7 NOTICES. Whenever, by the terms of this Lease any notice, consent, or
other communication relating, to this Lease shall or may be given, such notice
shall be given in writing and shall be mailed by registered or certified mail or
overnight express mail such as "Federal Express", postage prepaid, to the other
party at the address designated in Section 1.2 or to such other address or
addresses as may from time to time hereafter be assigned by such party by like
notice, and if to a mortgage under Article XV, to such address as the mortgagee
shall designate. Notwithstanding, the foregoing, written notice addressed to
Tenant delivered to the Leased Premises shall be deemed duly given.
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18.8 NO WAIVER. Failure of Landlord to complain of any act or omission on
the part of Tenant, no matter how long, the same may continue, shall not be
deemed to be a waiver by Landlord of any of its rights hereunder. No waiver by
Landlord at any time, express or implied, of any breach of any provision of this
Lease shall be deemed a waiver of a breach of any other provision of this Lease
or a consent to any subsequent breach of the same or any other provision. If any
action by Tenant shall require Landlord's consent or approval, Landlord's
consent to or approval of such action on any one occasion shall not be deemed a
consent to or approval of such action on any subsequent occasion or a consent to
or approval of any other action on the same or any subsequent occasion. No
payment by Tenant or acceptance by Landlord of a lesser amount than shall be due
from Tenant to Landlord shall be deemed to be anything but payment on account
and the acceptance by Landlord of a check for a lesser amount with an
endorsement or statement thereon or upon a letter accompanying said check that
said lesser amount is payment in full shall not be deemed an accord and
satisfaction and Landlord may accept said check without prejudice to recover the
balance due or pursue any other remedy. Any and all rights and remedies which
Landlord may have under this Lease or by operation of law, either at law or in
equity, upon any breach shall be distinct, separate and cumulative and shall not
be deemed inconsistent with each other; and no one of them, whether exercised by
Landlord or not, shall be deemed to be in exclusion of any other; and any two or
more of such rights and remedies may be exercised at the same time.
18.9 FORCE MAJEURE. In the event that either party shall be delayed or
hindered in or prevented from the performance of any act required hereunder,
other than paying money, by reason of strikes, lockouts, labor troubles,
inability to procure materials, failure of power, restrictive governmental laws
or regulations, riots, insurrection, war or other reasons of a like nature not
the fault of the party delayed in performing work or doing acts required under
the terms of this Lease, then performance of such act shall be excused for the
period of the delay and the period for such party's performance of any such act
shall be extended for a period equivalent to the period of such delay. The
provisions of this Section shall in no event operate to excuse Tenant from the
prompt payment of Minimum Rent, Additional Rent or any other payments required
by this Lease. In any case where work is to be paid for out of insurance
proceeds or condemnation awards, due allowance shall be made, both to the party
required to perform such work and to the party required to make such payments,
for delays in the collection of such proceeds or awards.
18.10 RECORDING. Tenant shall not record this Lease. Upon request by either
party, the other party shall execute a notice of lease in statutory form setting
forth the Commencement Date, Lease Term and Extension Options, if any, and such
other information as may be required by Massachusetts General Laws Chapter 183,
Section 4 or any successor statute. The notice of lease shall include a
statement that it is not intended to and shall not alter the terms of the Lease.
18.11 WHEN LEASE BECOMES BINDING. Landlord's employees or agents have no
authority to make or agree to make a lease or any other agreement or undertaking
in connection
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herewith. The submission of this document for examination and negotiation does
not constitute an offer to lease, or a reservation of, or option for, the
premises, and this document shall become effective and binding only upon the
execution and delivery hereof by both Landlord and Tenant and the entry into an
agreement by Landlord with the existing, tenant of the leased Premises for
surrender thereof. All negotiations, considerations, representations, and
understandings between Landlord and Tenant are incorporated herein and may be
modified or altered only by the written agreement signed by Landlord and Tenant.
No act or omission of any employee or agent of Landlord shall alter, change or
modify any of the provisions hereof.
18.12 INTENTIONALLY OMITTED.
18.13 LATE CHARGES; INTEREST; BAD CHECKS. In the event (i) the Minimum Rent
and/or any Additional Rent is not received by Landlord by the due date, or (ii)
of a dishonored bank check from Tenant, and because actual damages for a late
payment or for a dishonored check are extremely difficult to fix or ascertain,
but recognizing that damages and Injury result therefrom, Tenant agrees to pay
$500.00 as liquidated damages for each late payment and $150.00 as liquidated
damages for each time a check is dishonored. In addition, Tenant agrees that
Landlord may, at its option, charge interest from the initial due date at the
rate of eighteen percent (18%) on all amounts not received by Landlord within
five (5) business days of the due date therefor. In the event that the rate of
interest so required to be paid plus the late payment exceeds the maximum rate
lawfully chargeable, the rate of interest required to be paid herein shall be
deemed amended to reduce it to the maximum rate which may be lawfully
chargeable. In the event that two (2) or more of Tenant's checks are dishonored,
Landlord shall have the right, in addition to all other rights under this Lease,
to demand all future payments by certified or bank check or money order.
18.14 PARAGRAPH HEADINGS. The paragraph headings throughout this instrument
are for convenience and reference only, and the words contained therein shall in
no way be held to explain, modify, amplify or aid in the construction,
interpretation or meaning of the provisions of this Lease.
18.15 GOVERNING LAW. This Lease and the performance thereof shall be
governed, interpreted, construed and regulated by the laws of the Commonwealth
of Massachusetts.
18.16 SEPARABILITY: CONSTRUCTION AND INTERPRETATION. If any term or
provision of this Lease, or the application thereof to any person or
circumstance shall, to any extent, be invalid or unenforceable, the remainder of
this Lease, 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 Lease shall
be valid and be enforced to the fullest extent permitted by law. It is the
intention of the parties hereto that if any provision of this Lease is capable
of two constructions, one of which would render the provision valid, then the
provision shall have the meaning which renders it valid.
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18.17 ENTIRE AGREEMENT. This Lease shall constitute the only agreement
between the parties relative to the Leased Premises. No oral statements and no
prior or contemporaneous written matter, whether by the parties or their agents
or any other person, which is not specifically incorporated herein shall be of
any force or effect. In entering into this Lease, Tenant relies solely upon the
representations and agreements contained herein. This Agreement shall not be
modified except by writing executed by both parties.
18.18 EXECUTION. This Lease may be executed in any number of original
counterparts. Each fully executed counterpart shall be deemed an original for
all purposes.
18.19 CONTINGENT. Tenant acknowledges that the approval of Landlord's first
mortgage holder is required before this Lease becomes effective. Landlord agrees
to request such approval promptly and to notify Tenant of the response of the
first mortgage holder upon receipt thereof. This Lease also is contingent upon
Landlord entering into an agreement, acceptable to Landlord, with the existing
tenant of the Leased Premises for surrender of such space and the termination of
the lease therefor.
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EXECUTED AS A SEALED INSTRUMEINT.
LANDLORD: WELLPLAY ASSOCIATES
LIMITED PARTNERSHIP
By: WELLPLAY GP, INC.
Attest/Witness:
- --------------------------- By:
------------------------------
Print Name: Print Name:
---------------- ----------------------
Title:
----------------------------
TENANT: DIRECT HIT TECHNOLOGIES, INC.
By: /s/ Michael Cassidy
------------------------------
Attest/Witness:
- --------------------------- By: CEO
------------------------------
its
hereunto duly authorized
Print Name:
----------------
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<PAGE>
PARCEL THREE
A certain parcel of land situated in Wellesley, County of Norfolk,
Massachusetts, bounded and described as follows:
WESTERLY: by the Easterly line of Forest Street, two hundred
eleven and 65/100 (211.65) feet;
NORTHWESTERLY: one hundred forty-nine and 60/100
(149.60) feet;
NORTHEASTERLY: fifty (50) feet, by land now or formerly
of W. Leslie Bendslev et al, Trustees;
SOUTHEASTERLY: sixty-four and 36/100 (64.36) feet;
NORTHEASTERLY: one hundred eight and 97/100 (108.97)
feet, by lot numbered 1, as indicated on
plan hereinafter referred to; and
SOUTHEASTERLY: by land now or formerly of The
Commonwealth of Massachusetts Cochituate
Aqueduct, two hundred twenty-one and
08/100 (221.08) feet.
Said parcel is shown as Lot 2 on a plan entitled "Subdivision Plan of Land
in Wellesley", prepared by Gleason Engineering Company, dated July 24, 1964,
filed with the Land Registration Office as No. 21347C.
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<PAGE>
EXHIBIT B
PLANS SHOWING THE LOCATION OF
THE LEASED PREMISES AND THE
COMMON AREAS OF THE CENTER
SEE ATTACHED PLANS
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<PAGE>
EXHIBIT C
WORK BY LANDLORD
Tenant acknowledges that Landlord is delivering the Premises in "as is"
condition, that Tenant has had the opportunity to inspect the Premises and is
satisfied with the condition of same.
If any of the following work is required in the Leased Premises, it will be
accomplished by Landlord at Landlord's actual cost, plus fifteen percent (15%)
for the cost of administration. Architectural or engineering fees incurred by
Landlord as a result of Tenant requesting any of the below-mentioned items will
be the responsibility of Tenant. Landlord will commence this work only upon
receipt of a signed work order from Tenant. The cost of any such item of work
will be payable to Landlord fifty percent (50%) upon return of signed work order
from Tenant with balance to be payable upon completion or by the date on which
Tenant opens for business, whichever is sooner.
Items included in the above are as follows:
1. With Landlord's written permission, new or additional water service or
relocation of water service.
2. With Landlord's written permission, new or additional sanitary sewer
connection or relocation of sanitary sewer.
3. With Landlord's written permission, roof and wall openings for any purpose.
Such openings as are provided will include supporting structures, curbs,
flashing, ducts, vents and grilles. Landlord reserves the right to refuse
to permit the furnishings of any openings which exceed the capability of
the structural system or which in Landlord's opinion would have an
appearance detrimental to the Building or Center.
4. Any Tenant equipment that requires mounting on the roof must be installed
by Landlord. Landlord reserves the right to refuse to permit the
installation of any roof or wall-mounted equipment if, in Landlord's
opinion, the appearance of such equipment would be detrimental to the
appearance of the Building or Center, or such equipment or installation
would exceed the capacity of the structural system.
5. With Landlord's written permission, openings in demising partitions and
exterior walls.
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<PAGE>
EXHIBIT D
TENANT'S WORK
GENERAL
All work set forth in this Exhibit "D", and all other work which is
necessary to complete the Leased Premises in accordance with Tenant's Final
Plans and which is necessary for the Leased Premises to be ready to open for
business with the public, in the manner set forth in the Lease, shall be done by
Tenant at Tenant's own cost and expense, and is herein collectively referred to
as "TENANT'S WORK".
All work performed by Tenant or Tenant's contractors must be in compliance
with all applicable codes, rules, laws and ordinances and be performed in a
good, workman-line manner in accordance with all manufacturer's recommendations
as well as published industry standards.
Insurance
Prior to the start of Tenant's Work and until final acceptance of Tenant's
Work by Landlord, Tenant shall secure and maintain liability insurance in
accordance with the following requirements. Cost of this insurance will be the
responsibility of Tenant, and the insurance will be maintained in a company
licensed to do business in Massachusetts.
Liability insurance shall include all major divisions of coverage and be on
a comprehensive general liability basis including:
1. General
Premises-Operations (including- X-C-U)
Independent contractor's protection
Blanket contractual
Owned, non-owned and hired motor vehicles
Broad form coverage for property damage
(including explosion, collapse and underground).
2. a. Workman's Compensation - Statutory
b. Employer's Liability - $1,000,000.
3. Comprehensive General Liability
a. Bodily Injury - including personal injury with employee exclusion
deleted.
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<PAGE>
Each person - $1,000,000.
Each occurrence - $ 1,000.00
Aggregate - $1,000,000.
b. Property Damage
Each occurrence - $500,000.
Aggregate - $500,000.
4. Automobile Liability
a. Bodily Injury
Each person - $500,000.
Each occurrence - $ 1,000,000.
b. Property Damage - $500,000.
5. Independent Contractors - $1,000,000.
6. Products and completed operations - $1,000,000.
7. Blanket Contractual Liability - same limits as above.
Tenant shall furnish Insurance Certificates which shall specifically set
forth evidence of all coverage required above. The form of Certificate shall be
AIA Document G705. Tenant shall furnish to Landlord copies of any endorsements
that are subsequently issued which amend coverage or limits.
Tenants Submission Requirements
I. Preliminary Submission Requirements for preliminary approvals:
A. One (1) set of prints
B One (1) set of sepias
1. Drawings shall contain information sufficient to communicate Tenant's
design including: materials, finishes, equipment, lighting and colors
2. Tenant's architect shall field verify all measurements within the Leased
Premises.
II. Final Submission Requirements
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<PAGE>
A. Three (3) sets of prints of complete Contract Drawings and
Specifications
B. One (1) set sepias of complete Contract Drawings and Specifications
C. Contract Drawings shall contain:
1. Architectural Floor Plans (1/4" = 1'-0")
2. Interior Wall Elevations (1/4" = 1'-0")
3. Details and Sections (3/4" minimum)
4. Reflected Ceiling Plan (including lighting and HVAC)
5. Electrical Plan
6. Plumbing Plan
7. Specifications for items 1 through 6
8. Samples as requested by Tenant Coordinator
D. Tenant's Work shall proceed only on the basis of approved drawings.
E. Tenant is responsible for obtaining all necessary permits and
approvals prior to construction.
F. Tenant shall deliver to Tenant Coordinator all copies of insurance
certificates and building permits prior to construction.
G. Tenant Coordinator is the representative of Landlord and is the
liaison between Tenant, its architect, designer and/or contractor, and
Landlord, its architect, designer and contractor in coordinating the
design, design review and construction process.
III. A. Leased Premises
The Leased Premises shall be designed and constructed in accordance with
Exhibit "E", Playhouse Square Design Criteria, the requirements of Landlord's
fire insurance under-writer and the requirements of any governmental authority
having jurisdiction over the Center. Tenant may not install a mezzanine. The
maximum floor load shall be 100 pounds per square foot.
B. General
The floor slab or subfloor shall be covered with floor finish materials
approved by Landlord. Carpeting, shall be flamed resistant. All partitions shall
be of sheetrock, taped and spackled on both sides. All concealed framing above
ceilings or soffits shall be made of steel studs or other fire retardant
materials. All Tenant constructions must be noncombustible.
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<PAGE>
C. Toilet Rooms
The floor slab or subfloor shall be covered with a non-porous floor
covering approved by Landlord.
D. Painting and Decorating
Exposed painted walls shall have a minimum of two coats of finish and all
natural wood shall have a minimum of two sealers coats. The walls and dry wall
ceilings of the toilet room shall have two coats of semi-gloss finish, the
equivalent approved by Landlord.
E. Fixture Supports
All Tenant improvements, other than ceilings and lighting fixtures, shall
be floor mounted unless written approval is obtained from Landlord. All wall
mounted fixtures, if approved by Landlord, shall be supported by wood blocking.
-37-
<PAGE>
EXHIBIT E
PLAYHOUSE SQUARE DESIGN CRITERIA
(BOTH BUILDINGS)
I. Exterior:
A. The exterior(s) and front entrance to be provided by Landlord in
accordance with plans on file with the Wellesley building inspector.
II. Design Control Area:
A. The Design Control Area is the area within the Leased Premises that
adjoins the exterior and Common Areas of the Center and/or affects the interior
or exterior appearance of the Building.
Within this Design Control Area, Landlord shall control all aspects of Tenant's
design. No penetration or alteration of materials installed by Landlord in this
Area is allowed.
B. Tenant is advised that in specific locations identified on
Landlord's reference plans, certain fixed base building electrical, mechanical
and plumbing services passing through Leased Premises have been established.
Tenant must accommodate these utilities within his design and insure that
appropriate access, as indicated on the reference plans, is provided.
Alterations to same will be at Tenant's expense.
III. Lighting:
A. Tenant shall provide a high level of incandescent illuminations
within the Design Control Area. Light track shall be recessed in lengths as
designated by Landlord. Fluorescent lighting shall not be allowed within the
Design Control Area.
B. All fixtures shall be of high standard and approved by Landlord.
C. All illuminated signs or Graphics and incandescent lighting in the
Design Control Area shall be on separate time clocks connected to Tenant's
distribution panel. Hours for operating the signage, graphics and incandescent
lighting within the Design Control Area shall be per Landlord's requirements.
D. Tenants which require specific mood-type 11-hting shall obtain
design concept approval from Landlord.
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<PAGE>
E. No exposed fluorescent fixtures will be allowed within the Leased
Premises. Where allowed, fixtures shall be recessed or baffled.
IV. Approved Finish Materials:
A. Materials listed are to encourage variety in office and fixture
design. Any other finish materials must be approved by Landlord. Tenant shall
provide samples with its preliminary submission.
B. Finish Materials:
1. Plastic Laminates Solid colors only
2. Metals Anodized aluminum
Bronze
Copper
Brass, polished finish Duracron baked enamel
coated material, color as approved by Landlord
3. Other opaque materials Silver/gold leaf
4. Wood Solid or wood veneer, natural finish
5. Glass Clear and opaque
6. Plexiglass
7. No irritation of wood grain or imitation of any other natural
material will be accepted. Samples of materials should be
provided with preliminary submission.
C. Floor Finish Materials:
1. Wood
2. Ceramic Tile
3. Quarry Tile
4. Plus or Sisal Carpet
5. Solid Color Linoleum
6. Solid Color Rubber Tile
7. Solid Color Vinyl Tile or Sheet Stock
D. Ceiling Treatment and Finish Materials:
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<PAGE>
1. Non-combustible materials in accordance with applicable codes and
Landlord's written approval.
E. Wall Finish Materials:
1. Non-combustible materials in accordance with applicable codes
and Landlord's written approval.
V. Tenant Work Regulations:
A. Purpose:
In order to expedite the completion of all tenant spaces with the least
amount of inconvenience to all concerned, the following rules and
regulations will be applicable to all tenants upon starting their
construction work. These regulations will be enforced to ensure no
interruption by tenant contractors to other business or public
movement.
B. Security:
Tenant will be entirely responsible for the security of the Leased
Premises during construction and the rent-free fixtures period, and
shall take all necessary steps to secure the same. Landlord shall have
no liability for any loss or damage including theft of building
materials, equipment, or supplies.
C. Working Hours:
Tenant's contractors and suppliers will be subject to restrictions
which may be imposed by Landlord's general contractor and/or Landlord
in regard to the hours of work and scheduling and coordination of work.
D. Public Safety:
It is the responsibility of Tenant to ensure that its contractors
exercise all caution in matters relating to public safety and
construction safety or standards established by authorities having
jurisdiction. Landlord's general contractor or Landlord, through
communication by Tenant coordinator, may from time to time issue
instructions to Tenant's contractor regarding safety and these
instructions must be strictly adhered to. All work is governed by the
latest Construction Safety Act and Tenant's contractor must abide with
Landlord's construction superintendent in these areas.
-40-
<PAGE>
E. Temporary Service:
Landlord, through its contractor when active on site, may provide for
Tenant temporary service such as may be required during the
construction phase, at Tenant's expense; otherwise Tenant shall provide
such temporary service.
F. Ceilings:
Ceilings, where ceilings separate tenant from other tenant spaces,
shall achieve one hour rating to adjacent retail tenant and two hour
rating to adjacent office tenant; submit appropriate UL designations to
Tenant Coordinator for approval.
G. Work Area:
Tenant to confirm all contractors, supplies and construction to work
area defined by Tenant's leaseline.
H. Access to Leased Premises:
Access to the Leased Premises for both construction personnel and
material handling will be restricted to such entrances as shall be
designated for each tenant's use. Prior to commencing finishing work,
Tenant must consult with Landlord's Contractor or Landlord's Tenant
Coordinator to obtain the entrance locations and timing of material
deliveries. Tenant agrees to allow Landlord and Landlord's Contractor
access to the Leased Premises during the construction period.
I. Drilling and Cutting:
Under no circumstances shall Tenant or its contractors drill or cut
chases or openings in roofs, floors, ceiling slab or any part of the
structure. Any work of this type required by Tenant shall be performed
by Landlord for Tenant's account.
J. Design Loads:
The following invitations shall be observed by Tenant in the conduct of
Tenant's Work.
1. No suspended loads will be attached to the underside of the floor or
roof structures without Landlord's written approval.
2. No wall mounted fixtures will be permitted other than those approved
in writing, by Landlord. Tenant acknowledges that the stud and drywall
demising walls are not designed to support wall mounted fixtures.
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<PAGE>
3. No load shall be imposed upon any floor areas of the Leased Premises
in excess of 100 pounds per square foot, maximum.
K. Tenant Contractor - On Site:
Tenant shall ensure that its contractor contains its work within the
Leased Premises, at all times being, responsible for abiding by the
rules and regulations defined herein or as may additionally be imposed
by Landlord.
VI. Tenant Signage Specification:
1. Approval of Tenant Signage:
1.1 Tenant shall submit drawings of proposed signage to Landlord and/or
Landlord's representative for approval and receive written approval prior to
applying, for a sign permit, and fabricating or installing the signage.
2. Compliance with Regulations:
2.1 Tenant signage shall comply in design and construction to the
requirements of all applicable laws, codes and other regulations having
jurisdiction over the project including, but not limited to, the sign
regulations of the Town of Wellesley, MA, and the Commonwealth of Massachusetts
State Building Code.
2.2 Tenant shall apply for and receive sign permits from the Town of
Wellesley, MA prior to installation of signs.
2.3 Tenants signage shall comply with the stipulations of these
criteria.
3. Tenant Signage Design Criteria:
3.1 Tenant's sign (one per tenant space) shall be located on the
outside of the Building on supports provide by Landlord. Sign to be located at
entrance to each tenant space, or in such other space, and of such other size,
design and construction as may be designated by Landlord, notwithstanding any
provision hereinafter to the contrary.
3.2 Tenant's sign shall be made of "Calabana Cloth" as manufactured by
the Astrup Company. Color to be #6911, Emerald Green. Graphics to be white or as
approve(Ad by Landlord. Installation on the renovated Playhouse Building shall
be stretched over metal framework provided and installed on the Building by
Landlord. Installation on the new Building shall be stretched over 1/2" sealed
marine plywood provided and installed by Tenant in the sign strip provided on
the new Building or by Landlord.
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3.3 Graphics may be applied to signage cloth in the following
manner:
- silk screening
- hand painting,
- spray painting
- cut-out lettering
- heat color transfer.
3.4 Signage lighting shall be provided by Landlord in the form of
surface mounting fixtures lighting the signs from the front. Light fixtures for
the renovated buildings are to be "goose neck" type, extending from face of
building approximately 24". Signage lighting for the new Building shall be back
lit.
3.5 Tenant signs shall be 24" high (see sketch) and of maximum length
approved by Landlord and the Town. The sign shall incorporate re d accent stripe
as shown on drawing and the color shall be specified by Landlord.
3.6 Signage lettering may be a maximum height of 16" for initial or
first letter with remaining letters to be 12" maximum height (see sketch). The
horizontal dimension of the letters may not exceed the maximum sign length less
6".
3.7 Letters and logo design shall be as per the wishes of each
tenant subject to the following criteria:
A. all colors shall be approved by Landlord.
B. Signage shall be firmly attached to signage frame in manner approved
by Landlord.
C. Tenant shall be responsible for the installation of the signage.
D. Tenant shall be responsible for all costs for the fabrication,
erection and removal of sign.
E. Tenant shall be responsible for all maintenance and maintenance costs
of the sign. Tenant shall be responsible for cleaning of sign as well
as all necessary repairs. Weathered/faded signs shall be replaced at
the request of Landlord at the cost of Tenant.
4. General Requirements:
A. No sign boxes of any type will be approved.
B No chance card signs shall be affixed to front.
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C. No promotional signs of any type will be allowed.
D. For corner locations, where two front and rear exist, Tenant
shall install additional signage on the other frontage, if and
where designated Landlord and the Town.
E. For locations with front and rear (exterior) front, Tenant
shall install additional signage on the other frontage if and
where designated by and with the written approval of Landlord
and the Town.
F. Signage shall confirm to all applicable codes. Fasteners,
clips and sign company identifications shall be concealed.
G . No signs shall be attached to wood entrance doors.
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EXHIBIT F
RESTRICTIONS CONTAINED IN THE
RECORD TITLE OR PRIOR EXISTING LEASES
WHICH AFFECT THE SHOPPING CENTER:
1. State of facts contained in a survey plan entitled "Plan of Land in
Wellesley, Mass.", dated October 23, 1986, prepared by MacCarthy & Sullivan
Engineering, Inc., and matters arising subsequent to May 8, 1987, which would be
disclosed on an accurate survey of the insured premises.
2. Rights of others in so much of the insured premises as may lie within the
bounds of a public way.
3. Easements set forth in a deed from the Inhabitants of the Town of Wellesley
to Babson Institute Incorporated, dated July 24, 1920, and recorded with Norfolk
Deeds in Book 1465, Page 91.
4. Restrictions set forth in two deeds, one eleven by The Boston and Albany
Railroad to Babson Institute Incorporated, dated October 29, 1920, and recorded
with Norfolk Deeds in Book 1474, Pace 12 1, and the other eleven by Babson
Institute, Inc. to Babson Building, Company, Inc., dated April 13, 1921, and
recorded with Norfolk Deeds in Book 1490, Page 287.
5. Sewer easements in Forest Street as set forth in a taking by the Town of
Wellesley, dated February 21, 1922, and recorded with Norfolk Deeds in Book
1510, Page 84.
6. Special Permit issued by the Wellesley Zoning Board of Appeals in Case No.
ZBA 87-17, and recorded with Norfolk Deeds in Book 7510, Page 50.
7. Parking Covenant from Anne Marie Naff, Trustee of Playhouse Nominee Trust,
dated April 3, 1987, and recorded with Norfolk Deeds in Book 7510, Page 54.
8. Special Permit and Site Plan Approval issued by the Wellesley Zoning, Board
of Appeals in Case No. ZBA 87-15, recorded with Norfolk Deeds in Book 7534, Page
429, and filed with the Norfolk Registry District of the Land Court as Document
No. 520795, and related plan entitled "Plan of Land in Wellesley, Mass.", dated
March 11, 1987, prepared by MacCarthy & Sullivan Engineering, Inc., and recorded
with Norfolk Deeds in Plan Book 353, as Plan No. 597 of 1987.
9. Special Permit and Variance issued by the Wellesley Zoning, Board of Appeals
in Case No. ZBA 87-16, and recorded with Norfolk Deeds in Book 7534, Page 435.
10. Utility easement granted to Town of Wellesley (to be recorded).
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11. Current Mortgages.
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<PAGE>
EXHIBIT G
RULES AND REGULATIONS
Tenant shall comply with such rules and regulations as Landlord may
promulgate from time to time.
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EXHIBIT H
USE RESTRICTIONS
The following use restrictions, which are specifically applicable to the Leased
Premises, shall not be deemed to imply, or to grant to Tenant, any right to use
the Leased Premises for other than the Permitted Use set forth in Section 1.2,
nor shall same be deemed a prohibition against Landlord leasing space in the
Center for such purposes. Tenant hereby confirms that the Leased Premises shall
be used solely and exclusively for the Permitted Use, and shall not be used in
whole or in part for any of the following, uses, and that Landlord has the right
to lease space in the Center to such tenants and for such purposes as Landlord,
in its sole judgment, deems appropriate.
1. The sale of juvenile furniture and juvenile linen.
2. The sale of food for on-site consumption or carry-out.
3. The sale of women's skirts, dresses, blouses or slacks.
4. The operation of a laundry or dry cleaning establishment or "drop off" or
pick up" center.
5. Photocopying or copying services including, without limitation, the operation
of an electronic graphics center, self-service or full service typesetting,
terminal rentals, duplicating, copying, offset printing, bookbinding, or any
related services.
6. The sale of art supplies or provision of framing, services, or the sale or
distribution of artist's and draftsman's supplies and consumer art supplies
including, but not limited to, oils, paints, brushes, canvases, easels and
related supplies and accessories, on-site custom and ready-made frames, framed
and unframed posters, and all kinds and types of artwork and graphics, and
related gift items.
7. The operation of a hair styling salon or the sale of products customarily
sold in a professional hair styling salon.
8. The sale of sporting goods (fishing) and related clothing and gifts.
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<PAGE>
LEASE AGREEMENT
This Lease Agreement (the "Lease") is entered into as of the 3rd day
of October, 1998 by and between WAYNE REALTY TRUST, ("Landlord") established
under Declaration of Trust, dated October 3, 1968, as Document No. 33672 in
Book 4547, Page 146 ("Landlord") with principal place of business at 34
Washington Street, Suite DEC 7, Wellesley Hills, Massachusetts, 02481-1909,
and DIRECT HIT TECHNOLOGIES, INC. ("Tenant") with a current address at 386
Washington Street, Playhouse Square, Wellesley Hills, Massachusetts
02481-6218 and after the commencement of the Lease term, with a business
address at the Demised Premises (as defined below).
WHEREAS, Landlord owns the office building located at 888 WORCESTER
STREET, WELLESLEY, MASSACHUSETTS 02482 (the "Building"); and
WHEREAS, Tenant, which is duly authorized to conduct business in the
Commonwealth of Massachusetts, desires to lease the portion of the Building
identified generally approximately 8,805 RENTABLE SQUARE FEET on the third floor
(the common area factor within the Building is 15% rendering the suite 7,500
usable square feet), Suite 340, of the Building and outlined in red on the floor
plan marked Exhibit "A" and attached hereto and made a part hereof.
NOW THEREFORE, in consideration of the Premises and the mutual
covenants set forth herein, Landlord hereby leases the portion of the Building
(hereinafter referred to as the "Demised Premises") together with rights to
certain common areas of the Building and of the land on which the Building is
located (hereinafter the combination of the "Demised Premises" and common area
will be referred to as the "Premises") pursuant to the following terms and
conditions:
I. TERM
This Lease shall be for a term of Three (3) Years commencing on the 1st
day of January, 1999 and ending on the 31st day of December, 2001.
II. RENTAL
Beginning on January 1, 1999, Tenant agrees to pay, without notice, offset,
demand or deduction, rent according to the schedule below payable in advance in
equal monthly installments on or before the first day of each and every calendar
month during the term hereof, and at the same rate for any fraction of a month
occurring at the beginning or end of the term hereof, at Landlord's address as
set forth above, or to such other place as Landlord may designate in writing.
<TABLE>
<CAPTION>
- ---------------------------------------- -------------------------------------- --------------------------------------
PERIOD ANNUAL MONTHLY
- ---------------------------------------- -------------------------------------- --------------------------------------
<S> <C> <C>
January 1, 1999- March 31, 2000 $145,282.50 $12,106.88
- ---------------------------------------- -------------------------------------- --------------------------------------
April 1, 2000 - December 31, 2001 $202,515.00 $16,876.25
- ---------------------------------------- -------------------------------------- --------------------------------------
</TABLE>
Upon execution of this Lease Tenant agrees to pay to Landlord,
$12,106.88, representing rent for the period January 1, 1999 through January 31,
1999.
<PAGE>
SUBLEASE AGREEMENT
AGREEMENT made as of the ____ day of March, 1999, by and between Direct Hit
Technologies, Inc. ("Sublessor") and Capella, Inc. ("Sublessee")
WITNESSETH:
WHEREAS, Sublessor has leased from Wellplay Associated Limited Partnership
("Major Lessor") office space known as Suite 1, Second Floor, 386 Washington
Street in Wellesley, Massachusetts (the "Premises"), under an indenture of lease
dated April 30, 1998 (hereinafter referred to as the "the Major Lease"), copies
of said indenture being attached hereto as Exhibit "A" and made a part hereof;
and
WHEREAS, Sublessee is desirous of subleasing the entire Premises demised
under the Major Lease at a base rent of $18.00 per square foot from April 1,
1999 through March 31, 2000; $20.00 per square foot from April 1, 2000 through
September 30, 2000; and $22.00 per square foot from October 1, 2000 through
October 31, 2001 and otherwise on substantially the same terms and conditions as
the major Lease; and
WHEREAS, Sublessor is willing to sublet said area on that basis;
NOW, THEREFORE, for good and valuable consideration the parties agree as
follows:
1. Sublessor hereby sublets to Sublessee Suite 1 of the Second floor of the
building numbered 386 on Washington Street in Wellesley, Massachusetts, shown
outlined in red on Exhibit B of the Major Lease attached hereto and made a part
hereof, containing approximately 2,285 rentable square feet, said figure
including a common area factor, (the "Subleased Premises") for the term of 31
calendar months beginning at 12:01 a.m. E.S.T. on April 1, 1999 and expiring at
12 midnight E.S.T. on October 31, 2001.
2. Sublessee shall pay to Sublessor as base rent of (a) the annual amount
of $41,130.00 Dollars, payable in advance in equal monthly installments of
$3428.00 from April 1, 1999 through March 31, 2000; (b) the annual amount of
$45,700.00, payable in advance in equal Monthly installments of $3808.33 from
April 1, 2000 through September 30, 2000; and (c) the annual amount of
$50,270.00 payable in advance in equal monthly installments of $4189.00 from
October 1, 2000 through October 31, 2001, the first installments to be paid on
the execution of this Sublease and regular monthly installments to be paid
during the term of this Sublease on the first day of each month commencing May
1, 1999. Sublessee shall also pay as additional rent its share of any operating
cost escalation as may become the responsibility of Sublessor in accordance with
the provisions of the Major Lease to which this Sublease is subject, it being
understood and agreed that Sublessee's share of such operating cost escalation
shall be one hundred percent (100%) of the amount for which Sublessor is
responsible. Sublessee shall pay the amounts of such additional rent within ten
(10) days of the date Sublessor is required by the Major Lease to pay said
amounts. Sublessee shall also pay directly to any utility company all sums due
and owing for utility services provided to and used by sublessee at the
Premises.
3. Sublessee shall also pay to Sublessor a security Deposit equal to two
months rent calculated at $22.00 per square foot (or a total of $8378.00). This
security deposit shall be paid on the execution of this Sublease. With respect
tot he Security Deposit, all terms, conditions, and covenants of Article XVII of
the Major Lease shall be made part hereof and should govern, with Sublessor
herein being considered as Landlord and Sublessee herein being considered as
Tenant.
4. With respect to the Premises, except for the provisions of paragraph 5
below, all terms, covenants and conditions of the Major Lease are made a part
hereof, Sublessor herein being considered as Lessor and Sublessee herein being
considered as Lessee, and subject to paragraph 5 below, this Sublease shall
operate as though it were an assignment pro tanto.
5. Sublessee hereby accepts the Premises "as is" and in their present
condition.
<PAGE>
6. Notwithstanding the foregoing, it is agreed that the Premises shall be
used by Sublessee for general office purposes and training classes and for no
other purposes.
7. Major Lessor has agreed to provide certain services and to perform
other obligations under the Major Lease and upon reasonable notice from
Sublessee of the failure of Major Lessor to perform any such obligation or
provide any such service, Sublessor will promptly and diligently undertake to
enforce its rights under the major Lease; provided, however, that the method
and manner of seeking enforcement thereof shall be solely within the
judgement and determination of Sublessor. Notwithstanding anything herein to
the contrary, Sublessor shall not be liable to Sublessee for money damages on
account of the failure of Major Lessor to perform any such obligations or
provide any such service, nor shall any such failure constitute a
constructive eviction of Sublessee.
8. Sublessee shall not do or permit anything to be done which would cause
the Major Lease to be terminated by Major Lessor or forfeited. Sublessee hereby
indemnifies and holds Sublessor harmless from and against all damages of any
kind which Sublessor may suffer by reason of any breach or default hereunder by
Sublessee, including termination or forfeiture of the major Lease, and from and
against all other liabilities, claims and damages arising during the term in the
Premises or out of or in connection with the use and occupancy of the Premises
by Sublessee, except to the extent Sublessor is indemnified by its insurance
carriers or by Major Lessor for such liabilities, claims or damages.
9. Sublessee shall not sublet the Premises, in whole or in part, nor assign
the Sublease nor permit any interest of Sublessee in this Sublease to become
vested in any third party, without the prior written consent of Sublessor and
Major Lessor in each instance.
10. Sublessee represents that with the exception of ______________, it has
not dealt with a real estate broker with respect to the Premises and agrees to
indemnify Sublessor from any claim for a brokerage commission in connection with
this Sublease except for any commission to be paid to ______________.
11. All prior undertakings and agreements between the parties are merged
within this Sublease, which alone fully and completely sets forth the
understanding of the parties with respect to the Premises, and this Sublease may
not be changed or terminated orally or in any manner other than by written
agreements signed by the parties.
12. Any notice or demand from Sublessor to Sublessee or from Sublessee to
Sublessor shall be deemed duly served if mailed by certified mail addressed, if
to Sublessee, Capella Systems, 58 Waverly Avenue, Newton, Massachusetts 02158,
attn: John Hubbard or if Sublessor, Direct Hit Technologies, Inc., 888 Worcester
Road, Suite 340, Wellesley, Massachusetts 02482 or such place as Sublessor may
designate in writing in the future, and the customary certified mail receipt
shall be conclusive evidence of such service.
WITNESS the execution in duplicate under seal the day and year first above
written.
- ---------------------------------
Capella, Inc. by John Hubbard, President
- ---------------------------------
Direct Hit Technologies, Inc. by Michael Cassidy
Foregoing Sublease consented to:
<PAGE>
By:
II. RENTAL (CONTINUED)
If Tenant fails to pay all or any part of the monthly rent provided for
in this Article II within seven (7) days of the date on which it is due, Tenant
shall also pay a late charge equal to four percent (4%) of the unpaid rent to
cover administrative fees of collection; provided, however, that Tenant shall
not be required to pay such late charge the first time in any lease year (a
lease year being each consecutive 12-month period between the term of this Lease
commencing on the commencement date of this Lease) that Rent is not paid on or
before the date on which it is due as long as such late payment is made within
fourteen (14) days after the date it was due. At the beginning of each month
after such rent was due, if all or any part of the monthly rent is still unpaid,
Tenant shall pay an additional late charge equal to four percent (4%) of the
unpaid rent. Notwithstanding anything to the contrary, the monthly rent is due
and payable in advance on or before the first day of each and every calendar
month during the term hereof and the above noted seven day period before a late
charge is assessed is not intended to be a grace period.
Landlord's acceptance of a lesser sum than the Rent then due shall in no
event be deemed to be other than a partial installment of such rent due, and an
endorsement or statement on any check or any letter accompanying any check or
payment as rent shall in no event be deemed an accord and satisfaction, and
Landlord may accept such check or payment without prejudice to Landlord's right
to recover the balance of such installment or pursue any other remedy in this
Lease provided.
III. USE OF PREMISES
A. PERMITTED USES AND ACCESS. The Premises are to be used only for
general office purposes. Landlord services are provided between the ordinary
business hours of 7:00 AM and 6:00 PM, Monday through Friday, excluding
holidays. Notwithstanding anything herein to the contrary, Tenant shall have use
and access to the Premises on a seven day per week, twenty-four hour per day
basis. Tenant agrees that Tenant shall be responsible for obtaining and
maintaining all necessary licenses, permits and approvals to carry on the
permitted uses described above.
Tenant agrees that its density of occupation shall not exceed one
employee per 200 square feet of floor space in any one given area. Total density
of occupation for the total leased area shall not exceed five (5) people per
1000 square feet. Landlord acknowledges that Tenant may from time to time exceed
the above density of occupation, and in the event this density of occupation is
exceeded, Landlord can not warrant proper heating and cooling of the Demised
Premises and can not warrant that there will be any additional parking spaces
available for Tenant beyond the parking allocation described in Article VI of
this Lease. Tenant shall not place a load upon any floor in the Demised Premises
exceeding a floor load per square foot capacity of Seventy Five pounds per
square foot (75 lbs./sq.ft.) of area; and not move any safe, vault or other
heavy equipment in, about or out of the Demised Premises except in such manner
and at such time as the Landlord shall in each instance authorize. Tenant's
machines and mechanical equipment shall be placed and maintained by Tenant, at
Tenant's expense, in settings sufficient to absorb or prevent vibration or noise
that may be transmitted to the Building structure.
Tenant further agrees not to use the Premises to carry on, or permit
upon the Premises any offensive, noisy or dangerous trade, business manufacture
or occupation, or any nuisance, or allow the Premises to be used for any purpose
that will increase the rate of insurance thereon over the rate charged by reason
of a use of the character herein permitted without Landlord's prior written
consent and without compensating Landlord for such increase; and nothing in
violation of any present or future federal, state or local law or ordinance
regulating use of the Premises will be done or permitted by the Tenant in or
upon said Premises or any part thereof
Tenant shall not commit or permit any waste in or with respect to the
Premises, nor generate, store or dispose of any oil, toxic substances, hazardous
wastes, or hazardous materials (each a, "Hazardous Material"), or permit the
same in or on the Premises or any parking areas provided for under this Lease.
Tenant shall not dump, flush or in any way introduce any Hazardous Materials
into septic, sewage or other waste disposal systems serving
<PAGE>
the Premises or any parking areas provided for under this Lease. Tenant will
defend, hold harmless and indemnify Landlord and its successors and assigns
against all claims, loss, cost, and expenses including attorneys' fees, incurred
as a result of any contamination of the Premise with Hazardous Materials by
Tenant or Tenant's contractors, licensees, invitees, agents, servants or
employees. This provision shall survive the termination of this Lease.
B. HEATING AND AIR CONDITIONING. During normal business days and hours
of 7:00AM and 6:00PM, Monday through Friday, excluding holidays, Landlord shall
provide a year round heating, ventilation and air conditioning ("HVAC") system
capable of producing and maintaining the following conditions in areas where
there are no more than one person for every two hundred square feet and no
equipment employed by tenants which generates excessive temperatures:
Summer: Provide a temperature drop of 20 degrees Fahrenheit and
relative humidity of 50% when the outside conditions do
not exceed 95 degrees Fahrenheit.
Winter: Provide a temperature inside of 68 degrees Fahrenheit when
the outside temperature does not fall below 0 degrees
Fahrenheit with a greater than 15 MPH wind prevailing.
The heating and air conditioning systems shall be thermostatically
controlled and zoned so as to automatically maintain preset temperature.
Temperatures within a zone shall not vary more than 4 degrees Fahrenheit from
the thermostatic setting.
If Tenant intends to use the Demised Premises during nights and/or
weekends and desires additional HVAC service for said non-ordinary business
hours, Tenant must make special arrangements for such additional HVAC service
with the Landlord during ordinary business hours at least twenty four (24) hours
in advance and Tenant agrees to pay a fee which reflects a reasonable estimate
of the extraordinary consumption of utilities which may be occasioned thereby.
As of the commencement date of this Lease, Landlord and Tenant agree that the
current reasonable estimate for the extra HVAC service is thirty dollars
($30.00) per hour for a minimum period of six (6) hours. This estimated cost is
subject to increases over the term of the Lease based upon increased cost for
utilities.
C. ELECTRICITY. Tenant's use of electrical energy in the Demised
Premises shall not at any time exceed the capacity of any of the electrical
conductors and equipment in or otherwise serving the Demised Premises. In order
to insure that such capacity is not exceeded, and to avert possible adverse
effect upon the Building, Tenant shall give notice to Landlord whenever it shall
connect to the Building's electrical distribution system any fixtures,
appliances or equipment other than a reasonable quantity of lamps, personal
computers, printers, typewriters, copiers, fax machines and similar office
machines for standard office type uses.
Any additional feeders or risers to supply Tenant's electrical
requirements other than those set forth in EXHIBIT "A", and all other equipment
proper and necessary in connection with such feeders and risers shall be
installed by Landlord upon Tenant's request, at the sole cost and expense of
Tenant, provided that, in Landlord's reasonable judgment, such additional
feeders, risers or dedicated circuits are permissible and will not cause or
create danger or injury to the Building or cause or create a dangerous condition
or unreasonably interfere with the other Tenants of the Building.
D. RULES AND REGULATIONS. Tenant agrees to comply with all rules and
regulations Promulgated by Landlord from time to time for the operation of the
Building including, but not limited to, those currently adopted, as shown on
Exhibit "C" attached hereto and uniformly enforced to all tenants in the
building.
IV. TAXES, UTILITIES AND JANITORIAL SERVICES
A. LANDLORD'S RESPONSIBILITY. Except as provided in Article V hereof,
Landlord agrees to pay all real estate taxes and assessments levied against the
Premises, provided, however, Landlord's failure to make such
<PAGE>
payments shall not constitute a default by Landlord hereunder unless such
failure causes Tenant to be no longer able to use the Premises for the Permitted
Uses, and at its own cost and expense to furnish the following services and
utilities during the ordinary business hours described above, in Article III:
1. Original (and replacement) installation of lamps, bulbs,
ballasts, and starters in electrical light fixtures.
2. Upkeep of grounds and other common area, and removal of snow and
ice from parking areas and sidewalks.
3. Janitorial services in accordance with Landlord's instruction
sheet; a copy of which is attached hereto and made a part hereof
and marked Exhibit "B". Tenant from time to time will have boxes
from the delivery of office supplies (i.e., paper, files, etc.)
which it will break down and Landlord will removed in addition to
its nightly emptying of office waste receptacles.
4. Electric current for lights, ordinary business machines and air
conditioning as detailed in Article III of the Lease, paid for by
Tenant directly to the utility company as detailed in Article
IV.B. of the Lease.
5. Heat of the Demised Premises as detailed in Article III of the
Lease.
6. Water and Sewer for all bathrooms, kitchenettes and drinking
fountains within the Building.
Landlord does not warrant that any services supplied by Landlord will
not be interrupted. Services may be interrupted because of accidents, repairs,
alterations, improvements or any reason beyond the reasonable control of
Landlord. Except as noted below, no interruption of service shall:
a. Be considered an eviction or disturbance of Tenant's use and
possession of the Demised Premises;
b. Make Landlord liable to Tenant for damages;
c. Entitle Tenant to an abatement of rent; or
d. Relieve Tenant from performing Tenant's obligations under this
Lease.
B. TENANT'S RESPONSIBILITY.
1. It is understood that any cardboard boxes, large amounts of trash
or other items not considered routine office trash will be
promptly removed from the Premises by Tenant at Tenant's expense
in accordance with all applicable legal requirements. Tenant
shall not allow any large amounts of trash to accumulate.
2. Tenant agrees to assume complete financial responsibility for
electric meter #84181286, under Tenant's name, representing
charges for provided overheat lighting, wall plugs and
supplementary air conditioning unit for the Demised Premises
during the term hereof.
3. Personal Property Tax to city or town.
V. ESCALATIONS
A. OPERATING EXPENSES (EXCLUDING REAL ESTATE TAXES).
The basic rental, outlined in Article II hereunder, includes the 1997
actual per-square-foot costs being paid by Landlord to operate the Building, of
which the Demised Premises forms a part. The current per-square-foot costs are
outlined in EXHIBIT "D" attached hereto.
If during the term of this Lease, commencing January 1, 2000, the total
of the per-square-foot operating costs increases over that set forth in EXHIBIT
"D", Tenant agrees to pay its proportionate share of such increase (the
"Operating Increase"). Tenant's proportionate share shall be determined by
multiplying the Operating Increase by the Demised Premises Fraction
(7,500/31,755). Landlord may make a reasonable estimate of the expected
per-square-foot Operating Increase, and may bill Tenant for its proportionate
share thereof as additional monthly rental hereunder.
Landlord will render a yearly accounting of the actual square foot costs
incurred, and Tenant agrees to pay any shortfall between Tenant's estimated
payments made and the total square foot costs incurred by Landlord. In the event
the total per-square-foot costs incurred by Landlord prove to be less than the
amount estimated by
<PAGE>
Landlord and paid by Tenant, then Landlord shall refund any overpayment to
Tenant by either applying, at Landlord's option, any overpayment to Tenant's
future estimated payments or by lump sum refund.
B. REAL ESTATE TAXES.
The basic rental, outlined in Article II hereunder, includes the 1997
actual per-square-foot real estate taxes currently paid by the Landlord for the
Building, of which the Demised Premises forms a part. This per-square-foot real
estate tax is outlined in Exhibit "D".
If, in any real estate tax billing period or portion thereof during the
term of this Lease, commencing January 1, 2000, the real estate taxes levied
against the Building, on an annual basis, increase over those shown on EXHIBIT
"D" Tenant agrees to pay its proportionate share of the increase in said real
estate taxes (the "Tax Increase"). Tenants proportionate share shall be
determined by multiplying the Tax Increase by the Demised Premises Fraction
(7,500/31,755), defined above. Landlord may make a reasonable estimate of the
expected per-square-foot Tax Increase and may bill Tenant for its proportionate
share as additional monthly rental hereunder.
Landlord will render a yearly accounting of the actual per-square-foot real
estate taxes incurred, and Tenant agrees to pay any shortfall between Tenant's
estimated payments made and the real estate taxes incurred by Landlord.
C. PAYMENT OF ESCALATIONS.
Tenant is obligated to pay such estimated and actual cost increase referred
to in Sections A and B above, upon receipt of Landlord's billing or notice of
same. Landlord shall furnish Tenant with a statement which sets forth, in
reasonable detail, the basis for escalation.
VI. SIGNS AND PARKING
Landlord agrees to supply and install identifying signs for Tenant
similar to those employed for other Tenants in the Building, at the main
entrances to the Building and to the Demised Premises. Tenant shall in no event
place any signs on the exterior or interior of the Building, or within the
Demised Premises which will be visible from the exterior of the Building.
Tenant, its employees and visitors, shall be allowed to use the general
parking areas designated for the Building in common with others entitled
thereto, in accordance to the following parking ratio. The parking ratio for the
Building is four (4) unassigned parking spaces per 1,000 square feet rented.
VII. MAINTENANCE, REPAIR AND SURRENDER
A. Landlord agrees to maintain in good condition and repair the roof,
foundations, structural components, common areas, HVAC systems, plumbing in
the common-non areas, and windows of the Premises. Landlord shall not be
required to make any such repairs where same were caused or taken by any acts
or omission or negligence of Tenant its agents, invitees, licensees, visitors,
or contractors.
B. Tenant agrees that during the initial term of this Lease or any
extension thereof, and for such further time as Tenant may hold the Demised
Premises or any part thereof, it will:
a. Keep the Demised Premises and the improvements therein in such
repair, order and condition as the same are in at the
commencement of the term or may be put in during the continuation
thereof, reasonable use and damage by fire or Other unavoidable
casualty alone excepted;
b. Not cause the Demised Premises to be overloaded, damaged or
defaced, reasonable use and wear and damage by fire or other
unavoidable casualty alone excepted; and
<PAGE>
c. At the expiration or other termination of the Lease, yield up the
Demised Premises and all keys, lock, Landlord's fixtures
connected therewith, and all erections and additions thereon made
to or upon the Demised Premises with the consent of Landlord,
unless otherwise directed by Landlord, broom clean in good
repair, order and condition in all respects, reasonable wear and
use thereof and damage by fire or other unavoidable casualty
alone excepted.
VIII. ACCESS
Landlord shall have the right to enter into and upon the Demised
Premises or any part thereof, at all reasonable hours, for the purposes of (a)
examining the same, (b) making such repairs or alterations therein as may be
necessary provided that reasonable efforts be made to avoid undue interference
with the conduct of Tenant's business, (c) showing the Demised Premises to
prospective purchasers, mortgagees and the like; and (d) during the final six
(6) months of the term or any extension thereof, showing the Demised Premises
to prospective tenants.
As appurtenant to the Demised Premises, Tenant shall have the right to
use all elevators, hallways, stairways and such other common areas as are
necessary for entrance to and exit from the Demised Premises and the Premises,
together with common driveways giving access to parking areas.
IX SUBLEASE AND CHANGE OF AUTHORIZED SIGNATORY
Tenant may sublet the Demised Premises, in whole or in part, only to
any wholly-owned subsidiary, or to any corporation (a "parent corporation") of
which Tenant is a wholly-owned subsidiary, or to any wholly-owned subsidiary
of a parent corporation now or hereafter organized, provided that Tenant shall
provide Landlord with prior written notice of such sublet and provided further
that Tenant shall remain liable hereunder.
If, however, Tenant desires to sublet the whole or any part of the
Demised Premises to any other party, Tenant shall first: (a) pay Landlord, in
advance, a nonrefundable processing fee for the review of the proposed sublet in
the amount of TWO THOUSAND FIVE HUNDRED DOLLARS (S2,500.00) and (b) provide
Landlord with written data pertaining to the proposed subtenant, including but
not limited to the name of the proposed subtenant and its principle address and
key officers, trustees or other persons holding control; financial statements
for the proposed subtenant; a statement of the business activities of the
proposed subtenant and its proposed use of the Demised Premises; proposed floor
plans for the Demised Premises (if changes are requested); the proposed terms
and form of the sublease agreement; the number of persons who will occupy the
Demised Premises pursuant to the proposed sublease; and such other items as
Landlord may reasonably request. Landlord shall have the option of (i)
consenting to the proposed sublease in writing, (ii) rejecting such proposed
sublease and providing Tenant with reasonable grounds therefor, or (iii)
canceling this Lease in writing as it applies to the area proposed to be
subleased and relieving Tenant of any further liability hereunder as to such
area.
Except for a written cancellation pursuant to item (iii) above, Tenant
shall in all events remain fully liable under this Lease. Any subtenants shall
also become directly liable to Landlord for all obligations of Tenant under this
Lease without relieving Tenant of any liability; provided, however, that
Landlord shall have the right to require that all payments made under this Lease
continue to be made by Tenant. In no event shall Tenant have any right to
assign, directly or indirectly, its rights or obligations under this Lease.
Reasonable grounds for Landlord's rejection of a proposed sublease include,
without implied limitations, the following: (a) the proposed subtenant's
financial responsibility does not meet the same criteria Landlord used to select
tenants for the Building, (b) the proposed subtenant's business is not suitable
for the Building considering the businesses of other tenants in the Building and
the Building's prestige or image, or (c) the proposed use is inconsistent with
the permitted uses described in Article III hereof Consent to one sublease
pursuant to the terms hereof shall not waive the requirements of this provision
with respect to subsequent subleases, and all subsequent subleases shall be
subject to all terms and provisions contained herein.
If Landlord consents to the proposed sublease in writing and if the
terms of the sublease are such that the subtenant is paying Tenant MORE RENT
than the rent detailed in Article II of the primary Lease between Landlord and
<PAGE>
Tenant, then Tenant will be required to pay to Landlord as additional rent the
difference between the rent the subtenant is paying to Tenant and the rent that
Tenant is obligated to pay to Landlord under the terms of this Lease.
If, during the term of this Lease, or any extension hereunder, Tenant
shall, through sale or transfer, diminish or liquidate its ownership or
authority to the extent that the authorized signatory becomes, or will become,
invalid or null and void with respect to this Lease or any future agreement
between Landlord and Tenant, then Tenant shall notify Landlord in writing of
such sale or transfer and shall supply to Landlord information (including, but
not limited to, financial statements, names of principals, nature of business,
etc.) regarding the sale or transfer of Tenant's ownership or authority
whereupon, Landlord and Tenant agree to amend said Lease to incorporate Tenant's
change of ownership or authorized signatory. Should Tenant fail to provide said
notice and information required by Landlord, then Landlord and Tenant agree that
the provisions and rights outlined in this Article IX shall apply to any
transfer or diminution of the ownership or authority of the authorized signatory
of Tenant hereunder.
X. SUBORDINATION TO MORTGAGES
This Lease shall be subject and subordinate to the lien(s) of any
current mortgage or mortgages of record and to any ground leases of the
Premises, as well as any such mortgage or mortgages or ground leases which may
hereafter be recorded, against the real estate of which the Demised Premises are
a part, and the recording of any such mortgage or mortgages or ground leases
shall be prior in lien and interest to this Lease irrespective of the date of
recording. Tenant agrees to execute any instrument which Landlord or any
mortgagee or ground lessor may deem necessary to further effect the
subordination of this Lease to any such mortgage or mortgages or ground leases,
provided, however, that this subordination is subject to the condition that
notwithstanding any default in any such mortgage or ground lease or any
foreclosure thereof or default or termination thereunder, this Lease shall
remain in full force and effect and Tenant shall be permitted to remain in quiet
and peaceful possession of the Demised Premises throughout the term hereof and
any extension, so long as Tenant shall not be in default under this Lease.
Tenant shall within ten (10) business days after receipt of written
request therefor, execute and deliver to Landlord an Estoppel Certificate,
certifying as to (i) the accuracy of the Lease, (ii) the commencement and
termination dates of the Lease, (iii) the Lease being unmodified and in full
effect, or in full effect as modified, stating the date and nature of any
modification, (iv) whether Landlord is in default under the Lease or whether
Tenant has any claims, demand, offsets or other rights against Landlord and, if
so, specifying the default, claim, offset demand or right, and (v) any other
reasonably ascertainable fact covered by the Lease. Such Estoppel Certificate
may be relied upon by Landlord and any third party with which Landlord is
dealing, and Tenant's failure to execute and deliver such Estoppel Certificate
shall be a default hereunder.
XI. INSURANCE AGAINST FIRE AND OTHER PERILS
Landlord shall keep the Building in which the Demised Premises are
located (including all improvements and alterations made thereto by Landlord or
Tenant) insured against damage or destruction by fire, and other perils commonly
covered under an extended coverage endorsement to the extent of the full
insurable value thereof, subject to customary deductibles. Landlord shall be
responsible for determining the amount of fire and extended coverage insurance
to be maintained. Such insurance shall be maintained for the protection of both
Landlord and Tenant and in case of loss or damage, the proceeds thereof shall be
applied on account of the obligation of Landlord to repair and/or rebuild the
Premises to the extent required under the provisions of Article XIV hereof.
Landlord may maintain such insurance under a blanket policy or policies.
Tenant shall insure its furnishing, fixtures, equipment and partitions
against fire, vandalism and other perils with "all-risks" insurance in an amount
equal to 100% of the replacement cost thereof. Tenant shall provide Landlord
with a certificate evidencing such insurance and any renewals thereof
XII. TENANT'S PUBLIC LIABILITY AND PROPERTY INSURANCE
<PAGE>
Tenant shall, at all times, while it occupies the Demised Premises keep
in full force and effect, at its own cost, a policy or policies of general
public liability and property damage insurance with respect to the Demised
Premises, written by a company or companies qualified to do business in
Massachusetts, in which the limits of (i) public liability shall be not less
than $500,000/$500,000 and (ii) property damage liability shall be not less than
$1,000,000. The policy or policies shall name Landlord and its property manager
as additional insured and shall contain a clause that such insurance cannot be
canceled or changed without first giving Landlord thirty (30) days prior written
notice. Tenant may maintain such insurance under a blanket policy or policies.
Tenant shall furnish Landlord with certificates evidencing such insurance and
any renewals thereof.
XIII. INDEMNIFICATION
Tenant shall save Landlord harmless and indemnified from all injury,
death, loss, claims or damage to any person or property while on the Premises
(unless caused by the negligence or willful misconduct of Landlord, his
employees, agents, licensees or contractors), and from and against all injury,
death, loss, claim or damage to any person or property wherever occurring
occasioned by any act, neglect or default of Tenant. In case Landlord shall,
without fault on its part, be made a party to any litigation commenced by or
against Tenant, then Tenant shall protect and hold Landlord harmless and pay all
cost, expenses and reasonable attorney's fees and expenses that may be incurred
or paid by Landlord in enforcing the covenants and agreements in this Lease.
Tenant agrees that Landlord shall not be responsible or liable for any
loss or damage to any personal property belonging to Tenant, its employees or
invitees, unless such loss or damage is caused through the negligence or willful
misconduct of Landlord, his employees, agents, licensees or contractors.
XIV. FIRE, CASUALTY OR TAKING
If the Premises or any part thereof are damaged or destroyed in whole
or in part by fire or other casualty, or demolished by the order or action of
any public authority, this Lease shall, except as other wise provided herein,
remain in full force and effect and Landlord shall, to the extent of insurance
proceeds actually received by Landlord on account of such casualty, promptly and
with dispatch, repair and rebuild the Premises so as to restore them to their
condition before such damage, destruction or demolition, provided that Landlord
shall not be responsible for delays in such reconstruction and restoration for
causes beyond Landlord's control. There shall be an abatement of rent equitably
proportional to the loss of use of the Demised Premises because of such damage,
destruction or demolition, and such abatement shall commence as of the time of
the damage, destruction or demolition and continue until the completion of the
reconstruction and restoration. If the Building of which the Demised Premises
are a part is destroyed or damaged by fire or other casualty within the scope of
Landlord's fire and extended coverage insurance so that more than forty percent
(40%) of the Demised Premises are rendered untenantable, or if the Building is
destroyed or damaged from any other cause so that more than sixty percent (60%)
of the Building are rendered untenantable, either party may, at its own
election, by written notice to the other party, within sixty (60) days after
such destruction terminate this Lease.
Notwithstanding the foregoing, Landlord shall have no obligation to
restore the Premises following a casualty occurring in the last nine (9) months
of the term of this Lease, or to incur restoration costs in excess of the actual
amount of insurance proceeds made available to Landlord by its insurer and not
retained by a mortgagee or ground lessor of Landlord. In the event Landlord
reasonably determines that actual insurance proceeds will be insufficient to
cover the cost of restoration, Landlord shall have the option of (a) terminating
this Lease by 30 days written notice to Tenant or (b) giving Tenant the option
of (x) paying for the uninsured portion of the restoration costs or (y)
terminating this Lease by 30 days written notice to Landlord.
If the whole of the Premises is taken by condemnation, then this Lease
shall terminate as of the date of such taking. If forty percent (40%) or more of
the Premises is taken by condemnation, Tenant may terminate this Lease by giving
written notice to Landlord within thirty (30) days after receipt of notice of
such taking. If the Lease is terminated by reason of taking or condemnation, the
rent from the date of the taking shall totally abate; if the
<PAGE>
Lease is not so terminated, the rent shall abate proportionately according to
the area of the floor space of the Demised Premises which is taken by
condemnation, from the time Tenant vacates the condemned area.
Tenant assigns and grants to Landlord all right, title and interest,
present or prospective, in any award due or made because of a taking by
condemnation, except any award expressly designated for relocation of Tenant.
XV. ALTERATIONS
Tenant shall have the right, at its own expense, to decorate and
redecorate the Demised Premises and to make any nonstructural alterations and
changes it shall deem expedient to the better conduct of its business, provided
that (a) Tenant submits complete plans of such alterations and/or changes to
Landlord for approval, such approval not to be unreasonably withheld, (b) such
alterations and/or changes do not injure the structural safety of either the
Demised Premises, the Premises or the Building, and in no way diminish the value
of either, (c) such alterations and/or changes are to be completed by Landlord's
managing agent, Haynes Management Inc., in a first class workmanlike manner,
employing building standard materials of good quality and complying with all
proper governmental requirements, (d) Tenant will save Landlord harmless from
all claims or liabilities because of damage or injury to any person or property
occasioned by or growing out of such change or alterations,. and (e) Tenant will
preserve the Premises and the Building at all times free of liens for labor and
materials'. At the termination of this Lease or any extension thereof, the
alterations shall remain as the property of Landlord unless Landlord expressly
requests Tenant to remove such alterations, in which case Tenant shall do so and
repair any damage caused by such removal.
XVI. DEFAULT
If (a) Tenant shall neglect or fail to perform or observe any of the
covenants or conditions contained herein and on its part to be performed or
observed, and Tenant shall fail to cure said breach or default (i) within five
(5) days after written notice of said breach or default with respect to rent or
any other money payment or (ii) within twenty-five (25) days after written
notice of any other breach or default unless such breach or default is not of
the type which can be cured within twenty-five (25) days, in which case Tenant
shall commence to cure such breach or default within twenty-five (25) days and
shall pursue such cure to completion diligently, or (b) the estate hereby
created shall be taken on execution or by other process of law, or (c) any
assignment shall be made of Tenant's property for the benefit of creditors or
otherwise, or (d) a receiver shall be appointed for any part of Tenant's
property, or (e) any proceedings shall be commenced by or against Tenant under
any bankruptcy or insolvency law now or hereafter enacted, then in any such
case, Landlord and/or the agents of Landlord may immediately or at any time
thereafter and without further demand or notice (x) physically enter into and
upon the Demised Premises or any part thereof in the name of the whole and
repossess the same, or (y) make an entry by written notice of same given to
Tenant at the address listed herein or such other address as Landlord has been
notified of, in writing, and Landlord may thereafter expel Tenant and those
claiming through or under it and remove its effects, forcibly, if necessary,
without being deemed guilty of any mariner of trespass and without prejudice to
any remedies which might otherwise be used for arrearages of rent or antecedent
breaches of covenant, and upon either such form of entry the Lease shall
terminate.
Tenant covenants that in case of any such termination it will indemnify
Landlord against all loss of rent and other payments, including damages which
Landlord may incur by reason of such termination (including any reasonable
attorney's fees incurred by Landlord in enforcing its rights against Tenant, and
pro-rata reimbursement for any brokerage fee paid in connection with Tenant's
aborted tenancy) during the remainder of the term and any extension thereof,
said payments to be made from time to time upon demand of Landlord.
Notwithstanding anything in the foregoing to the contrary, if Tenant
fails to make timely payment of any rental or other monetary payment required
herein due on more than two occasions within any period of twelve consecutive
months after notice as aforesaid, Tenant shall be deemed to have defaulted and
to have forfeited any right to cure or remedy any subsequent default, and in
such event Landlord shall immediately obtain the rights set forth in the
preceding paragraph and shall not be required to furnish Tenant with any further
notice with respect to
<PAGE>
such subsequent default; or, if Landlord does not so elect and Tenant has
accumulated three months or more of rent in arrears, then Tenant agrees to be
liable for any and all costs incurred by Landlord, including reasonable
attorney's fees, in collecting same.
Landlord shall have the right, but shall not be required, to pay such
sums or do any act which requires the expenditure of monies which may be
necessary or appropriate by reason of the failure or neglect of Tenant to
perform any of the provisions of this Lease, and in the event of the exercise of
such right by Landlord, Tenant agrees to pay to Landlord forthwith, upon demand,
all such sums, together with interest thereon at a rate equal to five percent
(5%) over the Prime Rate.
Except as otherwise expressly provided for in this Lease, failure on
the part of the Landlord to complain of any action or nonaction on the part of
Tenant, no matter how long the same may continue, shall never be a waiver by
Landlord of any rights hereunder. Further, no waiver at any time of any of the
provisions hereof by Landlord shall be construed as a 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 Landlord to or of any action requiring
such consent or approval shall not be construed to waive or render unnecessary
Landlord's consent or approval to or of any subsequent similar act by the other.
XVII. ARBITRATION
The parties agree that any dispute which pertains to their respective
rights and duties under this Lease or with regard to what either of them is
obliged to do or not do with respect to the Premises or the Building itself,
except for Landlord's entitlement to possession for non-payment of rent, shall
be submitted to arbitration in accordance with the Rules of the American
Arbitration Association, and any award or finding made shall be final and
binding upon them and judgment thereon may be entered in any court having
jurisdiction thereof.
XVIII. LANDLORD EOUITY INTEREST
Tenant agrees that in connection with any and all claims arising out of
this Lease pertaining to the Demised Premises, it shall have recourse only to
Landlord's interest in the Building and not the individual assets of Landlord.
XIX. NOTICES
Notices required to be given hereunder shall be in writing and shall be
deemed to be duty given and effective as of the date of (i) when delivered
personally, (ii) 72 hours after mailed by registered or certified mail, return
receipt requested, (iii) via fax or (iv) the day after deposited with a
recognized carrier who provides overnight delivery service and evidence of
delivery or refusal (such as but not limited to FedEx, Purolator Courier, UPS,
or U.S. Postal Service Overnight Delivery), addressed to Landlord at 34
Washington Street, Suite DEC 7, Wellesley Hills, Massachusetts 02481-1909 and to
Tenant at the Demised Premises, or to such other addresses as either Landlord or
Tenant may hereinafter furnish to the other in writing. Notices required
hereunder may be given to the Landlord, his lawyer, or his managing agents.
XX. ENTIRE AGREEMENT
This Lease and the Exhibits attached hereto and made a part hereof
constitute the entire agreement between Landlord and Tenant and incorporates all
of the covenants, agreements, conditions and understanding concerning the
Demised Premises to be performed by Landlord or Tenant during the term
hereunder. Further, this Lease supersedes and renders void any promise,
agreement or condition, whether expressed or implied between the parties hereto,
their representatives, assigns and legal representatives. This agreement can
only be amended in writing, and any such amendment is effective only when fully
executed by all parties.
XXI. BROKER
<PAGE>
Except for Spaulding & Slye and Neelon Associates, Inc., Landlord and
Tenant represent and warrant to the other that it has not directly or indirectly
dealt with any Broker, with respect to the leasing of the Building, or had its
attention called to the Building, by any broker. Wayne Realty Trust shall be
responsible for paying any brokerage commission payable to Spaulding & Slye and
Neelon Associates, Inc. in connection with this Lease. Each party agrees to
exonerate and save harmless and indemnify the other against any claims for a
commission by any other broker, person, or firm, with whom such party has dealt
in connection with the execution and delivery of this Lease.
XXII. APPLICABLE LAW
This Lease shall be governed by and construed in accordance with
Massachusetts law.
XXIII. SURRENDER OF PREMISES AND HOLDING OVER
Tenant shall surrender possession of the Premises on the last day of the
term hereof and Tenant waives the right to any notice of termination or notice
to quit. Tenant covenants that upon the expiration or sooner termination of this
Lease, it shall, without notice, deliver up and surrender possession of the
Premises in the same condition in which the Tenant has agreed to keep the same
during the continuance of this Lease and in accordance with the terms hereof,
normal wear and tear excepted, first removing therefrom all goods and effects of
Tenant that are not attached to the Premises.
Upon the expiration of this Lease or if the Premises should be abandoned
by Tenant, or this Lease should terminate for any cause, and at the time of such
expiration, vacation, abandonment or termination, Tenant or Tenant's agents,
subtenants or any other person should leave any property of any kind, or
character, on or in the Premises, the fact of such leaving of property on or in
the Premises shall be conclusive evidence of intent by Tenant, and individuals
and entities deriving their rights through Tenant, to abandon such property so
left in or upon the Premises, and such leaving shall constitute abandonment of
the property. Landlord shall have the right and authority without notice to
Tenant or anyone else, to remove and destroy, or to sell or authorize disposal
of such property, or any part thereof, without being in any way liable to Tenant
therefor and the proceeds thereof shall belong to Landlord and as compensation
for the removal and disposition of such property. Tenant agrees to reimburse
Landlord for any expenses Landlord may incur in the removal or disposal of
Tenant's property, trash, or debris left in the Demised Premises after the
expiration of this Lease.
If Tenant fails to surrender possession of the Premises upon the
expiration or sooner termination of this Lease, Tenant shall pay to Landlord, as
rent for any period after the expiration or sooner termination of this Lease an
amount equal to THREE (3) TIMES the monthly rent required to be paid under this
Lease during the last year of term hereof. Acceptance by the Landlord of such
payments shall not constitute a consent to a holdover hereunder or result in a
renewal or extension of Tenant's rights of occupancy. Such payments shall be in
addition to and shall not affect or limit the Landlord's right of re-entry,
Landlord's right to collect such damages as may be available at law, or any
other rights of the Landlord under this Lease or as provided by law.
XXIV. SECURITY FOR TENANT'S PERFORMANCE
As security to Landlord that Tenant will carry out the monetary
obligations described in this Lease, the parties agree upon the following
arrangement. Upon execution of this Lease Amendment, Tenant shall deposit with
Landlord an IRREVOCABLE LETTER OF CREDIT in the face amount of ONE HUNDRED FIFTY
THOUSAND DOLLARS ($150,000.00) (the "Letter of Credit'), for the benefit of
Landlord, its successors or assigns; similar to the sample Irrevocable Letter of
Credit shown on EXHIBIT "F" attached hereto and made a part hereof. In the event
of an uncured monetary default of Tenant under this Lease, or in the event of
nonrenewal of the Letter of Credit by Tenant at least thirty (30) days prior to
its stated expiration date, Landlord shall have the right to draw upon the
Letter of Credit from time to time to cure any such default. The Letter of
Credit shall be maintained and renewed by Tenant on an annual basis for the term
of this Lease.
<PAGE>
In the event of an uncured monetary default hereunder or the failure of
Tenant to deliver to Landlord a renewed or replacement Letter of Credit at least
thirty (30) days prior to the stated expiration date of the Letter of Credit,
Landlord may present a certificate to Lender certifying an uncured monetary
default of Tenant under this Lease and requesting a specific draw on the Letter
of Credit IN THE AMOUNT TO cure any such default. Tenant shall CAUSE THE LETTER
OF CREDIT TO BE AMENDED OR REISSUED SO THAT the full $150,000.00 stated amount
of the Letter of Credit shall be reinstated within fifteen (15) days following
any such partial draw.
If this Lease is terminated due to an uncured monetary default of
Tenant, Landlord may elect to draw down the full stated amount of the Letter of
Credit to satisfy existing or future Lease obligations of Tenant for unpaid rent
or other monetary or maintenance obligations imposed on Tenant by this Lease.
This provision shall in no way alter or diminish Landlord's obligation to
mitigate its damages hereunder and any Letter of Credit funds held by Landlord
in excess of Landlord's reasonable expenses to re-let the Demised Premises and
to compensate Landlord for rent reserved or due from Tenant through the stated
expiration date of this Lease, shall be refunded to Tenant.
Tenant shall have the right to cure any monetary default under this
Lease prior to a draw by Landlord under the Letter of Credit by paying to
Landlord the principal amount of any such default, plus any accrued interest
thereon pursuant to the applicable provisions of this Lease. Any such curing, on
Tenant's part, however, shall not undermine or alter in any way Landlord's
rights under this Lease. Landlord's resort to the Letter of Credit shall not
alter or modify Landlord's remedies under this Lease including, without
limitation, Landlord's right to terminate this Lease pursuant to the third
paragraph of Article XVI if Tenant fails timely to make any rental or other
monetary payment more than two (2) consecutive times within any period of twelve
(12) consecutive months.
AND IT IS MUTUALLY UNDERSTOOD AND AGREED that the covenants and
agreements contained in this Lease shall be binding upon the parties hereto and
upon their respective successors, assigns and legal representatives.
IN WITNESS WHEREOF, the parties hereto have set their hands and seals to
this Lease this 3rd day of October, 1998.
LANDLORD: WAYNE REALTY TRUST TENANT: DIRECT HIT TECHNOLOGIES, INC.
By: /s/ G. Arnold Haynes By: /s/ Michael Cassidy
------------------------------- ------------------------------
G. Arnold Haynes, Trustee Michael Cassidy, CEO
<PAGE>
EXHIBIT "B"
JANITORIAL INSTRUCTION SHEET
DAILY - CORE OF BUILDING
GENERAL
1. Dust mop all floors and spot mop where necessary.
2. Empty waste receptacles.
3. Clean and sanitize water coolers.
4. Clean glass on entrance doors to building.
S. Sweep/vacuum stairways.
6. Sweep (or mop) elevator floor.
7. Vacuum all carpeting.
8. Vacuum entrance mats.
RESTROOMS
1. Sweep and mop floors with disinfectant.
2. Clean and sanitize all fixtures.
3. Clean and polish mirrors.
4. Refill dispensers.
5. Empty waste receptacles.
6. Wipe down with disinfectant all toilet partitions.
WEEKLY - CORE OF BUILDING
GENERAL
1. Mop/vacuum stair-ways.
2. Mop entrances
3. Mop elevator.
DAILY - OFFICE AREAS
1. Empty waste receptacles. (normal office trash in waste baskets
only).
TWICE WEEKLY - OFFICE AREAS
1. Dust all horizontal surfaces provided that they have no loose
papers on them.
2. Vacuum all carpeting.
3. Clean glass on entrance doors.
4. Wipe down all window sills.
MONTHLY - CORE OF BUILDRNG
1. Wash and wax entrances - more frequently if needed.
<PAGE>
EXHIEBIT"C"
RULES AND REGULATIONS
1. The entrance, lobbies, passages, corridors, elevators, and stairways shall
not be encumbered or obstructed by Tenant, Tenant's agents, servants,
employees, licensees or visitors or be used by them for any purpose other
than for ingress and egress to and from the premises. The moving in and
out of all safes, freight, furniture, or bulky matter of any description
must take place during the hours which Landlord may determine from time to
time. Landlord reserves the right to inspect all freight and bulky matter
to be brought into the building and to exclude from the building all
freight and bulky matter which violate any of these Rules and Regulations
or the lease of which these Rules and Regulations are a part.
2. No curtains, blinds, shades, screens other than those furnished by
Landlord shall be attached to, hung in, or used in connection with any
window or door of the premises without the prior written consent of
Landlord. Interior signs on doors shall be painted, or affixed for Tenant
by Landlord or by sign painters first approved by Landlord, at the expense
of Tenant, and shall be of a size, color and style acceptable to Landlord.
3. Canvassing, soliciting and peddling in the Building are prohibited and
Tenant shall cooperate to prevent same.
4. Tenant shall comply with all security measures from time to time
established by Landlord for the Building.
5. There shall be no overnight parking in the parking areas designated for
the Building for which the Demised Premises is a part.
6. Upon the removal of any xerox or similar copy equipment from the Demised
Premises, Tenant shall be responsible for removal of any stains on the
carpet and/or walls within the Demised Premises caused by such copy
equipment.
7. Tenant shall not have the right to make any lock changes or installation
of burglar alarm systems, within the premises without first obtaining
consent form Landlord, such consent not to be unreasonably withheld, it
being understood that any lock changes shall be keyed to Landlord's master
system and the cost of any such lock change shall be borne by Tenant.
8. Floor mats must be placed under all desk chairs with wheels or casters.
9. Tenant agrees to promptly report to Landlord or Haynes Management Inc.,
any problems relating to Landlord performing its duties hereunder.
10. Tenant shall submit to Landlord, plan(s) showing proposed location and
method of installation of phone equipment including, but not limited to,
relay terminals, phone lines, and services panels, for Landlord approval.
All phone jacks shall be installed within three (3") inches above floor.
11. The moving in and out of all safes, freight, furniture, or bulky matter of
any description must take place during the hours which Landlord may
determine from time to time. Tenant agrees that should the elevator be
needed, at the expiration of the Lease term, or at any time during the
term hereof, for the moving in or out of furniture, etc., that Tenant will
notify Landlord and will only use the elevator during the hours of 9:30AM
and 4:00PM Monday through Friday, unless approved by Landlord in writing.
<PAGE>
EXHIBIT"C"
RULES AND REGULATIONS
(Continued)
12. The Building is a designated non-smoking facility, it is agreed that
there will be no smoking in any portion. including the Demised Premises,
of the Building and extends the smoke free zone to the entrances of the
Building as outlined in red on the attached Exhibit "E" and made a part
hereof.
13. Landlord reserves the right to assign parking stickers to tenants in the
building in accordance to the parking ratio detailed in Article VI of
the Lease and to enforce such parking allocations.
14. No Medical Laboratory Boxes are permitted in the common areas of the
Building and should be kept inside the Demised Premises locked at all
times.
15. Tenant agrees not to allow or permit either by the Tenant or its agents,
employees, licensees, invitees or visitors, a pet (domestic or
otherwise) on the Premises or in the Demised Premises, the exception
being a "seeing-eye" dog.
<PAGE>
EXHIBIT "F"
SAMPLE IRREVOCABLE LETTER OF CREDIT
November 27, 1998
Wayne Realty Trust
c/o: Haynes Management, Inc.
34 Washington Street; Suite DEC7
Wellesley Hills, MA 02481-1909
Re: IRREVOCABLE LETTER OF CREDIT
Dear Sir/Madam:
At the request and upon the instructions of DIRECT HIT TECHNOLOGIES, INC., with
current place of business at 386 Washington Street, Playhouse Square, Wellesley
Hills, MA 02481-6218, we hereby issue our Irrevocable Standby Letter of Credit
No._______________ in your favor for the aggregate amount of ONE HUNDRED FIFTY
THOUSAND & 00/100 US DOLLARS (USD$150,000.00) effective the date hereof and
expiring on January 1, 2000, available by your draft(s) at sight drawn on
(BANK), ___(ADDRESS)_______, Massachusetts (zip CODE) when accompanied by the
following:
1. The original of this Letter of Credit, and
2. Your signed statement certifying that (1) an uncured default has
occurred under a certain Lease dated December _____, 1998 between Wayne
Realty Trust, as Landlord, and Direct Hit Technologies, Inc., as
Tenant, covering certain Premises located at 888 Worcester Street,
Wellesley, Massachusetts, 02482 AND THE AMOUNT DRAWN IS AN AMOUNT
NECESSARY TO CURE SUCH DEFAULT or (2) said Letter of Credit is not
extended for another twelve (12) month period at least thirty days
prior to the expiration of this Letter of Credit.
Each draft must bear upon its face the clause "Drawn under ____(BANK)_____
Irrevocable Standby Letter of Credit No. _______________.
It is a condition of this Letter of Credit that it shall be deemed automatically
extended without amendment for additional periods of one (1) year up until
December 31, 2001, (being the final expiration date), from the present or each
future expiration date hereof, unless, at least thirty (30) days prior to such
date we have notified you in writing by registered, certified or express courier
mail to the above address that we elect not to renew this Letter of Credit for
any such additional period.
This Letter of Credit sets forth in full the terms of our understanding and such
undertaking shall not in any way be modified, amended or amplified by reference
to any document, instrument or agreement referred to herein or in which this
Letter of Credit is referred to or to which this Letter of Credit incorporate
herein by reference any document, instrument or agreement.
This Letter of Credit is subject to the Uniform Customs and Practice of
Documentary Credits (1993 Revision), International Chamber of Commerce,
Publication No. 500 (the "Uniform Customs") with the exceptions of Articles
48(f) and 48(g) thereof. This Letter of Credit shall, as to matters not governed
by the Uniform Customs, be governed by and construed in accordance with the laws
of the Commonwealth of Massachusetts.
<PAGE>
We hereby agree with you that all drafts drawn under and in compliance with the
terms of this credit will be duly honored if presented to the undersigned on or
before December 1, 1999 or as automatically extended to the final expiration
date noted above..
__________(BANK)______________
By:_____________________________________
Authorized Signatory
--------------------------------------
(Print Name & Title)
<PAGE>
SUBLEASE
THIS SUBLEASE AGREEMENT ("Sublease") is made on this 5th day of
November, 1999, by and between THE MATHWORKS, INC., a Delaware corporation
(hereinafter called "Sublandlord"), and DIRECT HIT TECHNOLOGIES, INC., a
Delaware corporation (hereinafter called "Subtenant").
Reference is made to a Lease Agreement dated May 16, 1997, between
Sublandlord, as tenant, and LMF Cochituate Corp., a Massachusetts corporation,
as landlord (hereinafter called "Prime Landlord") as amended pursuant to (a)
that certain First Amendment of Lease, dated May 29, 1998, between Sublandlord
and Prime Landlord; (b) that certain Second Amendment to Lease, dated April 1,
1999, between Sublandlord and Prime Landlord; and (c) that certain Third
Amendment of Lease, dated May 13, 1999, between Sublandlord and Prime Landlord
(collectively referred to herein as the "Prime Lease") for approximately 102,398
square feet on the first, second, third, fourth, fifth and basement floors
located in the building commonly known as Cochituate Place, 24 Prime Parkway,
Natick, Massachusetts ("Building") together with the right to use in common with
others the common areas of the Building and the common areas of the
approximately 4.53 acre parcel of land thereunder (the "Lot"), all as more
particularly described in the Prime Lease (hereinafter "Premises").
WHEREAS, the Sublandlord and Subtenant have agreed that Sublandlord
will sublet to Subtenant a portion of the Premises consisting of approximately
22,032 square feet located on the fifth (5th) floor of the Building ("Subleased
Premises") more particularly described in EXHIBIT A attached hereto and made a
part hereof; and
WHEREAS, Sublandlord and Subtenant hereby execute and deliver this
Sublease upon the condition precedent of obtaining the Prime Landlord's written
consent.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged and for the mutual covenants
contained herein, the parties agree as follows.
1. LEASE; COMMENCEMENT DATE; EXPIRATION DATE. Sublandlord
leases to Subtenant, and Subtenant leases from Sublandlord, the
Subleased Premises, together with any rights, privileges and easements
appurtenant thereto, for the term commencing at noon on November 18,
1999 ("Commencement Date") and ending at noon on October 31, 2002
("Expiration Date").
2. LESSEE'S ACCESS TO PREMISES. The Building is open to the
public from Monday through Friday from 8:00 A.M. to 6:00 P.M. and
Saturday from 8:00 A.M. to 1:00 P.M. Sublessee shall have access to the
Subleased Premises (24) hours per day, seven (7) days per week via a
card-key access system. Subtenant shall pay all fees associated with
its use of the card-key access system.
<PAGE>
3. CONDITION OF THE SUBLEASED PREMISES. The Subleased Premises
are leased to Subtenant in their condition on the date hereof and
Sublandlord has made no representations, warranties or promises with
respect to the Subleased Premises or the suitability thereof for the
uses contemplated by this Sublease. Subtenant agrees to accept
possession of the Subleased Premises on the Commencement Date "as is,"
in the same condition as it is on the date hereof except that (a) the
Subleased Premises shall be delivered in broom clean condition free of
all occupants; (b) to the best of Sublandlord's actual knowledge, all
HVAC, electrical, plumbing and other systems serving the subleased
Premises are in good and operational condition; and (c) Sublandlord
shall make the repairs described on EXHIBIT B attached hereto and made
a part hereof. The "Subleased Premises" shall include the furniture
described on EXHIBIT C attached hereto and made a part hereof
("Furniture"). Provided that this Sublease is in full force and effect
on the Expiration Date, and that Subtenant is not in default of any of
the terms or conditions of this Sublease, title to the Furniture shall
be transferred to Subtenant upon the Expiration Date and Sublandlord
shall deliver a Bill of Sale for the same in the form attached hereto
as EXHIBIT D. Sublandlord represents that it holds title to the
Furniture and that the Furniture is not subject to any liens or
security interests. The Furniture is and shall be provided to Subtenant
in "as is" condition and SUBLANDLORD EXPRESSLY DISCLAIMS ALL
WARRANTIES, EXPRESS OR IMPLIED, INCLUDING ANY WARRANTY OF
MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE.
4. RENT. The annual base rent ("Base Rent") shall be
$484,704.00 U.S. dollars per year (based on $22.00 per square foot for
rent, drawn on a U.S. bank, payable in advance in equal monthly
installments of $40,392.00 on the Rent Commencement Date (as defined
below) and thereafter on the first day of each calendar month in
advance. The cost of HVAC and nightly cleaning is included in the
Additional Rent. Rent shall be prorated for any partial months at the
beginning and end of the Lease term. Rent and all other charges due
hereunder shall be payable without demand, notice, set-off, or
counterclaim, except as allowed hereunder, at Sublandlord's address set
forth above or at such other places as may be set forth in notices,
from time to time, from Sublandlord to Subtenant. The "Rent
Commencement Date" shall be December 15, 1999.
5. ADDITIONAL RENT. Subtenant agrees to pay as additional rent
("Additional Rent") to Sublandlord, its proportionate share of the
amount by which real estate and personal property taxes levied or
assessed or becoming payable for or in respect to the Lot on which the
Building is located and the Building and other improvements located on
the Lot for each tax period included in the term and any partial period
at the beginning and end thereof exceed the tax base amount for Fiscal
Year 2000 (July 1, 1999 - June 30, 2000). Subtenant also agrees to pay
as additional rent to Sublandlord, its proportionate share of the
Operating Costs (as defined in the Prime Lease) in excess of the
Operating Costs incurred in the operation of the Building and Lot in
calendar year 2000. Subtenant's proportionate share is equal to 20.6%.
Any sums payable to Sublandlord under this Paragraph 5 shall be paid by
Subtenant as required under the Prime Lease.
<PAGE>
Sublandlord shall provide Subtenant with copies of all bills, invoices,
statements and reconciliations sent to Sublandlord relating to such
taxes and/or Operating Costs.
6. ELECTRICITY. Subject to the provisions of this Section, in
addition to Base Rent and Additional Rent, Subtenant shall pay a
monthly sum of $3,873.96 (based on $2.11 per square foot per annum) for
electricity to lights and plugs within the Subleased Premises.
Subtenant shall have the right, at its expense, to perform an audit of
electricity costs after October 31, 2000. Any such audit shall be
performed by an independent accounting firm. If the audit demonstrates
that electricity costs per rentable square foot is less than $2.11 per
rentable square foot, then Sublandlord will request a refund from Prime
Landlord equal to the amount by which rent paid for electricity
exceeded the actual cost thereof, and upon receipt of such refunded
from Prime Landlord, Sublandlord shall pay a proportionate, share of
such refund to Subtenant. Sublandlord shall not be obligated to pay any
electricity refund to Subtenant under this Section 5 unless Sublandlord
actually receives a refund from Prime Landlord. Subtenant acknowledges
and agrees that Prime Landlord is under no obligation to make such a
refund and that Sublandlord is only obligated to request such a refund
from Prime Landlord.
7. PERSONAL PROPERTY TAXES. Subtenant agrees to pay to local
tax authorities and other governmental agencies throughout the term of
this Sublease all personal property taxes which may be levied against
Subtenant's merchandise, trade fixtures and other personal property in
and about the Subleased Premises.
8. USE. The Subtenant shall use the Subleased Premises only as
allowed under Section 3.8(a) of the Prime Lease.
9. SUBORDINATE TO PRIME LEASE. This Sublease and all of its
terms, covenants, representations, warranties, agreements and
conditions are in all respects subject and subordinate to the Prime
Lease, which Prime Lease has been submitted to and examined by
Subtenant. Subtenant acknowledges notice and full knowledge of all of
the terms, covenants and conditions of the Prime Lease. Except as
otherwise provided in Section 10, in the event of any inconsistency
between the provisions of this Sublease and the Prime Lease, Subtenant
agrees that it shall be bound by the stricter provision. A true copy of
the Prime Lease is attached hereto as EXHIBIT E. Capitalized terms
defined in the Prime Lease and not otherwise defined herein shall have
the meanings as in the Prime Lease. Sublandlord shall not amend, modify
or supplement the Prime Lease in any way which would materially reduce
Subtenant's rights or the services due under the Prime Lease, or
materially increase Subtenant's obligations or liabilities without
obtaining Subtenant's prior written consent , which consent shall not
be unreasonably withheld, conditioned or delayed. In the event
Sublandlord requests in writing such consent from Subtenant and
Subtenant fails to respond within five (5) business days after receipt
of written request, Subtenant shall be deemed to have consented to any
such agreement.
10. PRIME LEASE. With respect to the Subleased Premises, the
terms and conditions of the Prime Lease are hereby incorporated by
reference and made a part
<PAGE>
hereof, meaning that, as applicable, references to "Tenant" therein
shall be deemed to be "Subtenant" hereunder, references to "Landlord"
therein shall be deemed to be "Sublandlord" hereunder, references to
"Premises" shall be deemed to be "Subleased Premises", references to
"Commencement Date" shall be deemed to be "Commencement Date" (as
defined herein), references to "Termination Date" shall be deemed to be
"Expiration Date", references to "Lease" shall be deemed to be
"Sublease", provided (i) Prime Landlord shall continue to have all
rights set forth in the Prime Lease (notwithstanding the fact that
Sublandlord shall also have the same rights under this Sublease), and
(ii) Sublandlord shall not be deemed to have assumed any of the
obligations of Prime Landlord as a result of the incorporation of the
Prime Lease.
Notwithstanding the foregoing, the following provisions of the
Prime Lease are not incorporated herein: (a) the initial three
unnumbered paragraphs of the Prime Lease; (b) Article I; (c) provisions
in Article II which state the amount of Base Rent and Additional Rent;
(d) the first three sentences of Section 3.3; (e) Section 3.8(b); (f)
references in Section 5.1 to "Article II" shall be replaced with
"Sections 4, 5, and 6"; (g) the phrase "the cost of the same to be
borne by Tenant as an operating cost" in Section 6.2; (h) Section 7.4;
(i) Article IX; (j) Article X; (k) Article XI; (l) Paragraphs 1, 2 and
3 of Rider A to the Prime Lease; (m) Exhibits A, B and D to the Prime
Lease; and (n) the amendments to the Prime Lease. In addition, with
respect to Section 4.1 as incorporated herein, Sublandlord shall not
have the Prime Landlord's right to terminate this Sublease unless Prime
Landlord exercises such right under the Prime Lease. Sublandlord shall
use reasonable efforts to obtain the performance by Prime Landlord of
its obligations under the Prime Lease upon the written request of
Subtenant.
11. SUBTENANT OBLIGATIONS UNDER PRIME LEASE. For so long as
the Prime Lease remains in full force and effect, Subtenant agrees to
perform, fulfill, and observe all of the covenants, agreements,
obligations, conditions, representations, warranties, terms and
provisions imposed upon Sublandlord as tenant of the Subleased Premises
under the Prime Lease, provided, however, that Subtenant shall not be
obligated to perform any obligations of Sublandlord to the extent such
obligations are inconsistent or in conflict with the terms of this
Sublease. Subtenant agrees to indemnify and hold Sublandlord harmless
from and against all claims, liabilities, losses and damages of any
kind whatsoever which Sublandlord may incur by reason of Subtenant's
failure to perform, fulfill or observe any of the covenants or
agreements set forth herein or the applicable provisions set forth in
the Prime Lease to the extent such are Subtenant's obligations
hereunder. Sublandlord agrees to indemnify, defend and hold harmless
Subtenant from and against all claims, liabilities, losses and damages
of any kind whatsoever which Subtenant may incur by reason of
Sublandlord's failure to perform , fulfill or observe any of the
covenants or agreements set forth herein or its covenants or agreements
under the Prime Lease. The foregoing shall survive the expiration or
earlier termination of this Sublease.
12. TERMINATION. Sublandlord shall not voluntarily agree to a
termination of the term of the Prime Lease prior to the Expiration
Date. If the Prime Lease terminates as
<PAGE>
a result of the default or breach by Sublandlord or Subtenant under
this Sublease and/or the Prime Lease, the defaulting party shall be
liable to the non-defaulting party for damages suffered as a result of
such termination. Notwithstanding the foregoing, if the Prime Landlord
is prepared to enter into a direct lease with Subtenant on no less than
the same economic terms as contained in this Sublease, Sublandlord
shall not have liability to Subtenant as a result of any such
termination of the Prime Lease. *reasonable and direct
13. ALTERATIONS. Notwithstanding the Prime Lease, Subtenant
shall not make any structural alterations or additions to the Subleased
Premises nor make any alterations or additions affecting basic building
systems without (a) the prior written consent of Sublandlord, which
consent shall not be unreasonably withheld, conditioned or delayed, and
(b) the consent of Prime Landlord as provided in the Prime Lease. Any
alterations made by Subtenant are subject to the terms and conditions
set forth below:
(a) All work shall be performed in accordance with
plans and specifications and by mechanics reasonably
acceptable to Prime Landlord and Sublandlord;
(b) Subtenant shall cause such work to be completed
in good and workmanlike manner and in compliance with any and
all applicable federal, state or local laws, codes,
ordinances, rules and regulations, including, but not limited
to, any demolition, building, zoning, health and environmental
laws, codes or ordinances, rules and regulations;
(c) Subtenant shall at all times remain responsible
for the actions of its consultants, representatives,
employees, agents, contractors and subcontractors and any
other parties responsible for any portion of the work;
(d) Subtenant shall not create or suffer or permit
any lien, charge or encumbrance to attach to or be filed
against the Subleased Premises, including, but not limited to,
any mechanics' lien, materialmen's lien or other claims for
lien made by parties claiming to have provided labor or
material to the Subleased Premises;
(e) Subtenant shall indemnify and hold Sublandlord
harmless from and against any and all losses, damages, costs
(including costs of suits and attorneys' fees), liabilities or
causes of action arising out of or relating to the work;
(f) Subtenant shall remain in substantial compliance
with all of the terms of this Sublease and shall not be in
default hereunder, unless Subtenant has the right to and is
proceeding to cure such default; and
(g) Subtenant shall and does hereby indemnify and
hold Sublandlord harmless from any and all claims, damages and
liability to Prime Landlord in connection with or resulting
from Subtenant's making, use, maintenance or
<PAGE>
removal of trade fixtures and trade equipment from the
Subleased Premises to the extent permitted in the Prime
Lease.
14. ASSIGNMENT AND SUBLETTING. Subtenant shall not assign or
sublease this Sublease without the prior written consent of Sublandlord
which consent shall not be unreasonably withheld, conditioned or
delayed, and the prior written consent of Prime Landlord as provided in
the Prime Lease. In addition, Subtenant shall reimburse Sublandlord and
Prime Landlord promptly for reasonable legal expenses incurred by each
of Sublandlord and Prime Landlord (not to exceed $1,500.00 each) in
connection with any request by Subtenant for such consent. In the event
of such assignment or subletting by Subtenant, one-half of any rent
received by Subtenant in excess of that provided in this Sublease less
the cost(s) chargeable to acquisition of a sub-subtenant shall be paid
to Sublandlord as additional rent as and when received by Subtenant.
15. CASUALTY AND CONDEMNATION. Sublandlord shall have no
obligation to repair or restore the Subleased Premises, whether in the
event of fire or casualty or otherwise, and Sublandlord shall have no
obligation to Subtenant if all or part of the Subleased Premises are
taken in condemnation or by eminent domain proceedings. To the extent
that Sublandlord obtains compensation from Prime Landlord in the event
of condemnation or eminent domain proceedings, Subtenant shall be
entitled to a proportionate share of such compensation based on the
square footage of the Subleased Premises, and Subtenant shall have the
same termination rights as Sublandlord would have under the Prime Lease
as incorporated herein.
16. INSURANCE. Subtenant shall maintain, throughout the term
hereof at its sole cost and expense, insurance identical in all
respects to that required to be carried by Sublandlord under the Prime
Lease. The aforesaid insurance shall (i) be written by companies
licensed to do business in Massachusetts and reasonably acceptable to
Sublandlord, (ii) not be subject to cancellation, amendment or
modification except after at least thirty (30) days prior written
notice to Sublandlord and (iii) name Sublandlord and Prime Landlord as
additional insureds. The original insurance policies (or certificates
of insurance reasonably satisfactory to Sublandlord) shall be deposited
with Sublandlord prior to the commencement of the term of this Sublease
and renewals thereof shall be deposited with Sublandlord not less than
thirty (30) days prior to the end of the term of such coverage.
17. SIGNAGE. Subtenant shall have the right to place and
maintain at its sole expense, signage on the entrance door to the
Subleased Premises and the building directory, subject to Prime
Landlord's and Sublandlord's reasonable consent as to size, design and
shape.
18. PRIME LANDLORD'S CONSENT CONTINGENT. This Sublease is
contingent upon obtaining Prime landlord's written consent to all of
the terms and conditions of this Sublease. Sublandlord shall use
diligent good-faith efforts to obtain the Prime Landlord's consent to
this Sublease prior to the Commencement Date. In the event Prime
Landlord's
<PAGE>
consent to the terms and conditions of this Sublease is not obtained
within ten (10) business days of the execution of this Sublease,
Subtenant shall have the right to terminate this Sublease by written
notice to Sublandlord and, upon delivery of such notice, Sublandlord
shall return the Security Deposit and this Sublease shall terminate. In
no event shall the Rent Commencement Date occur until an executed copy
of the Prime Landlord's consent is delivered to Subtenant.
19. HOLDING OVER. If Subtenant remains on the Subleased
Premises after the expiration of the term of this Sublease or after any
earlier termination provided for herein (unless due to a default of
Sublandlord under the Prime Lease), then such holding over shall not be
deemed to extend or renew the term of this Sublease or to create any
tenancy at will, but such holding over shall be as a
tenancy-at-sufferance only subject to all the provisions of this
Sublease. In addition, Subtenant shall indemnify and hold harmless from
and against all liability, damages, and claims incurred by in
connection with the holding over of Subtenant including, without on,
any liability of Sublandlord to Prime Landlord (unless due to a default
of Sublandlord under the Prime Lease). Notwithstanding the foregoing,
Sublandlord may, at its option, regain possession of the Subleased
Premises or any part thereof by any and all means available to
Sublandlord under this Sublease, the Prime Lease, or at law.
20. SECURITY DEPOSIT. Subtenant shall pay Sublandlord a
security deposit of Eighty Eight Thousand Five Hundred Thirty One
Dollars Ninety Two Cents ($88,531.92) concurrently with the execution
of this Sublease. Provided that Subtenant is not in default at the time
of payment of rent for the twenty-fifth month of the term of this
Sublease, Forty-Four Thousand Two Hundred Sixty-Five Dollars and
Ninety-Six Cents ($44,265.96) of the Security Deposit shall be applied
toward Base Rent and Additional Rent then due. Upon the expiration or
earlier termination of the term of this Sublease, the remaining balance
of the Security Deposit shall be returned to Subtenant.
21. BROKERAGE REPRESENTATIONS. Sublandlord and Subtenant
represent and warrant that they have had no dealings with any brokers
in connection with this Sublease other than R. W. Holmes Realty Co.,
Inc. and Fallon, Hines & O'Connor and will indemnify and hold harmless
each other from and against any loss or expense suffered by either
party as a result of such dealings with any other broker or agent.
Sublandlord shall pay a commission to R.W. Holmes Realty Co., Inc.
pursuant to its listing agreement, said commission to be split 50%/50%
with Fallon, Hines & O'Connor.
22. NOTICES. Any notice required hereunder shall be deemed to
have been given if delivered Certified Mail, Return Receipt Requested,
or by overnight courier such as Federal Express, to:
If to Prime Landlord: LMF Cochituate Corp.
182 West Central Street
Natick, Massachusetts 01760
Attention: Lou Franchi
<PAGE>
If to Sublandlord: The Mathworks, Inc.
3 Apple Hill
Natick, Massachusetts 0 1 760
Attention: Jeanne O'Keefe
With a copy to: Palmer & Dodge LLP
One Beacon Street
Boston, Massachusetts 02108
Attention: Jane Thomassen, Esq.
If to Subtenant: Direct Hit
24 Prime Parkway
5th Floor
Natick, Massachusetts 01760
Attention: John McDonough
With a copy to: Testa, Hurwitz & Thibeault, LLP
125 High Street,
High Street Tower Boston,
Massachusetts 02110
Attention: Joseph R. Torpy
Any party may change its address for notice by notifying the other
parties as aforesaid.
23. NO PARTNERSHIP. Sublandlord shall not be held to be a
partner, joint venturer, or associate of Subtenant in the conduct of
its business, it being expressly understood and agreed that the
relationship between the parties hereto is and at all times shall
remain that of Sublandlord and Subtenant.
24. ENTIRE AGREEMENT. All prior understandings and agreements
between the parties are merged within this Sublease, which alone fully
and completely sets forth the understanding of the parties, and this
Sublease may not be changed or terminated orally or in any manner other
than by an agreement in writing and signed by the party against whom
enforcement of the change or termination is sought.
25. BINDING EFFECT. The covenants and agreements herein
contained shall bind and inure to the benefit of Sublandlord and
Subtenant and their respective successors and assigns.
26. GOVERNING LAW. The Sublease and all rights and remedies
thereunder shall be governed by the law of the Commonwealth of
Massachusetts.
<PAGE>
27. SUBTENANT'S REPRESENTATIONS AND WARRANTIES. Subtenant
represents and warrants that the person executing this Sublease on
behalf of Subtenant is authorized to do so on behalf of the Subtenant.
28. SUBLANDLORD'S REPRESENTATIONS AND WARRANTIES. Sublandlord
represents, to its actual knowledge, and warrants and covenants, to its
actual knowledge, as follows:
(a) the copy of the Prime Lease attached hereto as
Exhibit B is true, accurate and complete, and has not been
modified, amended or terminated (as it applies to the
Subleased Premises) and is in full force and effect;
(b) the term of the Prime Lease as to the Subleased
Premises expires after October 31, 2002;
(c) Sublandlord is not in default under the Prime
Lease, nor Sublandlord done or failed to do anything which
with notice, the passage of time or both could ripen into a
default;
(d) Prime Landlord is not in default under the Prime
Lease, nor has Prime Landlord done or failed to do anything
which with notice, the passage of time or both could ripen
into a default;
(e) all Base Rent, Additional Rent and any other
charges due and payable under the Prime Lease have been paid
as billed or required in the normal course through the date of
this Sublease;
(f) all consents and approvals required to allow this
Sublease to be valid and effective (other than Prime
Landlord's consent) have been obtained;
(g) the person executing this Sublease on behalf of
Sublandlord is authorized to do so on behalf of the
Sublandlord, and
(h) Sublandlord will not extend the term of the Prime
Lease with respect to the Subleased Premises.
29. CONSENTS. Sublandlord acknowledges and agrees that (i) in
any case under this Sublease that requires the consent or approval of
both Prime Landlord and Sublandlord, Sublandlord agrees to submit the
matter to be so consented to or approved to Prime Landlord and (ii) in
the event that the consent or approval of any matter is not required of
Prime Landlord under the Prime Lease, no such consent or approval of
Sublandlord shall be required hereunder, unless, pursuant to the
express terms of this Sublease, Sublandlord's consent or approval is
required, in which event Sublandlord agrees that it shall not
unreasonably withhold or delay its consent or approval with respect
thereto. In connection with any matter requiring the consent or
approval of Prime Landlord under this Sublease, Sublandlord agrees to
cooperate with and assist Subtenant
<PAGE>
in obtaining such Prime Landlord's consent or approval at Subtenant's
sole cost and expense.
<PAGE>
SUBTENANT'S OPTION TO EXTEND
Subtenant (Direct Hit) shall have the right, exercisable no more than one (1)
time and provided Subtenant is not in default, beyond any applicable notice,
grace or cure period, at either time of exercise or upon the original
Termination Date to extend the Termination Date for the fifth floor premises of
22,032 rentable square, feet in the building commonly known as Cochituate Place,
24 Prime Parkway, Natick, Massachusetts for a period of five (5) additional
years (November 1, 2002 - October 31, 2007) at the then Fair Market Rent, as
determined below but in no event that $24.00 per rentable square foot. Subtenant
must exercise their extension option in writing on or before November 1, 2001.
Fair Market Rent shall be determined as follows: Landlord and Subtenant shall
agree on the then prevailing Fair Market Rent within fifteen (15) days of
Landlord's receipt of Subtenant's notice of extension. If the parties am unable
to reach agreement on the then prevailing Fair Market Rent by such date then
Subtenant shall have the right to rescind its notice of extension by delivering
to Landlord within five (5) business days thereafter written notice or
rescission of Subtenant's exercise of its option to extend. In the event
Landlord and Subtenant can not agree upon the then prevailing Fair Market Rent,
and Subtenant has not so rescinded its notice of extension, the following
procedure shall be followed. Each will select an appraiser or commercial real
estate broker with five or more years experience in the Natick rental market who
will jointly determine the market rent. If the appraisers and/or brokers so
selected cannot agree upon the market rent within twenty-one (21) days of their
selection, the appraisers and/or brokers so named shall select a third similarly
qualified appraiser or broker and the decision as to the market rent of any two
of the appraisers and/or brokers so selected shall bind the parties.
Both Subtenant and Landlord understand that the option to extend is subject to
the following: 1) review of Subtenant's financials and a mutually agreeable
security deposit, and 2) a mutually agreeable lease which must be executed by
December 15, 2001.
LANDLORD: LMF COCHITUATE CORP.
By: /s/ Pasquale Franchi
-----------------------------------
Pasquale Franchi, President
SUBTENANT: DIRECT HIT
By: /s/ Michael Cassidy
-----------------------------------
Duly Authorized
<PAGE>
MATHWORKS, INC.
SUBLEASE PUNCH LIST
EXHIBIT B
1. ALL HOLES IN WALLS 1/2 DIAMETER OR LARGER WILL BE PATCHED AND MADE READY
FOR PRIMER AND PAINT.
2. ALL WALL SCONCE LIGHTING WILL BE IN GOOD WORKING ORDER THROUGHOUT ENTIRE
PREMISE
3. ALL FLUORESCENT LIGHTING WILL BE IN GOOD WORKING ORDER THROUGHOUT ENTIRE
PREMISE
4. ALL RECESSED LIGHTING WILL BE IN GOOD WORKING ORDER THROUGHOUT THE ENTIRE
PREMISE
5. ALL TRASH WILL BE REMOVED
6. ALL FURNITURE WILL REMAIN IN THE SPACE
7. ALL WHITEBOARDS WILL REMAIN THAT IS IN THE SPACE
8. ALL ATLAS WATER COOLERS WILL REMAIN
9. WINDOWS IN OFFICES AND WALL PANELS WILL BE CLEANED
10 A THOROUGH OFFICE CLEANING AND VACUUMING, RUG CLEANING WILL BE COMPLETED
11. ALL DAMAGED CEILING TILES WILL BE REPLACED THROUGHOUT THE ENTIRE PREMISE
12. ANY MISSING OFFICE WINDOW BLINDS WILL BE REPLACED
13. REPLACE ANY MISSING BASE MOLDING
14. GLUE ANY LOOSE BASE MOLDING
15. REMOVE DISHWASHER
16. REPAIR ALL WATER DAMAGE THROUGH ENTIRE PREMISE
<PAGE>
EXHIBIT C
DESCRIPTION OF FURNITURE
<PAGE>
EXHIBIT D
BILL OF SALE
In consideration of $10.00 paid and other valuable consideration, the
receipt of which is acknowledged, The Mathworks, Inc., a Delaware corporation
(the "Seller"), hereby unconditionally and irrevocably sells, conveys, transfers
and delivers to Direct Hit Technologies, Inc., a Delaware corporation (the
"Buyer"), the property listed on Exhibit A attached to this Bill of Sale (the
"Property"). Seller warrants to Buyer that Seller is the lawful owner of the
Property, that there is no assignment, mortgage or pledge of, or other
encumbrance upon, the Property, and that Seller has full right to sell the
Property.
EXECUTED under seal as of October 31, 2002.
The MathWorks, Inc.
By:
----------------------------
Name:
Title:
<PAGE>
EXHIBIT E
PRIME LEASE
<PAGE>
IN WITNESS WHEREOF the parties hereto set their hands and seals this
5th day of November, 1999.
SUBLANDLORD:
ATTEST: THE MATHWORKS, INC.
- ---------------------------
/s/ Mathworks, Inc.
-------------------------------
SUBTENANT:
ATTEST: DIRECT HIT
- ----------------------- By: /s/ Michael Cassidy
-------------------------------
Its: CEO
-------------------------------
<PAGE>
THE MATHWORKS
5TH FLOOR - JESPER FURNITURE
NOVEMBER 2, 1999
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
DESKS QTY
---
<S> <C> <C> <C>
Corner Desk JESPER-1000 42" x 24" 1
Full Desk JESPER-1000 62" x 30" 93
Full Return JESPER-1000 62" x 24" 59
FILES
3 Drawer Pedestal JESPER-1000 18"w x 27"h x 19.5"d 4
2 Drawer Ped Attached JESPER-1000 27
BOOKCASES
Tall JESPER-700 30"w x 69.5"h x 13"d 6
ACCESSORIES
Whiteboards 37
Greyboards 38
-------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Exhibit 10.7
DIRECT HIT TECHNOLOGIES, INC.
SECOND AMENDED AND RESTATED RIGHTS AGREEMENT
This Second Amended and Restated Rights Agreement (the "Agreement") is
entered into as of the 16th day of July, 1999, by and among Direct Hit
Technologies, Inc., a Delaware corporation (the "Company"), the undersigned
purchasers of Series C Preferred Stock of the Company (the "Purchasers") and the
undersigned holders of Series B Preferred Stock and Series A Preferred Stock of
the Company (collectively, the "Prior Purchasers") (Prior Purchasers and
Purchasers may be collectively referred to as "Preferred Purchasers"), Gary
Culliss and Michael Cassidy (collectively referred to as the "Founders" and
singularly a "Founder") and David Parker ("Parker").
RECITALS
A. The Prior Purchasers and the Founders are parties to that certain
Amended and Restated Rights Agreement dated as of November 12, 1998 among the
Company and such Prior Purchasers and Founders (the "Prior Agreement").
B. Concurrently herewith, the Purchasers and the Company are entering
into a Series C Preferred Stock Purchase Agreement (the "Series C Agreement")
pursuant to which the Purchasers are purchasing from the Company shares of its
Series C Preferred Stock.
C. The Prior Purchasers beneficially owning at least two-thirds of the
Company's outstanding shares held by all Prior Purchasers which are subject to
the Prior Agreement wish to amend the Prior Agreement to grant registration,
information and co-sale rights to the Purchasers identical to the registration,
information and co-sale rights of the Prior Purchasers.
D. The Purchasers desire to become a party to the Prior Agreement as
amended and restated hereby.
E. By this Agreement, the Company, the Purchasers, Prior Purchasers,
Founders and Parker desire to provide for certain registrations and other rights
as set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises and covenants contained herein, the parties agree as follows:
1. REGISTRATION RIGHTS.
1.1 CERTAIN DEFINITIONS. As used in this Agreement, the
following terms shall have the following respective meanings:
1
<PAGE>
(a) "COMMISSION" shall mean the Securities and Exchange
Commission or any other federal agency at the time administering the Securities
Act (as defined below).
(b) "CONVERSION STOCK" means the Common Stock issued or
issuable upon conversion of the Series A, Series B and Series C Preferred Stock
(which shares of Series A, Series B and Series C Preferred Stock are referred to
herein as the "Preferred Shares").
(c) "EXCHANGE ACT" shall mean the Securities Exchange
Act of 1934, as amended, or any similar federal statute and the rules and
regulations of the Commission thereunder, all as the same shall be in effect at
the time.
(d) "HOLDER" shall mean any stockholder of the Company
holding Registrable Securities (including Series A, Series B and Series C
Preferred Stock) and any person holding Registrable Securities to whom the
rights under this Section 1 have been transferred in accordance with Sections
1.11 and 4.3 hereof.
(e) "INITIATING HOLDERS" shall mean any Series A or
Series B Preferred Stock Holder or Holders of at least forty percent (40%) of
the Series A or Series B Registrable Securities (adjusted after the original
issuance thereof for stock splits, stock dividends, recapitalizations and the
like).
(f) "INITIATING PREFERRED C HOLDERS" shall mean any
Series C Preferred Stock Holder or Holders of at least fifty percent (50%) of
the Series C Registrable Securities (adjusted after the original issuance
thereof for stock splits, stock dividends, recapitalizations and the like).
(g) "QUALIFYING PUBLIC OFFERING" shall mean a firm
commitment underwritten public offering pursuant to an effective registration
statement on Form S-1 (or a successor form) under the Securities Act covering
the offer and sale of Common Stock for the account of the Company to the public
at an offering price of at least $11.87 per share (as adjusted for any
combinations, stock splits, stock dividends, recapitalizations and the like)
that values the Company at not less than $253 million and results in gross
proceeds to the Company of at least $20 million.
(h) "REGISTRABLE SECURITIES" means (i) the Conversion
Stock; or (ii) stock issued in respect of the stock referred to in (i) as a
result of a stock split, stock dividend, recapitalization or the like, which has
not been sold to the public. Except for subsections 1.2, 1.4, 1.10, 2.1, 3.1,
3.2 and 4.4, Registrable Securities shall include shares of Common Stock of the
Company issued or issuable to the Founders and to those officers and directors
of the Company to whom the Board of Directors of the Company by unanimous vote
extends the registration rights contained in subsection 1.3.
(i) The terms "REGISTER," "REGISTERED" and
"REGISTRATION" refer to a registration effected by preparing and filing a
registration statement in compliance with the Securities Act, and the
declaration or ordering of the effectiveness of such registration statement.
2
<PAGE>
(j) "REGISTRATION EXPENSES" shall mean all expenses,
except as otherwise stated below, incurred by the Company in complying with
Sections 1.2, 1.3 and 1.4 hereof, including, without limitation, all
registration, qualification and filing fees, printing expenses, escrow fees,
fees and disbursements of counsel for the Company, blue sky fees and expenses,
the expense of any special audits incident to or required by any such
registration (but excluding the compensation of regular employees of the Company
which shall be paid in any event by the Company) and the reasonable fees and
disbursements of one counsel for all Holders in the event of each registration
provided for in Sections 1.2, 1.3 and 1.4 hereof.
(k) "SECURITIES ACT" shall mean the Securities Act of
1933, as amended, or any similar federal statute and the rules and regulations
of the Commission thereunder, all as the same shall be in effect at the time.
(l) "SELLING EXPENSES" shall mean all underwriting
discounts, selling commissions and stock transfer taxes applicable to the
securities registered by the Holders and, except as set forth above, all
reasonable fees and disbursements of counsel for the selling Holders.
1.2 REQUESTED REGISTRATION.
(a) REQUEST FOR REGISTRATION. In case the Company shall
receive from Initiating Holders or Initiating Preferred C Holders a written
request that the Company effect any registration in either case with respect to
at least twenty percent (20%) of their Registrable Securities, or any lesser
percentage if the reasonably anticipated aggregate receipts to the Company, net
of underwriting discounts and commissions, would exceed $2,000,000, the Company
will:
(i) promptly give written notice of the proposed
registration, qualification or compliance to all other Holders; and
(ii) as soon as practicable, use its best efforts
to effect such registration, qualification or compliance (including, without
limitation, appropriate qualification under applicable blue sky or other state
securities laws and appropriate compliance with applicable regulations issued
under the Securities Act and any other governmental requirements or regulations)
as may be so requested and as would permit or facilitate the sale and
distribution of all or such portion of such Registrable Securities as are
specified in such request, together with all or such portion of the Registrable
Securities of any Holder or Holders joining in such request as are specified in
a written request received by the Company within twenty (20) days after receipt
of such written notice from the Company; PROVIDED, HOWEVER, that the Company
shall not be obligated to take any action to effect any such registration,
qualification or compliance pursuant to this Section 1.2:
(A) In any particular jurisdiction in which
the Company would be required to execute a general consent to service of process
in effecting such registration, qualification or compliance unless the Company
is already subject to service in such jurisdiction and except as may be required
by the Securities Act;
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(B) At any time prior to the earlier of (i)
one hundred eighty days (180) after the effective date of the Company's initial
public offering of its securities pursuant to a registration statement declared
effective under the Securities Act or (ii) April 27, 2001;
(C) Within ninety (90) days of the effective
date of any registration statement pertaining to securities of the Company
(other than a registration of securities in a Rule 145 transaction or with
respect to an employee benefit plan);
(D) After the Company has effected four (4)
such registrations pursuant to this Section 1.2(a), and such registrations have
been declared or ordered effective, at which time the Company will be deemed to
have satisfied its obligations to register underlying Common Stock for purposes
of this Section 1.2(a)(ii)(D)).
Subject to the foregoing clauses (A) through (D), the Company shall file
a registration statement covering the Registrable Securities so requested to be
registered as soon as practicable after receipt of the request or requests of
the Initiating Holders.
(b) UNDERWRITING. In the event that a registration
pursuant to Section 1.2 is for a registered public offering involving an
underwriting, the Company shall so advise the Holders as part of the notice
given pursuant to Section 1.2(a)(i). In such event, the right of any Holder to
participate in such registration shall be conditioned upon such Holder's
participation in the underwriting arrangements required by this Section 1.2, and
the inclusion of such Holder's Registrable Securities in the underwriting to the
extent requested shall be limited to the extent provided herein.
The Company shall (together with all Holders proposing to distribute
their securities through such underwriting) enter into an underwriting agreement
in customary form with the managing underwriter selected for such underwriting
by a majority in interest of the Initiating Holders, but subject to the
Company's reasonable approval. Notwithstanding any other provision of this
Section 1.2, if the managing underwriter advises the Initiating Holders in
writing that marketing factors require a limitation of the number of shares to
be underwritten, then the Company shall so advise all participating Holders and
the number of shares of Registrable Securities that may be included in the
registration and underwriting shall be allocated among all Holders thereof in
proportion, as nearly as practicable, to the respective amounts of Registrable
Securities held by such Holders at the time of filing the registration
statement. No Registrable Securities excluded from the underwriting by reason of
the underwriter's marketing limitation shall be included in such registration.
To facilitate the allocation of shares in accordance with the above provisions,
the Company or the underwriters may round the number of shares allocated to any
Holder to the nearest one hundred (100) shares.
If any Holder of Registrable Securities disapproves of the terms of the
underwriting, such person may elect to withdraw therefrom by written notice to
the Company, the managing underwriter and the Initiating Holders. The
Registrable Securities, and/or other securities so withdrawn shall also be
withdrawn from registration, and such securities shall not be transferred in a
public distribution prior to ninety (90) days after the effective date of such
registration, or such other shorter period of time as the underwriters may
require.
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If the underwriter has not limited the number of Registrable Securities
to be underwritten, the Company may include securities for its own account (or
for the account of other purchasers) in such registration if the managing
underwriter so agrees and if the number of Registrable Securities that would
otherwise have been included in such registration and underwriting will not
thereby be limited.
1.3 COMPANY REGISTRATION.
(a) NOTICE OF REGISTRATION. If at any time or from time
to time the Company shall determine to register any of its securities, either
for its own account or the account of a security holder or holders, other than
(i) a registration relating solely to employee benefit plans, (ii) a
registration relating solely to a Commission Rule 145 transaction or (iii) a
registration effected pursuant to Sections 1.2 or 1.4 hereof, the Company will:
(i) promptly give to each Holder written notice
thereof; and
(ii) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any underwriting
involved therein, all the Registrable Securities specified in a written request
or requests, made within twenty (20) days after receipt of such written notice
from the Company, by any Holder.
(b) UNDERWRITING. If the registration of which the
Company gives notice is for a registered public offering involving an
underwriting, the Company shall so advise the Holders as a part of the written
notice given pursuant to Section 1.3(a)(i). In such event the right of any
Holder to registration pursuant to Section 1.3 shall be conditioned upon such
Holder's participation in such underwriting to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting shall
(together with the Company and the other holders distributing their securities
through such underwriting) enter into an underwriting agreement in customary
form with the managing underwriter selected for such underwriting by the
Company, but subject to the reasonable approval of Holders holding more than a
majority of the Registrable Securities to be included in such registration.
Notwithstanding any other provision of this Section 1.3, if the managing
underwriter determines that marketing factors require limitation of the number
of shares to be underwritten, the managing underwriter may limit the Registrable
Securities to be included in such registration. The Company shall so advise all
Holders and other holders distributing their securities through such
underwriting and the number of shares of securities that may be included in the
registration and underwriting (other than in behalf of the Company) shall be
allocated among all Holders and such other holders (provided that such other
holders have contractual rights to participate in such registration which are
not subordinate to the Holders) in proportion, as nearly as practicable, to the
respective amounts of Registrable Securities or other securities requested to be
included in such registration by such Holders and such other holders; PROVIDED,
HOWEVER, in no event shall the amount of Registrable Securities of the Holders
included in the offering be reduced below thirty percent (30%) of the total
amount of securities included in such offering, unless such offering is the
initial public offering of the Company's securities in which case the Holders
may be excluded entirely if the underwriters make the determination described
above or the Holders holding a majority of the Registrable Securities consent in
writing to such a reduction. To facilitate the allocation of shares in
accordance with the above provisions, the Company may round the
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number of shares allocated to any Holder or holder to the nearest one hundred
(100) shares. If any Holder or holder disapproves of the terms of any such
underwriting, he may elect to withdraw therefrom by written notice to the
Company and the managing underwriter. Any securities excluded or withdrawn from
such underwriting shall be withdrawn from such registration, and shall not be
transferred in a public distribution prior to ninety (90) days after the
effective date of the registration statement relating thereto, or such other
shorter period of time as the underwriters may require.
(c) PARTICIPATION OF FOUNDERS, OFFICERS, DIRECTORS AND
EMPLOYEES. Upon any sale by the Company of shares of its Common Stock to the
public in a firmly underwritten public offering, the Founders and any other
officer, director or employee designated by the Company's Board of Directors
shall be entitled to include any of their shares of Common Stock in any
registration by the Company under this subsection 1.3, if such persons who
choose to include any of their securities in such registration shall continue to
serve the Company as officer, director or employee on the effective date of such
registration statement, and such persons agree to be bound by all other
provisions of this Agreement and participate in any such registration on the
same basis as each Holder in accordance with all applicable provisions of this
Agreement (such persons are collectively referred to as "Employee-Holders").
Notwithstanding the foregoing, if the managing underwriter advises the Company
that the inclusion of all shares requested to be registered would adversely
affect the offering, the securities of the Company held by Employee-Holders
shall be excluded from such registration and underwriting to the extent deemed
advisable by the managing underwriter, and in any event, the securities of the
Company held by any Preferred Purchaser or assignee thereof shall have priority
for inclusion of such shares in such registration and underwriting and in
respect of any underwriters cut-back of shares, ahead of any shares held by
Employee-Holders.
1.4 REGISTRATION ON FORM S-3.
(a) If any Holder or Holders holding in the aggregate
not less than five percent (5%) of the then outstanding Registrable Securities
request that the Company file a registration statement on Form S-3 (or any
successor form to Form S-3) for a public offering of shares of the Registrable
Securities the reasonably anticipated aggregate price to the public of which,
net of underwriting discounts and commissions, would exceed $250,000, and the
Company is a registrant entitled to use Form S-3 to register the Registrable
Securities for such an offering, the Company shall use its best efforts to cause
such Registrable Securities to be registered for the offering on such form and
to cause such Registrable Securities to be qualified in such jurisdictions as
the Holder or Holders may reasonably request and the Company shall use its best
efforts to keep such Form S-3 registration statement effective until the earlier
of (i) one (1) year after the effective date of such registration statement or
(ii) such time as the Registrable Securities can be sold without compliance with
the Registration Requirements of the Securities Act; PROVIDED, HOWEVER, that the
Company shall not be required to effect more than three (3) registrations
pursuant to this Section 1.4 in any twelve (12) month period. The substantive
provisions of Section 1.2(b) shall be applicable to each registration initiated
under this Section 1.4.
(b) Notwithstanding the foregoing, the Company shall not
be obligated to take any action pursuant to this Section 1.4:
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(i) in any particular jurisdiction in which the
Company would be required to execute a general consent to service of process in
effecting such registration, qualification or compliance unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act;
(ii) if the Company, within ten (10) days of the
receipt of the request of the Initiating Holders, gives notice of its bona fide
intention to effect the filing of a registration statement with the Commission
within sixty (60) days of receipt of such request (other than with respect to a
registration statement relating to a Rule 145 transaction, an offering solely to
employees or any other registration which is not appropriate for the
registration of Registrable Securities); or
(iii) within one hundred eighty (180) days of the
effective date of any registration referred to in Sections 1.2 and 1.3 above,
PROVIDED, THAT the Company is actively employing in good faith all reasonable
efforts to cause such registration statement to become effective.
1.5 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and
after the date hereof, without the approval of the holders of a majority of the
Registrable Securities, the Company shall not enter into any agreement granting
any holder or prospective holder of any securities of the Company registration
rights superior to those of the Preferred Purchasers. Upon obtaining such
approval, the Company will grant the Holders any rights of first refusal or
registration rights granted to subsequent purchasers of the Company's equity
securities to the extent such subsequent rights are superior, in the good faith
judgment of the Company's Board of Directors, to those rights granted in
connection with the issuance of the Series A, Series B and Series C Preferred
Stock to the Preferred Purchasers. Nothing in this Section 1.5 shall be deemed
to restrict the Company's right to permit individual Employee-Holders to
participate in a public offering pursuant to Section 1.3(c) above.
1.6 EXPENSES OF REGISTRATION. All Registration Expenses
incurred in connection with all registrations pursuant to Sections 1.2, 1.3 and
1.4 shall be borne by the Company; PROVIDED, HOWEVER, that the expenses in
excess of $15,000 of any special audit required in connection with a
registration pursuant to Section 1.2 shall be borne by the Holders of such
securities pro rata on the basis of the number of shares so registered. Unless
otherwise stated, all Selling Expenses relating to securities registered on
behalf of the Holders shall be borne by the Holders of such securities pro rata
on the basis of the number of shares so registered.
1.7 REGISTRATION PROCEDURES. In the case of each registration,
qualification or compliance effected by the Company pursuant to this Section 1,
the Company will keep each Holder advised in writing as to the initiation of
each registration and as to the completion thereof. At its expense the Company
will:
(a) Prepare and file with the Commission a registration
statement with respect to such securities and use its best efforts to cause such
registration statement to become and remain effective for at least one hundred
eighty (180) days or until the distribution described in the registration
statement has been completed;
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(b) Furnish to the Holders participating in such
registration and to the underwriters of the securities being registered such
reasonable number of copies of the registration statement, preliminary
prospectus, final prospectus and such other documents as such underwriters may
reasonably request in order to facilitate the public offering of such
securities;
(c) Prepare and file with the Commission such amendments
and supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to comply with
the provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement;
(d) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders, provided that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent
to service of process in any such states or jurisdictions;
(e) In the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement, in usual
and customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement;
(f) Notify each Holder of Registrable Securities covered
by 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
as a result of which the prospectus included 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 the light of the circumstances then
existing; and
(g) Use its best efforts to furnish, at the request of
any Holder requesting registration of Registrable Securities pursuant to this
Section 1, on the date that such Registrable Securities are delivered to the
underwriters for sale in connection with a registration pursuant to this Section
1, if such securities are being sold through underwriters, or, if such
securities are not being sold through underwriters, on the date that the
registration statement with respect to such securities becomes effective, (i) an
opinion, dated such date, of the counsel representing the Company for the
purposes of such registration, in form and substance as is customarily given to
underwriters in an underwritten public offering, addressed to the underwriters,
if any, and to the Holders requesting registration of Registrable Securities and
(ii) a letter dated such date, from the independent certified public accountants
of the Company, in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public offering,
addressed to the underwriters, if any, and to the Holders requesting
registration of Registrable Securities.
1.8 INDEMNIFICATION.
(a) The Company will indemnify each Holder, each of its
officers and directors and partners, and each person controlling such person
within the meaning of Section 15
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of the Securities Act, with respect to which registration, qualification or
compliance has been effected pursuant to this Section 1, and each underwriter,
if any, and each person who controls any underwriter within the meaning of
Section 15 of the Securities Act, against all expenses, claims, losses, damages
or liabilities (or actions in respect thereof), including any of the foregoing
incurred in settlement of any litigation, commenced or threatened, arising out
of or based on any untrue statement (or alleged untrue statement) of a material
fact contained in any registration statement, prospectus, offering circular or
other document, or any amendment or supplement thereto, incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading, or any violation by the Company of the
Securities Act or any rule or regulation promulgated under the Securities Act
applicable to the Company in connection with any such registration,
qualification or compliance, and the Company will reimburse each such Holder,
each of its officers and directors, and each person controlling such Holder,
each such underwriter and each person who controls any such underwriter, for any
legal and any other expenses reasonably incurred in connection with
investigating, preparing or defending any such claim, loss, damage, liability or
action, provided that the Company will not be liable to any such person in any
such case to the extent that any such claim, loss, damage, liability or expense
arises out of or is based on any untrue statement or omission (or alleged untrue
statement or omission), made in reliance upon and in conformity with written
information furnished to the Company by an instrument duly executed by such
Holder, controlling person or underwriter and stated to be specifically for use
therein or the preparation thereby.
(b) Each Holder, severally and not jointly, will, if
Registrable Securities held by such Holder are included in the securities as to
which such registration, qualification or compliance is being effected,
indemnify the Company, each of its directors and officers, each underwriter, if
any, of the Company's securities covered by such a registration statement, each
person who controls the Company or such underwriter within the meaning of
Section 15 of the Securities Act, and each other such Holder, each of its
officers and directors and each person controlling such Holder within the
meaning of Section 15 of the Securities Act, against all claims, losses, damages
and liabilities (or actions in respect thereof) arising out of any untrue
statement (or alleged untrue statement) of a material fact contained in any
registration statement, prospectus, offering circular or other document, or any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
will reimburse the Company, such Holders, such directors, officers, persons,
underwriters or control persons for any legal or any other expenses reasonably
incurred in connection with investigating, preparing or defending any such
claim, loss, damage, liability or action, in each case to the extent, but only
to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by an instrument
duly executed by such Holder and stated to be specifically for use therein or
the preparation thereby. Notwithstanding the foregoing, the liability of each
Holder under this subsection (b) shall be limited to an amount equal to the
initial public offering price of the shares sold by such Holder, unless such
liability arises out of or is based on willful conduct by such Holder.
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(c) Each party entitled to indemnification under this
Section 1.8 (the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of any
such claim or any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section 1 unless the failure to
give such notice is materially prejudicial to an Indemnifying Party's ability to
defend such action and provided further, that the Indemnifying Party shall not
assume the defense for matters as to which there is a conflict of interest or
separate and different defenses. No Indemnifying Party, in the defense of any
such claim or litigation, shall, except with the consent of each Indemnified
Party, consent to entry of any judgment or enter into any settlement which does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party a release from all liability in respect to
such claim or litigation.
1.9 INFORMATION BY HOLDER. The Holders of securities included
in any registration shall furnish to the Company such information regarding such
Holders, the Registrable Securities held by them and the distribution proposed
by such Holders as the Company may request in writing and as shall be required
in connection with any registration, qualification or compliance referred to in
this Section 1.
1.10 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, after such time as a public market exists for the Common Stock of
the Company, the Company agrees to use its best efforts to:
(a) Make and keep public information available, as those
terms are understood and defined in Rule 144 under the Securities Act, at all
times after the effective date that the Company becomes subject to the reporting
requirements of the Securities Act or the Exchange Act;
(b) Use its 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 (at any time after it has become subject
to such reporting requirements); and
(c) So long as a Preferred Purchaser owns any
Registrable Securities, to furnish to the Preferred Purchaser forthwith upon
request a written statement by the Company as to its compliance with the
reporting requirements of said Rule 144 (at any time after ninety (90) days
after the effective date of the first registration statement filed by the
Company for an offering of its securities to the general public), and of the
Securities Act and the Exchange Act (at any time after it has become subject to
such reporting requirements), a copy of the most recent annual or quarterly
report of the Company, and such other reports and documents of the Company and
other information in the possession of or reasonably obtainable by the Company
as
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a Preferred Purchaser may reasonably request in availing itself of any rule or
regulation of the Commission allowing a Preferred Purchaser to sell any such
securities without registration.
1.11 TRANSFER OF REGISTRATION RIGHTS. The rights to cause the
Company to register securities granted to the Preferred Purchasers under
sections 1.2, 1.3 and 1.4 may be assigned to a transferee or assignee reasonably
acceptable to the Company in connection with any transfer or assignment of
Registrable Securities by a Preferred Purchaser provided that the transferor
provides the Company with written notice of the proposed transfer and: (i) the
transferee acquires all of the transferor's Registrable Securities not sold to
the public; (ii) the transferee acquires at least two hundred thousand (200,000)
shares of the transferor's Registrable Securities not sold to the public; or
(iii) the transferee is a partner, shareholder or affiliate of the Holder and
such transferee agrees to act through a single representative of all such
transferees. The Company agrees that such transfer rights may be transferred by
Mercury Investors, LLC to NeoCarta Ventures, L.P. or to another associated
institutional investor, in one or more transfers.
1.12 STANDOFF AGREEMENT. Each Holder agrees in connection with
the Company's initial public offering of the Company's securities, upon request
of the Company or the underwriters managing any underwritten offering of the
Company's securities, not to sell, make any short sale of, loan, grant any
option for the purchase of, or otherwise dispose of any Registrable Securities
(other than those included in the registration) for the period agreed to by the
Company and the underwriters but which will in no event exceed one hundred
eighty (180) days; PROVIDED, THAT the officers and directors of the Company who
own stock of the Company and any stockholder holding more than five percent (5%)
of the outstanding voting securities of the Company also agree to such
restrictions.
1.13 TERMINATION. Any registration rights granted pursuant to
this Section 1 shall terminate with respect to any Holder at such date, (i) five
(5) years after the closing date of the Company's initial public offering or
(ii) after the Company's initial registered public offering, when all remaining
Registrable Securities held or entitled to be held by such Holder may be sold
under Rule 144 during any three (3) month period.
2. RIGHT OF FIRST REFUSAL UPON ISSUANCE OF SECURITIES BY THE COMPANY.
2.1 RIGHT OF FIRST REFUSAL. The Company hereby grants to each
Preferred Purchaser (provided such Preferred Purchaser is then a current holder
of at least ten percent (10%) of the number of shares of Series A, Series B and
Series C Preferred Stock (or Conversion Stock) originally purchased by such
Preferred Purchaser) and each Founder (provided the Founder remains a director,
officer or employee of the Company) (collectively, hereinafter, the "Rights
Holders") the right of first refusal to purchase, pro rata, all or any part of
New Securities (as defined in this Section 2.1) which the Company may, from time
to time, propose to sell and issue. For purposes of this right of first refusal,
a pro rata share for a Rights Holder is the ratio that the number of shares of
Conversion Stock then held by each Rights Holder bears to the sum of the total
number of shares of Conversion Stock and Common Stock held by all Rights Holders
then outstanding.
(a) "Equity Securities" shall mean any securities having
voting rights in the election of the Board of Directors not contingent upon
default, or any securities evidencing
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an ownership interest in the Company, or any securities convertible into or
exercisable for any shares of the foregoing, or any securities issuable pursuant
to any agreement or commitment to issue any of the foregoing.
(b) Except as set forth below, "New Securities" shall
mean any Equity Securities, whether now authorized or not, and rights, options
or warrants to purchase said Equity Securities. Notwithstanding the foregoing,
"New Securities" does not include (i) Common Stock issued to employees,
officers, consultants or directors of the Company pursuant to options granted at
any time after the date of incorporation of the Company up to a total of
2,487,501 shares (plus any of such shares which are repurchased by the Company
or as to which such options expire unexercised) or pursuant to a plan or
agreement unanimously approved by the Company's Board of Directors; (ii)
securities offered to the public generally pursuant to a registration statement
under the Securities Act; (iii) securities issued pursuant to the acquisition of
another corporation by the Company by merger, purchase of all or substantially
all of the assets of the corporation or other reorganization; (iv) the
Conversion Stock; (v) warrant or warrants for the purchase of shares of capital
stock of the Company (and stock issued upon exercise of such warrant or
warrants) which have been unanimously approved by the Board of Directors of the
Company and issued in connection with an equipment lease, equipment financing or
bank line financing from a conventional equipment leasing company; (vi) stock
issued pursuant to any rights or agreements including, without limitation,
convertible securities, options and warrants, PROVIDED, THAT the right of first
refusal established by this Section 2 applies with respect to the initial sale
or grant by the Company of such rights or agreements; or (vii) stock issued in
connection with any stock split, stock dividend or recapitalization by the
Company.
(c) In the event the Company proposes to undertake an
issuance of New Securities, it shall give each Rights Holder written notice of
its intention, describing the type of New Securities, and the price and terms
upon which the Company proposes to issue the same. Each Rights Holder shall have
fifteen (15) days from the date of receipt of any such notice to agree to
purchase up to its respective pro rata share of such New Securities for the
price and upon the applicable terms specified in the notice by giving written
notice to the Company and stating therein the quantity of New Securities to be
purchased.
(d) In the event a Rights Holder fails to exercise his
or its pro rata share within said fifteen (15) day period, the Company will give
the Rights Holders who did so agree (the "Electing Rights Holders") notice of
the number of shares that were not subscribed for. Such notice may be by
telephone if followed by written confirmation within two (2) days. The Electing
Rights Holders shall have fifteen (15) business days from the date of such
notice to agree to purchase pro rata (as defined in Section 2.1 above) all of
the New Securities not purchased by the non-purchasing Rights Holders; PROVIDED,
HOWEVER, that holders of Series C Preferred Stock shall have priority over any
other Rights Holder with respect to any available shares originally offered to
the Series C Preferred Holders as a group.
(e) In the event a Rights Holder fails to exercise the
right of first refusal within said fifteen (15) day period, the Company shall
have ninety (90) days thereafter to sell or enter into an agreement (pursuant to
which the sale of New Securities covered thereby shall be closed, if at all,
within sixty (60) days from the date of said agreement) to sell the New
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Securities not elected to be purchased by Rights Holders at the price and upon
terms no more favorable to the purchasers of such securities than specified in
the Company's notice. In the event the Company has not sold the New Securities
within said ninety (90) day period (or sold and issued New Securities in
accordance with the foregoing within sixty (60) days from the date of said
agreement), the Company shall not thereafter issue or sell any New Securities,
without first offering such securities in the manner provided above.
(f) The right of first refusal granted under this
Agreement shall expire upon the closing of the Qualifying Public Offering.
(g) The right of first refusal hereunder may be assigned
to a transferee or assignee reasonably acceptable to the Company in connection
with any transfer or assignment of Registrable Securities provided that the
transferor provides the Company with written notice of the proposed transfer and
(i) the transferee acquires all of the transferor's Registrable Securities not
sold to the public; (ii) the transferee acquires at least two hundred thousand
(200,000) shares of the transferor's Registrable Securities not sold to the
public; or (iii) the transferee is a partner, shareholder or affiliate of the
Holder and such transferee agrees to act through a single representative of all
such transferees. The Company agrees that such right of first refusal may be
transferred by Mercury Investors, LLC to NeoCarta Ventures, L.P., or to another
associated institutional investor, in one or more transfers.
3. RIGHTS UPON TRANSFER BY FOUNDERS OR PARKER. Parker and each
Founder hereby agree as follows:
3.1 RIGHT OF CO-SALE.
(a) THE RIGHT. To the extent the Company does not
exercise any rights of first refusal pursuant to an agreement between the
Company and a Founder or Parker, in the event that a Founder or Parker proposes
to sell shares of Common Stock or other equity securities of the Company
("Transfer Equity Securities"), each Preferred Purchaser shall have the
assignable right, exercisable upon written notice to the Founder or Parker, as
applicable, within thirty (30) days after notice by the Company of such sale, to
participate in such sale of securities pursuant to the specified terms and
conditions of the notice, subject to the following limitations. The Company
shall provide written notice to each Preferred Purchaser within thirty (30) days
after receiving the notice of the proposed transfer from the Founder or Parker.
The notice to the Preferred Purchaser shall state the terms of the proposed
transfer and the date of expiration of the Preferred Purchasers' rights
hereunder. Each participating Preferred Purchaser shall be entitled to sell up
to that number of securities equal to the product obtained by multiplying (i)
the number of shares to be transferred by the Founder or Parker by (ii) a
fraction, (A) the numerator of which is the number of shares of Conversion Stock
of the Company held by such Preferred Purchaser and (B) the denominator of which
is the number of shares of Transfer Equity Securities held by Parker or the
Founder proposing the transfer plus the number of shares of Conversion Stock
held by all Preferred Purchasers.
(b) PROHIBITED TRANSFERS. In the event a Founder or
Parker should sell any Transfer Equity Securities in contravention of the
participation rights of a Preferred Purchaser under this Section 3 (the
"Prohibited Transfer"), each Preferred Purchaser shall have
13
<PAGE>
the option (the "Put Option") to sell to the Founder or Parker, as applicable, a
number of shares equal to the number of shares that such Preferred Purchaser
would have had the right to sell in connection with the Prohibited Transfer, had
such Founder or Parker complied with Section 3.1, subject to the following terms
and conditions:
(i) The price per share at which such shares are
to be sold to the Founder or Parker shall be equal to the price per share paid
by the third-party purchaser or purchasers.
(ii) The Preferred Purchaser shall deliver to the
Founder or Parker, as applicable, within ninety (90) days after it has received
notice from such Founder or Parker or otherwise become aware of the Prohibited
Transfer, the certificate or certificates representing the shares to be sold,
each certificate to be properly endorsed for transfer.
(iii) The Founder or Parker, as applicable, shall,
upon receipt of the certificates for the repurchased shares, pay the aggregate
purchase price therefor, by certified check or bank draft made payable to the
order of the Preferred Purchaser and shall reimburse the Preferred Purchaser for
any additional expenses, including legal fees and expenses, incurred in
effecting such purchase and resale.
(c) LIMITATIONS ON RIGHTS. Section 3.1 shall not apply
to a sale, assignment or transfer of Transfer Equity Securities:
(i) to the Founder's or Parker's spouse, parents,
grandparents, children or grandchildren or other members of the Founder's or
Parker's family (including relatives by marriage), or to a custodian, trustee or
other fiduciary for the account of the Founder or Parker or members of his
family;
(ii) by way of bequest or inheritance upon death;
(iii) to the Company or Preferred Purchasers
pursuant to the exercise of any right of first refusal; or
(iv) with respect to the right of co-sale,
transfers up to five percent (5%) of the Transfer Equity Securities held by such
Founder or Parker on a cumulative basis (for purposes of this subsection (iv),
shares held and/or sold by the Founder or Parker shall include all shares held
and/or sold by transferees of the Founder or Parker pursuant to subsection (i));
PROVIDED, HOWEVER, that any transferees pursuant to subsections (i) or (ii)
above shall receive and hold such shares subject to the provisions of this
Section 3.1 and there shall be no further transfer of such shares except in
accordance herewith.
3.2 TERMINATION AND AMENDMENT. The right of co-sale described
in Section 3.1 shall expire upon the earlier of (i) the effective date of the
Qualifying Public Offering or (ii) July 16th, 2014.
3.3 STOCK LEGEND. All certificates representing shares of
Common Stock of the Company held by the Founders or Parker and transferees
described in Section 3.1 above shall bear the following legend:
14
<PAGE>
"THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO A RIGHT OF FIRST REFUSAL AND CO-SALE SET FORTH IN A RIGHTS
AGREEMENT AMONG THE COMPANY, THE HOLDERS HEREOF AND CERTAIN OTHER
STOCKHOLDERS OF THE COMPANY, A COPY OF WHICH AGREEMENT IS ON FILE AT THE
PRINCIPAL OFFICES OF THE CORPORATION."
4. MISCELLANEOUS.
4.1 GOVERNING LAW. This Agreement shall be governed in all
respects by the laws of the State of Delaware as applied to transactions taking
place between Delaware residents and wholly within the State of Delaware.
4.2 SURVIVAL. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by any Preferred
Purchaser and the closing of the transactions contemplated hereby.
4.3 SUCCESSORS AND ASSIGNS. Except as otherwise provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.
4.4 ENTIRE AGREEMENT; AMENDMENT. This Agreement constitutes the
full and entire understanding and agreement between the parties with regard to
the subjects hereof, and no party shall be liable or bound to any other party in
any manner by any warranties, representations or covenants except as
specifically set forth herein. With the written consent of the record or
beneficial holders of at least two-thirds (2/3) of each of the Series A, Series
B and Series C Preferred Stock and the written consent of Founders holding at
least two-thirds (2/3) of the total number of shares of Common Stock held by
Founders subject to this Agreement, the obligations of the Company and the
rights of the Holders of the Registrable Securities under this Agreement may be
waived (either generally or in a particular instance, either retroactively or
prospectively, and either for a specified period of time or indefinitely), and
with the same consent the Company, when authorized by resolution of its Board of
Directors, may enter into a supplementary agreement for the purpose of adding
any provisions to or changing in any manner or eliminating any of the provisions
of this Agreement; PROVIDED, HOWEVER, that no such modification, amendment or
waiver shall reduce the aforesaid percentage of Series A, Series B and Series C
Preferred Stock or Transfer Equity Securities held by Founders without the
consent of all of the Preferred Purchasers or the Founders, as applicable;
PROVIDED, FURTHER, HOWEVER, that if such amendment has the effect of affecting
the Transfer Equity Securities held by Parker in a manner (i) materially
different than the Transfer Equity Securities held by the Founders and (ii)
materially adverse to the interests of Parker, then such amendment shall require
the consent of Parker. Upon the effectuation of each such waiver, consent,
agreement or amendment or modification, the Company shall promptly give written
notice thereof to the record holders of the Registrable Securities who have not
previously consented thereto in writing. This Agreement or any provision hereof
may be changed, waived, discharged or terminated only by a statement in writing
signed by the party against which enforcement of the change, waiver, discharge
or termination is sought, except to the extent provided in this Section 4.4.
15
<PAGE>
4.5 NOTICES, ETC. All notices and other communications required
or permitted hereunder shall be in writing and shall be mailed by first class
mail, postage prepaid, certified or registered mail, return receipt requested,
addressed (a) if to any Holder, Founder or Parker, at such Holder's, Founder's
or Parker's address as set forth in the Company's records, or at such other
address as such Holder, Founder or Parker shall have furnished to the Company in
writing, or (b) if to the Company, at 888 Worcester Street, Wellesley, MA, 02482
or at such other address as the Company shall have furnished to the Holder in
writing.
4.6 DELAYS OR OMISSIONS. Except as expressly provided herein,
no delay or omission to exercise any right, power or remedy accruing to any
holder of any Shares, upon any breach or default of the Company under this
Agreement, shall impair any such right, power or remedy of such holder nor shall
it be construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of any holder of any
breach or default under this Agreement, or any waiver on the part of any holder
of any provisions or conditions of this agreement, must be in writing and shall
be effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement or by law or otherwise afforded to any
holder, shall be cumulative and not alternative.
4.7 COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
4.8 SEVERABILITY. If any provision of this Agreement, or the
application thereof, shall for any reason and to any extent be invalid or
unenforceable the remainder of this Agreement and application of such provision
to persons or circumstances shall be interpreted so as best to reasonably effect
the intent of the parties hereto, the parties further agree to replace such void
or unenforceable provision of this Agreement with a valid and enforceable
provision which will achieve to the extent possible, the economic, business and
other purposes of the void or unenforceable provision.
4.9 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not considered in construing or
interpreting this Agreement.
[Signatures To Follow]
16
<PAGE>
The foregoing agreement is hereby executed as of the date first above
written.
"COMPANY"
DIRECT HIT TECHNOLOGIES, INC.
By: /s/ Michael Cassidy
-------------------------------------
Michael Cassidy, President
17
<PAGE>
Exhibit 10.8
EXCLUSIVE PATENT LICENSE AGREEMENT
This Patent Agreement ("Agreement") is entered into by and between Gary
Culliss ("CULLISS"), Direct Hit Technologies, Inc. ("DIRECT HIT"), a
corporation of the State of Delaware having a principal place of business at
386 Washington St., Playhouse Sq., Wellesley, MA 02181 and Draper Fisher
Associates Fund IV, LP ("DRAPER"), effective May 22, 1998.
1. BACKGROUND
1.1 CULLISS is the owner of all rights, title and interest in and
to the CULLISS Patents, as hereinafter defined, and to inventions which are
described or claimed in any of the CULLISS Patents.
1.2 DIRECT HIT desires to acquire exclusive rights under said
CULLISS Patents.
1.3 DRAPER is providing funding to DIRECT HIT in consideration for
an equity interest in DIRECT HIT.
2. DEFINITIONS
2.1 "CULLISS Patents" means the U.S. Patent Applications listed on
Exhibit A of this Agreement, any United States Letters Patent issuing thereon,
and any divisions, continuations-in-parts, continuations or reissues thereof,
for a method for organizing information, and any foreign patents
corresponding thereto.
2.2 "Licensed Product" means any product or part thereof which is
disclosed or covered by said CULLISS Patents.
3. LICENSE GRANT
3.1 CULLISS hereby grants and DIRECT HIT hereby accepts an
exclusive, irrevocable, transferable worldwide, perpetual, fully paid-up
license to make, have made, use, sell, offer for sale and import Licensed
Products and to practice any methods disclosed or claimed in the CULLISS
Patents. The license and rights granted herein may be sublicensed.
4. PAYMENTS
4.1 As consideration for the license and rights granted herein,
DIRECT HIT has transferred a predetermined number of shares of DIRECT HIT
common stock to CULLISS pursuant to the terms of the Stock Purchase Agreement
between DIRECT HIT AND CULLISS to be executed concurrently with this License
Agreement.
5. REPRESENTATIONS AND WARRANTY
<PAGE>
5.1 CULLISS hereby represents and warrants that the CULLISS
Patents are not and have not been assigned or licensed to any third party and
that CULLISS has the rights necessary to grant the exclusive license that he
has granted to herein to DIRECT HIT.
5.2 Except as set forth in this Agreement, CULLISS MAKES NO
REPRESENTATIONS AND EXTENDS NO WARRANTIES OF ANY KIND, EITHER EXPRESS OR
IMPLIED, INCLUDING WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE, OR THAT THE USE OF LICENSED PRODUCTS WILL NOT INFRINGE ANY PATENT,
COPYRIGHT, TRADEMARK OR OTHER RIGHT OR ANY OTHER EXPRESS OR IMPLIED
WARRANTIES.
6. TERM AND TERMINATION.
6.1 Unless terminated earlier pursuant to Sections 6.2 or 6.3, the
Term of this Agreement shall be the last to expire of the CULLISS Patents.
6.2 TERMINATION FOR INSOLVENCY. Subject to cure or remedy of an
event of breach listed below by DIRECT HIT, as described in Section 6.4
("Right to Cure"), CULLISS shall have the right to terminate this Agreement
and its further obligations hereunder if (i) DIRECT HIT files a petition in
bankruptcy or insolvency, or (ii) upon or after the filing of any voluntary
or involuntary petition or answer seeking reorganization, readjustment or
arrangement of DIRECT HIT's business under any law relating to bankruptcy or
insolvency, or (iii) upon or after the appointment of a receiver for all or
substantially all of its property, or (iv) upon or after the making by DIRECT
HIT of any assignment or attempted assignment for the benefit of creditors,
or (v) upon or after the institution of any proceedings for the liquidation or
winding up of DIRECT HIT's business or for the termination of its corporate
charter.
6.3 TERMINATION. Subject to cure listed below by DIRECT HIT, as
described in Section 6.4 ("Right to Cure"), CULLISS shall have the right to
terminate this Agreement and its further obligations hereunder if DIRECT HIT
ceases to do business for a period of sixty (60) days.
6.4 RIGHT TO CURE. Upon the occurrence of any event entitling
CULLISS to terminate this Agreement pursuant to Sections 6.2 and 6.3, CULLISS
may send notice of termination, specifying the nature of the breach, to
DIRECT HIT. DIRECT HIT shall be allowed sixty (60) days following the date of
such notice to cure the breach. Failure to cure the problem shall result in
termination without further notice by the CULLISS, unless such CULLISS
extends the cure period by written notice or withdraws the termination notice.
6.5 Surviving any termination of this Agreement is the following
provision:
(a) Any cause of action or claim of DIRECT HIT or CULLISS
accrued or to accrue because of any breach or default by the other party.
6.6 RIGHTS UPON TERMINATION. In the event of a termination as set
forth in Sections 6.2 and 6.3 above:
-2-
<PAGE>
(a) DIRECT HIT agrees to transfer the license as set forth
in Section 3 to DRAPER;
(b) DRAPER agrees to transfer the license to CULLISS; and
(c) CULLISS agrees to grant an undivided one-third interest
in the CULLISS Patents to DRAPER so that CULLISS and DRAPER shall become
joint owners of the CULLISS Patents.
7. U.S. PATENT OFFICE FILING
The parties agree that the attached Confirmatory License may be
recorded with the United States Patent and Trademark Office to provide
notice of the exclusive license to DIRECT HIT.
8. NOTICES.
All notices under this Agreement shall be deemed to have been fully
given when done in writing and deposited in the United States mail,
registered or certified, and addressed as follows:
To CULLISS: Gary Culliss
3432-A Holmes
Cambridge, MA 02138
To DIRECT HIT: Direct Hit Technologies, Inc.
386 Washington St., Playhouse Sq.
Wellesley, MA 02181
Attn:
----------------------------
Either party may change its address for notification purposes upon
written notice to the other party.
9. SEVERABILITY. If any term of this Agreement is held invalid or
unenforceable for any reason, the remainder of the term shall be amended to
achieve as closely as possible the economic effect of the original term and
all other terms shall continue in full force and effect.
10. APPLICABLE LAW.
This Agreement shall be governed by the laws of the State of California
applicable to agreements negotiated, executed and performed within California.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement in
duplicate originals by their authorized officers or representatives.
-3-
<PAGE>
GARY CULLISS
/s/ Gary Culliss
---------------------------------
Signature
5/22/98
---------------------------------
Date
DIRECT HIT TECHNOLOGIES, INC.
/s/ Michael Cassidy
---------------------------------
Name
CEO
---------------------------------
Title
5/22/98
---------------------------------
Date
DRAPER FISHER ASSOCIATES
FUND IV, LP
/s/ Warren Packard
---------------------------------
Name
Director
---------------------------------
Title
5/22/98
---------------------------------
Date
-4-
<PAGE>
EXHIBIT A - CULLISS PATENTS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
U.S. Patent Application No. Filing Date Title
- --------------------------------------------------------------------------------
<S> <C> <C>
08/840,922 April 25, 1997 Method for Organizing Information
- --------------------------------------------------------------------------------
08/904,795 August 1, 1997 Method for Organizing Information
- --------------------------------------------------------------------------------
08/960,140 October 29, 1997 Method for Organizing Information
- --------------------------------------------------------------------------------
09/041,411 March 12, 1998 Method for Organizing Information
- --------------------------------------------------------------------------------
</TABLE>
-5-
<PAGE>
Exhibit 10.9
FIRST AMENDMENT TO THE EXCLUSIVE PATENT LICENSE AGREEMENT
BETWEEN
DIRECT HIT TECHNOLOGIES, INC. AND
GARY CULLISS AND DRAPER FISHER ASSOCIATES FUND IV, LP
DATED MAY 22, 1998
This First Amendment to the Exclusive Patent License Agreement
("Agreement") between Direct Hit Technologies, Inc., a Delaware corporation
("Direct Hit"), Gary Culliss ("CULLISS") and Draper Fisher Associates Fund IV,
LP ("Draper") is made and entered as of November 11, 1998.
In the event of inconsistencies between the Agreement and this first
Amendment, the terms and conditions of this First Amendment shall be
controlling. Unless specifically modified or changed by the terms of this First
Amendment, all terms and conditions of the Agreement shall remain in effect and
shall apply fully as described and set forth in the Agreement. All defined terms
used herein and not separately defined shall have the same meanings as set forth
in the Agreement.
NOW, THEREFORE, the parties agree to modify the Agreement as follows:
1. Section 6.6(C) is hereby amended and restated to read in its
entirety as follows:
(c) CULLISS agrees to grant (i) an undivided one-third interest in
the CULLISS Patents to Draper and (ii) an undivided five and two-tenths percent
(5.2%) interest in the CULLISS Patents to MOSAIC VENTURE PARTNERS, LP I
("MOSAIC") so that CULLISS, DRAPER and MOSAIC shall become joint-owners of the
CULLISS patents.
IN WITNESS WHEREOF, the parties have executed this First Amendment to
the Agreement as of the date set forth above. All originally signed copies of
this First Amendment shall be deemed originals.
<TABLE>
<S> <C>
DIRECT HIT TECHNOLOGIES, INC. GARY CULLISS
By: /s/ Michael Cassidy By: /s/ Gary Culliss
-------------------------------------------------- --------------------------------------------------
Name: Michael Cassidy
--------------------------------------------------
Title: President
--------------------------------------------------
DRAPER FISHER ASSOCIATES FUND IV,LP MOSAIC VENTURE PARTNERS, LP I
By: /s/ Warren Packard By: 1261489 Ontario Limited,
-------------------------------------------------- --------------------------------------------------
its General Partner
Name: Warren Packard Name: By /s/ Vernon Lobo
-------------------------------------------------- --------------------------------------------------
Title: Director Title: Managing Director
-------------------------------------------------- --------------------------------------------------
</TABLE>
<PAGE>
Exhibit 10.10
SECOND AMENDMENT TO THE EXCLUSIVE PATENT LICENSE AGREEMENT
BETWEEN
DIRECT HIT TECHNOLOGIES, INC. AND
GARY CULLISS AND DRAPER FISHER ASSOCIATES FUND IV, LP
DATED MAY 22, 1998
This Second Amendment to the Exclusive Patent License Agreement
("Agreement") between Direct Hit Technologies, Inc., a Delaware corporation
("Direct Hit"), Gary Culliss ("Culliss") and Draper Fisher Associates Fund IV,
LP ("Draper") dated May 22, 1998, as amended November 11, 1998, is made and
entered into as of July 16, 1999.
In the event of inconsistencies between the Agreement and this Second
Amendment, the terms and conditions of this Second Amendment shall be
controlling. Unless specifically modified or changed by the terms of this Second
Amendment, all terms and conditions of the Agreement shall remain in effect and
shall apply fully as described and set forth in the Agreement. All defined terms
used herein and not separately defined shall have the same meanings as set forth
in the Agreement.
NOW, THEREFORE, the parties agree to modify the Agreement as follows:
1. Section 6.6(C) is hereby amended and restated to read in its
entirety as follows:
"(c) Culliss agrees to grant (i) an undivided 23.0% interest in the
Culliss Patents to Draper, (ii) an undivided 4.7% interest in the Culliss
Patents to Mosaic Venture partners, LP I ("Mosaic"), (iii) an undivided 7.9%
interest in the Culliss Patents to TA Associates, Inc. ("TA"), (iv) an undivided
4.0% interest in the Culliss Patents to Hikari Tsushin, Inc. ("Hikari"), (v) an
undivided 1.6% interest in the Culliss Patents to Viventures Partners
("Viventures"), (vi) an undivided 1.6% interest in the Culliss Patents to
Mercury Investors, LLC ("Mercury"), (vii) an undivided 1.6% interest in the
Culliss Patents to Commonwealth Capital Ventures II, L.P ("Commonwealth"),
(viii) an undivided 0.4% interest in the Culliss Patents to Cornerstone
Equities, LLC ("Cornerstone"), (ix) an undivided 0.4% interest in the Culliss
Patents to McCloskey 1996 GRAT 5 ("McCloskey"), (x) an undivided 0.12% interest
in the Culliss Patents to D-W Investments, L. P. ("D-W"), (xi) an undivided
0.12% interest in the Culliss Patents to P-J Investments ("P-J"), (xii) an
undivided 0.4% interest in the Culliss Patents to Bayview 99 I, LP ("Bayview"),
(xiii) an undivided 0.2% interest in the Culliss Patents to BV Middle East, Ltd.
("BV") and (xiv) an undivided 0.2% interest in the Culliss Patents to DS
Capital, LLC ("DS') so that Culliss, Draper, Mosaic, TA, Hikari, Viventures,
Mercury, Commonwealth, Cornerstone, McCloskey, D-W, P-J, Bayview, BV and DS
shall become joint-owners of the Culliss Patents."
This Agreement may be executed in counterparts, each of which shall be
deemed an original but all of which together shall constitute one and the same
instrument.
[Signatures to Follow]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Second Amendment to
the Agreement as of the date set forth above. All originally signed copies of
this Second Amendment to Agreement shall be deemed originals.
DIRECT HIT TECHNOLOGIES, INC.
By: /s/ Michael Cassidy
------------------------------
Michael Cassidy, President
/s/ Gary Culliss
-------------------------------
Gary Culliss
<PAGE>
COUNTERPART SIGNATURE PAGE
SECOND AMENDMENT TO THE EXCLUSIVE PATENT LICENSE AGREEMENT
DIRECT HIT TECHNOLOGIES, INC.
If you are an individual, Name (Please Print)
please sign and print your name
to the right --------------------------------------
--------------------------------------
Signature
If you are signing on behalf of Name of Organization
an entity, please print the legal Draper Fisher Associates Fund IV, L.P.
name of the entity and sign to --------------------------------------
the right, indicating your title
Name (Please Print)
/s/ Warren Packard
--------------------------------------
Title: Director
--------------------------------
<PAGE>
Exhibit 10.11
NONCOMPETITION AGREEMENT
------------------------
This Noncompetition Agreement is made and entered into by and between
Direct Hit Technologies, Inc.( the "Company") and Michael Cassidy ("Employee")
as of July 16, 1999.
RECITALS
--------
A. Concurrently herewith, the Company will issue to certain purchasers
(the "Investors") shares of its Series C Preferred Stock pursuant to a Series C
Preferred Stock Purchase Agreement of even date herewith (the "Stock Purchase
Agreement").
B. The obligations of the Company and the Investors under the Stock
Purchase Agreement are conditioned, among other things, upon the execution
and delivery of this Agreement by the Company and the Employee.
C. Employee is currently an employee of the Company, holds a
substantial amount of the outstanding securities of the Company and has
special knowledge concerning the Direct Hit Business (as defined in APPENDIX
1 to this Agreement). Therefore, as an inducement to the Investors to enter
into the Stock Purchase Agreement and purchase shares of the Company's Series
C Preferred Stock, Employee has agreed to enter into this Agreement and
refrain from competing with the Direct Hit Business for a reasonable period
of time in order that the Investors may obtain the contemplated benefits from
their investment in the Company.
NOW, THEREFORE, in consideration of the mutual promises made in this
Agreement, Employee and the Company agree as follows:
AGREEMENT
---------
1. NON-COMPETITION AGREEMENT. Employee hereby agrees that during his
employment with the Company and for a period of twelve (12) months after the
date that his employment by the Company has terminated (the "Termination
Date"), he will not directly or indirectly engage in any business (whether as
a proprietor, partner, joint venture, employer, agent, employee, consultant,
officer, or beneficial owner of any interest in any association (other than
the Company or any of its subsidiaries)) or be connected in any manner with any
business which is competitive with the Direct Hit Business. Notwithstanding
the foregoing, Employee is permitted to own, individually, as a passive
investor, up to one percent (1%) interest in any publicly traded company. It
is the desire and intent of the parties to this Agreement that the terms and
provisions of this Section 1 be enforced to the fullest extent permissible
under the law and public policy applied by any jurisdiction in which
enforcement is sought. Accordingly, if, and to the extent that, any portion
of this Section 1 shall be adjudicated to be invalid or unenforceable, this
Section 1 shall be deemed amended to delete therefrom or reform the portion
thus adjudicated to be invalid or unenforceable, such deletion or reformation
to apply only with respect to the operation of this Section 1 in the
particular jurisdiction in which such adjudication is made.
<PAGE>
2. AMENDMENT. No provision of this Agreement may be waived, altered
or amended, except by a written instrument signed by all of the parties to
this Agreement; PROVIDED, HOWEVER that the Board of Directors of the Company
has the right to reasonably amend or modify the definition of the Direct Hit
Business contained in Appendix 1 attached hereto without the consent of the
Employee. Any such amendment or modification shall be deemed reasonable on
its face if approved by 2/3rds of the disinterested members of the Board of
Directors, and provided further that the absence of such super-majority vote
shall not be presumed to indicate the unreasonableness of any amendment or
modification approved by at least a majority of the Board of Directors. Upon
the effectuation of such an amendment to this Agreement by the Board of
Directors, the Company shall promptly give written notice thereof to the
Employee.
3. INTERPRETATION. Employee and the Company agree that this Agreement
shall be interpreted in accordance with and governed by the laws of the State
of Delaware without giving effect to its conflict of laws provisions.
4. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
and be binding upon the Company and its successors and assigns. In view of
the personal nature of the services to be performed under this Agreement by
Employee, he shall not have the right to assign or transfer any of his
rights, obligations or benefits under this Agreement, except as otherwise
noted herein.
5. COUNTERPARTS. This Agreement may be executed in counterpart copies,
all of which when taken together shall be deemed to constitute one and the
same instrument.
6. NO REPRESENTATIONS. Employee acknowledges that he is not relying,
and has not relied, on any promise, representation or statement made by or on
behalf of the Company which is not set forth in this Agreement.
7. VALIDITY. If any one or more of the provisions (or any part thereof)
of this Agreement shall be held invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining
provisions (or any part thereof) shall not in any way be affected or impaired
thereby.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year written below.
<TABLE>
EMPLOYEE DIRECT HIT TECHNOLOGIES, INC.
<S> <C>
/s/ Michael Cassidy By: /s/ Michael Cassidy
- ---------------------------------- -------------------------------
Its: CEO
------------------------------
Date: 7/15/99 Date: 7/15/99
----------------------------- -----------------------------
</TABLE>
2
<PAGE>
APPENDIX 1
----------
DESCRIPTION OF DIRECT HIT BUSINESS
Direct Hit Business is providing Internet search results to other firms
and providing Interest shopping results to other firms.
<PAGE>
Exhibit 10.12
NONCOMPETITION AGREEMENT
------------------------
This Noncompetition Agreement is made and entered into by and between
Direct Hit Technologies, Inc.( the "Company") and Gary Culliss ("Employee")
as of July 16, 1999.
RECITALS
--------
A. Concurrently herewith, the Company will issue to certain purchasers
(the "Investors") shares of its Series C Preferred Stock pursuant to a Series C
Preferred Stock Purchase Agreement of even date herewith (the "Stock Purchase
Agreement").
B. The obligations of the Company and the Investors under the Stock
Purchase Agreement are conditioned, among other things, upon the execution
and delivery of this Agreement by the Company and the Employee.
C. Employee is currently an employee of the Company, holds a
substantial amount of the outstanding securities of the Company and has
special knowledge concerning the Direct Hit Business (as defined in APPENDIX
1 to this Agreement). Therefore, as an inducement to the Investors to enter
into the Stock Purchase Agreement and purchase shares of the Company's Series
C Preferred Stock, Employee has agreed to enter into this Agreement and
refrain from competing with the Direct Hit Business for a reasonable period
of time in order that the Investors may obtain the contemplated benefits from
their investment in the Company.
NOW, THEREFORE, in consideration of the mutual promises made in this
Agreement, Employee and the Company agree as follows:
AGREEMENT
---------
1. NON-COMPETITION AGREEMENT. Employee hereby agrees that during his
employment with the Company and for a period of twelve (12) months after the
date that his employment by the Company has terminated (the "Termination
Date"), he will not directly or indirectly engage in any business (whether as
a proprietor, partner, joint venture, employer, agent, employee, consultant,
officer, or beneficial owner of any interest in any association (other than
the Company or any of its subsidiaries)) or be connected in any manner with any
business which is competitive with the Direct Hit Business. Notwithstanding
the foregoing, Employee is permitted to own, individually, as a passive
investor, up to one percent (1%) interest in any publicly traded company. It
is the desire and intent of the parties to this Agreement that the terms and
provisions of this Section 1 be enforced to the fullest extent permissible
under the law and public policy applied by any jurisdiction in which
enforcement is sought. Accordingly, if, and to the extent that, any portion
of this Section 1 shall be adjudicated to be invalid or unenforceable, this
Section 1 shall be deemed amended to delete therefrom or reform the portion
thus adjudicated to be invalid or unenforceable, such deletion or reformation
to apply only with respect to the operation of this Section 1 in the
particular jurisdiction in which such adjudication is made.
<PAGE>
2. AMENDMENT. No provision of this Agreement may be waived, altered
or amended, except by a written instrument signed by all of the parties to
this Agreement; PROVIDED, HOWEVER that the Board of Directors of the Company
has the right to reasonably amend or modify the definition of the Direct Hit
Business contained in Appendix 1 attached hereto without the consent of the
Employee. Any such amendment or modification shall be deemed reasonable on
its face if approved by 2/3rds of the disinterested members of the Board of
Directors, and provided further that the absence of such super-majority vote
shall not be presumed to indicate the unreasonableness of any amendment or
modification approved by at least a majority of the Board of Directors. Upon
the effectuation of such an amendment to this Agreement by the Board of
Directors, the Company shall promptly give written notice thereof to the
Employee.
3. INTERPRETATION. Employee and the Company agree that this Agreement
shall be interpreted in accordance with and governed by the laws of the State
of Delaware without giving effect to its conflict of laws provisions.
4. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
and be binding upon the Company and its successors and assigns. In view of
the personal nature of the services to be performed under this Agreement by
Employee, he shall not have the right to assign or transfer any of his
rights, obligations or benefits under this Agreement, except as otherwise
noted herein.
5. COUNTERPARTS. This Agreement may be executed in counterpart copies,
all of which when taken together shall be deemed to constitute one and the
same instrument.
6. NO REPRESENTATIONS. Employee acknowledges that he is not relying,
and has not relied, on any promise, representation or statement made by or on
behalf of the Company which is not set forth in this Agreement.
7. VALIDITY. If any one or more of the provisions (or any part thereof)
of this Agreement shall be held invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining
provisions (or any part thereof) shall not in any way be affected or impaired
thereby.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year written below.
<TABLE>
EMPLOYEE DIRECT HIT TECHNOLOGIES, INC.
<S> <C>
/s/ Gary Culliss By: /s/ Michael Cassidy
- ---------------------------------- -------------------------------
Its: CEO
------------------------------
Date: 7/15/99 Date: 7/15/99
----------------------------- -----------------------------
</TABLE>
2
<PAGE>
APPENDIX 1
----------
DESCRIPTION OF DIRECT HIT BUSINESS
Direct Hit Business is providing Internet search results to other firms
and providing Interest shopping results to other firms.
<PAGE>
Exhibit 10.13
NONCOMPETITION AGREEMENT
------------------------
This Noncompetition Agreement is made and entered into by and between
Direct Hit Technologies, Inc.( the "Company") and David Parker ("Employee")
as of July 16, 1999.
RECITALS
--------
A. Concurrently herewith, the Company will issue to certain purchasers
(the "Investors") shares of its Series C Preferred Stock pursuant to a Series C
Preferred Stock Purchase Agreement of even date herewith (the "Stock Purchase
Agreement").
B. The obligations of the Company and the Investors under the Stock
Purchase Agreement are conditioned, among other things, upon the execution
and delivery of this Agreement by the Company and the Employee.
C. Employee is currently an employee of the Company, holds a
substantial amount of the outstanding securities of the Company and has
special knowledge concerning the Direct Hit Business (as defined in APPENDIX
1 to this Agreement). Therefore, as an inducement to the Investors to enter
into the Stock Purchase Agreement and purchase shares of the Company's Series
C Preferred Stock, Employee has agreed to enter into this Agreement and
refrain from competing with the Direct Hit Business for a reasonable period
of time in order that the Investors may obtain the contemplated benefits from
their investment in the Company.
NOW, THEREFORE, in consideration of the mutual promises made in this
Agreement, Employee and the Company agree as follows:
AGREEMENT
---------
1. NON-COMPETITION AGREEMENT. Employee hereby agrees that during his
employment with the Company and for a period of twelve (12) months after the
date that his employment by the Company has terminated (the "Termination
Date"), he will not directly or indirectly engage in any business (whether as
a proprietor, partner, joint venture, employer, agent, employee, consultant,
officer, or beneficial owner of any interest in any association (other than
the Company or any of its subsidiaries)) or be connected in any manner with any
business which is competitive with the Direct Hit Business. Notwithstanding
the foregoing, Employee is permitted to own, individually, as a passive
investor, up to one percent (1%) interest in any publicly traded company. It
is the desire and intent of the parties to this Agreement that the terms and
provisions of this Section 1 be enforced to the fullest extent permissible
under the law and public policy applied by any jurisdiction in which
enforcement is sought. Accordingly, if, and to the extent that, any portion
of this Section 1 shall be adjudicated to be invalid or unenforceable, this
Section 1 shall be deemed amended to delete therefrom or reform the portion
thus adjudicated to be invalid or unenforceable, such deletion or reformation
to apply only with respect to the operation of this Section 1 in the
particular jurisdiction in which such adjudication is made.
<PAGE>
2. AMENDMENT. No provision of this Agreement may be waived, altered
or amended, except by a written instrument signed by all of the parties to
this Agreement; PROVIDED, HOWEVER that the Board of Directors of the Company
has the right to reasonably amend or modify the definition of the Direct Hit
Business contained in Appendix 1 attached hereto without the consent of the
Employee. Any such amendment or modification shall be deemed reasonable on
its face if approved by 2/3rds of the disinterested members of the Board of
Directors, and provided further that the absence of such super-majority vote
shall not be presumed to indicate the unreasonableness of any amendment or
modification approved by at least a majority of the Board of Directors. Upon
the effectuation of such an amendment to this Agreement by the Board of
Directors, the Company shall promptly give written notice thereof to the
Employee.
3. INTERPRETATION. Employee and the Company agree that this Agreement
shall be interpreted in accordance with and governed by the laws of the State
of Delaware without giving effect to its conflict of laws provisions.
4. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
and be binding upon the Company and its successors and assigns. In view of
the personal nature of the services to be performed under this Agreement by
Employee, he shall not have the right to assign or transfer any of his
rights, obligations or benefits under this Agreement, except as otherwise
noted herein.
5. COUNTERPARTS. This Agreement may be executed in counterpart copies,
all of which when taken together shall be deemed to constitute one and the
same instrument.
6. NO REPRESENTATIONS. Employee acknowledges that he is not relying,
and has not relied, on any promise, representation or statement made by or on
behalf of the Company which is not set forth in this Agreement.
7. VALIDITY. If any one or more of the provisions (or any part thereof)
of this Agreement shall be held invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining
provisions (or any part thereof) shall not in any way be affected or impaired
thereby.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year written below.
<TABLE>
EMPLOYEE DIRECT HIT TECHNOLOGIES, INC.
<S> <C>
/s/ David Parker By: /s/ Michael Cassidy
- ---------------------------------- -------------------------------
Its: CEO
------------------------------
Date: 7/15/99 Date: 7/15/99
----------------------------- -----------------------------
</TABLE>
2
<PAGE>
APPENDIX 1
----------
DESCRIPTION OF DIRECT HIT BUSINESS
Direct Hit Business is providing Internet search results to other firms
and providing Interest shopping results to other firms.
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Direct Hit
Technologies, Inc. on Form S-1 of our report dated December 17, 1999,
appearing in the Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the headings "Selected
Financial Data" and "Experts" in such Prospectus.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Boston, Massachusetts
December 22, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFO. EXTRACTED FROM THE BAL. SHEETS AS
OF 12-31-98 AND 9-30-99 AND THE STMTS. OF OPS. FOR THE PER. FROM INCEPTION
(4-27-98) - 12-31-98 AND THE 9 MOS. ENDED 9-30-99 AND STMTS. OF CASH FLOWS FOR
THE PER. FROM INCEPTION (4-27-98) - 12-31-98 AND THE 9 MOS. ENDED 9-30-99 AND
NOTES THERETO AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FIN. STMTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLAR
<S> <C> <C>
<PERIOD-TYPE> OTHER 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> APR-27-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 SEP-30-1999
<EXCHANGE-RATE> 1 1
<CASH> 2558 16427
<SECURITIES> 0 10059
<RECEIVABLES> 168 401
<ALLOWANCES> (5) (44)
<INVENTORY> 0 0
<CURRENT-ASSETS> 2741 26881
<PP&E> 192 1134
<DEPRECIATION> 22 143
<TOTAL-ASSETS> 2924 28049
<CURRENT-LIABILITIES> 101 1013
<BONDS> 0 0
0 0
3371 29651
<COMMON> 10 10
<OTHER-SE> (558) (2624)
<TOTAL-LIABILITY-AND-EQUITY> 2924 28049
<SALES> 175 862
<TOTAL-REVENUES> 175 862
<CGS> 52 361
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 939 3651
<LOSS-PROVISION> 5 39
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (792) (2930)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (792) (2930)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (792) (2930)
<EPS-BASIC> (0.45) (0.88)
<EPS-DILUTED> (0.12) (0.26)
</TABLE>
